Carmelinda Occhipinti

Canadians increasingly aware of FHSA features and benefits. Homebuyers divided over how mortgage rate changes will affect their ability to buy a home in the next two years. 23% of parents are expected to use the FHSA to help their children save for a home. BMOs 15th annual Investment Survey reveals more than half (56%) of potential first-time homebuyers are planning to use the First Home Savings Account (FHSA) to help purchase their first home, up from 52% from 2023. The annual survey also finds the understanding of FHSAs is increasing and that parents are finding the FHSA an effective way to help their adult children save for a home. Mind The Knowledge Gap The FHSA knowledge gap is narrowing, with two fifths (40%) of Canadians indicating they have at least some knowledge of the account, up from 31% from last year. Nearly half (48%) of Gen Z are knowledgeable about the FHSAs features and benefits the highest among any age group. A (Tax-Free) Gift That Keeps on Giving The BMO Investment Survey also explores how families across generations may be using the FHSA as a financial gift for their children. Nearly a quarter (23%) of parents will likely use the FHSA to help their adult children save for their first home. Younger parents are also more likely to use the FHSA to help their adult children save for a home, according to the surveys findings: Millennial Parents: 42% Gen Z Parents: 21% Boomer Parents: 7% It is encouraging to see that over half of prospective buyers plan to use the First Home Savings Account to save, and we want to see that number grow because the FHSA is such a powerful tool. Benefits including the ability to make tax-deducible contributions, tax-free growth of the investments and the ability to hold various investment types make this plan the most advantageous way to save for a home. It is like an RRSP and TFSA rolled into one for first-time homebuyers, said Nicole Ow, Vice President and Head, Retail Investments, BMO. For most, buying their first home will be part of a multi-year plan, involving several savings vehicles like the FHSA, RRSP withdrawals through the Home Buyers Plan, and may also involve multiple generations, with parents and grandparents contributing financially. https://newsroom.bmo.com/2024-12-18-BMO-Investment-Survey-Over-Half-of-First-Time-Homebuyers-Plan-to-Use-First-Home-Savings-Account-FHSA-to-Buy-a-Home

2024 is playing out largely as expected across Canadas regional landscape, with most of the Prairie and Atlantic provinces leading economic growth while Ontario, B.C., and Quebec lag. A number of regions are capping off this year displaying moderately stronger momentum in economic growth and job creation than we had envisaged in September. However, any upgrades to 2025 provincial growth forecasts reflecting this positive hand-off have been neutralized by downside growth risks on Canada owing to the imposition of tariffs by the new U.S. administration. The president-elect has threatened to impose a 25% across-the-board tariff on Canadian exports. We assume that Canada will manage to avert this outcome, partly reflecting the energy-heavy nature of its exports to the U.S. Still, this regional forecast incorporates some chill to investment and hiring due to the tariff threat that is likely to linger. Importantly, no province would escape the fallout from a Canada/U.S. trade skirmish, with U.S. export exposure ranging from about 80-90% in Alberta, New Brunswick, and Ontario to a still-lofty 50-60% in B.C and Saskatchewan. Beyond the first-order effects from tariffs on exports, provinces would also feel the hit through damage to other trading partners. PEI, Saskatchewan, and Manitoba source a comparatively large share of their imports from the U.S., potentially leaving them exposed to inflation pressures should Canada impose tariffs of its own. The countrys population growth is set to stall over the next two years through planned reductions in both the pool of non-permanent residents (NPRs) and a scaling back in its annual permanent immigration targets. Ontario, B.C. and Quebec will likely see population growth pull back the fastest. Meanwhile, ongoing affordability advantages in the Prairies and some Maritime provinces will remain a lure for interprovincial migrants. A wave of federal government stimulus is set to reach Canadian consumers in the coming months, with Ontario set to roll out its own measure in the new year. Combined with ongoing interest rate reductions, we expect consumer spending growth to pick up across the provinces despite slower population growth. Provinces with the highest debt burdens, namely B.C., Ontario, and Alberta, should disproportionately benefit from easing conditions. Housing markets across the country are also poised to benefit from supportive federal measures, and gradually falling short-term interest rates. https://economics.td.com/provincial-economic-forecast

The Bank of Canada lowered the target for the overnight rate by 50 basis points for the second straight meeting, a decision in line with consensus and market expectations. This is the fifth rate reduction in as many meetings and brings the policy rate to 3.25%, or the upper end of the BoCs estimated neutral range (2.25% to 3.25%). The move also pushes the BoCs policy rate 150 bps below the Federal Reserves upper bound target, the most since 1997 (although that gap will likely narrow next week). Meanwhile, balance sheet normalization will continue as expected. Here are additional highlights from the communique and the opening statement to the press conference: Driving the decision to cut 50 bps was inflation around 2%, excess supply and softer growth ahead relative to earlier expectations. Macklem added in the opening statement to the press conference that monetary policy no longer needs to be clearly in restrictive territory. As for forward rate guidance, the press release notes we will be evaluating the need for further reductions in the policy rate one decision at a time. In the presser, Macklem said they expect a more gradual approach to monetary policy if the economy evolves broadly as expected. Note they no longer explicitly say they expect to cut their policy rate further. The statement notes that Q3 growth was somewhat below the Banks projection and Q4 growth looks weaker than projected. Slower immigration will ease growth in 2025 while proposed fiscal measures will support demand. They will look through temporary demand effects. The press release highlights that job growth continues to grow slower than labour supply. Wage growth showed some signs of easing, but remains elevated relative to productivity. As for inflation, they still expect CPI to hover around 2% for the next couple of years. They note that the GST holiday will temporarily lower inflation but that will be unwound once the holiday ends. Therefore, watching core inflation will be critical to see underlying trends. The Bank didnt have much to say on tariff threats other than noting that these have increased uncertainty and clouded the economic outlook. \ https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/boc-policy-monitor.pdf

The Bank of Canada today reduced its target for the overnight rate to 3%, with the Bank Rate at 3% and the deposit rate at 3%. The Bank is continuing its policy of balance sheet normalization. The global economy is evolving largely as expected in the Banks October Monetary Policy Report (MPR). In the United States, the economy continues to show broad-based strength, with robust consumption and a solid labour market. US inflation has been holding steady, with some price pressures persisting. In the euro area, recent indicators point to weaker growth. In China, recent policy actions combined with strong exports are supporting growth, but household spending remains subdued. Global financial conditions have eased and the Canadian dollar has depreciated in the face of broad-based strength in the US dollar. In Canada, the economy grew by 1% in the third quarter, somewhat below the Banks October projection, and the fourth quarter also looks weaker than projected. Third-quarter GDP growth was pulled down by business investment, inventories and exports. In contrast, consumer spending and housing activity both picked up, suggesting lower interest rates are beginning to boost household spending. Historical revisions to the National Accounts have increased the level of GDP over the past three years, largely reflecting higher investment and consumption. The unemployment rate rose to 6.8% in November as employment continued to grow more slowly than the labour force. Wage growth showed some signs of easing, but remains elevated relative to productivity. https://www.bankofcanada.ca/2024/12/fad-press-release-2024-12-11/

From Scotiabank There are many uncertainties about the economic outlook as President Trump is set to take the helm of the United States. Those range from uncertainty about the policy actions he will take to uncertainty about the impact of those very policies. A case in point is the recent statement that he would implement tariffs hikes of 25% on all imports from Canada and Mexico, and 10% on imports from China. While we do not believe these tariffs will be implemented (see here), it is very likely that over the next several months, economic forecasts will need to present some alternative paths for the economy around a central scenario. Those alternative scenarios are likely to represent choices made by forecasters as to which policy assumption to include in their forecasts. Only when policy measures will actually be announced and implemented will uncertainty around the policy environment diminish. Given its critical nature to Canada and other trading partners, and to the U.S. itself of course, we thought it would be helpful to provide some rough rules of thumb for estimating the impact of trade policy changes on Canada and the U.S. These rules of thumb, derived from our macroeconometric model of the U.S. and Canadian economies, while by no means meant to be exact, are designed to help provide a quick and dirty assessment of the impact of changes in tariffs on the economy, inflation, and interest rates in both countries. Click to read more https://www.scotiabank.com/ca/en/about/economics/economics-publications/post.other-publications.insights-views.tariffs--november-28--2024-.html

Home sales activity recorded over Canadian MLS Systems increased 7.7% on a month-over-month basis in October 2024, reaching its highest level since April 2022. Rising home sales activity was broad based, with the Greater Toronto Area (GTA) and British Columbias Lower Mainland recording double-digit increases in October. The jump in home sales last month was definitely an October surprise, although with the big interest rate cut of 50 basis points announced during the last week of the month, the increase was more likely related to the surge in new listings we saw in September, said Shaun Cathcart, CREAs Senior Economist. There probably wont be another rush of new supply like that until next spring, and at that point, mortgage rates should be close to their expected lows, as well. With that in mind, you can think of the October numbers as a sort of preview for what we might expect to see next year. New listings posted a 3.5% month-over-month decline in October, although that followed on the heels of a 4.8% jump in September, so new supply remains at some of the highest levels since mid-2022. The national pullback in October was led by a drop in new supply in the GTA. With sales rising considerably in October and new listings falling, the national sales-to-new listings ratio tightened to 58%, up from 52% in September. The long-term average for the national sales-to-new listings ratio is 55%, with a sales-to-new listings ratio between 45% and 65% generally consistent with balanced housing market conditions. https://stats.crea.ca/en-CA/

Condominium apartments are the most common type of property owned by investors in census metropolitan areas (CMAs) like Toronto and Vancouver. In 2022, nearly two in five condominium apartments (38.9%) in the Toronto CMA were investment properties, while this was the case for about one in three (34.2%) in the Vancouver CMA. In these CMAs, new condominium apartment projects often rely on presales to investors to be built. Investors buy pre-construction units with the goal of making a profit when the buildings are completeeither by renting them out or by selling the unit at a higher price. These pre-construction sales are used by developers to secure financing for the projects. This dynamic means that investor preferences may have an influence on the type of buildings that get built. One concern with this process is that it may lead to the construction of more properties with smaller units. Investors are perceived to prefer these units because rent per square foot of living area tends to be higher for smaller units. This may have contributed to the shrinking size of condominium apartments in CMAs. For example, in the Toronto CMA, the median living area of condominium apartments built in the 1990s was 947 square feet, compared with 640 square feet for those built after 2016. In the Vancouver CMA, the median size also declined over the same period, from 912 square feet to 790. https://www150.statcan.gc.ca/n1/daily-quotidien/241003/dq241003a-eng.htm

HIGHLIGHTS Renewal risk remains as 1.2 million mortgages will come up for renewal in 2025. Most of these will experience higher interest rates than when their term began: 85% of those were contracted when the Bank of Canada rate was at or below 1%. The mortgage delinquency rate continued to rise from historic low levels in 2024, reaching 0.19% in the second quarter, with delinquency rates on other credit products, and allowances for expected credit losses both suggesting it will continue to increase through 2025. However, this remains below pre-pandemic levels and well below averages since 1990. Traditional lenders experienced two very different quarters to begin 2024. The first quarter showed higher risk lending compared to 2023, but in the second quarter newly extended mortgages had lower risk based on traditional risk metrics. Overall mortgage debt increased to $2.2 trillion in July 2024, which exacerbates the vulnerability of elevated household debt. This growth (3.5% year-over-year) is below recent averages, but lower interest rates could accelerate the increase. Alternative lenders saw an increase in lending during the first quarter of this year compared to the fourth quarter of 2023, indicating renewed momentum to sustain their market share from a year ago. However, their risk profile has increased compared to last year. Mortgages with terms of three or more years but less than five years are the most popular, with over half of new mortgages having terms in this range. The traditional five-year, fixed-rate mortgage and variable rate mortgage both represent a small share of the newly extended loans. https://assets.cmhc-schl.gc.ca/sites/cmhc/professional/housing-markets-data-and-research/housing-research/research-reports/housing-finance/residential-mortgage-industry-report/2024/residential-mortgage-industry-report-fall-2024-en.pdf

The BMO Real Financial Progress Index reveals that amid growing concerns about the cost of living (54%) and their overall financial situation (36%) 79% of Canadians are planning to cut back on spending this holiday season. The surveys insights provide an outlook on Canadians holiday spending plans, including: The holiday price tag: On average, Canadians plan on spending more than $1,991 this holiday season, including travel ($1,802), holiday gifts ($519), entertaining ($295), decorations ($141) and other holiday expenses ($275). Nearly a quarter (23%) plan on spending more than $2,000 during the holidays. Making a list and checking it twice: 79% plan on buying fewer gifts this year, and over a quarter (27%) will cut down the number of people on their gift list. More than a third (36%) plan on buying less expensive gifts. Sleighing spending: 41% are spending less on fewer gifts, and 44% had cut back on spending on other occasions, including birthdays and anniversaries, throughout the year in order to spend more on holiday gifts. Nearly half (49%) admit to spending more than they know they should. https://about.bmo.com/consumers-plan-to-spend-less-this-holiday-season-heres-how-bmo-can-help-make-holiday-budgeting-easier/

Report by TD Economics Highlights On December 15th, the federal government will roll out mortgage rule changes that make it easier to purchase a home for those taking out insured mortgages. These measures should offer a lift to Canadian home sales and prices next year. However, their impact will be blunted by an array of factors, including the affordability erosion induced by their implementation. Mitigating the impacts of these policies may be positive from a financial stability perspective, as the measures will likely encourage households to take on more debt at a longer term, and insured borrowers have typically been more prone to bouts of financial stress. The federal government has recently announced two changes to Canadian mortgage rules (effective December 15th, 2024) that will make it easier to qualify for purchasing a home. As the surge in home sales early in 2024 (amid a steep drop in bond yields at the end of last year) and in the spring of 2023 (after the Bank of Canada paused its rate hiking campaign) taught us, Canadian housing market activity can be highly reactive. Yet, we dont think that these measures alone will unleash a housing boom. Instead, theyll likely offer a secondary tailwind to a market thats already gaining decent traction in 2025 on the back of lower borrowing costs and a gradually improving economy (see here). Whats more, the affordability boost offered by these measures will likely also erode as home prices are raised by their implementation, thereby limiting their effectiveness. https://economics.td.com/ca-mortgage-rule-changes

Rate Statement The rate cutting cycle was turned up a notch as the Bank of Canada lowered its target for the overnight rate by 50 basis points to 3.75%, a decision in line with consensus and market expectations. This fourth cut in as many meetings marks a cumulative rate reduction of 125 basis points and brings the policy rate to its lowest point since December 2022. The move also pushes the BoCs policy rate 125 basis points below the Federal Reserves, though an expected November Fed cut would narrow that gap. Meanwhile, balance sheet normalization will continue as expected. Here are some additional highlights from the communique and the opening statement to the press conference: Driving the decision to cut 50 bps was a desire to support economic growth and to keep inflation close to the middle of the 1% to 3% range. As for forward rate guidance, the Bank says, we expect to reduce the policy rate further if the economy evolves broadly in line with our latest forecast. As always, the timing and pace of further cuts, will be guided by incoming information. Despite recent soft data, the Bank still expects relatively solid GDP growth ahead: GDP growth is forecast to strengthen gradually over the projection horizon, supported by lower interest rates. The Bank appears to be looking the strength of the September jobs report, as the statement simply says the labour market remains soft. Still, they note that wage growth remains elevated relative to productivity growth. The Bank highlights that inflation has declined significantly thanks to excess supply in the economy. The breadth of price increases have normalized, as have inflation expectations. Policymakers now expect inflation to remain close to target over the projection horizon, with the upward and downward pressures roughly balancing out. https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/boc-policy-monitor.pdf

The Bank of Canada today reduced its target for the overnight rate to 3%, with the Bank Rate at 4% and the deposit rate at 3%. The Bank is continuing its policy of balance sheet normalization. The Bank continues to expect the global economy to expand at a rate of about 3% over the next two years. Growth in the United States is now expected to be stronger than previously forecast while the outlook for China remains subdued. Growth in the euro area has been soft but should recover modestly next year. Inflation in advanced economies has declined in recent months, and is now around central bank targets. Global financial conditions have eased since July, in part because of market expectations of lower policy interest rates. Global oil prices are about $10 lower than assumed in the July Monetary Policy Report (MPR). In Canada, the economy grew at around 2% in the first half of the year and we expect growth of 1% in the second half. Consumption has continued to grow but is declining on a per person basis. Exports have been boosted by the opening of the Trans Mountain Expansion pipeline. The labour market remains softthe unemployment rate was at 6.5% in September. Population growth has continued to expand the labour force while hiring has been modest. This has particularly affected young people and newcomers to Canada. Wage growth remains elevated relative to productivity growth. Overall, the economy continues to be in excess supply. GDP growth is forecast to strengthen gradually over the projection horizon, supported by lower interest rates. This forecast largely reflects the net effect of a gradual pick up in consumer spending per person and slower population growth. Residential investment growth is also projected to rise as strong demand for housing lifts sales and spending on renovations. Business investment is expected to strengthen as demand picks up, and exports should remain strong, supported by robust demand from the United States. Overall, the Bank forecasts GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.3% in 2026. As the economy strengthens, excess supply is gradually absorbed. https://www.bankofcanada.ca/2024/10/fad-press-release-2024-10-23/

Home sales edged up 1.9% between August and September, a third increase in four months. On the supply side, new listings jumped 4.9% from August to September, the eighth advance in nine months and the largest increase since July 2023. As a result, they are now at their highest level since February 2022. Active listings edged down 0.5% in September from their highest level since March 2020, the second decrease in three months. Meanwhile, the number of months of inventory (active listings-to-sales) decreased from 4.2 to 4.1 during the month, a level roughly back in line with its pre-pandemic level. Market conditions tightened marginally in September and remained tighter than their historical average in most provinces. They were roughly balanced in B.C. and softer than average in Ontario. Housing starts increased 10.8K in September to 223.8K (seasonally adjusted and annualized), a result below the median economist forecast calling for a 235.0K print. The monthly increase was solely driven by a rise in urban starts (+11K to 210.0K), which were mainly supported by the multi-family segment (+8.6K to 163.4K) while the single-family segment was up marginally (+2.4K to 46.6K). Starts were up in Calgary (+4.4K to 24.3K) and Vancouver (+3.0K to 23.4K) but declined in Toronto (-4.2K to 20.5K) and Montral (-2.1K to 13.0K). At the provincial level, the increases in total starts were registered in British Columbia (+9.3K to 44.0K), Ontario (+4.1K to 64.6K) and Saskatchewan (+2.6K to 6.1K), while the most notable declines were seen in Alberta (-1.5K to 46.8K), and Qubec (-1.1K to 40.3K). The TeranetNational Bank Composite National House Price Index rose by 0.5% from August to September after adjustment for seasonal effects. Eight of the 11 markets in the composite index were up during the month: Montreal (+2.4%), Winnipeg (+1.8%), Victoria (+1.2%), Edmonton (+1.1%), Ottawa-Gatineau (+0.9%), Halifax (+0.8%), Calgary (+0.5%) and Toronto (+0.3%). Conversely, declines occurred in Quebec City (-0.9%), Hamilton (-0.6%) and Vancouver (-0.2%). https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/logement/economic-news-resale-market.pdf

Following the Bank of Canadas third interest rate cut of the year, national home sales increased slightly in September compared to August. This follows a similar pattern of gains recorded in the months following the first two rate cuts. Home sales recorded over Canadian MLS Systems climbed 1.9% on a month-over-month basis in September 2024, reaching their highest level since July 2023. The national increase was led by the Greater Toronto Area and Hamilton-Burlington, Montreal and Quebec City, as well as Greater Vancouver and Victoria. Sales gains are now three for three in the months following interest rate cuts, which is a trend even though the increases werent headline-grabbing, said Shaun Cathcart, CREAs Senior Economist. That said, with the pace of rate cuts now expected to be much faster than previously thought, its possible some buyers may choose to hold off on a purchase for now. This could further boost the rebound expected in 2025 at the expense of the last few months of this year. Highlights: National home sales rose 1.9% month-over-month in September. Actual (not seasonally adjusted) monthly activity came in 6.9% above September 2023. The number of newly listed properties jumped 4.9% month-over-month. The MLS Home Price Index (HPI) inched up 0.1 % month-over-month but was still down 3.3% on a year-over-year basis. The actual (not seasonally adjusted) national average sale price was up 2.1% on a year-over-year basis in September. https://stats.crea.ca/en-CA/

Total housing starts in the 6 largest census metropolitan areas (CMAs) rose by 4% in the first half of 2024 compared to the same period in 2023. The level of new construction (68,639 units) was the second strongest since 1990. However, when adjusted for population size, combined housing starts were close to the historical average and werent enough to meet growing demographic demand. Calgary and Edmonton led the growth in housing starts due to record interprovincial migration in recent years, driven by their lower cost for housing and favourable economic conditions. In contrast, housing starts decreased in Toronto, Vancouver and Ottawa. Apartment starts in the 6 CMAs increased slightly, driven by rental construction. Nearly half of the apartments started in the first half of 2024 were purpose-built rentals the highest share on record. This trend aligns with demographic changes and declining homeownership affordability. Except for Calgary and Edmonton, condominium apartment starts fell in the first 6 months of 2024 a trend we expect will continue as developers struggle to reach the minimum pre-construction sales needed to start construction. Both investors and end users have significantly reduced their purchases of new condominiums because of the impact of higher interest rates. Developers prioritized clearing backlogs of projects under construction. As a result, apartment completions increased across the 6 CMAs, setting new records in each one except Montral and Vancouver. Municipalities and provinces are working actively to increase housing supply and variety, with policies aimed at better meeting the needs of a broad range of buyers and renters. https://www.cmhc-schl.gc.ca/professionals/housing-markets-data-and-research/market-reports/housing-market/housing-supply-report