Money Talks: Volume 1 (2016)
12 July, 2016 / by Bryan Jaskolka
Britain’s decision to leave the European Union continues to dominate headlines and conversations around the world. But after last week’s stock market rally, have investors finally gotten over the Brexit doomsday scenario? Not so fast!
Technically, Brexit has not happened yet. In fact, it’ll take years for Britain to formally exit the EU. The ruling Conservative government still has to elect a new prime minister before even considering dialogue with its European partners.
Against this backdrop, Volume 1 of our re-vamped Money Talks series will break down the week that was in personal finance, real estate and mortgages.
Canadians investing in the financial markets got a little richer this past week. Those of us with the “buy low, sell high” mentality have profited greatly from the post-Brexit chaos. Since bottoming out at seven-week lows on July 27, the TSX Composite Index has rebounded over 4%. The latest gains were mostly attributed to a strong US jobs report, which contrasted with another month of weak Canadian jobs data. Canadian employers shed 700 jobs last month after adding 13,800 the month before, StatsCan said on Friday.
Canada’s surging real estate market could receive another boost thanks to Brexit. UK property funds have taken a huge hit following the June 23 referendum, forcing asset managers to freeze some £15 billion pounds’ worth of withdrawal requests. Investors in search of stable growth could divert their funds from London to the shores of Canada. If this happens, expect property prices to rise even more.
Elsewhere, monthly statistics from the Real Estate Board of Greater Vancouver suggest that sales may be slowing after a prolonged boom period. Out of a total 2,618 listings for detached homes in Greater Vancouver last month, only 1,555 were sold. That’s a sales-to-listings ratio of 59%, the lowest since June 2013.
The Office of the Superintendent of Financial Institutions – Canada’s so-called banking watchdog – took action last week to rein in mortgage-lending practices amid concerns about surging prices in Vancouver and Toronto. The regulator issued a memo to Canadian banks urging them to ensure that adequate internal controls on residential mortgage practices are in place. This includes, among other things, properly verifying borrowers’ incomes.
Tighter lending practices are unlikely to deter home buyers at a time when mortgage rates are at rock bottom. The average commitment rate on a 5-year fixed rate mortgage advertised on Canadian Mortgages Inc. was 2.34% in the latest week.
Canada’s headline interest rate is expected to remain at 0.5% for the foreseeable future, as the central bank looks to stimulate a moribund economy. Long-dated US Treasury yields also fell to record lows. It appears even more likely now that the US Federal Reserve will hold off on raising interest rates anytime soon. According to the Fed Fund futures rate, traders are pricing in only a 32% probability of a rate increase before the end of the year.