Greg Lemoine

From Scotiabank Further rate cuts in Canada this year a certainty while we continue to believe that the Federal Reserve will cut in September. Economic data have come in largely as expected so our forecasts remain largely unchanged. Lower interest rates will provide a mild boost to economic growth later this year, but the full impact of rate cuts will take time to materialize given the lags of monetary policy. Clarity on interest rates and the outlook over the next few months may be fleeting. The results of the US election risk muddying the outlook substantially. The long-awaited rate cuts are finally underway in Canada and are likely to start in the United States in September. These will eventually provide relief to the interest rate sensitive parts of the economy and may also lift business and household sentiment. These rate cuts are occurring in the context of slow, but still-positive growth, and solid progress on inflation management even though there remain substantial risks of higher inflation (linked to the sharp rise in global shipping costs and rapid wage growth and low productivity in Canada). We remain comfortable with our view that policy rates will fall by another 75 basis points in Canada this year and that the Federal Reserve will cut its policy rate by at least 50 basis points starting in September. Moreover, economic data have come in roughly as expected over the last several months, leading to only minor tweaks to the outlook for growth. All told, this forecast update is largely similar to our previous forecast. In this sense, the stability in our forecast combined with more certainty on the interest rate path suggest greater clarity in the outlook for the next several months. https://www.scotiabank.com/ca/en/about/economics/economics-publications/post.other-publications.global-outlook-and-forecast-tables.scotiabank%27s-forecast-tables.2024.july-18--2024.html

The Bank of Canada today reduced its target for the overnight rate to 4%, with the Bank Rate at 4% and the deposit rate at 4%. The Bank is continuing its policy of balance sheet normalization. The global economy is expected to continue expanding at an annual rate of about 3% through 2026. While inflation is still above central bank targets in most advanced economies, it is forecast to ease gradually. In the United States, the anticipated economic slowdown is materializing, with consumption growth moderating. US inflation looks to have resumed its downward path. In the euro area, growth is picking up following a weak 2023. Chinas economy is growing modestly, with weak domestic demand partially offset by strong exports. Global financial conditions have eased, with lower bond yields, buoyant equity prices, and robust corporate debt issuance. The Canadian dollar has been relatively stable and oil prices are around the levels assumed in Aprils Monetary Policy Report (MPR). In Canada, economic growth likely picked up to about 1% through the first half of this year. However, with robust population growth of about 3%, the economys potential output is still growing faster than GDP, which means excess supply has increased. Household spending, including both consumer purchases and housing, has been weak. There are signs of slack in the labour market. The unemployment rate has risen to 6.4%, with employment continuing to grow more slowly than the labour force and job seekers taking longer to find work. Wage growth is showing some signs of moderating, but remains elevated. GDP growth is forecast to increase in the second half of 2024 and through 2025. This reflects stronger exports and a recovery in household spending and business investment as borrowing costs ease. Residential investment is expected to grow robustly. With new government limits on admissions of non-permanent residents, population growth should slow in 2025. https://www.bankofcanada.ca/2024/07/fad-press-release-2024-07-24/

Summary Home sales edged up 3.7% between May and June, the first increase in five months following the beginning of the monetary easing cycle by the Bank of Canada in June. On the supply side, new listings increased 1.5% from May to June, the fifth advance in six months. Active listings rose by 1.2% in June, the third consecutive month of growth and the highest level since March 2020. Meanwhile, the number of months of inventory (active listings-to-sales) decreased from 4.3 in May to 4.2 in June, a level back in line with its pre-pandemic level. Market conditions tightened slightly during the month and remained tighter than their historical average in most provinces. They were balanced in Manitoba and B.C., and softer than average in Ontario. Housing starts decreased 23.5K in June to 241.7K (seasonally adjusted and annualized), a result below the median economist forecast calling for a 254.1K print. Urban starts decreased by 23.2K (to 223.2K) on a decline in the multi-family segment (+23.9K to 180.2K) while the single-family segment was up marginally (+0.7K to 43.0). Starts decreased in Vancouver (-3.0K to 20.6K), Toronto (-19.9K to 34.3K), and Calgary (-1.0K to 22.5K), while they increased in Montreal (+6.6K to 35.0K). At the provincial level, the most pronounced decreases in total starts were registered in Ontario (-19.1K to 67.6K), Alberta (-6.0K to 42.3K), and B.C. (-5.3K to 40.8K). Meanwhile, notable increases were seen in Manitoba (+6.3K to 10.3K), Nova Scotia (+3.2K to 12.1K), and Saskatchewan (+2.8K to 4.6K). The Teranet-National Bank Composite National House Price Index remained stable from May to June, after seasonal adjustments. Five of the 11 markets in the composite index were up during the month: Winnipeg (+3.9%), Edmonton (+2.3%), Quebec City (+1.1%), Calgary (+0.1%) and Toronto (+0.1%). Conversely, prices fell in Hamilton (-2.2%), Halifax (-0.8%), Ottawa-Gatineau (-0.8%), Vancouver (-0.3%) and Montreal (-0.3%), while they remained stable in Victoria. https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/logement/economic-news-resale-market.pdf

Key Takeaways for 2024 Overall, the Canadian mortgage landscape in 2024 was relatively similar to 2023. The rate of mortgages contracted in the last 18 months were stable. Renewing vs buying. Consumers renewing their mortgage increased (62% vs 58% in 2023) whereas repeat buyers and first-time buyers decreased. Significantly more mortgage consumers were impacted this year by rising interest rates (65% vs 50% in 2023). However, most consumers had strategies in place to avoid defaulting on their mortgage. It took an average of 4.2 years for consumers to save for a down payment, with 30% of buyers receiving a gift to help with the cost. While consumers continue to have concerns or uncertainty during the home buying process, the majority (79%) still believe it is a good long-term financial investment. Nearly three times as many buyers this year said high interest rates made them delay buying a home (13% vs 5% in 2023). First-time homebuyers and newcomers were the most likely to postpone. The vast majority of consumers did research before their most recent mortgage transaction, with 52% of consumers researching exclusively online, compared to just 34% in 2023. Going green. Among homeowners who did energy efficient renovations, 93% are satisfied with the results of their renovations and 68% saw savings in their energy/electricity bills. https://assets.cmhc-schl.gc.ca/sites/cmhc/professional/housing-markets-data-and-research/housing-research/surveys/mortgage-consumer-surveys/survey-results-2024/2024-cmhc-mortgage-consumer-survey-en.pdf

From TD Economics As we had anticipated, its been a quiet spring selling season. Elevated borrowing costs and Bank of Canada uncertainty have kept buyers on the sidelines through May, leaving Canadian home sales at the lower end of their pre-Covid levels. Canadian average home prices have managed to grind higher so far this spring, but largely due to a shift to more expensive homes being sold. In contrast, benchmark prices (which are a more like for like measure) have declined. The resale market is still projected to gain traction in the second half of 2024, although weve dialed back the expected pace of gains in sales and prices relative to our March forecast. This is because borrowing costs are unlikely to fall as much as previously thought, with one fewer cut expected by the Bank of Canada this year. Whats more, the U.S. central bank is now likely to begin cutting its policy rate late in 2024, instead of the summer, which has spilled over to more limited declines in Canadian bond yields over the remainder of this year. 2025 growth forecasts for Canadian home sales and average home prices have been lifted, however, as downgraded activity in 2024 yields additional pent-up demand waiting to be unleashed, and more meaningful rate relief is delivered. Were retaining our view that price growth will outperform in the Prairies going forward, lifted by tight markets, historically strong population growth, solid affordability conditions, and economic outperformance. Elsewhere, relatively tight supply/demand balances should keep prices on the rise in Quebec and the Atlantic, although notable affordability deteriorations will prevent even stronger gains. Interprovincial migration has also begun to slow in the Atlantic, weighing on what is likely a key source of ownership demand in the region. In Ontario and B.C., average home price growth should benefit from the strongest sales gains in the country moving forward, with pent-up demand driving a recovery in activity from low levels in these two markets. In the near-term, price growth will be restrained by loose supply/demand conditions, although compositional forces could offer some offset in Ontario, as theyve done in recent months. Thereafter, historically challenging affordability backdrops should cap the pace of gains taking place in the two regions. https://economics.td.com/ca-provincial-housing-outlook

Nearly half (48%) admit to spending more than they know they should. 15% believe impulse shopping is preventing them from making real financial progress. A special report from the BMO Real Financial Progress Index reveals Canadians plan to spend more on vacations and/or travel (20%), home renovations (15%), weddings for family and/or friends (10%) and special events such as graduations and showers (9%) this summer compared to 2023. Household spending continues to be a primary driver of economic growth. According to BMO Economics, consumer confidence will likely improve following the Bank of Canadas first rate cut in four years, with expectations for another two rate cuts for the rest of 2024 and several more in 2025. Inflation is showing continued signs of calming, opening the door for further rate cuts by the Bank of Canada, said Sal Guatieri, Senior Economist, BMO. Lower borrowing costs and slower-rising living costs should provide sufficient relief to support moderate two per cent growth in consumer spending this year and next. The BMO Real Financial Progress Index explores Canadians summer spending plans and forecasts: Sizzling Summer Travels: One-in-five Canadians (20%) plan to spend more on summer travel, while 38% plan on spending the same as in 2023. 15% plan on spending less than last year. Overcast Conditions for Celebrating Milestones: Nearly a tenth of Canadians plan to spend more on weddings (9%) and special events such as graduations and showers (9%) for family and friends. More than a fifth (22%) plan to spend the same on weddings for family and/or friends and more than a quarter intend to spend the same as last year on special events (27%). Ramping Up Home Renovations: 15% plan to spend more on home renovations, while nearly a quarter (24%) will spend the same as last year. 13% intend to spend less on home renovations in 2024. Summer Splurges: For those planning on making a large purchase, including buying a car, 18% plan to spend the same and 10% plan to spend more than they did in 2023. Climbing Summer Camp Costs: 15% of parents with children under the age of 18 plan to spend more on summer camps and/or childcare and 36% intend to spend the same as last year. https://newsroom.bmo.com/2024-06-18-BMO-Survey-Canadian-Summer-Spending-Heats-Up

For the first time in 9 quarters, housing affordability improved in Canada. Not only was it the largest improvement in over 3 years, but it also ended the longest sequence of declining home affordability since the 1986-89 episode. Still, that is not to say that the median home is now affordable in Canada as the mortgage payment as a percentage of income (MPPI) registered at 64.6%, the second highest level since 1981. Feeding into the refinement, home prices declined for a second consecutive quarter and did so at the fastest pace since 1990. Although our 5-year benchmark mortgage rate used to calculate affordability rose by 17 bps in the fourth quarter, that was more than compensated for by falling prices and still rising incomes. The slight rise in rates nonetheless brought the benchmark rate to its highest level since 2008. Preliminary data for the first quarter of 2023 as well as our outlook for monetary policy in Canada suggest that we may be peaking in terms of mortgage interest rates. The current level for interest rates is restrictive and signals that home price declines are not over yet. Moreover, incoming data for the first quarter of 2023 confirms that prices have weakened while resale market data from CREA indicates that sales have significantly declined with listings concurrently increasing. Given our view for further declines in home price and decreasing mortgage rates, we expect affordability to improve in the coming quarters. HIGHLIGHTS: Canadian housing affordability improved for the first time in 9 quarters in Q422. The mortgage payment on a representative home as a percentage of income (MPPI) declined 2.1 points, a pullback from the 4.0-point increase in Q322. Seasonally adjusted home prices decreased 3.9% in Q422 from Q322; the benchmark mortgage rate (5-year term) rose 17 bps, while median household income rose 1.0%. Affordability improved in 8 of the ten markets covered in Q4. On a sliding scale of markets from best improvement to deterioration: Victoria, Hamilton, Toronto, Vancouver, Ottawa-Gatineau, Montreal, Winnipeg, Quebec, Edmonton, Calgary. This was the first time in 9 quarters that a majority of markets improved. Countrywide, affordability improved 0.6 pp in the condo portion vs. a 2.9 pp improvement in the non-condo segment. https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/logement/housing-affordability.pdf