The coronavirus pandemic has slammed the brakes on Canada’s population growth and that may be a ticking time bomb for our housing market.
A new study by TD Economics downgrades its outlook for the housing market from its April forecast and predicts that Canadian home price growth will slow in the second half of this year and mildly decline through the next. Slower population gains account for a third of that view.
Between 2016 and 2019, since federal immigration targets were raised, immigration has been a big driver of the housing market, but TD Economics Rishi Sondhi says COVID-19 has “thrown sand in the gears of Canadian population growth.”
The national population increased by only 75,000 in the first quarter of 2020, the weakest gain since 2015. And it just got worse. Data show immigrants arriving in Canada dropped by 80% year over year in April.
This is not a problem that will disappear overnight. TD expects travel restrictions and people’s fears, a COVID-19-related delay in processing immigration applications and a slow recovery to the global economy will keep population growth well below its pre-virus rate over the next few years.
Already the rental market is showing the effects, with the supply of rental condos spiking. People new to the country tend to rent when they first arrive. As well the collapse in tourism is leading to Airbnb owners turning their units into long-term rentals. Industry data suggest that the condo rental supply in the Greater Toronto Area was about 70% higher in early June than last year, TD said.
That weakness will spill over into home ownership, as lower rents spur investors to sell their units. And condos, whose prices have seen double-digit gains over the past five years, are most vulnerable of a correction, TD said.
Toronto, Vancouver, Montreal and Calgary saw 60% of immigration inflows last year, and these housing markets will take the biggest hits. Calgary where unemployment is expected to remain high through next year, is especially vulnerable.
“Weaker population growth will play a major role in slowing growth in home sales and prices through next year,” wrote Sondhi.
Combine that with higher unemployment, which TD expects to linger into 2022, and these headwinds will offset the positives for the market: pent-up demand, low interest rates and supportive demographics, the report said.
WHAT TRUDEAU MISSED Mexico’s President Andres Manuel Lopez Obrado meets with U.S. President Donald Trump in the Rose Garden at the White House Wednesday, ostensibly to celebrate the start of the United States-Mexico-Canada Agreement (USMCA) trade deal, which came into effect July 1. Prime Minister Justin Trudeau, the third partner in the pact, chose to stay in Ottawa, citing COVID-19 and pressing business. The prime minister may be a bit miffed by the White House’s recent threat to slap tariffs on Canadian aluminum. Meanwhile, the Mexican president, on his first foreign trip since being elected in 2018, took flak at home for his apparent deference to the leader known for his aggressive anti-immigration policies. Because of the coronavirus pandemic, the two did not shake hands, but neither wore a face mask. Reuters/Kevin Lamarque
- Canada Mortgage and Housing Corp. to release preliminary housing starts for June
- Statistics Canada to release its report on the impact of the COVID-19 pandemic on Canadian families and children
- The Senate committee on social affairs, science and technology is expected to table initial observations on the federal government’s response to the COVID-19 pandemic
- Gov. Gen. Julie Payette hosts a virtual conversation in Ottawa with Shopify chief operating officer Harley Finkelstein
- Quebec Transport Minister Francois Bonnardel holds a news conference in Montreal to discuss regional air routes after cuts to domestic flights to Quebec’s regions
- Federal Reserve Bank of Atlanta President Raphael Bostic will speak on “The Prescription: Fiscal Policy for the COVID-19 Economy” before a Tax Policy Center webinar.
- Today’s Data: U.S. wholesale trade, initial jobless claims
- Notable Earnings: Aritzia, Walgreens Boots Alliance
As one commentator put it, Canada’s debt hangover from COVID-19 is shaping up to be the “mother of all migraines.” In its first fiscal update during the pandemic, Ottawa revealed that it expects the federal deficit for 2020-21 to hit an eye-watering $343.2 billion, 16% of the country’s GDP. Federal debt is expected to top the $1 trillion mark, just below 50% of GDP, a level not seen since the early 2000s.
With the recent market surge, it can be tempting to give into FOMO (fear of missing out) either by chasing returns or by switching to an adviser willing to pursue the hot sectors. Don’t, writes investing pro Martin Pelletier. Instead of trying to beat the market, a better idea is build a portfolio that works towards a target return. Pelletier has some tips.
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