Inflation Is Down & Construction Starts Are Up
Good afternoon everyone, and welcome back to The Canadian Real Estate Investor newsletter!
In today’s episode, your hosts Daniel Foch and Nick Hill review several recent reports, and discusses some positive changes in two significant areas: inflation and housing starts. This begs the question: have things shifted? Have we hit the bottom and are now beginning the slow and long journey back out of the mess we found ourselves in?
We touch base on several questions in this episode such as:
Why is inflation falling, and what does it mean for the Canadian economy?
What does cooling inflation mean for the rate environment?
Does this mean we will see more housing being built?
Activity in the mortgage market and the impending doom of the renewal wall
Key Takeaways:
The Canadian economy and real estate market have been highly volatile in recent years, with fluctuating factors such as inflation, interest rates, and market conditions creating a complex environment for buyers and sellers.
Disinflation, the slowing down of inflation, is currently being observed in Canada. This means prices are still rising, but at a slower rate, rather than deflation where prices would actually decrease.
The Bank of Canada is expected to continue cutting interest rates due to cooling inflation, with predictions of rates potentially decreasing to 3.75% by the end of the year. However, this rapid cutting cycle raises concerns about the underlying health of the economy.
Housing starts in Canada saw a significant rebound in July 2024, particularly in the multifamily sector, with Ontario, the Prairies, and British Columbia showing strong growth. However, starts in Quebec and Atlantic Canada declined.
Despite the rebound, housing starts remain below the high levels of 2021 and 2022, particularly for single and semi-detached units. Ongoing challenges include high borrowing costs, construction costs, and weak pre-sale activity.
The Building Faster Fund was designed to reward municipalities that met housing start targets with financial incentives. However, the flawed data collection process by CMHC led to disputes over whether towns met their targets, with some cities advocating for the fund to be based on permits issued rather than homes started.
While rising interest rates and other economic factors pose challenges, the overall market may be more resilient than anticipated. Income growth, experience with fluctuating rates, and anticipated rate cuts could help many borrowers navigate their mortgage renewals without significant financial strain.
While the mortgage renewal issue may not be as catastrophic as feared, there are still concerns about the broader economic impact of various factors, including rising unemployment and potential declines in immigration, which could create a more challenging environment for the Canadian economy.
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Thanks for reading, and see you next week!
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