Canadian Housing In Flux

Transcription

1 Dr. Sherry Cooper Chief Economist Dominion Lending Centres The Title of the presentation Second line if needed Third line if needed Canadian Housing In Flux Today s date Location of presentation March 1, 2018

2 Canada s Positive Surprises Job Growth Strong Alberta Begins Recovery But NAFTA Looms Large Housing Slows Consumers Spending Slows

3 Canada Led G7 In Population and GDP Growth Last Year Population Growth (annual average growth from , % change) Real GDP Growth 2017 (annual percentage change) Canada U.S. U.K. Italy France Germany Japan -0.1 Canada Germany U.S. France U.K. Japan Italy Source: Scotia Bank Economics, BMO Nesbitt Burns Economics

4 Canadian Growth Slows in 2018 Real GDP (percent change) 6 3 Quarter/Quarter (a.r.) Forecast 0-3 Year/Year Forecast = BMO Capital Markets Economics Source: Haver Analytics, Statistics Canada, Royal Bank of Canada Economics

5 U.S. Growth Moves Up Real GDP (year/year % percent) Canada U.S Canada Forecast United States Forecast = BMO Capital Markets Economics Source: Haver Analytics, Statistics Canada, Bureau of Economic Analysis

6 Unemployment Rate (percent) % 8.7% U.S. Forecast year Low 5.9% Canada 5 5.9% % % Source: Haver Analytics, Statistics Canada, Bureau of Labor Statistics

7 B.C. on Top As Alberta Climbs Back Canada: Real GDP Provincial Forecast (year/year % change) BC AB ON MB CA QC SK PEI NS NB NL AB 2.5 BC 2.4 ON MB 2.2 CA 2.1 SK 2.0 QC 1.3 PEI 1.1 NS 0.9 NB 0.0 NL Forecast = BMO Capital Markets Economics

8 People Left Oil-Torn Provinces For Ontario and B.C. Interprovincial Migrants (level, 4-quarter moving average) 9,000 8,000 7,000 British Columbia 6,000 5,000 4,000 3,000 2,000 Ontario Source: Haver Analytics, Statistics Canada

9 Financial Markets Bank of Canada Cautious Fed Raises Rates Mortgage Rates Rising

10 Bank Of Canada Hikes Rates Overnight Rate (percent) 6 5 Forecast Record Lows % U.S. Canada Forecast = Sherry Cooper Assoc. Source: Haver Analytics, Bank of Canada, Federal Reserve Board

11 Long Yields Edge Upward On Fed Rate Hikes 10-year Bond Yields (percent) 6 5 U.S. Forecast As of February 28 U.S. = 2.86% Canada = 2.23% Canada % 3.25% Forecast = BMO Capital Markets Source: Bank of Canada, Federal Reserve Board

12 Mortgage Rates Have Bottomed Posted 5-Year Fixed Mortgage Rate (percent, 3-month moving average, as of February 28, 2018) Source: Haver Analytics

13 Upside for Mortgage Rates (percent) as of February 28, year Bond Yield (lhs) More Upward Pressure 68% or More Fixed Rate New Buyers Hurt The Most Resets Soon At Higher Rates Posted 5-year Mortgage Rate (lhs) Haver Analytics, Mortgage Professionals of Canada

14 Housing Looms Large But Vulnerable Huge Part of Economy Overblown Bubble Worries Exaggerated Debt Concerns Govt Clamps Down OSFI Stress Testing Housing Slows Markets Now Balanced CMHC Rule Changes Benefit Big Banks Over Alternative Lenders

15 Growth Housing Led...But Slowing Canada (percent) 8.0 Construction Jobs/Total Housing/GDP Source: Haver Analytics, Statistics Canada

16 Housing Growth Slows Tightening Continues Consumer Spending and Housing as a share of GDP (%) Credit Conditions Tightened Banks Downgraded Insured Mortgages Decline Appraisers Lowering Values Another OSFI Move Risk Sharing With CMHC Source: Statistics Canada, Haver Analytics

17 Debt-Financed Bubble Worry Real House Price Index (index, 2005 = 100, seasonally adjusted) Canada United States Source: Federal Reserve Board of Dallas

18 Rising Risks: Record High Debt-to-GDP Household Debt as a Percentage of GDP (March 2005 = 100) Canada Australia United States Germany Source: Bloomberg, International Monetary Fund (IMF)

19 Over-Extended Debtors A Small Segment 40% of Homeowners Are Mortgage-Free 33% of Households Are Debt-Free 25% Have Less Than $25k in Debt So 58% of Households Nearly Debt Free Hence, Low Mortgage Delinquencies Only 20%-to-30% Need CMHC Insurance Most Loans Are Fixed Rate

20 Bank Mortgage Books Are Rock Solid More Than 99% of Royal Bank s Uninsured Mortgage Portfolio Borrowers Have Credit Scores >650 And a LTVs of <75% Its Average Uninsured Mortgage Has Almost 50% Equity

21 Mortgage Arrears Very Low (percent) Mortgage Delinquency Rate (lhs) 0.2 Unemployment Rate (rhs) Shaded regions represent periods of Canadian recessions Source: Haver Analytics, CBA, Statistics Canada

22 Canadian Homeownership Ratio Falls Homeowners as a % of all Canadian Households (percent) First Decline in History of Data Source: Statistics Canada, Censuses of Population, 1971 to 2006 and National Household Survey, 2011

23 But Unaffordable In Vancouver and Toronto (seasonally adjusted: January 1995 = 100) Average Home Prices Wages & Salaries Source: Haver Analytics, CREA, Statistics Canada

24 Toronto and Vancouver Prices Lag Global Cities Buyer price per square meter, Apartment (US$/square meter) Source: Sherry Cooper Assoc. Hong Kong London, UK Singapore Tokyo Tel Aviv Beijing SanFrancisco New York Sydney Paris Stockholm Rome Oslo Vancouver Helsinki Auckland Moscow Copenhagen Los Angeles Toronto Madrid 5,633 5,561 5,257 5,139 4,357 7,333 6,867 6,670 10,163 9,340 8,653 12,029 11,985 11,891 10,487 10,362 15,078 14,876 18,095 17,524 25,672

25 Home Sales Decline In ON and B.C. Existing Home Sales (year/year % change, January 2018) BC AB Atlantic QC SK Canada MB ON Source: Canadian Real Estate Association, Haver Analytics

26 Toronto Markets Now Balanced (ratio, January 2018) 1.0 Toronto Area Sales-to-New-Listings Ratio Seller s Market Buyer s Market Balanced Market Source: Canadian Real Estate Association, Haver Analytics

27 Vancouver Markets Now Balanced (ratio, January 2018) Vancouver Area Sales-to-New-Listings Ratio Seller s Market Balanced Market Buyer s Market Source: Canadian Real Estate Association, Haver Analytics

28 Condo Prices Hold Better Than Single Family Homes MLS Home Price Index (HPI) (6-month percentage change: as of January 2018) Halifax-Dartmouth* Vancouver: Condos St. John s* Winnipeg* Victoria Ottawa Toronto: Condos Montreal Moncton Vancouver: Single Family Canada Calgary Saskatoon Regina Toronto: Single Family *Using average home prices; year/year % change. Data as of December 2017 Source: Canadian Real Estate Association (CREA) Average Home Price $291k $665k $318k $280k $633k $370k $470k $331k $177k $1.601k $602k $426k $293k $279k $854k

29 Home Price Forecast MLS Home Price Index (year/year % change, annual, December) MLS Home Price Index (year-over-year % change, Dec.) Vancouver Toronto f 5.0? 5.0? White bar indicates forecast. Source: CREA, Haver Analytics

30 The Title of the presentation Second line if needed Third line if needed Follow Me On Twitter.com/DrSherryCooper #DrSherryCooper Linkedin.com/in/DrSherryCooper Today s date Location of presentation March 1, 2018 Facebook.com/DrSherryCooper