Interest rates remain on hold as governor Mark Carney leaves the Bank of Canada

Data Release: Interest rates remain on hold as governor Mark Carney leaves the Bank of Canada

• As was widely expected, the Bank of Canada elected to hold the Overnight Rate target at 1.00%.
• The Bank noted that the recent progression of the Canadian economy was broadly in line with its expectations. Much of the communiqué was a reiteration of what has already been previously stated, save for a brief mention of first quarter growth likely being stronger than the Bank had projected in its last Monetary Policy Report and a slightly weaker-than-anticipated pace of headline inflation.
• Overall, economic growth in Canada is forecasted to progress at a moderate pace, residential investment is likely to decline further, and the household debt-to-income ratio is expected to stabilize near current levels. The bank continues to anticipate inflation to remain below the 2% target until the middle of 2015.

Key Implications

• Bank of Canada governor Mark Carney was widely expected to make few waves in his final interest rate announcement before the end of his tenure. This was certainly the case in today’s communiqué, especially given that the economy has largely progressed as the Bank forecasted in its April Monetary Policy Report.
• We do not expect a change in bias when incoming governor Stephen Poloz begins his tenure. Despite publicized concerns that his previous position as head of Export Development Canada may lead to an easing bias in favour of a weaker Canadian dollar, the Bank of Canada has never explicitly targeted the exchange rate and, in fact, is mandated to conduct monetary policy to achieve its 2% inflation target. We expect a continuation of this policy.
• Ultimately, with inflationary pressures remaining muted and the Canadian economy firmly entrenched in a moderate growth environment, TD Economics continues to anticipate the Bank of Canada to remain on hold until the end of 2014.

TD Economics

RBC Housing Trends and Affordability

 RBC published its quarterly Housing Trends and Affordability report last week.

 The report suggests that housing affordability levels were generally unchanged in the first quarter of 2013. All three of the major components of the affordability calculation 

- mortgage rates, 

-home prices and 

-incomes - each remained more or less flat over the most recent quarter. 

Variability across local markets in Canada was also minimal. RBC concludes that, based on its analysis of the relationship between home prices and general housing affordability since the 1970s, current affordability levels are outside the “danger zone”. Their conclusion is therefore that there is no imminent price correction on the horizon. Rising interest rates present the clearest threat to affordability but RBC expects rates to remain at their current levels for at least another year.

Mortgage Rules Help Fuel Rent Hikes

Mortgage Rules Help Fuel Rent Hikes

The Week in Economic and Real Estate News

 

With the summer cottaging season kicking off this past weekend, Royal LePage released results of a survey of Canadians on recreational properties. The low interest rate environment is a key driver of demand and many potential buyers feel an added sense of urgency to buy whiles rates are so favourable. 

The Canadian Real Estate Association released its latest Canadian home sales data last week and reported that sales rose in April. Canadian bank economists agreed for the most part but warned that a return to levels seen in the first half of last year are not likely any time soon. 

Here are links to the analysis of the Canadian April home sales data from economists at Bank of Montreal, TD Bank, Royal Bank and Bank of Nova Scotia.

Our Feature Article takes a closer look at the CREA data, some of the bank economists' analysis and the Royal LePage recreational property survey.

MCAP news

A hint of optimism to start the spring home-buying season

• National home sales activity rose in April by 0.6%, month-over-month. This represents the second straight month of positive gains. However, on a year-over-year and a non-seasonally adjusted basis, sales are still down by 3.1%.
• Home prices increased by 1.3% versus a year ago. The average home price in Canada now rings in at roughly $380,600 on a non-seasonally adjusted basis.
• The aggregate MLS® home price measure tracks changes in prices but is less distorted by the composition of sales. By this measure, prices were up 2.2%, year-over-year. This pace matches what was recorded in March. It also equates to the slowest pace of acceleration in two years. Among the property type classes, price growth remained strongest for one-storey single family homes (+3.1%) and two-storey single family homes (+2.6%), year-over-year.
• The sales-to-new listings ratio came in at 50.4% in April, roughly the same as the last few monthly readings. This reading is indicative of a Canadian housing market firmly entrenched in balanced territory. According to the Canadian Real Estate Association, it would take 6.6 months to deplete the number of unsold homes – a count that has not materially changed over the past nine months.
• Sales improved in more than half of all local markets in the month, led by gains in Greater Toronto, Winnipeg and Calgary. However, listings were down in about half of all markets including Montréal, much of rural Québec, Ottawa, and Vancouver.

Extracted from TD Economics

The Week in Economic and Real Estate News

On Friday, we learned that the Canadian economy gained 12,500 jobs in April - a much better performance than in March. It was not enough to move the unemployment rate, however, which remains at 7.2%.

CMHC reported last week that housing starts in Canada were down again in April as builders continue to adjust to a slowing market. Statistics Canada also reported last week that the New House Price Index gained 0.1% in March.

BMO published a survey on how home buyer's think about the location that they choose. First time buyers are thinking more and more about transit service and commute times. 

CIBC Economist Benjamin Tal weighed in on the future of the Toronto condo market this week. Despite short term appearances to the contrary, this complex market remains in balance but has some big tests coming in the next two years.

Our Feature Article takes a closer look at the Toronto condominium market and some of the other news from the past week. 

MCAP newsletter of the week.

The Market Pulse from Genworth

The Market Pulse from Genworth

The Week in Economic and Real Estate News

Canada's two largest real estate boards reported April results last week. The Vancouver market is showing signs balance and emerging price stability while Toronto posted a strong month, led by the downtown condominium segment.

Bank of Montreal published its Psychology of Home Buying Report last week which contains some interesting insights into some of the motivations and emotions which drive home buyers.

Also last week, PWC published analysis of debt levels of Canadian consumers. The report, called The Tide Turns: Canadians, Debt and Retail Lending, indicates that consumers seem to be having difficulties sticking with debt reduction plans and putting off major purchases. The report also has some sobering advice for Canadian lenders going forward.

Joel Sida form MCAP newsletter.