Falling interest rates and housing prices could mean homebuyers are facing conditions that will finally bring them off the sidelines. The “For Sale” signs that have stood frozen for weeks around our neighbourhood suggest the moment has not quite come, but mortgage brokers and economists say it’s close. More on that below, but first:
In the news
Please: Air Canada is calling for government intervention should failed contract talks with its unionized pilots ground Canada’s largest airline and upend the travel plans of its customers.
Please: Debt-heavy CI Financial Inc. says it has asked Morningstar DBRS to withdraw its credit ratings on the company, but the agency has refused.
Please: Canada Bread Co. Ltd. is seeking damages from its former majority owner Maple Leaf Foods Inc. over an alleged industry-wide bread price-fixing scheme.
Don’t prove we’re right: Canada risks a further deterioration in living standards if its lacklustre performance in productivity does not improve, economists at Toronto-Dominion Bank warn in a new report.
Happening today
- Earnings include Roots Corp. and Ceres Global Ag Corp. – both before the open.
- France consumer price index for August.
- Otherwise, a little light on the major economic front (that we can predict!) as markets digest fresh U.S. data ahead of the Fed’s rate decision next week.
In focus
Why the real-estate market could be nearing a resurgence
Canada's real-estate market might finally shake loose over the next few months.Evan Buhler/The Canadian Press
No one expected a parade of homebuyers to descend on their mortgage brokers in June, when the Bank of Canada made its first lending-rate cut in over four years.
But after two additional slices and more expected to follow into next year, we might soon hear the marching band’s approach. Realtors and other experts told my colleague Salmaan Farooqui that a combination of lowered rates and housing prices could boost activity by late fall.
The cost of borrowing
After the bank’s historic run of rate hikes since early 2022, which took its key interest rate to a peak of 5 per cent, the cost of borrowing now sits at 4.25 per cent, and is expected to be lowered to at least 3.75 per cent before the end of the year.
The cost of a down payment
- The national average down payment required in August was $41,732 for a home priced at nearly $670,000.
- The amount of the average down payment needed has consistently been dropping since reaching its peak of $45,396 in 2022, and is at its lowest since 2020.
That adds up to a housing market that could bring many potential suitors off the sidelines – especially since, as Jason Kirby noted last week, Canadians have been saving money at a higher clip to cope with the high cost of living.
The cost of ... saving?
Statistics Canada reported yesterday that the country’s household debt burden is edging lower. But that shows people are wary of taking on loans amid higher interest rates, Matt Lundy reports.
- “Households remain under pressure from rising rates but have adjusted their behaviour, pushing debt ratios consistently lower,” Benjamin Reitzes, a Canadian rates and macro strategist at Bank of Montreal, said in a client note.
It will be interesting to see how sticky that behavioural adjustment has become: Do Canadians continue to sit on their savings with mortgage renewals on the horizon? Has caution in case of the next Unfathomable Thing become hardwired into our spending habits? Would you bat an eye if I told you the Earth literally vibrated for nine days last year? Me neither.
Another possibility: The savings are burning a hole in (mostly middle- to higher-income) Canadians’ pockets.
- Derek Holt, an economist at Bank of Nova Scotia, estimated last week that households are sitting on excess savings of $470-billion when compared to what the pre-pandemic trend would have suggested.
- He warned that if the Bank of Canada brings rates down too aggressively, the bank “could unleash a tsunami of consumer and housing demand given how high excess savings and pent-up demand are becoming.”
Don’t stress?
Real-estate prices over the coming months might still be too high to bear for many first-time homebuyers, Farooqui writes. They still face elevated interest rates, and real-estate prices are “wildly higher” than they were before the pandemic.
Many will be challenged under federal government’s stress test, which requires buyers to prove they can manage rates above what lenders are offering.
What if we got rid of the tests altogether? Re/Max president Christopher Alexander argues the rules should be scrapped as one way to make the market more accessible.
And if you’re waiting for lower interest rates, variable-rate mortgage borrowers may see disappointing discounts.
Condiments
John Cena and the rise Lao Gan Ma
A screengrab from John Cena's Lao Gan Ma video.Supplied
Asia correspondent James Griffiths reports on the rise of Lao Gan Ma – or “Old Godmother.”
His eyes wide, face split by a broad grin, a splat of red… something on his forehead, the wrestler-turned-actor John Cena holds a jar of black sauce up to the camera. “Lao Gan Ma,” he chants, his smile growing ever larger, as the camera pans down to a plate of broccoli almost covered by the soybean and chilli condiment, which he first tried in 2018 and has been an enthusiastic fan of ever since.
- Cena is not alone in his fanship. Invented in 1984 by Tao Huabi, a restauranteur in Guiyang, in southern China’s Guizhou province, some 1.3 million bottles of the sauce are produced every day, for sale in more than 30 countries.
- You can read the full story behind the sauce here.
Morning markets
Global markets advanced amid debate on how big of a rate cut the U.S. Federal Reserve might make next week. Wall Street futures and TSX futures pointed higher.
Overseas, the pan-European STOXX 600 was up 0.51 per cent in morning trading. Britain’s FTSE 100 gained 0.31 per cent, Germany’s DAX advanced 0.54 per cent and France’s CAC 40 rose 0.29 per cent.
In Asia, Japan’s Nikkei closed 0.68 per cent lower, while Hong Kong’s Hang Seng climbed 0.75 per cent.
The Canadian dollar traded at 73.60 U.S. cents.