29 Sep

Canadian economy remains largely flat in August

General

Posted by: Mike Hattim

The national economy posted growth of just 0.1% in August despite rebounding slightly, a sluggish performance that strengthens the case for the Bank of Canada to maintain its pause on interest rate hikes.

The latest gross domestic product (GDP) figures, released by Statistics Canada on Friday, showed little change from a flat reading the previous month in a sign that the economy continues to soften largely in line with central bank expectations.

The wholesale and finance sectors registered stronger performances on a monthly basis in August, although that was offset in part by declines on the retail and oil and gas fronts.

The manufacturing sector saw GDP fall for the second straight month in a 1.5% decline, while service industries inched upwards by 0.1% and goods-producing sectors dipped by 0.3%.

StatCan’s latest figures, which mark the last GDP release before the central bank reveals its next decision on interest rates on October 25, suggest that the economy has cooled substantially in the face of the Bank’s series of aggressive hikes in recent times.

Canada’s economy expanded at a clip of 2.6% in the first quarter of this year – but is now expected to grow at an annualized rate of just 0.2% in Q3 if September’s figures fall largely in line with those of the last two months.

The consumer price index (CPI), a key measure of inflation, jumped to 4% at last reading, although it has slipped well below the 39-year high of 8.1% registered last June.

Source CMP
By Fergal McAlinden

28 Sep

How does Canada’s inflation rate compare to other nations?

General

Posted by: Mike Hattim

Among three major economies, Canada is actually seeing the “least bad” inflation levels and core measure readings, according to Avery Shenfeld of CIBC Capital Markets.

In his new analysis covering Canada, the United Kingdom, and the United States, Shenfeld said that Canada’s 4% August annualized inflation reading (3.6% excluding food and energy) fared significantly better compared to the UK’s 6.3% (5.9% excluding food and energy) and the US’s 3.7% (4.3% excluding food and energy).

And while inflation excluding food and energy is not the Bank of Canada’s usual benchmark, the “Fed’s trimmed mean for the US CPI is at 4.5%, about a half point above Canada’s trimmed mean, one of the BoC’s two preferred indicators,” Shenfeld said.

At the same time, despite Canada’s underlying inflation being in better straits compared to the two other economies, “it’s also not the best in recent economic performance, a reason to be patient in delivering any further monetary tightening,” Shenfeld said.

“The UK picture isn’t stellar, and it’s suffered a larger climb in the jobless rate from its lows than Canada. But certainly, the US has seen much less evidence of a growth slowdown. It’s miles ahead of Canada in per capita GDP gains this year, and has seen a smaller bump in its jobless rate.”

Possibility of rate hike lower in Canada

Shenfeld said that taking these developments and other existing market factors into account, “being the least bad in underlying inflation, and not the best in recent growth, should mean that the odds of another hike in Canada, or a more protracted wait for the first rate cuts, are lower than they are in the US.”

Any further hikes would be unnecessarily “punitive” for a lot of Canadians who took on low-cost mortgages during the historic lows in rates back in 2020.

“Sure, Canada’s inflation numbers, like those elsewhere, are too high to completely rule out a further rate hike, should upcoming employment and CPI data surprise us on the upside,” Shenfeld said.

“But we shouldn’t assume that either a further hike, or the pace of rate cuts, will be glued to whatever proves to be the right approach for the US if Canada’s economy continues to look not quite as resilient as its American neighbour.”

Source CMP
By Ephraim Vecina

27 Sep

How have Canadian home prices changed over the past five years?

General

Posted by: Mike Hattim

Housing affordability is a hot-button issue for Canadians as sky-high interest rates coupled with limited inventory make owning a home unattainable for so many.

According to CREA, the benchmark price for a home in Canada reached $757,600 in August, compared to $543,000 in August 2018, a 40 per cent increase in five years. In that same time period, Canada’s months of inventory plummeted from 5.4 to 3.4 months, amplifying the affordability crisis.

While home prices have seemingly flatlined since the Bank of Canada began its rate-hiking cycle 17 months ago, a severe housing shortage leaves doubt that affordability will restored. 

In a recent analysis, Zoocasa looked at how the change in supply has impacted affordability, comparing home prices from August 2018 to August 2023 and dissecting the data by property type — single-family homes, townhouses and condo apartments.

 

Soaring prices across Canada

 

Across the country, home prices have increased in nearly every city analyzed, regardless of property type. The biggest increase was seen in Toronto, where the composite home price across all property types jumped by $386,200, skyrocketing from $755,200 to $1.14 million. 

Toronto also witnessed the most substantial individual property price increases in single-family homes, townhouses, and apartments, surging by $469,900, $300,500, and $229,300, respectively. Other Ontario regions, like Barrie and Hamilton–Burlington, also experienced substantial price hikes, with composite home prices jumping by $333,500 and $304,800, respectively.

 In the single-family home segment outside of Toronto, Victoria claimed the top spot with a significant price climb of $383,500, rising from $794,900 to $1.18 million.

Edmonton, the outlier 

 

One standout is Edmonton, where the average home price has increased by a relatively modest $21,300, the smallest among the cities analyzed. In Edmonton, townhouses and condo apartments either showed no price growth or declined. Townhouses in Edmonton maintained the same price point in August 2023 as they did in 2018, at $236,500. Condo apartments, however, recorded a rare decline, with prices dropping by $22,400 from $204,200 to $181,800.

Affordability exists in select cities

 

In contrast to the steep price increases seen in many cities, a few have seen more modest gains. Winnipeg’s composite home price rose by $68,400, Saskatoon’s by $62,300, St. John’s by $52,100, and Regina’s by $24,500. The most conservative increase was noted in Regina’s condo market, where prices rose by only $5,400. 

Although Quebec’s home prices have also increased by five figures ($96,500), single-family homes in this province jumped $131,000 between August 2018 and August 2023.  

Source: Real Estate Magazine
25 Sep

Home appraisals: Buyers bear the cost, but who owns the report?

General

Posted by: Mike Hattim

Even though prospective homeowners usually pay for their home appraisal, many remain unaware that they typically won’t receive a copy of it.

That’s because the professional appraiser sent to calculate the value of a home—which can cost anywhere from a few hundred to several thousand dollars—doesn’t actually work for the prospective homeowner.

“Most brokers know the golden rule in lending is ‘he or she who holds the gold, makes the rules,’” explains Christopher Bisson, founder of appraisal tech company Value Connect. In other words: whichever party is responsible for commissioning the six- (or, in some markets, seven-) figure loan to fund a mortgage gets to call the shots. That includes who pays for the appraisal.

This can seem like a strange system to homeowners, especially when compared to similar financial processes in other parts of their lives. Financial institutions are required to provide copies of credit score assessments to clients, for example, even if a third party requests it. This is to ensure everyone is on the same page in regards to someone’s creditworthiness.

But the same standard doesn’t apply for home appraisals. To make matters even more confusing for homeowners, there are two professional appraiser associations in Canada operating under differing guidelines on who “the customer” is, and who actually gets custody of the appraisal report.

Who owns the appraisal?

According to the Appraisal Institute of Canada, which represents most of the profession, an appraisal report belongs to whoever it is commissioned for. That’s the lender, when it’s done for financing purposes.

“A homeowner, even though they’re paying for it, is not the appraiser’s client,” says Keith Lancastle, interim CEO at the Appraisal Institute of Canada. “The appraiser has an obligation, first and foremost, to their clients not to provide copies of the report to anyone other than the client who has contracted with the appraiser to prepare it.”

In fact, according to the AIC’s website, the question of who gets a copy of the appraisal report is a business decision by the lender or mortgage broker retained by the homeowner. It goes on to say an AIC member “would not be aware” of whether the homeowner paid for the report, or whether the homeowner would even get a copy of the report regardless of the loan application’s outcome.

Conversely, the Canadian National Association of Real Estate Appraisers’ guidelines state the person paying for the appraisal, be they a homebuyer or a lender, should get a copy of the report. The payer would then determine whether or not to release it to anyone else involved in the mortgage application process.

Staying competitive

Bisson says the reason for having such strict guidelines over who gets an appraisal report is to ensure lenders get the information they need out of it. A triple-A bank, for example, might have different lending criteria compared to a private lender, so an appraisal prepared for one may not be terribly suitable for another.

“From an appraiser’s point of view, you do not want to have an appraisal report floating out there for everybody to rely on,” Bisson says. “It may seem counterintuitive, but they want to know who the report is going to.”

Regardless of which professional association an appraiser belongs to, they can still choose to release the results of an appraisal with their client’s permission. But Bisson says that doesn’t happen very often. However, clients may be able to get their hands on an appraisal report in its early stages. Bisson knows some mortgage representatives who are sent draft copies and make them available to borrowers.

He recommends this strategy if it isn’t clear which lender will handle a mortgage application: tell the appraiser what “type” of lender the report will likely go to. Appraisers will build the report with criteria those lenders typically request, so it won’t deliver any of the surprises that can often happen when going from a AAA lender to a B (or Private) lender.

Meanwhile, Lancastle says, lenders may be reluctant to release appraisal reporters to keep a competitive edge. “I certainly can’t speak to the motivation that a lender has for not wanting to turn it over,” Lancastle says. “But one can assume that if I’m a lender, I don’t want someone to have a copy of the appraisal report and then be in a position to go and, essentially, look for alternatives.”

The practice of having a homeowner pay for an appraisal, he adds, is also one that’s just become a standard of the mortgage industry. “That appraisal fee is one of a number of features that a borrower makes,” Lancastle explains. “That’s the business model that the lending community has established in the marketplace.

Source Canadian Mortgage Trends
Brennan Doherty

22 Sep

New federal measure removes GST on rental housing construction across Canada

General

Posted by: Mike Hattim

Bill C-56 aims to incentivize the construction of more apartment buildings, student housing, and senior residences.

Through Bill C-56, the Affordable Housing and Groceries Act, the federal government said that it has taken the next step in its plans to accelerate the development of new housing supply and stabilize grocery prices.

Chrystia Freeland, deputy prime minister and minister of finance, said that Bill C-56 will remove the GST on new rental housing construction across the country. The aim would be to incentivize the construction of more apartment buildings, student housing, and senior residences.

“This enhancement increases the GST Rental Rebate from 36% to 100% and removes the existing GST Rental Rebate phase-out thresholds, for new rental housing projects,” the federal government said. “For a two-bedroom rental unit valued at $500,000, the enhanced GST Rental Rebate would deliver $25,000 in tax relief.”

“Our priority since 2015 has been to build a strong middle class so everyone can succeed,” Freeland said. “With provinces like Ontario and Newfoundland and Labrador following our lead by eliminating provincial taxes on new rentals, we’ll get more rental housing built faster, and encourage new builds to break ground.”

Freeland added that the legislation, which was the first federal bill introduced in the fall parliamentary sitting, would spur increased competition in the grocery sector – mainly by giving more power to the Competition Bureau “to investigate when industries are behaving unfairly, for example where price fixing or price gouging is occurring, and take enforcement action.”

The bill will take aim at anti-competitive mergers that raise prices and limit choices for Canadian consumers, as well as empowering the Competition Bureau “to block collaborations that stifle competition and consumer choice, particularly in situations where large grocers prevent smaller competitors from establishing operations nearby.”

Source CMP

By Ephraim Vecina

20 Sep

Are there signs Bank of Canada rate increases are working?

General

Posted by: Mike Hattim

This doesn’t mean policymakers will hang tight.

A Bank of Canada official said she sees evidence interest rate increases are working to slow inflation, but reiterated policymakers are prepared to hike further if necessary.

In a speech at the University of Regina in Saskatchewan on Tuesday — the same day data showed the consumer price index rose 4% in August, up from 3.3% in July — Deputy Governor Sharon Kozicki said the “ups and downs” in the pace of inflation in the past couple of months “are not that unusual.”

“Recent data have provided evidence that our policy rate increases are slowing demand. Household credit growth has eased as the impact of higher rates restrained spending among a wide range of borrowers,” she said. “And we are mindful that past increases in interest rates will continue to weigh on activity.”

Bank of Canada Governor Tiff Macklem outside the central bank’s building in 2020.

Kozicki’s comments suggest policymakers are still likely still comfortable staying on the sidelines after holding rates steady at 5% on Sept. 6, opting to wait and assess the impact of their aggressive tightening cycle. Despite the acceleration in headline inflation and persistent underlying price pressures, the central bank is betting a continued softening of economic growth will weigh on consumer prices.

“Both inflation and inflation expectations have come down, and excess demand in the economy is easing. And our past policy actions will continue to have an effect as they work their way through the economy,” she said.

Still, Kozicki reiterated that officials “are prepared to raise the policy rate further if needed.”

While measures of core inflation have eased, recent consumer price index data indicate that inflationary pressures are still broad-based, she said, adding that the CPI-trim rate, which has been excluding mortgage interest costs for more than a year, has been at about 3.5%-4% in recent months.

“Underlying inflation has experienced little recent downward momentum,” she said.

In her speech, titled “How household differences have affected monetary policy since the onset of the Covid-19 pandemic,” she outlined “the pandemic paradox,” — a combination of elevated savings and pent-up demand that leaves some households less sensitive to higher borrowing costs.

“We don’t set our policy based on what is happening to one subset of households or to the price of any one good or service. But we do our best to understand what is going on at a detailed level,” she said. “This helps us do a better job of forecasting where the economy is likely to be headed and helps us balance risks.”

Kozicki said “very strong” consumption growth in the first quarter reflected pent-up demand for services, delayed delivery of some pre-ordered durable goods and unexpectedly strong population growth. In the second quarter, “a marked weakening” in consumption growth and a decline in housing activity contributed to “a sharp slowing of economic growth.”

“We know that if we don’t do enough now, we will likely have to do even more later,” she said. “And that if we tighten too much, we risk unnecessarily hurting the economy.”

Source: Copyright Bloomberg News

by Erik Hertzberg and Randy Thanthong-Knight

19 Sep

CMHC reports slump in annual housing starts

General

Posted by: Mike Hattim

Rate of urban housing starts prompts decrease.

Canada Mortgage and Housing Corp. says the annual pace of housing starts in Canada edged down 1% in August compared with July.

The national housing agency says the seasonally adjusted annual rate of housing starts in August came in at 252,787 units compared with 255,232 in July.

The decrease came as the rate of urban housing starts fell 1% to 233,075 units in August.

The pace of multi-unit urban starts decreased 1% to 191,250, while the rate of single-detached urban starts rose 2% to 41,825.

The annual rate of rural starts was estimated at 19,712.

The six-month moving average of the overall monthly seasonally adjusted annual rate of housing starts was 244,507 units in August, up 0.8% from 242,552 in July.

Source: The Canadian Press

19 Sep

Canada’s rate of inflation accelerates more than expected

General

Posted by: Mike Hattim

Will the Bank of Canada look past the setback?

Canada’s rate of inflation accelerated by more than expected for the second straight month, but the gains that are largely driven by higher gasoline prices may allow the Bank of Canada to look past the setback.

The consumer price index rose 4% in August from a year ago, the quickest pace since April, following a 3.3% increase in July, Statistics Canada reported Tuesday in Ottawa. That’s faster than the median estimate of 3.8% in a Bloomberg survey of economists. On a monthly basis, the index rose 0.4%, double the expectations.

Two key yearly inflation measures that filter out index components with extreme price fluctuations and are tracked closely by the central bank — the so-called trim and median core rates — also increased, averaging 4% from an upwardly revised 3.75% a month earlier, exceeding the 3.7% pace expected by economists.

A three-month moving average of the measures that Governor Tiff Macklem has flagged as key to his team’s thinking rose by a full percentage point to an annualized pace of 4.49%, according to Bloomberg calculations.

Traders in overnight swaps upped bets the central bank will resume tightening — odds of another rate hike rose to about a coin flip, from over a third before the release. Bonds were pummeled, with the Canada two-year yield jumping to 4.862% as of 8:44 a.m. Ottawa time — the highest since July.

Tuesday’s numbers once again highlight a challenge in the current phase of the inflation battle, where the decline toward the 2% target is expected to be more uncertain. The bank forecast price gains would remain near 3% for the next year. But with the economy showing signs of softening, policymakers may be willing to wait for disinflationary forces to translate into a slower rate of inflation in the coming months.

Macklem alluded to the acceleration in his speech earlier this month after holding rates steady at 5% for two straight hikes, saying that higher global oil prices would “increase headline inflation in the near term.” Energy prices had been the biggest contributor to slowing inflation since the peak last year, accounting for two-thirds of the slowdown.

In the US, the jump in gasoline prices also led to an acceleration in core inflation for the first time in six months.

This is the first of two inflation reports before the Bank of Canada’s next rate decision on Oct. 25, when the majority of economists in a Bloomberg survey expect Macklem and his officials to hold borrowing costs steady at 5%.

Over the past several weeks in Canada, evidence is mounting that interest rate increases are slowing down the economy. The labour market added fewer jobs than the gains in employment from immigration-driven population growth in August, while preliminary data suggested gross domestic product was flat in July, after a surprise contraction in the second quarter.

The bank will have some tough decisions to make at upcoming meetings, said Andrew Grantham, an economist with the Canadian Imperial Bank of Commerce.

“While the stall in the economy in Q2 and modest rise in the unemployment rate are indicators that excess demand is diminishing, which should give policymakers comfort that inflation will come down in the future, they will need to balance that against evidence that current inflationary pressures remain stronger than previously anticipated,” he said in a report to investors.

Also on Tuesday, Statistics Canada reported that the job vacancy rate — or the number of vacant positions as a proportion of total labour demand — reached 4.4% in the second quarter, the fourth consecutive quarterly decline.

The acceleration in headline inflation was largely the result of higher year-over-year prices for gasoline in August compared with July. Excluding gasoline, the index held steady at 4.1% in July and August.

Gasoline prices rose 0.8% on the year in August, the first increase since January, after falling 12.9% in July. On a monthly basis, gasoline prices rose 4.6%, mainly the result of higher crude prices following production cuts from major oil-producing countries.

Shelter prices were up 6% in August compared with a year earlier, after increasing 5.1% in July. Faster growth in shelter prices was led by the rent index, which rose 6.5% after a 5.5% gain in July, as a higher interest-rate environment raised barriers to homeownership.

The mortgage interest cost index also contributed to the acceleration in shelter prices, rising at 30.9% in August compared with 30.6% in July.

Price growth for groceries slowed in August. On a year-over-year basis, prices for food purchased from stores rose 6.9% in August compared with 8.5% in July. On a monthly basis, prices for groceries were down 0.4% last month.

In August, services inflation held steady at 4.3%.

Regionally, prices rose at a faster year-over-year pace in August compared with July in every province.

Energy prices increased the most in Alberta, jumping 13.3% in August from a year ago, with gasoline, natural and electricity prices contributing to the acceleration amid high demand.

Rent prices accelerated in eight provinces, with Newfoundland and Labrador, Alberta, Nova Scotia and Manitoba seeing the fastest price growth.

Source: CMP / Bloomberg

by Randy Thanthong-Knight With assistance from Erik Hertzberg

18 Sep

London is getting $74M to tackle the housing crisis. Here’s what the mayor wants to do with it.

General

Posted by: Mike Hattim

London, Ont. mayor Josh Morgan laid out his ideas for spending the $74 million being given to the city by the federal government for housing .

On Wednesday, Prime Minister Justin Trudeau announced that London will receive the money as part of the Housing Accelerator Fund in exchange for the city’s agreement to pursue a series of measures — including a change to local zoning rules that should make it easier to build more rental units.

The city was projected to build 9,400 units over the next three years, but with the influx of cash they’re moving it up to 11,600, said Morgan.

 

There are four areas that he identified as key investments to help tackle the housing crisis within the city with the money:

  • Speeding up the permit process.
  • Building new affordable and market-rate homes.
  • Investing in housing related infrastructure.
  • Looking at converting unused commercial spaces downtown into residential units.

The Housing Accelerator Fund was first announced during the Liberal’s 2021 election campaign and introduced in the 2022 federal budget. It allocates $4 billion in funding until 2026-27 to build new homes in cities.

London needs more than just affordable housing

Reviewing the process to apply for building permits and identifying inefficiencies is high on Morgan’s list. He said analyzing where in the process applicants are being held up and how the city can keep that from happening will help fast-track the process.

“This isn’t just about building new homes, it’s about building new homes faster,” Morgan said.

Continuing to invest in affordable housing units like the buildings at 403 Thompson Road, 345 Sylvan Street, 18 Elm Street and Joan’s Place on Dundas is also a piece of the puzzle.

This will be done through partnerships with local non-profits and the building sector, something he said worked in the past. Morgan added they also need to increase the number of market-rate rental units in the city.

 

“We have thousands of people coming to this city for jobs or moving away from even higher cost jurisdictions like the GTA so we have tremendous pressure on our market here — it’s also a supply issue,” he said.

Another limiting factor he said they’re tackling is that some parts of the city don’t have the proper infrastructure to support new housing. For example, areas around Fanshawe College don’t have the sewer capacity to handle more units being built to house the influx of international students.

He said there are proposals to build high density developments in the works that are currently on hold because of similar issues across London.

“Some of that money can be used to unlock developments that are already waiting,” he said.

Finally, Morgan said the downtown core has many empty office buildings and the funds could be used to create an incentive program to subsidize developers who pledge to turn offices into residential apartments and condos.

 

In addition to these four points, Morgan said that council is also looking into new incentive programs with the funds to encourage developers to build downtown transit corridors and transit villages while still keeping some of the developments affordable for lower-income renters.

“We can actually put some strings on those incentive and say ‘we need some affordability within some of the units you’re creating.’

Source: CBC News – Michael Lacasse

15 Sep

Home Sales Dipped Once Again Last Month In The Wake of Two Consecutive BoC Rate Hikes

General

Posted by: Mike Hattim

Not surprisingly, buyers moved to the sidelines last month as the central bank took the overnight policy rate up to 5.0%. Home sales posted a 4.1% decline between July and August, well below the 10-year moving average shown in the chart below. However, on a year-over-year (y/y) basis, the number of transactions rose 5.3%.

The national sales data were depressed in August by declines in Greater Vancouver and the Fraser Valley, Montreal, Ottawa, Hamilton-Burlington, London and St. Thomas.
New Listings

The number of newly listed homes edged up 0.8% m/m in August, adding to the cumulative gain of more than 24% between March and July. New listings started 2023 at a 20-year low but are now closer to average levels. Recent survey data suggest pent-up supply is coming down the track as many homeowners reported they planned to their home in the next three years.

With sales falling and new listings edging up in August, the sales-to-new listings ratio eased to 56.2% compared to 59% in July and a peak of 67.4% in April. The measure is now closely aligned with its long-term average of 55.2%.

There were 3.4 months of inventory on a national basis at the end of August 2023, up from 3.2 months in July. While the measure is up a bit from its recent low of 3.1 months in May and June, it remains below the second half of 2022 and well below its long-term average of about five months.
Home Prices

The Aggregate Composite MLS® Home Price Index (HPI) edged up 0.4% on a month-over-month basis in August 2023— only about half as large as the July gain, which was only nearly half as large as the gains recorded in April, May, and June. This leveling off of prices aligns with slowing sales and a rebound in listings.

While prices are stabilizing at the national level, regional differences are re-emerging. Price growth has remained solid in Quebec and the East Coast, followed by British Columbia and the Prairies. Ontario is now a mixed bag, with some of the more significant increases and some of the bigger declines.

As of August 2023, the Aggregate Composite MLS® HPI was up 0.4% y/y. This was the first year-over-year increase since September 2022. Even though prices appear to be leveling out near current levels, year-over-year comparisons will likely continue to rise in the months ahead because of how prices continued to decline through the second half of 2022.
Bottom Line

With the Bank of Canada moving to the sidelines and more supply gradually coming on board, housing activity will likely pick up in the coming months. Year-over-year home prices will rise owing to base effects, as lower prices were posted in the fall and winter of last year, making the y/y comparisons more favourable. We don’t want to see a burst of activity because that could cause the central bank to rethink its rate pause.

Housing affordability remains a significant problem for buyers, but recent data released for the second quarter shows an uptick in first-time purchases despite the affordability crunch.

The housing shortage and the resulting high cost of rent and buying are political issues at all levels of government. On Thursday, Prime Minister Trudeau pledged to cut the federal Goods and Services tax on constructing new apartment buildings as part of a promised host of measures to address affordability issues. Canadians are used to such actions by the feds, but the housing shortage will only worsen until municipalities address impediments to densification, building delays, and development costs.
Dr. Sherry Cooper