Is Canadian Real Estate Market Correction Over? Interest Rates Remain Stimulative
Is Canadian Real Estate Market Correction Over and Prompting Recovery?
Latest on Canadian Real Estate Market Trends by Steve Saretsky,
September 2, 2019
Happy Monday Morning!
Media headlines created hysteria over RBC chief economist Robert Hogue’s comments from a couple of weeks ago. The Globe & Mail headlines went viral, touting “RBC economist says correction in Canada’s housing market is over.” The story which was stuffed behind a paywall pulled commentary from Hogue’s most recent research which suggested the worst is behind us.
“Canada’s housing market correction is over and the recovery is on. Slumping markets out west— including Vancouver, Calgary and Edmonton—are now in the early stages of a turnaround. Things are back on track in Toronto.” Adding, “Still, interest rates remain stimulative and healthy population growth via stepped-up immigration will likely continue to put a floor under housing market activity for the next several years.”
Indeed, the case for Canada’s near thirty-year housing bull market to continue has improved over the past few months. Housing activity has bounced, particularly in the two frothiest of markets, Vancouver & Toronto. The Real Estate Board of Greater Vancouver is set to announce a 16% year-over-year increase in home sales for the month of August, a second consecutive year-over-year increase, albeit at slightly lower prices.
However, whether or not Hogue’s comments age well or not, hinge largely on factors outside the purview of RBC’s chief economist. The inversion in the yield curve continues to signal turbulence ahead, while the potency of the central bank’s ability to ward off a recession remains in doubt as interest rates near closer to zero.
Meanwhile, political uncertainty continues to mount, particularly in Asia. Trade tensions have ramped up, sending the Chinese Yuan tumbling, down nearly 4% for the month of August. Officially the worst month for the Yuan in 25 years. As a result, the Nikkei Asian Review is reporting Chinese financial authorities have rolled out further measures to stem capital outflows from the mainland. The new rules include stricter oversight of banks in times of capital flight and restrictions on real estate developers’ access to foreign currency bonds. The State Administration of Foreign Exchange has ordered lenders to request extra documentation before signing off on offshore remittances. If a parent wishes to pay school expenses for a student studying abroad, an acceptance letter must be presented. To transfer money for other reasons, documents such as a work permit must be furnished.
“Wiring money overseas is not allowed for the purposes of purchasing real estate or insurance products,” said a representative at a second-tier Chinese bank.
Real estate companies face tougher restrictions. The National Development and Reform Commission told companies in the sector that debt instruments denominated in foreign currencies are limited to those with maturities up to one year. Even then, the procurement of those funds can only be applied to refinance.
Given the mounting uncertainty across global markets and the natural market implications for Canada, it is perhaps too soon to declare the worst is behind us.
Three Things I’m Watching:
1. After 5 consecutive months of negative price growth, national home prices recovered, increasing 0.21% in July. Correction over?
2. In Canada, capital has flowed out of machinery and equipment and into housing.
3. China’s currency dropped 3.8% against the US dollar in August, completing its biggest monthly fall in more than a quarter of a century as Beijing hunkers down for a protracted trade war with the US.
