Today, the Bank of Canada held its target for the overnight rate at the effective lower bound of ¼ percent. The Bank is also adjusting its bond-buying program from weekly net purchases of Government of Canada (GoC) bonds of $4 billion to $3 billion. This adjustment to the amount of incremental stimulus being added each week reflects the progress made in the economic recovery.

Finally, the Bank now suggests that the remaining slack in the economy could be fully absorbed by the second have of 2022–rather than 2023, suggesting that they may begin raising overnight interest rates before the end of next year. The Bank went on to aver that this timing is more uncertain than usual, however, given the uncertainty around potential output and the highly uneven impacts of the pandemic.

The Bank of Canada now believes that first-quarter growth in Canada is considerably stronger than they were expecting back in the January Monetary Policy Report (MPR). This partly reflects a better global backdrop, particularly in the United States. The US recovery is supported by a rapid rollout of vaccines and substantial fiscal stimulus, bringing spillover benefits to Canada through higher demand for exports and stronger commodity prices.

“But the most important factor in the unexpected economic strength has been the resilience and adaptability of Canadian households and businesses. Lockdowns through the second wave had much less economic impact than they did through the first wave. The economy bounced back quickly with the eased restrictions posting substantial job gains in February and March. The third wave is a new setback, and we can expect some of these job gains to be reversed. But the performance of the economy in recent months has increased our confidence in the underlying strength in the recovery.”

The Bank went on to say, “With the vaccine rollout progressing, we are expecting strong consumption-led growth in the second half of this year. Fiscal stimulus from the federal and provincial governments will also make an important contribution to growth. Strong growth in foreign demand and higher commodity prices are expected to drive a solid rebound in exports and business investment, leading to a more broad-based recovery. Overall, we now project that the economy will expand by around 6½ percent this year, slowing to about 3¾ percent in 2022 and 3¼ percent in 2023.

Over the next few months, inflation is expected to rise temporarily to around the top of the 1-3 percent inflation-control range. This is largely the result of base-year effects—year-over-year CPI inflation is higher because prices of some goods and services fell sharply at the start of the pandemic. Also, the increase in oil prices since December has driven gasoline prices above their pre-pandemic levels. The Bank expects CPI inflation to ease back toward 2 percent over the second half of 2021 as these base-year effects diminish, and inflation is expected to ease further because of the ongoing drag from excess capacity. As slack is absorbed, inflation should return to 2 percent on a sustained basis sometime in the second half of 2022.

Bank of Canada “Forced” To Taper

When the pandemic first hit, the BoC bought government securities, providing liquidity to assure the full functioning of the market. As liquidity conditions in the  Government of Canada (GoC) bond market improved, the primary objective of central bank bond purchases shifted toward a focus on monetary stimulus. The quantitative easing (QE) purchases of bonds continue to put downward pressure on borrowing rates, supporting economic activity. QE also reinforces monetary stimulus provided by the Bank’s forward guidance. This guidance has committed to holding the policy interest rate (the overnight rate) at its effective lower bound until economic slack is absorbed, so the inflation target is sustainably achieved.

The Bank’s total ownership of GoC bonds outstanding has increased to about 42 percent. Since March 2020, the Bank has purchased more than 35 percent of total sovereign bonds outstanding, a higher percentage than other central banks (see chart below). Considering the size of Canada’s bond market and its economy, this means that the Bank has provided an extraordinary amount of stimulus. The Bank must continue to taper its purchases to ensure sufficient tradeable GoCs are available for longer-term institutional investors–such as insurance companies and pension funds–that must hold triple-A debt to offset their long-term liabilities.

Bank of Canada Assessment of the Housing Market

In today’s MPR, the Bank of Canada included an assessment of the drivers of the strength in Canadian housing:

• Demand has been supported by relatively high disposable incomes and low mortgage rates.
• While job losses have risen during the pandemic, they have been concentrated among low-wage earners who tend to rent their homes rather than buy them.
• Remote work and more time spent at home have led to stronger demand for larger, single-family homes and housing in suburban and rural areas.
• One implication of this shift in demand is a pickup in new housing construction in regions with fewer supply constraints, such as limited availability of land.
• Over the past year, the pace of construction has been hampered by containment measures and shortages of materials and skilled workers. These factors are also putting upward pressure on construction costs.
• Some potential sellers have been reluctant to show their homes during the pandemic.
• Over time, supply is expected to adjust. A large number of building permits have been issued, with a growing share for single-family homes. Housing starts have also risen significantly in recent months, most notably in rural areas.

The Bank remains concerned about extrapolative expectations leading to overheated price increases and speculative activity (see chart below). They welcome the proposed changes to the Guideline B-20 by the Office of the Superintendent of Financial Institutions to help reduce these risks.

Bottom Line

This was a significant BoC announcement, suggesting a turning point in their thinking. The worst of the pandemic is over, the economy has been remarkably resilient, and the Bank can now see the light at the end of the tunnel. That light is now expected in the second half of 2022, rather than 2023. Although the policy rate will remain at its effective lower bound until then, the central bank has already begun to pare back its GoC bond buying.

Some of the Bank’s optimism reflects the comparative strength of the US economy, which is way ahead of Canada’s vaccine distribution.* The spillover effects of that are meaningful in terms of Canadian exports. The fiscal stimulus evident in this week’s federal budget also provides a ballast for the economy. Although an estimated 425,000 people are still insufficiently employed and the third wave containment measures and vaccine rollout are unpredictable, the Bank is more confident now than any time in the past thirteen months that we will attain full-employment by late next year.

*As of April 20, nearly 25% of the US population has been fully vaccinated and 39% have received at least one vaccine. In comparison, as of April 20, only 2.5% of the Canadian population has been fully vaccinated and 25.4% have had one vaccine.

In more than two years, the first federal budget extends Ottawa’s COVID-19 “lifeline” for workers and struggling businesses another few months as it aims to pull Canada through the pandemic once and for all. Clocking in at a bulky 724 pages, this is a highly detailed budget that sets the stage for post-pandemic policy in Canada.

Finance Minister Chrystia Freeland’s first crack at a budget plan is also widely viewed as a pre-election platform with more than $100 billion in new spending over the next three years targeting a wide variety of voters, from seniors and their caregivers to parents and business owners.

The government will need to get at least one opposition party to support it to avoid a pandemic election this spring. Much of the redistributive ‘investments’ and social spending is right up the NDP’s alley, so that should be no problem.

Canada’s net debt is now over $1 trillion for the first time, after a $354 billion deficit for the pandemic year just over. It is expected to keep climbing with deficits of $155 billion this year and $60 billion in 2022-23.

That is driven in part by more than $100 billion in new spending over the next three years, including costs to maintain federal wage and rent subsidies and aid for laid-off workers, until September now, instead of cutting them off in June.

Freeland is also looking ahead to the post-pandemic Canada the Liberals want to see, one with $10-a-day childcare, the ability to produce its own vaccines, national long-term care standards and small- and medium-sized businesses equipped with the workers and technology they need to survive.

It also includes a greener, cleaner Canada, with a promise of more than $17 billion in climate change programs, much of it in the form of incentives to encourage heavy industry to curb their emissions and grow Canada’s clean technology sector.

All of it comes with a pandemic-sized asterisk that things could still change drastically if vaccine supplies are delayed, or they prove not to work that well against emerging variants of the virus. The budget includes alternative scenarios that show where the fiscal picture might go if the worst-case scenarios of the pandemic play out.

Those risks seem even more real as the country is battling the worst wave of the pandemic yet with record hospitalizations and patients in critical care and doctors and nurses repeatedly warning of a health care system on the brink of collapse.

The debt-to-GDP ratio will rise again to 51.2%, up from 49.0% in FY20/21 and just over 31% before the pandemic. However, this year should mark the peak for that ratio before declining below 50% by FY25/26.

Help Students and Low Wage Workers

The Budget aims to create 500,000 training and work opportunities. It pledges $2.4 billion over three years to develop skills and trades, with about 40 percent earmarked for training in sectors ranging from health care to construction.

It adds on $8.9 billion more to beef up the Canada Workers Benefit in a boost to low-wage workers, who will have a higher income threshold at which their benefit starts to shrink.

Other measures include bumping the federal minimum wage to $15, pledging $300 million to programs for Black and women entrepreneurs and other underrepresented groups, and recommitting to protect gig workers through promised amendments to the Canada Labour Code.

About 300,000 Canadians who had a job before the pandemic are still out of work.

Help for Small Businesses, Tourism Industry and the Arts

The government announced extending the Canada Emergency Rent Subsidy (CERS) and Canada Emergency Wage Subsidy (CEWS) past their current June 5 deadline but added it is planning to wind them down gradually by the end of September. The government also announced a new hiring credit and some aid programs for the hard-hit tourism and arts industries. Firms that collect the CEWS will face a clawback of the aid if their executives earn more in 2021 than they did before the pandemic. A step critics said should have been taken when the subsidy first came into force in mid-2020.

The hard-hit tourism sector is also getting $500 million for a Tourism Relief Fund, to be administered by regional development agencies to help local tourism businesses recover from the COVID recession. Another $100 million is going to a marketing campaign that will encourage Canadians to visit vacation spots in this country. Never mind that they are fully booked for the rest of the year.

The budget also unveiled $200 million in spending to support major arts and cultural festivals, which will flow through regional development agencies.

The Trudeau Government Is Betting Measures Will Improve Productivity and Pay For Themselves

The government’s budget estimates its spending plan will create or maintain some 330,000 jobs next year and add about two percentage points to economic growth, part of a three-year boost from $101.4 billion in new spending over that time.

The largest contributor is almost $30 billion over five years to drive down fees in licensed daycares to reach $10 a day by 2026. That money is on top of already planned child-care spending. However, the problem is that it will take provincial buy-in as it requires a 50/50 split of the expenses. This could cause untold delays.

There is also more money for broadband infrastructure and $7 billion in cash, financing and advice to help companies adopt and invest in new technologies intended to address ongoing concerns about the country’s productivity gap.

Ottawa is trying to jump-start the jobs recovery with a new program that offsets a portion of employers’ labour costs. The Canada Recovery Hiring Program (CRHP) would run from June 6 to November 20 and cover as much as 50 percent of incremental pay to workers, whether through higher wages, more hours or new hires. The program is estimated to cost $595-million.

The labour market has mostly recovered from the pandemic. The number of employed Canadians is down by roughly 300,000, or 1.5 percent, from pre-pandemic levels. At this point, the damage is mostly confined to a handful of sectors – such as hospitality – that are curtailed by public-health measures. At the same time, employment has increased in many white-collar industries.

Housing and Real Estate

Much like past budgets, the federal government has proposed a series of measures on housing, although they are unlikely to curb the robust activity and speculation of the past year.

Canada will impose a 1% tax on the value of real estate held by foreigners if the property is left vacant, beginning in 2022. It follows foreign buyers’ taxes in British Columbia and Ontario. The move is estimated to bring in $700-million in revenue over four years, starting in 2022-23.

The budget also proposes to send an extra $2.5-billion to the CMHC for various initiatives, including the construction of affordable housing units and plans to reallocate $1.3-billion for such things as the conversion of vacant offices into housing.

However, the budget was just as notable for what wasn’t there: new measures aimed directly at cooling the real estate market.

Measures For The Elderly, The Green Economy, Reduced Tax Evasion, And Luxury Taxes on Yachts, Expensive Cars…

If all goes well, and the pandemic is largely behind us by September, the government forecasts a marked drop in deficits and debt over the five-year planning horizon.

• As a share of the economy, the fiscal track is about where it was in November, with annual deficits averaging 5.8% of GDP over five years versus 5.7%.
• Bond issuance in 2021 will decline to C$286 billion, from C$374 billion in the previous fiscal year. The government wants to issue more than 40% of its bonds in maturities of 10-years or more, up from 15% pre-pandemic. That includes a re-opening of 50-year issues.
• The government pledged to reduce federal debt as a share of the economy over “the medium-term” in defining its new fiscal anchor.
• Canada plans to implement a digital services tax on tech giants at a rate of 3% of revenue. It would be effective Jan. 1, 2022, “until an acceptable multilateral approach comes into effect.” The tax is projected to raise C$3.4 billion in revenue over five years

Bottom Line

There is no plan to balance the budget, but one area of focus ahead of the budget was whether Ottawa would commit to a specific fiscal anchor. And while a precise figure was not mentioned, the budget states: “The government is committed to unwinding COVID-related deficits and reducing the federal debt as a share of the economy over the medium-term.” With the proviso that the economy recovers roughly in line with consensus expectations and that borrowing costs don’t flare dramatically higher, this suggests that the anchor is a 50% debt/GDP ratio. For the deficit, this implies a reversion to pre-pandemic levels of around 1% of GDP (or about $30 billion later in the decade). In a sense, then, the pandemic has been “paid for” by a one-time level step-up in the debt/GDP ratio from 30% to 50%.

Today the Canadian Real Estate Association (CREA) released statistics showing national existing home sales hit another all-time high in March. What was arguably more noteworthy was that new listings hit their highest level on record in seasonally adjusted terms in March. Prices continued to rise as sales dwarfed the new supply.

The number of homes sold across the country rose 5.2% on a seasonally adjusted basis. The actual (not seasonally adjusted) activity was up 76.2% year-over-year (y-o-y). The 76,259 houses that sold were 14,000 more than the previous monthly sales record set last July. The number of newly listed properties jumped another 7.5% from February to March. Benchmark home prices rose 3.1% from the previous month and were up 20.1% y-o-y.

The month-over-month increase in national sales activity from February to March was broad-based and generally in line with locations where more new listings became available. Sales gains were largest in March in Greater Vancouver, Calgary, Edmonton, Hamilton-Burlington and Ottawa.

“Seeing how many homes were bought and sold in March 2021, one could be forgiven for thinking the market just continues to strengthen, and maybe to some extent it is,” stated Cliff Stevenson, Chair of CREA. “The real issue is not strength in housing markets but imbalance. That demand has been around for months, but with the shortages in supply we have across so much of Canada, a lot of that demand has been pressuring prices. So the big rebound in new supply to start the spring market is the relief valve we need the most to get that demand playing out more on the sales side of things and less on the pricey side. That said, it will take a lot more than one month of record new listings, but it looks like we may finally be rounding the corner on these extremely unbalanced housing market conditions. It’s great news for frustrated buyers…”

“We spent a lot of time over the last year talking about pent-up demand, but I think now is a good time to talk about pent-up supply, which may be the answer to the question everyone is asking right now,” said Shaun Cathcart, CREA’s Senior Economist. “2020 was the year that home became everything, so in hindsight, it’s not that surprising that so many people who did not have one in which to ride out the pandemic really wanted one, while so many of those who did have a home to hunker down in were not inclined to give it up. Then, it stands to reason that as the uncertainty caused and the danger posed by COVID wind down, some owners who would not sell during a global pandemic will emerge with properties for sale. At the same time, some of the urgency on the demand side could dissipate. We’ll only know in the fullness of time, but March certainly did nothing to disprove the idea. That said, the third wave of COVID-19 could throw a wrench into the works of a potential supply recovery this spring”.

New Listings

The number of newly listed homes climbed a further 7.5% to set a new record in March. With February’s big rebound, new supply is up more than 25% in the last two months.

With the rebound in new supply outpacing recent sales gains, the national sales-to-new listings ratio eased back to 80.5% in March compared to a peak level of 90.9% set in January. The long-term average for the national sales-to-new listings ratio is 54.4%, so it is currently still very high historically. The good news is it appears to be moving in the right direction finally.

Based on a comparison of sales-to-new listings ratio with long-term averages, less than 20% of all local markets were in balanced market territory in March, measured as being within one standard deviation of their long-term average. The other 80%+ of markets were above long-term norms, in many cases well above. The first three months of 2021 and the second half of 2020 have seen record numbers of markets in seller’s market territory. For reference, the pre-COVID record of only around 55% of all markets in seller’s territory was set back at the beginning of 2002.

The number of months of inventory is another important measure of the balance between sales and the supply of listings. It represents how long it would take to liquidate current inventories at the current rate of sales activity. There were only 1.7 months of inventory on a national basis at the end of March 2021 – the lowest reading on record for this measure. The long-term average for this measure is a little over five months.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) climbed by 3.1% m-o-m in March 2021 – similar to but slightly less than the record gain in February.

While price growth remains the largest in the single-family home space, the pace of those gains decelerated in March while price gains in the more affordable townhome and apartment segments continued to pick up steam. Of the 41 markets now tracked by the index, all but one were up on a m-o-m basis.

The non-seasonally adjusted Aggregate Composite MLS® HPI was up 20.1% on a y-o-y basis in March. Based on data back to 2005, this was a record y-o-y increase, surpassing the previous record of 18.6% set back in April 2017.

The largest y-o-y gains continue to be posted across Ontario, followed by markets in B.C., Quebec and New Brunswick, then by single-digit gains in the Prairie provinces and Newfoundland and Labrador.

The actual (not seasonally adjusted) national average home price was a record $716,828 in March 2021, up 31.6% from the same month last year. That said, it is important to note that the biggest increase in new supply and thus sales in March was in Greater Vancouver, which raised that market’s share of national activity to its highest level in almost four years.

Detailed home price data by region is reported in the table below:

Bottom Line

The continued strength in the market comes amid a debate in Canada over whether a housing bubble is building and what policymakers should do about it. Last week, Canada’s banking regulator, OSFI, said it is examining whether to set up a new higher minimum benchmark interest rate of 5.25% to determine whether people qualify for uninsured mortgages, and Prime Minister Justin Trudeau’s government has said it is looking to impose a tax on foreign, non-resident homeowners. Some economists have argued these steps aren’t enough, though March’s increase in supply may ease some of these concerns.

The simplest explanation for why the housing market has been so strong is the dramatic decline in mortgage rates generated by the Bank of Canada’s easing in monetary policy in March 2020 with the onset of the pandemic. The central bank’s policy move did precisely what it was intended to achieve, even though it may now be proving counterproductive. Trying to now halt or temper demand through a myriad of additional complex rules is not only inefficient but also risks unintended consequences.

The dramatic decline in mortgage rates to record low levels boosted the purchasing power of households. Also, many were able to buy further away from expensive cities also easing the burden of home purchases of household expenses. This not only occurred across Canada, but we observed the same phenomenon in many countries around the world. Home price inflation has been greatest the further you go out from city centres.

I agree with Beata Caranci, SVP & Chief Economist of TD Bank when she pointed out that, “Canada already has a number of safety levers in place around household financial risks. In fact, the IMF concluded in January 2020 that Canada’s “macroprudential stance is broadly adequate” and the stance was relatively tight, reflecting the six rounds of tightening mortgage insurance rules by the Department of Finance. Provinces and cities have also enacted measures over the years to discourage speculative activity via taxing vacant properties or upping land transfer taxes.”

Buyers are not irrational when they are concerned about being priced out of a home purchase. For the past thirty years, despite all the hype about housing bubbles in cities like Vancouver and Toronto, residential real estate has been a great investment and far less volatile than alternative uses of funds. This has been boosted by Canada’s immigration policy which has triggered the strongest population growth among the G7 countries. Property taxes and land transfer taxes are already among the highest in the world and, unlike the US, mortgage payments and property taxes are not tax-deductible.

The bulk of the new housing supply has been in multi-unit housing. The pandemic has highlighted the value of a much-coveted single-family home. That has been reflected in the surge in the prices of such homes, which were still affordable in heretofore untapped markets well beyond the major cities. Why shouldn’t today’s dual-income households aspire to the same homeownership dreams their parents fulfilled? Even after this boom in housing, which will no doubt slow as the pandemic ends and interest rates return to more normal levels, delinquency rates on outstanding mortgages will remain low. The guardrails put in place by the series of actions since 2016–reducing amortizations, increasing the minimum down payments, and tightening mortgage stress testing requirements–all but guarantee that in the strong economic recovery from the pandemic, credit risks are already sufficiently low.

This morning, Statistics Canada released the March 2021 Labour Force Survey showing much stronger-than-expected job growth for the second month in a row, pointing towards a Q1 growth rate of more than 5.5%. This survey reflected labour market conditions during the week of March 14 to 20, when public health restrictions were less restrictive in several provinces than during the prior month.

Employment surged by a whopping 303,100 in March after a gain of 259,200 in February. The jobless rate fell to 7.5%, the lowest since before the pandemic. However, there remain many discouraged workers who are no longer actively looking for jobs but would prefer to be gainfully employed. Many of them might well be mothers who could not afford or find quality daycare or needed to help children with remote learning.

The employment rate–the percentage of the population aged 15 and older that is employed—increased 0.9 percentage points to 60.3%, which was still 1.5 percentage points below the rate seen in February 2020.

Employment gains in March were spread across most provinces, with the largest increases in Ontario, Alberta, British Columbia and Quebec. Much of the employment increase reflected a continued recovery in industries—including retail trade and accommodation and food services—where employment had fallen in January in response to public health restrictions. Growth in health care and social assistance, educational services, and construction also contributed to the national increase in March.

The COVID-19 pandemic continues to impact the labour market. Compared with February 2020, there were 296,000 (-1.5%) fewer people employed in March 2021 and 247,000 (+30.4%) more people working less than half of their usual hours. The number of workers affected by the COVID-19 economic shutdown peaked at 5.5 million in April 2020, including a drop in employment of 3.0 million and an increase in COVID-related absences from work of 2.5 million.

Among workers who worked at least half their usual hours in March, the number working at locations other than home increased by about 600,000 for the second consecutive month as public health restrictions eased across the country.

While the number of Canadians working from home declined by 200,000 in March, working from home remains an important adaptation to the COVID-19 pandemic. Of the 5.0 million Canadians working from home in March, more than half (2.9 million) were doing so temporarily in response to COVID-19.

Total hours worked rose 2.0% in March, driven by gains in several industries, including educational services, retail trade, and construction. Building on a steady upward trend since April 2020, this brought total hours to within 1.2% of February 2020 levels. Hours worked among the self-employed continued to be much further behind (-7.7%) February 2020 levels, while hours among employees returned to pre-pandemic levels.

The unemployment rate falls to the lowest level since the start of the pandemic

The unemployment rate declined for the second consecutive month, falling 0.7 percentage points to 7.5% in March, the lowest since February 2020. This reflected strong employment growth that exceeded the number of people entering the labour market.

The number of people unemployed fell 148,000 (-8.9%) in March, with the majority (59.0%) of people leaving unemployment becoming employed. Despite sharp reductions in both February and March, the number of people unemployed stood at 1.5 million, up 371,000 (+32.4%) compared with February 2020.

The number of long-term unemployed—people who had been looking for work or on temporary layoff for 27 weeks or more—held steady in March. There were 286,000 (+159.5%) more people in long-term unemployment compared with February 2020. These are the folks that could be permanently scarred by the pandemic and for whom job training may well be helpful.

Bottom Line

While Friday’s jobs report surprised on the upside, there are still concerns around an uneven recovery and the impact of the third-wave shutdown in the economy. As the virus becomes more contagious and lethal, the economic recovery remains at risk, heightened by the vaccine’s very slow rollout. The reduces the importance of this employment report for the Bank of Canada even though it is the last report before the central bank’s April policy decision. No doubt the Bank of Canada will highlight the rising risk of contagion on the economic recovery.

Prime Minister Justin Trudeau’s government will release its 2021 budget on April 19 and has already promised an additional spending dose. The Bank of Canada’s next policy decision is on April 21. The Bank will thus maintain the overnight rate at 25 basis points and refrain from tapering quantitative easing.

With several Big-Five bank CEOs calling for regulatory action to slow the red-hot housing market, it didn’t take long for the Office of the Superintendent of Financial Institutions (OSFI), the governor of federally regulated financial institutions, to respond. In a news release issued today, OSFI proposed an increase in uninsured mortgages’ qualifying rate to the higher of the mortgage contract rate plus 200 basis points or 5.25% as a minimum floor.

Based on posted rates of the country’s six largest lenders, the current threshold is at 4.79%. Before the pandemic, the posted rate was widely considered too high relative to much lower contract rates. Remember, Canada’s six largest lenders under OSFI’s jurisdiction set the posted rate each week when they submit to the Bank of Canada the so-called ‘conventional 5-year mortgage rate’. It has increasingly born little relationship to actual contract rates.

OSFI, once again, shows itself to cozy up to the Canadian banking oligopoly. Keep in mind that delinquency rates on the Canadian banks’ mortgage books are very low–both in historical terms and compared with financial institutions in the rest of the world. OSFI couched this proposal in terms of “the importance of sound mortgage underwriting.”

In the release, OSFI said, “The minimum qualifying rate adds a margin of safety that ensures borrowers will have the ability to make mortgage payments in the event of a change in circumstances, such as the reduction of income or a rise in mortgage interest rates. As mortgages are one of the largest exposures that most banks carry, ensuring that borrowers can repay their loans strongly contributes to the continued safety and soundness of Canada’s financial system.”

The comment period ends on May 7. OSFI reported that they would communicate the revised B-20 Guideline by May 24, with an implementation date of June 1, 2021.

This all but ensures that the current boom in home buying will accelerate further in the spring market–providing an impetus for borrowers to get in under the June 1 deadline. OSFI’s move will trigger an even hotter spring housing market as demand is pulled forward just as it was before the January 1, 2018 implementation date of the current B-20 ruling.

This will not impact non-federally regulated FI’s such as credit unions, mono-lines and private lenders, nor does it immediately impact insured-mortgage borrowers.

The federal government is in charge of mortgage qualification for insured mortgages. CMHC and the finance department could well follow OSFI’s lead in tightening qualifying rules for insured loans.

Bottom Line

It is noteworthy to remember that on January 24, 2020, OSFI indicated that it was reviewing the benchmark rate (or floor) used for qualifying uninsured mortgages. At that time, the thought was that the widening gap between the posted rate and the contract mortgage rate was too large and that OSFI and the Bank of Canada would publish a mortgage rate weekly that would better reflect the contract rates. The new qualifying rate would be that contract mortgage rate plus 200 basis points. This consultation was suspended on March 13, 2020, in response to challenges posed by the COVID-19 pandemic.