WEEKLY RESIDENTIAL MARKET UPDATE
Industry & Market Highlights
Reasons to Keep and Eye on Toronto & Vancouver
Market watchers often find themselves being subjected to mortgage and real estate news that focuses on the exceptional circumstances in Toronto and Vancouver.
However, the attention that is focused on these frenzied markets would seem to be of little concern to the agents, brokers and buyers who are not directly involved in them. Even the Canadian Real Estate Association makes a point of saying – in all of its releases – that “all markets are local” and the best advice is to work with a local expert (i.e. one of its members). As true as that may be, there are good reasons to keep an eye on Toronto and Vancouver.
Toronto is Canada’s financial capital and the country’s top technology hub. The Greater Golden Horseshoe area, around the west end of Lake Ontario, accounts for a fifth of the national economy. Vancouver is a top destination for property investors from around the world and a key landing point for Chinese capital.
Prices in Toronto have risen by 43% in the past three years. Vancouver has seen a whopping 63% increase. If the people who work in these centers, keeping key economic sectors running, cannot find or afford places to live it presents a broader, national economic problem. The head of Canada Mortgage and Housing Corporation, Evan Siddal, has said that his main, long-term, concern about the housing market is the supply of housing in Toronto and Vancouver.
As we know, governments at all three levels have been fighting to rein-in these galloping markets, in some cases with national consequences. By First National Financial.
Bank of Canada Concerned About Trade Risks
The Bank of Canada held rates steady today, as expected, highlighting “trade policy developments” as an “important and growing source of uncertainty for the global and Canadian outlooks.”
As the seventh round of NAFTA negotiations commenced in Mexico City, President Trump dropped a bombshell late last week, threatening to impose a 25% tariff on imported steel and a 10% tariff on imported aluminum for national security reasons. The news reverberated around the world, causing U.S. trading partners in Europe to announce potential retaliatory actions quickly. The European Union raised the stakes for Trump by aiming levies on the GOP heartland, saying it would slap tariffs on products like Harley-Davidsons, Kentucky bourbon and Levi, bluejeans if President Trump goes ahead with his plan. Paul Ryan, Speaker of the House, is the Republican Representative from Wisconsin, headquarters of Harley-Davidsons. He immediately urged the President to stand down or ‘to be more surgical’ on tariffs. Hardliners such as Secretary of Commerce Wilbur Ross argued that any retribution would be trivial.
Well-known Republican economic advisors to the president warned that the tariff plan would do more harm than good, having adverse effects on consumers and many companies that use imported metals in the production of their products. The number of jobs lost in the auto sector and construction, for example, could be far more significant than the positive impact on the comparatively few jobs in the steel industry mainly in Pennsylvania. Prices of many products would rise including infrastructure costs, energy and food products.
Canada is ground zero in this maelstrom as the number-one exporter of steel and aluminum to the U.S., supplying $7.2 billion of aluminum and $4.3 billion of steel to the United States last year. Trump has often accused China of forcing U.S. steel and aluminum companies to fold by inundating the market with cheaper materials, but Trump thus far has refused to exclude Canada from the tariff proposal, holding Canada hostage to a favourable NAFTA deal.
Canada and the rest of the world are hoping that reasonable voices are going to prevail, but the resignation of Gary Cohen, White House Economic Adviser and formerly President of Goldman Sachs, is a victory for the protectionists (and immigration hawks). A registered Democrat, Cohn was regarded as one the few political moderates close to the president. His absence will amplify voices like Commerce Secretary Wilbur Ross and trade adviser Peter Navarro who back the president’s impulses to buck convention and pick trade fights on a global stage.
Housing Another Factor Postponing Rate Hikes
Even before the escalating trade tensions, the Bank of Canada was concerned about the impact of rising mortgage rates and new mortgage guidelines on housing, a significant contributor to the 3% growth in the economy last year. “Strong housing data in late 2017, and softer data at the beginning of this year, indicate some pulling forward of demand,” according to the Bank of Canada press release. The central bank is monitoring the economy’s sensitivity to higher interest rates, pointing out that “household credit growth has decelerated for three consecutive months.”
Inflation has edged upward to close to the 2% target. Wage growth has firmed, but even with the hike in minimum wages, the rise in compensation remains smaller than usual at full-employment.
The Bank of Canada commented once again that the economic outlook is expected to warrant higher interest rates over time, but some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential with inflation on target. The next scheduled Bank of Canada policy announcement is April 18 when the full economic outlook will be updated in the quarterly Monetary Policy Report.
To be sure, if the Trump administration goes ahead with the tariffs, the Bank will keep rates steady in April as well. Investors have pared bets on rate hikes after weaker-than-expected fourth-quarter growth, turmoil in global equity markets and the sharp decline in the Canadian dollar. Traders are not pricing in another rate hike until July according to Bloomberg News calculation on overnight index swaps. A month ago, expectations pointed to at least one increase by May. By the Bank of Canada’s measure, interest rates are still about two percentage points below what it would consider “neutral” for the economy. Dr. Sherry Cooper. Chief Economist, Dominion Lending Centres.
· Markets sold off sharply this week, following a somewhat hawkish assessment of the U.S. economy from the Fed’s new chair Jerome Powell and the announcement of steep tariffs on steel and alumimium imports by Donald Trump.
· Despite the market reaction to Powell’s comments, there was not much in the data this week to indicate that the economy is overheating. Both headline and core PCE inflation remained unchanged in January, coming in at 1.7% y/y and 1.5% y/y, respectively. Real consumer spending fell by 0.1% on the month. Vehicle sales also weakened in February.
· Both consumption and GDP will start the year on a softer footing but weakness is expected to be short-lived. Tax cuts and tightening labor market will support consumer spending and above-trend growth over the remainder of 2018.
· The marquee event this week was the 2018-19 federal budget, which despite an array of new spending measures, contained little in the way of policies intended to address Canada’s newly disadvantaged tax position versus the U.S.
· Real GDP hit 1.7% (annualized) in the fourth quarter, below the Bank of Canada’s forecast. The monthly figure edged modestly higher in December, up 0.1%, signaling diminished momentum to end the year and a soft hand-off into 2018.
· A softer-than-expected GDP print coupled with a maintenance-type budget provides the Bank room to be patient on the rate hike front, but data-dependency remains in place.
By TD Economics. Read the full report Here.
Mortgage Interest Rates
No change to Prime lending rate currently at 3.45%. Bank of Canada Benchmark Qualifying rate for mortgage approval is at 5.14%. 5 year fixed rates increased slightly. Deeper discounts are becoming available for variable rates making adjustable variable rate mortgages more attractive again.
Other Industry News & Insights
Roundup of the latest mortgage and housing news.
From Mortgage Professionals Canada.
•Commercial property deals in Canada set record at $43 billion (Toronto Star)
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•Foreign buyers using Canadian homes as piggy banks, RBC CEO warns (Financial Post)
•Toronto home prices climb on heels of tougher mortgage rules (Globe and Mail)
•Greater Montreal home sales rise 5 per cent from a year ago (Globe and Mail)
•Toronto housing market takes a February nosedive (The Globe and Mail)
•CIBC’s new rules for foreign clients could squeeze Vancouver market (The Globe and Mail)
•It’s time to kill the federal Home Buyers’ Plan (The Globe and Mail)
•Budget proposes allowing credit unions to use ‘generic bank terms’ (The Globe and Mail)
•Laurentian Bank says progress being made on problematic mortgages (Financial Post)
•Federal budget 2018: Seven changes that could affect your finances (The Globe and Mail)
•Federal budget 2018: New measures enhance financial security – for some (The Globe and Mail)
Now’s the perfect time of year for a free mortgage check-up. With spring on its way and interest rates on the rise, it makes sense for us to revisit your mortgage and ensure it still meets your needs. Perhaps you’ve been thinking about refinancing to consolidate debt, purchasing a rental or vacation property, or you simply want to take a vacation. Whatever your needs, we can evaluate your situation and help you determine what’s right for you.