Canada’s second quarter GDP came in at 3.3% annualized rate, below economists forecasts of 4.4% and below the Bank of Canada’s own estimate of 4%. While weaker than expected, that won’t prevent the Bank of Canada from delivering a super sized rate hike this week on September 07th. Markets are still pricing in a 75bps rate hike, bringing the overnight policy rate higher by a total of 300bps year-to-date.
We’ve already discussed the immediate implications for the housing market, with variable rate holders expected to feel the blow and instantly reducing borrowing power for prospective purchasers. August housing data suggests the bear market in housing continues.
In Greater Vancouver, home sales fell 40% year-over-year for the month of August. Over the past two decades only the years 2008 & 2012 have seen weaker sales volumes in August. Sellers are putting up a good fight, new listings fell 17% and are running at two decade lows right now. It seems both buyers and sellers aren’t pleased with pricing right now. The home price index continues to leak lower, dropping 2% month over month, bringing prices down 6.7% from their peak earlier this year. In the Fraser Valley prices are off 13%.
Meanwhile, in Greater Toronto sales were up 13% month-over-month, prompting housing bulls to suggest a possible end to the bear market. Hilarious. Sales were still at 20 year lows, again, not adjusting for population growth. Housing demand remains weak, but new listings are also falling, dropping to a ten year low. Months of inventory is now declining in the GTA which suggests price drops might subside a bit from here. However, a lot of damage has already been done. The home price index is now down 15% since peaking this year, the typical home has declined by an average of $1000 per month.
Essentially we are seeing housing activity begin to stabilize as some buyers revisit the market at lower prices. This bear market is definitely not over yet, but liquidity conditions are improving after an initial interest rate shock.
We’ll see more deals collapse in the coming weeks after the Bank of Canada moves rates higher once again. For what it’s worth, the median estimate of economists surveyed by Bloomberg have the overnight rate peaking at 3.75% for this cycle. Economists expect another three-quarter-point hike this week, and of the 21 analysts surveyed, two believe the Bank of Canada will stop there, while 11 said the hiking cycle will end with one last move in October. Let’s watch.
Three Things I’m Watching:
1. New listings hit 20 year low in Greater Vancouver for the month of August. (Source: Steve Saretsky)