TD Economics ECONOMIC SNAPSHOT

Canada’s economy shook off last year’s growth slump in Q1 2013, as real GDP grew at a healthy 2.5% annualized pace driven by a stronger trade performance.. However, the remainder of 2013 looks more uneven, as a sub-par external backdrop and subdued domestic demand should hold growth in Canada’s economy to a modest 1.7% pace this year.

• Next year, one ofthe biggest positivesforCanada is a strengthening U.S. economy.As fiscal drag in the U.S. abates laterthis year, better U.S. demand forCanada’s exportsshould help underpin a healthier 2.4% growth rate in 2014.

• The national jobless rate is likely to hold above 7% in 2013, before heading modestly lower in 2014.

• A cooling resale housing market should curb the pace of household debt growth per year, keeping to the debt-to income ratio stable, but constraining consumer spending growth over the medium term.

- Amid rising inventories of newly completed homes, residential construction is expected to be a softspot.
- Mortgage rule changes often prove to be temporary; after falling sharply in 2012,home sales have since stabilized, as low interest rates support demand. Most of the unwinding of a likely moderate over-valuation should occur in 2014-15, as interest rates start to grind higher.

The Week in Economic and Real Estate News

Last week got off to a good start with the release of May sales data from the Canadian Real Estate Association. May was a good month for re-sales in most Canadian markets. Economists at Canadian banks were generally encouraged by the market's performance in May. Bank of Montreal suggested that The Ceiling Can't Hold Us and TD Bank suggested that the impact of changes to mortgage insurance rules tend to be temporary and this time has not been different.

Then the US Federal Reserve Chairman sent financial markets reeling by announcing the potential beginning of the end of the economic stimulus program known as Quantitative Easing. Stock markets were down sharply and the benchmark 5 year government bond yield climbed over 1.80% on Friday. 

Are Canadians real estate obsessed? Results of a survey done for the online real estate service provider Zoocasa seem to say so. The obsession is most severe in the Toronto area but has strength across the country. 

Our Feature Article looks further at the CREA data and the recent movement in fixed term mortgage rates. 

Joel Sida from MCAP newsletter

The Week in Economic and Real Estate News

CMHC published data for May housing starts early last week. The six month rolling average is trending at the same level as in April but there was a surge in multiple starts, particularly in the Toronto area where there are now 242 condominium projects underway. 

  

The Bank of Canada released it semi-annual Financial System Review last week. The Bank sees levels of household indebtedness and imbalances in parts of the housing market (the Toronto condominium market in particular) as the most significant domestic risks to the Canadian economy. Despite slowing consumer debt accumulation and reduced home re-sales and new home construction, the Bank still considers that these risks remain "elevated".

Statistics Canada released April data for new home prices last week which showed that Calgary is leading the country in new home price growth. 

The National Bank/Teranet House Price Index for May was also published last week. It shows that Canadian home prices were up 1.1% in May from April. Prices were 2% from May, 2012 - the smallest annual increase since November, 2009.  

extracted from MCAP, Joel Sida

The Week in Economic and Real Estate News

The Week in Economic and Real Estate News

We learned on Friday that the Canadian economy added a whopping 95,000 new jobs in May. The consensus estimate among economists was for about 15,000. The unemployment rate in Canada dropped from 7.2% to 7.1%. In the US, number were more muted with only 175,000 new jobs as the unemployment rate ticked up to 7.6%.

   

Canada's largest real estate boards reported their May sales data last week and they reflect significant regional differences. Vancouver enjoyed its first yearly gain in 19 months, Calgary saw sales and prices both up strongly, Toronto posted slower sales amid continued price increases and Montreal was also slower with prices also moving up.

Scotiabank published its quarterly Global Real Estate Trends which looks in particular at the Toronto housing market which the bank expects to experience continued lower sales volumes and slower new construction activity into mid-decade. 

Our Feature Article takes a closer look at the numbers form the big four real estate boards and the Scotiabank report on the Toronto real estate market.

Joel Sida from MCAP

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