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Our reports : Property Perspective

What are the steps to selling your property?

May 28th, 2024        Transcription

In this video: Anticipating rate cuts | Housing affordability | Selling your property

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



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Good morning, Simon.

Our topic of the day, what are the steps of selling your house? But before to try that to answer that interesting question, let's discuss with Matthieu about recent economic news that influence the real estate market. Matthieu, it's been almost a year since the Bank of Canada held the interest rate at its highest level since 2001. Matthieu, the million-dollar question, is it the time now to cut interest rates?

I think we're there for - Yeah, Simon - that's the good news this morning. I think we will get first rate cut this summer. Most importantly, when you look at economic data that came out over the past few months, particularly when you look at inflation numbers, there has been significant improvement. When you look at the core measure, the average of the two measures that the central bank is tracking, CPI trim, CPI median, it's running over the past three months on an annualized basis at 1.6%, so below the 2% target of the central bank. And when you look at the number of categories that are running above the 2% threshold, it's only 27, essentially in line with the historical average and way below the 48 component that we saw at the worst of this inflation crisis. So significant improvement that bodes well for rate cuts. And we have to keep in mind that it's not like immaculate disinflation. It's really because the Canadian economy has cooled that we are getting this moderation in inflation. In fact, when you look at the unemployment rate, it has increased significantly since 2022.  It's now back slightly above its pre pandemic level. It's not a disastrous labour market. It's much more a hiring freeze from the private sector. But people who are trying to join the labour market, it's more difficult for them when you look at, for example, unemployment rate that is at its highest since 2016 and essentially the same thing for recent immigrants. So yes, the economy has calmed down, it looks in our view that we need those rate cuts to stabilize the labour market. So, we will not get too much damage in this fight against inflation. So yes, this summer, if it's not June, what I would like to see, it's going to be July and that's our baseline forecast at this point.

OK, very good news, Matthieu. However, we know that the Bank of Canada tends not to strike too far from the Federal Reserve and we heard recently doubts that are beginning to surface that it's going to be hard for them to cut short term rates. Do you think, in your mind, is it realistic that the Bank of Canada go at it alone this summer?

And that's the question that we get frequently. In fact, the main reason, if you look historically, you can see that the policy rate has been very correlated in Canada and the US. Of course, those two economies are experiencing the same shock. We know that exports represent 30% of GDP going to the US. So, it's normal that those two economies are very correlated. But you can see that at some point there's gap because an economy is doing a bit better than the other one. And you can see that prior to the global financial crisis, we saw a gap in policy rates of one percentage point and even 2 percentage points during the 90s. That's not what we expect at this point, but it will be given the economic backdrop. It will be totally neutral in our view to see the central bank declining rates before the Fed and even cutting rates a bit more this side of the border we’re expecting 75 basis point cut at by the end of this year rather than in the US only 50 basis points. So yes, they can go alone in our view, but they have to manage that gap because ultimately it has an impact on the currency. And if they decline rates too much versus the US, Canadian dollar will depreciate, and it will lead to import inflation in fact. So that's the risk and that's the reason why they will have to manage that. But clearly we have to look at domestic conditions and when you look at those conditions Canada versus the US, you can see that core inflation as measured in Canada, as I mentioned at 1.6% over the past three months, it's 4% in the US. So, they are not ready to give the same level of oxygen we think south of the border. And you can see that the unemployment is barely up in the US while it's increasing if you can't in Canada. Same definition here. The unemployment rate is at its highest since 2017 with the same definition as in the US. So clearly those two economies needs a different path in our view at this point.

And Matthieu, we've read the recently that the government has announced measures to counter the housing crisis, both in terms of immigration and a very ambitious plan to build nearly 4 million new homes by 2031. In your mind, Matthieu, is it possible to improve the housing situation in the short term?

I think it's going to be a long-term project. Clearly we have to adjust our expectation perhaps a 5-year project. There has been announcement about reducing population growth over the next three years that will be more easy to put in place, but it takes time to put that in place. So far this year, populations continue to increase at a brisk pace. For construction, the goal is to build 550,000 homes a year starting next year. We have never been able to build more than - it has been always less than 300,000 a year so far. So that's a significant increase. And I don't know if we have the capacity. The number of construction workers to be able to increase construction by this magnitude. But as you can see, we have to keep in mind all measures that are put in place to fix this situation is welcome. And as you can see for the monthly mortgage payment on median home price for first time home buyer, it's a difficult situation at this point. It has improved a bit last quarter with the decline in rates and the moderation in home prices. But even if we get those rate cuts in the coming months home prices should be resilient because of this housing shortage. So we've talked a lot about first time home buyers at this point, people getting this payment shock. Which is on average 20% in 2024 for people who need to renew their mortgage. But also, the renters who are impacting by this, housing shortage. And as you can see on a year over year basis, rents are still increasing at 8% at this point, the IRS since the early 80s. So, we have to keep to keep that in mind at this point. In fact, they look a bit more vulnerable. And when you look at renters, when you look at delinquencies for credit cards, so borrowers without a mortgage, their delinquencies are higher, already higher than its pre pandemic level, while mortgage holders for mortgage holders it increases, but it's it remains significantly below its pre pandemic level. So, we have to keep that in mind. That's a big challenge for the Canadian economy and we have to put all the measures in place to fix that situation, which is causing a lot of problem at this point.

All right, thank you, Matthieu for your very good comments as usual. Let's now discuss with Andrée to try to answer our question of the day. Andrée, in previous edition of Property Perspective, we've been talking about activities mainly related to the purchase of the property. Although we know that it's a very important step in everyone's financial journey, I would like this time to focus more on its counterpart, the sale of the property.

 With great pleasure, Simon. You are so right. We generally discuss the purchase of a property, and we often forget about the sale. In fact, for many people, over the course of their life, they will purchase more than one property. Many will buy 2, three or even more for all kinds of reasons. It could be for the family, which is growing because we decide, you know, to live with someone or even to separate, for a new job and many other reasons.

So, you're right, Andrée, there are all kind of reasons that leads us to considering changing homes to do this. What are the steps to follow to ensure that the sale of our home is done without too many surprises? Let's say that.

Yeah, to ensure that everything you know is done in the greatest possible harmony, I would say I would like to propose a ten-step process that you can follow. OK. The first one you've got to do a property appraisal. And to do that, you can get an accurate assessment of the market value of your property by getting the help of a real estate agent or a professional appraiser for this step. Once you've got the price, you have to prepare your property. Ensure that it is presentable and attractive to potential buyers. This may involve minor repairs, cleaning, and decluttering. I would say to highlight its best features. Next, choose a real estate agent. If you decide to work with one, find one with experience in your area and one with a good reputation. The agent will guide you through the selling process. Next, setting the asking price. Discuss with your real estate agent to set a competitive price for your property taking into account the local market, the comparables and the overall condition of your property. Then you will have to market the sale of your house. You know in the market and your agent will help you implement a marketing plan to attract potential buyers and this may includes online listings, virtual tours, guided tours, etc. Then you will have to negotiate the offer you will receive and as buyers begin to make offers, your agent will guide you through the negotiation process to ensure that the best price and terms are possible for you. Once a satisfactory offer is presented to you, then you and the buyer will sign the purchase offer which will highlight the terms and condition of the transaction. For example you know the sale price, the date of possession etc. Then, in these conditions. the buyer may ask for the inspection of the house and this will confirm to him that everything is in order and that there are no potential issues or even defects. After that you may need you know to do some little repairs or adjust the price accordingly. Then your buyer will have to finalize with his financial institution a mortgage approval and get back to you with that in order to confirm that he can it afford and pay for the property. Once you've got all that, the conditions of the purchase agreement have been met, you and your buyer will sign closing documents and legally transfer ownership of the property to the buyer. That is the ten step process that I was suggesting, but there may be another - an 11th one. OK. You may also have to produce a new certificate of location if the one you have does not include the improvements made to the property since your acquisition or if it's more than 10 years old.

Well, Andre, that's not that easy to sell a house. You just mentioned that we can use a real estate agent for this to help us. However, some people decide to do to do it themselves. Why would they choose that option?

You know, you're right. You know it is indeed possible, Simon, to sell a property without asking for a real estate broker or agent. The main reason for doing so is to avoid the brokerage fee, which you know may go from 4 to 5% of the sale price. This commission, you know is used to compensate the agent for all the work he is doing in supporting you in the sale of your house. Although it is possible to do this, you must possess in-depth knowledge of brokerage rules, the real estate market in your area. You must be available for all the calls, visits, be able to effectively promote your property on the market and above all, not be emotional because you know we always see our house better than it is. Therefore, unless you are a real estate expert, I recommend that you use the services of a trusted real estate agent to save yourself a lot of trouble and ensure a transaction at a fair price.

Thank you, Andrée for your great explanation and advice and thank you all for watching this morning and join us again very soon for next edition of Property Perspective.

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.

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