Weekly Digest

———

February 15th, 2024

Have We Reached The End of the Housing Correction?

Although house prices continued to fall in January, lowering mortgage rates are beginning to support affordability and stimulate home sales. With the sales-to-new listing ratio now pointing to positive house price inflation, we can expect house prices to be broadly stagnant across the rest of the year.

When looking across the globe, worsening mortgage affordability has led to steep falls in demand and housing transactions in most advanced economies. The sensitivity of buyer demand to mortgage costs varies by country, depending partly on whether there is a large rental market that provides an alternative to buying. But on the whole, given how far demand has fallen, declines in prices have been small.

Canada ranks 2nd in the world with the largest peak to trough fall out in house prices.

Concurrently, house price to earning ratios have continued to be strained and Canada ranks the worst in the world.

Strong Labour Market

The strength of the labour market in January may cause a delay in the Bank of Canada’s time to first cut.

From the January report, employment rose by 37,000 jobs and the unemployment rate edged down to 5.70%. Full time employment dropped by 11,600 jobs, but we added 48,900 part time jobs. What this may signify is that more people are being forced to take on additional work to pay their bills.

The fall in the unemployment rate was particularly surprising given that the population reportedly increased by a new record of 125,000.

Oxford is still predicting we will hit 7.50% unemployment later this year – a grim outlook.

This should mean we are pushing back our forecast for the first interest rate cut to the June meeting (as some predicted April).

By then, we should see clearer signs that both shelter and non-shelter inflation has eased.

Moreover, with building permit issuance reaching a multi-year low in December, by then it should be clear to see that high interest rates are making the housing shortage worse.

USA Inflation

Rates have stalled in Canada, partly due to US inflation numbers. Market expectations were for a reading of 2.90% but it came in at 3.10%. Core inflation remains sticky and unfortunately increased on a monthly basis from 0.30% to 0.40%.

Current Interest Rates

CONVENTIONAL

• 5 year fixed, 30 yr amortization – 5.09%

• 3 year fixed, 30 yr amortization – 5.29%

• 2 year fixed, 30 yr amortization – 6.00%

• 5 year variable, 30 yr amortization – Prime – 0.60% = 6.60%

• 5 year fixed, 25 yr amortization – 4.99%

• 3 year fixed, 25 yr amortization – 5.19%

• 2 year fixed, 25 yr amortization – 5.90%

• 5 year variable, 25 yr amortization – Prime – 0.70% = 6.50%

INSURED

• 5 year fixed, 25 yr amortization – 4.89%

• 4 year fixed, 25 yr amortization – 4.89%

• 3 year fixed, 25 yr amortization – 4.99%

• 5 year variable, 25 yr amortization – Prime – .90% = 6.30%

Fast Facts

• 16 million – The number of Americans that take sick days after the Superbowl.