Are Real Estate Prices Showing Signs of Moderation?
Are Real Estate Prices Showing Signs of Moderation?
Latest on Canadian Real Estate Market Trends by Steve Saretsky,
September 9, 2019
Happy Monday Morning!
The Bank of Canada remained on hold, opting to keep the overnight rate at 1.75% this past week. Governor Poloz continued his detour down a different path from his central banking peers, citing concerns of stoking the flames for another household debt binge. “Housing activity has regained strength more quickly than expected as resales and housing starts catch up to underlying demand, supported by lower mortgage rates. This could add to already-high household debt levels, although mortgage underwriting rules should help contain the buildup of vulnerabilities”. Indeed, with Canadians still enjoying real negative interest rates Poloz feels “the current degree of monetary policy stimulus remains appropriate.”
Not everyone is elated with Poloz’s joyride. The often outspoken David Rosenberg of Gluskin Sheff took to Twitter, noting “We count 17 central banks having cut rates a cumulative 1,110 bps so far this year. But the BoC has decided to take a pass, today and next month as well.” Adding, “Canada has an output gap. And the BoC must see it widening based on its macro forecast. But somehow it stayed neutral today. Case of cognitive dissonance?”
Regardless of what the Bank of Canada decided to do, or rather- not do, Canadian households have already reaped the benefits of easing financial conditions. The recent plunge in bond yields has eased mortgage costs across the nation. Mortgage credit growth has accelerated for five consecutive months, growing at 3.8% year-over-year, albeit still growing at twenty four year lows. This has helped provide a floor under the housing market, particularly in Vancouver where sales activity on an annual basis has increased for two consecutive months and prices are showing signs of moderation.
This has stemmed a new wave of confidence, with RBC recently proclaiming “the recovery is on.” Never one to miss out on the action, it appears CIBC has emerged from hibernation. After hammering the brakes this past year and contracting the bank’s domestic mortgage book in each quarter this year, CIBC’s Chief Executive Officer Victor Dodig suggested those days are behind them. “Candidly, I think we went too far left in slowing things down, put the brakes on too hard, and we’re re-adjusting for that.” Dodig added, “We are now looking to create a more robust presence in the mortgage landscape.”
Game on.
Three Things I’m Watching:
1. Canadian real GDP per capita growth is ZERO percent over the past year.
2. Easing financial conditions as Canadian household debt to incomes still rest at nosebleed levels.
3. Greater Vancouver condo sales recovered back in line with historical averages in August.
