DeMarcus Henry

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

From Scotiabank As the reduction in inflation takes hold and economic activity slows down, the Bank of Canada seems to be shifting its priority from inflation control to worries about growth. Using a monetary policy reaction function that estimates the weight on inflation and the output gap over time, we find empirically that that Bank of Canada is now putting more weight on the output gap. This is a break from the last two years in which the estimated weight on inflation dominated that placed on the output gap. Our model suggests that as of 2024Q4, the BoC will focus more on eliminating this economic slack than on fighting inflation. Our current forecast is that the Bank of Canada cuts by 25 bps at each of the two remaining meetings this year. This work suggests there is a risk that Governor Macklem will be more aggressive than that if he indeed is putting more weight on growth going forward. That would translate into a risk of a 50 bps cut at one of these meetings. https://www.scotiabank.com/ca/en/about/economics/economics-publications/post.other-publications.inflation-reports.boc-rate--october-2--2024.html

Report by TD Economics The Canadian 5-year bond yield has declined over 100 bps since early May, while the Bank of Canada has cut its policy rate 3 times (with two more likely on tap this year). In short, the interest rate environment has significantly improved. Housing market activity is stirring, yet Canadian sales gains have, thus far, trailed what could typically be expected given this rush of rate relief. We chalk up the surprisingly subdued performance to two factors. The first is the continued strained affordability backdrop. Despite their recent decline, rates remain at levels last seen about 15 years ago. And, the second factor relates to the transparent messaging from central bankers that interest rates are set to fall even further. This is keeping potential buyers temporarily sidelined as they wait for additional cuts. The flat trend in Canadian average home prices since the summer means they havent really been penalized for that choice. This relative stillness will likely only last so long. Indeed, conditions are in place for a solid pickup in resale activity. Alongside a further steady decline in the BoCs overnight rate, economic growth is likely to regain some traction going forward, and the federal government will roll out meaningful changes to mortgage rules that will support homebuying at the end of the year. Now, first-time homebuyers (and those that purchase new builds) can access 30-year amortizations (instead of 25), thereby lowering their monthly mortgage obligation. Also, the cap on which a buyer can qualify for an insured mortgage has been raised from $1 million to $1.5 million. This means that, for example, a purchaser who buys a detached home in Toronto valued at $1.2 million (the median price in August) could put down about $95k as a downpayment, instead of needing $240k as before. The federal measures should help unlock powerful gains in Canadian sales and average home prices across Canada in the first half of 2025. However, part of this story will be that some activity that wouldve taken place this year is pushed into 2025, as buyers wait for the new rules to commence before purchasing. https://economics.td.com/ca-provincial-housing-outlook

From the Bank of Canada In June, we began lowering our policy interest rate. We cut the policy rate at our last three decisions, for a cumulative decline of 75 basis points to 4.25%. Our most recent decision on September 4th reflected two main considerations. First, we noted that headline and core inflation had continued to ease as expected. Second, we said that as inflation gets closer to target, we want to see economic growth pick up to absorb the slack in the economy. Since then, weve been pleased to see inflation come all the way back to the 2% target. It has been a long journey. Now we want to keep inflation close to the centre of the 1%3% inflation-control band. We need to stick the landing. What does this mean for interest rates? With the continued progress weve seen on inflation, it is reasonable to expect further cuts in our policy rate. The timing and pace will be determined by incoming data and our assessment of what those data mean for future inflation. As always, we try to be as clear as we can about what we are watching as we chart the course for monetary policy. Economic growth picked up in the first half of this year, and we want to see it strengthen further so that inflation stays close to the 2% target. Some recent indicators suggest growth may not be as strong as we expected. We will be closely watching consumer spending, as well as business hiring and investment. We will also be looking for continued easing in core inflation, which is still a little above 2%. Shelter cost inflation remains elevated but has started to come down, and we are looking for it to moderate further. Our next decision is October 23rd. And we will have a revised economic outlook at that time. https://www.bankofcanada.ca/2024/09/economic-growth-during-uncertain-times/

Report by TD Economics Were most of the way through 2024, and the data seems to be adhering to our long-held view that the Atlantic Region and Prairies would outperform, in terms of GDP growth, this year. We continue to expect Ontario, Quebec, and B.C. to trail the pack. However, the former two provinces have benefitted from growth upgrades for 2024, leaving B.C. as the laggard. Consumption has held up well across Canada so far this year, supported by resilience in Ontario and Quebec and relative strength in the Atlantic. Going forward, a downgraded profile for borrowing costs will offer more of a boost to household spending across Canada than wed previously thought. However, a chunk of highly indebted households in regions like Ontario and B.C. will have to contend with mortgage renewals at (likely much) higher rates. Housing markets are also poised to receive a lift from lower-than-expected interest rates. Indeed, weve notably upgraded our 2024 and 2025 home price forecasts across nearly all provinces except Ontario, where strained affordability and problems in the condo sector will likely weigh. Lower rates are a benefit to homebuilding as well, although we still see Canadian housing starts cooling through 2025 given low home sales levels in the past few years. At last count (Q2-2024), Canadian population growth continued to surge. Specifically, Canadas Big 4 provinces have yet to see any meaningful impact from recently announced federal policies to reduce the pool of non-permanent residents. We expect the effect of these policies to be significant and become evident beginning in Q4-2024, providing an impetus for a meaningful slowdown in population growth across the nation. Population-fueled labour force gains have outpaced employment for most of this year, driving the national unemployment rate to its highest point since mid-2021. Notably, Ontario, Alberta and Quebec have seen the most material increases in their unemployment rates. With population gains expected to cool, the jobless rate is projected to peak at the turn of the year before gently pulling back in 2025. https://economics.td.com/provincial-economic-forecast

Summary Home sales edged up 1.3% between July and August, following a 0.6% decrease the previous month. On the supply side, new listings edged up 1.1% from July to August, the seventh advance in eight months. They are now at their highest level since June 2022. Active listings edged down 1.1% in August from their highest level since March 2020, the second decrease in six months. Meanwhile, the number of months of inventory (active listings-to-sales) edged down 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 August and remained tighter than their historical average in most provinces. They were balanced in Manitoba and softer than average in B.C. and Ontario. After a surge in July, housing starts dropped 62.4K in August to 217.4K (seasonally adjusted and annualized), a result well below the median economist forecast calling for a 250.0K print and its lowest level since November 2023. Urban starts decreased by 61.6K (to 199.5K) on an important drop in the multi-family segment (-62.8K to 154.3K) while the single-family segment was up marginally (+1.2K to 45.2K). Starts were down by more than half in Toronto (-40.4K to 24.6K) and decreased more modestly in Vancouver (-9.6K to 20.5K) and Calgary (-9.2K to 19.9K). On the other hand, they increased by 6.0K in Montreal (to 15.2K) after reaching their lowest level since February 2015 (excluding April 2020) the previous month. The TeranetNational Bank Composite National House Price Index rose by 0.6% from July to August after adjustment for seasonal effects. Six of the 11 markets in the composite index were up over the month: Quebec City (+3.9%), Halifax (+3.2%), Ottawa-Gatineau (+1.9%), Vancouver (+1.7%), Montreal (+1.0%) and Toronto (+0.2%). Conversely, declines occurred in Hamilton (-0.1%), Winnipeg (-0.7%), Calgary (-1.1%) and Edmonton (-2.6%), while prices remained stable in Victoria during the month. https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/logement/economic-news-resale-market.pdf

National home sales increased in June following the Bank of Canadas first interest rate cut since 2020, and activity posted another small gain in August on the heels of the second rate cut in late July, but the bigger picture appears to be a market mostly stuck in a holding pattern. Home sales recorded over Canadian MLS Systems edged up by 1.3% on a month-over-month basis in August 2024, reaching their highest level since January and their second highest in over a year. Despite some fledgling signs of life to kick off the long-awaited monetary policy easing cycle, Canadian housing market activity still looks to be stuck in the same holding pattern its been in all year, said Shaun Cathcart, CREAs Senior Economist. That said, with ever more friendly interest rates now all but guaranteed later this year and into 2025, it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country. Highlights: National home sales edged up 1.3% month-over-month in August. Actual (not seasonally adjusted) monthly activity came in 2.1% below August 2023. The number of newly listed properties ticked up 1.1% month-over-month. The MLS Home Price Index (HPI) was unchanged month-over-month but was down 3.9% year-over-year. The actual (not seasonally adjusted) national average sale price was almost unchanged (+0.1%) on a year-over-year basis in August. https://stats.crea.ca/en-CA/

Canadians work hard to be able to afford a home. However, the high cost of mortgage payments is a barrier to homeownership, especially for Millennials and Gen Z. To help more Canadians, particularly younger generations, buy a first home, new mortgage rules came into effect on August 1, 2024, allowing 30 year insured mortgage amortizations for first-time homebuyers purchasing new builds. The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, announced a suite of reforms to mortgage rules to make mortgages more affordable for Canadians and put homeownership within reach: Increasing the $1 million price cap for insured mortgages to $1.5 million, effective December 15, 2024, to reflect current housing market realities and help more Canadians qualify for a mortgage with a downpayment below 20 per cent. Increasing the insured-mortgage capwhich has not been adjusted since 2012to $1.5 million will help more Canadians buy a home. Expanding eligibility for 30 year mortgage amortizations to all first-time homebuyers and to all buyers of new builds, effective December 15, 2024, to reduce the cost of monthly mortgage payments and help more Canadians buy a home. By helping Canadians buy new builds, including condos, the government is announcing yet another measure to incentivize more new housing construction and tackle the housing shortage. This builds on the Budget 2024 commitment, which came into effect on August 1, 2024, permitting 30 year mortgage amortizations for first-time homebuyers purchasing new builds, including condos. These new measures build on the strengthened Canadian Mortgage Charte, announced in Budget 2024, which allows all insured mortgage holders to switch lenders at renewal without being subject to another mortgage stress test. Not having to requalify when renewing with a different lender increases mortgage competition and enables more Canadians, with insured mortgages, to switch to the best, cheapest deal. https://www.canada.ca/en/department-finance/news/2024/09/government-announces-boldest-mortgage-reforms-in-decades-to-unlock-homeownership-for-more-canadians.html

From Scotiabank The Bank of Canada and Federal Reserve should cut policy rates at each meeting for the remainder of the year and well into 2025. Growth is slowing as the impact of past tightening is felt but we expect a gradual strengthening of economic activity as policy rates come down. North American central bankers seem, at this point, to have achieved a soft landing. We remain concerned about potential upside risks to household spending given high savings rates and accumulated savings, solid income growth, the massive gap between supply and demand in the housing market, and historically strong population growth. We assume a gradual improvement in spending but a larger or more rapid rebound in spending could imperil Bank of Canada cuts in mid-2025. The usual disclaimer applies: US election outcomes could lead to significant changes to this outlook. The path forward for interest rates keeps getting clearer. With inflation and growth cooling owing in part to the lagged impacts of monetary policy, central bankers in Canada and the US seem confident in their assessment that interest rates will be cut substantially in coming months. The key questioning surrounding policy rates is the speed at which rates will decline, not whether they will decline from here. Key to that assessment is a view on growth dynamics, inflation, and risks to both. Though growth is weakening in both countries, we believe economies are landing softly and will not require central banks to act in an urgent way to shore up growth. As a result, we expect a gradual pace of cuts in Canada and the US, with two more cuts in Canada this year and three cuts in the US. A multitude of risks exist and while markets and most economists appear to prioritize downside risks to the outlook and interest rates, we continue to believe there are meaningful upside risks to both. https://www.scotiabank.com/ca/en/about/economics/economics-publications/post.other-publications.global-outlook-and-forecast-tables.scotiabank%27s-forecast-tables.2024.september-10--2024.html

From National Bank of Canada Summary Some forecasters, including the Bank of Canada, had high hopes of an economic recovery and a stabilization of the unemployment rate in the second half of the year, in the wake of interest rate cuts. For several months now, we have been arguing that, although interest rates are starting to come down, monetary policy is far too restrictive for this recovery and stabilization to occur, and recent economic data bears this out. With the Canadian economy stagnating in June and July, the 2.8% growth expected in Q3 by the Bank of Canada is now virtually unattainable. As a result, GDP per capita continues its downward trend that began in 2022, illustrating the fact that the economy continues to grow below potential and that excess supply continues to increase. Not only do companies seem to have an excess of inventories, they also seem to have an excess of workers. For now, this is limited to a hiring freeze at the macro level, as evidenced by average job gains of just 6K per month over the past three months. Those trying to enter the job market - young people and newcomers - are the main victims of Canadas weak hiring climate. With widespread inflation a thing of the past in Canada, we believe the door is wide open for the Bank of Canada to return its policy rate to neutral (between 2.5% and 3.0%) as soon as possible. In the meantime, the damage to the labour market could be greater than necessary. We anticipate economic growth of just 0.9% in 2024 and 1.3% in 2025, which would translate into an unemployment rate of around 7.4% by mid-2025. https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/mensuel/monthly-economic-monitor-canada.pdf

From National Bank of Canada For the third time in as many meetings, the Bank of Canada lowered the target for the overnight rate by 25 basis points, a decision in line with the consensus and market expectations. The rate reduction brings the policy rate to 4.25%, the lowest since January 2023. The move also pushes the BoCs policy rate 125 bps below the Federal Reserves (based on their upper bound target), the most since 2000 (although that gap will narrow in September). 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 was continued easing in broad inflationary pressures and excess supply in the economy [putting] downward pressure on inflation. Once again, forward rate guidance in the press release was vague but the opening statement to the presser reiterated that it is reasonable to expect further cuts if inflation eases in line with their forecast. The statement notes that Q2 growth was stronger than expected but preliminary indicators suggest that economic activity was soft through June and July. Macklem added they want to see economic growth pick up to absorb slack. The press release highlights that the labour market continues to slow, with little change in employment in recent months. However, wage growth remains elevated relative to productivity. In the opening statement to the presser, Macklem added they still expect slack in the labour market to slow wage growth. As for inflation there has been continued easing in broad inflationary pressures, with inflation breadth back to historical norms. Although shelter is holding inflation up, it is starting to slow. Reflecting base effects, Macklem added that inflation may bump up later in the year. However, they need to need to increasingly guard against the risk that the economy is too weak, and inflation falls too much.. Bottom Line: With a 25 basis point rate cut all but assured, the focus of todays decision was always going to be on the Banks guidance/stance. Overall, there was very little changed relative to July as Macklem reiterated it is still reasonable to expect further rate cuts (as long as inflation cooperates). At the margin, there appears to be a bit more confidence on the inflation outlook as shelter prices are seen as starting to slow. And as we got a sense of in July, they increasingly want to guard against too much slack and inflation undershooting over the projection horizon. They therefore need growth to pick up. What does it mean for the meetings ahead? To us, the BoCs base case outlook is for continued 25 basis points cuts at each of the remaining meetings in 2024 (and likely well into 2025 too). However, there is a growing focus on downside inflation/economic risks which should keep markets pricing some probability of a larger-than-25 basis point cut. Thats appropriate in our view given the balance of risks in the labour market and on the growth outlook. The intermeeting period will offer a wealth of information to inform the near-term rate path as were due to receive two employment reports (including one on Friday), two CPI reports, a read on July GDP and a Business Outlook Survey. Undoubtedly, it will be jobs and inflation data that will be most influential. 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 4%, with the Bank Rate at 4% and the deposit rate at 4%. The Bank is continuing its policy of balance sheet normalization. The global economy expanded by about 2% in the second quarter, consistent with projections in the Banks July Monetary Policy Report (MPR). In the United States, economic growth was stronger than expected, led by consumption, but the labour market has slowed. Euro-area growth has been boosted by tourism and other services, while manufacturing has been soft. Inflation in both regions continues to moderate. In China, weak domestic demand weighed on economic growth. Global financial conditions have eased further since July, with declines in bond yields. The Canadian dollar has appreciated modestly, largely reflecting a lower US dollar. Oil prices are lower than assumed in the July MPR. In Canada, the economy grew by 2.1% in the second quarter, led by government spending and business investment. This was slightly stronger than forecast in July, but preliminary indicators suggest that economic activity was soft through June and July. The labour market continues to slow, with little change in employment in recent months. Wage growth, however, remains elevated relative to productivity. As expected, inflation slowed further to 2.5% in July. The Banks preferred measures of core inflation averaged around 2 % and the share of components of the consumer price index growing above 3% is roughly at its historical norm. High shelter price inflation is still the biggest contributor to total inflation but is starting to slow. Inflation also remains elevated in some other services. https://www.bankofcanada.ca/2024/09/fad-press-release-2024-09-04/

Report by TD Economics Highlights The Fed is finally ready to cut interest rates, but questions remain on the speed and magnitude. We penciled in 25 basis points per meeting, with over 250 bps in cuts over this year and next. However, now that the Fed is confident that inflation will return to target, it will prioritize a little more of the other side of its dual mandate developments in the job market to ultimately determine the speed and size of rate cuts. The BoC has moved earlier, established a pace of 25 basis points per meeting, and already gapped 100 basis points to its U.S. counterpart. The economic bar will be higher to deliver on larger cuts than the current pace. The Federal Reserve is just under three weeks away from delivering its first interest rate cut in four years. While at times it felt like the day would never come, inflation has finally stabilized close to the 2% target alongside a noticeable cooling in the labor market. The Feds focus has now pivoted away from just fighting inflation, to striking the right balance on its dual mandate to ensure the economic landing remains a soft one. This is the stage where markets typically get nervous on whether the Fed has got the timing right, evidenced by recent bouts of financial volatility. The emphasis will be on downside misses in the data given that the Feds policy rate is sitting at a lofty level of 5.50%. And with that, we can expect to see pricing jump around between a Fed that needs to act urgently to one that can move in a measured way. But in all circumstances, one prediction will hold firm: the Fed will cut interest rates in September, kicking off a prolonged cycle. This is not a one-and-done deal. https://economics.td.com/ca-dollar-and-sense

Home sales edged down 0.7% between June and July, a decline that follows a 3.4% pick up in the previous month which was due to the beginning of easing monetary policy by the Bank of Canada. On the supply side, new listings edged up 0.9% from June to July, the sixth advance in seven months. Active listings edged down 0.7% in July from their highest level since March 2020, the first decrease in five months. Meanwhile, the number of months of inventory (active listings-to-sales) remained stable at 4.2 during the month, a level back in line with its pre-pandemic level. Market conditions were unchanged in July and remained tighter than their historical average in most provinces. They were balanced in Manitoba and B.C., and softer than average in Ontario. After a slowdown in June, housing starts increased 37.9K in July to 279.5K (seasonally adjusted and annualized), a result well above the median economist forecast calling for a 245.0K print and its highest level since June 2023. Urban starts increased by 38.8K (to 261.1K) on an important gain in the multi-family segment (+38.1K to 217.3K) while the single-family segment was up marginally (+0.7K to 43.8). Starts practically doubled in Toronto (+30.7K to 65.1K), and also grew in Vancouver (+9.6K to 30.1K) and Calgary (+6.6K to 29.1K). On the other hand, they dropped significantly in Montreal (-26.0K to 9.0K) to their lowest level since February 2015 (excluding April 2020). The TeranetNational Bank Composite National House Price Index remained virtually stable from June to July, with a marginal increase of 0.2% after adjustment for seasonal effects. Six of the 11 markets in the composite index were up over the month: Hamilton (+2.3%), Victoria (+1.0%), Halifax (+0.8%), Calgary (+0.7%), Toronto (+0.3%) and Quebec City (+0.2%). Conversely, prices fell in Ottawa-Gatineau (-0.4%), Winnipeg (-0.1%), Vancouver (-0.1%) and Montreal (-0.1%), while they remained stable in Edmonton. https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/logement/economic-news-resale-market.pdf

National housing resale conditions softened from June to July as reflected by the modest decline in the sales-to-new listings ratio. Over this period, national sales declined by 0.7% (sa m/m) while new listings increased 0.9%. In July, sales were higher by 4.8% (nsa) compared to the same month in 2023. After increasing from May to June, the sales-to-new listings ratiowhich reflects how tight resale conditions areedged down to 52.7% from June to July, essentially back to its May level, and still within the range for balanced national resale market conditions (of between 45% to 65%). Months of inventory remained unchanged over this period at 4.2, still below its long-term (pre-pandemic) average of 5.3. And since the national market aggregates very different regional markets, there are wide variations in terms of how this indicator compares to its long-term average across provinces, ranging from less than 2 weeks above average in Ontario and British Colombia and Ontario to 5.7 months below in New Brunswick. About 2/3 of the markets witnessed a decline in their sales-to-new listings ratio from June to July. Consequently, the number of sellers favouring markets declined from 10 in June to 5 in July while the number of balanced markets increased from 16 to 22. https://www.scotiabank.com/ca/en/about/economics/economics-publications/post.other-publications.housing.housing-news-flash.august-15--2024.html

From National Bank of Canada Q2 2024 marked a second, albeit smaller, improvement in affordability. The amelioration was relatively widespread with 8 of the ten markets covered experiencing a decline in mortgage payment as a percentage of income (MPPI). The most significant improvement occurred in Hamilton, where a home price decline compounded on the broader trend of lower interest rates and rising incomes. On the flip side, Edmonton and Calgary saw rising home prices largely offset any relief. Overall, the composite improved with slightly higher prices not enough to offset the decline in mortgage interest rates and higher incomes. Still, the housing market remains unaffordable with the latest progress bringing the MPPI to 57.9%. Looking ahead, falling mortgage interest rates will likely be the main driver for improvements in affordability. So far, the decline in mortgage interest rates was precipitated by both expectations of rate cuts and the materialization of easing by the Bank of Canada. Given the deterioration in the growth outlook and the weakening in inflation and the labour market, we expect further central bank easing of 150bps over the next 12 months. Although the policy rate and mortgage interest rates do not always follow in lockstep, this development would provide a significant alleviation of the financing burden. At current income and home price levels, it would bring affordability halfway back to pre-pandemic levels. There is the risk, however, that lower interest rates could lift home prices, especially considering the current population boom. That said, between the payment shock from upcoming renewals and the rising unemployment rate, we do not expect much vigour in home prices for the next 12 months. HIGHLIGHTS: Canadian housing affordability posted a second consecutive improvement in Q224. The mortgage payment on a representative home as a percentage of income (MPPI) fell 1.1 percentage points. Seasonally adjusted home prices increased 0.4% in Q224 from Q124; the benchmark mortgage rate (5-year term) declined 11 basis points, while median household income rose 1.2%. Affordability improved in 8 of the ten markets covered in Q2. On a sliding scale of markets from best progression to least: Hamilton, Toronto, Victoria, Ottawa-Gatineau, Vancouver, Quebec, Montreal, Winnipeg. On the flip side, Edmonton and Calgary deteriorated. Countrywide, affordability enhanced 1.1 pp in the condo portion and in the non-condo segment. https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/logement/housing-affordability.pdf

While there were early signs of renewed momentum in June following the Bank of Canadas first interest rate cut since 2020, activity in Canadas housing market took a pause in July. Home sales activity recorded over Canadian MLS Systems edged back by 0.7% on a month-over-month basis in July 2024, giving back a small portion of Junes post-first rate cut gain. With another rate cut announced on July 24, weve now seen two rate cuts in a row, and the expected pace of future policy easing has steepened considerably, with markets now anticipating rate cuts at every remaining Bank of Canada decision this year, said Shaun Cathcart, CREAs Senior Economist. Combine that with a record amount of demand waiting in the wings, and the forecast for a rekindling of Canadian housing activity going into 2025 has just gone from a layup to a slam dunk. Highlights: National home sales edged back 0.7% month-over-month in July. Actual (not seasonally adjusted) monthly activity came in 4.8% above July 2023. The number of newly listed properties ticked up 0.9% month-over-month. The MLS Home Price Index (HPI) edged up 0.2% month-over-month but was down 3.9% year-over-year. The actual (not seasonally adjusted) national average sale price was almost unchanged (-0.2%) on a year-over-year basis in July. https://stats.crea.ca/en-CA/

Non-mortgage loans are above the levels seen before the pandemic Non-mortgage loans have increased from the first quarter of 2019 and edged up in the first quarter of 2020. Over the next two quarters, non-mortgage debt levels declined as lockdowns came into full effect. Canadians were able to build up savings, reduce debt and reduce spending to bolster their finances against uncertainty as non-essential businesses closed and travel restrictions were imposed. Despite this reduction, since 2022, debt levels have risen, ultimately wiping out the previous effects. This increase in debt levels can be attributed to several factors, including inflation that peaked at 8.1% year over year in June 2022, making everyday goods and services more costly. Uninsured mortgage loans grow faster than insured ones as house prices increase Since 2017, uninsured mortgages have predominated in Canada, overtaking insured ones for the first time that year. From 2012 to 2019, the outstanding value of uninsured mortgages grew quarterly by 3.0% on average, while insured mortgages declined by 0.4%. This disparity widened during the pandemic as house prices soared due to lower borrowing costs and increased demand, with the quarterly growth of outstanding value of uninsured mortgages reaching 3.4% from 2020 to 2022, while insured mortgages declined by 0.5%. Rising interest rates from early 2022 through the third quarter of 2023 cooled housing market activity, decelerating the quarterly growth of uninsured mortgages to 2.0%, compared with a decline of 1.0% for insured mortgages during the same period. Arrears for non-mortgage loans are trending upward Households with loans in arrears, defined as those late on debt payments by 90 days or more, saw a slight increase during the first two quarters of 2020 owing to economic closures. Government support during the pandemic helped reduce arrears by increasing household disposable income. However, as interest rates rose and pandemic-related support diminished, non-mortgage loan arrears climbed again in 2022. Passenger vehicle loans (+0.18%) and credit card loans (+0.07%) saw the largest arrears increases by the third quarter of 2023 compared with the first quarter of 2019. Mortgage loan arrears have not seen a similar rise despite increasing interest rates. By the third quarter of 2023, mortgage arrears were still below pre-pandemic levels, down 0.08% from the first quarter of 2019. Most households have yet to feel the full impact of higher interest rates, as many mortgage renewals are due in the coming years. According to the Canada Mortgage and Housing Corporation, around 2.2 million mortgages, or 45% of all outstanding mortgages in Canada (over $675 billion), will face an interest rate shock in 2024 and 2025. https://www150.statcan.gc.ca/n1/daily-quotidien/240814/dq240814d-eng.htm

This study uses several demographic scenarios to illustrate how Canadas labour force could evolve from 2023 to 2041. This projection exercise produced a number of findings. Despite the baby boomer cohorts retiring, the size of Canadas labour force is likely to increase over the next few years because of migratory increase. The scenarios show that the size of the labour force is sensitive to both immigration levels and above all, the participation rate of the Canadian population. If labour force participation in Canada in 2041 reached the same intensity as in Japan, the size of the Canadian labour force would increase in a similar way to the scenario in which 750,000 permanent immigrants are admitted annually. The increase in the overall participation rate would be five times higher in the scenario where participation rates in Canada converge toward those currently observed in Japan, compared with the increase observed in the scenario in which Canada admits 750,000 immigrants annually. The scenario in which participation rates converge toward those observed in Japan, while unlikely given the significant differences between the two societies, nevertheless illustrates the potential impact of an increase in Canadians participation rate on the growth and demographic weight of the labour force. Canadas strong population growth, driven by large-scale immigration, brings both opportunities and challenges. While it increases the size of the labour force, it has a limited impact on the overall labour force participation rate and on the aging and renewal of the labour force. Beyond its purely demographic impact, immigration also exerts pressure on housing supply, infrastructure construction and the provision of services to the population, while also addressing unfilled job demands in certain employment sectors. The results of this population projection exercise show that immigration is not the only lever for influencing the evolution of the Canadian labour force. According to the projections, various processes will stabilize at the start of the 2030s, when the last baby boomers turn 65. Furthermore, the projections show that immigration levels would not significantly influence the aging or rejuvenation of the future labour force if they remained relatively constant over time. https://www150.statcan.gc.ca/n1/pub/75-006-x/2024001/article/00005-eng.htm

The role of short-term rentals (STRs) in Canadas housing challenges remains a subject of ongoing policy debate in many Canadian cities. While there is a widespread notion that such rentals limit the availability of long-term housing, empirical analysis of their impacts has produced mixed results. This paper provides an overview of STR activity across Canada. The paper focuses on the subset of STRs that could potentially serve as long-term housing. This subset of STRs, referred to as potential long-term dwellings (PLTDs), is intended to capture STR units that are not serving as anyones primary residence, but could potentially function as long-term housing (either as owner-occupied or rental units). The PLTD subset comprises entire units listed for more than 180 days a year, excluding vacation-type properties. Previous research indicates that STR activity plays an increasingly significant role in the Canadian accommodation services subsector, with its share of revenues rising from an estimated 7.0% in 2017 to 15.2% in 2021. However, in the housing market, STRs still account for a small proportion of total housing units. In 2023, the estimated number of PLTDs in Canada was 107,266, a figure that represents less than 1% of total housing units in Canada. PLTDs also accounted for a small share of total housing units in Canadas largest census metropolitan areas (CMAs). However, the share of PLTDs was higher in tourist areas, particularly around ski hills. In Whistler, they constituted 35.0% of all housing units, while in Mont-Tremblant, their share was 16.4%. https://www150.statcan.gc.ca/n1/pub/11-621-m/11-621-m2024010-eng.htm

For the second time in as many meetings, the Bank of Canada lowered the target for the overnight rate by 25 basis points, a decision in line with the consensus and market expectations. The rate reduction brings the policy rate to 4.50%, fully unwinding the two rate hikes delivered in June and July 2023. This move also pushes the BoCs policy rate 100 bps below the Federal Reserves (based on the upper bound target), marking the largest negative gap since the late 1990s. Despite the consecutive cuts and upward pressure on CORRA, 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 was broad price pressures continuing to ease and ongoing excess supply lowering inflationary pressures. Once again, there wasnt really any forward rate guidance in the press release but the opening statement to the presser reiterated that it is reasonable to expect further cuts if inflation eases in line with their forecast. He added that downside risks are taking on increased weight in our monetary policy deliberations. Note that the statement dropped the focus items that theyd previously been referring to (i.e., the balance between demand and supply, inflation expectations, wage growth, and corporate pricing behaviour). Instead, incoming information will guide future decisions. The statement notes that excess supply is growing: With robust population growth of about 3%, the economys potential output is still growing faster than GDP, which means excess supply has increased. On the labour market, they highlight that there are signs of slack with labour force growth outpacing employment and job seekers having more trouble finding work. Wage growth is showing some signs of moderating but remains elevated. As for inflation, the statement notes that broad inflationary pressures are easing although shelter and some services inflation remains elevated. Governing Council is carefully assessing these opposing forces on inflation. https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/boc-policy-monitor.pdf

From Scotiabank Further rate cuts in Canada this year a certainty while we continue to believe that the Federal Reserve will cut in September. Economic data have come in largely as expected so our forecasts remain largely unchanged. Lower interest rates will provide a mild boost to economic growth later this year, but the full impact of rate cuts will take time to materialize given the lags of monetary policy. Clarity on interest rates and the outlook over the next few months may be fleeting. The results of the US election risk muddying the outlook substantially. The long-awaited rate cuts are finally underway in Canada and are likely to start in the United States in September. These will eventually provide relief to the interest rate sensitive parts of the economy and may also lift business and household sentiment. These rate cuts are occurring in the context of slow, but still-positive growth, and solid progress on inflation management even though there remain substantial risks of higher inflation (linked to the sharp rise in global shipping costs and rapid wage growth and low productivity in Canada). We remain comfortable with our view that policy rates will fall by another 75 basis points in Canada this year and that the Federal Reserve will cut its policy rate by at least 50 basis points starting in September. Moreover, economic data have come in roughly as expected over the last several months, leading to only minor tweaks to the outlook for growth. All told, this forecast update is largely similar to our previous forecast. In this sense, the stability in our forecast combined with more certainty on the interest rate path suggest greater clarity in the outlook for the next several months. https://www.scotiabank.com/ca/en/about/economics/economics-publications/post.other-publications.global-outlook-and-forecast-tables.scotiabank%27s-forecast-tables.2024.july-18--2024.html

The Bank of Canada today reduced its target for the overnight rate to 4%, with the Bank Rate at 4% and the deposit rate at 4%. The Bank is continuing its policy of balance sheet normalization. The global economy is expected to continue expanding at an annual rate of about 3% through 2026. While inflation is still above central bank targets in most advanced economies, it is forecast to ease gradually. In the United States, the anticipated economic slowdown is materializing, with consumption growth moderating. US inflation looks to have resumed its downward path. In the euro area, growth is picking up following a weak 2023. Chinas economy is growing modestly, with weak domestic demand partially offset by strong exports. Global financial conditions have eased, with lower bond yields, buoyant equity prices, and robust corporate debt issuance. The Canadian dollar has been relatively stable and oil prices are around the levels assumed in Aprils Monetary Policy Report (MPR). In Canada, economic growth likely picked up to about 1% through the first half of this year. However, with robust population growth of about 3%, the economys potential output is still growing faster than GDP, which means excess supply has increased. Household spending, including both consumer purchases and housing, has been weak. There are signs of slack in the labour market. The unemployment rate has risen to 6.4%, with employment continuing to grow more slowly than the labour force and job seekers taking longer to find work. Wage growth is showing some signs of moderating, but remains elevated. GDP growth is forecast to increase in the second half of 2024 and through 2025. This reflects stronger exports and a recovery in household spending and business investment as borrowing costs ease. Residential investment is expected to grow robustly. With new government limits on admissions of non-permanent residents, population growth should slow in 2025. https://www.bankofcanada.ca/2024/07/fad-press-release-2024-07-24/