Money123: Calling all 1st-time homebuyers

‘Tremendous opportunity’ for some buyers

After the Bank of Canada delivered its third interest rate cut in a row this week, Toronto Realtor Pritesh Parekh says he expects many Canadians started having more conversations around the dinner table about what a run at the fall housing market could look like.

While he’s not expecting a flood of buyers this fall to follow a relatively quiet summer, he says the math is likely working out for more would-be homeowners who have been sidelined by high borrowing costs.

“There will be a group of consumers who want to hold a little bit longer to try to take advantage of more cuts,” he explains. “And then there will be those who are just on the cusp, and this is going to be enough to tip them over to make the decision.”

Other experts who spoke to Global News this week say they expect little movement in price this fall as the affordability picture remains tight for most.

But in some segments, such as Toronto’s condo market, there could be an opening for first-time buyers to take advantage of prices and borrowing costs falling simultaneously.

Read more on what to know about how the fall housing market could react to a third interest rate cut.

Calls for faster rate cuts

Despite a steady pace of 25-basis-point drops in the policy rate, Bank of Canada governor Tiff Macklem seemed to open the door to a bigger interest rate cuts this week.

Macklem told reporters Wednesday that if the economy proves stronger than anticipated and inflation more stubborn, the Bank may pause its easing cycle at a future decision.

But he added that if the economy “was significantly weaker … yes, it could be appropriate to take a bigger step, something bigger than 25 basis points.”

Some economists were amplifying those calls Friday after Statistics Canada’s August jobs report showed the unemployment rate reached a seven-year high.

Though most forecasters are holding to calls of 25-basis-point cuts through to the end of the year, BMO chief economist Doug Porter noted that if the central bank gets more data like this, a half-percentage point cut should be on the table.

“There is still a lot of data before the October (Bank of Canada) meeting, but the odds of a 50 (basis point) rate cut are building,” he said.

Read more on how the latest jobs report could affect the path for interest rates in Canada.

Have you had to say ‘no’ more often to kids?

Despite easing in inflation and interest rates, new polling shows parents in particular are reining in their spending.

An Ipsos poll conducted exclusively for Global News revealed this week that more than half of parents (54 per cent) are worried about putting food on the table, 10 percentage points higher than for the general population.

Six in 10 respondents (63 per cent) are concerned they wouldn’t be able to absorb any unexpected costs of $1,000 or more; that figure rises to 72 per cent among parents.

A third of parents indicated they’ve been telling their kids “no” more often to deal with the higher costs of living.

Three in 10 parents said they’ve pared back their back-to-school spending, while 16 per cent said they’re cutting back on organized sports for their kids.

“Parents are doing the same things that a lot of us are doing… but they’re also doing things unique to parents,” said Kyle Braid, senior vice-president of Ipsos Global Affairs.

Read more about how Canadian families are making ends meet as the pressure from the cost of living crunch persists.

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– THE QUESTION –

“I have a 1-year GIC maturing soon. I know I’m going to be putting about $10K into my FHSA this year and next which should bring me to what I need for a down payment, plus what’s already in my TFSA. Should the rest (around $5K) go into another GIC while rates are still somewhat high, or are there other vehicles I should be looking at right now as rates are going down? Beyond buying a home, the majority of my savings goals are long term like retirement, but I will probably also need to add a second car to the house in the next few years.”

— A Money123 reader

“There are a few options available to invest in terms of fixed income for the remaining money. The assumption is that interest rates will fall for the next few years. The second assumption is that the money will be needed in the next few years, which means investing in equities is likely not a good idea because the time horizon is too short. Should the car not be needed for many years, I would then consider equities as an investment to meet the retirement objective.

The first option is buying a money market fund or a cash ETF (Exchange Traded Fund). These vehicles are liquid in terms of being able to turn them into cash quickly. They do have variable rates however, so lower interest rates will mean lower future returns. If rates rise, you would also receive higher returns from the time that the interest rate rise occurs.

The second option is to lock in your funds in a GIC. If you know exactly when you will need the money, you can pick a maturity date to coincide with the money expenditure and lock in a higher rate. You would be insulated from interest rate changes until maturity.

A third option is to buy government bonds. You can purchase an individual bond (likely government or a strong corporate bond) that matures when you need the money. You can also purchase a bond ETF that will hold a variety of bonds and this is in effect a bet on lower interest rates. When interest rates fall, bond prices rise and you will likely have a higher return than the first 2 options. If interest rates rise, the reverse will also be true and you will have a lower return than the other 2 options. You can also purchase a more speculative bond or a very long dated maturity bond to achieve a higher return from the interest rate drop, but I would say this is too speculative unless you are a seasoned investor in the bond market.”

– Joe Barbieri, financial consultant, Joe the Investor

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