Lower interest rates in 2023 could revitalize Canada’s housing market before the end of the year, according to some economists, even as the central bank warns the rate cut conversation is premature.
A report from Desjardins Economics released Thursday expects home sales in Canada to “reach a low in the second half of 2023 before lifting off again.”
Some provinces such as Ontario and British Columbia should see a return to higher prices next year as a result, the report argues, putting a “brake” on any improved housing affordability.
The revised market outlook points to a possible drop in the Bank of Canada’s benchmark interest rate as driving the housing sector’s resurgence, as well as strong demand from immigration and higher purchasing power from robust household savings and a tight labour market.
The Bank of Canada signalled last month it would pause further changes to its policy rate while it lets its aggressive rate hikes from the past year take effect.
The central bank’s own surveys released earlier this week show some market watchers are expecting rate cuts before the end of the year.
Governor Tiff Macklem pushed back on the idea after a speech in Quebec City on Tuesday, telling journalists: “It’s really far too early to be thinking about cutting rates.”
“We are pausing interest rate hikes to assess whether we’ve raised interest rates enough to get inflation all the way back to target,” he said Tuesday. “The question is really whether we’ve done enough. It’s not about whether we’re considering cutting interest rates.”
But Macklem also conceded that the pause in rate hikes might have a stimulating effect on the sector, as buyers and sellers who have been on the sidelines waiting for the peak of rates seize the temporary sense of clarity.
“The fact that we’ve paused may bring people back into the market. These are things we’re going to have to watch,” he said.
Housing market was ‘unsustainably hot’ during pandemic, but is now a ‘vulnerability’: Macklem
Randall Bartlett, Desjardins’ senior director of Canadian economics and one of the report’s authors, tells Global News that the expected pause in rate hikes is already driving down some mortgage rates, opening the door for some prospective buyers.
When markets anticipate future cuts, that drives down longer-term bond yields, he explained in an email, which feeds into fixed-rate mortgage products.
Desjardins expects five-year fixed-rate mortgages on offer to continue to drop as the Bank of Canada maintains its key rate, with variable-rate products following suit if and when cuts eventually begin.
“Falling borrowing costs should be a major driver of the (housing market) rebound,” the Desjardins report says.
How much further does the housing correction have to go?
The Desjardins report notes the housing correction has already been pronounced: existing home sales are down 38 per cent from the peak roughly a year ago, with the average sale price down 20 per cent from the market’s latest highs.
There’s still further to go, the report’s authors argue, as high interest rates will “continue to weigh on housing market activity.”
“As such, there is likely more pain ahead for Canadians, including a recession in 2023,” the report states.
For the Bank of Canada’s part, it said in a revised outlook last month that the housing market is expected to continue cooling through to mid-2023 before rebounding slightly.
Royal Bank of Canada’s assistant chief economist Robert Hogue, meanwhile, said in a note Tuesday that Canada’s housing correction appears to be “broadly easing.”
He said he expects the housing market to bottom out around the spring or summer, with the timing varying from market to market.
“The recovery that will follow, however, is poised to be very gradual at first,” he wrote. “We expect the massive increase in interest rates will continue to hold back activity and compress purchasing budgets for some time.”
What could housing look like across Canada this year?
The Desjardins report also expects the housing correction and subsequent rebound will vary by province.
The report puts Ontario and B.C. in similar boats, classified as the “most vulnerable” to further corrections in their housing markets in 2023.
Ontario, for instance, is expected to finish 2023 with home prices down 25 per cent from their peak, with housing activity returning to pre-pandemic levels by the end of next year.
But the two provinces’ reputations as attractive hubs for immigration will “underpin” the recovery for their respective sectors, the report argues.
Quebec is meanwhile expected to see a further 20 per cent decline in home sales before hitting a 10-year low, the report projects, before starting a gradual climb back up in 2024.
While Desjardins’ economists remark that the Maritime housing markets have shown some resiliency in the correction with little price decline through 2022, there might be early signs of a downturn heading as the pandemic-related migration boom starts to wane.
Strong commodity activity and prices are expected to boost economic output in the Prairie provinces, per the report, and the housing market should get a lift accordingly.
The relative affordability of Calgary, Edmonton and Winnipeg will make each city an attractive destination for immigration as well, Desjardins’ economists argue.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney will present his vision for the Liberals’ economic policy when he meets with MPs in Nanaimo, B.C., today.
The party announced Carney’s new role as chair of a Liberal task force on economic growth as MPs arrived for the caucus retreat Monday, where they are planning their strategy for the upcoming election year.
Carney will be reporting directly to the prime minister and the committee responsible for drafting the Liberal election platform.
The former bank governor’s comments will be made privately to caucus, but he is expected to address the media afterwards.
The Liberals have made other attempts to focus on economic and affordability issues since taking a major hit in the polls last year, but those efforts haven’t resonated in the polls.
Prime Minister Justin Trudeau is also expected to address his caucus as a whole for the first time since several of his MPs have expressed privately and publicly that he is not the person to lead the party into the next election.
This report by The Canadian Press was first published Sept. 10, 2024.
The Israeli Government is carrying out a Starvation Campaign against the People of Gaza, or so says Democracy Now and the United Nations. While multiple trucks filled with humanitarian supplies and food wait to enter Gaza, the Israeli Forces hold them back for inspection and security reasons, so few enter this region of crisis.
Well over a year has passed as Israeli Forces continue to besiege Gaza claiming to be trying to eliminate Hamas as a military force. What many journalists, international politicians and Middle Eastern Specialists see is a nation-state military trying to drive millions of Palestinians out of their homeland by whatever means possible. Airstrikes, and tank and armoured vehicle movements strive to destabilize life in Gaza and make these native residents fear for their lives and very survival. Similar actions were carried out by the Germans when they invaded Poland long ago. Military actions have seemed to remain the same, as to their purpose. Eradication of the “Palestinian Problem” has been the goal of the Netanyahu Government all along, seizing Gaza for Israeli use and driving the perceived Palestinian threat away for good.
The United Nations special rapporteur on the right of food Michael Fakhri accused Israel of carrying out a starvation campaign against a civilian population. This action is internationally viewed as criminal and answerable to the International Courts in the Hague. 2.2 million people in Gaza need food urgently and they are being treated as pawns within a game of international intrigue and conflict management by the superpowers and their allies.
Look to the American elections as a time when Israel will open the doors to humanitarian aid just as election day arrives. Israel’s leader Netanyahu is a friend of former president Trump. Interesting idea?
Steven Kaszab
Bradford, Ontario
skaszab@yahoo.ca
Note: Remember when Iran held American Hostages only to release them just before a election. That action empowered Ronald Reagan to victory. Interesting methodology of Republicans eh?
WASHINGTON – One of Canada’s most influential business lobby groups is warning Ottawa about damage to the relationship with the United States after the Biden administration escalated efforts to halt the federal government’s tax on large foreign digital services companies.
The Business Council of Canada called for the digital services tax to be revoked after the Office of the United States Trade Representative requested dispute settlement consultations under the Canada-U.S.-Mexico trade agreement.
In a Sept. 9 letter to Finance Minister Chrystia Freeland and International Trade Minister Mary Ng, Goldy Hyder, the council’s president and CEO, said retaliatory measures by the U.S. would be harmful to Canadian families, businesses and the economy, while also negating any projected tax revenues.
Hyder cautioned the tax could also be destructive to Canada’s relationship with the U.S. ahead of the review of the trade agreement in 2026.
“In successive meetings with senior U.S. officials, we have been repeatedly told that if Canada’s unilateral DST remains in place it will imperil the upcoming mandatory review of the CUSMA,” Hyder wrote.
Americans have been critical of the three per cent levy on foreign tech giants that generate revenue from Canadian users. It means the companies will have to pay taxes on that revenue in Canada.
U.S. Trade Representative Katherine Tai, after requesting dispute consultations in August, called the tax discriminatory and said it is inconsistent with Canada’s commitments not to treat U.S. businesses less favourably than Canadian ones.
If the two countries are unable to resolve America’s concerns within 75 days, the U.S. may request a dispute settlement panel to examine the issue.
Ng and Freeland have remained steadfast behind the tax. They said last month that consultations under the trade agreement’s dispute mechanism will demonstrate Canada is meeting its obligations.
Hyder said Ottawa’s strategy will neither address nor assuage U.S. concerns. Instead it will risk undermining the trade agreement and “our most important trade and investment partnership,” he said.
The digital tax was part of the Liberal election platform during the 2019 campaign. Both the Conservatives and New Democrats proposed similar levies.
The Liberal government, however, delayed its implementation in order to give more time to global efforts to establish a broader, multinational taxation plan.
But after significant delays to that process at the Organization for Economic Co-operation and Development, Canada went ahead with its own tax.
The Canadian ministers have said the preference has always been a multilateral agreement.
Greta Peisch, the former general counsel for the Office of the U.S. Trade Representative, said concerns around Canada’s approach to the tax have been raised for a long time.
“I think the United States has been clear about how serious it is,” said Peisch, a partner at Wiely Rein in Washington, D.C.
“The argument is not that you can’t have a DST, it’s just that it should be neutral and not be inconsistent with our trade agreement.”
Peisch said the issue is around global revenue. Canada’s tax applies to foreign and Canadian digital services providers that earn total annual revenue from all sources of 750 million euros or more, and annual Canadian revenue more than $20 million a year.
Peisch explained American’s issue with the tax: if two companies provide the same service and have the same revenue from people in Canada, the foreign company will be treated differently.
“We have commitments in our trade agreements not to discriminate based on national origin among the trade agreement partners, that would be inconsistent with our trade obligations,” Peisch said.
The digital services tax has drawn opposition from trade associations and business groups on both sides of the international border.
Last month, Google announced it will implement a 2.5 per cent surcharge for ads displayed in Canada starting in October. Groups representing Canadian advertisers have warned other companies could follow the tech giant’s lead.
This report by The Canadian Press was first published Sept. 10, 2024.
