Money123: Israel-Hamas conflict and oil, where home prices could end the year, chicken costs

Oil prices and conflict in the Middle East

Amid the escalating conflict between Israel and Hamas, experts are warning of rising oil prices and inflationary pressure as a potential consequence of the ongoing hostilities.

On Tuesday, International Monetary Fund chief economist Pierre-Olivier Gourinchas said it’s “too early” to assess the impact on global economic growth from the days-old conflict.

But he said the IMF was “monitoring the situation closely” and noted the rise in oil prices when the conflict first began.

“We’ve seen that in previous crises and previous conflicts. And of course, this reflects the potential risk that there could be disruption either in production or transport of oil in the region,” he said.

Meanwhile, World Bank president Ajay Banga said Tuesday that the Israel-Hamas conflict is an unnecessary global economic shock that will make it harder for central banks to achieve soft landings — a slowdown that avoids a recession — in many economies if it spreads.

One commodities analyst told Global News that while the short-term, knee-jerk reaction of the markets to the crisis was to be expected, the medium-term trends depend on how some of the other players in this conflict react.

Read more on the economic impact here.

Royal LePage downgrades home price forecast

Home prices are expected to remain relatively stable throughout the rest of the year, according to Royal LePage, which downgraded its end-of-year forecast Thursday.

The reason: slower real estate activity and the higher cost of borrowing.

“Once interest rates begin to ease, even by only a small amount, we expect buyers will return to the market in large numbers and the relentless upward march of home prices will begin again,” Royal LePage president and CEO Phil Soper said in a statement.

Royal LePage had previously forecast the aggregate home price would finish the year 8.5 per cent higher than the end of 2022, but is now softening that to seven per cent year over year due to the softer-than-expected activity in the third quarter.

Across the country, Royal LePage downgraded its end-of-year price forecasts for most major markets.

Calgary was the only market expected to see price increases greater than previously forecast, bucking the national trend.

The Canadian Real Estate Association also lowered its forecasts Friday as it noted home sales and prices edged lower in September.

Chicken prices hit records in the U.S. — what about Canada?

As beef prices continue to impact people’s wallets both in Canada and the U.S., some are turning to chicken for a more affordable protein.

But south of the border, some poultry production companies are scaling back in an effort to cut costs.

Companies like Tyson Foods and Pilgrim’s Pride could see earnings improve as a result, with Tyson even closing six chicken plants this year to reduce costs. That boost in earnings would still leave consumers facing an extra pinch on their wallets as prices rise due to lower production.

Chicken prices in the U.S. are already hitting record highs, according to reports, and the U.S. Department of Agriculture projects consumption of chicken is expected to exceed 100 pounds per person this year for the first time ever.

But while Americans are starting to voice concerns over the rising cost of poultry, that same stress may not be as present in Canada.

Read more here to find out why.

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– THE QUESTION –

“We have about $75K in an RESP for my daughter in second-year university. She makes about $9K a year to pay for tuition and has $15K a year in residence fees. Should we pull any excess from the RESP into her RRSP, TFSA, or First Home Savings Account (FHSA)?“

— A Money123 reader 

“RESP balances are made up of two primary components. First, the original contributions, which can be withdrawn tax-free at any time, and paid to the subscriber parent, the beneficiary child, or to the school. Second, the investment growth and the government grants and bonds. This second component is taxable and subject to restrictions. It is called an Educational Assistance Payment (EAP).

There are restrictions on EAP withdrawals taken during the first 13 weeks of study. For full-time students, it is $8,000, and for part-time students, only $4,000.

For your daughter in second year, you can take out any amount you want from the RESP, but the EAP withdrawals are taxable to her. Depending on her province or territory of residence, she can have as little as $8,481 of income and as much as $15,000 for 2023 and not pay any tax due to her basic personal amount. Even if her income exceeds the basic personal amount, her tuition tax credit should wipe out most or all of her tax.

Contributions to other tax preferred accounts like her RRSP, TFSA, or FHSA could be good planning. For a second-year university student who could be as young as 19, a TFSA account may be the most flexible option. She can use this account to pay for future education, rent, a car, or a home down payment, let alone other saving goals. RRSP and FHSA accounts may be more beneficial as she gets older and is working when her income and tax bracket are higher. Contributions to both accounts are tax deductible. She can even use her TFSA to take withdrawals and contribute to these other two accounts in the future.”

–  Jason Heath managing director, Objective Financial Partners

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