Good morning everyone;
After much speculation that interest rates would increase, recent oil price slides have resulted in the Bank of Canada actually surprising the markets by cutting interest rates by 0.25%
This is a signal for major lenders to follow suit and keep borrowing interest rates low or even reduce them. The cut came after concerns that Alberta may fall into a recession and drag the rest of Canada into one as well. Keep in mind, when Alberta boomed that province propped the rest of Canada higher and helped us avoid the full scale recession that was felt around the world. The federal government is being forced to revamp their economic budgets and forecasts based on lower oil prices for at least the next 2 years.
The Canadian dollar has traded lower and perhaps this will lead to increased exports in whatever manufacturing sectors we have left. Ontario was hit hard in the manufacturing sector with the high value of the Canadian dollar and cheap foreign labour over the last decade. We might actually get some economic benefit from the low dollar, that is if the manufacturing sector can react fast enough.
What does this mean for real estate in the GTA? (My personal opinion)
- Right now there is lack of freehold inventory in Toronto.
- Borrowing Interest rates will remain low for a while or even decline. There will be a push toward variable mortgage
- Our economy in Ontario is not centred around oil.
- The lower Canadian dollar coupled with a much stronger, growing US economy will benefit us via our manufacturing, service, tourist, film industries …. etc.
These factors make me believe that a 4.5% increase in GTA home pricing as forecasted by Royal Leapge last week is quite possible.
Unless we get a sharp spike upward in mortgage and unemployment rates along with panic selling it will be much of the same.
GREATER TORONTO REALTORS® REPORT MID MONTH RESALE MARKET FIGURES
TORONTO, January 16, 2015 – Toronto Real Estate Board President Paul Etherington announced that Greater Toronto Area REALTORS® reported 1,409 sales through the TorontoMLS system during the first 14 days of January 2015. This result was up by 9.8 per cent compared to the same period in 2014. Sales were up on a year-over-year basis for many of the low-rise home types and for condominium apartments as well. “Despite the cold weather, home buyers remained quite active during the first two weeks of the New Year. Households continued to take advantage of the diversity of affordable housing options available throughout the Greater Toronto Area,” said Mr. Etherington. The average selling price for January mid-month transactions, at $510,532, was down slightly in comparison to the same period last year.
“The slight dip in the average selling price reflects the fact that we saw a different mix of homes sold this year compared to last year during the first two weeks of January, as evidenced by a lower average listing price. The month-end MLS® HPI Composite Benchmark price and the average selling price will provide a clearer view on prices,” said Jason Mercer, TREB’s Director of Market Analysis.
Oil and Interest Rates (Bank of Canada Cuts Rates!)
Bank of Canada shocks market with rate cut
BARRIE MCKENNA / The Globe and Mail / Published Wednesday, Jan. 21 2015, 10:01 AM EST Last updated Wednesday, Jan. 21 2015, 2:47 PM EST
The Bank of Canada announced a surprise quarter-percentage-point cut to its key interest rate Wednesday – a move it calls “insurance” against the potentially destructive effects of the oil price collapse.
The reduction in the bank’s overnight rate to 0.75 per cent from 1 per cent – its first move since September, 2010 – comes as a precipitous drop in the price of crude slams Canada’s oil-dependent economy.
Speaking to reporters, Mr. Poloz said the oil price drop is “unambiguously bad” for the Canadian economy, prompting the bank to take out what he called an “insurance policy” against future risks, such as weak inflation and a household debt squeeze. But he denied the move was calculated to send the Canadian dollar lower.
“Market consequences will be what they are,” he said.
The rate cut sent the loonie plummeting below 81 cents (U.S.).
Mr. Poloz, who acknowledged that oil dominated the bank’s discussions leading up to Wednesday’s rate decision, said he’s ready to cut rates again if prices fall further.
“The world changes fast and if it changes again, we have room to take out more insurance,” he said.
The rate move, which few analysts anticipated, is an attempt by Mr. Poloz to shield highly indebted Canadian households from an oil-induced hit to their jobs and incomes – signs of which are already evident in Alberta.
The rate cut is a signal to private-sector banks to lower their own rates on mortgages and other loans.
Cheaper crude, while good for the U.S. and global economies, is unequivocally bad for Canada.
The bank warned that lower oil prices would take a sizeable bite out of economic growth in 2015, delay a return to full capacity and hurt business investment – a trend that has already triggered mass layoffs and production cuts in Alberta’s oil patch.
But the effects could spread further, threatening financial stability as a result of possible losses to jobs and incomes, according to the central bank.
“The oil price shock increases both downside risks to the inflation profile and financial stability risks,” the bank acknowledged in a press release. “The Bank’s policy action is intended to provide insurance against these risks.”
The bank’s new forecast assumes a price of “around” $60 per barrel for Brent crude, more than $10 above where it is now. But the central bank said prices “over the medium term are likely to be higher” than $60.
As recently as June, oil was selling for $110 a barrel.
The bank also lowered its bank rate and the deposit rate by a quarter percentage point Wednesday, to 1 per cent and ½ per cent, respectively. And it removed any indication of which way rates might go next.
The bank’s decision coincides with a much more pessimistic economic forecast than the bank issued just three months ago.
Following the lead of most private-sector forecasters, the bank slashed its GDP growth forecast to 2.1 per cent this year (from 2.4 per cent), before rebounding to 2.4 per cent in 2016. The worst effects of the oil collapse will be felt in the first half of this year, when the bank expects annualized growth of 1.5 per cent, nearly a full percentage point lower than its October forecast.
The Canadian economy grew at an estimated rate of 2.4 per cent in 2014.
The bank said the economy won’t return to full capacity until the end of 2016, several months later than its previous estimate of the second half of next year. Among other things, the central bank pointed to significant “labour market slack.”
Crude’s effects on the economy will be broad and profound, the bank warned. Investment in the oil and gas sector will decline by as much as 30 per cent this year, while lower returns on energy exports will eat into Canadian incomes, wealth and household spending.
The bank also hinted at a possible spread to other parts of the country of a real estate slump already under way in Alberta. “The extent to which the downturn already evident in Alberta will spill over into other regions remains to be seen,” the bank pointed out in its monetary policy report.
“The ramifications of the oil-price shock for household imbalances will depend importantly on the impact of the shock on income and employment,” the bank added.
The bank also expressed growing angst about the impact that oil could have on inflation, which it said has been propped up by temporary effects, such as the “pass-through” effect of the lower Canadian dollar.
Consumer price increases, now running at roughly 2 per cent a year, are “starting to reflect the fall in oil prices,” the bank said.
The bank’s new forecast calls for overall inflation to fall well below its 2-per-cent target this year, averaging just 0.6 per cent. Core inflation, which strips out volatile food and energy prices, is expected to average 1.9 per cent in 2015.
Have a fantastic weekend and a wonderful week, Anthony