(Bloomberg) — Australia’s A$7.1 trillion ($5.2 trillion) housing market is facing the ultimate stress test — the first recession in almost three decades — and passing with flying colors for now.
Economists had predicted property prices would tumble 10% or more as Covid-19 swept Australia; now, they’re scrambling to reverse those forecasts to gains of 5-15% in the next couple of years. Policy makers have switched from worrying about plunging prices to being on guard for excessive exuberance.
A recent Saturday auction at the Sydney suburb of Forest Lodge — around 2.5 miles from the city center — captured the bullish mood. About 30 people gathered in front a four bedroom Victorian terrace up for auction. The bidders — ranging from younger professionals to middle-aged people — kicked off at A$2.4 million and moved up in increments of A$10,000, then A$5,000, until the hammer came down at A$2.74 million.
It’s a dynamic that’s emerging in other countries as low interest rates fuel asset prices. While the housing strength is good news for the economy’s recovery, to housing bears — who have been proved wrong time and again for a generation in Australia — further gains risk fueling the bubble that is destined to pop one day, leaving a trail of bad debts.
The lending books of Australia’s banks are among the world’s most exposed to mortgages, with housing loans at the major four banks equating to about 75% of the nation’s approximately A$2 trillion gross domestic product. The statistics office estimates the value of the nation’s residential dwellings was A$7.1 trillion in the June quarter, when the weighted average prices in capital cities rose 6.2% from a year earlier.
Behind the bonanza are interest rates at levels unseen in Australia before. Three of the nation’s four big banks are offering fixed-rate mortgages below 2%, and HSBC Holdings Plc. is offering 1.88%, according to Mortgage Choice Ltd.. a broker. That’s been facilitated by the Reserve Bank of Australia cutting its interest rate to 0.10%, as well as its bond-buying and bank lending programs that aim to lower borrowing costs across the economy.
“It’s not a place I think anybody thought we would be,” said Susan Mitchell, chief executive officer of Mortgage Choice. “There’s a lot of stimulus. I’m a bit worried about prices spiking up.”
Safe as Houses
RBA modeling found that even in a scenario where the economy contracted by 20% and unemployment soared to 20%, banks still wouldn’t breach minimum prudential capital requirements. “The likelihood of a major bank failing is very low,” it says.
The RBA has made clear that reducing unemployment is its priority for now, rather than worrying about asset prices. Governor Philip Lowe has said the absence of population growth — with international borders still closed — changes housing market dynamics and he doesn’t think an unsustainable increase in housing prices is likely.
Yet there are tools should the situation change.
“We know from the experience of recent years that the macroprudential instruments can curtail the growth in debt in a stabilizing way. So it’s an issue we’re watching carefully, but I’m not particularly worried about it at the moment,” Lowe said during a panel at the Australian’s Strategic Forum 2020 on Wednesday.
By contrast in New Zealand, where some regions are recording double-digit house price gains despite the worst recession in a century, economists expect loan-to-valuation ratio restrictions will be put in place early next year.
Fiona Guthrie, chief executive officer of Financial Counselling Australia, worries more people will end up finding themselves under financial strain from easier finance rules.
“Weaker lending standards mean people will be loaded up with as much debt as possible,” she said. “There is significant profit to be made in pushing borrowers to the edge.”
Sea Change
Yet, much like the uneven nature of the economy’s recovery, the housing market strength isn’t uniform. Many people living in inner city apartments in Sydney and Melbourne are looking for more space.
“The virus has become a catalyst for change that is seeing us refashioning our homes and rethinking where we want to live,” said John McGrath, chief executive officer of real estate agent McGrath Ltd.
The result has been a collapse in rents and flat prices — with more to come as apartment blocs are still under construction. That’s unlikely to hurt Australian banks, which have steered clear of developers after a recent period of over-building. But it does impact mom and pop investors.
In addition, there are households still on deferred mortgage repayments because they lost their job in the Covid lockdown. When these are scaled back and loan holidays end sometime next year, they could be forced to sell.
World-champion kite surfer Ewan Jaspan is among the sea changers. Being in a trendy St Kilda flat 24/7 with limited outside space in Melbourne wasn’t ideal, so he and his girlfriend decamped to tropical Queensland. Initially the plan was to stay for two or three weeks. That was a few months ago.
“A lot of people are working remote anyway, so why would I be in the city in a tiny apartment when I could have a garden and outside space and be at the beach?”
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
