Financial Post
OTTAWA -- Canadian retail sales rose much more than expected in May after a surprise drop the previous month, Statistics Canada said Wednesday.
Sales increased 1.2% during the month to $34-billion, with gains in seven of eight sectors, led by a 2.4% increase in automotive products, the federal agency said.
"Retail sales have been generally rising since the beginning of 2009," it said.
Most economists has expected sales to rise by just 0.5% cent in May after a 0.6% decline in April.
"This sturdy report marks a nice reversal from April's sour note. It also drums home the point that Canadian consumers are not nearly as stressed as their U.S. counterparts, a point made amply clear by recent home sales data," said Douglas Porter, deputy chief economist at BMO Capital Markets.
Statistics Canada said the jump in auto sector sales was driven by a 3.4% increase in purchases at new car dealers. Sales of used and recreational motor vehicle, as well as auto parts, were up 1.8%, following declines in the previous six months, the agency said.
Sales at gasoline stations rose 0.9% in May after dropping 4.7\% over the previous two months, it said. Building and outdoor home supply stores saw sales rise 1%, double April's rate.
Retail sales were higher in nine provinces in May, with the biggest jump coming in New Brunswick, up 2.5%. Prince Edward Island was the only province to post a decline, down 0.7%.
Charmaine Buskas, senior economics strategist at TD Securities, said Wednesday's report "does not necessarily suggest a turnaround in retail sales."
"The backdrop for the Canadian economy remains soft, and consumers are sure to adjust their spending behaviour accordingly in the coming months," she said.
Canada's economy shrank 5.4% in the first quarter of this year, its fastest pace of contraction since 1991. That followed a 3.7% decline in the fourth quarter of 2008.
On Tuesday, the Bank of Canada revised its outlook for the economy, saying it will contract 2.3% this year, which is less than the 3% drop it forecast in April. The economy is then expected to grow 3% in 2010, up from its previous 2.5% projection.
In 2011, the bank forecast growth of 3.5%, which is down from its earlier call for an increase of 4.7%.
Last week, marketing and research group TNS Canadian Facts said Thursday its consumer confidence index edge up to 93.4 in July after slipping to 92 in June.
However, its buy index, which monitors views on whether now is a good time to make major purchases, eased this month to 103.2 from 104.5.
"While spending here is no ball of fire, it is gradually climbing back from the lows at the start of the year, with consumers poised to moderately contribute to the recovery," Mr. Porter said. "As the bank noted yesterday, domestic spending is on the road to recovery -- the issue is exports, both because of the strong loonie and still-soft U.S. demand."
CanwestNews Service
Friday, July 24, 2009
Royal Lepage boosts housing outlook
Financial Post Published: Wednesday, July 08, 2009
One of Canada's best-known real-estate firms has upgraded its housing-market outlook for the remainder of this year after second-quarter activity showed a thaw from the deep freeze in activity during the winter. Royal LePage said it expects an average price for home sales of $297,000 by year-end, which would be a 2% drop from last year. It forecasts unit sales of 430,000, down 1% from 2008. Its previous forecast called for housing sales to fall 3.5% this year to 416,000 transactions, and the average price to decline 3% to $295,000. Now, house prices are actually anticipated to appreciate somewhat in much of Central and Eastern Canada, while markets in the West -- such as Vancouver, Calgary and Edmonton -- see lower prices as an adjustment to above-average gains in previous years. "With our industry's busiest quarter behind us, we feel comfortable revising our 2009 forecast to the positive," said Phil Soper, chief executive of Royal LePage Real Estate Services.
One of Canada's best-known real-estate firms has upgraded its housing-market outlook for the remainder of this year after second-quarter activity showed a thaw from the deep freeze in activity during the winter. Royal LePage said it expects an average price for home sales of $297,000 by year-end, which would be a 2% drop from last year. It forecasts unit sales of 430,000, down 1% from 2008. Its previous forecast called for housing sales to fall 3.5% this year to 416,000 transactions, and the average price to decline 3% to $295,000. Now, house prices are actually anticipated to appreciate somewhat in much of Central and Eastern Canada, while markets in the West -- such as Vancouver, Calgary and Edmonton -- see lower prices as an adjustment to above-average gains in previous years. "With our industry's busiest quarter behind us, we feel comfortable revising our 2009 forecast to the positive," said Phil Soper, chief executive of Royal LePage Real Estate Services.
Unemployment rises, but not as much as feared
Canada's economy lost 7,400 jobs in June, far less than expected, even as the country continued to struggle through an economic downturn.
The unemployment rate rose to an 11-year high of 8.6%, up from 8.4% in May, Statistics Canada said Friday.
"Full-time employment continued its downward trend in June, offsetting gains in part-time," the federal agency said. "Employment was little changed in June, leaving total net losses during the last three months at 13,000, much smaller than the 273,000 decline in the first three months of the year."
Most economists had expected 35,000 job losses in June, with the unemployment rate rising to 8.7%.
On Thursday, however, Finance Minister Jim Flaherty warned that job losses are likely to continue for the months ahead.
Most analysts forecast the jobless rate will peak at the mid-9% range some time next year.
"In the months ahead, given the very weak backdrop for the Canadian economy, we expect the negative labour market dynamics to continue and the pace of job losses to remain fairly brisk," Millan Mulraine, economics strategist at TD Economics, said ahead of Friday's report.
Canada's economy shrank 5.4% in the first quarter of this year, its fastest pace of contraction since 1991. That followed a 3.7% decline in the fourth quarter of 2008. The Bank of Canada expects the economy to contract a further 3.5% in the second quarter of 2009.
On Wednesday, the International Monetary Fund revised its outlook for the Canadian economy, saying GDP is now expected to contract by 2.3% this year, compared to its earlier forecast of a 2.5% decline. The IMF, which monitors the global economy, and provides financial and technical assistance to its 186 member nations, also raised its forecast for 2010 growth to 1.6% from the 1.2% it had predicted in April.
Canwest News Service
The unemployment rate rose to an 11-year high of 8.6%, up from 8.4% in May, Statistics Canada said Friday.
"Full-time employment continued its downward trend in June, offsetting gains in part-time," the federal agency said. "Employment was little changed in June, leaving total net losses during the last three months at 13,000, much smaller than the 273,000 decline in the first three months of the year."
Most economists had expected 35,000 job losses in June, with the unemployment rate rising to 8.7%.
On Thursday, however, Finance Minister Jim Flaherty warned that job losses are likely to continue for the months ahead.
Most analysts forecast the jobless rate will peak at the mid-9% range some time next year.
"In the months ahead, given the very weak backdrop for the Canadian economy, we expect the negative labour market dynamics to continue and the pace of job losses to remain fairly brisk," Millan Mulraine, economics strategist at TD Economics, said ahead of Friday's report.
Canada's economy shrank 5.4% in the first quarter of this year, its fastest pace of contraction since 1991. That followed a 3.7% decline in the fourth quarter of 2008. The Bank of Canada expects the economy to contract a further 3.5% in the second quarter of 2009.
On Wednesday, the International Monetary Fund revised its outlook for the Canadian economy, saying GDP is now expected to contract by 2.3% this year, compared to its earlier forecast of a 2.5% decline. The IMF, which monitors the global economy, and provides financial and technical assistance to its 186 member nations, also raised its forecast for 2010 growth to 1.6% from the 1.2% it had predicted in April.
Canwest News Service
Worst may be over for the housing market
Garry Marr, Financial Post
New home construction rose for a second straight month in June, in what analysts say is another sign that the worst may be over for the Canadian housing market.
Canada Mortgage and Housing Corp. said Thursday there were 140,700 new homes constructed in June on a seasonally adjusted annualized basis. Construction was up almost 8% from the 130,300 May figure.
"There are some pretty good signs that we are starting to see in the housing market," said Bob Dugan, chief economist with CMHC. "We've seen it for quite a few months on the existing homes side."
Existing home sales rose 42% from January to May across the country and the early indications are that June was strongest month this year. Sales in Vancouver were up 76% last month compared with a year earlier and Calgary and Toronto both recorded 27% increases during the same period.
Existing home inventories have begun to shrink across the country, convincing builders to ramp up construction. CMHC said urban single family homes -- considered the best barometer of the new home market -- climbed 7.3% in May from a month earlier.
"It's well into seller's market territory again with the May and April numbers," said Mr. Dugan.
The optimism about the Canadian market comes despite the fact new construction at 140,000 units is way off the 200,000-plus figure the market in Canada has seen for the past seven years.
"I can only speculate, but maybe a lot of people are relieved we are not seeing the decreases we have seen in the U.S.," said Mr. Dugan. "Peak-to-trough, the decline in the U.S. was something like 80%. In Canada, that would mean we'd have to have 55,000 starts. Some people may have thought that's where the Canadian market was going."
The consensus among economist is construction won't return to pre-recession levels but will gradually improve in the coming months.
"This month's increase is an important confirmation that the Canadian housing sector is past the worst and in recovery mode," said Marco Lettieri, an economist with National Bank. "The recovery seems to be broad based with gains observed in both multiple [which includes condominium construction] and single units."
Robert Kavcic, an economist with Bank of Montreal, said there could be some room for modest growth in starts in the coming months.
"Higher affordability and improved consumer confidence brought buyers off the sidelines this spring," said Mr. Kavcic.
A report this week from RBC Economics said declining prices and lower interest rates led to one of the biggest quarterly improvements in affordability in history. The bank said monthly payments on a typical detached bungalow in Canada had decreased by almost 17% from a year earlier.
Royal LePage Real Estate Services was also forced this week to upgrade its forecast for 2009 because of the improved market conditions. It now expects 430,000 sales this year, an improvement from its previous call of 416,000, but still down 1% from a year ago.
"I think 2009 will go down as a moderate correction as opposed to the deep and sustained recession that we had first feared," said Phil Soper, chief executive of the real estate company.
Royal LePage expects prices this year will still fall but not by as much as previously feared. It expects the average sale price in 2009 to be $297,000, a 2% drop from last year. It had previously forecast a 3.5% decline.
New home construction rose for a second straight month in June, in what analysts say is another sign that the worst may be over for the Canadian housing market.
Canada Mortgage and Housing Corp. said Thursday there were 140,700 new homes constructed in June on a seasonally adjusted annualized basis. Construction was up almost 8% from the 130,300 May figure.
"There are some pretty good signs that we are starting to see in the housing market," said Bob Dugan, chief economist with CMHC. "We've seen it for quite a few months on the existing homes side."
Existing home sales rose 42% from January to May across the country and the early indications are that June was strongest month this year. Sales in Vancouver were up 76% last month compared with a year earlier and Calgary and Toronto both recorded 27% increases during the same period.
Existing home inventories have begun to shrink across the country, convincing builders to ramp up construction. CMHC said urban single family homes -- considered the best barometer of the new home market -- climbed 7.3% in May from a month earlier.
"It's well into seller's market territory again with the May and April numbers," said Mr. Dugan.
The optimism about the Canadian market comes despite the fact new construction at 140,000 units is way off the 200,000-plus figure the market in Canada has seen for the past seven years.
"I can only speculate, but maybe a lot of people are relieved we are not seeing the decreases we have seen in the U.S.," said Mr. Dugan. "Peak-to-trough, the decline in the U.S. was something like 80%. In Canada, that would mean we'd have to have 55,000 starts. Some people may have thought that's where the Canadian market was going."
The consensus among economist is construction won't return to pre-recession levels but will gradually improve in the coming months.
"This month's increase is an important confirmation that the Canadian housing sector is past the worst and in recovery mode," said Marco Lettieri, an economist with National Bank. "The recovery seems to be broad based with gains observed in both multiple [which includes condominium construction] and single units."
Robert Kavcic, an economist with Bank of Montreal, said there could be some room for modest growth in starts in the coming months.
"Higher affordability and improved consumer confidence brought buyers off the sidelines this spring," said Mr. Kavcic.
A report this week from RBC Economics said declining prices and lower interest rates led to one of the biggest quarterly improvements in affordability in history. The bank said monthly payments on a typical detached bungalow in Canada had decreased by almost 17% from a year earlier.
Royal LePage Real Estate Services was also forced this week to upgrade its forecast for 2009 because of the improved market conditions. It now expects 430,000 sales this year, an improvement from its previous call of 416,000, but still down 1% from a year ago.
"I think 2009 will go down as a moderate correction as opposed to the deep and sustained recession that we had first feared," said Phil Soper, chief executive of the real estate company.
Royal LePage expects prices this year will still fall but not by as much as previously feared. It expects the average sale price in 2009 to be $297,000, a 2% drop from last year. It had previously forecast a 3.5% decline.
Monday, July 6, 2009
Weak rebound seen for Canada's housing market
Ka Yan Ng, Reuters Published: Thursday, July 02, 2009
TORONTO -- The worst of Canada's housing market woes appear to be past but the sector's rebound will be tenuous as a rise in mortgage rates and high unemployment limit the recovery in prices and sales.
Property experts say first-time buyers and Bank of Canada rate cuts have helped restore stability to a market that slumped from late 2008 to early this year, when the worst leg of the global financial crisis battered consumer confidence.
"We should be less fearful than we were six months ago, but I don't think we should be exuberant yet. The resale markets in Canada are very strong. May numbers were pretty good, and June numbers will be even better," said Will Dunning, an economic consultant who specializes in the housing market.
"But by July and into the fall there will be an offset of considerably slower activity. I don't think it's likely to go off a cliff. It'll depend on what happens in employment and the broader economy, and how that affects confidence."
Recent data suggests Canada's residential property market, which weathered the financial crisis much better than its hard-hit U.S. counterpart, has been thawing for several months.
The latest Canadian Real Estate Association data shows May resale home prices rose 0.4% to $319,757, topping the previous record set a year earlier. It was the first year-over-year increase since May last year. And sales activity climbed for a fourth straight month.
The industry group, which represents more than 97,000 real estate brokers and agents, also cut its forecast for a drop in home prices this year and said it expected sales activity to trend higher.
Meanwhile, Canada Mortgage and Housing Corp., the national housing agency, forecast in its second-quarter outlook that new home construction is expected to decline to 141,900 units in 2009 but rebound next year.
Still, no one predicts the residential property market is headed back to the heady times seen between 2002 and 2007, when prices surged and outpaced income growth. In some cities, such as Vancouver, British Columbia, and Calgary, Alberta, home prices doubled and are now going through a sharp correction.
A "stable but unremarkable" period for the real estate market is expected this year, said Philip Soper, chief executive officer of Brookfield Real Estate Services, an arm of Canadian property giant Brookfield Properties Corp. that holds real estate broker brand Royal LePage.
"Stability is something you can't overemphasize in terms of its importance for the housing market right now."
Unless the global financial system succumbs to another crisis, analysts expect the Canadian home market is likely to stabilize further.
Activity from first-time buyers appears to be providing support because of stimulative measures by the federal government that allow these buyers to defray closing costs and withdraw more from retirement funds.
The Bank of Canada has also pledged to keep interest rates near zero until mid-2010, which could underpin confidence.
But the economy is still on shaky ground, contracting for the ninth straight month in April. And the unemployment rate spiked to an 11-year high in May, boosted by massive layoffs in the factories of Ontario.
Experts warn that further job losses in pockets of Canada's export-oriented economy could slow the momentum that has been gathering in the housing sector.
"We don't expect the recession to end until the fall. It's clear that the spring fling in housing markets, this remarkable surge in resales and prices, has been driven by record low mortgage rates," said Sal Guatieri, senior economist at BMO Capital Markets.
These record low rates, whether variable or fixed, had increased affordability for many buyers. But weakness in the bond market, caused in part by reduced investor demand for safe-haven assets, has pushed mortgage rates higher.
The posted rate on a five-year mortgage at Royal Bank of Canada, the country's largest lender, has risen to 5.85% from 5.25% in April.
Brookfield's Mr. Soper has been telling his management team to prepare for softness in the housing market in the second half.
"The advice I have been giving ... is to accept the recovery this spring with humility, to continue to plan for a difficult second half of the year although the comparables are going to be positive simply because the second half of 2008 was so poor," he said in an interview.
"But at least we have a stable market and stable prices, which is something that you need to encourage consumers to trade."
© Thomson Reuters 2009
TORONTO -- The worst of Canada's housing market woes appear to be past but the sector's rebound will be tenuous as a rise in mortgage rates and high unemployment limit the recovery in prices and sales.
Property experts say first-time buyers and Bank of Canada rate cuts have helped restore stability to a market that slumped from late 2008 to early this year, when the worst leg of the global financial crisis battered consumer confidence.
"We should be less fearful than we were six months ago, but I don't think we should be exuberant yet. The resale markets in Canada are very strong. May numbers were pretty good, and June numbers will be even better," said Will Dunning, an economic consultant who specializes in the housing market.
"But by July and into the fall there will be an offset of considerably slower activity. I don't think it's likely to go off a cliff. It'll depend on what happens in employment and the broader economy, and how that affects confidence."
Recent data suggests Canada's residential property market, which weathered the financial crisis much better than its hard-hit U.S. counterpart, has been thawing for several months.
The latest Canadian Real Estate Association data shows May resale home prices rose 0.4% to $319,757, topping the previous record set a year earlier. It was the first year-over-year increase since May last year. And sales activity climbed for a fourth straight month.
The industry group, which represents more than 97,000 real estate brokers and agents, also cut its forecast for a drop in home prices this year and said it expected sales activity to trend higher.
Meanwhile, Canada Mortgage and Housing Corp., the national housing agency, forecast in its second-quarter outlook that new home construction is expected to decline to 141,900 units in 2009 but rebound next year.
Still, no one predicts the residential property market is headed back to the heady times seen between 2002 and 2007, when prices surged and outpaced income growth. In some cities, such as Vancouver, British Columbia, and Calgary, Alberta, home prices doubled and are now going through a sharp correction.
A "stable but unremarkable" period for the real estate market is expected this year, said Philip Soper, chief executive officer of Brookfield Real Estate Services, an arm of Canadian property giant Brookfield Properties Corp. that holds real estate broker brand Royal LePage.
"Stability is something you can't overemphasize in terms of its importance for the housing market right now."
Unless the global financial system succumbs to another crisis, analysts expect the Canadian home market is likely to stabilize further.
Activity from first-time buyers appears to be providing support because of stimulative measures by the federal government that allow these buyers to defray closing costs and withdraw more from retirement funds.
The Bank of Canada has also pledged to keep interest rates near zero until mid-2010, which could underpin confidence.
But the economy is still on shaky ground, contracting for the ninth straight month in April. And the unemployment rate spiked to an 11-year high in May, boosted by massive layoffs in the factories of Ontario.
Experts warn that further job losses in pockets of Canada's export-oriented economy could slow the momentum that has been gathering in the housing sector.
"We don't expect the recession to end until the fall. It's clear that the spring fling in housing markets, this remarkable surge in resales and prices, has been driven by record low mortgage rates," said Sal Guatieri, senior economist at BMO Capital Markets.
These record low rates, whether variable or fixed, had increased affordability for many buyers. But weakness in the bond market, caused in part by reduced investor demand for safe-haven assets, has pushed mortgage rates higher.
The posted rate on a five-year mortgage at Royal Bank of Canada, the country's largest lender, has risen to 5.85% from 5.25% in April.
Brookfield's Mr. Soper has been telling his management team to prepare for softness in the housing market in the second half.
"The advice I have been giving ... is to accept the recovery this spring with humility, to continue to plan for a difficult second half of the year although the comparables are going to be positive simply because the second half of 2008 was so poor," he said in an interview.
"But at least we have a stable market and stable prices, which is something that you need to encourage consumers to trade."
© Thomson Reuters 2009
More Canadians miss payments
Half-million consumers fall more than 90 days behind on credit bills
RECORD NEWS SERVICES
More than half a million Canadians have fallen behind on their various credit payments, fuelling a 19 per cent rise in the average national delinquency rate in the one-year period ending May 31, says a new report from Equifax Canada.
The credit bureau called the double-digit jump "alarming," noting the average delinquency rate for Canada hit 1.52 per cent at the end of May.
Much of the trouble stemmed from missed payments on credit card bills and for sales finance purchases of items such as furniture and electronics.
Equifax defines delinquent bills as those that are at least 90 days overdue.
Its latest snapshot on delinquencies comes just days after a Senate committee released a report urging the federal government to take more aggressive action to shield consumers and small businesses from rising interest rates and fees in the credit and debit card markets.
Finance Minister Jim Flaherty continues to review all input on credit cards and will announce his final intentions once that process is complete, a spokesperson said.
While his office gave no timeline, Pierrette Ringuette, the Liberal senator who spearheaded the study, appeared to up the ante yesterday by vowing to introduce legislation in September if the government fails to act before then.
Legislation, except money bills, can be introduced in the Senate, although most originates in the House of Commons. It was unclear what kind of support such a bill would garner in a minority Parliament.
The Senate report, released Tuesday, recommended the government create an "oversight board" and also take steps to clamp down on the rates and fees paid by consumers and merchants for the use of Visa, MasterCard and other card brands.
If Flaherty takes no action by the fall, "I'm going to be very, very disappointed," Ringuette said in a phone interview. "The small and medium businesses of this country are not asking for a bailout."
"They're only asking for fairness -- just like consumers are only asking for fairness. I think it's high time that government paid attention to them."
The Equifax report, meanwhile, was the latest study to suggest that increasing numbers of Canadians are struggling to pay their bills.
Nadim Abdo, an Equifax vice-president, stressed that the "sharpest increase" in delinquencies resulted from credit card and sales finance purchases, which have risen by 38 per cent and 58 per cent, respectively, since May 2008.
Rising delinquencies in those areas are troubling because consumers tend to miss payments on those unsecured credit products before they fail to pay back collateral-backed loans such as mortgages, bank loans and lines of credit, Abdo said.
While that's likely to spell higher loan losses for banks, consumers who skip payments will also suffer longer-term consequences because of tarnished credit scores.
"When economic conditions get better, whenever that is, if they want to go get a mortgage or get a line of credit -- with a negative rating on their credit file, that's not going to help them," Abdo said.
The Equifax data follows a Bank of Canada report last month that suggested climbing debt levels have put households under increased financial strain amid the recession.
The Financial System Review also said that households are increasingly vulnerable to "adverse shocks" such as higher unemployment.
RECORD NEWS SERVICES
More than half a million Canadians have fallen behind on their various credit payments, fuelling a 19 per cent rise in the average national delinquency rate in the one-year period ending May 31, says a new report from Equifax Canada.
The credit bureau called the double-digit jump "alarming," noting the average delinquency rate for Canada hit 1.52 per cent at the end of May.
Much of the trouble stemmed from missed payments on credit card bills and for sales finance purchases of items such as furniture and electronics.
Equifax defines delinquent bills as those that are at least 90 days overdue.
Its latest snapshot on delinquencies comes just days after a Senate committee released a report urging the federal government to take more aggressive action to shield consumers and small businesses from rising interest rates and fees in the credit and debit card markets.
Finance Minister Jim Flaherty continues to review all input on credit cards and will announce his final intentions once that process is complete, a spokesperson said.
While his office gave no timeline, Pierrette Ringuette, the Liberal senator who spearheaded the study, appeared to up the ante yesterday by vowing to introduce legislation in September if the government fails to act before then.
Legislation, except money bills, can be introduced in the Senate, although most originates in the House of Commons. It was unclear what kind of support such a bill would garner in a minority Parliament.
The Senate report, released Tuesday, recommended the government create an "oversight board" and also take steps to clamp down on the rates and fees paid by consumers and merchants for the use of Visa, MasterCard and other card brands.
If Flaherty takes no action by the fall, "I'm going to be very, very disappointed," Ringuette said in a phone interview. "The small and medium businesses of this country are not asking for a bailout."
"They're only asking for fairness -- just like consumers are only asking for fairness. I think it's high time that government paid attention to them."
The Equifax report, meanwhile, was the latest study to suggest that increasing numbers of Canadians are struggling to pay their bills.
Nadim Abdo, an Equifax vice-president, stressed that the "sharpest increase" in delinquencies resulted from credit card and sales finance purchases, which have risen by 38 per cent and 58 per cent, respectively, since May 2008.
Rising delinquencies in those areas are troubling because consumers tend to miss payments on those unsecured credit products before they fail to pay back collateral-backed loans such as mortgages, bank loans and lines of credit, Abdo said.
While that's likely to spell higher loan losses for banks, consumers who skip payments will also suffer longer-term consequences because of tarnished credit scores.
"When economic conditions get better, whenever that is, if they want to go get a mortgage or get a line of credit -- with a negative rating on their credit file, that's not going to help them," Abdo said.
The Equifax data follows a Bank of Canada report last month that suggested climbing debt levels have put households under increased financial strain amid the recession.
The Financial System Review also said that households are increasingly vulnerable to "adverse shocks" such as higher unemployment.
Don’t believe the housing hype
There are plenty of signs that the Canadian housing market is still on some very shaky ground
Judging by the latest real estate data, the Canadian housing market could scarcely be better. Average home prices are up more than 16 per cent this year, and in May they hit an all-time monthly high, according to the Canadian Real Estate Association. By those numbers, Canada didn’t just sidestep the housing market crash that continues to plague the United States, it sailed right through it virtually unscathed. And yet, there are plenty of signs that the Canadian housing market is still sitting on some very shaky ground—and even the potential that Canada’s big housing crash is yet to come.
There is one particular statistic that suggests trouble could be brewing. Unlike in the U.S., Britain and most European countries, household debt in Canada is, incredibly, still growing. That rising debt is being driven largely by record-low interest rates. Canadians have been buying homes not so much because they can afford them, but because many believe there’s never been a better time to buy, with lending rates so low. “There is no doubt that record-low mortgage rates have juiced Canada’s housing market,” wrote BMO economist Sal Guatieri, in a recent newsletter. Houses are barely more affordable now than they were during the market peak. And as people keep buying, houses may only become less and less affordable.
Not everyone agrees with the CRE figures that suggest the market has managed such a quick and painless turnaround, either. According to the Teranet-National Bank housing price index, Canada’s housing market is not recovering yet. Home prices have been falling for the past eight months, according to its latest statistics. Vancouver, Calgary and Toronto have each experienced significant price drops compared to last year. This would seem more in line with what one would expect after an unprecedented six-year housing boom in which home prices shot up 80 per cent.
It is, of course, possible that the correction will, ultimately, be modest. Guatieri expects that interest rates will remain low and income growth will remain subdued this year, before picking up next year. That will keep housing prices down, but would likely mean the worst of the correction is behind us.
But if mortgage rates go up sharply then “affordability will get crunched again,” says Guatieri, in an interview. Things could get much, much worse. And that’s not an unthinkable scenario. Some banks have already boosted interest rates twice this year. Then there is the possibility that job losses continue and the economy doesn’t recover quickly, putting further strains on household finances. The low interest rates and continued debt problems mean that Canadians could find them themselves badly over-exposed.
Guatieri isn’t forecasting a housing market crash. But, as he wrote last week, “it’s worth remembering that the further house prices go up and the longer household finances get stretched, the greater the risk of a painful correction. Anyone who doubts that should talk to an American or British homeowner.”
Judging by the latest real estate data, the Canadian housing market could scarcely be better. Average home prices are up more than 16 per cent this year, and in May they hit an all-time monthly high, according to the Canadian Real Estate Association. By those numbers, Canada didn’t just sidestep the housing market crash that continues to plague the United States, it sailed right through it virtually unscathed. And yet, there are plenty of signs that the Canadian housing market is still sitting on some very shaky ground—and even the potential that Canada’s big housing crash is yet to come.
There is one particular statistic that suggests trouble could be brewing. Unlike in the U.S., Britain and most European countries, household debt in Canada is, incredibly, still growing. That rising debt is being driven largely by record-low interest rates. Canadians have been buying homes not so much because they can afford them, but because many believe there’s never been a better time to buy, with lending rates so low. “There is no doubt that record-low mortgage rates have juiced Canada’s housing market,” wrote BMO economist Sal Guatieri, in a recent newsletter. Houses are barely more affordable now than they were during the market peak. And as people keep buying, houses may only become less and less affordable.
Not everyone agrees with the CRE figures that suggest the market has managed such a quick and painless turnaround, either. According to the Teranet-National Bank housing price index, Canada’s housing market is not recovering yet. Home prices have been falling for the past eight months, according to its latest statistics. Vancouver, Calgary and Toronto have each experienced significant price drops compared to last year. This would seem more in line with what one would expect after an unprecedented six-year housing boom in which home prices shot up 80 per cent.
It is, of course, possible that the correction will, ultimately, be modest. Guatieri expects that interest rates will remain low and income growth will remain subdued this year, before picking up next year. That will keep housing prices down, but would likely mean the worst of the correction is behind us.
But if mortgage rates go up sharply then “affordability will get crunched again,” says Guatieri, in an interview. Things could get much, much worse. And that’s not an unthinkable scenario. Some banks have already boosted interest rates twice this year. Then there is the possibility that job losses continue and the economy doesn’t recover quickly, putting further strains on household finances. The low interest rates and continued debt problems mean that Canadians could find them themselves badly over-exposed.
Guatieri isn’t forecasting a housing market crash. But, as he wrote last week, “it’s worth remembering that the further house prices go up and the longer household finances get stretched, the greater the risk of a painful correction. Anyone who doubts that should talk to an American or British homeowner.”
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