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Our reports : Property Perspective

Investing or Repaying Your Mortgage?

April 4th, 2024        Transcription

In this video: Macroeconomic context | Real estate market | Invest or repay your mortgage? | Investment strategies

Buying or Renting? Important Questions to Ask

February 27, 2024         Transcription

In this video: Macroeconomic context | Anticipating rate cuts | Remaining a tenant or becoming a homeowner

Financing Alternatives

January 11, 2023         Transcription

In this video: Anticipating interest rate cuts | Importance of reviewing your budget | Property equity

FHSA: The tool for first-time homebuyers

December 6, 2023       Transcription

In this video: Economic slowdown | Rate trends | Benefits of contributing to your FHSA by year-end



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Hello everyone and welcome to this April 4th edition of Property Perspective. Today I have the pleasure as always to be with Matthieu Arseneau and with Andrée Desrosiers Is it better to invest or pay off our mortgage? Before we try to answer that rather complex question, let's discuss with Matthew about recent economic news that might potentially influence the real estate market. So Matthieu with the US Federal Reserve talking about interest rate cuts for some time now is it the time for the Bank of Canada to do the same.

We already discussed that in prior videos, Simon, and of course we think it's time to start at least discussing it. Just to get a sense of what were the latest data: growth is resilient. So that's an upside surprise for the Bank of Canada. But on the other side, there's significant improvement in the for the in the inflation backdrop, as you can see on the chart that I'm presenting right now, you can see that over the past two months, this is a sizable downward surprise for economists. 7 ticks below their expectation in January, in February that the magnitude you can see, it just happened twice before over the past 20 years that kind of the downward surprise. So, it's surprising the Bank of Canada as well. And if you look at the details, for annual inflation, you can see the blue line, we're now at 2.8%. That's a significant improvement versus the 8% that we were experiencing a couple of quarters ago. But if you look at the details, it's a really interesting to know that when you exclude mortgage interest cost, and the cause of the increase is the Bank of Canada itself. If you look at that we are now at 1.9% which is slightly below the target of the Bank of Canada. If you exclude just one other component: rent, we are at 1.4%. So, in fact it was successful for the Bank of Canada. They wanted to calm down the inflation, they calmed down the economy and we can see that it's working with excluding mortgage interest costs and rents inflation really under control and it's rather low at this moment. So yes, it opened the door for we'll see if it's the moment we are calling for rate cuts for this summer, but perhaps they will put the table that they open for some accommodation in their next decision.

So Matthieu, as you just said, we see inflation going down. But even though some people are still concerned about a possible surge of inflation if we reduce the rate cuts prematurely, in our view, we are not in that camp for this point of view.

I think that there's a risk if they don't do it that the economy will struggle and there's going to be perhaps inflation below target for some time. If they are not accommodating enough. Already, we are seeing the private sector being negatively hit in the current environment over the past two quarters private domestic demand, so consumer investment is struggling in the current environment. So, contraction for two consistent quarters. And if you look at private hiring, in fact employment has been flat since mid-2023. That's a long soft patch for no hiring at all in the current demographic context that's very, very surprising. So, if it was not for the hiring from government the labour market would be deteriorating faster than what we're currently seeing. So, we have to be very careful, especially when we look at the issue that the corporations are facing at that moment that has changed significantly compared to at the moment they start increasing rates. Their main concerns at that moment were cost pressures, labour shortages, supply chain issues at that moment and the mineral sales at back then was not a concern at all, at just 18% of corporations saying it was a problem, it's now 49% concerns about their potential sales, labour shortages, no more concern at all. So that's a big change for me. It's time to give a bit of oxygen to this economy because of this weakness that we're currently observing in the private sector.

Interesting, we saw recently that the government has announced a gradual reduction in the proportion of non-permanent residents by 2027. Is that a good idea?

In fact, I think it's a good step in the right direction. A couple of weeks ago we published a report recommending the government to reduce population growth, total population growth between 300 000 and 500,000 a year versus the 1.2 million that we are currently experiencing. That was a sharp decline for population growth that we were suggesting the main reason housing shortage is acute at that moment when you look at mortgage payment on the medium price on with the rise in in mortgage rates but no downward pressure on loan prices because of this strong demand for housing. We are seeing that the affordability is that it's worse since the early 80s at the moment and if people want to look at the other market, so rental market we already discussed that rents are increasing at around 7-8 percent over the past few months on a year over year basis because rental vacancy rate as I show on the chart is at the slowest on record in that kind of environment. It's really important to calm down housing demand and I think yes it's a good decision from the for the government truly for us it's not a a good idea to bring new commerce in that kind of environment which is really bad for housing and labor market deteriorating for newcomers as well. So I think it's better to calm down on that front and it's it was a bit surprising to see the latest world Happiness Report that was published a couple of days ago. Good news on one side when you look at the ranking of Canada as a whole, the ranking we were 15 so in the world, so great performance. But when you look for the younger one, the less than 30 years old, we ranked 58. We have reason to believe that the reason that the housing shortage is one of the main reasons for this divergent that we're currently seeing in terms of happiness between. So, a big challenge for the Canadian for Canada over the next five years to resolve this problem of affordability. And I think that what was announced over the past few weeks is a step in the right direction.

Yeah, you're right to mention it, Matthieu Happiness and economy and sometimes go hand in hand. Thank you for your very good comments. So, let's now discuss with Andrée. To answer the question of the day, is it better to invest or to pay off the mortgage? So, Andrée, some homeowners and obviously mortgage holders might receive in the coming months an inheritance, a salary increase, potentially a tax refund, a bonus. And they ask themselves, what should I do with that money? Should I pay off my mortgage or should I invest? What do you think?

Very, very good question, Simon. While both options have pros and cons, the decision between paying off your mortgage early and investing will depend on your risk tolerance, your financial goals, the market conditions, your mortgage interest rate, and the possible interest yield you may have on your investment. OK, if your mortgage rate is high, it's more expensive to hold this debt, and it may make more sense to allocate extra cash to pay your mortgage balance to save on your overall interest carrying costs. On the other hand, if your mortgage is relatively low, then it's cheaper to hold this debt while you allocate extra cash in growing your wealth through an investment strategy. The potential for higher returns is a compelling reason to invest, especially if you have a longer investment horizon and a higher risk tolerance. However, always keep in mind that investing in the financial market comes with risk. And are these risks suitable for you? Are you going to be able to sleep at night with these risks? So ultimately, when comparing the potential gains from investing, when the interest rates saved by paying down your mortgage, it's essential to consider the return on your investment.

Can you just give us a concrete example of what you said?

Yes, with great pleasure Simon. For instance, if your investment return exceeds your mortgage interest rate after accounting for any fees that you may have on these investments and the taxes that you may have to pay if the investments are not in a registered or tax-free account investing then might be the better option. Conversely, if your mortgage interest rate is higher than your investment returns after accounting for any fees or tax implications, then paying off your mortgage could be the better option. In conclusion, choosing between the two, you know, between paying off your mortgage early and investing is another personal decision that depends on your financial situation and goals. So as usual, I'm going to refer you to your financial advisor to discuss this and to make sure that you take the proper decision that suits your financial needs.

You're so right, Andrée, what a great subject to discuss with your advisor. So, thank you Andrée for your explanations and I hope you all enjoy today's program and join us again for next edition of Property Perspective.

Thank you.

Hello everyone and welcome to this February 27th edition of Property Perspective. Today I have the pleasure to be with Matthieu Arseneau. Hi, Matthieu, and with Andrée Desrosiers. Welcome Andrée. Our topic of the day: renting or buying. But before we try to answer that rather complex question, let's discuss with Matthieu about recent economic news that influence the real estate market. So Matthieu, in its January press release, the Bank of Canada suddenly removed the sentence that it remains ready to raise the policy rate if necessary. Does this first step mean that the reduction in interest rate is coming pretty soon? 

In fact, I'll say that it was a bit surprising, and we discussed about it, that in December they were still guiding for potential rate hikes at that moment, while the Federal Reserve was going in the opposite direction. But yes, that's the first step before seeing those rate cuts that we all expect. And when we look at the data or for inflation data, which are crucial at this point for the decision of the Bank of Canada, we can see that, December there has been a restoration in inflation, but January provided optimism in this fight against inflation with headline at 2.9% year over year which is down back to the target range of the Bank of Canada. So that was great news showing that monetary policy transmission works, it's cooling the economy and cooling inflation. And when we look at the breakdowns, that's surprising to see that when you exclude shelter component, in fact we are now at 1.5% year over year inflation. So below the 2% target. It will be difficult for the shelter component to come down given that it's pushed higher with the mortgage interest costs increasing, with higher rates and rent prices being driven by this the housing scarcity that we're experiencing with strong demographic growth. So that's the trick. But clearly this development when we see what is going on with the ex shelter CPI, that's good news and at some point it will, it gives an opportunity for the Bank of Canada, in our view, to decline the first rate cuts in in June. 

Finally. Matthieu, still, according to its communication, the Central Bank showed, we can say, a certain discomfort, with salary trends that were still too high, according to them. As the labour market continues to relax is it only a matter of time before we see wages moderate? 

In fact, and that's what the Bank of Canada is a bit worried about, what is going on with the labour market with wage pressure. So that's something they want to see to slow in the next few months. When we look at employment data over the past few months, at first you can say "Oh, in January 37,000 jobs created. It looks strong on the historical basis. A good report was like 20,000 when we looked at the five year prior to the pandemic". But we have to keep in mind that we have very, very strong population growth at this point. In fact in January, we got the highest increase on record at 125,000 in a month in Canada for population age 15 plus. Usually to maintain the employment rate, so the percentage of the population at work, we needed 80,000 jobs created, so 37,000 in this context is weak and it was all part time jobs, public sector. It shows that the private sector is not that strong and not hiring enough to absorb this increase in population at this point. So for that reason, yes, we see the economy is calming, the labour market has calmed a bit and ultimately it should lead to a moderation in wages at some point this year. Especially that when we look at labour shortages, we are close to 25%, only 25% of corporations saying that they are experiencing that situation compared to above 45% a couple of quarters ago. And why there seems to be no labour shortage anymore? We are currently seeing an increased proportion of corporation seeing their sales declining. So 40%, we only saw that proportion in the last few recessions. So we have to keep that in mind. The economy is slowing, inflation is slowing. That opens the door for rate cuts in our view in June. 

Interesting, Matthieu. With anticipation of a policy rate cut, mortgage rates have fallen, and the housing market appears to be recovering as it enters peak season. What's on your radar Matthieu for the next few months? In fact, as you see, we are a bit pessimistic or prudent for the whole economy. But given the decline in rates that you just mentioned, given the strong demographic, we are already seeing a rebound of housing sales despite this relatively weak labour market. So, home prices are still declining given the affordability issues that we are currently seeing. But activity is bouncing back and perhaps we are going to see a rebound in home prices, a slight rebound in the next few months given this rebound in activity. So that's our forecast at this moment. So we are in a very atypical situation, slowing economy but housing sector could remain resilient in such a context because of the demographic boom. We have to keep in mind that population growth was 250,000 over the past year. Usually, we have 1 housing start for an increase of 1.7 in the population. So that means that we should have- just to absorb this kind of population growth, housing starts should have been at above 700,000 while it was at 240,000. So, it's not enough. So, there's shortages in the housing sector. So that's pushing home prices, it looks like it leads to a resilience in on prices and increase in in rent prices at this point. So a very atypical situation at this point. 

Hey, thank you very much Matthieu for your excellent comments. 

It's a pleasure. 

Thank you. On your side, Andrée. We are at a time of year when many tenants receive their lease renewal and ask themselves the question of whether they continue to be tenants or if they should become owners. Can you tell us a little more about this eternal questioning? 

With great pleasure is Simon. Becoming an owner has always, being valued over renting and acquiring a property is a dream for many Canadians. But is becoming an owner always more advantageous than being a tenant? The answer is not so simple because many comparison criteria must be taken into account. Investing in brick and mortar, as they say, always seems like a safe investment, but also involves a larger budget. Renting is generally considered more flexible but can also be perceived as a loss-making investment. It's not easy to decide. 

You're absolutely right, Andrée. Can you give us some food for thought, to help us see things more clearly? I'll try, I'll try. I'll give you some pros and cons of each choice. Let's begin with the advantages of being an owner. Purchasing a property is generally, and I say "generally", considered a long term investment and a way to build wealth, something to reassure yourself in a context of inflation. And an owner is also free to invest in his home and do work there. He therefore has the freedom to personalize his own without having to ask anyone's permission. While improving his comfort he also, in the long term, can gain a nice added value when he sells his property. Fixed mortgage payments for the duration of the term may also provide some long-term financial stability because they are not subject to inflation, because they are fixed for the entire term, which is mainly, you know, three to five years. So that protects you from inflation. On the other hand, access to property requires a substantial budget. In fact, you know, as we discussed in a previous edition, over and above the down payment, that is a minimum of 5% of the purchase value of your property. Several other costs must be taken into account: appraisal, inspection, legal fees, mortgage insurance premium, if required, transfer tax, moving expenses. So there's a lot, there's a big number of initial fees that you have to face when you become an owner. Over and above this one time, you know, fees, you've got the recurrent ones, as we say, the ones that come every year. So you must pay your municipal and school taxes, you must do your maintenance on your property, you may have to do some repairs and other things like that. There are also certain risks which we don't think always of. You know, like the neighborhood where we choose to be. The development, is it going good or it's poorly managed? Do you have problems with your neighbor? We don't want that, but sometimes it happens. So that's elements that can mean that you will resell at a loss because you want to leave this neighborhood. So the choice of the location of the house is therefore essential as well. That's on the owner side. Let's take a look at the rental side. On the advantage of being a tenant, the main one is really the great freedom that rental confers. In general, living in an apartment is quick and easy and a person likely to move regularly due to career moves or things like that, well, should favor rental. Apart from the obligation to pay the rent each month, a tenant has fewer financial obligations in comparison with the homeowner's. Taxes are paid by the homeowner and the cost of home insurance is usually lower than the one of an owner. The money also that you use to purchase to purchase a house can be invested elsewhere providing greater financial liquidity. On the other side, the lease provides that the amount of rent will be revised yearly. In the current inflation context, these increases can be quite significant in certain cases. As Matthieu mentioned earlier, there's also- the market is really tight on the rental part, so to find another apartment can be quite difficult in most of the larger cities in Canada. As well, a tenant cannot carry out work in his apartment. He has to depend on the owner both for maintenance and for improving its comfort. So as you can see, Simon, there is no simple answer. 

Andrée, in light of what you just have said, what are the basic questions that we we must answer to discover what's best for us. Yeah, there are some, you know that you can ask yourself and I will give you some of them, Simon. First, are you financially stable? OK. Does your budget allow you to absorb unforeseen events? Because like we said earlier, you can have repair, you can have maintenance fees. So being an owner, you need to have a budget that is that, that has more room for these type of events. What about your employment situation? Are you looking for a new job? Is this new job that you will get be in another neighborhood or even in another city? So that's a question that you have to ask yourself. Are you ready to spend time maintaining this house? That's a question to ask yourself and your family situation. Will it change during the coming years, the coming month, are you going to have children or things like that. So that's all things that you have to consider. And are there expenses as well that you are absolutely not ready to let go of like you know travel, expensive cars, good restaurants. So that's all that, that's simple questions, but you have to ask them before making your decision to see which one fits you the most. We also have an excellent tool at the bank which is called should you rent or buy and I encourage you to everyone that is asking this question to go and fill it out and it's on in our on our website. So at the end of the day, Simone, the decision of staying tenant or being an owner is depends on each person's situation but also on their short and long term objectives. So as I always say, go and discuss all of this with your banking advisor in order to obtain personalized advice based on your particular situation. 

Thank you, Andrée for your very pertinent suggestions. I hope you all enjoy today's program, and we'll see you very soon for your next edition of Property Perspective. Thank you.

Hello everyone and welcome to this January 11th edition of Property Perspective. Today I'm with Matthieu Arseneau.

Hello Matthieu.

And Andrée Desrosiers,

Hello, hello.

Our topic of the day, mortgage refinancing. But before we get into that discussion with Andrée, I like to go back with some declarations from either the Fed or the Bank of Canada with you Matthieu. Remember in December, the Fed, telegraphed larger interests rates cuts in 2024 than in September. Obviously, it was enough to give a lot of gas to the scenario of the soft landing of the economy. Do you think investors are right to be so excited at the moment?

It's good news, OK. There has been improvement in the inflation backdrop. The Federal Reserve is now open for more rate cuts, but we remain cautious on our side with our economic scenario. We still expect the contraction of the US economy in 2024. We have to keep it in mind, and you can see that on the chart. The Federal Reserve is now expecting 75 basis points of rate cuts, but the market is now expecting 140 basis points of rate cuts, so more than what the Fed is expecting. So, either of the two Scenarios, if they materialize, doesn't mean that we are out of the woods yet. If you look historically, in fact in each of the last four recessions the Federal Reserve cut interest rates before it happens. So, it's still a perilous situation given that even if we get those rate cuts, monetary policy will remain restrictive on a historical basis and we'll have a negative impact on the economy, in our view.

Okay, and Matthieu, in Canada, despite signs of weakening of the economy, we heard Bank of Canada continue saying they might raise interest rates again. Is that serious?

Clearly, I would’ve been surprised if in December perhaps the what the Fed was saying should have been what the Bank of Canada I said, but it wasn't the case. They were still there, are still hawkish in their tone. They want to be sure that they will contain inflation. But there has been pretty good news on the inflation front in Canada. If you look at the chart I'm showing right now, in the last three months ending in November, in fact, when you look at the 55 components of the CPI, in fact just 25 components were increasing above the 2% pace over that period. So that's very low and very low compared to the 47 that we saw back in 2022. You can see that on the chart. And if you look at core inflation, when you exclude the most volatile components, that's what the Bank of Canada is tracking. Over the past three months, we have been running an annualized pace of 2.4%. That's pretty close to the 2% target. So that opens the door for rate cuts in our view starting in April. So that's the good news. The bad news is perhaps this sweetness in inflation is due to a weakening economy that we're currently seeing. We talked about it, GDP growth is very, very weak. So, we even saw a contraction in Q3. Labour market, hiring is not following the pace for population growth, and we are seeing with the employment rate of the primary age worker core the 25-54. The downward trend we are currently seeing. In fact, the employment rate is at its lowest level in 23 months. But more worrisome is what is going on with the youngest one, the 15-24. We are seeing a drop of three percentage points in the unemployment rate. The only moment we saw that kind of weakness, it was in recessions, historically, in Canada. So clearly there's a weakening economy still in December and we expect that to continue and that's opened the door for a first rate cut for the Bank of Canada in April before the Fed. We think it's going to be much more at the end of the second quarter on the Federal Reserve side.

Thank you Matthieu. Last question for you. In anticipation of rate cuts in Canada and in the States, we saw recently five-year mortgage rate decreased. Is that a good sign for the real estate market?

Clearly it gives some oxygen to the to the market 50 basis point on the five-year mortgage rates since the October-November peak. I'll say that for December it's mixed performance, Toronto bouncing back in terms of resale market activity, Calgary increasing as well but Montreal and Vancouver declining. But if you look at the past year, so 2023, we have 11 months, so almost the full picture. It's the worst performance in 15 years in Canada in terms of resale market. That's what I show here. So, people are wondering are we going to see a rebound in activity in 2024? We're not that optimistic for the first half of 2024. Yes, rates decline, strong demography, but we don't have this momentum in the labour market that could help the housing market in such a context. And we have to keep in mind that affordability remains an issue at current mortgage rates. So, it's still restrictive and still a level affordability which causes a problem at this point. So maybe we'll have to wait for the second half of 2024 with job gains, job creation coming back and lower rates, but we'll see. So maybe some improvement but in the second half of 2024.

All right. Thank you, Matthieu, for the very clear explanations. Let's now discuss with Andrée certain aspects to consider before refinancing your property. Andrée, you spoke to us of the importance of having a budget. Yeah, I think a couple of months ago, especially given the context of high inflation and rising interest rates. If I remember correctly, you told us that updated budgets are essential to ensure that we're well positioned when facing mortgage payment increases, which in some cases as we all know may be significant. But really, Andrée, where should we start?

That's a very good question, Simon. Before I answer it specifically, I would like to share with you some interesting statistics that I've seen. Did you know that only half of Canadians make a budget? In fact, it's 49% of them. Those who do so, though, are Half as likely to default on their financial obligations and people who take the time to do a budget repay their mortgage faster as well as their other debts. So, as you can see, a budget is a simple tool that is available to everyone and that can make a difference if you take the proper action in order to improve your financial situation.

Yeah, you're right Andrée. Statistics speak for themselves. So, Andrée, if following the budgetary exercise, we see that we need to do something. To be able to afford our new mortgage payments, what exactly can we do?

In fact, Simon, once your discretionary expenses have been removed or reduced from your budget, expenses such as restaurants, subscriptions, things like that. If it's still not sufficient then we must look at the debts. First of all, as you are a homeowner, do you have equity on your property? Equity is the difference between the actual market value of your house minus your mortgage balance. Let's take an example to simplify everything. Let's say you bought a house in June 2020. You paid $400,000 for it, and you took a mortgage of $350,000 Today, three years and a half later, your house is worth 500,000. And I'm not exaggerating here because since the pandemic, meaning you know since March 2020, property prices have increased by more than 25%. So, your house that you bought in June 2020 at 400 may very well be worth now the $500,000 that we are using in our example. So, if we take this $500,000, we subtract to it our mortgage balance, which is 350, And here again, I am being conservative because you've made payments since then, but you know to make it simple, we're going to keep the $350,000. So, you have equity on your house of 150,000. Thanks to this equity, Simon, you can refinance your property and thus free up, you know, liquidity that will allow you to repay some debts that you have on your in your budget. Car loan, for example, or credit cards. We have to keep in mind though that when we refinance our house, we cannot go higher than 80% of its market value. So again, if we go back to our example, our house that is worth now $500,000 of that is $400,000. So, if your mortgage balance is $350,000, that gives you equity or liquidity that you can use to repay debts that can go as high as $50,000 if you decide to refinance to the maximum of $400,000. And with these liquidities, we always suggest that you pay first the debts where you have the highest interest rate. Again, like credit card or the type of loan you know a buy now or pay later.

Are there any fees, Andrée, associated with refinancing?

There could be some fees. For example, we may ask for an appraisal to confirm the market value of your house. The average price of this appraisal as we said on the earlier capsule is $350. Also, if we cannot use your mortgage deed that you actually have on your property, then there could be legal fees that will be something around $1500.

Interesting. And what if we don't have enough equity to refinance? Are there other solutions to help us?

Yes, yes, yes, there's other possibilities for you. First, if you have a line of credit, you can use it to repay some commitments that are bearing higher interest rates than the one you're paying on your line of credit. That’s one thing that you can do. If your credit allows it, you could also consider consolidating your different debts to have only one monthly payment, so that will help you as well. And finally, as a last recourse, you know if you have investment, you can cash them and repay your debts. So, as you can see, there are many choices available to you. The important thing though is to discuss them with your advisor, to make sure that the choice you make is the right one for you.

Thank you, Andrée, for your very pertinent suggestions. And thank you again Matthieu, for your presence today.

Thank you.

I hope you all enjoy today's program and join us again very soon for our next edition of Property Perspective.

Hello everyone, and welcome to this December 6 edition of Property Perspective. Today, I have the pleasure to be with Matthieu Arseneau, and Stephanie Castonguay. Hello Stephanie. 

Hello Simon, Hi Matthieu. 

Our topic of the day, the famous FHSA or if you prefer, easier to pronounce, the First Home Savings Account. So, before we go into that discussion with Stephanie, let's talk about the recent macroeconomic context influencing as you all know the real estate market. Matthieu, several questions for you. To start, we've seen signs of economic slowdown recently. What's your latest developments on economic growth and on the job market in Canada? 

Again, I'm not bringing good news, Simon, for the economic situation. We got Q3 GDP numbers recently. It was an economic contraction of 1.1% for GDP annualized. That surprised the consensus of economists expecting a stagnation of the economy. So, it was worse than expected. International trade was a drag on growth. There was less investment in inventories that led to this decline. So sometimes and that's what we do economists focus on domestic demand to see how the domestic economy cope with the current tightening in monetary policy. It was increasing close to 1.5% as you can see on that chart, the blue bar. But you have to get the clearer picture, you have to remove the general government expenditures that drove this this increase if you exclude government intervention, in fact you can see that private domestic demand was contracting in Q3. So yes, we have economic weakness in terms of for the Canadian economy at this point. What we are seeing in the labour market is consistent with this weakness. We saw an increase of the unemployment rate since April. 8 ticks increase. Given the tightening and the tightness of the monetary policy at this point. Clearly hiring is not following the increase in population that we are having, so newcomers have more difficulties to integrate the labour market. But it's not just newcomers when you see there has been an increase in layoffs over the past few months. In fact, as you can see on that chart, the share of unemployed that I've been laid off is increasing at this point. So, there's clearly these economic difficulties we're seeing an impact on the labour market at this point. 

Well, Matthieu, things are changing rapidly. Just recently companies mentioned they were affected by the labour shortages. Can you tell us more about that and also what's the impact on the on the inflation rate?

Yeah of course when we look at shortage of skilled labour and things change really fast, and I think we cannot talk about that anymore in the in the current context. If we just look 18 months ago, when the rate hike started in Canada. Clearly, main concerns of small businesses were shortage of skilled labor, shortage of unskilled labour, shortage of input products as well. We remember that there were concerns and problem with the global supply chain during the pandemic and insufficient domestic demand was not that much of a concern. In fact, only 23% of small businesses were saying that it was a problem. It doubled over this eighteen-month period. And it's now, in November 2023, the main concern of small businesses. So clearly this those economic difficulties, they are much more concerned about their sales than they will not be able to hire. That's a concern for the coming months in terms of economic growth and for the labour market. The good news is that with economic weakness come softer print in inflation and as you can see on that chart, core inflation, the average of the two measures that is tracked by the Bank of Canada has been continuing to decline. So, there has been, it was stabilized but there's progress over the past few months and now we have core inflation still a little bit too high in the eyes of the Central Bank, but still the lowest level since 2021 at this point. There's progress on that side and that's good news because we could have economy difficulties with still high inflation and that will be a problem for Central bank. But given those developments it opened the door for potential rate cuts in 2024. 

So that's good news Matthieu. So really, investors can start dreaming about the rate cut in spring and what does that mean for the housing market in 2024? 

You know that we had this scenario for a couple of months for a first-rate cut in the second quarter of 2024. So no, there's no rate cuts announced by the Bank of Canada at this point. But given those development that I presented today, we can hope for that. But now market is on our side is sharing our view for this rate cut coming sooner than later as soon as Q2. And as a result of that, five-year rate government five-year rate has declined sharply because of those anticipation of rate potential rate cuts coming in the next few quarters. We can see that and as a result, mortgage rates decline as well. And that's a good thing because we are seeing some weakness in the housing market at this point. After a slight rebound in home sales activity last spring, the momentum is fading. Clearly as you can see the red line on that chart, active listings are increasing. So, supply on the market is increasing relatively fast at this point. So, we are starting to see on price decline again and we expect that trend to continue for a couple of months. So, with affordability being such a concern in Canada, it's good news to see rate declining and home prices declining and that's maybe the good news of my intervention today. Over the next 12 months, we could see an improvement in affordability because of those developments. 

Thank you very much, Matthieu to for giving us some hope with this excellent update on the on the economy. So, let's now discuss our main topic, the First Home Savings Account, a tool that is proving extremely popular at the moment with first time buyers. We're looking to buy their first home. 

Just before we begin, I just want to acknowledge our colleagues at the Bank who made the Bank the first financial institution in Canada to be able to offer that product to our clients since April of this year. 

Stéphanie, can you explain to us what is this famous FHSA account? 

Yes, of course. If it's just said in summary Simon, the FHSA is the registered account that allows first time homebuyers to contribute up to $8000 per year and up to $40,000 in their lifetime tax deductible. The investment income in the FHSA is tax free and the withdrawal for the purchase of a first home is nonrefundable and non-taxable. Once opened, you have a maximum of 15 years to make your withdrawal for the purchase of a first home and also the contribution room accumulates only from the account opening date. Once your account is opened, up to a maximum of $8000 of unused FHSA contribution room can be carried forward to the following year. 

Stephanie, what conditions need to be met to open the first Home Savings Account? 

Yes, to open an FHSA you must be a resident of Canada and be between 18 and 71 years old, and you must be a first-time homebuyer. This means you must not have lived in an eligible home that you or your spouse owned at any time during the current year or the previous four years. 

Wow. Last question for you, Stephanie, can you give us some advantages of opening or contributing to the FHSA before December 31st of December this year? 

First, the advantage of opening your account this year is to begin to accumulate FHSA contribution room. As I said, the contribution room accumulates only from the year the account was opened. Once your account is opened, up to a maximum of $8000 of unused FHSA contribution room can be carried forward to the following year. For example, if you open your account this year but don't invest into it next year, you could contribute up to $16,000. Also, unlike RRSPs, contribution that you make to your FHSA during the first 60 days of the year are not deductible on your previous year’s income tax return. So, the advantage of contributing before December 31st is that you can deduct the amount of your contribution from your taxable income for the current year. And these tax savings will allow you to have more money to contribute to your FHSA next year. So, the FHSA helps you accumulate your down payment faster for the purchase of your first home if you are eligible today, I invite you to consult your financial advisor who will evaluate the best option for you. 

Thank you, Stephanie, for your very clear explanations. As you can see, the First Home Saving Account is a powerful tool to help you achieve home ownership. It allows you to save faster, more efficiently while benefiting from tax advantages. It also let you diversify your sources of financing for your down payment, complementing obviously the RRSP or TFSA. 

So, thank you for being with us today and join us again in January for our next Property Perspective. And until then, I wish you a great holiday season.

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