There is some good news coming for Canada’s housing market as home prices are stabilizing, pressure is easing for people with variable-rate mortgages and banks are more open to make deals on mortgage rates.Sarah Palmer/The Globe and Mail
Bad news flows like a firehose these days, but there are still things to be thankful about. It happens that personal finance is a productive place to look for positive developments. Much is financially worrying these days, including household financial stress levels, bankruptcy trends and economic productivity. But some things that are going right deserve attention:
Inflation is back at 2 per cent. The August rate of 2 per cent was down from a recent peak of 8.1 per cent in June, 2022, and right in line with that Bank of Canada’s preferred level. Unfortunately, the inflation of the past two years has permanently raised living costs.
The Bank of Canada is firmly in rate-cutting mode. We’ve had three rate cuts by the Bank of Canada this year of 0.25 of a percentage point and the speculation for the next rate-setting date, Oct. 23, is whether the bank will cut by 0.5 of a point en route to further cuts in the months ahead.
Mortgage rates have come down a lot. Variable-rate mortgages are still above 5 per cent, but fixed rates have crashed through the 5-per-cent mark and are now approaching 4 per cent.
The pressure is now off people with variable-rate mortgages. Every Bank of Canada rate cut reduces the cost of borrowing for variable-rate mortgages, which were a popular choice in the housing market rally of 2021-22.
Banks are dealing like never before on mortgage rates. Even mortgage brokers are surprised at the aggressiveness of bank branch staff in competing for business with low rates.
Stocks are delivering powerhouse returns. Amid all the global political and financial uncertainty, a strong bull market persists. If you held through the past five years of incredible volatility, you may well be looking at double-digit annualized gains.
Bonds are up, too. Bonds have been disastrously bad in recent years, but they’re slowly recovering. You now have both stocks and bonds working for you in balanced portfolios.
Dividend stocks have recovered, but there are still lots with yields of 4 per cent and up. Boring utility and pipeline stocks are coming on strong as rates on competing investments like guaranteed investment certificates fall.
You can still lock down a 4-per-cent return in one-year GICs. The 5-per-cent to 6-per-cent GIC returns of a year ago are just a memory. But 4 per cent or more is still a nice return on an after-inflation basis with near-zero risk.
Home prices are stabilizing. The average $650,000 national resale house price in August was basically flat on a year-over-year basis and about 20 per cent below the February, 2022, peak. Affordable is not the word to use here, but housing is at least calm for the time being.
First home savings accounts are now available from almost all major investment companies. You can add up to $8,000 annually to an FHSA to a total of $40,000, with tax deductions for contributions and tax-free earnings and withdrawals. If you don’t buy a home, the money can go into your registered retirement savings plan tax-free. There’s no real downside to FHSAs.
Zero-commission trading apps and online brokers are here. A key to successful lifetime investing is making regular purchase of funds, stocks and such through all market ups and downs. Zero-commission apps and brokers let you do this at no cost. Take a look at Wealthsimple, National Bank Direct Brokerage and Desjardins Online Brokerage.
Index ETFs are worth a look. Exchange-traded funds tracking major stock and bond indexes are so cheap to own, it’s almost surreal. As low as five to six cents per $100 invested. The Globe and Mail ETF Buyer’s Guide emphasizes low fees.
There’s been a rise of advice-only financial planning… There are waiting lists to see planners who work for a flat fee, which tells us how powerful the idea of personalized financial advice without sales pressure is.
… and a rise of prepaid cards. EQ Bank and Wealthsimple offer accounts that you access with a prepaid card. Load money on your card and use it for payments anywhere credit cards are accepted. Outside Canada, you won’t pay the usual 2.5-per-cent foreign transaction fees charged by most credit cards. Also look at the Wise prepaid card as a way to economically pay for purchases abroad.
Relief is at hand for renters. The overall average rent across Canada increased 2.1 per cent in September compared to a year earlier, the lowest increase since October, 2021. Rents declined in expensive cities like Toronto and Vancouver.
The economy is stubbornly resisting recession. The job market is soft, and that’s a problem. But the Bank of Canada so far seems to have delivered rate cuts just in time to keep the economy from a sharp downturn.
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