I was wrong.
Earlier this month I thought Canada’s Governing bodies threw everything and the kitchen sink at our economy.
Well, even more monetary and fiscal stimulus has been added to the system.
The idea is to help bridge the economic gap (for who knows how long at this point) while Canadian people do their best to “flatten the curve” IE. shelter at home/isolation.
[In the last 20 days I’ve literally walked my dog and gone to and from the grocery store. Yeesh.]
Flattening the curve essentially slams the breaks on consumer spending and product demand. This is where things become shaky in our economy.
This is on top of a collapse in oil prices.
Setting political party strip aside, I do applaud our policy makers with the speed at which they are executing these macro-economic programs.
There will be time later to discuss how much water the fire fighters used to put out the flames. For now, all we care about is containing the fire.
Here’s a brief summary of new policy developments explained and what they mean to you:
Bank of Canada Lowers Rates, Again (for the final time?):
- Canada’s key overnight lending rate is now 0.25%, down another 0.50%. This is the lower bound and a level our central Bankers do not want dip below.
- Canada’s prime lending rate was also reduced to 2.45%.
NOTE:
After 5 years of flat or increasing interest rates, the Bank of Canada has lowered rates 1.50% in March. This takes a bit of time to flow through the banking system.
HELOC and variable rate Mortgage borrowers … your Prime rate will adjust down. Also know, Mortgage interest is accrued in arrears. This might take 3-4 weeks for you to actually realize a lower Mortgage payment. This is totally normal. - Reminder: for every $100,000 of Mortgage debt a reduction of 0.25% lowers your Mortgage payment by about $12/month.
- If you have a Variable rate Mortgage with a discount to prime, hang on tight to that product. New borrowers will have a relationship to prime on the plus side.
Mortgage Buyback & Purchase Program:
News of this monetary program came fast and furious.
On March 16th, Canada Mortgage and Housing Corporation (CMHC) announced they would purchase $50 Billion of insured Mortgage pools from lenders.
On March 20th, CMHC announced that number increased by $100 Billion. They would now purchase $150 Billion of insured Mortgage pools!
During very uncertain economic times, normal sale and purchase agreements in the bond market become disconnected (risk and pricing discrepancies).
CMHC, essentially an extension of the Federal Government, is purchasing these less-widely-traded bonds, and selling more widely-traded bonds.
An example of a more widely-traded bond that is being sold is Canada Mortgage Bonds (CMB). The original issuance of these CMB’s was $186B. This number has been increased by another $60B (more for sale!!).
Canadian financial institutions use CMB’s to extend Mortgage lending to Canadians. This helps our banks renew Mortgage’s and lend to new borrowers.
Provincial Money Market Purchase:
The Bank of Canada has created a new credit facility called the Provincial Money Market Purchase (PMMP) program.
The BoC will purchase short term Provincial money market securities, with terms of 12 months or less (provincial treasury bills and or short term promissory notes).
Both of these programs are additional monetary stimulus to help our economy.
Fiscal Stimulus Update:
Honestly, I can’t even summarize the continued roll out of additional fiscal stimulus by the Government of Canada. My head spins.
Let’s agree, if Canadians need more support, more will be created.
Here is a link to the Federal Government’s COVID-19 response plan. This covers off support for:
- Families.
- Unemployed.
- Sick or quarantined.
- Unable to work.
- Who need it most.
- Seniors.
- Students & new graduates.
- Youth.
- Avoiding layoffs.
- Business access to credit.
- Support for farmers.
- And more …
Here is the link again.
All of the above is Federal fiscal stimulus. The Alberta Government isn’t sitting on their hands either …
The AB Government has rolled out a Emergency Isolation Support program. This is a one time payment of $1,146 dollars for those who qualify. Is that you? Find out here.
Conclusion:
This is a BIG fire. To fight it we have fire trucks, water bombers, helicopters, your neighbour with a garden hose and people stomping on ambers.
All hands on deck!
The reality of how long our shelter in place order might go on for, from the information I understand, seems to be anyone’s guess. What are your thoughts?
Anyone heard the saying, “short term pain – long term gain”? I might be living through this for a bit longer than I originally thought.
I’ll be drafting a Mortgage & Real Estate update for you soon. Calgary Real Estate data is coming out this week. I’ll have a report on your desk asap!
I hope this is helpful for you …
Talk soon,
Chad Moore
P.S. Sadly, I’m on my way to putting on the COVID 15. I mentioned to you earlier this year about my new Yoga routine. Well, that’s been kiboshed and I’m floundering a bit.
My dog is winning though …she’s getting 2 bigger walks a day, sometimes 3, and pets every couple of hours.
P.P.S. I’ve also started taking an online course to improve some skills with a bit more free time on my hands. I’ve enjoyed a couple video calls with friends too!
What about you? Any shelter in place plans? I hear pet adoptions are up …
P.P.P.S. How is your industry changing due to our current economic situation? How are you adjusting?
I wrote a blog post about how the home appraisal industry is changing. Check that out here.
Cheers!
