The US Federal Reserve's Open Market Committee (the Fed) raised its target overnight rate to between 0.75 and 1 per cent this morning.  In the statement accompanying the Fed's decision, it was noted that the labour market continues to strengthen and economic activity is expanding at a moderate pace. Moreover, inflation has increased in recent quarters and near-term risks to the economic outlook appear balanced. The committee expects that economic conditions will evolve in a manner that warrants gradual increases in its target rate, but it was also noted that rates will remain below long-run levels for some time.

Today's action on interest rates by the US federal reserve, particularly the signaling of further rate increases to come this year, will put upward pressure on long-term rates in both the US and Canada.  A tightening cycle in the United States may be further compounded by US monetary and fiscal policy acting at cross purposes, with the Fed trying to cool the economy while the Trump administration embarks on deficit widening tax and spending measures. In all, we expect the consequence of these actions will be higher Canadian mortgage rates by the end of the year.  A deeper analysis of these trends is contained in BCREA's first quarter Mortgage Rate Forecast, available online tomorrow.  

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The Bank of Canada announced this morning that it is holding the target for its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that growth in the economy is improving and recent higher CPI inflation should be only temporary, reflecting increased energy costs.  The Bank stated that it is remaining attentive to significant uncertainties weighing on its outlook. 

While the Canadian economy is showing signs of improving, with strong hiring and faster than expected growth in real GDP, the outlook remains clouded by uncertainty over trade and tax policy in the United States.  If economic growth and inflation evolve as the Bank currently projects,  the Bank would likely be contemplating raising its overnight rate some time in early 2018.  However, given that we have no more clarity now than at the time of the Bank's previous rate decision regarding changes to trade agreements or the stance of US fiscal policy, the Bank will remain sidelined until the path forward becomes more clear.

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The Bank of Canada announced this morning that it is holding the target for its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that uncertainty in the global outlook, particularly with regard to policies in the United States, is undiminished. The Canadian economy is forecast to grow 2.1 per cent in both 2017 and 2018, implying the Canadian economy will return to full capacity in mid-2018.  On inflation, the Bank noted that it continued to be lower than expected but should return to it 2 per cent target in coming months.

Political uncertainty in the United States will likely govern the direction of both policy rates and long-term bond yields over the next year. The interest rate on 5-year government of Canada bonds has risen to its highest point in a year, which is adding upward pressure to mortgage rates offered by Canadian lenders.  While the Canadian economy is forecast to post steady growth in 2017, overall slack in the Canadian economy remains persistent.  Without a significant uptick in economic growth, inflation will likely continue to trend at or below the Bank's 2 per cent target.  That, along with lingering uncertainty, will keep the Bank sidelined through 2017 with a chance of lowering its target rate should current downside risks to the economy become realized.

“Copyright British Columbia Real Estate Association. Reprinted with permission.” BCREA makes no guarantees as to the accuracy or completeness of this information.

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The Bank of Canada announced this morning that it is holding the target for its overnight rate at 0.5 per cent. In the press release accompanying the interest rate decision, the Bank noted that uncertainty in the global economy is undiminished in recent months while Canadian economic growth is evolving as anticipated. On inflation, the Bank cited that although CPI and core inflation have picked up, both measures remain below the Bank's 2 per cent target. 

With long-term interest rates jolted upward by the US election, the Bank of Canada is likely content to keep its overnight rate on hold at 0.5 per cent over the next year.  That said, the stark unpredictability of the incoming Trump administration on everything from trade to taxes to financial markets means that risk in the economy is tilted to the downside.  Therefore, there remains the potential for a rate-cut by the Bank of Canada should economic conditions and the outlook for inflation deteriorate.

“Copyright British Columbia Real Estate Association. Reprinted with permission.”

The Bank of Canada announced this morning that it is holding its target for the overnight interest rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that inflation is on track to return to its target of 2 per cent by 2017, though heightened global uncertainty presents a risk to that forecast.  The Bank judges the overall risks to its forecast as roughly balanced, but noted financial vulnerabilities are elevated in the greater Vancouver and Toronto areas due to rising home prices. 

Economic growth in Canada appears to be slowing as expected in the second quarter.  Our tracking estimate of second quarter real GDP growth is currently at -0.5 per cent following a strong start to the year. Most of the slowdown is due to disruptions caused by the Alberta wildfires which points to a strong rebound as oil production comes back on-line and the reconstruction effort begins. That rebound will be further supported by a boost of fiscal stimulus planned for the second half of the year. An improved outlook for growth and firm but low trend inflation probably rule out any further rate cuts from the Bank, particularly given that long-term interest rates have already fallen to near record lows in recent weeks.  Our forecast remains that the Bank will be sidelined for the remainder of 2016 and through most if not all of 2017.

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For more information call the Dion-Ivans Real Estate Team today!!

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 cited that inflation and economic growth were evolving roughly in-line with expectations, though household vulnerability to economic shocks has moved higher due to high debt burdens. 

The Canadian economy got off to a very strong start and will likely end up recording real GDP growthabove 3 per cent for the first quarter of the year. However, much of that growth was front loaded and more recent data has been weaker. Growth is expected to slow sharply in the second quarter as a result of the wildfires in Alberta and their impact on oil production before rebounding in the third quarter and ramping up to end the year. Slower growth through the summer months will keep the Bank on the sidelines though a probable tightening of monetary policy by the US Federal Reserve as early as June may add some upward pressure to Canadian long-term interest rates.

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For more information contact The Dion-Ivans Real Estate Team today!!

FEBRUARY SURVEY SUMMARY

*Property Type:

22.4% by First Time Buyers (down from 22.8% in January)
17.1% by Move-Up Buyers (down from 20.5%)
16.2% by Buyers Downsizing (up from 14.2%)
13.6% by Relocating and moving to similar property type (down from 14.2%)
13.6% buying Revenue/Investment Property (up from 11.8%)
7.5% moving from Single Family Home to Strata Unit (up from 4.7%)
3.9% buying Recreation Property (no change from 3.9%)
3.1% moving from Strata Property to Single Family Home (no change from 3.1%)
2.6% moving into Retirement Home/Seniors Community (down from 3.1%)

*Buyer Type (Family Dynamic):
26.5% Two Parent Family/Children (down from 26.2% in January)
26.5% Couple without Children (up from 21.5%)
11.3% Single Female (down from 19.2%)
13.5% Single Male (down from 16.2%)
20.4% Empty Nester/Retired (up from 13.8%)
3% Single Parent with Children (down from 3.1%)

*Moving From:
62.5% from Within OMREB Board Area (down from 63.1% in January)
14.7% from Lower Mainland/Vancouver Island (up from 12.3%)
7.3% from Alberta (up from 6.9%)
4.3% from Other Areas in BC (down from 6.9%)
4.3% from Saskatchewan/Manitoba (up from 2.3%)
3.9% from Outside Canada (down from 5.4%)
2.2% from Eastern Canada/Maritimes (down from 3.1%)
0.9% from NWT/Yukon (up from 0%)

Information provided by OMREB. 

For more information contact The Dion-Ivans Real Estate Team today!!

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 anticipated but that a weak economy will continue to dampen growth in consumer prices. Overall, the Bank judges that risks in the economy are roughly balanced, though financial vulnerabilities have increased due to falling commodity prices.

With inflation trending close to target while the economy struggles, the Bank of Canada, whose mandate is to target 2 per cent inflation over the medium run, has to strike a fairly delicate balance. Low oil prices continue to vex the Canadian economy spurring job losses in energy producing provinces while also putting downward pressure on the exchange rate, which makes the cost of imported goods from heavy machinery to fresh produce more expensive.  We expect that weak economic growth will continue in the first quarter of 2016, but the possibility of an effective fiscal stimulus, a stronger US economy and a stabilization of oil prices points to stronger growth ahead.  The door remains open for the Bank of Canada to reduce rates once more in 2016, though our expectation is that the Bank will remain on the sidelines throughout the year. 

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For more information contact The Dion-Ivans Real Estate Team. 

On the heels of the first rate increase in 8 years, the US Federal Reserve's Open Market Committee (the Fed) opted to leave its target overnight rate unchanged at a range of 0.25 to 0.50 per cent.   In the statement accompanying the Fed's decision, it was noted that with gradual adjustments to the stance of monetary policy, economic activity will continue to expand at a moderate pace and labour market indicators will continue to strengthen. The Fed expects that inflation will remain low in the near term, but slowly rise to 2 per cent over the medium term as the impact of low energy prices fades.

While early speculation was that the Fed would raise rates at least four times this year, a slowdown in the economy to end 2015 along with still tame inflation and volatility in financial markets will likely put monetary policymakers on a much more cautious footing.  We expect that the Fed will raise rates a maximum of one more time in 2016 which should translate to very little upward pressure on Canadian bond yields and mortgage rates. 

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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. 

Call the Dion-Ivans Real Estate Team today for more information about the Kelowna Real Estate Market. 

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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.

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The Bank of Canada announced this morning that it is maintaining its target for the overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that inflation continues to evolve in-line with the Bank of Canada's forecast while economic activity continues to be underpinned by solid household spending and strong demand from the US economy. 

With the economy seemingly improving and core inflation still holding firm near the Bank's 2 per cent target, policymakers opted to stay the course and allow recent loosening of monetary policy to work its way through the system.  We expect that growth will pick-up in the second half of the year, helped out by an acceleration of the US economy and stable oil prices.  That should translate to no further action by the Bank of Canada in 2015, though recent volatility in global financial markets could prompt a shift in thinking.  That said, central banks prefer to avoid bringing interest rate close to the so-called zero lower bound. Therefore, in the absence of a major financial or economic shock, the Bank will likely hold rates constant until a healthy and sustainable rate of economic growth resumes. 

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