As some Canadian lenders expect central banks, such as the Bank of Canada, to lower influential interest rates in 2024, borrowers can expect a late Christmas present with lower rates on certain types of mortgages.
Rates of less than five per cent on specific types of fixed mortgages are on offer — the lowest Canadians looking to finance a home purchase have seen since the late spring.
“The last time we saw a five year fixed at around 4.89 or 4.99 per cent was the middle of May [2023], around Victoria Day weekend,” said Victor Tran, with ratesdotca, a website that compares mortgage rates, credit card products and insurance costs for Canadians.
Tran, along with other mortgage industry experts and economists, points to lower returns from government bonds as a reason for the drop in some mortgage costs.
“Fixed mortgage rates are directly tied to the government bond yields. So we peaked in October,” he said in an interview with CBC News, noting that the yields have since dived.
Victor Tran with ratesdotca pins the lower rates to lower government bond yields. (CBC)
Bond yields vs. interest rates
The select mortgage rates that have fallen below five per cent are currently only for fixed five year, insured mortgage terms. This would typically be mortgages with a down payment of less than 20 per cent.
Canadians in the market for that specific type of mortgage may be seeing lower costs than earlier this year.
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“They will find some savings if they have to renew a mortgage in the next coming months,” said Tran, who noted that it’s “really nice” to see some mortgage rates coming down as 2023 wraps up.
But lower government bond yields aren’t going to help Canadians who prefer variable mortgage rates. At least not yet, explained James Laird of Canadian mortgage website Ratehub.
“Bond yields react to future things, whereas variable rate mortgages and home equity lines of credit actually have to wait for the Bank of Canada to lower that overnight [interest] rate, which will cause the prime rate to drop, therefore lowering variable rates and home equity lines of credit,” he said.
Laird also pointed out that his company has been tracking housing affordability in many Canadian cities, and that while affordability has improved in some regions, that was due to house prices falling, not because of rates.
James Laird with Ratehub points out that affordability for homes in Canada has been improving in some cities, but that’s due to falling house prices and not interest rates. (CBC)
However, even if just one specific type of fixed mortgage rate has lowered, Laird believes Canadians should be pleased.
“Consumers do not like uncertainty and they certainly don’t like rates rising with an unknown top. And now that it seems like the top is probably behind us and rates are coming down, we’re seeing enthusiasm for people to reenter the housing market in the new year,” he said.
Lower rates could mean more housing demand
Some mortgage brokers, such as Vancouver’s Jacob Sneg, point out that many Canadians are waiting on lower mortgages before getting into the housing market.
“I’m constantly in touch with my clients, and they are all on the fence,” he said.
But he also cautioned that being on that fence could cost more in the long run, because as mortgage rates drop, more buyers are likely to enter the market and buyers will face more competition for homes thereby increasing the purchase price.
“If you say, ‘I’m not buying because of the high rate,’ so maybe in three months you get a better rate, but you lose on the price,” said Sneg.
Inflation might be easing but don’t expect prices to fall
Canadians have been paying more for everything as prices surged during the pandemic. But as inflation eases, prices will remain high and some economists say that’s a good thing.
Lower rates may not bring bigger economy
Canada’s central bank had been increasing interest rates to try to lower inflation, and the resulting higher borrowing costs have caused a pullback in business investment and consumer spending.
In part, this could be because Canadians had to divert more of their budgets toward higher mortgage costs.
Bank of Canada Governor Tiff Macklem arrives for the annual meeting of federal, provincial, and territorial finance ministers in Toronto on Dec. 15, 2023. (Nathan Denette/The Canadian Press)
According to The Canadian Press, researchers at the Bank of Canada said about 45 per cent of mortgages that were taken out before the central bank started raising rates saw an increase in their payments by the end of November.
The Bank of Canada researchers said nearly all remaining mortgage holders in this group will renew by the end of 2026, likely meaning higher payments for them as well, and this wave of mortgage renewals is expected to have a chilling effect on the economy.
Forecasts suggest economic growth will be weak in 2024 before picking up again toward the end of the year.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
Dollarama Inc.’s food aisles may have expanded far beyond sweet treats or piles of gum by the checkout counter in recent years, but its chief executive maintains his company is “not in the grocery business,” even if it’s keeping an eye on the sector.
“It’s just one small part of our store,” Neil Rossy told analysts on a Wednesday call, where he was questioned about the company’s food merchandise and rivals playing in the same space.
“We will keep an eye on all retailers — like all retailers keep an eye on us — to make sure that we’re competitive and we understand what’s out there.”
Over the last decade and as consumers have more recently sought deals, Dollarama’s food merchandise has expanded to include bread and pantry staples like cereal, rice and pasta sold at prices on par or below supermarkets.
However, the competition in the discount segment of the market Dollarama operates in intensified recently when the country’s biggest grocery chain began piloting a new ultra-discount store.
The No Name stores being tested by Loblaw Cos. Ltd. in Windsor, St. Catharines and Brockville, Ont., are billed as 20 per cent cheaper than discount retail competitors including No Frills. The grocery giant is able to offer such cost savings by relying on a smaller store footprint, fewer chilled products and a hearty range of No Name merchandise.
Though Rossy brushed off notions that his company is a supermarket challenger, grocers aren’t off his radar.
“All retailers in Canada are realistic about the fact that everyone is everyone’s competition on any given item or category,” he said.
Rossy declined to reveal how much of the chain’s sales would overlap with Loblaw or the food category, arguing the vast variety of items Dollarama sells is its strength rather than its grocery products alone.
“What makes Dollarama Dollarama is a very wide assortment of different departments that somewhat represent the old five-and-dime local convenience store,” he said.
The breadth of Dollarama’s offerings helped carry the company to a second-quarter profit of $285.9 million, up from $245.8 million in the same quarter last year as its sales rose 7.4 per cent.
The retailer said Wednesday the profit amounted to $1.02 per diluted share for the 13-week period ended July 28, up from 86 cents per diluted share a year earlier.
The period the quarter covers includes the start of summer, when Rossy said the weather was “terrible.”
“The weather got slightly better towards the end of the summer and our sales certainly increased, but not enough to make up for the season’s horrible start,” he said.
Sales totalled $1.56 billion for the quarter, up from $1.46 billion in the same quarter last year.
Comparable store sales, a key metric for retailers, increased 4.7 per cent, while the average transaction was down2.2 per cent and traffic was up seven per cent, RBC analyst Irene Nattel pointed out.
She told investors in a note that the numbers reflect “solid demand as cautious consumers focus on core consumables and everyday essentials.”
Analysts have attributed such behaviour to interest rates that have been slow to drop and high prices of key consumer goods, which are weighing on household budgets.
To cope, many Canadians have spent more time seeking deals, trading down to more affordable brands and forgoing small luxuries they would treat themselves to in better economic times.
“When people feel squeezed, they tend to shy away from discretionary, focus on the basics,” Rossy said. “When people are feeling good about their wallet, they tend to be more lax about the basics and more willing to spend on discretionary.”
The current economic situation has drawn in not just the average Canadian looking to save a buck or two, but also wealthier consumers.
“When the entire economy is feeling slightly squeezed, we get more consumers who might not have to or want to shop at a Dollarama generally or who enjoy shopping at a Dollarama but have the luxury of not having to worry about the price in some other store that they happen to be standing in that has those goods,” Rossy said.
“Well, when times are tougher, they’ll consider the extra five minutes to go to the store next door.”
This report by The Canadian Press was first published Sept. 11, 2024.
TORONTO – The U.S. Consumer Financial Protection Bureau has ordered TD Bank Group to pay US$28 million for repeatedly sharing inaccurate, negative information about its customers to consumer reporting companies.
The agency says TD has to pay US$7.76 million in total to tens of thousands of victims of its illegal actions, along with a US$20 million civil penalty.
It says TD shared information that contained systemic errors about credit card and bank deposit accounts to consumer reporting companies, which can include credit reports as well as screening reports for tenants and employees and other background checks.
CFPB director Rohit Chopra says in a statement that TD threatened the consumer reports of customers with fraudulent information then “barely lifted a finger to fix it,” and that regulators will need to “focus major attention” on TD Bank to change its course.
TD says in a statement it self-identified these issues and proactively worked to improve its practices, and that it is committed to delivering on its responsibilities to its customers.
The bank also faces scrutiny in the U.S. over its anti-money laundering program where it expects to pay more than US$3 billion in monetary penalties to resolve.
This report by The Canadian Press was first published Sept. 11, 2024.
