The Winds of Financial Change: What to Expect in 2013

Martha Worboy

Filed under: Budgeting & Planning, Employment & Careers, Debt, Family Finances, Real Estate, Back to School, Mortgages

The coming year will bring some pretty important changes to the Canadian financial ecosystem. Every Canadian should be aware of the following five shifts that will impact both the national and household economies.

House Prices
So the bubble may not be popping but the housing market is definitely slowing down. The Canadian Real Estate Association recently released its latest sales numbers that show a 1.4 per cent decline in home sales for late 2012. One factor may be recent tinkering in the mortgage market such as shortening amortization periods. This trend is particularly important because many people -- particularly young families and young professionals -- have tied their financial ships to their houses. If homes aren't moving, this impacts their value and creates a buyer's market. For families hoping to cash in on a hot market -- whether by selling or tapping into their equity -- 2013 may not be the time.

Interest Rates
Is the era of super-cheap credit over? Probably not just yet but the question of how long low, low interest rates can last is worth asking. Most experts expect rates to stay put in 2013, particularly since inflation remains low but finance minister Jim Flaherty has expressed concern over the high level of household debt. While banks have been told to tighten their lending policies, it's just business to them: if you fit within their software-driven credit approval profile, they will lend you money at a low rate -- whether you can afford it or not. One of the few things that make some people stop and think before taking out more credit is the interest costs of servicing the debt. The government knows this and so does the Bank of Canada.

New Bank of Canada Governor in July
You don't know Mark Carney personally but you've felt his impact as governor of the Bank of Canada. He's been a steady and influential hand and his very presence has helped to stabilize Canadian markets. He's off to the UK to take over the Central Bank in July, meaning someone new will be given the levers of monetary policy power. The Bank of Canada is independent of the government so the credibility of the governor has an impact on the confidence of credit and equity markets and, therefore, things like your RRSP and investments. Observers will be keenly watching this appointment in 2013.

Changes to EI
The federal government announced changes to the Employment Insurance program this year which will take effect in 2013 and impact hundreds of thousands of workers. Most importantly, unemployed workers may need to accept lower-paying jobs and work they consider too far from their homes or risk not qualifying for EI (Flaherty has indicated the government is cracking down on reasons unemployed Canadians turn down employment, such as a long commute or disinterest in an available job). With unemployment numbers still higher than usual and only dropping slowly, this change will hit some families hard.

Tuition
The odds are looking good there will be tuition increases at Canadian universities in 2013. According to a Statistics Canada report, in the 2012/2013 school year, students have paid five per cent more on average for tuition than in earlier years. Students are now paying about
$5, 581 per yer for tuition. As a consequence, students will carry greater debt loads when they graduate and have less money to spend on important university experiences like drinking beer.