Residential Market Commentary – Bank of Canada steps up to the bully pulpit

Economic Insights Raymond Walia 26 May

In its latest look at the threats to the country’s financial system, the Bank of Canada puts household debt and imbalances in the housing market at the top of the list.

The Bank says these are not new problems, but they have intensified during the pandemic.  Consumer debt has actually dropped in the past year or so, but rising mortgage debt has more than offset that decline.  At the end of last year Statistics Canada reported that the household debt-to-income ratio stood at 170.7, or $1.71 of debt for every $1.00 of disposable income.

The housing boom has been supporting the overall economy in the short-term but it is also adding to the vulnerability of the economy and financial system.  The BoC is also expressing concerns about the declining quality of mortgage borrowing during the pandemic.

The key concern is that any significant economic shock that leads to loss of employment, a drop in income, or a sharp reduction in home prices would force “overstretched” households to cut other spending in order to make their mortgage payments.  That, in turn, would curtail the economy as a whole, and could put significant stress on the financial system.

Just because the central bank says there could be a problem, does not mean there will be a problem.  There are a number of market watchers who see the Bank using its annual Financial System Review as a bully pulpit in an effort to talk down overly exuberant market expectations that might lead to trouble.

Other key concerns include cybersecurity, too much reliance on cheap credit and the possibility of a premature withdrawal of pandemic support for businesses

Published by – First National Financial LP

Residential Market Commentary – Hot market to persist

Economic Insights Raymond Walia 12 May

Canada Mortgage and Housing Corporation does not expect the country’s housing market to come off the boil until sometime in 2023.

In its Spring Housing Market Outlook CMHC projects the national average price of a home could climb as much as 14% this year, putting the high end of the agency’s estimates at nearly $650,000.

It is forecasting an average price of nearly $705,000 by the end of 2023.  Those numbers may seem low, given that the Canadian Real Estate Association put the national average price at nearly $717,000 back in March.

The big “BUT” in all of CMHC’s estimates is, of course, the COVID-19 pandemic.  The agency notes that the disease remains volatile and the economic recovery is uneven and uncertain.  It says delays in rolling-out vaccines could prolong that uncertainty.

The agency also sees remote working arrangements as a key variable.  If employers insist on bringing workers back to the office it could have a significant effect on the pandemic migration out of major centres to larger homes and properties in the suburbs and outlying communities.

CMHC cites rising mortgage rates as having a cooling effect on the market.  It is holding its forecast for those increases to 2023.  The Bank of Canada has brought its date forward into 2022.  But U.S. interest rates are a key factor in the setting of Canadian rates and the Federal Reserve has indicated it does not foresee any increases until 2024.


Published by: First National Financial LP