Bank of Canada Holds Overnight Rate at 0.25% and Recalibrates Bond-Buying Program

General Robyn McLean 28 Oct

A detailed look at today’s BoC announcement from Dominion Lending’s Chief Economist Dr. Sherry Cooper.

As expected, the Bank held its target overnight rate at the effective lower bound of 25 basis points with the clear notion that negative policy rates are not in the cards. Instead, the central bank will continue to rely on large-scale asset purchases–quantitative easing (QE). The central bank is recalibrating its QE program as promised in recent weeks. In mid-October, it announced that it would end its Repo, Bankers Acceptance and Canada Mortgage Bond purchases this month, as they are no longer needed to assure liquidity in those markets. The volumes of purchases have declined sharply since April. This move will have minimal impact on market interest rates.

The Governing Council announced today it would also gradually reduce purchases of federal government bonds from at least $5 billion to at least $4 billion per week. “The Governing Council judges that, with these combined adjustments, the QE program is providing at least as much monetary stimulus as before.”

The PC opposition party has been warning Governor Macklem of the risks of financing Trudeau’s government spending. But the Bank has little alternative but to step-up its buying of newly issued benchmark bonds–those currently being sold by the government, as opposed to older debt that is becoming increasingly illiquid. As reported in Bloomberg News, “It means the bank’s quantitative easing program will increasingly mirror government debt sales at a time when opposition lawmakers are warning it against directly financing Prime Minister Justin Trudeau’s fiscal agenda.” (See chart below). The Bank already owns more than a third of all outstanding Government of Canada debt, proportionately more than most central banks because Canada ran budget surpluses, which paid down debt for so long.

Virtually every major central bank in the world is conducting an emergency QE program in response to the COVID-19 crisis. The Bank of Canada says its QE program reinforces its commitment to hold interest rates at historic lows over the next few years until the annual inflation rate is sustainably at its target 2% level. Today’s October Monetary Policy Report indicates they will likely keep the overnight rate at 0.25% until 2023.

The central bank has no intention of paring back stimulus, with risks to the economy growing amid the second wave of COVID-19 cases. “As the economy recuperates, it will continue to require extraordinary monetary policy support,” the bank said. “We are committed to providing the monetary policy stimulus needed to support the recovery and achieve the inflation objective.”

October Monetary Policy Report

  • Following the sharp bounce back in growth that occurred when containment measures were lifted, and the economy reopened, the Canadian economy transitioned to a slower, more protracted recuperation phase of its recovery. The recovery phases are proceeding largely as described in the July Report, though the initial rebound was stronger than expected. Furthermore, the near-term slowing in the recuperation phase is likely to be more pronounced due to the recent increase of COVID-19 infections.
  • There is ongoing and significant slack in the Canadian economy. The gap between the actual output and the economy’s potential output is not expected to close until 2023. The economy is progressing unevenly, with some sectors and workers disproportionately affected by the virus–particularly those in accommodation, food, arts, entertainment and recreation, as well as global transportation. Many of those hardest-hit are low-income workers.
  • Oil prices remain below pre-pandemic levels and are assumed to remain around current levels, hitting Alberta hard.
  • Ongoing slack in the economy is expected to continue to hold inflation down into 2023.

The Bank of Canada’s forecast for Canadian growth is shown in the table below. The economic recovery is projected to be prolonged, underpinned by policy support but largely influenced by the evolution of the virus, ongoing uncertainty and structural changes to the economy. These changes could result in longer-term shifts of workers and capital across different regions and sectors of the economy. This adjustment process weighs on the Bank’s estimates of potential growth.

After declining by about 5 1/2 percent in 2020, the economy is expected to expand by almost 4 percent on average in 2021 and 2022. Two factors will likely lead to quarterly patterns of growth that are unusually choppy: localized outbreaks and containment measures and varied recovery rates across industries.

Inflation is expected to remain below the lower end of the Bank’s inflation-control target range of 1 to 3 percent until early 2021, largely due to the effects of low energy prices. Subsequently, inflation is anticipated to be within the target range, but economic slack will continue to put downward pressure on inflation throughout the projection period.

The Reopening Phase Was Strong But Uneven

Growth is estimated to have rebounded strongly in the third quarter, reversing about two-thirds of the decline observed in the first half of the year.  A sizable bounce back in activity resulted from a rebound in foreign demand, the release of pent-up demand for housing and some durable goods, and robust policy support.

Housing activity recovered sharply in the third quarter, supported by historically low financing costs, resilient incomes for higher-earning households, and extra sales and construction that made up for delayed spring activity (Chart 7). By September, cumulative resales are estimated to have compensated for the missed activity during the normally busy spring market. Housing activity may also be benefiting from changes in preferences. In particular, more than one-quarter of respondents to the Canadian Survey of Consumer Expectations in the third quarter of 2020 reported they would like to move to a larger or single-family home because of the pandemic. The strength of the housing market recovery, combined with a tight resale market, has led to the rapid growth of house prices in some markets. In contrast to the appreciation of house values observed in Toronto and Vancouver in 2016, price growth has been strongest in markets with moderate loan-to-income ratios, such as Ottawa, Montréal and Halifax.

Bottom Line
Interest rates will remain low for the foreseeable future. The pandemic will largely determine the growth of the economy and the government’s response. Experts suggest that this second wave will last for much of the winter and that a widely dispersed vaccine will not be available until at least well into 2021. As tough as that is to take, Canada is still doing a better job of containing the virus than the US, UK and the Euro area. Output is likely to remain below pre-pandemic levels everywhere through the end of 2022, the Bank of Canada’s forecast horizon.

10 Things Homeowners Should Do Every Year

General Robyn McLean 27 Oct

Some great tips for keeping your home in tip top shape from our friends at REW.

A list for maintaining and even improving your home’s value
By Justin Kerby Oct 23, 2020

Purchasing a home is a major life event, but homeownership is a lot more than closing a sale and moving to a new address. It takes hard work and diligence to maintain your home, and getting on a yearly schedule is a great way to make sure you’re keeping your investment in good shape. If you do these 10 things every year, you’ll save yourself from a lot of problems down the road, and be able to prepare for coming changes.

1. Check your heating and cooling systems

You’re going to want to inspect your heating and cooling systems once per year before they’re used – so check the heating system after the summer ends when things are about to cool down, and the cooling system in the spring.

For the cooling system, you’ll want to give your air conditioning a good lookover. You’re trying to find any signs of leaks or corrosion, and clean any build up in your air filters. For your furnace, make sure the fuel lines are clean and connected securely. Then investigate the exhaust levels, burners, and heat exchangers for any abnormalities.

Having an energy-efficient home will make you feel more comfortable and save you money at the same time.

2. Check for outside repairs when winter ends

As soon as the temperature starts to warm up, you should do an assessment of your exterior walls and roof. Make sure nothing has cracked on the exterior that needs to be fixed, examine any wooden porches, posts, or decks for rot and structural damage, and then move onto inspecting your roof. You should do this from both the outside and inside, seeing if any tiles or shingles have fallen off from the outside, and climbing into your attic to check for leaks or water damage from the inside. Catching these problems early can save you thousands of dollars, so be sure to do this at least once a year.

3. Do a deep clean

We’re talking about a clean that dives into all of those pesky, hard to reach types of spots that you probably haven’t even considered checking in the last year. Look at your refrigerator coils, behind your washer and dryer, and between all the nooks and crannies that would otherwise get overlooked. Your drawers are often neglected so empty them out, and while you’re cleaning, take the opportunity to sift through their contents and give away anything you no longer need.

4. Empty your drains and gutters

It’s important to check to ensure that your drains and gutters aren’t clogged after the cold of winter subsides. If you live in a wooded area or are near any trees whatsoever, they’re likely going to fill up in the autumn when the leaves start to fall. Make sure they’re clean and clear so that everything flows properly when the rain falls in the spring and summer months.

5. Check your plumbing

Drips and leaks are what you’re looking for here. Let your faucets run for several minutes to see if there are any leaks, and check for drips when you turn them off. You’ll also want to inspect any lines that run in or out of appliances like washing machines and fridges, as they can begin to wear over time. Replacing them isn’t a big job, and it can save you a lot of headaches in the long run.

If your toilets are old and need updating, it might be a good idea to consider investing in some new hardware. It’s an easy DIY home improvement project that anyone can do.

6. Pressure wash

This is easily the most fun item on the list in our opinion. Pressure washing has almost a therapeutic effect for some people, so don’t stress the mess. It is a great way to revive your sidewalk, pavement, driveway, and even the exterior walls of your home. Mould and dirt can build up fast here, so don’t put this task off too long – doing it yearly is a great cadence. If you don’t have a power washing machine or have a friend who you can borrow one from, you can rent one from your neighbourhood home improvement store for a fair price. They likely have several models, but the base level pressure washer should do the trick.

7. Trim your trees

If you have trees that drop debris on your roof, you should consider trimming them yearly (or even cutting them down if necessary). Taking the time to thin them out will save your roof plenty of wear and tear, and can extend the lifespan of your roof by years. Removing big trees can be the difference between needing a new roof every ten years and needing a new roof every twenty years.

8. Check your ductwork connections

This is a really easy fix that can make your home much more efficient. For example, if the ducts in your attic start to sag, air can escape from the loose ductwork. This means that the hot or cold air you’re paying to keep your home the proper temperature is being lost in your attic, costing you more money and leaving you hot or cold. A simple tightening of your connections is all it takes to save you money and keep you feeling good all year round.

9. Steam clean your carpets

It’s hard not to gasp when you see just what a carpet cleaner can pull out of your home. Spend one rainy day per year in the spring steam cleaning your carpets to take out all the dirt, dust, and muck that you put into them in the fall and winter months. Be sure you get everything, including any mats or rugs at entryways, and be thorough. You can rent a great carpet cleaner from your local home improvement store and have fresh smelling carpets in less than a few hours.

10. Make a list of minor repairs and work through it

Finally, it’s important to have a running list of the little things that need to be fixed. If you walk through your home once a year and add everything you notice to this list, you’ll always have something to tinker with on a rainy day. Door knobs, paint touch-ups, gardening projects – basically anything cosmetic that would be a nice to have is a good thing to add to your minor repairs list. If you put these off for too long, it’s easy to feel overwhelmed. Work through your list yearly and you’ll never feel the stress of minor home repairs.

Canadian consumers’ cautious optimism

General Robyn McLean 26 Oct

Consumer confidence is up… more from our friends at First National.

Oct 26, 2020
First National Financial LP

Canadians’ confidence in the economy moved back to the optimistic side of the ledger in the third quarter.

The Bank of Canada’s latest Canadian Survey of Consumer Expectations suggests the outlook has turned positive compared to the second quarter, but cautiously so.

Among the key findings in the third quarter report is a return to expectations that home prices will continue to increase.  During the second quarter those expectations plunged to near zero, now they are back to just slightly below pre-pandemic levels.

The survey also suggests a change in the type of housing preferred by buyers, with a shift to “less crowded and more remote environments.”  In other words, bigger homes away from urban centers.  Many market watchers attribute this directly to the pandemic lockdowns and the accompanying surge in working from home.

Expectations for interest rate increases are virtually unchanged from Q2, but are down significantly from a year ago.  This is, of course, is in keeping with the BoC’s stated policy of rock bottom rates until there is a sustained growth in the overall economy and inflation.

The consumer outlook for household income and spending have improved modestly but still indicate caution.  Canadians say they are shopping less, but are doing more of it online.  Compared to Q2, more people say they are cancelling or postponing major purchases.  Lower spending and less recreational and social activity have led to greater savings for many consumers.  Most indicated they will hold on to those savings as a safeguard.

More amazing market numbers

General Robyn McLean 19 Oct

More positives to report from our friends at First National.

Oct 19, 2020
First National Financial LP

Another report and another round of startling numbers from Canada’s housing market.

The Canadian Real Estate Association is reporting its best September ever.  Sales rose nearly 46% compared to a year ago.  That is 20,000 units more than the previous September record.

The average price for a home in Canada hit an ominous, record high as well, at $604,000 – a 17% increase y-o-y.  Toronto and Vancouver continue to have a heavy influence on the average price.  With those two markets factored out, the national average drops to $479,000, which is a 20% increase from a year ago.

CREA’s Aggregate Composite Home Price Index – which is seen as a truer measure of home prices – showed a 10% increase y-o-y.

The increases appear to be driven by people looking for more space.

“Home has been our workplace, our kids’ schools, the gym, the park and more. Personal space is more important than ever,” says CREA chief economist Shaun Cathcart.

A number of market watchers continue to forecast a cooling period over the next few quarters, but a dwindling supply of resale homes will keep upward pressure on prices.  New listings dropped more than 10% in September.  The sales-to-new listings ratio now stands at 77.2%, the highest in almost 20 years and the third-highest monthly level ever – solidly a sellers’ market.

However, historically low interest rates have many buyers feeling like they can handle the higher cost.  So, the desire for space, and the fear of missing out (FOMO) may be stronger than traditional market fundamentals.

Canadian Home Sales and Prices Set Another Record High in September

General Robyn McLean 16 Oct

Your housing market update by DLC’s Chief Economist Dr. Sherry Cooper.

Today’s release of September housing data by the Canadian Real Estate Association (CREA) shows national home sales rose 0.9% on a month-over-month (m-o-m) (see chart below). This continues the rebound in housing that began five months ago amid record-tight market conditions.

“Along with historic supply shortages in a number of regions, fierce competition among buyers has been putting upward pressure on home prices. Much of that was pent-up demand from the spring that came forward as our economies opened back up over the summer,” said Costa Poulopoulos, Chair of CREA.

According to Shaun Cathcart, CREA’s Senior Economist, “Reasons have been cited for this – pent-up demand from the lockdowns, Government support to date, ultra-low interest rates, and the composition of job losses to name a few. I would also remind everyone that sales were almost setting records and markets were almost this tight back in February so we were already close to where things are now, as far away from Goldilocks territory as we had ever been before. But I think another wildcard factor to consider, which has no historical precedent, is the value of one’s home during this time. Home has been our workplace, our kids’ schools, the gym, the park and more. Personal space is more important than ever.”

The modest uptick in home sales nationally reflected diverse results regionally with about 60% of local markets seeing gains. Increases in Ottawa, Greater Vancouver, Vancouver Island, Calgary and Hamilton-Burlington sales were mostly offset by declines in the Greater Toronto Area (GTA) and Montreal; although, activity in the two largest Canadian markets is still historically very strong.
Actual (not seasonally adjusted) sales activity posted a 45.6% y-o-y gain in September. It was a new record for the month of September by a margin of  20,000 transactions, the equivalent of a normal month of September with an entire month of December tacked on. Sales activity was up in almost all Canadian housing markets on a year-over-year basis.

New Listings
The number of newly listed homes declined by 10.2% in September, reversing the surge to record levels seen August. New supply was down in two-thirds of local markets, led by declines in and around Vancouver and the GTA.With sales edging up in September and new supply dropping back, the national sales-to-new listings ratio tightened to 77.2% – the highest in almost 20 years and the third-highest monthly level on record for the measure.

Based on a comparison of sales-to-new listings ratio with long-term averages, about a third of all local markets were in balanced market territory, measured as being within one standard deviation of their long-term average. The other two-thirds of markets were above long-term norms, in many cases well above.

There were just 2.6 months of inventory on a national basis at the end of September 2020 – the lowest reading on record for this measure. At the local market level, a number of Ontario markets are now into weeks of inventory rather than months. Much of the province of Ontario is close to or under one month of inventory.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose by 1.3% m-o-m in September 2020. Of the 39 markets now tracked by the index, all but two were up between August and September.

As buyers are moving further away from city centres, CREA added a large number of Ontario markets to the MLS® HPI this month. The list includes Bancroft and Area, Brantford Region, Cambridge, Grey Bruce Owen Sound, Huron Perth, Kawartha Lakes, Kitchener-Waterloo, the Lakelands (Muskoka-Haliburton-Orillia-Parry Sound), London & St. Thomas, Mississauga, North Bay, Northumberland Hills, Peterborough and the Kawarthas, Quinte & District, Simcoe & District, Southern Georgian Bay, Tillsonburg District and Woodstock-Ingersoll.

The non-seasonally adjusted Aggregate Composite MLS® HPI was up 10.3% on a y-o-y basis in September – the biggest gain since August 2017. The largest y-o-y gains in the 22-23% range were recorded in Bancroft and Area, Quinte & District, Ottawa and Woodstock-Ingersoll.

This was followed by y-o-y price gains in the range of 15-20% in Barrie, Hamilton, Niagara, Guelph, Brantford, Cambridge, Grey Bruce-Owen Sound, Huron Perth, the Lakelands, London & St. Thomas, North Bay, Simcoe & District, Southern Georgian Bay, Tillsonburg District and Montreal.

Prices were up in the 10-15% range compared to last September in the GTA, Oakville-Milton, Kawartha Lakes, Kitchener-Waterloo, Mississauga, Northumberland Hills, Peterborough and the Kawarthas, and Greater Moncton.

Meanwhile, y-o-y price gains were around 5% in Greater Vancouver, the Fraser Valley, the Okanagan Valley, Regina, Saskatoon and Quebec City. Gains were about half that in Victoria and elsewhere on Vancouver Island, as well and in St. John’s, and prices were more or less flat y-o-y in Calgary and Edmonton.

The actual (not seasonally adjusted) national average home price set another record in September 2020, topping the $600,000 mark for the first time ever at more than $604,000. This was up 17.5% from the same month last year.

Bottom Line

Housing strength is largely attributable to record-low mortgage rates and pent-up demand by households that have maintained their level of income during the pandemic. The hardest-hit households are low-wage earners in the accommodation, food services, and travel sectors. These are the folks that can least afford it and typically are not homeowners.

The good news is that the housing market is contributing to the recovery in economic activity.  

Caution and patience as we look ahead

General Robyn McLean 13 Oct

Some great insight from our friends at First National.

Oct 13, 2020
First National Financial LP

The latest employment numbers coupled with the September reports from the Toronto and Vancouver real estate boards have triggered a lot of optimism about Canada’s economic recovery and the state of the housing market.

Statistics Canada reports the economy added 378,000 jobs in September, and the unemployment rate dropped to 9%.  Toronto realtors posted a record breaking 11,083 sales last month, up 42% from a year earlier.  The benchmark price rose 14%, y-o-y.  Vancouver had its best September ever: 3,643 sales, up more than 56% y-o-y.  The benchmark price rose nearly 6%.

All of these numbers continue to defy expectations and so caution and patience need to be the guiding principles as we try to figure out what will happen next.

The employment numbers – which are a key indicator of economic health – surely got a boost with the reopening of schools.  Parents who had been staying home to look after their kids became available for work again.  But many are not back to full employment.  The number of mothers working less than half their usual hours was 70% higher last month than before the shutdowns.  For working-fathers the number is 23% higher.  Overall, employment is still 25% lower than it was before the pandemic.  And many of those jobs will not be coming back.

Further job growth remains in jeopardy as the two, biggest jurisdictions in the country, Ontario and Quebec, re-introduce closures and restrictions to slow the spread of COVID-19.

At the same time, signals from the housing sector are mixed.  Realtors continue to forecast rising sales and prices.  But the market is imbalanced.  Most of the gains are coming in “ground-oriented” units – singles, semis and townhouses.  Condos are seeing significantly smaller increases.

Canada Mortgage and Housing Corporation continues to forecast that price declines, in the 10% area, will start showing up sometime around the middle of next year.  Moody’s Analytics predicts a national “peak-to-trough” price decline of 7%.  Both reports cite employment shortfalls, reduced immigration and increasing loan delinquencies.

The Top 10 Features Requested by Home Renters

General Robyn McLean 21 Sep

Some good tips from our friends at REW Rentals. 

Attention landlords and renters: here’s what’s hot in Canada’s rental market.
By Justin Kerby Sep 18, 2020

Every renter has their own unique criteria for what they’re looking for in a home. However, there are a few notable features that are always in high demand. Whether you’re a renter who wants to know what options are out there in the market or a property owner who is looking to get more eyes on your listing, here are ten features that are frequently requested by renters today.

1. Storage

For many renters, storage can be a make or break feature – and that’s including storage both inside and outside of the rental property. Inside the unit, renters are looking for closets in the bedrooms and hallways, and preferably some sort of pantry or broom closet. Pre-installed closet organizers in these spaces can be a plus, and make things more attractive on a walkthrough. If it’s a renovated basement suite with no built-in closets, consider installing free-standing storage units and wardrobes, instead.

External storage can also be very important. While most apartments and condos will come with storage lockers, renters looking at basement suites may need to negotiate coveted garage space or bins that can be kept safely and securely outside.

2. Outdoor space

Since many Canadians are spending more time at home, the appeal of outdoor space has never been greater. If you’re not lucky enough to have a private patio or balcony at your rental unit, there’s still hope. Many multi-unit buildings are adding in community gardens, where tenants get a small garden box or part of a larger, shared box, to tend to on their own. We’ve seen these on rooftops as well as on ground level. In rental homes or basement suites, many landlords are gracious enough to share their outdoor space with tenants, or at least have a dedicated space for the renters to use.

3. Office space

The pandemic drastically shifted the needs of renters. That Ikea is warning of a potential shortage of office furniture points to the fact that renters, now more than ever, need a dedicated space to sit down in front of a computer and remain comfortable and engaged while they work or study from home. This has caused the demand for multi-bedroom or bedroom-plus-den rental units to rise. If you’re an owner with a property on the market, consider staging a dedicated home office space to help renters envision themselves working in the space. If you’re a renter that needs a home office, while you scope out where to set up your desk be sure you also ask your prospective landlord about internet speed and capacity to ensure it meets your needs.

4. Noise insulation

Renters today are paying close attention to noise insulation, and noting whether a unit is in a wood-frame building or sits underneath hardwood or laminate flooring is important if you’re noise sensitive. Renters who work or study from home: aside from just asking the landlord about the quality of noise insulation, if you can, try viewing rental space during the day so you can experience it yourself. Owners: consider small, affordable upgrades you can make to the property to make noise more manageable.

5. Heat insulation

Again, as many people now work and study at home, utility bills have been on the rise. Ensuring the rental space has good heat insulation can ensure these bills are reasonable and that the renter is comfortable. This can include properly sealed doors, multi-pane windows, or a variety of other upgrades. Check out our post on energy-efficient features for more ideas on how to properly insulate a home, or what to look out for when you’re rental hunting.

6. Ceiling fans, central air, etc.

On the flip side, many Canadians are no longer able to benefit from the office air conditioning during the hot summer months. So, pay attention to cooling systems such as ceiling fans and central air. If the space doesn’t have either of those, scope out where you might be able to put a window-mounted or portable air conditioning unit in the property.

7. Carpet-free spaces

Even though there are some pros to having carpeted floors in a living area, many renters prefer hardwood or laminate flooring. Along with the style and aesthetic, this type of flooring is easier to clean and more durable, which is important for renters hoping to get back their security deposit. If you’re a homeowner thinking about renovations for your rental property, laminate flooring is a relatively affordable upgrade that can increase the value of and interest in your rental.

8. Kitchen counter space

Depending on the renter, the kitchen might be the most important room in the home. For that reason, many renters pay close attention to the amount of counter space the kitchen has. Ideally, the layout will accommodate a comfortable amount of room, but if not, both renters and homeowners could consider installing an island. You can find reasonably priced temporary and movable islands at stores like Canadian Tire and Rona.

9. In-suite laundry

Very few renters relish the thought of lugging laundry up and down multiple flights of stairs while paying $2.00+ per load, so having in-suite laundry is a huge perk. While this can be a bigger investment for a homeowner to put in a rental property, it does have the potential to up the value for renters who are willing to pay for convenience (and there are many out there!). Stackable machines are a great way to save on space, or deals can be found at appliance outlets stores, where it’s typical to find perfectly operating machines for a discount due to a cosmetic defect like a scratch.

10. Pets

Certain markets (Vancouver being one of them) are notoriously hard for pet owners. While there are many valid reasons a homeowner might not want pets in their rental property, there are also many valid reasons why they should. The BC SPCA offers a few benefits to consider.

First, pet owners are often willing to pay more monthly, in addition to putting down a pet deposit. Second, pet owners typically stay in their rentals for longer, which is one of the most important considerations of any landlord. Third, studies from FIREPAW have shown that there is no significant difference in damage between tenants with and without pets. Renters: even if the unit isn’t listed as pet friendly, don’t be afraid to ask the landlord about this and see if you can come to an agreement, as it could be in the best interest of both parties.

No matter which side of the rental agreement you’re on, there are a lot of features in a property to consider. Renters need to make sure they find a space that suits their needs, and property owners equally need to find a renter that makes them feel comfortable.

Teaching your kids about finances

General Robyn McLean 17 Sep

What better way to prepare your kids for the future than teaching them about finances. Some great tips from our friends at Dominion Lending. 

Did you know? According to a 2019 RBC Family Finances Poll, 9 out of 10 parents (96%) are financially supporting their children (ages 18-35 years). On average, this costs parents $5,623 per year! This is an added cost that many parents cannot afford. In fact, approximately 3 in 10 parents (32%) are seeing delayed retirement in order to help kids with post-secondary costs and are facing an inability or delayed response in paying off their own debts.

As much as parents want to help their kids, it should not be done at the jeopardy of your own future. In fact, when it comes to teaching your children about money, there is no better time to start than now!

Financial independence is a critical skill for future success that your children will not learn anywhere else. Not only does financial literacy help your children have more success in life, but it allows them to move out sooner and it avoids delaying retirement!

So, how do you teach your children about money?

Review Your Attitude Towards Money
The first and most important thing is to examine your own attitude towards money. Are you a penny pincher? Frivolous spender? Do you buy on impulse, or take a long time to make a purchase? How much debt do you have? Your financial habits will shape your children’s. To ensure that you are setting them up for their best financial future, parents need to consider what messages they are sending with their own money habits.

Give Your Children an Allowance
Providing an allowance to your children (especially one exchange for chores) is an age-old way of teaching your kids about

money. A good guideline is $0.50 to $1.00 per year of your child’s age. For a 10-year-old, this would be $5 to $10 per week.

Teach Your Child to Save
If you are giving your child $10 per week in allowance for chores, encourage them to put even just $0.50 per week into a piggy bank. In six months, show them how much money they have saved and talk to them about why it is important, and what they can do with that larger amount now.

Encourage Kids to Think Before They Buy
While it’s hard to get a 10-year-old excited about an RRSP, there are other ways to help them plan ahead. One is to encourage them to think about their purchases before they commit. They saw a toy on TV they have to have? Teach them about how advertisements are designed to make you want something. Ask them to wait a week. Do they still want it?

Involve Your Children in the Family Finances
Growing up, I always saw my mother balancing the budget. In fact, I cannot tell you how many times I walked into her office while she was going through endless bank and credit card statements to ensure things matched up. Seeing the time she would devote to this was proof enough about its importance for me. This is why it is so valuable to let your kids see and hear you discuss financial planning; let them be part of opening and paying bills or planning vacations. Explain why you pay certain things and discuss affordable choices.

Remember, you are the best example to your children about money. Don’t be afraid to share the ups and downs with them. Be patient with your kids, but don’t give up! The best thing you can do as a parent is to promote financial security and independence.

Back to School Credit Clean Up

General Robyn McLean 17 Sep

Some great advice from our friends at DLC. 

It’s time to go back to school… for your finances! The Fall is the perfect time for a credit clean-up so that you are ready for the holiday spending season.

When it comes to cleaning up credit, there is no better time than now to recognize the importance of your credit score and check if you are on track with your habits. To get started with your credit clean-up, there are a few things you can do:

  • Pull Your Credit Report: For most of us, our credit score is something we only think about when we need it. However, if you are unsure of where you stand, this is a great time to find out! The Fair Credit Reporting Act lets you get one free credit report every year through Equifax or TransUnion. Pulling your own credit report results in a “soft” inquiry on your report and will not affect your credit score. Click hereto get your free credit report today!
  • If You Find Errors, Dispute Them:When doing your annual credit score review, it is a good idea to go through line-by-line and confirm no errors. If you find any errors, report and dispute them immediately as they could be affecting your score.
  • Consolidate Your Loans: One of the best tips for managing your credit and working towards future financial success, is to consolidate your debt. Consolidating debt means reducing multiple loans to a single monthly payment, which typically has a lower interest rate allowing you to maximize spend on the principal amount.

Once you have put the effort into cleaning up your credit, you will want to keep it that way! A few tips for maintaining your credit and maximizing your financial future include:

  • Pay Your Bills: This seems pretty straight forward, but it is not that simple. You not only have to pay the bills, but you have to do so in full AND on time whenever possible. Paying bills on time is one of the key behaviours lenders and creditors look for when deciding to grant you a loan or mortgage. If you are unable to afford the full amount, a good tip is to at least pay the minimum required as shown on your monthly statement to prevent any flags on your account.
  • Pay Your Debts: Whether you have credit card debt, a car loan, line of credit or a mortgage, the goal should be to pay your debt off as quickly as possible. To make the most impact, start by paying the lowest debt items first and then work towards the larger amounts. By removing the low debt items, you also remove the interest payments on those loans which frees up money that can be put towards paying off larger items.
  • Stay Within Your Limit: This is key when it comes to managing debt and maintaining a good credit score. Using all or most of your available credit is not advised. Your goal should be to use 30% or less of your available credit. For instance, if you have a limit of $1000 on your credit card, you should never go over $700.NOTE: If you find you need more credit, it is better to increase the limit versus utilizing more than 70% of what is available each month.

Whether you qualify for a mortgage through a bank, credit union or other financial institution, you should be aiming for a credit score of 680 for at least one borrower (or guarantor). If you are ready to start your home-buying journey, or are looking to refinance your existing mortgage, a DLC Mortgage Broker can help you review your credit score and financial information to help you get the most from your money.

Debt ratio dips, but not for everyone

General Robyn McLean 15 Sep

How are we faring during Covid? More from our friends at First National.

Sep 14, 2020
First National Financial LP

One of the biggest vulnerabilities in the Canadian economy got a bit smaller in the second quarter.

Statistics Canada reports that the amount of debt-to-household-income dipped to 158.2%, from 175.4% in the first quarter.  So, for the peak months of the COVID-19 shutdown, Canadian households owed $1.58 for every dollar of disposable (i.e., after tax) income.  Under normal circumstances that would be good news.  But the StatsCan report also shows that the actual, total amount of debt did not change very much.

Overall, credit market debt totalled $2.33 trillion at the end of Q2, with $1.55 trillion in mortgage debt and $779 billion in consumer credit and non-mortgage loans.

On the other side of the ratio, incomes did increase slightly but that was chiefly because of government supports such as CERB.  The Canada Emergency Response Benefit is due to expire in early October.

Statistics Canada notes that annual trends show that lower income households tend to have a higher debt-to-disposable-income ratio.

In his latest statement, Bank of Canada Governor, Tiff Macklem, focused on evening-out the economic inequities faced by low-income earners, women, youth and others during the pandemic and recovery.  Macklem warned that uneven recessions, that affect some workers or sectors more than others, tend to be longer and leave a bigger mark on the labour market.

The central bank has left its benchmark interest rate at 0.25%.  The Bank has said it will stay there until inflation is sustainably at 2%.  Many analysts expect that could take until late 2022 or early 2023.