Money123: Silver linings behind market mayhem

Making Sahm sense

You might’ve heard some market watchers, particularly in the United States, talking in slightly panicked tones about the “Sahm rule” this week.

This historically reliable indicator for recessions was recently triggered after a downbeat jobs report south of the border.

That was one of the reasons global stock markets went into a frenzy to start the week, as investors feared the worst for the U.S. economy. (Many major market indices had largely stabilized by the end of the week, FYI.)

“Folks in the U.S. are, quite frankly, freaking out right now over the economy. And it’s been quite the change just over the last week,” says Alicia Planincic, director of policy and economics at the Business Council of Alberta.

But what about Canada? Well, despite a relatively quiet July jobs report released Friday, the Canadian labour force actually already violated the Sahm rule a few months back.

Experts who spoke to Global News this week urged a bit of patience, however, as even the rule’s namesake came out this week to say her own rule was “meant to be broken.”

Read on for what the Sahm rule is and what it really means for Canada and the U.S.

Mortgage relief hopes

One possible upside to a bit of volatility in the stock market? Investors flooding into the bond market, driving down some of the key yields that inform fixed-rate mortgages in Canada.

With lenders looking to the bond market to set their rates, “that really sets the stage for additional fixed mortgage rate discounts,” says Penelope Graham, mortgage expert with Ratehub.

The lowest rate on an insured, five-year fixed mortgage on Ratehub is 4.29 per cent right now, Graham notes, a low not seen since last spring when the housing market saw a brief burst of activity.

“We could be set to see additional discounting if yields do trend lower,” she says.

But some experts are advising homeowners to take another look at the variable-rate route with more interest rate cuts in the forecast.

Read more on how the mortgage space is shaping up ahead of the fall housing market.

Rent growth (fiiiiiiiiiiinally) cools

Rents were still heading up across the country in July, but the silver lining is that the rate of growth is cooling to levels not seen in more than two years.

Average asking rents for all residential property types in July were up by 5.9 per cent compared with this time last year, the National Rent Report from Rentals.ca said this week.

While average rents reached $2,201 a month, this represented the slowest annual rate of growth over the past 31 months.

Vancouver and Toronto even saw outright declines year over year in their average rents across all unit types last month.

Before celebrating too much, keep in mind how elevated rents already are in some of Canada’s most expensive housing markets: average asking prices in Vancouver are still over $3,000, for example.

Read more on what market experts expect for rents in the future.

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– THE QUESTION –

“I have a question about withdrawals from the first home savings account. My wife and I are in the market for a home and hope to buy in the next couple of months. I’m worried that keeping the money in the FHSA until we have a deal might cause a delay in getting the full downpayment and closing? But then I’m worried about withdrawing before we have a home and running into an issue where we end up waiting longer and the withdrawal not counting properly if we don’t close. Is there any wiggle room on when we can withdraw from the FHSA before knowing when we close on a home? What penalties would there be if we miss that window?”

— A Money123 reader 

“It is worthwhile for you to wait until you have a finalized agreement to buy your home before withdrawing from your FHSA. If you do not have a written agreement to buy, then the amount you withdraw is all taxable to you. The entire purpose of an FHSA is to get a tax refund when you contribute, but then withdraw tax-free to buy your home.

You should not have to worry about getting your withdrawal out on time. You only need to have your financial institution fill out the withdrawal form. Unless you have investments that are locked in, you should be able to do a qualifying withdrawal from your FHSA as quickly as a normal withdrawal from any registered account.

Possession date on a home purchase is usually a couple of months or more after you finalize the purchase, which gives you lots of time for your withdrawal. Your lawyer will want a minimum two to four weeks before possession for his legal work, which should be more than enough time for a withdrawal.

The rules are quite flexible in the timing of your withdrawal. The possession date can be any time up to Oct. 1 of the year after your withdrawal and you can withdraw up to 30 days after possession.

Make sure you are confident your home purchase should go through. If you withdraw from your FHSA and then the purchase falls through, you cannot reverse the withdrawal.

Once your agreement to buy your home is finalized and all conditions are waived, then you should be fine doing your withdrawal.”

– Ed Rempel, fee-for-service financial planner and tax accountant, Unconventional Wisdom

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