A new report from Desjardins’ economics team says the Canadian housing market will likely bend, but not break, under the weight of rising interest rates and slowing activity.
In a note to clients on Wednesday, Desjardins Senior Director of Canadian Economics Randall Bartlett and Senior Economist Hélène Bégin said prices could plausibly fall 15 per cent from their February 2022 peak by the end of next year, but would remain above pre-pandemic levels.
“Looking ahead, we believe ever-higher borrowing costs are going to weigh on housing market activity as increasingly interest-sensitive households batten down the hatches for the impending storm. This is expected to lead to sustained weakness in sales activity, thereby keeping persistent downward pressure on prices,” they said.
“While some Canadians may lose their sleeves, we don’t expect Canadian households on the whole to lose their shirts.”
Canadian home prices have fallen sequentially for the last two months, after hitting a non-seasonally adjusted record of $816,720 in February, according to the Canadian Real Estate Association.
The decline came as the Bank of Canada started hiking its benchmark rate aggressively, raising it by a half per cent in each of the last two meetings to combat inflation not seen in three decades. For context, the central bank’s last supersized hike was 22 years ago.
The Desjardins team said they do not expect the declines to be uniform, with greater pain felt in markets where prices soared due to an influx of Canadians able to work remotely during pandemic-era restrictions.
“As we look ahead to how the national housing market correction will play out at the provincial level, in some ways it’s expected to be the inverse of what we saw during the pandemic,” Desjardins said.
“For instance, those provinces that experienced the most dramatic price gains — notably the Maritime provinces — should see the largest corrections. In contrast, those provinces that saw home prices increase the least — the Prairie provinces and Newfoundland and Labrador—should see the least correction coming out of the pandemic.”
And with the gradual return to the office, Desjardins’ team thinks there could be some pain felt in Ontario housing markets that are just a bit too far to commute into the large centres, though that could be cushioned by immigration and hybrid work plans.
“Communities within a few hours’ drive of Toronto are likely to see sales activity and prices cool the fastest as borrowing costs rise and commuting becomes more common,” they said.
“But again, we don’t anticipate average home prices in any of these regions to fall below their pre-COVID starting points due by and large to high levels of international migration and ongoing hybrid work arrangements.”
Overall, Desjardins said the correction should bring the domestic housing market back to more balanced conditions after the recent supercharged run higher.
“It looks as though the Canadian housing market correction we expected has begun, though it’s still concentrated in a small number of markets. But there’s no need to panic,” they said.
“While a correction in the range of 10 per cent to 20 per cent is likely by the end of next year in most provinces, average home prices are expected to remain above the pre-COVID level and trend. As such, the anticipated correction should bring more balance to the Canadian housing market.”
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Strikes at 2 more U.S. auto factories to start Friday as UAW ratchets up pressure
The United Auto Workers union is expanding its strike against U.S. automakers to two new plants, as 7,000 workers at a Ford plant in Chicago and a General Motors assembly factory near Lansing, Mich., will walk off the job at midday on Friday.
Union president Shawn Fain told workers on a video appearance Friday that negotiations haven’t broken down but Ford and GM have refused to make meaningful progress.
“Despite our willingness to bargain, Ford and GM have refused to make meaningful progress,” Fain said. “That’s why at noon eastern we will expand our strike to these two companies.”
“Not a single wheel will turn without us,” Fain said, adding that the 7,000 soon-to-be picketers are the “next wave of reinforcements.”
Stellantis, the third major automaker targeted by the union, and the maker of brands like Chrysler, Jeep and Dodge, was spared further action, as Fain said the company’s management has made significant concessions on things like a cost-of-living allowance and a freeze on outsourcing.
The Ford plant in Chicago makes the Explorer and Police Interceptor, as well as the Lincoln Aviator SUV.
The GM plant in Michigan’s Delta Township near Lansing manufactures large crossover SUVs such as the Chevrolet Traverse.
The two new plants join 41 other factories and distribution centres already seeing job action.
So far, the impact on Canada’s auto industry has been muted, as none of the idled factories are major users of Canadian-made components.
Edward Moya, a strategist with foreign exchange firm Oanda, says that despite the expanded job action, the strike seems to be nearing an “endgame” as the two sides are clearly making slow but steady progress.
“Yesterday, the UAW said they are targeting a 30 per cent pay raise, which is down from the 46 per cent they were asking for in early September,” he said. “Automakers have raised their offer to 20 per cent but were not offering much on retirement benefits. The longer this drags, the more both sides lose, so a deal should be reached in the next week or two.”
Airlines claim passenger safety at risk under new passenger rights rules
Aviation companies are making the pitch to Ottawa that stricter rules designed to boost customer compensation and improve service could put passenger safety at risk — an argument consumer advocates reject as “ridiculous.”
The push, made in regulatory submissions and meetings on Parliament Hill, comes on the heels of sweeping reforms to the passenger rights charter announced in April and currently being hashed out by Canada’s transport regulator before going into effect next year.
The changes appear to scrap a loophole through which airlines have denied customers compensation for flight delays or cancellations when they were required for safety purposes. The sector wants that exemption restored, and says it doesn’t want pilots to feel pressured to choose between flying defective planes and costing their employer money.
“We want our pilots to be entirely free from any financial consideration when they take a safety-related decision,” WestJet CEO Alexis von Hoensbroech said in a video chat from Ottawa this week, where he was meeting with federal ministers on the reforms. The Air Line Pilots Association raised similar concerns in a submission to the Canadian Transportation Agency.
“Regulation should never be punitive for safety decisions,” he said.
In the European Union, however, where rules and precedents comparable to the impending passenger rights charter are in place, flight safety remains uncompromised, advocates say.
“Did it make it less safe to fly in Europe? I don’t think so,” said Sylvie De Bellefeuille, a lawyer with the advocacy group Option consommateurs.
The EU code came into force nearly two decades ago, shored up by court rulings that require compensation even for trip disruptions caused by safety concerns, such as mechanical issues. No major accidents involving EU-registered planes have occurred in commercial aviation since 2015.
“It lays pretty ill in the mouth of the industry to say that if you … take away that excuse then we will therefore fly unsafe planes,” said John Lawford, executive director of the Public Interest Advocacy Centre.
“I’m surprised that they would have the chutzpah to say that.”
Air Passenger Rights advocacy group president Gabor Lukacs called the claim “ridiculous,” and NDP transport critic Taylor Bachrach also slammed the argument.
“It’s quite alarming that the airlines would suggest that if the government holds them to a higher standard of customer care, there’s going to be a risk to passenger safety,” Bachrach said in a phone interview from northwestern B.C.
Loopholes and exemptions
Organizations from Nav Canada to the International Air Transport Association — as well as Canada’s main pilots union — maintain that safety will be jeopardized unless delays due to malfunctions or mechanical issues are exempted from what the Atlantic Canada Airports Association called “punitive measures.”
Proposed changes under the Air Passenger Protection Regulations would not exempt flight disruptions that are caused by “normal … technical problems” from cash penalties given to customers.
However, “airport operational issues” or “hidden manufacturing defects” would be considered beyond the airline’s responsibility under the would-be reforms, most of which are still months away from being finalized.
The first phase of the overhaul comes into effect on Saturday, kicking off a more streamlined complaints process that currently creaks under the weight of more than 57,000 complaints.
That backlog has continued to mount despite a slowdown in filings, which can take up to two years for the regulator to process. The new system will be managed by “complaint resolution officers” — 40 have been hired, with 60 more expected to be trained over the next year, according to the agency.
Among the provisions slated to kick in next year are fees imposed on airlines by the regulator to recover some or all of the cost of handling those complaints. If a passenger files one due to a flight disruption or denial of boarding, the reformed rules put the onus on the airline to prove the move was for reasons outside its control, such as bad weather.
Airlines make the case that regional routes would be pricier for customers — or simply cancelled outright — as slim profit margins would tip into red ink amid higher costs from complaints and fees.
“That could potentially have an impact on regional connectivity and accessibility for routes that might not be as profitable,” said Jeff Morrison, who heads the National Airlines Council, which represents airlines including Air Canada and WestJet. “There’s always a trade-off.”
The average profit for large carriers amounts to less than $10 per passenger, said WestJet’s CEO.
“If we have to compensate the passengers, it’s thousands,” von Hoensbroech said, noting that WestJet’s average one-way ticket price hovers around $200. “You need many, many flights to recover.”
Advocates Lawford and Gabor Lukacs said the airlines’ warnings around routes to smaller or far-flung communities are tantamount to “blackmail,” while Bachrach framed the notion of pitting sturdier customer rights against regional flights as a “false choice.”
“If you’re cutting regional routes, we’re going to open the whole country for more competition,” Lukacs said, framing the potential scale-back as an opportunity for other airlines.
He suggested subsidies to support regional trips, whose fares have shot up over the past four years, even as ticket prices on busier routes fell.
Von Hoensbroech also said accountability for flight disruptions, including the cost burden, must be shared across the industry, not borne by airlines alone — an argument some advocates are receptive to, given the highly integrated nature global air travel that hinges on players ranging from baggage handlers to security and border agents to air traffic controllers.
The Canadian Transportation Agency is currently working on a draft of the new Air Passenger Protection Regulations, expected to be published this year before the new charter is implemented in 2024.
“The ultimate goal of air passenger protection shouldn’t be to get compensation to passengers; it should be to incentivize airlines to treat passengers better,” Bachrach said.
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