Outlook On Housing

Interpreting recent economic signals in the first quarter of 2019 is challenging. Housing markets in main urban centers are cooling. This is generally interpreted as a good sign and potentially averting a housing bubble. It appears that the new rules on speculation, foreign ownership and increasing mortgage rates have had a positive impact on a heated marketplace. As BDC.ca indicates the cooling will continue, “Research shows it takes between three and five years for changes in central bank interest rates to fully work their way through the economy. When they do, a one percentage point change in interest rates can have a three-to-five percentage point impact on home prices.”

Business Confidence Stabilizes In April

The Canadian economy is in transition. Our partners at NBF Economics remind us, there is a positive outcome. The benefit is that interest rate hikes are not likely in the future as the Bank of Canada Governor Poloz indicates.

“As financial conditions had eased, the Bank believed the current interest rate level to be consistent with its positive economic outlook going forward. If we assumed the Bank’s forecast to be right, Poloz’s view was that the policy rate was more likely to go up than down, though there was “no rush to get back in the saddle in terms of hikes.”

https://www.nbc.ca/content/dam/bnc/en/rates-and-analysis/economic-analysis/weekly-economic-watch.pdf

Monday Monitor – July 17th House Price Index

The Teranet–National Bank National Composite House Price Index TM rose 2.6% in June, the largest increase for that month in the index’s 19-year history. The table below breaks it down metropolitan areas:

City Hamilton Toronto Quebec City Vancouver Victoria Edmonton Halifax Montreal Ottawa
June Change +4.1% +3.7% +3.7% +2.5% +2.2% +1.8% +1.7% +1.6% 1.2% 

 

Year over year, the national index up a record 14.2%. The hottest markets are Toronto (+29.3%—a record), Hamilton (+25.6%—also a record) and Victoria (+17.4%).

The June stats show that the Ontario government’s Fair Housing Plan intends to put a damper on Toronto house prices. Real new residential construction expenses and housing starts had not yet had a bearing in this regard. Given the plan’s effect on home sales and listings, the impact on prices should be felt soon enough.

 

The implications of these trends impact the net worth of approximately 75% of Canadian households. Residential real estate as an asset class is often the largest holdings within their overall net worth.

First Interest Rate Increase In Seven Years

The Bank of Canada (BoC) hiked its policy rate for the first time in seven years, raising the overnight rate 25 basis points to 0.75%. The BoC acknowledged that inflation remains low. The latest reading showed common core Consumer Price Index (CPI) rising only 1.3% on an annual basis. CPI weakness is considered “temporary”. National Bank Financial Economics continues to project inflation close to 2% by the middle of 2018.

Positive Economic Growth for Canada

This increase couples today’s forecast from the Conference Board of Canada (CBoC) anticipating an increase in GDP (Gross Domestic Product) growth in Canada from July 2017 forward. Housing is a key driver. The CBoC expects the Canadian economy to grow by 2.6% this year, before slowing to 1.9% in 2018. Enjoy the complete Economic Report and Forecast from our partners at National Bank Financial Here.