DLC UPDATE: ANOTHER RECORD-SETTING MONTH FOR CANADIAN HOUSING

General Mark Goode 16 Sep

CANADIAN HOUSING MARKET SETS RECORD HIGHS IN AUGUST

Today’s release of August housing data by the Canadian Real Estate Association (CREA) showed a blockbuster August with both sales and new listings hitting their highest levels in 40 years of data–exceeding the record July activity levels. This continues the rebound in housing that began four months ago.

National home sales rose a further 6.2% on a month-over-month (m-o-m) basis in August, raising them to another new all-time monthly record (see chart below).

Unlike the previous two months in which activity was up right across the country, sales in August were up in about 60% of local markets. Gains were led by the Greater Toronto Area (GTA) and British Columbia’s Lower Mainland. With ongoing supply shortages in so many parts of Canada, it is interesting to note that the GTA and Lower Mainland also saw a considerable amount of new supply become available in August.

Actual (not seasonally adjusted) sales activity posted a 33.5% y-o-y gain in August. It was a new record for the month of August, and the sixth-highest monthly sales figure of any month on record. Transactions were up compared to last August in almost all Canadian housing markets.

So far this year, over 340,000 homes have traded hands over the Canadian MLS Systems, which was up 0.8% from the same period in 2019 despite the COVID-19 pandemic-induced recession.

“It has been a record-setting summer in many housing markets across Canada as REALTORS® and their clients play catch up following the loss of so much of the 2020 spring market,” stated Costa Poulopoulos, Chair of CREA. “Many markets dealing with inventory shortages have been seeing fierce competition among buyers this summer; although, that was something that had been anticipated for 2020 prior to COVID-19. It really does seem that the spring market shifted into the summer”.

According to Shaun Cathcart, CREA’s Senior Economist, “Activity shows signs of moderating in September”.

New Listings

The number of newly listed homes posted a further 10.6% gain in August compared to July. New supply was up in close to three-quarters of local markets, led by gains in the Lower Mainland, GTA and Ottawa.

With the August increase in new supply outpacing the rise in sales for the first time since the rebound began in May, the national sales-to-new listings ratio eased to 69.4% in August compared to 72.3% posted in July. That said, it was still among the highest levels on record for this measure.

Based on a comparison of sales-to-new listings ratio with long-term averages, only about a third of all local markets were in balanced market territory, measured as being within one standard deviation of their long-term average. The other two-thirds of markets were above long-term norms, in many cases well above.

The number of months of inventory is another important measure of the balance between sales and the supply of listings. It represents how long it would take to liquidate current inventories at the current rate of sales activity.

There were just 2.6 months of inventory on a national basis at the end of August 2020 – the lowest reading on record for this measure. At the local market level, a number of Ontario markets are now into weeks of inventory rather than months. So supply constraints are still prevalent in many parts of the country, especially in Ontario.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose by 1.7% m-o-m in August 2020 (see chart and table below). This compares to a 2.3% m-o-m jump in July 2020 – the second largest increase on record (after March 2017) going back 15 years. Of the 21 markets currently tracked by the index, m-o-m gains were posted everywhere but Victoria and elsewhere on Vancouver Island.

The non-seasonally adjusted Aggregate Composite MLS® HPI was up 9.4% on a y-o-y basis in August – the biggest gain since late 2017.

The largest y-o-y gains were recorded in Ottawa (+19.9%) and Montreal (+16.4%), followed by increases in the 10% – 15% range in the GTA and surrounding Greater Golden Horseshoe markets. Moncton prices were also up in that range in August.

Prices were fairly flat on a y-o-y basis in Calgary, Edmonton and St. John’s, while climbing in the 3.5% – 5.5% range across B.C.

The MLS® HPI provides the best way to gauge price trends because averages are strongly distorted by changes in the mix of sales activity from one month to the next.

The actual (not seasonally adjusted) national average home price set another record in August 2020 at more than $586,000, up 18.5% from the same month last year.

Bottom Line

CMHC forecasted back in May that the national average sales prices will fall 9%-to-18% in 2020 and not return to yearend-2019 levels until as late as 2022. Instead, the national average sales price as of August has posted a 18.5% gain.

Housing strength is largely attributable to pent-up demand by households that have maintained their level of income during the pandemic. The hardest-hit households are low-wage earners in the accommodation, food services, and travel sectors. These are the folks that can least afford it and typically are not homeowners.

The good news is that the housing market is contributing to the recovery in economic activity.  

CMHC Annual Residential Mortgage Industry Report

The Residential Mortgage Industry report provides an in-depth view of the residential mortgage market in Canada: from mortgage origination to funding, covering insured and uninsured mortgages, and encompasses activity from all mortgage lender types. It is based on data available at the end of the second quarter of 2020. The following are key highlights:

Mortgage lender type trends

  • The report shows that in 2019, Canada’s big six banks maintained their strong foothold in the housing finance market, with a 67% market share of newly extended mortgages (see chart below).
  • Mortgage Finance Companies (MFCs) hold 20% of the insured mortgage space and credit unions stand at 12%.
  • Mortgage delinquencies of 90 days or more remained at low levels for all mortgage lender types, which suggests that a steady share of mortgage holders continued to be able to make their payments or were able to defer their mortgage payments.
  • MICs continued to represent 1% in nationwide outstanding mortgages, valued at approximately between $14 billion and $15 billion in mortgage debt.
  • Some MICs offered mortgage deferrals and other types of accommodations to financially strained mortgage consumers. An estimated 10% of mortgage consumers asked for a mortgage deferral.

Mortgage Funding Trends

  • Deposits continued to be the primary source of mortgage funding for the big six banks (66%) and credit unions (77%).
  • Covered bonds made up 17% of total mortgage funding for Canada’s big six banks at the end of the first quarter of 2020, representing an increase of 4% from 2019.
  • Private securitization continued to account for a very small share of the mortgage funding mix in Canada, with just 1.1%. However, the residential mortgage-backed securities market appears to be expanding.

 

Dr. Sherry Cooper

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

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BoC UPDATE: BANK OF CANADA HOLDS RATE AT 25 BPS

Latest News Mark Goode 9 Sep

BANK OF CANADA RELIES ON QUANTITATIVE EASING

As promised, the Bank held its target overnight rate at the effective lower bound of 25 basis points with the clear notion that negative policy rates are not in the cards. Instead, the central bank will rely on large-scale asset purchases–quantitative easing (QE–of at least $5 billion per week of Government of Canada bonds. QE adds liquidity to the financial system and keeps market yields low. The Bank began aggressive QE with the beginning of the pandemic and will not cease until the economy has recovered, and inflation is sustainably at 2%. This could be years away, as for example, Ontario has paused reopening plans with the virus numbers ticking up. Many public health officials are expecting infections to rise with the opening of schools and the turn to colder weather. The government is preparing for a possible second wave. Policymakers, however, have dialed back language on more aggressive action.

The Bank has stated, “Both the global and Canadian economies are evolving broadly in line with the scenario in the July Monetary Policy Report (MPR), with activity bouncing back as countries lift containment measures. The Bank continues to expect this strong reopening phase to be followed by a protracted and uneven recuperation phase, which will be heavily reliant on policy support. The pace of the recovery remains highly dependent on the path of the COVID-19 pandemic and the evolution of social distancing measures required to contain its spread.”

In Canada, real GDP fell by 11.5% (39% annualized) in the second quarter, resulting in a decline of just over 13% in the first half of the year, mainly in line with the Bank’s July Monetary Policy Report (MPR) central scenario. All components of aggregate demand weakened, as expected. Global financial conditions have remained accommodative. Although prices for some commodities have firmed, oil prices remain weak.

As the economy reopens, the bounce-back in activity in the third quarter looks to be faster than anticipated in July. Economic activity has been supported by government programs to replace incomes and subsidize wages. Core funding markets are functioning well, and this has led to a decline in the use of the Bank’s short-term liquidity programs. Monetary policy is working to support household spending and business investment by making borrowing more affordable.

Housing activity has been particularly robust with substantial existing home sales in July and August. With record-low mortgage rates, buyers are satisfying their demand for more space and for moving further from city-center congestion. This urban exodus is more than anecdotal. You can get more for your money, and with many people working from home, long commutes don’t seem to be as relevant. The chart below shows that the outer suburbs of Toronto have seen the most significant increase in sales since the market picked up in early June.

Also, the construction of new homes surged to the highest level in more than a decade in August following a sharp increase in July. The greatest strength was in Toronto and Vancouver, particularly in multiple units.

Household spending rebounded sharply over the summer, with stronger-than-expected goods consumption and housing activity. There has also been a large but uneven rebound in employment. Exports are recovering in response to strengthening foreign demand, but are still well below pre-pandemic levels. Business confidence and investment remain subdued. While recent data during the reopening phase is encouraging, the Bank continues to expect the recuperation phase to be slow and choppy as the economy copes with ongoing uncertainty and structural challenges.

CPI inflation is close to zero, with downward pressure from energy prices and travel services, and is expected to remain well below target in the near term. Measures of core inflation are between 1.3% and 1.9%, reflecting the large degree of economic slack, with the core measure most influenced by services prices showing the weakest growth.

Bottom Line

The Bank also suggested that “as the economy moves from reopening to recuperation, it will continue to require extraordinary monetary policy support. The Governing Council will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved. To reinforce this commitment and keep interest rates low across the yield curve, the Bank is continuing its large-scale asset purchase program at the current pace. This QE program will continue until the recovery is well underway and will be calibrated to provide the monetary policy stimulus needed to support the recovery and achieve the inflation objective.”

The next policy meeting will be held on October 28 when the Bank will release its new forecast in the MPR. A rate hike is unlikely this year or in 2021.

Dr. Sherry Cooper

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

More Posts – Website

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DLC UPDATE: Strong August Jobs Report in Canada

Latest News Mark Goode 4 Sep

Canada Has Recouped Two-Thirds Of Pandemic Job Losses

The August Labour Force Survey, released this morning by Statistics Canada, reflects labour market conditions as of the week of August 9 to 15, five months after the onset of the COVID-19 economic shutdown. By mid-August, public health restrictions had substantially eased across the country and more businesses and workplaces had re-opened.

Employment rebounded in August by 246,000 net new jobs, a slowdown from the 419,000 gain in July and June’s 953,000 rise. This slowdown was expected with the initial recovery boost from easing containment measures in the spring fading through the summer.

The great news is that 84% of the headline jobs gain in August was in full-time positions. This follows the surge in part-time jobs in July. Full-time employment stood at 93.9% of pre-pandemic levels in August, compared with 96.1% for part-time work. In the months prior to the COVID-19 economic shutdown, full-time employment had reached record highs, while growth in part-time work was relatively flat. Compared with 12 months earlier, full-time employment was down 5.4% in August, while part-time work decreased by 5.1%. And an elevated share of those working part-time is doing so despite preferring full-time work. Hours worked increased more than employment in August–but are still down more relative to pre-shock February levels (-8.6%) than the headline employment count (-5.7%).

The August job growth brought employment to within 1.1 million of its pre-COVID February level, thereby recouping two-thirds of all the lost jobs.

The number of Canadians who were employed but worked less than half their usual hours for reasons likely related to COVID-19 fell by 259,000 (-14.6%) in August. Combined with declines in May, June and July, this left COVID-related absences from work at 713,000 (+88.3%) above February levels.

As of the week of August 9 to 15, the total number of Canadian workers affected by the COVID-19 economic shutdown stood at 1.8 million. In April, this number reached a peak of 5.5 million, including a 3.0 million drop in employment and a 2.5 million increase in COVID-related absences from work.

The number of Canadians working from home declined for the fourth consecutive month. In April, at the height of the COVID-19 economic shutdown, 3.4 million Canadians who worked their usual hours had adjusted to public health restrictions by beginning to work from home. This number has fallen each month since May when the gradual easing of public health restrictions began and reached 2.5 million in August.

Among Canadians who worked their usual hours in August, the total number working from home fell by nearly 300,000 compared with July, while the number working at locations other than home increased by almost 400,000.

THE JOBLESS RATE CONTINUED TO FALL IN AUGUST

The unemployment rate fell 0.7 percentage points to 10.2% in August. As a result of the COVID-19 economic shutdown, the unemployment rate had surged from 5.6% in February to a record high of 13.7% in May. By way of comparison, during the 2008/2009 recession, the unemployment rate rose from 6.2% in October 2008 and reached a peak of 8.7% in June 2009. It took approximately nine years before it returned to its pre-recession rate.

The unemployment rate fell most sharply in August among core-aged women aged 25 to 54 years old, down 1.2 percentage points to 7.5%, the lowest unemployment rate among all major groups. This decline was largely due to employment increases, as overall labour force participation was unchanged from July. The unemployment rate for core-aged men fell 0.7 percentage points to 8.1%, also the result of increased employment, with little change in their labour market participation.

Employment gains in the services sector continued to outpace that of the goods-producing sector. Employment growth in the services sector was driven by gains in educational services, accommodation and food services and the “other services” industry. In the goods sector, gains in manufacturing were partially offset by declines in natural resources.

Accommodation and food services as well as retail trade were among the industries hardest hit by the initial COVID-19 economic shutdown. By April, employment had fallen to half (-50.0%) of its pre-pandemic level in accommodation and food services and to 77.1% of its pre-COVID-19 level in retail trade. Starting in May, employment rebounded in both sectors as many provinces began reopening their economy.

Employment growth in accommodation and food services rose by 18.4% per month on average from May to July. In August, however, the pace of growth in the industry slowed to 5.3% (+49,000). Despite these recent gains, employment in accommodation and food services was at 78.9% of its February level. August marked the fifth full month of international travel restrictions, which continues to affect industries with strong ties to tourism.

The number of people employed in retail trade edged up 0.7% (+14,000) in August, following average monthly increases of 6.3% over the previous three months. Employment in retail trade reached 93.4% of its pre-COVID-19 level but fell just below the rate of recovery for total employment (94.3%).

While employment remained below pre-COVID-19 levels, retail sales in June were higher than in February and are expected to continue to rise in July, based on preliminary estimates. This highlights potential structural changes within the industry as employers have been able to increase their sales despite a smaller workforce.

Employment Increased in Most Provinces in August–Led by Ontario and Quebec

Employment in Ontario rose by 142,000 in August (+2.0%), nearly all in full-time work, while the unemployment rate fell by 0.7 percentage points to 10.6%. Combined with the employment increases in June and July (+529,000), the gains in August brought employment in Ontario to within 93.6% of its pre-pandemic level.

In the census metro area (CMA) of Toronto, employment increased by 121,000 (+3.8%), nearly double the growth rate of the province, and reached 93.3% of its pre-pandemic level.

In Quebec, employment increased by 54,000 (+1.3%) in August, building on gains of 576,000 over the previous three months, and bringing employment in the province to within 95.7% of its pre-COVID level.

In the Montréal CMA, employment grew by 38,000 (+1.8%) in August and reached 96.0% of its pre-pandemic level.

Employment rose in most Western provinces in August. British Columbia reported the largest increase, up 15,000 (+0.6%). Employment reached 94.1% of its February level and the unemployment rate fell 0.4 percentage points to 10.7%.

While employment in Alberta was little changed, the unemployment rate declined by a full percentage point to 11.8% as fewer people looked for work.

In Atlantic Canada, Nova Scotia had the largest employment gain in August, up 7,200 (+1.6%), mostly in part-time work. The unemployment rate was little changed at 10.3%, as more Nova Scotians participated in the labour market. After notable increases in May and June, employment in New Brunswick held steady for the second consecutive month.

Bottom Line 

This was still a relatively strong employment report even though job gains have slowed. Canada’s employment recovery has outpaced the US, recouping two-thirds of the lost jobs compared to only a 50% gain south of the border. The hardest-hit has been both low-wage workers and youth, which helps to explain why housing activity has been so strong. Low-wage employees and youth are typically not homebuyers or sellers. Moreover, consumer spending in Canada has solidified very near to pre-COVID levels. Spending on entertainment, dining and self-care has risen recently as more businesses open up and is now approaching year-ago levels. Total credit or debit card spending is up about 5% relative to the same time last year. Canadians are venturing out more around their home towns, but not going much further.

According to RBC:

  • “While online spending remained prevalent in some areas (e.g., groceries), in-person transactions continued to recover.
  • Spending indicates Canadians were comfortable going out to dinner, even if to a patio. Restaurant spending was buoyed by Canadians seeking in-person dining experiences and was down just over 4% from last year’s level.
  • The share of online transactions at restaurants decreased to 17% from one-third at its post-crisis peak.
  • Health and self-care spending increased through mid-August, as gym reopening’s led to an uptick in fitness spending.
  • Entertainment spending picked up further into August and was down 10% relative to last year.
  • Spending was supported by still-strong spending on golf and to a lesser degree digital goods.
  • More recently, Canadians began spending again on professional sports, lotteries, hobbies, and local attractions.”

Recent data from the local real estate boards in Toronto and Vancouver showed strong sales activity and significant further upward pressure on prices. The CREA data for the whole country will be out on the 15th of September. This adjusts the price data for types of homes sold, giving us a better idea of how significant price pressures have been. 

Dr. Sherry Cooper

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

More Posts – Website

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OFFICE UPDATE: EFFECTIVE MONDAY, AUGUST 31, 2020

General Mark Goode 3 Sep

Effective Monday August 31, #MortgageManDLC will be open for both scheduled AND walk-in appointments. All incoming clients will be subject to COVID-19 screening questions and face masks continue to be mandatory for ALL who enter our office.

Please note the following:

  • IF YOU NEED TO SPEAK TO US ABOUT YOUR MORTGAGE:  Please call  705-326-8523, OR e-mail mark@markgoode.ca for inquiries or to arrange an appointment, or visit us at 180 Memorial Ave.
  • SUBMIT YOUR DOCUMENTS: e-mail  mark@markgoode.ca, fax  705-326-8645, DocuSign, our Velocity Client Portal, or our drop slot to the right of our front door .

Thank you to everybody for your cooperation during this time!