Briefing highlights
- CREA warns of housing uncertainty
- Toronto rents to rise, study says
- Global markets on the rebound
- Consumers ‘tapped out’ and ‘accident-prone’
CREA warns
Canada’s realtors are taking a shot at Finance Minister Bill Morneau’s housing market crackdown, warning his new rules will spark even more uncertainty and hit first-time buyers.
The comments from Canadian Real Estate Association officials came as they released monthly statistics confirming that the Toronto housing market is flying high while Vancouver cools quickly.
Mr. Morneau’s tax and mortgage rules, which take effect Monday, are aimed at cooling overheated markets and preventing trouble among the country’s lenders.
“The Finance Minister’s recent changes to regulations affecting mortgage lending has added to housing market uncertainty among buyers and seller,” CREA president Cliff Iverson said as he released the numbers.
“For first-time home buyers, the stress test for those who need mortgage default insurance will cause them to rethink how much home they can afford to buy.”
Which was exactly what the new rules are meant to do.
CREA’s chief economist, Gregory Klump, warned that first-time buyers “may be priced out of the market” by the new rules.
Which is interesting given that many already can’t afford Toronto and Vancouver. Indeed, Royal Bank of Canada said recently that detached homes in Vancouver are now basically out of reach “by Canadian standards.”
Mr. Klump, though, also warned of the ripple effect.
“First-time home buyers support a cascade of other homes changing hands, making them the linchpin of the housing market,” he said.
“The federal government will no doubt want to monitor the effect of new regulations on the many varied housing markets across Canada and on the economy, particularly given the uncertain outlook for other private sector engines of economic growth.”
As local boards have already reported, sales in an around Vancouver dropped in September, while those in Toronto climbed.
On a national basis, home sales rose 0.8 per cent last month from August, and 4.2 per cent from a year earlier.
The national average sale price rose 9.5 per cent over the course of the year, while the MLS home price index, deemed a better measure, climbed 14.4 per cent.
National home sales are now 5.6 per cent below their April peak, the group added.
Rents to rise
Toronto’s rental market is the hottest it has been in years, with bidding wars breaking out and rents soaring, according to a new study that predicts Ottawa’s new stricter mortgage qualification will make the region’s rental market even less affordable.
As The Globe and Mail’s Tamsin McMahon reports, the average monthly rent for a condominium in the Greater Toronto Area rose an annualized 9 per cent in the third quarter, to $1,986, Toronto market research firm Urbanation Inc. wrote in a new report.
Markets up
Global markets are on the rebound so far, with New York poised for a stronger open.
Tokyo’s Nikkei gained 0.5 per cent, Hong Kong’s Hang Seng 0.9 per cent, and the Shanghai composite 0.1 per cent.
In Europe, London’s FTSE 100, Germany’s DAX and the Paris CAC 40 were up by between 0.9 and 1.8 per cent as North American markets were getting up and running, and also rising.
“European markets are once more taking their lead from overnight data out of China, with the world’s second-largest economy finally breaking out of its deflationary spiral,” said IG market analyst Joshua Mahony.
“If yesterday’s deterioration in Chinese exports pointed towards the potential for further easing from the [People’s Bank of China], today’s surprise spike in both consumer and producer prices does the opposite, proving that the inflation picture is on the right track.”
Earnings from major U.S. banks are also playing into the morning action.
Where markets ended Thursday
‘Tapped out’
The Canadian consumer of 2016 is “tapped out” and “more accident-prone” should the world suffer another financial crisis, a major bank says.
Indeed, HSBC Bank Canada warns the country is more vulnerable now than in the run-up to the last, and not-so-distant, crisis.
Much of this has to do with the swollen debts of Canadian households, record levels that have been a source of concern for the Bank of Canada, the Bank for International Settlements, the International Monetary Fund and others.
Given those debts, said HSBC Bank Canada chief economist David Watt, consumers now will be more cautious, which will affect an already fragile economy.
“While consumers have been an important source of support for the economy, we look for a more moderate consumption profile given the record level of household sector indebtedness and sluggish income growth,” Mr. Watt said in a recent report.
“Indeed, although it is not our base case, we believe debt levels pose a heightened downside risk to financial stability,” he added.
“Along with a large current account deficit, we see Canada as more vulnerable to disruptions to global capital flows than when it was heading into the 2007-08 financial crisis.”
He cited the fact that among the Group of Seven leading industrialized nations, Canada has the highest ratio of household debt to gross domestic product.
“Canada’s private sector, in our view, is essentially tapped out,” Mr. Watt said.
“Given the recent widening of global imbalances, with its echoes of the 2007-08 financial crisis, the high level of indebtedness makes Canada, in our view, more accident-prone in the event of another global crisis,” he added.
Mr. Watt, who projects economic growth in Canada of 1.8 per cent next year and 1.7 per cent in 2018, added later that this should all serve as a call for prudence among consumers.