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Bank of Canada Interest Rate Announcement


The Bank of Canada announced this morning that it is maintaining its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that inflation is evolving as expected with total CPI continuing to test the bottom of the Bank's 1-3 per cent target range due to low energy prices. However, the Bank expects that inflation will rise over the next year, reaching its 2 per cent target by mid-2017.  On the economy, the Bank sees economic growth firming after a slowdown in the fourth quarter of last year. The Bank projects that the Canadian economy will grow a modest 1.5 per cent this year before strengthening to 2.5 per cent in 2017. 
 
In not moving on interest rates this morning, the Bank is recognizing that there is little that monetary policy can do to offset a significant supply-side shock such as the dramatic decline in oil prices. Indeed, given Canada's floating exchange rate, the loonie has already adjusted to help partially absorb the negative impact of falling commodity prices on exports.   Keeping in mind that the Canadian economy is still projected to grow at a rate very close to its somewhat diminished potential for 2016 and that inflation will be spurred by a dramatically lower Canadian dollar, we anticipate that the Bank will reassess the need for monetary stimulus once the worst of the oil-shock had passed. That means, barring a significant deterioration in the economy, the Bank will more than likely remain sidelined for 2016.



Canadian and US Employment


Employment in Canada increased by 23,000 jobs in December, a 0.9 per cent increase over December 2014.  The national unemployment rate was unchanged at 7.1 per cent. For all of 2015, employment posted average growth of just under 1 per cent or about 13,000 jobs per month. 

In BC, employment fell for a second consecutive month, dropping by 7,900 jobs in December. Those job losses, combined with an increase in job searchers migrating from other provinces helped to push the unemployment rate 0.5 points higher to 6.7 per cent. For the year 2015, employment in BC increased 1.3 per cent but grew at a 2 per cent rate over the second half of the year. 

In the US, payrolls jumped by 292,000 jobs and revisions to past months estimates added a further 50,000 to payrolls. The US unemployment rate was unchanged at 5 per cent.  Over the past three months, the US economy is averaging a robust rate of new job creation at close to 300,000 jobs per month.



Canadian Government Change to Minimum Down Payment on Insured Mortgages - December 11, 2015


Policy Change

The Canadian government announced today that it is increasing the minimum down payment on insured mortgages from 5 per cent to a two tiered system under which the minimum down payment on houses priced above $500,000 will remain at 5 per cent, but there will be an additional 10 per cent required on the portion of the house price above $500,000. 

As an example, for a house priced at $700,000, the minimum down payment for mortgage insurance purposes under the status quo would be $35,000. Under the new system, the minimum down payment would be 5 per cent x $500,000 + 10 per cent x ($700,000-$500,000) or $45,000. It is important to note that the homes priced at or above $1 million already require a minimum down payment of 20 per cent. 

The changes to minimum down payments will take effect on February 15, 2016 and apply to new mortgage loans where a mortgage insurance application is received on February 15, 2016 or later. 

Market Impact 

The increase in minimum down payments on homes above $500,000 is designed to target excess risk taking in Canada's most expensive housing markets. Most homes in BC are priced below $500,000 and therefore this change will have limited impact in much of the province. However, 35 per cent of homes sold in Metro-Vancouver are priced between $500,000 and $1 million and so this change could adversely affect or delay demand in those markets, particularly for first-time homebuyers. That said, given the incremental nature of the change, and since minimum down payments are less frequent at higher home prices, we expect the overall impact to be relatively minor.



Canadian Housing - November 9, 2015


Canadian housing starts moderated from a very strong September, falling close to 15 per cent to a still robust 198,065 units at a seasonally adjusted annual rate (SAAR) in October The six-month trend in Canadian housing starts of 206,089 units SAAR continues to rise and is currently above the rate of household formations in Canada, a sign that new home construction could slow next year. 

Housing starts in BC were up 21 per cent from September, rising to 33,737 units SAAR.  On a year-over-year basis, housing starts were up 48 per cent with single detached starts falling 2 per cent year-over year while multiple unit starts jumped 83 per cent compared to October 2014. Year-to-date, total housing starts in BC are up 13 per cent compared to 2014. 

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA were up 70 per cent year-over-year in October as a result of a sharp rise in the construction of multiple units, which more than doubled compared to October 2014.  In the Victoria CMA, the rate of new home construction was also more than double the rate of last October with both single and multiple starts posting strong growth. Total housing starts in the Kelowna CMA were up 30 per cent year-over-year on broad strength in both single and multiple unit starts.  Housing starts in the Abbotsford-Mission CMA were up close to 90 per cent compared to this time last year largely on strong growth in single unit starts.