Economy Snapshot by Rebecca Awram

 

RATES

Rates continue to stay low, and the HSBC .99% made headlines across the country this week.  Keep in mind it is for high ratio insured purchases only, and their current turnaround-times on an application are 3-5 weeks depending on location.  So if your client plans to access this rate, be sure to write lots of time in that Contract for your financing subject 🙂

 

The attention-grabbing rate though should benefit all borrowers, and other lenders will be forced to sharpen their pencil. Probably not matching it, but certainly tightening up the spread.  We should see more rate-drops from most lenders next week and following.

 

That’s the thing about rates…. most lenders end up in pretty much the same place over time.  For the same mortgage of course (you can’t compare and insured high ratio purchase to a conventional 30 year refinance).  They just don’t all move on the same day.  Chasing a rate is usually a waste of your time.  Seek a solid mortgage with great terms, and you’ll never go wrong.

 

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Mortgage Broker News

 

CANADIAN ECONOMY
Mortgage deferrals are dwindling, and filings show that the vast majority of borrowers have now resumed regular payments.  Mortgage payment deferral programs played an important role in helping households manage pandemic-related disruptions to incomes.

 

The Canadian dollar has also risen to a two-year high of over 78 cents US, which is in large measure a reflection of broadly based US dollar weakness.

 

The Bank of Canada came and went yesterday with the expected lack of change in headline policy.  The accompanying verbiage would indicate that we are never seeing raising rates ever again 🙂 Market reaction was nil following the release.  While the virus and economic headwinds are worsening, financial markets are functioning well and the Bank of Canada can remain confident the medium-term outlook is intact.  According to Bloomberg News, Canada has reserved more vaccine doses per person than anywhere else.

 

US AND GLOBAL ECONOMY

The market has still been on fire, largely based on optimism of anticipated vaccine rollouts. The S&P keeps hitting new all-time highs. It still seems strange to be in constant record territory, despite the continuing awful conditions of the economy and society. But investors will lose some steam as Democrats and Republicans are unable to resolve divisions over coronavirus stimulus.  Also, the vaccination rate would need to be upwards of 68% to provide widespread coverage and prevent future outbreaks.  This would be a logistical challenge, but possibly even harder to convince 68% of the population to get a jab in the arm.

 

HELMUT PASTRICK, CHIEF ECONOMIST, Central 1 Credit Union

This was a great webinar I attended this week, his final speech of a 44-year career in economics.  I took a lot of notes, and these are some of my observations of his statements and predictions.

 

We’ve had a very sudden/sharp yet short recession, with a K shaped recovery: most of the economic recovery is pronounced and well underway, but a segment of the market is still trending downwards.  The pandemic has had very uneven impacts, with high contact services and lower wage workers the most adversely affected.

 

He feels the federal policy response has been appropriate and that we did all the right things.  Most importantly, it was big and it was immediate.  While this will drive a large federal deficit, he feels it’s sustainable, as rates are so low and our federal bonds are rated Triple A.

 

Canadians are sitting on record-breaking savings. Estimates range from $80B to $120B. This is largely due to a huge drop in consumption, and once again, it is the middle-to-upper wage earners that can enjoy this luxury. And this is happening everywhere, not just Canada. Once we hit our acceleration in 2021 – 2022 we can expect to see a lot of pent-up demand in the economy that will materialize, and Canadians are largely well capitalized to fund it.

 

Population growth is currently about zero, but this is due to the pandemic and limits on international mobility.  The Federal Government has increased immigrations targets to more than 400K, but that won’t be realized until well into 2021.  But this frenzy of backlog, when it occurs, will be a huge stimulator for economic growth in 2021 and 2022.

 

Housing:  we all know there is a huge disconnect between inventory and pricing right now, and while there has been some upwards pressure on single-family homes, the relatively flat pricing numbers that we’re seeing here have Helmut a bit stumped too.

 

Given the low inventory, he would expect to see higher HPI across all asset classes and feels that there will be a lot of catch-up happening in 2021 and 2022.    He predicts price-pressures will present soon and is frankly surprised that they haven’t sooner.

 

But what of the disconnect between condo and sfh action?  The simple explanation that buyers want bigger/better/larger homes is just one piece of the puzzle.  Think back to the K shaped recovery…. it is only one segment of the population that is strongly recovered, and those will tend to be homeowners already.

 

So we’re seeing existing homeowners driving a lot of the churn in the market.  First time buyers, which usually DRIVE the market, are on the soft side.  So the lower price-point condos and townhomes are under-represented in the overall action.

This will change and the economic recovery changes the demographics that are recovering.  Also driving this disconnect is that the rental/investor component is weaker, given the overall higher vacancy rates and the slowing of rental increases.

 

Vacancy rates are still historically low, but this is the first time we’ve seen them increase marginally in a very long time….. so a lot of investors are sitting back.  This could mean condos are actually an opportunity right now, as pricing is flat, yet all the indicators for a surge in 2021 and 2022 are evident (inventory, economic recovery, rental recovery, and the immigration targets).