ICYMI: Why these economists think Canada's housing correction is going to be worse than they feared — via financialpost Canada economy housing
Signs growing that Canada housing correction will be worse than expected, say these economists
Back to video Good Morning! Evidence that Canada’s housing market is cooling has been obvious for several months, but now some economists say signs are appearing that the reckoning will be worse than they had feared.Back to video Good Morning! “There was no rest for those of us growing weary of escalating inflationary pressures in May.New York City Department of Health and Mental Hygiene on Thursday became the latest agency to begin offering monkeypox vaccines to sexually active gay and bisexual men.Canada will be banning the manufacture and importation of single-use plastics by the end of the year, in a sweeping effort to fight pollution and climate change.
An increasingly hawkish Bank of Canada, the widening of mortgage spreads and news that a lender has suspended new loan applications has prompted Capital Economics to deepen its forecast of home price declines to 20%.Mortgage spreads dropped during the pandemic when lenders were eager to offer homebuyers financing, but this trend has reversed in recent months.Canada’s consumer price index surged to 7.Capital says the spread between the “discretionary” five-year fixed mortgage rate, or the average for uninsured borrowers, and the five-year swap rate doubled from its October 2021 low of 60 basis points to 120."Anyone can get and spread monkeypox, but most cases in the current outbreak are among gay, bisexual or other men who have sex with men," the city's health department said in a statement, adding,"men who have sex or other intimate contact with men they met through dating apps or social media platforms, or at clubs, raves, sex parties, saunas, or other large gatherings may be at higher risk of having been recently exposed.The spread between variable rates and the policy rate jumped by 50 bp to 170.8% reading in April and beating the consensus of 7.This month too Magenta Capital Corporation, one of Canada’s largest private lenders, decided to temporarily halt new loan applications until September.
Although Magenta accounts for only a small portion of total lending, it is a big player in the subprime market, says Capital, and its decision may only be the beginning.It also beat the Bank of Canada’s spring forecast that inflation would average 5.'s Health Security Agency and Canada's Public Health Agency.“There will be so many more of these Mortgage Investment Corps suspending lending in the next eight weeks,” said Ron Butler, of Butler Mortgage, in a tweet after the news.“When your modelling suddenly shows values dropping 5% a month in some markets, what else can you do?” As financing dries up, the risk of forced home sales rises, “something Canada’s housing market has historically avoided,” said Capital economist Stephen Brown.Weary indeed — it’s a view no doubt shared by many anxiously waiting for inflation to peak, including the Bank of Canada.On the bright side, Capital believes the situation is not quite as dire as some recent headlines might suggest.announced Tuesday that doctors could consider monkeypox vaccines for men at higher risk of exposure.Only 3% of homeowners in Canada with a variable rate mortgage with variable payments would face immediate pressure to sell as rates rise further, said Brown.“The big picture remains that underlying inflationary pressures were far stronger than most anticipated,” said Capital Economics Stephen Brown.
Some will have to renew at a higher rate this year, but considering rates five years ago were close to a peak, they should be manageable for most.Nor did May’s data show evidence of forced selling.3%, said Brown.The trend marks an expansion of monkeypox vaccination efforts; previously, the vaccines were administered only to people with known exposure to the virus.New listings rose by 4.5% from the month before but were lower than in February.BofA Global Research strategist Carlos Capistran also hiked his inflation forecast.But what the surge in mortgage rates has caused is a “huge hit to buying power,” said Capital.
Home sales were down 22% in May from the year before and that was when the five-year fixed mortgage rate was 100 bps lower than the current 5.2% at the end of 2022, up from 5.1%.“While we expect fixed mortgage rates to drop back as markets come round to our view that the policy rate will peak at 3.“We continue to see upside risks to core inflation as the economy keeps growing above its potential, and the labour market remains tight,” said Capistran, who expects the Canadian economy to grow 3.0%, rather than 3.75% as market pricing now implies, much of the damage has already been done.With the expectations of hotter inflation, come predictions of higher rates from the Bank of Canada.
Accordingly, we are revising down our forecast for house prices to a 20% fall,” wrote Brown._____________________________________________________________.But they also suggest that the peak in interest rates could be “higher than the 2.
Posthaste: Economists now see hotter inflation ahead — and higher Bank of Canada ratesEconomists see hotter inflation ahead — and higher Bank of Canada rates — via financialpost inflation
Monkeypox vaccines offered to gay and bisexual men in New York, Canada and U.K.Monkeypox cases have been disproportionately reported among men who have sex with men, prompting health authorities to expand vaccine access to people at high risk.
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