With the Bank of Canada
holding its overnight rate, and a monetary policy reflecting an increase in
consumer confidence, Governor Tiff Macklin continues his plan for a complete economic
recovery from COVID-19.
On Wednesday, July 14, the Bank of
Canada held its target for the overnight rate at ½ percent and will
continue at the lower end until the second half of 2022. This means that
interest rates on variable-rate mortgages and lines of credit will remain low.
The Bank is confident that Canada
is heading into a robust period of economic growth beginning in the third
quarter of this year, as consumers begin to spend some of
the savings they accumulated during COVID-19 lockdowns.
The signs are everywhere – an
increase in the speed of vaccinations globally and the US and global economies
are recovering strongly. As the economy continues to open, the Bank predicts
increased economic activity later this year; however, caution remains due to
the unpredictability of the virus.
Consumers are expected to return
to more “normal” spending and the labour market will see an increase as the
economy re-opens.
The Housing Market
The Canadian Real Estate Association
(CREA) updated its forecast for home sales activity in June to reflect what’s
now transpiring in the market.
Over the past few years, a combination of
increased immigration and low interest fuelled housing demand, which further
depleted the housing supply. Pre-COVID, the number of available listings on the
MLS was at a 14-year low, the result was a hot seller’s market. Then COVID and
lockdowns resulted in a surge in housing activity, which drove prices higher
and exhausted the supply.
As the economy starts to re-open and
lockdowns are lifted, the urgency to purchase a home seems to have eased, and
the market is settling. While prices still remain high, and the Toronto and
Vancouver areas are still highly active, we are starting to see price stability
in other areas of the country.
According to CREA, there is still
uncertainty as we move into 2022. Its June update reported:
“Current trends and the outlook for
housing market fundamentals suggest activity will remain
strong through 2021, resulting in a record number of sales this year
despite the slowdown that began in April.”
“Over time, activity is forecast to
continue returning towards more typical levels. As a result, 2022 is
expected to see significantly fewer MLS® transactions than in 2021 while
nonetheless still marking the second-best year on record.”
On a monthly and
quarterly basis, sales are forecast to continue trending back
towards more typical levels through the latter half of 2021
and into 2022.
Sales are expected to
decline, and prices are expected to edge up by just 0.6% in 2022 as the urgency
to purchase a home fades alongside the virus itself.