The Bank of Canada says home price drops driven by the recent hikes to interest rates weren’t as steep as monetary policymakers would usually expect, thanks largely to a “structural” lack of supply.
But economists who spoke to Global News say the housing correction likely isn’t finished, with more declines to come.
Carolyn Rogers, senior deputy governor at the Bank of Canada, discussed the central bank’s view of the housing market on Wednesday after holding interest rates steady for the second consecutive time.
She said that the housing market has been more resilient to rate hikes to date than historical patterns would have suggested.
Rogers explained that home purchases are among the most sensitive parts of the economy to respond to interest rate changes, as they’re big-ticket items typically bought with a loan.
“As interest rates come down, house prices will move up a bit and they’ll come off as interest rates come back up,” she said of historic norms.
“We haven’t seen that same dynamic,” Rogers continued.
“They’ve come off a bit this time, but we’re not seeing, relative to the degree of rate increases, the decline in house prices that we would expect.”
Home prices did see a material drop in the first stages of the Bank of Canada’s tightening cycle.
Between March 2022 when the central bank began its rate hikes to January 2023 when it announced a “conditional pause” in tightening, Canadian Real Estate Association data shows an 18-per cent drop in the aggregate benchmark price of a home.
After that point, home prices rose another eight per cent in the spring rebound before peaking again in June, with a relatively slower decline in aggregate prices observed nationally since then.
Stephen Brown, deputy chief North America economist at Capital Economics, tells Global News that the housing correction proceeded “broadly” as expected in the first stage of the Bank of Canada’s tightening cycle.
“Really, it’s that rebound that was the surprise,” he says of the spring resurgence.
Home prices might have further to fall
From the Bank of Canada’s view, the “structural lack of supply” of homes has been a barrier to a steeper housing correction.
“Really, until we address that supply issue, interest rates on their own are not going to help us get back to a housing affordability situation,” Rogers said Wednesday.
Rachel Battaglia, an economist with RBC, agrees that home prices have been “buoyed” by a lack of available supply in spite of higher ownership costs tied to rising interest rates.
The most recent easing in home prices since June has come with more regional variation than the downturn of 2022, Battaglia notes. Canada’s most expensive housing markets in Ontario and British Columbia have taken a harder hit while some cities in Alberta like Calgary are continuing to see growth.
She attributes the resilience of Alberta’s housing markets to the lower debt-to-household income levels in the province and relative strength of the commodity-rich western economy.
“This current correction period doesn’t appear to be as all-encompassing as the last, for now,” Battaglia says.
But both Brown and Battaglia tell Global News that they believe home prices have further to fall as the pain of higher interest rates takes hold on homeowners in the months ahead.
“The downturn is likely to last a few more quarters,” Battaglia tells Global News.
Unlike last time the Bank of Canada’s policy rate was on pause, fixed mortgage rates tied to bond yields have not eased — something that helped to give some buyers a leg up in the housing market in the spring, Brown says.
This time around, Brown expects higher interest rates will continue to drag on home resales, driving a price decline of roughly five per cent from today’s levels.
TD Bank economist Rishi Sondhi echoed Brown’s forecast in a report released Thursday, calling for a five-per cent drop in average prices and a 10-per cent drop in sales activity by the end of the first quarter of 2024, at which point he expects activity to pick up again.
Mortgage holders feeling vulnerable
Brown’s estimates for the housing correction assume there won’t be a high degree of forced selling among current homeowners, many of whom are feeling stressed about renewing their mortgages into a higher interest rate environment.
A Royal LePage report released Thursday shows 31 per cent of mortgage holders are set to renew in the next 18 months. Of that cohort, 74 per cent say they’re worried about the impact of higher interest rates, according to the survey based on Nanos polling between Sept. 8-14.
Despite anxiety among homeowners, the Bank of Canada’s latest Monetary Policy Report released alongside Wednesday’s decision shows higher rates haven’t yet caused too many problems in the mortgage space.
While the central bank indicates that “financial stress” has risen among households since the pandemic, it finds that delinquency rates for mortgages remain near “all-time lows.”
The same can’t be said for other types of credit, which are seeing a growing share of borrowers falling behind on payments by 60 days or more, the report showed. It singled out delinquency rates on car loans as surpassing pre-pandemic levels as of late.
While the Bank of Canada report says indicators of financial stress “point mainly to non-mortgage holders,” Brown notes it would be a mistake to assume the people struggling to make payments on car loans and credit card debt aren’t also the same ones facing rising mortgage costs.
Consumers will typically do everything in their power to avoid missing mortgage payments and having to sell their home, he says, which could mean defaulting on other loans first.
When people cut their spending elsewhere to stay on top of rising mortgage payments, that’s a force that can chill the economy and lead some companies to job cuts, Brown explains. That loss of income can act as the final domino that forces a homeowner to default on their mortgage.
“We see weakness in those auto loans, credit cards as a precursor to a weaker economy and job losses, that then triggers higher delinquency rates for mortgages,” he says.
If the Bank of Canada feels it has to keep its policy rate higher for longer, and the economy sees a deeper downturn than expected, Brown says a steeper price drop of 10-20 per cent is in the cards next year.
“If the bank is forced to keep interest rates high for longer … then it increases the risk that we see job losses and therefore forced home sales and therefore a much, much greater weakening of the housing market,” he says.
Bank of Canada governor Tiff Macklem said Wednesday that the economy’s pathway to a “soft landing” that tames inflation without falling into a recession is “narrower.”
RBC is projecting Canada’s unemployment rate will rise a full percentage point from today’s levels to 6.5 per cent a year from now.
Battaglia says that while the jump might seem significant, 6.5 per cent unemployment is not too high by historical standards. Additionally, that rise doesn’t necessarily all have to come from job losses; Canada’s overall employment has been growing in 2023 even as the jobless rate rises thanks to record levels of immigration feeding into the country.
Battaglia also pointed to Canada’s mortgage stress test, which makes homebuyers and mortgage renewers qualify at higher rates to guard against potential jumps in the cost of borrowing, as giving another “safety net” to the housing market to avoid a wave of forced selling.
A gradual rise in unemployment and “quieter sales” in the coming quarters should help swing conditions into the housing market back to buyers’ favour, she says.
Rogers said that the Bank of Canada will provide more detail on how households are faring amid higher interest rates in its upcoming financial system review, set for release next month.
TORONTO – Canada Goose Holdings Inc. says it has signed a deal that will result in the creation of its first eyewear collection.
The deal announced on Thursday by the Toronto-based luxury apparel company comes in the form of an exclusive, long-term global licensing agreement with Marchon Eyewear Inc.
The terms and value of the agreement were not disclosed, but Marchon produces eyewear for brands including Lacoste, Nike, Calvin Klein, Ferragamo, Longchamp and Zeiss.
Marchon plans to roll out both sunglasses and optical wear under the Canada Goose name next spring, starting in North America.
Canada Goose says the eyewear will be sold through optical retailers, department stores, Canada Goose shops and its website.
Canada Goose CEO Dani Reiss told The Canadian Press in August that he envisioned his company eventually expanding into eyewear and luggage.
This report by The Canadian Press was first published Sept. 19, 2024.
Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.
Here’s a timeline of key events in the bread price-fixing case.
Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.
Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.
Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.
Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).
Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.
June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.
Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”
Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.
July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.
Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.
This report by The Canadian Press was first published Sept. 19, 2024.
Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)
TORONTO – TD Bank Group, which is mired in a money laundering scandal in the U.S., says chief executive Bharat Masrani will retire next year.
Masrani, who will retire officially on April 10, 2025, says the bank’s, “anti-money laundering challenges,” took place on his watch and he takes full responsibility.
The bank named Raymond Chun, TD’s group head, Canadian personal banking, as his successor.
As part of a transition plan, Chun will become chief operating officer on Nov. 1 before taking over the top job when Masrani steps down at the bank’s annual meeting next year.
TD also announced that Riaz Ahmed, group head, wholesale banking and president and CEO of TD Securities, will retire at the end of January 2025.
TD has taken billions in charges related to ongoing U.S. investigations into the failure of its anti-money laundering program.
This report by The Canadian Press was first published Sept. 19, 2024.
