21 Mar

Residential Market Commentary – Housing market optimism

General

Posted by: Frank Fik

Instability persists in the Canadian housing market, but analysts say there are signs things may start to normalize in the coming months.

The Canadian Real Estate Association reports that February home sales fell 40% compared to their peak in February of last year, just before the Bank of Canada started raising its trend-setting Policy Rate.  Prices, compared to a year earlier, dropped nearly 19%.

The national average home price now stands at a little more than $662,000.  With the busiest and most expensive markets – Toronto and Vancouver – calculated out of the equation the average price falls by almost $135,000 to about $527,000.

While that might seem gloomy, market watchers are taking encouragement from the month-over-month figures in the CREA report.

“The similarities between 2023 and the recovery year of 2019 continued to emerge in February, with sales up, the market tightening, and month-over-month price declines getting smaller,” said Shaun Cathcart, CREA’s Senior Economist.

Between January and February home sales rose by 2.3%.  Sales for the month are now, roughly, comparable to the period in the pre-pandemic years, 2018 and 2019.

The average price popped up by $50,000 between January and February, the first monthly increase in half a year.  Much of that was driven by activity in the Toronto and Vancouver areas.

The market tightening is evidenced by a nearly 8% decline in new listings for the period.

Published by First National Financial LP

14 Mar

Residential Market Commentary – Taking a pause, but for how long?

General

Posted by: Frank Fik

The Bank of Canada has stepped to the sidelines bringing an end to a 12-month string of interest rate increases that pushed its trend-setting Policy Rate from 0.25% to 4.50%.  The question now is: How long will the Bank stay on the sidelines?

Right now, there are plenty of market watchers who expect the BoC will hold the line on rates for the rest of the year.  But the Bank itself has adopted a more hawkish tone since last week’s decision to take a pause.

During a speech to business leaders in Winnipeg, the day after the setting, the Bank’s Deputy Governor Caroline Rogers reminded her audience the pause remains “conditional” on economic data.

“If economic developments unfold as we projected and inflation comes down as quickly as we forecast in the January Monetary Policy Report, then we shouldn’t need to raise rates further.  But if evidence accumulates suggesting inflation may not decline in line with our forecast, we’re prepared to do more,” Rogers said.

Inflation is currently running at 5.9%, well above the Bank’s 2.0% target, and inflationary pressures remain high.  The labour market remains strong, consumers are still spending, grocery prices are still increasing rapidly, and the U.S. central bank has made it clear it will continue to raise rates, as needed, in its fight against inflation.

Higher U.S. rates will likely push down the value of the Loonie, effectively pushing up the cost of goods imported from the States.

The Bank of Canada’s next rate setting is scheduled for April 12th

 

Published by First National Financial LP

8 Mar

Bank of Canada hits pause on rate hikes

General

Posted by: Frank Fik

The Bank of Canada kept its policy rate unchanged on Wednesday, a decision that marked the first time in over 12 months that the central bank has not announced a fresh rate hike.

Having indicated in January that a 25-basis-point increase to start the year likely marked the end of its rising-rate trajectory for now, the Bank kept good on that promise by maintaining its trendsetting interest rate at 4.5% in this morning’s announcement, ending a run of eight straight rate jumps.

That decision reflects the Bank’s apparent confidence that its aggressive strategy on interest rates to date is having the desired effect, with inflation ticking steadily downwards in recent months and economic growth largely remaining flat at the end of 2022.

Still, it remains unclear whether the Bank will hit pause on hikes entirely for the remainder of the year, with a resilient labour market (Canada added 150,000 jobs in January) and the seeming willingness of the US Federal Reserve to continue increasing rates potentially leaving the door open to further moves later in 2023.

In its Wednesday announcement, the Bank said it “is prepared to increase the policy rate further” if required to restore inflation to its 2% target.

The Canadian central bank’s trendsetting interest rate has jumped by 425 basis points throughout the last 12 months, marking a dramatic shift from the low-rate environment that prevailed at the height of the COVID-19 pandemic when it slashed borrowing costs as the economy ground to a halt.

Its latest decision comes as little surprise, with all 32 economists who took part in a recent Reuters poll indicating that they expected the Bank to take no action on the policy rate in March.

A majority also said they expected the rate to remain unchanged for the remainder of the year as economic indicators continue to trend in the direction anticipated by the Bank’s governing council.

The Bank is scheduled to make its next announcement on the policy rate on April 12.

Published by Fergal McAlinden CMP Magazine

1 Mar

Bad News Is Good News for the Bank of Canada

General

Posted by: Frank Fik

Statistics Canada released the real gross domestic product (GDP) figure for the final quarter of 2022 this morning, showing a marked slowdown in economic activity. This will undoubtedly keep the central bank on the sidelines when they announce their decision on March 8. The Bank had estimated the Q4 growth rate to be 1.3%. Instead, the economy was flat in Q4 at a 0.0% growth rate. This was the slowest quarterly growth pace since the second quarter of 2021.

Inventory accumulation in the fourth quarter declined for manufacturing and retail goods, driving investment in inventories to decline by $29.8 billion. Further, higher interest rates by the Bank of Canada hampered investment in housing (-8.8% at an annual rate), and business investment in machinery and equipment was a weak -5.5%. On the other hand, personal expenditure in the Canadian economy expanded by 2.0% (vs -0.4% in Q3), supported by the red-hot labour market. Government spending growth also accelerated. At the same time, net foreign demand contributed positively to GDP growth as exports grew by 0.8% while imports shrank by 12.0%.

The weak Q4 result reduced the full-year gain in GDP for 2022 to 3.4%, compared to 2.1% in the US, 4.0% in the UK, and 3.6% in the Euro area.

The January GDP flash estimate was +0.3%, pointing towards a rebound in the first quarter of this year. However, flash estimates are always volatile and subject to revision. Nevertheless, the growth in GDP this year will likely be much more moderate, less than 1%.

Bottom Line

The weakness in today’s economic data will be good news to the Bank of Canada, having promised a pause in rate hikes to assess the impact of the cumulative rise in interest rates over the past year. Today’s GDP report and the slowdown in the January CPI inflation numbers portend no interest rate hike on March 8.

Now the Bank will be looking for a softening in the labour market.
Published by:

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres