The current economic landscape is a complicated story and this week we focus in on several key areas, including the recent Federal Reserve (Fed) rate announcement, challenges posed by inflation, a cabinet shuffle in Canada, housing market trends, national updates, affordability concerns, credit trends, and the potential signs of a looming recession. This podcast offers our unique perspectives on the economic indicators and their implications on the various housing sectors.
Starting with the recent US Federal Reserve rate announcement. The Fed has raised its interest rate by ¼ point, bringing it to the highest level in 22 years, similar to Canada's rate increases. Moreover, the Fed signaled the likelihood of yet another hike in 2023, especially if the economy continues to show signs of improvement. Despite the rate hikes, the US economy remains very resilient, with Q2 GDP surpassing the estimated 1.8%, coming in at 2.4%. Additionally, the stock market is showing an upward trend, indicating that there is currently no recession in the USA.
The inflation challenges we may face in the future in Canada haven’t gone anywhere and with rising oil prices and increased mortgage interest payments, there are some key factors contributing the inflationary pressures. Recent data shows that oil prices have
surged over the past month, and in Canada, rental rates in Toronto have seen significant increases, which may drive up the Consumer Price Index (CPI) basket. Based on this data, it is expected that inflation could be a concern over the next three months, with interest rates likely remaining around 5% for the next 12 months.
National home sales are recording a 25% increase from the lows experienced at the end of 2022. However, it is expected that the run-up in home sales will plateau for the time being. While listings have started to increase slightly, they still remain below long-term
averages. Active listings are predominantly in Ontario, with a current count of 130k, which is half of what they were in 2015. Though prices have risen by 2% in June and 6% over the last three months, the Home Price Index (HPI) indicates a potential downturn
in the housing market.
Affordability concerns faced by homebuyers are as real as they’ve ever been. Mortgage rates have reached levels last seen in 2007. The average monthly payment required to purchase a typical home in Canada has surged by 12% in just four months, hitting $3,500 per month, raising even more concerns about housing affordability for most Canadians.
Credit trends have revealed that new mortgage growth has been slowing since Q2 2022. Borrowers are increasingly opting for short-term fixed-rate mortgages, accounting for 80% of recent mortgages. Additionally, credit card debt has been surging since January 2021, although foreclosures remain near all-time lows due to homeowners prioritizing mortgage payments.
The economic landscape remains dynamic, with both positive and concerning indicators. As the Fed and the Canadian government navigate inflationary pressures through interest rate adjustments, the housing market experiences shifts in demand and supply. Affordability concerns and credit trends also play critical roles in shaping the economic outlook. Furthermore, potential signs of a recession warrant close monitoring to anticipate and respond to economic challenges effectively.
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