by Neil Sharma

While there’s near consensus among economists that the Bank of Canada will hold the interest rate at 1.75% on Wednesday, quite a few of them also believe a rate cut is just around the corner.

“If we were only looking at domestic factors, we might think that the Bank would soon start to consider further rate hikes,” said Capital Economics’ Stephen Brown. “Economic growth is on track to outperform the Bank’s forecasts in the second quarter and core inflation has risen in recent months. But outside of Canada, trade tensions have grown, there are signs that U.S. GDP growth is slowing, and the Fed has signalled that it will soon cut rates. We suspect that the next move will be a cut.”

The housing market continues showing signs of recovery and, because it plays a crucial role in the Canadian economy, there are few reasons to worry about the domestic picture. However, trade tensions between the United States and China are proving to be a spanner in the works.

“The Canadian economy has been performing in line with, if not ahead of, Bank of Canada expectations,” said TD Economics’ Brian DePratto. “Key housing markets are showing signs of recovery, and economic growth appears set to speed up notably in the second quarter. The external backdrop remains highly uncertain, which, balanced against domestic strength, suggests the current interest rate setting is about right.”

The Canadian economy is buoyant and growing, albeit slowly, and inflation remains within the Bank of Canada’s target range. For these reasons, Moshe Lander, an economics lecturer at Concordia University, doesn’t believe an interest rate cut is imminent.

“A rate increase is unnecessary without sustained upward price pressure,” he said. “There is little room for a rate decrease since the overnight rate is already so low, so it’s best to wait until there is economic data that warrants a cut.”

There has been more job creation in Canada through the first four months of the year than in all of last year combined, according to Scotiabank’s Brett House, who also forecasts faster growth in the quarters ahead because conditions in Canada are distinct from those facing the United States and its Federal Reserve.

“Canada’s major macroeconomic activity indicators continue to rebound from a soft patch at the turn of the year and inflation is near the Bank of Canada’s target,” he said.

by Neil Sharma

With the mortgage stress test, only one in 13 Vancouver families can afford to buy a home.

“Only one in eight families earns the income necessary to manage ownership costs in the Vancouver area, and one in five families in the Toronto area and Victoria. And this isn’t taking into account the mortgage stress test,” said RBC’s report on Housing Trends and Affordability. “Clearing a higher qualifying rate would drop even more families out of contention (to one in 13 in Vancouver, and one in seven in Toronto).”

The news is slightly better for condo buyers, though.

“Buying a more affordable condo apartment opens the field to two-thirds of families in most markets,” continued the report. “But still just one-quarter of them would be able to cover condo-ownership costs in Vancouver and only one-third in Toronto. Severe affordability issues remain a major obstacle for all but the wealthiest in Vancouver, Toronto and Victoria.”

The report otherwise noted housing affordability in Canada improved for the second straight quarter, albeit nominally. It declined 0.3% to 51.4% during Q1-2019, yet remains an historical high. Thanks to declining prices in Western and parts of Atlantic Canada, as well as a boost to household income, housing is technically more affordable than it was in Q3-2018.

But that’s little solace for homebuyers in Vancouver, Toronto and Victoria, and housing markets in Montreal and Ottawa are beginning to show signs of stress, too.

While the signs of fledging affordability are negligible at this point, RBC forecasts a drop in ownership costs because interest rates aren’t likely to rise. Buyers in Western Canada will have an opportunity to capitalize because housing prices are under pressure from above.

“A majority, or near majority, of families would be able to cover the cost of owning an average home in nine of the 14 markets we track,” said the report. “The proportion of ownership-capable families is highest in Canada’s most affordable markets—St John, St. John’s, Regina, Quebec City and Halifax. It’s a very different story for a trio of least-affordable markets. Only one in eight families earns the income necessary to manage ownership costs in the Vancouver area, and one in five families in the Toronto area and Victoria. And this isn’t taking into account the mortgage stress test.”

Source

by Ephraim Vecina

Lower borrowing costs and a growing labour force are stoking the national housing market, with Canadian home prices going up for the first time in nine months, according to Teranet data.

The latest edition of the Teranet-National Bank Composite House Price Index noted that prices went up by 0.5% on a month-over-month basis in May.

Increases were observed in nine out of 11 metropolitan markets analyzed. Hamilton was the winner with its 2.2% price growth, a trend that National Bank of Canada senior economist Marc Pinsonneault attributed to the strength of the market’s steel industry.

The record-low 5.6% unemployment rate reached in May is also boosting Canadians’ purchasing power. According to Statistics Canada, the national workforce saw 27,700 new posts being filled, representing 2.4% annual growth and bringing the 12-month total employment gain to 453,100.

Still, Pinsonneault cautioned that the May price increase was the lowest for the month in 21 years, and that the annual gain of 0.7% was the weakest since November 2009.

Last month, Bank of Canada governor Stephen Poloz said that increases to the benchmark interest rate will likely take place once the economy enjoys sustained stability. However, it’s still uncertain as to exactly when and by how much.

Poloz has previously attributed its hike freeze since October 2018 to global economic instabilities, along with other moderating factors like trade wars and current household debt levels.

“All of those things are kind of holding things back and the lower interest rates kind of push back and keep us at unemployment at a 40 or 50 year-low. So that’s balance,” he said at the time. “And that balance can shift when some of those headwinds dissipate.”

“The natural tendency is for interest rates to still go up a bit. I don’t really know how much a bit is, and what the timing might be,” Poloz added. “But it depends on our forecast coming true that the slowdown is temporary and getting through all that and getting back on the track we were [on] say a year ago.”

by Steve Randall

There was a further increase in home sales nationwide in May, finally returning sales to 10-year average levels for the month.

The Canadian Real Estate Association reported a 1.9% month-over-month increase while actual seasonal activity gained 6.7% year-over-year; the largest annual gain in three years.

Sales only increased in half of local markets in May but were led by gains in Greater Vancouver and Greater Toronto areas. Year-over-year, around two-thirds of local markets gained but close to half of the overall increase was down to increased sales in the GTA.

“The mortgage stress-test continues to present challenges for home buyers in housing markets where they have plenty of homes to choose from but are forced by the test to save up a bigger down payment,” said Gregory Klump, CREA’s Chief Economist. “Hopefully the stress-test can be fine tuned to enable home buyers to qualify for mortgage financing sooner without causing prices to shoot up.”

Listings down slightly

The number of new homes listed in May was slightly lower than in April with a 1.2% decrease and with the rising sales that took the national sales-to-new listings ratio to 57.4% from 55.7% in April.

Based on a comparison of the sales-to-new listings ratio with the long-term average (53.5%), almost three-quarters of all local markets were in balanced market territory in May 2019.

There were 5.1 months of supply in May, down from 5.3 in April.

The actual (not seasonally adjusted) Aggregate Composite MLS® Home Price Index (MLS® HPI) edged down by -0.6% y-o-y in May 2019, the largest decline in almost a decade.

Regional price data

Trends continue to vary widely among the 18 housing markets tracked by the MLS® HPI.

Results remain mixed in British Columbia, with prices down on a y-o-y basis in the GVA (-8.9%), the Fraser Valley (-5.9%) and the Okanagan Valley (-0.7%). Meanwhile, prices edged up 1% in Victoria and climbed 4.7% elsewhere on Vancouver Island.

Among Greater Golden Horseshoe housing markets tracked by the index, MLS® HPI benchmark home prices were up from year-ago levels in Guelph (+5.7%), the Niagara Region (+5.4%), Hamilton-Burlington (+3.4%), Oakville-Milton (+3.4%) and the GTA (+3.1%). By contrast, home prices in Barrie and District held below year-ago levels (-6.1%).

Across the Prairies, supply remains historically elevated relative to sales and home prices remain below year-ago levels. Benchmark prices were down by 4.3% in Calgary, 3.6% in Edmonton, 3.9% in Regina and 1.3% in Saskatoon. The home pricing environment will likely remain weak in these cities until demand and supply return to better balance.

Home prices rose 8% y-o-y in Ottawa (led by a 12.2% increase in townhouse/row unit prices), 6.3% in Greater Montreal(led by a 7.6% increase in apartment unit prices), and 2% in Greater Moncton (led by a 15.9% increase in apartment unit prices).

The MLS® HPI provides the best way to gauge price trends, as averages are strongly distorted by changes in the mix of sales activity from one month to the next.

The actual (not seasonally adjusted) national average price for homes sold in May 2019 was close to $508,000, up 1.8% from the same month in 2018.

The national average price is heavily skewed by sales in the GVA and GTA, two of Canada’s most active and expensive housing markets. Excluding these two markets from calculations cuts almost $111,000 from the national average price, trimming it to just under $397,000.

Source

By: Pete Evans

House prices may be as high as ever in many parts of the country, but Canadian homebuyers are being offered some of the lowest mortgage rates seen in years as lenders battle to drum up new business.

Rates on a standard five-year fixed-rate mortgage have fallen to their lowest level in two years, according to rate comparison website, Ratehub.ca.

Borrowers just about everywhere across the country can take their pick of offerings well below three per cent at the moment, says James Laird, the site’s co-founder and president of mortgage brokerage, CanWise Financial.

That’s partly for seasonal reasons, he says, in that the spring months are typically the best ones for home buying, as families try to get moved and settled before summer vacations and then the new school year sets in.

“Promotions are April, May and June … when all mortgage companies try to make sure they are on track to hit their annual targets,” Laird said in an interview. “Anyone who’s behind at this point would be aggressive with the margins they’re willing to fund mortgages at right now.”

At the moment, Laird says he’s seeing five-year fixed rates as low as 2.64 per cent for certain buyers, and even higher-risk borrowers can easily find a loan for 2.89 per cent. That’s the lowest range since the summer of 2017, he says, and a big reason why is the bond market.