Dr. Sherry Cooper Chief Economist Dominion Lending Centres The Title of the presentation Second line if needed Third line if needed Canada s Economy Strengthens Today s date Location of presentation June 8, 2017
Global Economic Growth Up Slightly In 2017 Canada and US Lead China Slows Europe Stable at 1.6% Growth Oil Prices Under $50 US
Global Growth Edges Upward in 2017 Real GDP (year/year % change) 6 5 2016 2017 2018 World 3.1 3.2 3.2 Forecast 4 3 2 1 0 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Forecast = IMF World Economic Outlook, Update, January 2017 Source: IMF World Economic Outlook Database
U.S. Economy Accelerates From Last Year Business Investment Improves Residential Construction Strong Retail Stores Consolidate Unemployment Low Fed Reduces Liquidity Fiscal Uncertainty
US Growth 2.2% Real GDP (year/year % percent) 6 4 2016 2017 2018 Canada 1.4 2.5 1.9 U.S. 1.6 2.2 2.5 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 Forecast = BMO Capital Markets Economics Source: Haver Analytics, Statistics Canada, Bureau of Economic Analysis
Unemployment Rate Very Low (percent) 10 9 8.7% 10.0% U.S. Forecast 8 7 6 33-year Low 5.9% Canada 6.5% 5 4.4% 4.3% 4 06 07 08 09 10 11 12 13 14 15 16 17 Source: Haver Analytics, Statistics Canada, Bureau of Labor Statistics
Canadian Economy Strengthening Overall Job Growth Strong Exports Trend Higher Alberta Begins Recovery NAFTA Uncertainty Housing Concerns
Canadian Growth Improves In 2017 Real GDP (Q/Q at annual rate, percent change) 9 2016 2017 2018 1.4 2.5 1.9 6 Forecast 3 0-3 Year/Year -6-9 07 08 09 10 11 12 13 14 15 16 17 18 Forecast = BMO Capital Markets Economics Source: Haver Analytics, Statistics Canada, Royal Bank of Canada Economics
Canada Leads G7 In Population Growth G7 Population Growth (annual average growth from 2011-2016, percentage change) Canada U.S. U.K. Italy France Germany Japan Source: Scotia Bank Economics -0.2 0.0 0.2 0.4 0.6 0.8 1.0
Immigration Dominates Canadian Population Growth Annual Population Growth (annual average growth, percentage change) 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Natural Increase Net Immigration Source: Scotia Bank Economics, Statistics Canada, Haver Analytics
Business Investment Surge in Canada Real Non-Residential Business Investment (year/year % percent) 25 20 15 10 5 0-5 -10-15 -20-25 United States Canada Forecast 09 10 11 12 13 14 15 16 17 18 Forecast = BMO Capital Markets Economics Source: Haver Analytics, Statistics Canada, Bureau of Economic Analysis
B.C. on Top As Alberta Climbs Back Canada: Real GDP Provincial Forecast (year/year % change) 2017 2018 BC AB ON CA MB QC SK NS PEI NB 0.5 1.4 1.3 1.8 2.8 2.7 2.6 2.5 2.4 2.3 BC AB MB ON SK CA QC PEI NS NB 0.4 1.0 0.9 2.3 2.2 2.1 2.0 1.9 1.9 1.7 NL -2.5 NL 0.0-3 -2-1 0 1 2 3-3 -2-1 0 1 2 3 Forecast = BMO Capital Markets Economics
BoC On Hold... While Fed Hikes Rate Overnight Rate (percent) 6 5 4 U.S. Forecast 3 Canada 2 1 0 Record Lows 0%-0.25% 0.5% until 2018 07 08 09 10 11 12 13 14 15 16 17 18 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 4 U.S. As of June 6 U.S. = 2.15% Canada = 1.39% Forecast 3 2.95% 2 2.30% 1 0 Canada 07 08 09 10 11 12 13 14 15 16 17 18 Forecast = BMO Capital Markets Source: Bank of Canada, Federal Reserve Board
Mortgage Rates Have Bottomed Canadian Conventional 5-Year Mortgage Rate (percent, smoothed 6-month moving average, as of June 2 ) 20 18 16 14 12 10 8 6 4 2 60 64 68 72 76 80 84 88 92 96 00 04 08 12 16 Source: Haver Analytics
Loonie Under Downward Pressure Oil Price Edges Back Under $50 US Export Duties Home Capital Banks Downgraded Bank of Canada On Hold
Oil Price And The Loonie (as of June 6, 2017) 150 125 C$ Parity C$¹ (rhs) Forecast 110 105 100 100 95 90 75 50 25 WTI Crude Oil¹ (lhs) 73.47 08 09 10 11 12 13 14 15 16 17 $47.99 85 80 75 70 65 Forecast = BMO Capital Markets ¹ (US$/bbl) ² (US /C$) Source: Haver Analytics, Bank of Canada, Bloomberg, U.S. Energy Information Administration
Lower Canadian Dollar Exports Respond 25 20 Canadian Dollar (US /C$, rhs) 105 100 15 10 5 0-5 -10-15 Total Exports (6-month annualized % change, lhs) 2012 2013 2014 2015 2016 2017 95 90 85 80 75 70 Source: Haver Analytics, Statistics Canada
NAFTA Renegotiation A Risk To The Economy
Housing Looms Large... 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
Canadian Homeownership At A Record High Homeowners as a % of all Canadian Households (percent) 69.0 68.4 65.8 70% of Households Own Their Own Homes 63.6 61.8 62.1 62.4 62.6 60.3 1971 1976 1981 1986 1991 1996 2001 2006 2011 Source: Statistics Canada, Censuses of Population, 1971 to 2006 and National Household Survey, 2011
Job Creation Strongest in Vancouver and Toronto Employment Level (index: January 2015 = 100) 108 107 106 105 104 103 102 101 100 99 98 97 15 16 17 Vancouver Toronto Montreal Canada Calgary Source: Haver Analytics, Statistics Canada
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
Greenbelt and Intensification Plan
Housing Supply Make-Up In Toronto Changing Dramatically Toronto (000s units) 60 Condos 50 40 30 20 10 0 Single-Detached Homes 80 85 90 95 00 05 10 15 Source: CMHC, Haver Analytics
Prices Surge In Toronto MLS Home Price Index (HPI) (year/year % change: as of April 2017) Toronto: Single Family Toronto: Condos Canada Victoria Vancouver: Condos Vancouver: Single Family Halifax-Dartmouth* Moncton Winnipeg* Ottawa Montreal Regina Calgary Saskatoon St.John s* *Using average home prices Source: Canadian Real Estate Association (CREA) -0.9-2.6-4.0 0.4 8.0 7.3 4.9 4.7 4.0 3.7 19.8 19.4 16.7 32.5 29.4-20 -16-12 -8-4 0 4 8 12 16 20 24 28 32 36 Average Home Price $975k $450k $606k $589k $554k $1.517M $306k $164k $303k $347k $320k $293k $435k $296k $275k
More Than 25% Of GTA Sales Above $1 Million Share of GTA Home Sales Above $1 Million (percentage) Source: Realosophy
GTA Average Home Price Growth Still Below Late 80s Greater Toronto Area Average Home Price (year/year % change, as of April 2017) 60 50 40 30 20 10 0-10 Period From 1985 to 1989-20 1980 1985 1990 1995 2000 2005 2010 2015 Source: CREA
Toronto and Vancouver Prices Lag Global Cities Buyer price per square meter, Apartment (US$/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
Canadian Housing-to-Income Disconnect (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
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)
Share of First-Time Home Buyers With Low Credit Scores FICO <620 and Beacon <660 (percent) 30 25 20 15 10 United States And 40% of Canadian Homeowners Are Mortgage-Free 5 0 Canada 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: Globe and Mail ( Housing Bubble, Mortgage Trouble: Chill, Canada Isn t 2006 America by Michael Babad, May 30, 2017)
Investors or Speculators Buying In GTA Surges Percentage of GTA Home Purchased by Investors (percent) 2012 2016 29.6 17.0 13.9 18.4 1.9 9.6 4.8 6.3 4.7 3.0 3.8 5.3 4.6 8.3 5.7 9.6 0.9 1.6 5.7 8.3 8.9 9.6 4.6 4.8 8.2 1.6 2.3 6.8 Source: Realosophy
Greater Than Normal Uncertainty in Housing (June 6, 2017: C$) 40 35 30 25 20 15 10 1 lrg title 1 lrg title + 1 subtitle 1 lrg title + 2 subtitles 5 0 May. 16 Jul. 16 Sep. 16 Nov. 16 Jan. 17 Mar. 17 May. 17 1 sml + 3 lrg 2 sml + 1 lrg 2 lrg 1 sml +1 lrg; 3 sml 2 sml Home Capital Group Inc. Stock Price Ontario Budget Actions Foreign Buyer s Tax Expanded Rent Controls Coming To GTA? Vacant Property Tax Flipping Tax Home Capital Meltdown Banks Downgraded Source: Google Finance Unintended Consequences Impact Psychology
The Cooling Vancouver Price Gains Vancouver Composite Home Price Index (year-over-year % change) Aug. 2, 2016: 50 BC s Foreign Buyers Tax 40 30 20 10 0-10 -20 Oct. 2016: Federal action: 1) qualify at posted rate and, 2) no principal residence exemption for nonresidents 13 14 15 16 17 Source: Haver Analytics, CREA, Statistics Canada
Vancouver Sales Plummet After Foreign Tax Existing Home Sales (% change from a year ago, YTD April 2017) 20 15 10 5 0 15.3 10.3 4.7 1.0 0.3-5 -10-1.6-5.6-15 -20-25 -22.7 AB ON QC Canada Atlantic SK MB BC Source: Canadian Real Estate Association, Haver Analytics
Value of Existing Home Transactions Existing Home Sales (C$ millions) 30 25 20 15 Ontario 10 5 0 British Columbia 90 92 94 96 98 00 02 04 06 08 10 12 14 16 Source: Haver Analytics, CREA
Toronto Housing Slowdown In May Active listings surged 43% y/y Sales plunged 20% y/y Buyers more cautious Mortgage lending slowed Fewer homebuyers qualify Sharp drop in CMHC insurance volumes Average selling price dropped 6.2% from April But, still 14.9% y/y Preliminary data Toronto Real Estate Board
Listings Surge 43% in GTA in May Number of Active Listings (000s units, May) 28 26 24 22 20 18 16 14 12 10 8 6 4 Toronto 18 16 14 12 10 8 6 4 2 0 Vancouver Source: Toronto Real Estate Board, Real Estate Board of Greater Vancouver, Sherry Cooper Assoc.
GTA Sales Decline Residential Sales: May 2017 (year/year % percent) 0-5 -10-15 -20-25 -30-4.3-11.1-14.1-15.9 City of Toronto -24.3 Surrounding Area -26.1-26.4-27.1 Detached Semi Townhouse Condo Source: Toronto Real Estate Board (TREB)
A Cooling Housing Market in Toronto Sales-to-New Listings GTA (ratio) 1.0 0.9 0.8 Seller s Market 0.7 0.6 Average = 0.61 0.5 0.4 0.3 0.2 Buyer s Market May Estimate 0.1 2000 2004 2008 2012 2016 Source: CREA, Haver Analytics
Canadian Home Price Inflation Needs To Slow House Price Index: Composite 11 (year/year % change) 12 10 8 6 4 2 0-2 -4 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 White bars indicate forecasts. Forecast provided by Royal LePage and RBC Research Source: Teranet/National Bank, Haver Analytics
The Title of the presentation Second line if needed Third line if needed Follow Me On Twitter.com/@DrSherryCooper www.sherrycooper.com Linkedin.com/in/DrSherryCooper Today s date Location of presentation June 8, 2017 Facebook.com/DrSherryCooper