18 Apr

Economists Rule Out Rate Change Next Week


Posted by: John Dunford

The Bank of Canada will announce its April interest rate decision next week but a survey shows little expectation that it will make a change.

Nine out of 10 economists including those from TD, Laurentian, the Conference Board of Canada and University of Manitoba – expect that the BoC will leave rates unchanged at 1.75%.

“All combined, the global slowdown and specific factors weighing down on Canadians households and the oil sector are justifying to keep the overnight rate at current level,” said Sebasiten Lavoie, chief economist at Laurentian Bank Securities.

However, the poll by Finder.com found that Atif Kubursi of Economic Research Ltd. and McMaster University, is predicting a rate cut, citing “sluggish growth and poor export performance.”

While the others are ruling out a cut in April, four now believe Governor Poloz could announce one in July and longer term we could see a 1.15% rate within the current cycle.

Recession fears

While a rate hold and cut will be good news for the housing market, the underlying reasons for economists making their predictions is more concerning.

Canada is either somewhat or very likely to go into recession in the next 12 months, according to half of the panellists.

“Uncertainty remains elevated, and recent trends (January notwithstanding) have been quite weak – domestic demand contracted over the latter half of 2018. Retail sales remain soft, as do housing markets,” said Brian DePratto, senior economist at TD Economics.

The panel expects the CMHC First Home Buyers Incentive to have either marginal or little to no impact on housing affordability but they believe that property prices will stabilise by the end of the year. Montreal house prices are expected to increase the most

9 Apr

IMF Says Canada’s Housing Market is Risky, Similar to the Bust


Posted by: John Dunford

The International Monetary Fund has expressed concern about rising risk in the Canadian housing market.

The IMF’s Global Financial Stability Report says that the risk has grown over the past two years and is near to levels seen during the financial crisis of the last decade.

However, there’s a major difference between then and now; the action taken by Canadian regulators to ensure that the financial system is robust and able to withstand another crisis.

While the B-20 mortgage guidelines – and the stress test in particular – has many critics, the IMF says that tougher mortgage policy and measures such as foreign buyers’ taxes, are the correct ones to protect the financial system from downside risks from the housing market.

Canada up, USA down
While Canada’s housing market has become riskier, the report says that the US risk is lower than it was due to declining levels of household debt and prices more in line with income.

But it says that Canadian markets have become riskier, especially Hamilton, Toronto, and Vancouver.

9 Apr

March Jobs Report in Canada Finally Mirrors Weak Economy


Posted by: John Dunford

The employment report had long been a lone bright spot in an economy that had sunk across the board, so the March slump is not surprising. According to today’s jobs report from Statistics Canada, employment fell by 7,200 last month, mostly in full-time positions in the service sector. Canada’s jobless rate held steady at 5.8%, close to a multi-decade low and wage growth ticked modestly higher, although, at a 2.4% year-over-year gain, it remains lower than the reading earlier this cycle.

Employment was up 290,000 over the prior six months, so it was only a matter of time that the jobs numbers would reflect the weakness in the overall economy.

Provincial Unemployment Rates
(% 2019, In Ascending Order)
Province Mar Feb
British Columbia 4.7 4.5
Saskatchewan 4.9 5.8
Manitoba 5.0 5.3
Quebec 5.2 5.3
Ontario 5.9 5.7
Nova Scotia 6.2 6.4
Alberta 6.9 7.3
New Brunswick 7.9 8.5
Prince Edward Island 8.9 10.3
Newfoundland and Labrador 11.5 11.8


Bottom Line: The Bank of Canada will remain on hold and possibly even cut interest rates if the economy slows further. There is little evidence that underlying inflation trends will rise. The headwinds of global uncertainty, weak trade, energy market vulnerability and the housing slowdown contribute to the Bank’s cautious stance.

In another trade loss, China has stopped buying Canadian canola seeds. About 40% of Canadian canola seed exports usually go to China. The Huawei dispute and potential Meng Wanzhou extradition has escalated trade tensions between Canada and China, seriously hurting Canadian farmers. As well, the US tariffs on steel and aluminum exports continue to weigh on the economy. It appears there is little prospect that the renegotiated Canada-Mexico-US trade deal will be confirmed by the US Congress this year, adding to the uncertainty.

All of this has led some to begin calling for a Bank of Canada rate cut. Higher interest rates alongside regulatory changes have already contributed to significantly slower household debt growth and housing markets.

Housing Markets Remain Soft in March in Vancouver and Toronto

According to local real estate boards reporting this week, the end of winter did not spark a flurry of home buying in Vancouver and Toronto. Fragile market conditions deteriorated further in Vancouver where policy measures introduced by all levels of government continue to keep buyers on the sidelines. Home resales fell to their lowest level since 1986 (down another 7% from February), and the benchmark price eased for a ninth-straight month (down 8.5% since the June 2018 peak). Property values in the GVA are likely to remain under intense downward pressure in the near term.

March activity was the slowest in 10 years in Toronto. Resales increased a little less than 2% month-over-month (on a preliminary seasonally-adjusted basis)—minute in comparison to the 13% month-over-month drop in February. A lack of supply could have been a factor holding back activity as new listings fell 4.5% from a year ago. This possible explanation finds some support in the fact that the benchmark price rose at a faster pace in March (2.6% y/y) than February (2.3%)—suggesting that buyers had to bid more aggressively in the face of limited supply.

This winter has been particularly hard on residential real estate markets across most of Canada. The March results published in the last couple of days in Vancouver and Toronto—as well as in Victoria, Calgary and Hamilton—offer little in the way of a meaningful rebound during the all-important early spring season. While recent declines in mortgage rates and the new first-time home buyer incentive announced in the 2019 federal budget could be catalysts for a rise in activity later this year, the stress test and other market-cooling policy actions will continue to weigh heavily on buyers.

We will have more complete data on housing mid-month when the Canadian Real Estate Association releases national and local data.