Jelena Idzanovic

Summary On a seasonally adjusted basis, home sales decreased 1.9% from August to September, a third monthly contraction in a row following the renewed monetary tightening cycle of the Bank of Canada and the surge in long-term interest rates. On the supply side, new listings jumped 6.3% in September, a sixth consecutive monthly increase. Overall, active listing increased by 3.7%, a third monthly gain in a row. As a result the number of months of inventory (active-listings to sales) increased from 3.5 in August to 3.7 in September. This continues to be higher than the trough of 1.7 reached in the pandemic but remains low on a historical basis. The active-listings to sales ratio loosened during the month but remained tighter than its historical average in every province except Ontario, which now indicated a slightly less tight market than the average. Housing starts rose 20.1K in September to a 3-month high of 270.5K (seasonally adjusted and annualized), a result comfortably above the median economist forecast calling for a 240.0K print. At the provincial level, total starts went up in Ontario (+19.3K to 103.6K), Alberta (+8.7K to a seven-and-a-half-year high of 49.1K) and Nova Scotia (+5.1K to 8.1K). Alternatively, declines were recorded in British Columbia (-8.6K to a 7-month low of 40.5K) and Saskatchewan (-2.7K to 3.4K). The Teranet-National Bank Composite National House Price Index rose 0.7% in September after seasonal adjustment. All 11 markets in the composite index were up during the month: Halifax (+1.9%), Ottawa-Gatineau (+1.7%), Victoria (+1.7%), Vancouver (+1.1%) and Calgary (+0. 9%) posted stronger-than-average growth, while Winnipeg (+0.7%) matched the composite index, and Montreal (+0.1%), Hamilton (+0.1%), Edmonton (+0.2%), Toronto (+0.5%) and Quebec City (+0.5%) saw less vigorous increases. https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/logement/economic-news-resale-market.pdf

The Bank of Canada yesterday held its target for the overnight rate at 5%, with the Bank Rate at 5% and the deposit rate at 5%. The Bank is continuing its policy of quantitative tightening. The global economy is slowing and growth is forecast to moderate further as past increases in policy rates and the recent surge in global bond yields weigh on demand. The Bank projects global GDP growth of 2.9% this year, 2.3% in 2024 and 2.6% in 2025. While this global growth outlook is little changed from the July Monetary Policy Report (MPR), the composition has shifted, with the US economy proving stronger and economic activity in China weaker than expected. Growth in the euro area has slowed further. Inflation has been easing in most economies, as supply bottlenecks resolve and weaker demand relieves price pressures. However, with underlying inflation persisting, central banks continue to be vigilant. Oil prices are higher than was assumed in July, and the war in Israel and Gaza is a new source of geopolitical uncertainty. In Canada, there is growing evidence that past interest rate increases are dampening economic activity and relieving price pressures. Consumption has been subdued, with softer demand for housing, durable goods and many services. Weaker demand and higher borrowing costs are weighing on business investment. The surge in Canadas population is easing labour market pressures in some sectors while adding to housing demand and consumption. In the labour market, recent job gains have been below labour force growth and job vacancies have continued to ease. However, the labour market remains on the tight side and wage pressures persist. Overall, a range of indicators suggest that supply and demand in the economy are now approaching balance. After averaging 1% over the past year, economic growth is expected to continue to be weak for the next year before increasing in late 2024 and through 2025. The near-term weakness in growth reflects both the broadening impact of past increases in interest rates and slower foreign demand. The subsequent pickup is driven by household spending as well as stronger exports and business investment in response to improving foreign demand. Spending by governments contributes materially to growth over the forecast horizon. Overall, the Bank expects the Canadian economy to grow by 1.2% this year, 0.9% in 2024 and 2.5% in 2025. CPI inflation has been volatile in recent months2.8% in June, 4.0% in August, and 3.8% in September. Higher interest rates are moderating inflation in many goods that people buy on credit, and this is spreading to services. Food inflation is easing from very high rates. However, in addition to elevated mortgage interest costs, inflation in rent and other housing costs remains high. Near-term inflation expectations and corporate pricing behaviour are normalizing only gradually, and wages are still growing around 4% to 5%. The Banks preferred measures of core inflation show little downward momentum. In the Banks October projection, CPI inflation is expected to average about 3% through the middle of next year before gradually easing to 2% in 2025. Inflation returns to target about the same time as in the July projection, but the near-term path is higher because of energy prices and ongoing persistence in core inflation. With clearer signs that monetary policy is moderating spending and relieving price pressures, Governing Council decided to hold the policy rate at 5% and to continue to normalize the Banks balance sheet. However, Governing Council is concerned that progress towards price stability is slow and inflationary risks have increased, and is prepared to raise the policy rate further if needed. Governing Council wants to see downward momentum in core inflation, and continues to be focused on the balance between demand and supply in the economy, inflation expectations, wage growth and corporate pricing behaviour. The Bank remains resolute in its commitment to restoring price stability for Canadians. Information note The next scheduled date for announcing the overnight rate target is December 6, 2023. The Bank will publish its next full outlook for the economy and inflation, including risks to the projection, in the MPR on January 24, 2024. https://www.bankofcanada.ca/2023/10/fad-press-release-2023-10-25/

HIGHLIGHTS Total housing starts across the countrys 6 largest census metropolitan areas (CMAs) increased slightly in the first half of 2023. Significant changes were observed for individual dwelling types and CMAs. Notable strength in apartment starts offset declines in all other dwelling types (single-detached, semi-detached and row homes). Apartment starts were concentrated in Toronto and Vancouver. This led to strong growth in total starts in those CMAs, offsetting lower starts in other CMAs, particularly Montral. As a result, in Toronto and Vancouver, housing starts in the first half of 2023 were well above levels observed over the past 5 years. In most other large centres, meanwhile, they were below these levels. Montral tends to build more small and low-rise apartment structures than Toronto and Vancouver. Because of their smaller size, these structures take less time to plan and build. The decline in housing starts in Montral was, therefore, more reflective of the recent deterioration in financial conditions. Elevated rates of apartment construction are not likely to be sustainable due to various challenges facing developers. These challenges include higher construction costs and higher interest rates. Significant increases in construction productivity are critical to addressing the countrys affordability and housing supply crisis over the longer term. The level of new construction activity remains too low. cmhc-schl.gc.ca

With renewed activity in the residential real estate market in recent months, the seasonally adjusted Teranet-National Bank composite index rose by 1.6% from July to August, the fourth consecutive monthly increase. As a result, the composite index is now just 2.1% below its all-time peak of April 2022, following a record cumulative decline of 8.6% over one year. The widespread nature of Augusts rise is also noteworthy, as this is the first time since March 2021 that monthly increases have been observed in all the CMAs included in the composite index. However, there is reason to believe that this strength is likely to be short-lived, given the slowdown observed in the resale market over the last two months in connection with the renewal of the Bank of Canadas monetary tightening cycle. Although price declines are expected in the coming months due to the growing impact of interest rates and the less favourable economic context, property price decreases should remain limited thanks to the support of historical demographic growth and the persistent lack of housing supply. HIGHLIGHTS: The Teranet National Bank Composite National House Price IndexTM rose by 1.6% in August after seasonal adjustment. After seasonal adjustment, all 11 markets in the composite index were up during the month: Calgary (+3.5%), Vancouver (+2.8%) and Hamilton (+2.4%) reported stronger-than-average growth, while growth Halifax (+1.4%), Quebec City (+1.3%), Toronto (+1.2%), Ottawa-Gatineau (+1.1%), Edmonton (+1.1%), Winnipeg (+0.7%), Montreal (+0.7%) and Victoria (+0.2%) were less vigorous. From August 2022 to August 2023, the composite index rose by 1.1%, the first annual increase in nine months. Growth was seen in Calgary (+6.2%), Halifax (+5.1%), Quebec City (+3.6%), Vancouver (+2.7%) and Toronto (+1.4%), while prices were still down in Edmonton (-0.3%), Victoria (-1.5%), Montreal (-1.7%), Hamilton (-1.7%), Ottawa-Gatineau (-2.3%) and Winnipeg (-3.6%) https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/logement/economic-news-teranet.pdf

Summary On a seasonally adjusted basis, home sales decreased 4.1% from July to August, a second monthly contraction in a row following the renewed monetary tightening cycle of the Bank of Canada. On the supply side, new listings increased 0.8% in August, a fifth consecutive monthly increase. Another sign of a loss of momentum in the real estate market is the proportion of listings cancelled during the month, which continues to rise, a sign that some sellers are discouraged by recent interest rate hikes. Overall, active listing increased by 1.9%, a third monthly gain in a row. As a result the number of months of inventory (active-listings to sales) increased from 3.2 in July to 3.4 in August. This continues to be higher than the trough of 1.7 reached in the pandemic but remains low on a historical basis. The active-listings to sales ratio is still tighter than its historical average in every province. Housing starts in Canada decreased slightly in August (-2.4K to 252.8K, seasonally adjusted and annualized), beating consensus expectations calling for a 250K print. Decreases in housing starts were seen in Ontario (-14.9K to 84.6K), Manitoba (-3.2K to 6.8K), and Nova Scotia (-2.5 to 3.2K). Meanwhile, increases were registered in Quebec (+14.8K to 53.1K), New Brunswick (+2.1 to 7.1K), Alberta (+1.1K to 39.6K), and Saskatchewan (+0.2K to 5.5), while starts in Newfoundland (1.1K), P.E.I. (1.2K), and B.C. (50.7K) remained unchanged. The Teranet-National Bank Composite National House Price Index rose by 1.6% in August after seasonal adjustment. All 11 markets in the composite index were up during the month: Calgary (+3.5%), Vancouver (+2.8%) and Hamilton (+2. 4%) reported stronger-than-average growth, while Halifax (+1.4%), Quebec City (+1.3%), Toronto (+1.2%), Ottawa-Gatineau (+1.1%), Edmonton (+1.1%), Winnipeg (+0.7%), Montreal (+0.7%) and Victoria (+0.2%) were less vigorous. https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/logement/economic-news-resale-market.pdf

From CMHC Key Highlights To restore affordability, we maintain our 2022 projection that Canada will need 3.5 million more units on top of whats already being built. Weve adjusted our 2030 projection for how many housing units there will be in Canada in 2030 based on current rates of new construction. Our most recent projection is 18.2 million units, down from our 2022 estimate of 18.6 million. This is largely due to the shortfall in housing construction. About 60% of the 3.5 million housing unit gap is in Ontario and British Columbia. This is because housing supply hasnt kept up with demand over the past 20 years in some of the largest urban centres. Additional supply will also be needed in Quebec. Once considered affordable, the province has become less affordable over the last few years. More supply need is also projected for Alberta due to strong economic growth. Other provinces remain affordable to households with an average level of disposable income. However, challenges remain for low-income households in accessing housing that is affordable across Canada. In addition to our baseline scenario of 3.5 million additional units being needed to restore affordability by 2030, we offer 2 alternate scenarios: a high-population- growth scenario and a low-economic-growth scenario. We provide regional highlights for areas across the country. https://assets.cmhc-schl.gc.ca/

The Bank of Canada on Wednesday held its target for the overnight rate at 5%, with the Bank Rate at 5% and the deposit rate at 5%. The Bank is also continuing its policy of quantitative tightening. Inflation in advanced economies has continued to come down, but with measures of core inflation still elevated, major central banks remain focused on restoring price stability. Global growth slowed in the second quarter of 2023, largely reflecting a significant deceleration in China. With ongoing weakness in the property sector undermining confidence, growth prospects in China have diminished. In the United States, growth was stronger than expected, led by robust consumer spending. In Europe, strength in the service sector supported growth, offsetting an ongoing contraction in manufacturing. Global bond yields have risen, reflecting higher real interest rates, and international oil prices are higher than was assumed in the July Monetary Policy Report (MPR). The Canadian economy has entered a period of weaker growth, which is needed to relieve price pressures. Economic growth slowed sharply in the second quarter of 2023, with output contracting by 0.2% at an annualized rate. This reflected a marked weakening in consumption growth and a decline in housing activity, as well as the impact of wildfires in many regions of the country. Household credit growth slowed as the impact of higher rates restrained spending among a wider range of borrowers. Final domestic demand grew by 1% in the second quarter, supported by government spending and a boost to business investment. The tightness in the labour market has continued to ease gradually. However, wage growth has remained around 4% to 5%. Recent CPI data indicate that inflationary pressures remain broad-based. After easing to 2.8% in June, CPI inflation moved up to 3.3% in July, averaging close to 3% in line with the Banks projection. With the recent increase in gasoline prices, CPI inflation is expected to be higher in the near term before easing again. Year-over-year and three-month measures of core inflation are now both running at about 3.5%, indicating there has been little recent downward momentum in underlying inflation. The longer high inflation persists, the greater the risk that elevated inflation becomes entrenched, making it more difficult to restore price stability. https://www.bankofcanada.ca/2023/09/fad-press-release-2023-09-06/

Summary On a seasonally adjusted basis, home sales decreased 0.7% from June to July, a first monthly contraction in six months following the renewed monetary tightening cycle of the Bank of Canada. On the supply side, new listings jumped 5.6% in July, a fourth consecutive monthly increase. Another sign of a loss of momentum in the real estate market is the proportion of listings cancelled during the month, which is back on the rise, a sign that some sellers are discouraged by recent interest rate hikes. Overall, active listing increased by 2.5%, the second monthly gain in a row. As a result, the number of months of inventory (active-listings to sales) increased from 3.1 in June to 3.2 in July. This continues to be higher than the trough of 1.7 reached in the pandemic but remains low on a historical basis. The active-listings to sales ratio is still tighter than its historical average in the majority of Canadian provinces, with only Manitoba indicating a ratio slightly above historical norm. Housing starts in Canada decreased in July (-28.5 to 255.0K, seasonally adjusted and annualized), beating consensus expectations calling for a 244K print. This decline follows the strongest growth ever recorded the previous month. Decreases in housing starts were seen in Ontario (-21.8K to 99.5K), British Columbia (-15.2K to 50.7K), Nova Scotia (-8.1K to 5.8K) and Saskatchewan (-1.9K to 5.3K). Meanwhile, increases were registered in Alberta (+11.9K to 38.5K), Quebec (+3.1K to 38.0K), Manitoba (+2.1K to 10K), New Brunswick (+0.6K to 5.0K), P.E.I. (+0.6K to 1.2K), while starts in Newfoundland (+0.1K to 1.1K) remained essentially unchanged. The Teranet National Bank Composite National House Price Index rose by 2.4% in July after seasonal adjustment. Eight of the 11 markets in the composite index were up during the month: Halifax (+4.9%), Hamilton (+4.4%), Vancouver (+3.9%), Toronto (+3.5%), Victoria (+1.6%), Winnipeg (+1.3%), Ottawa-Gatineau (+0.6%) and Edmonton (+0.3%). Conversely, prices fell in Quebec City (-1.2%), Montreal (-0.9%) and Calgary (-0.3%). https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/logement/economic-news-resale-market.pdf

Following the recovery of the residential real estate market in recent months, the Teranet-National Bank composite index jumped by 2.4% from June to July, the fourth consecutive monthly increase, but also the second highest price increase ever recorded in a single month after the one observed in July 2006. After a cumulative decline of 8.6% since peaking in April 2022, recent rises in the composite index have erased a part of this correction, which now stands at just 3.8%. Interestingly, the recent upturn in prices has been greatest in the cities that have seen the biggest corrections. However, only four of the 32 CMAs covered have completely erased their price declines: Saint John, Lethbridge, Quebec City and Trois-Rivires. Prices could continue to rise in the third quarter, supported by strong demographic growth and the lack of supply of properties on the market. That said, the deterioration in affordability with recent interest rate hikes in a less buoyant economic context should represent a headwind for house prices thereafter. HIGHLIGHTS: The Teranet National Bank Composite National House Price IndexTM rose by 2.4% in July after seasonal adjustment. After seasonal adjustment, 8 of the 11 markets in the composite index were up during the month: Halifax (+4.9%), Hamilton (+4.4%), Vancouver (+3.9%), Toronto (+3.5%), Victoria (+1.6%), Winnipeg (+1.3%), Ottawa-Gatineau (+0.6%) and Edmonton (+0.3%). Conversely, prices fell in Quebec City (-1.2%), Montreal (-0.9%) and Calgary (-0.3%). From July 2022 to July 2023, the composite index fell by 1.9%, a smaller contraction than in the previous month. Price increases in Calgary (+3.3%), Halifax (+2.1%) and Quebec City (+1.1%) were more than offset by declines in Edmonton (-0.1%), Vancouver (-0.6%), Toronto (-2.1%), Montreal (-2.6%), Victoria (-2.7%), Winnipeg (-5.2%), Ottawa-Gatineau (-5.4%) and Hamilton (-7.9%). https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/logement/economic-news-teranet.pdf

From National Bank of Canada The second quarter of 2023 saw housing affordability in Canada post a third consecutive improvement. While not as substantial as the previous two betterments, it still marked an advancement for 9 of the 10 markets covered. Taken together, the last three quarters represent a 7.1 percentage point decline for the mortgage payment as a percentage of income (MPPI). While that was a positive development, it pales in light of the 24.6pp worsening in affordability in the two previous years and only brings affordability back to levels last seen a year ago. The MPPI now stands at 59.3%, still way off the average since 2000 of 42.5%. The improvement mostly stemmed from a decrease in home prices. The latter declined 1.2% in the quarter which brings the cumulative decline over the last year to 8.1%. This pullback is the largest observed in a generation but could have bottomed out according to house price index data. The Teranet-National Bank Composite HPI rose 2.2% seasonally adjusted in June, and momentum is expected to continue into the third quarter on the back of strong demographics and a lack of supply in the resale market. Compounding that headwind, after providing marginal respite in Q2 (-3 basis points), mortgage interest rates in July have crept up on the back of further tightening by the Bank of Canada and should be detrimental to affordability in the next report. Moreover, the flip side of restrictive monetary policy is a weakening economic outlook. In such a high interest rate environment, we cannot count on significant wage gains to improve affordability, as we expect the labour market to cool in the second half of the year. HIGHLIGHTS: Canadian housing affordability posted a third consecutive improvement in Q223. The mortgage payment on a representative home as a percentage of income (MPPI) declined 1.6 points, a further pullback following the 3.2-point decrease in Q123. Seasonally adjusted home prices decreased 1.2% in Q223 from Q122; the benchmark mortgage rate (5-year term) edged down 3 bps, while median household income rose 1.2%. Affordability improved in 9 of the ten markets covered in Q2. On a sliding scale of markets from best improvement to deterioration: Toronto, Hamilton, Ottawa-Gatineau, Victoria, Vancouver, Winnipeg, Edmonton, Calgary, Montreal, and Quebec. Countrywide, affordability improved 1.2 pp in the condo portion vs. a 1.8 pp improvement in the non-condo segment. https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/logement/housing-affordability.pdf