Hello everyone, and welcome to the September 25th edition of Property Perspective. Today I have the pleasure to be with Matthieu Arseneau.
Hi Simon.
Hello Matthieu.
And with Veronique Corriveau, hello Veronique. Our topic of the day real estate and estate planning. But before we go into that interesting discussion with Veronique, um, let's talk with Matthieu about recent economic news that influence the real estate market. Matthieu, while the Bank of Canada slowly lowered its policy rate over the summer, announcing cuts of 25 basis points, the Federal Reserve, I believe, surprised the economist by announcing a cut of no less than 50 basis points in the first announcement in September. What pace of cut can we expect from the Bank of Canada now that the Fed has entered the dance.
Yes, Simon that was a surprising one to that the Fed is going with the 50 basis point with the start of. So in this easing cycle that we are getting into, clearly it opens the door for the Bank of Canada to do more. If the if the Fed hadn't declined rates, it can have an impact when you decline rates on currency, pushing it down and ultimately lead to inflation. So when both central banks are going in the same direction, there's no impact on that front. And that opened the door for the Bank of Canada to go ahead perhaps with and I hope will be inspired by that kind of move. So increasing maybe 50 basis point cuts in the next meeting. Let's hope they will go in that direction. Clearly when we are looking at the inflation data a big milestone in August with the data that came out inflation at 2% on an annual basis, that's the goal of the Central Bank. So that was really good news. And if you exclude mortgage interest costs, we know the Central Bank is mainly responsible of that increase for that component. So if you exclude that component, we are only 1.2%. So for us clearly rates at those restrictive levels, it's not a good idea in the short term and they should decline rates faster over the next couple of meetings to bring back inflation rates much more neutral in the coming months.
Finally good news.
Good news on interest rate front, yeah.
Matthieu, we saw that controlling inflation has not come without economic cost, as evidenced by the rising unemployment rate. How do you assess the economic health of the labour market recently?
Exactly. It's not magic. Inflation has moderated because there's economic weakness. And when we look at the unemployment rate, in fact, it continued to increase during the summer and it's now at 6.6%. Not that high on historical basis, but still higher than it was prior to the pandemic. But there's not that much layoff at this point. It's much more hiring freeze on the macro perspective with corporations not hiring and a big increase in population. So as a result, it's the segment of population who tried to enter the labour market that are the most impacted at this point. If we look at the unemployment rate for people at the younger ones and recent immigrants, in fact, the cumulative increase since 2022 is as large as what we experienced during the global financial crisis of 2008, 2009. So for those segments of population is comparable to a recession at this point. So, and my concern Simon is the fact that job vacancy rates so are declining very fast. So that does not bode well for hiring in the coming months. In fact, it's the lowest since 2016, 2017 for those segments of population. So it's a, it's a warning for the Central Bank. Perhaps interest rates at those current levels are too high for the health of the labour market. As I recall unemployment rate at 6.6%, that was the level back in 2017 and rates were at 0.5% versus 4.25% at this point. So yes, I'm not saying that they should go there, but perhaps between 2.5% and 3%, very soon, that could be a good idea so we won't have too much damage on the labour market.
OK, remains to be seen. Matthieu, last question, what do you think of the government's latest announcement about raising the ceiling of insured mortgages from $1M to $1.5M and also giving first time buyers the option of repaying their loans over 30 years versus 25 years? Is it a good solution to the affordability challenges? We discussed a lot this affordability challenge over the past few months. For the first measure, the increase of the ceiling, we won't we don't expect that much impact because most of the transactions are way below this this threshold. So that's for this measure. For the other one, that could have material impact on the market, we made some calculations, and you can see the amounts are a bit different depending on the province, but just a general picture. For the same house, in fact, if you increase the amortization from 25 to 30 years, you have a decline of payment of 9% on a monthly basis. And if you maintain the same, the same payment, you can buy a house 10% higher in terms of price. So that gives you a leeway. But the big question here is, is it more affordable when you pay your mortgage for a longer period? So that's the first question. And if this option became very popular at some point, there could be an adjustment in prices given this increase in purchasing power of first-time home buyers and it will reverse the initial intentions. So that's, that's the tricky part. No evident solution with that kind of measure.
Alright Matthieu, thank you very much for your very, as usual, interesting comments. Thank you. Let's now discuss with Veronique, hello Veronique.
Hello.
About the real estate as part of the estate planning process, many of us put off these important decisions thinking that they are either too complex or not necessary. Yet when the time comes, navigating the legal and also emotional aspect of passing down property down can feel overwhelming. Veronique, a notary of extensive experience is here to shed light on the basics and help us take the first step toward thoughtful thinking. To start, can you please explain why having a will is so important, especially when real estate is involved?
Yeah, it's important to have a will to ensure that we do not leave our wishes to chance. Having a will allows the testator to decide for himself who will inherit his property and to choose the person or the people who will administrate the property in the process of liquidating an estate. For example, in the case of common law partners, if you die without a will, your partner could find himself co-owner of the building with your legal heirs. It's not perfect.
You could say that. Véronique, one of the key aspects of estate planning is the transfer, obviously, of ownership after someone passes away. Can you quickly walk us through the process of transferring real estate ownership from a deceased person to their heirs?
When you inherit real estate, the liquidator of the estate must transfer the title of the property. This is what we call in legal language the "declaration of transmission". By this act, the succession transfers the property right to the heirs, so the new owner of the building. It is a myth that we often have to deconstruct that the transfer does not take place automatically in the will. This act formalizes everything.
OK. Finally, Véronique, what specific considerations should heirs be aware of when inheriting real estate are there some challenges, pitfalls that they should be prepared for?
I can give you some examples. We can think of the co-ownership of real estate. For example, in this situation we should think about how they will administer the property together. Sometimes we can see some family dynamics in this kind of situation. We can also think of bequests of a building to minor children. If the bequest was made with or without a protection mechanism. This situation can complicate the administration of the child's property, and we have to think for the tax aspect too. It can bring us for example, a lack of liquidity when we put heirs in an unknown situation for the for the taxes.
You're right, so important to consider. So thank you Véronique for sharing your insights today. Estate planning, especially when it involves a real estate as we just saw, can be overwhelming at times. But as we discussed, taking the time to plan ahead can make a world of difference for your loved ones. We hope today's conversation has helped clarify the process of estate planning and real estate transfers and don't hesitate to discuss that important topic with your advisor. So thank you all for watching and see you in the next weeks for your next edition of Property Perspective. Thank you.
