Varun Kohli August 3, 2023 No Comments

It took the Bank of Canada a year and 10 rate hikes to do it, but they’ve succeeded in breaking the back of inflation. With Statscan reporting that June’s inflation number hit 2.8%, we’ve returned to the central bank’s inflationary target range of 2-3%. Make no mistake, this is a serious achievement. Officials will sigh a breath of relief. Many developed economies around the world continue to see rising inflation, and others have noted only modest declines.

Canadian real estate now has two challenges, one, how will the economy handle the biggest rate tightening cycle in memory, and two; will officials manage to keep inflation under control? Statscan’s June snapshot of the economy reveals generally positive indicators, but there are several shifting real estate trends we’re noting.

Employment and wages:

Canada’s employment saw a positive increase of 60,000 jobs, marking a 0.3% growth. The rise in employment was mainly driven by gains in full-time work, accounting for 110,000 jobs, indicating a 0.7% increase.

However, the unemployment rate also experienced a slight uptick, reaching 5.4%, with an increase of 0.2 percentage points. This rise in the unemployment rate was due to more people actively seeking employment opportunities. This is a good sign, but the economy will need to continue generating new jobs to accommodate this increased interest.

The employment gains in June were primarily focused on young men aged 15 to 24, with an increase of 31,000 jobs, and men aged 25 to 54, also seeing a gain of 31,000 jobs. On the other hand, employment levels for women across all age groups remained relatively stable during the same period.

Certain provinces experienced notable changes in employment during June. Ontario saw a significant increase of 56,000 jobs, while Nova Scotia and Newfoundland and Labrador also reported employment gains of 3,600 and 2,300 jobs, respectively. However, Prince Edward Island experienced a decline of 2,400 jobs. The remaining provinces showed minimal variation in employment figures. Ontario continues to lead the nation in job creation. This is why GTA real estate is ironclad, as we remain the dominant job creating engine in the country.

In terms of industries, some sectors witnessed significant growth. Wholesale and retail trade saw an increase of 33,000 jobs, followed by manufacturing with 27,000 jobs, health care and social assistance with 21,000 jobs, and transportation and warehousing with 10,000 jobs. Conversely, construction experienced a decline of 14,000 jobs, along with educational services losing 14,000 jobs and agriculture reporting a decrease of 6,000 jobs.

Regarding wages, the average hourly wage rose by 4.2% year-over-year, reaching $33.12 in June. This increase followed a slightly higher growth of 5.1% in May (not seasonally adjusted). Total hours worked remained relatively stable in June, with a year-over-year increase of 2.0%.

Looking more closely at gender-based wage trends, women experienced a 4.7% year-over-year growth in average hourly wages, reaching $30.95, while men saw a 3.6% increase, bringing their average hourly wage to $35.21. Wage growth is increasing, but it has a long way to go

Overall, the June 2023 employment report presents a mixed picture for Canada’s job market. While employment figures grew in certain sectors and age groups, the slight increase in the unemployment rate and the slower year-over-year growth in average hourly wages call for continued monitoring and thoughtful economic strategies. That strong job growth continues to be recorded despite such a rapid increase in rates is a testament to the underlying strength and resilience of our national economy.

How fares housing?

In the wake of consecutive interest rate hikes, Canada’s housing market, which had been experiencing a rapid rebound, is showing some signs of moderation. The flurry of activity seen during the spring, following the temporary pause in rate hikes by the Bank of Canada, is now “tapering off,” according to economists closely monitoring the market. This is to be expected, as rate hikes have an immediate and powerful impact on the economy.

The latest data from the Canadian Real Estate Association reveals that national home resales rose by a modest 1.5% month-over-month in June. This is a significant drop from the impressive 16.3% surge witnessed between April and May. While the new listings in March hit a 20-year low, they managed to rise by 5.9% on a monthly basis in June. However, it’s important to note that conditions in most major markets still favor sellers, leading to continued price increases. Similar to May, the MLS Home Price Index surged by 2.0% on a monthly basis in June.

Robert Hogue, the Assistant Chief Economist at RBC, suggests that the slower pace of resales growth in June indicates a shift in Canada’s market recovery. He believes that the strength of the spring rebound was not sustainable, particularly with the Bank of Canada tightening the screws with additional rate hikes, thereby making it more challenging for potential buyers.

Hogue further predicts a flatter trajectory for the remainder of 2023, as buyers grapple with increasingly challenging affordability conditions and an potential recession.

This outlook of quieter sales in the latter half of the year is shared by Marc Ercolao, an Economist at TD, and Marc Desormeaux, the Principal Economist at Desjardins. The rising mortgage costs are identified as the primary culprit for the anticipated slowdown. However, when it comes to price predictions, Ercolao’s perspective differs from Hogue’s. While Hogue believes that prices will embark on a more moderate appreciation path, Ercolao expects that the scarcity of new listings, coupled with national seller’s market conditions, will keep prices on an upward trajectory in the near term.

On the other hand, Desormeaux underscores the importance of closely monitoring new listings. Despite remaining low, the uptick observed in June could indicate either investors trying to time the market as prices rise or a response from mortgage holders facing “sharply higher” debt servicing costs. In the absence of significant progress on the supply front, Farah Omran, a Senior Economist at Scotiabank, opines that similar circumstances would have arisen, regardless of rate hikes. The tight market conditions would have still resulted in inflated home prices and elevated mortgage payments, ultimately reducing affordability for first-time buyers.

As we move forward, it’s evident that Canada’s housing market is undergoing a transition. The pace of the rebound is moderating, and some economic factors, including interest rates and mortgage costs, are shaping market dynamics. Industry experts are closely observing these developments, and their predictions indicate a more moderated market trajectory in the coming months.

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