June 30, 2022
Support CFA’s Advocacy Efforts for 2022-23
The CFA needs your support – be active, be engaged, and we need your donation to fight for franchising and franchised businesses across Canada. By supporting CFA’s advocacy with a financial donation, you can help augment and strengthen our advocacy initiatives. you can donate directly through the CFA’s Advocacy Donation Page.
ECONOMIC IMPACT & RESOURCES
OSFI changing rules for some types of home loans (HELOC)
Canada’s top banking regulator is changing the rules that cover certain types of home loans to make sure that lenders and borrowers are able to stay on top of their obligations at a time when the country’s housing market is looking vulnerable.
The Office of the Superintendent of Financial Institutions (OFSI) is implementing new guidelines for certain types of real estate loans, including shared equity mortgages, reverse mortgages and conventional mortgages that are paired with revolving credit lines.
The biggest change targets so-called combined loans, which are conventional mortgage loans paired with revolving lines of credit known as HELOCs that homeowners can dip into as they see fit, without being obligated to pay that portion back on any sort of schedule.
The new regulations will kick in once a re-advanceable loan exceeds 65 per cent of the underlying home’s value. Currently, an owner can technically borrow up to 80 per cent on such a loan, but the new rules will functionally ratchet that ceiling down to 65 per cent by forcing the borrower to start paying back some of the principal if they go above that line.
If that happens, the change will make it so that once the loan’s value exceeds 65 per cent of the home, the loan ”will operate more like a traditional mortgage where the borrower makes principal and interest payments until the [loan gets back below] 65 per cent,” an official told CBC News at a technical briefing.
The new rules won’t be in force until late 2023, but OSFI says that as things stand now, data from the Bank of Canada suggests there’s $200 billion worth of HELOC that is currently outside of that 65 per cent threshold. That’s out of $1.8 trillion of total housing debt.
Consumers will not see an increase to their monthly payment requirements as a result of this change, the official said, and the changes will not impact new home buyers.
Click here for the full news release from OSFI
Canadian Consumer Confidence Hits Crisis-Era Lows
According to new research highlighted by Bloomberg, Canadian consumer confidence levels have fallen to near crisis-era lows. The Bloomberg Nanos Canadian Confidence Index, a measure of sentiment based on weekly polling, declined for a ninth straight week. This marks the lowest reading ever outside of the last two economic crises.
Each week, Nanos Research surveys 250 Canadians to gauge their views on personal finances, job security, the economy, and real estate prices, and Bloomberg publishes the four week rolling average of the responses. The gauge fell to 48.3 last week, marking the lowest drop since July 2020. The index has only fallen below 50 in times of widespread panic: during the height of the pandemic panic in 2020 and during the financial crisis and recession of 2008 and 2009.
The recent drop is telling, though not entirely surprising. With rising costs of groceries, gas, rents, and interest rates — coupled with housing costs that are much higher than they were pre-pandemic — it’s no wonder than Canadian households are beginning to feel the financial pressure of the current climate.
According to Bloomberg, 42% of Canadians say that their finances are worse today than a year prior — a near record high for this question. Furthermore, about 57% of Canadians expect the economy to weaken over the next six months, the highest number on record aside from the first year of the pandemic.
As Bloomberg highlights, the drop in confidence comes even as job security remains elevated. Only 9% of Canadians reported worrying about losing their job and the country’s unemployment rate is currently at a record low. Furthermore, there has been no sign of a notable slowdown in activity. Despite the uncertainty, Canadians are still dropping dollars (perhaps in an effort to make up for lost time); retail spending is still growing at a strong pace.
The reality, however, is that there is a growing concern among Canadians about the rising cost of buying the basics. With the ongoing invasion of Ukraine and its ripple effects, the costs of filling up the tank or a shopping cart aren’t going to significantly drop in the near future. Furthermore, the Bank of Canada has hinted that more interest rate hikes are in store.
The silver lining for the country’s first-time homebuyers is that the country’s home prices have finally softened in recent months following a red-hot and often record-breaking run that began not long after the onset of the pandemic over two years ago. Now, 29% of Canadians polled say they expect home prices to continue to fall over the next six months — a figure that’s up from 10% in just a little over one month. While home prices may be dropping, however, that doesn’t mean it’s any easier for Canadians to enter the housing market, thanks to the current interest rate situation that makes it difficult to both qualify for and carry a mortgage.
POLICY UPDATES
Promised Ontario gas tax cut of 5.7 cents per litre coming Friday
A cut to the provincial gas tax promised by Premier Doug Ford before the June election takes effect on Friday and experts say it may offer some relief to drivers facing sky-high pump prices, but the long-term benefits to consumers are unpredictable.
The government passed legislation this spring to lower the gas tax by 5.7 cents per litre and the fuel tax, which covers diesel, by 5.3 cents per litre for six months. The changes will be in effect from July 1 to Dec. 31 with the government pegging the cost at $645 million.
Regular fuel prices are hovering at close to or above $2 per litre in cities across the province. As of Thursday afternoon, McKnight calculated that price drops at Ontario pumps should be around 11 cents per litre on Friday, bringing prices to an average of 1.929 per litre.
OTHER NEWS
B.C. Premier John Horgan to step down before next election
B.C. Premier John Horgan has announced he will step down before the next provincial election.
The two-term NDP premier made the announcement Tuesday, saying he had every intention to run for a third term but decided he couldn’t continue after undergoing “rigorous” treatment for throat cancer in recent months. “My health is good, but my energy flags as the days go by,” Horgan, 62, told reporters gathered in Vancouver.
“We came to the conclusion that I’m not able to make another six-year commitment to this job.” Horgan, now cancer-free, said he will resign after his party holds a leadership review in the fall. The resignation announcement comes after Horgan’s cabinet gathered for a midterm retreat in Vancouver. He said it’s “tradition” for the politicians to discuss their plans for the future during the retreat, but he’d already made his decision after speaking with his wife, Ellie.
Air Canada to cut summer flight schedules
Air Canada is cutting more than 15 per cent of its scheduled flights in July and August as airports face lengthy delays and cancellations amid an overwhelming travel resurgence.
The move will see 154 flights per day on average dropped from the airline’s schedule — already operating at 80 per cent of pre-pandemic levels — affecting hundreds of thousands of passengers. The flights link mainly to its Toronto and Montreal hubs, and are all on domestic or Canada-U.S. routes, the company said in an email Wednesday.
The slimmed-down schedule is marked mainly by frequency reductions that affect evening and late-night flights on smaller planes, Air Canada said. International flights remain unaffected except for some timing changes to reduce flying at peak times and even out passenger flow.
54 per cent of flights to the four largest airports were bumped off schedule in the seven days between June 22 and 28, according to analytics firm Data Wazo. Toronto’s Pearson airport topped the list, with 51 per cent of flights delayed — more than 700 — and 12 per cent cancelled. Montreal was runner-up at 43 per cent delayed and 15 per cent cancelled.
INTERNATIONAL NEWS
U.S. consumer confidence hits 16-month low
US consumer confidence dropped in June to the lowest in more than a year as inflation continues to dampen Americans’ economic views.
The Conference Board’s index decreased to 98.7 from a downwardly revised 103.2 reading in May, data Tuesday showed. The median forecast in a Bloomberg survey of economists called for a decline to 100. A measure of expectations — which reflects consumers’ six-month outlook — dropped to the lowest in nearly a decade as Americans grew more downbeat about the outlook for the economy, labor market and incomes. The group’s gauge of current conditions fell slightly.
The share of respondents who said they intend to buy a vehicle or major appliance in the next six months increased from a month earlier. At the same time, vacation plans, both domestic and internationally, softened, likely due to higher airfares and gas prices. Consumers see prices in the next year rising at the fastest rate in the group’s data back to the 1980s. Separate data on inflation-adjusted consumer spending will be released Thursday.
“Consumers’ grimmer outlook was driven by increasing concerns about inflation, in particular rising gas and food prices,” Lynn Franco, senior director of economic indicators at The Conference Board, said in a statement. “Expectations have now fallen well below a reading of 80, suggesting weaker growth in the second half of 2022 as well as growing risk of recession by yearend.” Nearly 30 per cent of respondents expect business conditions to worsen in the back half of the year, the largest share since March 2009, during the height of the financial crisis.
The figures reinforce data last week from the University of Michigan, which showed consumer sentiment in June remained near a record low. Respondents expect prices to rise in the next 12 months at nearly the fastest pace in 40 years. The share of consumers who said jobs were “plentiful” decreased slightly to 51.3 per cent, and six months from now, respondents were also more pessimistic. The most respondents since August 2020 see their incomes dropping in that time.
