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
Canada s Positive Surprises Job Growth Strong Alberta Begins Recovery But NAFTA Looms Large Housing Slows Consumers Spending Slows
Canada Led G7 In Population and GDP Growth Last Year Population Growth (annual average growth from 2011-2016, % change) 1.0 3.0 Real GDP Growth 2017 (annual percentage change) 0.8 0.7 2.5 2.3 0.6 0.4 1.8 1.7 1.6 1.6 0.1 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
Canadian Growth Slows in 2018 Real GDP (percent change) 6 3 Quarter/Quarter (a.r.) 2017 2018 2019 3.0 2.2 1.8 Forecast 0-3 Year/Year -6-9 07 08 09 10 11 12 13 14 15 16 17 18 19 Forecast = BMO Capital Markets Economics Source: Haver Analytics, Statistics Canada, Royal Bank of Canada Economics
U.S. Growth Moves Up Real GDP (year/year % percent) 6 4 2017 2018 2019 Canada 3.0 2.2 1.8 U.S. 2.3 2.6 2.0 Canada Forecast 2 0-2 United States -4-6 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Forecast = BMO Capital Markets Economics Source: Haver Analytics, Statistics Canada, Bureau of Economic Analysis
Unemployment Rate (percent) 10 9 10.0% 8.7% U.S. Forecast 8 7 6 33-year Low 5.9% Canada 5 5.9% 4 3 4.4% 06 07 08 09 10 11 12 13 14 15 16 17 18 4.1% Source: Haver Analytics, Statistics Canada, Bureau of Labor Statistics
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 2018 2019 AB 2.5 BC 2.4 ON 2.4 2.2 MB 2.2 CA 2.1 SK 2.0 QC 1.3 PEI 1.1 NS 0.9 NB 0.0 NL 2.3 2.1 2.0 1.8 1.8 1.7 1.5 1.1 0.9 0.7 0.5-3 -2-1 0 1 2 3 4-3 -2-1 0 1 2 3 4 Forecast = BMO Capital Markets Economics
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 90 92 94 96 98 00 02 04 06 08 10 12 14 16 Source: Haver Analytics, Statistics Canada
Financial Markets Bank of Canada Cautious Fed Raises Rates Mortgage Rates Rising
Bank Of Canada Hikes Rates Overnight Rate (percent) 6 5 Forecast 4 3 2 1 0 Record Lows 0.00-0.25% 07 08 09 10 11 12 13 14 15 16 17 18 U.S. Canada Forecast = Sherry Cooper Assoc. Source: Haver Analytics, Bank of Canada, Federal Reserve Board
Long Yields Edge Upward On Fed Rate Hikes 10-year Bond Yields (percent) 6 5 U.S. Forecast 4 3 2 1 0 As of February 28 U.S. = 2.86% Canada = 2.23% Canada 07 08 09 10 11 12 13 14 15 16 17 18 19 3.50% 3.25% Forecast = BMO Capital Markets Source: Bank of Canada, Federal Reserve Board
Mortgage Rates Have Bottomed Posted 5-Year Fixed Mortgage Rate (percent, 3-month moving average, as of February 28, 2018) 20 18 16 14 12 10 8 6 4 2 60 65 70 75 80 85 90 95 00 05 10 15 Source: Haver Analytics
Upside for Mortgage Rates (percent) as of February 28, 2018 3.5 6.4 3.0 2.5 2.0 1.5 5-year Bond Yield (lhs) 6.0 5.6 5.2 More Upward Pressure 68% or More Fixed Rate New Buyers Hurt The Most Resets Soon At Higher Rates 1.0 0.5 Posted 5-year Mortgage Rate (lhs) 4.8 0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 4.4 Haver Analytics, Mortgage Professionals of Canada
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
Growth Housing Led...But Slowing Canada (percent) 8.0 Construction Jobs/Total 7.5 7.0 6.5 Housing/GDP 6.0 5.5 5.0 4.5 4.0 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 Source: Haver Analytics, Statistics Canada
Housing Growth Slows Tightening Continues 65 64 63 62 61 60 59 58 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
Debt-Financed Bubble Worry Real House Price Index (index, 2005 = 100, seasonally adjusted) 210 190 170 150 Canada 130 110 90 70 United States 50 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: Federal Reserve Board of Dallas
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)
Over-Extended Debtors A Small Segment 40% of Homeowners Are Mortgage-Free 33% of Households Are Debt-Free 25% Have Less Than $25k in Debt So 58% of Households Nearly Debt Free Hence, Low Mortgage Delinquencies Only 20%-to-30% Need CMHC Insurance Most Loans Are Fixed Rate
Bank Mortgage Books Are Rock Solid More Than 99% of Royal Bank s Uninsured Mortgage Portfolio Borrowers Have Credit Scores >650 And a LTVs of <75% Its Average Uninsured Mortgage Has Almost 50% Equity
Mortgage Arrears Very Low (percent) 0.7 0.6 0.5 0.4 0.3 Mortgage Delinquency Rate (lhs) 0.2 Unemployment Rate (rhs) 0.1 1988 1992 1996 2000 2004 2008 2012 2016 14 12 10 8 6 4 Shaded regions represent periods of Canadian recessions Source: Haver Analytics, CBA, Statistics Canada
Canadian Homeownership Ratio Falls Homeowners as a % of all Canadian Households (percent) 69.0 68.4 67.8 65.8 First Decline in History of Data 63.6 62.6 62.4 61.8 62.1 60.3 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 Source: Statistics Canada, Censuses of Population, 1971 to 2006 and National Household Survey, 2011
But Unaffordable In Vancouver and Toronto (seasonally adjusted: January 1995 = 100) 350 300 Average Home Prices 250 200 Wages & Salaries 150 100 50 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 Source: Haver Analytics, CREA, Statistics Canada
Toronto and Vancouver Prices Lag Global Cities Buyer price per square meter, Apartment (US$/square meter) Source: www.numbeo.com, 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
Home Sales Decline In ON and B.C. Existing Home Sales (year/year % change, January 2018) 15 10 5 10.0 8.4 5.9 3.5 3.4 0-5 -10-15 -20-3.5-6.9-25 -23.1 BC AB Atlantic QC SK Canada MB ON Source: Canadian Real Estate Association, Haver Analytics
Toronto Markets Now Balanced (ratio, January 2018) 1.0 Toronto Area Sales-to-New-Listings Ratio 0.9 0.8 Seller s Market 0.7 0.6 0.5 0.4 0.3 Buyer s Market Balanced Market 0.2 0.1 2000 2004 2008 2012 2016 Source: Canadian Real Estate Association, Haver Analytics
Vancouver Markets Now Balanced (ratio, January 2018) 1.2 1.0 0.8 0.6 0.4 0.2 Vancouver Area Sales-to-New-Listings Ratio Seller s Market Balanced Market Buyer s Market 0.0 2000 2004 2008 2012 2016 Source: Canadian Real Estate Association, Haver Analytics
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 -5.4-5.5-2.5-3.4 *Using average home prices; year/year % change. Data as of December 2017 Source: Canadian Real Estate Association (CREA) -0.7-0.7 1.9 1.7 1.5 1.3 0.9-8 -6-4 -2 0 2 4 6 8 10 2.9 5.5 7.9 8.9 Average Home Price $291k $665k $318k $280k $633k $370k $470k $331k $177k $1.601k $602k $426k $293k $279k $854k
Home Price Forecast MLS Home Price Index (year/year % change, annual, December) 18 16 14 12 10 8 6 4 2 0-2 -4 MLS Home Price Index (year-over-year % change, Dec.) Vancouver Toronto 2017 15.9 7.2 2018f 5.0? 5.0? 7.4 14.8 06 07 08 09 10 11 12 13 14 15 16 17 18 9.1 5.0 White bar indicates forecast. Source: CREA, Haver Analytics
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