Home sales and prices moderated in June according to the latest numbers from the Canadian Real Estate Association and the organization is downgrading its forecast for the longer term.

Sales crept up 1.5% in June compared to May and were 4.7% higher than a year earlier.  But there has been a continuing month-over-month slowing of sales growth since the peak in April.  Nearly 43,500 properties changed hands in June.

The national average home price came in at a little more than $702,000 last month, up 6.7% from a year ago.  But it is a notable drop from $720,000 reported in May.  Taking the biggest, busiest and most expensive markets – Toronto and Vancouver – out of the calculation drops June’s average price to about $672,000.

CREA’s preferred price measurement, the Aggregate Composite Home Price Index, rose 2.0% over May but is 4.5% lower than a year ago.

The bigger story according to CREA is the ongoing increase in new listings.  The number of homes added to inventory in June climbed by

5.9% compared to May, building on last month’s 7.6% gain and the 3.1% rise in April.

The bigger inventory and a sense of growing uncertainty, triggered by rising interest rates, has CREA updating its price and sales forecasts for the rest of this year.  The association has dropped its sales projection to just over 464,000 transactions in 2023, a 6.8% drop from last year.  The national average home price is expected to decline 0.2%, to about $702,400, with slower increases going forward.

Published by First National Financial LP

Early reports from real estate boards across the country suggest spring is bringing renewed life to Canada’s housing market.  Activity, on both the buying and selling sides, was up in several major centres in April, compared to March.

House hunters appear to be encouraged by the Bank of Canada’s pause to interest rate increases.  But Canada’s interest rate policy is not entirely within its own control.  Bank of Canada governor Tiff Macklem has warned that further turmoil in global banking could bring the BoC off the sidelines, and he has not ruled out further rate hikes.

Sellers may be returning based on a sense that price declines have bottomed out and they are listing their property into a rising market.  New listings are still not keeping up with demand and competition for properties remains stiff – which often results in bidding wars.  That combined with current, higher interest rates means affordability remains a major roadblock to home ownership, especially for first-time buyers.

Despite the recent month-over-month gains and, seemingly, on-going price pressures both the Canadian Real Estate Association and the Canada Mortgage and Housing Corporation are forecasting an overall price decline for 2023, compared to the peaks hit in 2022.  However, neither organization expects prices to drop back to pre-pandemic levels.  Both are calling for a resumption of price increases in 2024.

CREA and CMHC point to increasing immigration as a key driver of housing demand.  CMHC is also forecasting a decline in construction of new homes.  It cites on-going labour shortages, the high cost of materials and higher financing costs brought on by higher interest rates.

Published by First National Financial

The latest measure of Canada’s economy suggests that the widely anticipated slowdown is arriving.

Statistics Canada reports that Gross Domestic Product (GDP) grew by a mere 0.1% in February, down from 0.6% in January.  GDP is the total value of all goods and services produced by the economy.

That kind of pullback would normally be seen as bad news, but it is what the Bank of Canada has been hoping for as it works to bring inflation under control.  The central bank has been raising interest rates in an effort to discourage borrowing and buying. The slowing economy suggests that it is working.  With people and businesses buying less stuff, supply should be able to catch up to demand and price increases should also ease.

It also means the BoC is under less pressure to continue raising rates, which will be welcome news for anyone shopping for a mortgage.  Many market watchers expect the latest GDP numbers will keep interest rate hikes on ‘pause’ for the rest of the year.

Early estimates for the March GDP reading have the economy actually contracting by 0.1%.  April GDP is also expected to be weak, due to the federal workers’ strike.

Currently, the Canadian economy is growing at an annualized rate of 2.5%, which is in line with Bank of Canada estimates.  But analysts say the slowdowns forecast for March and April will likely mean flat or negative GDP readings for the second quarter of this year.

The contraction is not expected to be big enough to trigger interest rate cuts.

The Canadian economy seems to be ganging-up on the Bank of Canada as it tries to wrestle inflation back to 2.0%.

The latest employment numbers, once again, came in well above expectations.  Statistics Canada reports 35,000 jobs were created in March, nearly triple what had been forecast.  As a result of the on-going demand from workers, wage increases have also caught up to inflation.  Wages are up 5.3% from a year ago.

“A lot of employers say they’ve been having trouble finding workers, and what do you do? You bid up your offer and that tends to drive wages up,” said Pedro Antunes, chief economist with the Conference Board of Canada in an interview with the CBC.

It’s good news for workers, but it makes things harder for the central bank which has been trying to avoid outsized wage growth because it is seen as a driver of inflation.  Wages tend to be “stickie”, in that they only go up, unlike prices for commodities and services which can decline based on supply and demand.

“I don’t necessarily think that’s bad news, but … we’re in this kind of bizarre world where sometimes the good news is not so good news for the Bank of Canada,” said Antunes.

This follows stronger than expected January GDP numbers.  The economy grew 0.5% for the month, defying the BoC’s efforts to slow things down.  However, the Bank is expected to continue its rate-hike pause at this week’s setting, as it waits for last year’s rapid series of increases to work their way through the economy.

Published by First National Financial LP

The latest numbers from Statistics Canada show the country’s economy continues to chug along despite very deliberate efforts to slow it down.

Gross Domestic Product (GDP), which measures the total value of all goods and services produced by the economy, rose by 0.5% in January.  Early indications are it was up by another 0.3% in February.  The first quarter of this year is on track to see GDP grow at an annualized rate of 2.5%.  The Bank of Canada had forecast growth of about 0.5%.

The unexpected resilience of the Canadian economy is buoying hopes for a, so-called, “soft landing” as the BoC works to bring inflation down.  There have been numerous forecasts that say the central bank’s rate hiking policy will push Canada into recession and unemployment will rise.  Some of those predictions are softening and the fear of significant job loses is fading.  But analysts still expect there will be an economic slowdown and, perhaps, a mild recession later this year as the effects of the Bank’s rate hikes work their way through the overall economy.

The BoC has paused its rate increases, for the time being.  But it has made it clear more hikes will come if they are deemed necessary.  The Bank’s trend-setting policy rate is now 4.5% and inflation has dropped to 5.2%.  The Bank expects it to fall to 3.0% later this year.  Target is 2.0%.

If economic growth remains stronger than expected and high inflation persists the BoC could be forced into the tough position of having to raise interest rates at the risk of pushing the country into a real recession.  In others words, a “hard landing”.

For now, the Bank is expected to leave its rate unchanged at the next setting on April 12^th.