Last week saw a mixed bag of economic news. We were pleased to hear Canada and Mexico will be exempt from Aluminum and Steel tariffs imposed by the US. This is good news for Canada but concerns remain as affected countries retaliate against the US with their own tariffs. The potential shock of tariffs on global trade and their negative effects on economic growth are being carefully watched.
Loss of jobs in February 2018 slow economic growth
Last week the Bank of Canada kept its overnight rate unchanged at 1.25%. Given recent market volatility and trade uncertainties, the announcement to keep the overnight rate unchanged was as expected. The Canadian Trade Balance and February Employment Numbers were released on Friday. In our opinion, these numbers reflect our economy continuing to grow at a slower than expected pace. While the headline news of 15,400 new net jobs is positive after January’s loss of 88,000 jobs, there is more than meets the eye. February saw a loss of 40,000 full-time jobs and the addition of 54,700 Part Time positions.
50,000 of these new positions were in the public sector which isn’t sustainable. January’s trade balance also narrowed as exports slowed by 2.1% and imports fell by 4.3%. Our view 2 months into 2018 is that continued high consumer debt levels, anemic growth in Canada’s energy sector, and a policy led slow down in housing are slowing our economic growth as intended. This should slow the rise of interest rates with the Bank of Canada likely to contemplate an increase this summer/fall depending on how political risk factors play out.
Key takeaways from CHMC’s report on escalating housing prices
This week we read with interest CMHC’s 225-page report Examining Escalating House Prices in Large Canadian Metropolitan Centres. The report examines the growth in house prices from 2010-2016. No surprise Vancouver topped the charts with a 48% increase in value from 2010-2016. The causes for such a large increase were as follows:
A Strong Economy
Demand remaining in excess of supply
Some other interesting points were:
53% of First Time Buyers experienced a bidding war when buying their first home
47% of First Time Buyers paid more than they intended
The average price paid by a First Time Buyer in BC was $550,000. Surprisingly the amount was higher in Toronto at $598,000, followed by Montreal at $308,000
The average price paid by a move-up buyer in BC was $957,000
Foreign buyers accounted for between 5%-10% of residential sales
Across the line, US Non-Farm Payrolls exceeded expectation with 313,000 new jobs and the US unemployment rate remaining at 4.1%. Consensus was for 200,000 jobs so the result was much better than expected! US markets rallied on Friday and we expect the US Dollar to strengthen against weaker Canadian results.
From a cost of borrowing perspective, the cost of Canadian mortgage credit is virtually unchanged from last week.
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