Canadian Housing Soft Landing

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 Soft Landing Today s date Location of presentation May 9, 2018

2 Canada s Economic Slowdown Job Growth Strong Alberta In Recovery But Housing Slows Consumers Spending Slows NAFTA Uncertainty

3 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

4 Canada Led G7 In Population and GDP Growth In 2017 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

5 Housing and Consumption Growth Slows Consumer Spending and Housing as a share of GDP (%) Credit Conditions Tightened Insured Mortgages Decline Appraisers Lowering Values B-20 Hits 1-in-3 Borrowers Risk Sharing With CMHC Source: Statistics Canada, Haver Analytics

6 B.C. on Top As Alberta Climbs Back Canada: Real GDP Provincial Forecast (year/year % change) (F) AB BC PEI QC CA MB SK ON NL NB NS BC AB QC ON MB CA SK PEI NB NS NL AB BC ON SK MB CA QC PEI NS NB NL Forecast = BMO Capital Markets Economics Source: Statistics Canada, Haver Analytics, BMO Capital Market Economics

7 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

8 Unemployment Rate (percent) % Forecast % U.S year Low 5.9% Canada 5.8% 4 4.4% % Source: Haver Analytics, Statistics Canada, Bureau of Labor Statistics

9 Loonie Tied To Oil And NAFTA Oil Prices Up Potential Trade War NAFTA Uncertainty

10 Oil Price And The Loonie (as of May 4, 2017) C$ Parity C$¹ (rhs) Forecast WTI Crude Oil¹ (lhs) $ Forecast = BMO Capital Markets ¹ (US$/bbl) ² (US /C$) Source: Haver Analytics, Bank of Canada, Bloomberg, U.S. Energy Information Administration

11 U.S. Benefits From NAFTA Total Number of Jobs Created By Trade With Canada California New York Florida Texas Pennsylvania Illinois Georgia Ohio Virginia New Jersey Michigan North Carolina Washington Massachusetts Maryland 459, , , , , , , , , , , , , ,200 1,166,100 Source: Rebecca Cook/Reuters; Lucas Jackson/Reuters; Embassy of Canada, Washington; Statistics Canada; Bureau of Economic Analysis; Census Bureau

12 Financial Markets Bank of Canada Cautious Fed Will Raise Rates Gradually Mortgage Rates Rising

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

14 Long Yields Edge Upward On Fed Rate Hikes 10-year Bond Yields (percent) 6 5 U.S. Forecast As of May 4 U.S. = 2.95% Canada = 2.33% Canada % 3.00% Forecast = BMO Capital Markets Source: Bank of Canada, Federal Reserve Board

15 Mortgage Rates Have Bottomed Posted 5-Year Fixed Mortgage Rate (percent, 3-month moving average, as of May 4, 2018) Source: Haver Analytics

16 Upside for Mortgage Rates (percent) as of May 4, Posted 5-year Mortgage Rate 5-year Bond Yield More Upward Pressure 68% or More Fixed Rate New Buyers Hurt The Most 47% of Mortgages Due To Reset Haver Analytics, Mortgage Professionals of Canada

17 Housing Looms Large But Vulnerable Huge Part of the 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

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

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

20 Canadians Rely Heavily on HELOCs Home Equity Line of Credit (HELOCs) (local currency, $blns) Variable-Rate Tied To Prime Canada United States Source: Haver Analytics, Federal Reserve Bank of New York, the Canadian Bankers Association

21 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)

22 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

23 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

24 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

25 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

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

27 Toronto and Vancouver Prices Lag Global Cities Buyer price per square meter, Apartment (US$/square meter) Source: Sherry Cooper Assoc. #1 Hong Kong #2 Singapore #3 London #4 Beijing #5 Shanghai #6 Zurich #7 New York #8 Shenzhen #11 Brooklyn #12 Paris #14 San Francisco #20 Boston #23 Sydney #24 Vancouver #30 Santa Barbara #36 Frankfurt #37 Honolulu #42 San Jose #48 Toronto #49 Los Angeles #74 Madrid 7,213 6,971 6,780 6,714 5,214 8,679 7,356 11,701 10,481 9,896 9,716 13,490 13,450 12,346 11,894 16,499 14,451 18,283 17,901 17,623 28,402

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

29 Toronto Markets Now Balanced (ratio, March 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

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

31 The Cooling Vancouver and Toronto Price Gains Composite Home Price Index (year/year % change) July 25, 2016: B.C. government announces 15% foreign buyer tax in Metro Vancouver, effective Aug. 2, Toronto Vancouver April 20, 2017: Ontario government announces housing action plan that includes a non-resident buyer tax of 15% effective immediately Source: Haver Analytics, CREA, Statistics Canada

32 Condos Outperform Single-Family Homes MLS Home Price Index (HPI) (year/year % change: as of March 2018) Vancouver: Condos Victoria Ottawa Vancouver: Single Family Montreal Toronto: Condos Moncton Canada Winnipeg Halifax-Dartmouth Calgary St. John s Saskatoon Regina Toronto: Single Family Source: Canadian Real Estate Association (CREA) Average Home Price $694k $659k $377k $1.609k $338k $488k $177k $652k $304k $301k $430k $284k $293k $280k $870k

33 Home Price Forecast MLS Home Price Index (year/year % change, annual, December) MLS Home Price Index (year-over-year % change, Dec.) Vancouver Toronto f 15.0? 2.0? White bar indicates forecast. Source: CREA, Haver Analytics

34 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 May 9, 2018 Facebook.com/DrSherryCooper