The September jobs report revealed stronger-than-expected job gains of 254,000, quelling fears of a sharp labor market slowdown. This figure easily surpassed all analysts’ forecasts on Bloomberg and beat the consensus estimate by over 100,000 jobs. In addition, upward revisions added 72,000 jobs to the previous two months, while the unemployment rate ticked down to 4.1 per cent. Wages also grew by 0.4 per cent month-over-month (4.0 per cent year-over-year), marking the 17th consecutive month where wage growth outpaced inflation.
Private sector payroll growth surged by 223,000 jobs. Combined with recent revisions to real personal income, it’s getting increasingly difficult to foresee a sharp slowdown in this economy. The Fed funds futures market has already scaled back rate cut expectations for this year to just two quarter-point cuts in the wake of these stunning numbers.
While there’s still one more jobs report before the next Fed meeting, this data has significantly reduced the odds of another ‘jumbo’ 50 basis point rate cut. As a result, yields are up by 10-15 basis points (bps). Interestingly, despite previous rate cuts, US and Canadian 10-year yields are now higher on the year. However, residential mortgage borrowers have benefited from the adjustment to the front end of the curve, with the 5-year bond down around 130 bps for the year. The US market had been anticipating oversized rate cuts, and we are now seeing an adjustment to market expectations. This suggests there is limited scope for lower mortgage rates over the near term for Canadian mortgage borrowers, even as the Bank of Canada is expected to lower its policy rate.
It will be interesting to see if stalling 10-year rates lead to greater demand for 5-year products in the multifamily Canada Mortgage Bond (CMB) market. If this happens, CMHC will need to respond quickly to adjust its issuance program to avoid further challenges in getting more housing built.
Housing Affordability Watch
CMI monitors the latest developments and offers insights on solutions to Canada’s housing affordability crisis
The Canada Mortgage Bond (CMB) program plays a vital role in the Canadian housing market. By stabilizing access to mortgage funding in all economic conditions, it helps lower borrowing costs and enhances liquidity in the mortgage market, leading to more accessible and affordable housing options for Canadians.
In our latest Housing Affordability Watch instalment, we discuss key improvements to the CMB program that could expand mortgage funding – without increasing the program’s issuance size – and positively impact the broader housing market.
Read the full post here: Unlocking Efficiencies in the Canada Mortgage Bond Program
Independent Opinion
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