The Bank of Canada is out with Another Warning

May 10, 2024 | Nick Scholte


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Mortgage payments for many homeowners are set to rise - egregiously in some cases. This will be another headwind for the Canadian economy, and rationalizes the recent and soon to come portfolio tilts in favour of the U.S.

To my clients:

If you prefer, read this week’s update on my website. Feel free to share the link with family, friends and colleagues:

It was an up week for North American stock markets with the Canadian TSX finishing up 1.7%; the U.S. Dow Jones Index up 2.2%; and the U.S. S&P 500 up 1.9%.

Shortish update re-emphasizing a theme I’ve been writing about the last few months – the economic divergence between Canada and the U.S.. As I previously wrote, the Bank of Canada (BoC) has emphasized that the country faces an economic “emergency” (yes, that was the term used by the BoC) with respect to the declining GDP per capita. Now, just yesterday, the BoC has highlighted another concern which will exacerbate the situation – the materially higher mortgage payments a significant portion of the population will soon be facing. As the BoC noted, homeowners due to renew their mortgages over the coming years will face steep jumps in payments, with the median monthly payment increasing by more than 60 per cent for those with a variable rate mortgage.

I have written about this issue in the past, and have also made it a prominent talking point in annual reviews recently completed with clients. It’s a real concern and yet another challenge when looking to invest in Canada vis-a-vis the U.S. (recall that U.S. mortgages are structured over 30-years, and do not reset every 5-years as is typical here in Canada; in other words, the U.S. in insulated from this particular challenge).

The preceding further supports my intent to tilt portfolios slightly more toward U.S. exposure in the weeks ahead. As with the last such modification made on March 19th, the looming adjustment will be modest, but the intent is purposeful.

That’s it for this week. All the best,

Nick

Nick Scholte, CIM, FCSI

Senior Portfolio Manager

Scholte Wealth Management
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
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