Canadians who have been able to maintain a reserve of cash are better prepared for the impending recession.Denis Pepin/Getty Images/iStockphoto
Being overtaken by a week that got away? Here’s your weekly roundup of the Globe’s most essential business and investing stories, with insights and analysis from the pros, stock tips, portfolio strategies and more.
Are you financially ready for a recession?
The recession we are heading into is perhaps the most unfair in history. Never has there been such a clear line between those who can save money and those who can’t, writes Rob Carrick. During the pandemic shutdowns, many Canadian households were able to store cash, while others saved and never built up cash reserves or have since spent those savings. Maintaining a cash reserve protects you against the interrupted income and job losses that are inevitable in a recession as employers respond to a weakening business environment.
Higher payments are coming for homeowners with variable rate mortgages
If you’re a Canadian homeowner with an adjustable rate mortgage, you may not be sleeping very well these days. With interest rates soaring, banks are contacting many customers to let them know they are hitting their trigger rate, signaling higher monthly costs for a growing number of homeowners and a longer payback period. As Salmaan Farooqui reports, the vast majority of Canadian variable mortgages have fixed payments, meaning payments stay the same even when interest rates rise moderately. But because interest rates have soared dramatically this year, variable mortgages are starting to hit what’s called the trigger rate — the rate at which the monthly payment wouldn’t be enough to cover the interest owed. With the Bank of Canada expecting the Bank of Canada to announce another outrageous rate hike before the end of the month, is it time to switch to a fixed rate mortgage? Erica Alini explores the pros and cons of locking in a fixed rate rather than removing it.
Tenants: prepare for the competition and pay more
Bidding wars and intimidating offers are no longer just for homebuyers. After seeing rental prices plummet during the pandemic, competition is intense in the Greater Toronto Area’s scorching rental market as the region continues to struggle with a severe housing shortage — and if you come out on top, be prepared to pay a premium. According to data from Urbanation, a record 36% of condos in the GTA were rented above listing in the third quarter, and on average, those condos were rented for a monthly premium of $129 compared to on demand, also a record. The average condo was renting for $2,733 per month, an 18.6% increase from a year ago. Will this trend continue or can tenants expect some relief anytime soon? Matt Lundy reviews the data in this week’s decoder.
Inflation continues to decelerate, but not fast enough
Canadian inflation slowed slightly in September, but not as much as financial analysts expected, paving the way for another outsized Bank of Canada rate hike on October 26th. The consumer price index rose 6.9% in September from a year earlier, Matt Lundy reports. This was down from 7% in August and was the third consecutive month of deceleration. Gasoline prices fell 7.4%, but grocery prices rose 11.4%. To curb inflation, the central bank is universally expected to make another big rate hike, possibly raising the policy rate to 4%, the highest rate since 2008, as more predicted. in addition to economists.
Real estate influencers are fueling Canada’s housing crisis
A growing number of real estate investors are using social media to fund real estate deals, which has helped fuel the investment craze in Canada that accelerated when house prices soared and restrictions related to COVID-19 have caused people to spend more time online. As Rachelle Younglai and Jessica Burgess report, in the first year of the pandemic, residential property purchases by investors doubled in Canada. By the middle of last year, investors accounted for more than a fifth of home purchases nationwide. But when things go wrong with real estate, they can go really wrong. With interest rates rising and housing markets cooling, developers may not be able to realize the profits they promised their investors, which has, in turn, increased the pressure on them. for them to raise rents further, worsening the affordable housing problem in the country. Regulators don’t seem to pay attention, and without enforcement, developers raise capital with little or no legal scrutiny.
Liz Truss is gone but the British crisis continues
Liz Truss resigned on Thursday after a brief and chaotic tenure marred by economic and political turmoil, becoming the shortest prime minister in British history. UK financial markets were thrown into turmoil on September 23 after then-new finance minister Kwasi Kwarteng announced billions of pounds in unfunded tax cuts. The Bank of England was forced to buy emergency bonds to stem a sharp sell-off in Britain’s £2.3 trillion government bond market that threatened to wreak havoc on the pensions sector and increase the risk of recession. Mr Kwarteng was quickly fired and his replacement, Jeremy Hunt, scrapped “almost everything” from the economic plan and scaled back Ms Truss’ vast energy support package, in a historic U-turn to try to restore investor confidence. “Experience in the UK underscores that in an environment of tight monetary policy there will be increasing tension between various macroeconomic objectives,” said Mark Carney, who served as Governor of the Bank of England from 2013. to 2020 and former Governor of the Bank of Canada. just hours after Mr. Truss resigned.
Now that you’re all caught up, get ready for the week ahead with The Globe’s investment calendar.
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