Industry & Market Highlights
Poloz Holds The Line On Rates
As expected, the Bank of Canada held its key overnight rate this morning at 1.5%, asserting that July’s surprising spike in CPI inflation to 3% was in large part because of a jump in airfares. The Bank expects inflation to move back towards 2% in early 2019, as the effects of past increases in gasoline prices dissipate. The Bank’s core measures of inflation remain firmly around 2%, consistent with an economy that has been bumping up against full capacity for some time. Wage growth, as well, remains moderate.
Incoming information on the global economy is consistent with the Bank’s forecast in the July Monetary Policy Report (MPR). The U.S. economy has been particularly strong, growing at a 4.2% rate in the second quarter. This compares to Canada’s growth rate of 2.9% last quarter, which follows a 1.4% pace of economic expansion in Q1. Second quarter growth in the U.S. was boosted by strong consumer spending and business investment. In Canada, third quarter growth is expected to slow temporarily, mainly because of fluctuations in energy production and exports.
Indeed, this morning, Statistics Canada reported that Canada’s trade deficit all but disappeared. A sharp export gain to the U.S. combined with a decline in imports took Canada’s overall merchandise trade deficit to its lowest level since December 2016.
Canada’s merchandise trade surplus with the U.S., targeted by President Donald Trump in NAFTA negotiations, grew to the widest in a decade. Stats Canada said that gains in global exports were led by automobiles and energy, almost all of which were bound for the U.S. Crude oil led the energy gains as prices rose 9.4% in July. The import decline was driven by aircraft and metal ores.
These figures are likely to impact the resumption of bilateral talks in Washington regarding NAFTA, as the Trump administration has negotiated a new deal with Mexico and has threatened to leave Canada out and impose stiff auto tariffs if Prime Minister Justin Trudeau’s government does not make concessions, especially on dairy supply management and dispute mechanisms.
The Bank of Canada highlighted that “elevated trade tensions remain a key risk to the global outlook and are pulling some commodity prices lower…The Bank is also monitoring the course of NAFTA negotiations and other trade policy development closely, and their impact on the inflation outlook.”
It was wise of the Bank of Canada to hold its powder dry at today’s policy meeting given the continued uncertainty on the NAFTA front. An agreement on NAFTA would provide the central bank with more comfort in moving ahead with a hiking cycle that has already lifted the benchmark overnight rate four times since mid-2017.
Noting that “activity in the housing market is beginning to stabilize as households adjust to higher interest rates and changes in housing policies”, the Bank reaffirmed that the economy is doing well enough to require higher interest rates in the future to achieve the inflation target. Another rate hike could come as soon as the next policy meeting on October 24th.
It is widely expected that a NAFTA deal will have come to fruition by then, opening the way for the Bank to resume monetary tightening. According to Bloomberg News, “Investors see near-certain odds that by October, the Bank of Canada will raise borrowing costs for the fifth time since the hiking cycle began in July 2017, with as many as two additional increases by mid-2019.” By Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres.
The key reason for the decline of new mortgage loans
A new report from Canada Mortgage and Housing Corporation confirms what we have all suspected: there were fewer mortgages taken out in 2017 compared to 2016. The key reason for the decline suggests 2018 will see more of the same.
Using data from credit monitoring agency Equifax, CMHC reports just shy of 960,000 new mortgage loans in 2017, down 6.5% from 2016.
Of the five categories of borrowers examined, the biggest decline in new mortgages was a 17.5% drop among homeowners who renewed with a new lender. This suggests: homeowners may not be shopping around for renewals the way they do for their initial mortgage; lenders are offering attractive terms to retain clients; the terms and conditions for moving to a new lender are too onerous.
The only category to see an increase in new mortgages was multiple mortgage holders which rose to 15.1% from 13.6% in 2016. An analysis of CMHC figures by the real estate website Better Dwelling suggests more than 15% of new mortgages were taken out on properties that have an existing mortgage, up nearly 5% from 2016.
CMHC cites the 2016 rule changes for high-ratio mortgages as the key reason for the decline. All mortgages with a down payment of less than 20% would have had to qualify at the greater of their contract mortgage rate or the Bank of Canada’s conventional five-year fixed posted rate.
Given the 2018 rule changes that imposed a similar stress test on all mortgages, and the rising interest rate environment, it stands to reason there will be further declines this year. By First National Financial.
LSTAR’s News Release for August 2018, solid home sales in august cap a strong summer season
London and St Thomas Association of REALTORS® (LSTAR) announced 923 homes* were sold in August, up 2.2% over the same time last year. August 2018 marked the second best August for home resales since the Association began tracking sales data in 1978. August 2016 holds the record, with 999 home resales.
“It was a very strong summer for home resales, with August achieving very solid numbers,” said Jeff Nethercott, 2018 LSTAR President. “Resale activity has performed high above the 10-year average, despite low inventory, which the marketplace has experienced all year. The average sales price continues to rise: it was $378,511, up 18.0% from August 2017. When you go back five years, that’s up 54.2% compared to August 2013.”
Breaking it down by geography, London South (which also includes data from the west side of the city) had an average sales price of $381,636, up 17.5% from August 2017 and up 55.8% from August 2013. London East continues to experience a steady gain in average sales price, coming in at $287,162, up 16.6% from August 2017 and up 38.9% from August 2013. Meanwhile in London North, the average sales price was $466,654, up 11.9% from August 2017 and up 57.3% from August 2013.
“Average home sales price may be up across the region, but we continue to experience a 10-year historical low in inventory,” Nethercott said. “In August, there were 1,535 active listings, down 12.6% from this time last year and down 57.6% from August 2013. The sales-to-new listings ratio was 85.1%, which the Canadian Real Estate Association (CREA) says represents conditions in the marketplace that favour sellers (a ratio between 40% and 60% is generally consistent with a balanced market). Going back to August 2013, the sales-to-new listings ratio for the region was 54.5%. In August, London North had a sales-to-new listings ratio of 92.1%, while in London South it was 90.8%.”
St. Thomas saw a total of 66 homes sold in August, up 11.9% from the same period last year. For inventory, there were 98 active listings, down 10.9% from last August and down 59.8% from August 2013. The average home sales price in St. Thomas was $295,262 up 17.2% from August 2017 and up 46.9% from August 2013.
The following chart is based on data taken from the CREA National MLS® Report for July 2018 (the latest CREA statistics available). It provides a snapshot of how average home prices in London and St. Thomas compare to other major Ontario and Canadian centres.
Supreme Court hands down ruling in TREB v Competition Bureau
The Supreme Court of Canada has refused to hear an appeal from the Toronto Real Estate Board that would have prevented the numbers from being posted on password-protected webpages.
Greater Toronto Area realtors can now publish home sales data on their websites after the top court ruled against the real estate board, a case that could have sweeping implications for consumer access to real estate data across the country.
TREB’s appeal stems from a seven-year court battle that began in 2011 when the Competition Bureau challenged its policy preventing the publication of such information, arguing it impedes competition and digital innovation.
Canada’s largest real estate board, which represents more than 50,000 Ontario agents, argued at the Competition Tribunal and later the Federal Court of Appeal that posting the data would violate consumer privacy and copyright.
Both judicial bodies sided with the bureau, prompting TREB to take the fight to the Supreme Court of Canada.
Since the court won’t hear the case, lawyers say there is likely nothing TREB can to do to keep its legal battle going and the data from being posted. By The Canadian Press.