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Our reports : Property Perspective

Financing Alternatives

January 11, 2024        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

Preparing a budget for an upcoming mortgage renewal

November 8, 2023        Transcription

In this video: Maintaining your financial health | Rent trends | Current economic context

The challenges of residential construction

September 28, 2023        Transcription

In this video: Supply and demand | The current economic context and its impact on real estate | Measures to alleviate the housing shortage



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Little details that matter

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.

Hello everyone and welcome to this new edition of Property Perspective. Today, I have the great pleasure to be with Matthieu Arseneau

Hi Matthieu

Hi Simon

And with Andrée Desrosiers. Hello Andrée

Hello Simon

Our topic today, the importance of preparing a budget way before your next mortgage renewal. But before we jump into that discussion, let's talk about the macroeconomic context influencing real estate. So, a question for you, Matthieu. We know that the Bank of Canada kept its key rate unchanged recently despite the high inflation. Do you think it was the right decision to make?

Simon, a couple of weeks ago there was a concern and investors were worried about another rate hike from the Bank of Canada because of the resilience of inflation. I think it was a good idea to hold rate. In fact, I'm still concerned about the rate hikes that already occurred during the summer and I don't think those were necessary given when we're looking at the economic situation at this point. What I show on this chart is the real policy rate. So, policy rate minus core inflation in different countries. It gives us an idea of the real cost of funding for borrowers and that's why they're important for the impact on the economy. And as you can see on that chart in Canada, it's the most restrictive monetary policy among G7 countries at this point. So yes, a good idea to take a pause, especially that we didn't get the full impact yet of all those rate hikes that occurred over the past few quarters, in fact, even the first one that occurred in in Q 1/20/22, we didn't get the full impact on consumption. For example, it takes 8 quarters according to the Bank of Canada to get the full impact. What it means is there's 43% of those rates, the impact of those rate hikes, there's 43% left to get for the impact on consumer. So, that's sizable. So that's the reason why taking a pause looking at the situation and there is concern in this context for bumpy rolls for consumers in the in the months ahead.

So Matthieu, weakening economy, stagnation of GDP in the third quarter, what can we expect next?

Yes, as you mentioned, stagnation in the last quarter, there was stagnation in Q2 as well, but it's perhaps more fragile than it appeared at first. Because OK stagnation - but this is occurring at a time when population is booming. So, a surge in population, when you look at real GDP per capita, just to adjust for this population boom, you can see that there's an impact on the economy of those rate hikes. Real GDP per capita is declining 2.4% over the past year and that's drop off this magnitude as only been observed during recession in Canada. So that's already a big impact and as I mentioned, there's further impact to come. And when you look at confidence, it does not suggest a rebound of the economy in the months ahead. When you look at consumers’ confidence at the level that we saw during the pandemic or during the 2008 2009 recession because of inflation, because of the payment shock, interest payment shock that Andrée will talk about in a few minutes. So that does not suggest that the consumer is very strong to support the economy at this point. And when we look at the confidence of small and medium enterprises, we can see that the level of confidence is low as well. So that does not suggest a hiring spree in the next few months. So, in such a context, we have a conservative scenario, potentially small contraction of the GDP in Q4 and Q1 in Canada given the current context.

Although the economy is halting as you just mentioned, Matthieu, the housing shortage continues. What are the conclusions of your latest report on that?

On that front, because of the population boom that I just mentioned, there has been a rebound in activity in the resale market, home prices rebounded as well. So - but that led to a deterioration in affordability in Q3 after some improvement in the prior quarters. Because on top of the price increase there has been a significant increase in the five-year mortgage rate as well. So Last data show, that it's the highest in 20 years on that front. So, and in such a context it's not surprising to see that the resale market is moderating sharply given the rise in mortgage rate. So over the past few months there, there has been a decline in activity perhaps households are looking at what the adoption on the rental market, but on that front it's not way better for affordability when you look at rent prices increasing at above 7% on a year over year basis that's the highest in 40 years. And it's very unusual to see rent in Canada rising faster than inflation as we are currently seeing. In fact, the spread is the highest in over the last five decades. So that's very, very unusual. Clearly there's a dwelling shortage in Canada and it's impacting the economy at this point. Thank you, Matthieu.

A lot of uncertainty in the market. Thank you for setting the table for the discussion with Andrée.

Andrée, given the economic context that we just saw, and which is likely to prevail potentially in 2024-2025, what can owners expect when renewing their mortgage?

A very good question, Simon. In fact, homeowners who will have to renew their mortgage in 2024 or 2025, the risk experiencing a significant increase in their payment. Let me give you an example. If you have a mortgage that when it's going to come to renewal, your balance is 250,000, your remaining amortization period is 20 years, and your actual rate is 3%. If you renew at a rate of 5%, your annual payment will increase by more than 3000 or 250 per month. If you renew at 6%, then the increase, the annual increase will be over 4750, which translates to almost $400 per month. So, as you can see this is a significant increase and I've been very conservative with my numbers because we know that many people have rates that are actually 2% and even lower than that. And I don't think you can find a mortgage right now, a 5-year mortgage at 5%, it's a lot more around 6.5%. So that's going to be a shock for many customers and this shock is not the only one that we have had in the last year, you know with inflation and all that, just look at the food, you know groceries and things like that.

So, it's going to be very sensitive for people in the months to come. Concerning what you just said, how can homeowners prepare for such increases?

In fact, Simon, however, your situation may have changed. OK, we have to return to basis and a budget is one of the best financial tools to keep yourself on the right course. OK. It is important to review on a yearly basis your budget to make sure you are still financially stable and in control of your finances. And when you do the budget, you always have to look at your expenses, naturally. And you look at your mandatory expenses and your, what we call optional expenses. On the mandatory side, well, you have to eat, you have to have a place to stay, you've got to pay your taxes even though you don't like it. And on the optional side, you have all that we call, you know, the restaurant expenses, theatre, gifts that you may do on several occasions, even the second car, you know, maybe an optional expense. We never make these choices by pleasure, but they may be necessary. And if you do that exercise right away and that you make sure that you've got enough room to cover this increase in payment that we just said earlier, maybe, you know, around 500, even $600.00 per month, then when you will renew your mortgage, you will already have included this increase in your budget. So, you will then be in a much better place to meet your new financial requirements.

So hard choices to make another day.


Thank you very much for your great advice.

My pleasure.

So, after listening to Matthieu and Andrée, I strongly suggest that all homeowners with a mortgage renewal coming in the next few years should as soon as possible spend some time updating their budget. I'm convinced that in doing so you might avoid stress and potentially bad surprises at renewal time. So, thank you very much for being with us today and joining us again for our next property perspective in the coming weeks.

Hello, everyone and welcome to Property Perspective. So today we are going to be talking about the challenges that we're facing in real estate construction. And as usual, we have the privilege of having Matthieu Arseneau with us. So, hello Matthieu.

Hello Nancy.

So, you'll be talking to us about what's happened in the last couple of weeks regarding the macroeconomics that are affecting our environment and our economy on a daily basis. And we have a new guest today, Guy Dallaire. Hello. Hello.

Hello Nancy.

Guy is Vice President in 1859, commercial and real estate construction. So, you'll be giving us very interesting insight as to what's happening in the world of new constructions.


So, without further ado, Matthieu, I'll start with you. Of course, economists are focusing on inflation, and it's been the case for many, many months. We know that the central bank here in Canada, but everywhere in the world banks are trying to resolve this issue. It's not working that well in Canada, is it?

No, there's no good news on that front since our last talk. When you look at the at the last two release of CPI in Canada, in fact it was a disappointment for economists and a disappointment for the central bank as well. back in June it was interesting to see a headline inflation, so annual inflation being in the target range that the Bank of Canada want to see it so at 2.8% but since then it registered a significant rebound. A rebound was expected because of last year’s base effect, but clearly there has been the impact of energy prices rising with the OPEC production cut announced in the current context. But that's not the only reason for this rebound, that is the big disappointment. In fact, when you look at August all the eight major components were rising above the central bank target. So that was widespread across the economy in one month in August, but still a concern for the central bank. If you look at that chart, you can see that core inflation, when economists talk about core inflation, is when you remove all the more volatile components each month to get another to get a view on the underlying trend. You can see that it was stuck in the 3.54% band since last August. That was already a concern for the central bank, not seeing it come back to 2%. And can you imagine how they reacted when they saw that bouncing back to 4.5%? Of course, the probability of a rise in rates increases due to this report that we got in August. But still there's further data that will come out before the next decision, but still the probability of a rate hike increase over the past few weeks. Yeah.

So, if I hear you correctly, the last time we spoke there was not any increase. So, we were sort of happy now that we see the August numbers, 99% of the chances it will go up next time, 25 bps, 50 bps.

What do you think for the moment when we look at the expectation of the market, it's 50, only 50% probability of a 25% rate hike. So, we are close to the top, the top of rate that we will we expect to get in this cycle. But we have to keep in mind that inflation is a lagging indicator and that's my concern. So yes, August was strong, and it was strong this summer given the energy situation that I just mentioned. But at the same time that's the dilemma for the central bank. On one side the inflation is strong, but the economy is showing clear weaknesses. Since the start of the year, there has been disappointment on that front and on the same week that we got the information for that rebound of inflation, we got very, very poor data on retail sales in Canada. So, when you look at nominal retail sales, they look resilient, not booming but stable. Oh, when you look, we corrected for inflation to see the real purchase of households. You can see that it's a downward trend since the start of the year and if you look at it on a per capita basis because there's a population boom and you want to see how and in fact the monetary policy impact household individually, you can see that it's in a downward trend since 2021. So yes, the tightening in monetary policy is impacting the economy, is impacting the consumer and we can see that on that chart. So big decision to take. Inflation still strong but clear weakness that we are currently seeing in the Canadian economy. The Bank of Canada needs to be very careful especially that we are currently seeing the slowdown that will continue based on the last CFIB survey, that's a survey that has been done. They are looking at the intention and perception of small businesses and what we can see there, it's a big switch that occurred over the past few weeks in fact since the 2021 shortage of unskilled labor was a more concerning versus insufficient domestic demand. But they're now there has been a switch, no more unskilled labor shortages. And what I'm concerned about now is the vigor of the domestic economy.

So, in such a context, the Bank of Canada needs to be very careful given the weakness that we are currently seeing. And when you see that how this is affecting what some people are now calling the housing crisis in Canada, that's a very, very difficult situation for housing.

We already talked about this in our prior talks. There has been a significant rebound in home sales given the population boom and we are seeing a home price rebounding on prices, and we are now essentially back to where we were at the peak in 2022 before the rate hike. So, at 2% of the level that we saw back then. So, this they're rebounding on prices combined with the rebound in mortgage rates which are the highest in more than 20 years in Canada for the five-year rate, the experience, and an improvement in affordability over the past three quarters. But there's it’s what we're going to see a deterioration in Q3 given the current context for homeowners and it’s not better for the rental market when we look at the CPI rent, so rent is increasing at that moment at 6.5% year over year. We didn't see that since the 80s in the context of very, very low vacancy rate. So, this is a very, very difficult situation. Affordability is tough on both sides. So, for homeowners to get together to get access to a property and to get rent. So, the problem is that this is one of the components of the CPI, so pushing inflation up leading the Bank of Canada to increase rates and this is a disincentive for construction. So that's a big problem at this point and Guy will talk about it in a couple of minutes.

Yes. So, we're sort of stuck in a spiral right now. That's what I heard from you. But Guy, maybe you can tell us a bit about the landscape in the new housing, new constructions.

Yeah, absolutely, Nancy. So, the biggest challenge that we face right now is really the gap between the demand and the offer. So, the demand is extremely strong as we speak right now with everything that we're seeing and what matter was telling us about the increase of population in Canada. And on the other side, the supply is really reducing as we speak because of various factors like the increase in interest rate and so on and the impact of all the inflation that we are living right now as we speak.

So basically, the gap between supply and demand, this is the biggest impact that we can see right now in the market. And in your opinion, what is the cause of this slowdown?

Well, there's multiple factors that we can look at. First, interest rate hikes, this is definitely one of them. The rise as well of all the cost construction that we're seeing right now in the market since the beginning of COVID, those cost construction has risen very, very much. And 2nd and 3rd, it's really and the one that I think it's really important here is the delay in obtaining permits from the different level of government authorities to reduce and it takes so much time right now for a builder to obtain those permits so they can start construction. This different aspect is definitely affecting the slowdown as we speak right now. OK, but we need a couple of good news or good ideas. So, are there any solutions that we could implement so that we could accelerate?

Absolutely. I think that it will need really a very big teamwork between all different levels of authority, whether it's the different level of government authorities, whether it's coming from municipalities, whether it's coming from the federal government or provincial government. As an example, you know, the federal government announced the reduction of the GST for new construction regarding multi residential properties. This is definitely a good aspect on the side. The stabilization of interest rates, I think this will be a key factor as well. But what Matthieu is telling us, inflation is still going up, so definitely this is kind of a catch 22. Inflation is going up; interest rates should go up at the same time. So, it's going to be quite challenging on that side of it. And if we continue stabilization of the interest rate, a different level like National Bank, you know we're here to support our clients and so on. So, talking about that stabilization, we launched a couple of months ago our green initiative, right? So it's going to be really important for us to focus on that aspect and bring our customer to build new homes where they're going to have that green component that we were going to be able to give to those new builders, kind of a stabilization of interest rate, give better offer of like better amortization and so on. So, these are the different aspects that we can definitely work on, and I think that could be kind of the possible such solution to go forward and improve the current situation that we're living in right now.

Yeah, those are very, very good points. And I mean, even though today this, this little moment is a little bit darker than the others, I mean, it's only a period of time, right? And we still need to go back to the basics and the other videos we filmed together. You know increase your savings, use the vehicles that exist to you know like the CELIAPP (FHSA) which gives the opportunity to save money in nontaxable vehicles. So those are two things that we can do for now and there are still buildings going up there. I mean just look out the window. So, it still will happen, and I think your point in working together with all the different levels of government could definitely make a difference.

And Matthieu, we'll know about the interest rate increases in our next little video. So, thank you for being here today.

Thank you, Nancy.

And thank you Guy as well.

Thank you, Nancy.

Hope to see you soon. Thank you for being here.

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