Weekly Digest — May 5, 2023

The U.S Federal Reserve hiked another 25 basis points on Wednesday. Could this be the final rate hike for the foreseeable future? Most economists think so as Powell is now acknowledging some progress as the U.S labour market is coming into “balance”. He also noted, “longer-term inflation expectations seem well anchored”.

The Fed is still set on their 2% inflation target. Futures traders are projecting no further rate hikes for 2023 and beyond with Powell conceding; “We’re much closer to the end of this than to the beginning”.

Urban Office Woes

The decline of the urban offices is a new stressor that many cities are facing. Commercial real estate is facing a perfect storm of higher interest rates and the persistence of remote work. This is evident in our public service strike. More on that story below.

• In Europe, prices are down 20%in the last year and demand in at a 11 year low.

• In the US, office vacancy rates are at a record high of 12.90% and Morgan Stanley is predicting retail property valuations will drop up to 40%.  

• In Canada, office vacancies are reaching new highs at 17.70%. Toronto is coming in higher at 19%, which is the highest ever recorded.

Strike is Over

The national strike is over for 120,000 Treasury Board workers. The Public Service Alliance of Canada (PSAC) said it has reached a tentative agreement that will see staff return to work this week.

Strike action will carry on for 35,000 Canada Revenue Agency workers nationwide, as contract negotiations continue. More than 155,000 federal public servants went on strike on April 19, citing an impasse over wages, seniority for senior staff in the event of downsizing and remote work arrangements. Disruptions to government services followed, including slow downs at the border and pauses on passport renewals, new employment insurance and immigration. More on the story here. 

Housing Starts and CMHC Outlook

CMHC has released in House Market Outlook report. It is suggesting a strong 2024 market. 3 key points below which should be of no shock to anyone;

• The forecast is looking bleak for new housing. “We foresee a significant drop in housing starts in 2023”. A 32% drop off in new starts is projected. For housing to become more affordable, CMHC wants housing starts at 500,000/annually. 2023 shows at most 211,000. Where will everyone live?

• “Labour shortages and elevated costs of materials in the construction sector, combined with higher project financing costs from increased interest rates” will continue to hurt supply.

• “…Rental market conditions are expected to further tighten”. With the surge of immigration, this will only get worse as the years go on.

The full CMHC report is here.

Current Interest Rates

CONVENTIONAL

• 5 year fixed, 30 yr amortization – 4.80%

• 3 year fixed, 30 yr amortization – 5.14%

• 5 year variable, 30 yr amortization – Prime – 0.60% = 6.10%

• 5 year fixed, 25 yr amortization – 4.69%

• 3 year fixed, 25 yr amortization – 5.04%

• 5 year variable, 25 yr amortization – Prime – 0.70% = 6.00%

INSURED

• 5 year fixed, 25 yr amortization – 4.59%

• 4 year fixed, 25 yr amortization – 4.64%

• 3 year fixed, 25 yr amortization – 4.84%

• 5 year variable, 25 yr amortization – Prime – .90% = 5.80%

Fast Facts

• $37,000,000 – Amount that Ontario home developer StateView Homes (along with 25 other defendants) allegedly defrauded TD out of via a complex, year-long cheque-kitting scheme.

• $5.7 billion – The value of Vice in its peak. The Montreal news company has now filled for bankruptcy.

• $1,741 – The average refund on Canadian tax returns, per the Canada Revenue Agency.