What can we expect going into 2023? Predictions and a market update.
I would like to share with you this video CIBC recently released where Benjamin Tal. Mr. Tal is well-known for his ground-breaking published research on topics such as labour market dynamics, real estate, credit markets, international trade and business economic conditions, Benjamin not only contributes to the conversation but also frequently sets the agenda. To learn more about Benjamin click on his bio here.
The topics covered in this 51min video are the following.
1) Interest rates & inflation
5) Q&A at the end
Here are a few of the highlighted key points I would like to summarize for you as a tool when speaking with your clients. If you do not have time to watch the entire video here are key my takeaways.
· Decreased prices will see inflation ease to about 4%. The Bank of Canada wants to return to target inflation of 1-3% which will take a few years and will result in a mild recession with some job losses.
· Hopefully the rate of inflation will slow (reminder that that does not mean deflation) not that prices will come down but they will go up slower. Penny candies are not coming back... on that note pennies are not coming back..
· We are not the same as the USA - we have more consumer debt. US rates continue to climb in Canada. We just saw the lowest increase of .25 which can be seen as a positive. It is considered a small increase vs what could have increased (by more) As Canadians with higher debts the higher rates would hurt us more.
· Inflation drivers are Supply, Demand and Unknown Influences such as COVID, China's zero COVID policy and the war in Ukraine, which couldn't have been predicted.
· The Supply Chain is improving as oil prices decline, reducing shipping costs. The US has 20% more truck driver’s post-pandemic than previously keeping goods moving more reliably. Disinflationary Effect.
· Demand is decreasing in Canada. More people are focusing on the basics: shelter, groceries, and other necessities. Less on fluff and stuff and more on needs.
· The war in Ukraine food prices will likely continue to increase, but not as quickly as they have since the war began. Inflationary Effect.
· As far as housing goes, during the pandemic, we had the benefit of a recession via low-interest rates without the cost of a recession via job losses. We "borrowed" activity from the future with an abnormally high number of transactions. The current lack of activity in the market is a result of the high activity in the past. This is a "reallocation of activity over time. Not a crash." - I personally LOVED this line. I must have rewatched it 5 times.
· Currently, listings are down significantly keeping prices from tumbling dramatically. Increased immigration will continue to put pressure on home prices and rents.
· Some condo projects are on hold or cancelled in Toronto due to high-interest rates, high labour costs and high supply costs. This will significantly impact supply and prices in the future as fewer projects will reach completion years from now.
· Tal believes we won't see any more changes to the overnight rate until 2024. Currently, 3-5 year fixed rates are coming down from previous highs despite the increase to the overnight rate on January 25, 2023. Reminder fixed rates are not tied to the BOC increases. So, he thinks this could be it for increases in 2023 and fixed are coming down. Now is an awesome time to do a pre-approval. Continue to be prepared so when you or your clients are ready. You can jump on the right opportunity.
· We are getting more jobs, and fewer buildings and people are on the sidelines saving, in addition, we will see increases in immigration or continued immigration which will keep things moving as demand will remain high and supply remains low.
My take is a brief summary... I know after you sticking along with me above, I better keep it short.
We need more homes built - I am sure you are sick of hearing me say this. We have many educated Canadians who are working and looking to purchase waiting on the sidelines for rates to come down. As fixed rates continue to decrease and people's mindset adjusts to a new normal of 4-5% we will see more listings come and the housing market will continue to thrive.
All of this to be said things are expensive, people are stretched and the media is still and will likely continue to be a very doom and gloom part of our culture. Understanding what the market is doing and how you can capitalize as a client or real estate professional is important. If you have any questions about qualifying for a mortgage, market trends or mortgage rates I would love an opportunity to go over things in detail with you.
I hope you find this information helpful, and applicable and it will add value to you as we navigate the next 12 months together.
Thank you for sticking with me through this entire BLOG POST. If you wish to watch the full video the link can be found with ease here. Let me know what you think. Do you think Benjamin Tal is onto something here? I feel like it is a pretty positive outlook for 2023. I am looking forward to it.