From sipping egg nog to smooching under the mistletoe, the holidays have plenty of traditions to enjoy. My personal favourite is the year in review – it’s the perfect time look back on the top finance news 2013 stories that made headlines in the past year.
2013 was a year with many ups and downs for the Canadian economy. While the Bank of Canada may have kept the overnight lending rate frozen at one per cent for another year, they did get a new governor. There was also plenty of excitement south of the border, as the U.S. government shut down for 16 days over the debt ceiling. As the year comes to a close, let’s highlight the top five things that impacted the Canadian economy.
The U.S. Impact
It was a rollercoaster year for Canada’s largest trading partner. Partisan politics reached a boiling point when the Tea Party held the U.S. government hostage over the proposal to raise the debt ceiling. The negotiations were tense with the threat of a U.S. default looming, as international markets reacted to the actions of the world’s biggest economy. Eventually a deal was reached, but it just goes to show that economic instability is possible even in a democratically-elected country like America.
The other big story stateside was the “tapering“. After months of speculation, the U.S. announced recently it is easing up on stimulus. Despite slowing down on quantitative easing, the U.S. Central Bank has assured us interest rates will remain low for the foreseeable future. Canada is closely tied to the U.S., so any economic development there has the potential to be felt back at home. With the U.S. keeping rates low for the long-term, the chances of a rate hike anytime soon in Canada are remote at best. This is good news for homeowners with variable rate mortgages and bad news for retirees. Homeowners will continue to enjoy borrowing at record low mortgages rates, while retirees will continue to struggle with paltry investment returns.
The Bank of Canada Rate Stance Scale Back
A new Governor took the top spot at the Bank of Canada this year. The rumors became reality when Mark Carney stepped down for a job promotion leading the Bank of England with Stephen Poloz named as his replacement. While Carney often warned Canadians of a rate hike in the near future, Poloz took a softened stance. He bluntly said that a rate hike isn’t in the cards until inflation is on target – many economists don’t expect a rate hike until late in 2015 or early in 2016.
If the latest announcement on the debt-to-income ratio reaching a new record of 163.7 per cent is any indication, consumers will continue to pile on debt as long as interest rates remain low. Again, this is good news for homeowners with variable rate mortgages and borrowers with debt tied to prime rate and bad news for investors, struggling to eke out a decent return.
This Summer’s Mortgage Rate Wars
The mortgage rate wars made a triumphant return in 2013, as we saw the lowest five-year fixed rate in history. Bank of Montreal fired the first shot when it lowered its posted five-year fixed rate mortgage to 2.99 per cent. This didn’t sit well with Federal Finance Minister Jim Flaherty, who, in an unprecedented move, had someone from his office call BMO to voice his displeasure. Shortly after, when Manulife announced its posted five-year fixed mortgage rate at 2.89 per cent, Flaherty had someone from his office put in yet another call, with Manulife soon after withdrawing its offer.
Despite fixed mortgage rates increasing in the fall due to raising Government bond yields, you can still get a five-year fixed rate mortgage for as little as 3.29 per cent today. The low cost of borrowing has kept first-time homebuyers in the market, despite tougher lending rules introduced mid-2012.
Alberta Floods Insurance Challenges
Forget the Quebec ice storm of 1998 (though Toronto’s version last week could give it a run for its money), the Alberta floods have been named the costliest natural disaster in Canadian history. With an estimated price tag of $6 billion, communities are still recovering months later. The storm resulted in Calgary’s downtown submerged under water with businesses shut down for days. Calgary isn’t the only city that suffered from flooding – the GTA saw a major flood of its own, when it received a month’s worth of rain in only an hour.
Most homeowners who expected home insurance companies to foot the bill were in for a rude awakening. Much to their dismay, in most cases they were personally responsible for damage caused by the flood. That’s because flood insurance isn’t widely available in Canada. Although you can purchase a sewer backup rider on your homeowner’s policy, you’re only covered if water backups from your drains – if water floods through your basement windows, sadly you’re most likely out of luck.
The Downfall of Key Canadian Companies
Target made its much-anticipated debut north of the border, following Zellers closing its doors earlier this year. Zellers had been a major Canadian discount retailer for years, until the majority of its stores were sold to Target. Consumers were excited with the prospect of Target coming to Canada, but were sadly disappointed with its paltry offering. Low U.S.-style pricing and its trendy apparel brands were nowhere to be seen. 2014 could be a make or break year for Target, who looks to turns its Canadian fortunes around. With more competition than ever, there were plenty of deals to be had for consumers.
BlackBerry (formerly Research in Motion) was the other big Canadian company story of 2013. Its much-hyped BlackBerry 10 was a commercial disaster that put the tech giant further in the red. The fortunes don’t look good for the tech company who recently announced a larger-than-expected $4.4-billion loss in the third quarter. The so far announced job losses at BlackBerry have already hit the city of Waterloo hard. Only time will tell if BlackBerry’s new CEO can right the ship.