Thank you to Bruno Valko from RMG for his excellent analysis, as always! 🙂

Great news for the Canadian economy! Recent inflation data shows promising trends, positioning the Bank of Canada comfortably for a potential rate reduction on July 24th. Let’s dive into the details and see what this means for bond yields and the housing market.

Canadian Inflation Trends

Canadian inflation came in at 2.7%, down from 2.9%, with a Month-over-Month change of -0.1%. This is encouraging news and suggests that the Bank of Canada might consider another rate reduction at their next meeting. The 2.7% inflation rate was below market expectations, which had predicted it would remain at 2.9%. This surprise has led to a drop in bond yields this morning.

Key Data Points:

• Year-over-Year Inflation: 2.7% (down from 2.9%)
• Month-over-Month Inflation: -0.1% (previously 0.6%)

This data aligns with the Bank of Canada’s forecasts that CPI inflation would remain near the 3% mark for the first half of the year and resume the deflationary trend in Canadian consumer prices.

Impact on Bond Yields

The 5-Year Government of Canada bond yield is down 6.7 basis points early this morning (8:33 am EST) in response to the inflation news. Lower bond yields are a positive sign for borrowers, as they often lead to lower mortgage rates.

• Canada 5-Year Bond Yield: 3.302% (-0.067)

Housing Starts: Where Are the New Homes?

Despite the positive inflation news, housing starts in Canada have fallen below market expectations and previous levels. This raises concerns about the availability of new homes that were promised.

Housing Starts Data:

• Housing Starts for June 2024: 241.7K (previously 264.9K, consensus 260K)
• Monthly SAAR of Total Urban Housing Starts: Decreased by 9% to 223,234 units
• Multi-Unit Urban Starts: Decreased by 12% to 180,205 units
• Single-Detached Urban Starts: Increased by 2% to 43,029 units
• Rural Starts Monthly SAAR Estimate: 18,438 units

Among the most populated provinces, Ontario and British Columbia saw the largest declines in housing starts, while the Prairies experienced the most significant increase.

The easing of inflation to 2.7% and the drop in bond yields are encouraging signs for the Canadian economy. However, the decline in housing starts highlights ongoing challenges in the housing market. It’s crucial to stay informed and watch these trends, especially as the Bank of Canada’s July 24th announcement approaches.

Special thanks to Bruno Valko from RMG Mortgages for providing the valuable information that helped shape this analysis.

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