Mixed Real Estate Conditions and a Potential BOC Rate Cut

 

The Greater Vancouver Real Estate Board released rough real estate stats earlier this week. Reports showed that year-over-year Feb. residential home sales fell over 30%. This represents the worst Feb. sales total since 1985, over 40% below the last decade’s average.

Detached homes lasted roughly 55 days on the market before sale, while townhouses averaged 39 days and apartments and condos at 40. Prices also fell by over 6% year-over-year, while at the same time, inventories are piling up. Total listings rose by over 48% year-over-year to almost 11,600.

In Toronto, prices rose by 1.6% while listings fell 6.2%, sales fell by 2.4%. Canada’s banks are also feeling the heat of an inconsistent real estate market. Credit losses rose by double digits at the big 5. The same credit losses were seen in the Australian banking and real estate markets as well and in other countries dependent on real estate.

Economic stats have dipped into such negative territory so quickly that news is spreading of the possibility that the BOC may cut rates soon. Tembo has consistently made the point that the BOC will stick to an aggressive and consistent rate hike trajectory until economic conditions change. While most experts believe that rates will stay put, the potential for a cut will grow if economic conditions continue to worsen. As we previously reported, the economic recently contracted by a very narrow margin.

On an additional note, the City of Toronto will convene on Thursday, March 7th to pass its 2019 budget. The budget outlines a massive drop in land transfer tax revenues because of stalling real estate conditions. The City has become addicted to the previously perpetually rising land transfer tax which financed large increases in city spending. That era has come to a close.

US Fed Is Eager To Raise Interest Rates

For this week’s blog, Tembo once again turns to one of our favourite topics, interest rates. Important news out of the United States once again requires unpacking for our readers.

US Federal Bank

“Trumponomics”

Under President Trump, the U.S. has pursued a ‘supply-side’ economic strategy. The government has increased spending, especially on the military, has lowered taxes, largely for big businesses and high income earners, and has pursued deregulation. All of these moves have acted as stimulants to the U.S. economy, and have lowered unemployment rates and increased growth.
GDP growth has shot passed 4% and official unemployment statistics are the lowest they’ve been in many decades. While few doubt the economy is being overstimulated, all of this positive news is fueling conservatism at the Federal Reserve. The practice of raising rates and ending the historically unprecedented period of ultra cheap began at the end of the Obama Administration. Now, with inflation beginning to pick up, wages, growing, and the economy considered ‘strong’, the Fed is even more eager to return rates to more historical averages. 

What Will Higher US Interest Rates Means For Canadians?

Fed Reserve Jerome Powell made it clear that the Fed will continue its unpopular push to raise rates with even more enthusiasm, a point that has been lambasted by Trump. What this will mean for Canadian homeowners and consumers in the short term is higher rates, as the Bank of Canada will be under huge pressure to match U.S. interest rate rises. Every Fed rate hike places downward pressure on the dollar and squeezes the purchasing power of Canadian firms and consumers. Tembo will keep a close eye on the Canadian economy and the Bank of Canada’s next moves.