Inflation has decreased to 2.7% this month, down from 2.9% the previous month. This marks the lowest inflation rate in over three years, specifically since March 2021. At that time, the overnight interest rate was 0.25%. Despite this improvement, shelter costs continue to drive inflation, with increases at 6.4%, up from 4.9% last year. Mortgage interest costs have surged by 24.5%, and rent has risen by 8.2% compared to April last year. When excluding shelter costs from the Consumer Price Index (CPI) basket, inflation would be just 1.2%.

This decline in inflation could open the door for a potential interest rate cut at the upcoming June 5th announcement by the Bank of Canada (BoC). However, with the current inflation rate still above the 2% target, sustained reductions to the target level are preferred before any decisive action. The market is pricing in a 55% chance of a rate cut in June, but certainty remains low. The BoC’s approach is reactive, and it could be six months before inflation stabilizes at 2%.

In April, the BoC slightly revised its neutral rate, which is now set at 2.25% to 3.25%, up from the previous 2-3% range. This revision, influenced by higher US neutral rates and domestic factors such as higher long-term labor input growth offset by lower productivity growth, suggests a relaxation of stringent economic requirements.

The BoC’s updated assessment considers the impact of government debt and population growth on the neutral rate. Increased government debt and more generous public pensions put upward pressure on the neutral rate, suggesting prolonged higher taxes, ongoing inflationary pressure and overall higher prices.

The Canada Revenue Agency (CRA) now requires tenants to withhold and remit 25% of their rent if their landlord is a non-resident. This is to ensure the CRA collects taxes owed by foreign property owners. Tenants must also file an NR4 tax form, and failure to comply can result in the tenant being held liable for unpaid taxes, penalties, and interest. This policy faces practical challenges due to the lack of a public beneficial ownership registry, making it difficult for tenants to verify if their landlord is a non-resident. Consequently, tenants could face eviction for not paying full rent if they withhold the 25%.

RBC predicts significant interest rate cuts starting in 2024 and going through 2025, with a 25-basis point cut anticipated in June and a total of 200 basis points in cuts by the end of next year. They expect the Canadian dollar to weaken, impacting housing affordability and resale activity. Despite weak affordability, resale activity is expected to pick up mid-year as rates fall. Home prices, which were down 2.6% in 2023, are projected to decrease by another 1% in 2024 before rising by 3.1% in 2025.

Active home listings have reached over 13,900, marking a five-year high since September 2019. While this increase in inventory might lead to better deals for buyers, it will take months to absorb this supply. A potential rate cut could temporarily stimulatebuyer activity, particularly in typically slow months like August when motivated sellers might offer better deals.

_________________________________

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Dan Wurtele, PREC, REIA

604.809.0834

dan@thevancouverlife.com

Ryan Dash PREC

778.898.0089
ryan@thevancouverlife.com

www.thevancouverlife.com

Despite growing concerns about Canada's economy, including a meager increase in GDP and dwindling consumer confidence, the Bank of Canada (BOC) has yet to implement a rate cut. The lack-luster GDP rise of 0.2% in February fell short of the projected 0.4%, with early data for March indicating stagnation. As a result, Q1 GDP growth is expected to reach only 0.6%, marking the sixth consecutive quarterly decline and a 2% annual contraction in per capita GDP.


Despite these troubling indicators, the real estate market in Canada is surprisingly resilient. The Real Estate Outlook Index is at its highest level since rate hikes began two years ago, with record-high prices recorded in provinces such as Alberta, Saskatchewan, Quebec (particularly in Montreal), New Brunswick, Nova Scotia, and Newfoundland/Labrador.


This buoyancy is fuelled in part by low per capita home sales in recent years, which are expected to rebound even amidst economic softening. Additionally, a significant portion of potential buyers are waiting for a rate cut before making a move, further propping up sentiment.


However, ominous signs persist. Insolvencies in key sectors such as construction, finance/real estate, retail, and accommodation/food services are at their highest levels in a decade. Despite this, market odds of a rate cut in June have fallen to just 35%, down from 80% eight weeks earlier.


Mortgage delinquency rates remain relatively low, particularly in Ontario and British Columbia, signaling stability in the residential real estate sector. Yet, this stability could deter the BOC from implementing rate cuts, despite mounting economic challenges.


In the U.S., while inflation has shown signs of easing, concerns over consumer spending habits persist. With previous government stimulus savings (over 2.1 trillion dollars) are now exhausted and retailers reporting reduced consumer spending, fears of rising insolvencies and delinquencies loom large.


Historical analysis suggests that a rate cut may be overdue, with previous cycles seeing cuts around the 27-month mark. However, there are many policies and decisions that are still contributing to elevated levels of inflation. Trudeau's ambitious plan to increase housing construction faces big obstacles, as housing starts decline despite high demand and the promises that have been made to build 3.9 million homes by 2030.


While the market may see opportunities for buyers amid increasing inventory, the average home price in the Greater Vancouver Regional District (GVRD) has reached a new all-time high, despite sustained higher interest rates. This is the case in many different provinces and cities throughout Canada.


Overall, while there are indications of economic challenges ahead, slowing GDP, including rising insolvencies and declining consumer spending, factors such as stable real estate markets and historical rate cycle comparisons make the timing of a rate cut more uncertain
than they've ever been.

_________________________________

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Dan Wurtele, PREC, REIA

604.809.0834

dan@thevancouverlife.com

Ryan Dash PREC

778.898.0089
ryan@thevancouverlife.com

www.thevancouverlife.com

In our discussion with the number 1 mortgage specialist across the country for the Bank of Montreal, we're diving into the heart of the economic landscape, starting with the elephant in the room: interest rates. We discuss the divergence in policy between the
US and Canada how it sets the stage for a nuanced debate on balancing growth and while combating inflation. While the US hesitates to lower rates, Canada faces mounting pressure to stimulate its economy. However, the fear of triggering inflationary pressures looms large if the value of the loonie drops, potentially complicating the decision-making process for central banks.

Shifting our focus to the real estate market, we begin by scrutinizing key indicators like mortgage pre-approvals and new originations. These metrics provide valuable insights into buyer sentiment and seller confidence, especially at a time when we've seen large shifts in the amount of supply hitting the market. As listings surge and inventory levels rise, the impending question for Vancouver homebuyers becomes whether to wait for potential rate cuts or to act swiftly in a market known for rapid shifts.

We also extend into the realm of mortgage choices, where buyers grapple with the decision between fixed and variable rates and what the best path forward looks like. Understanding buyer preferences in this regard is crucial, especially given the evolving interest rate environment and its implications for long-term financial planning.

Examining the 5-year Canadian bond yields, we uncover vital clues about where to look at the future of mortgage rates. The recent fluctuations in bond yields offer a glimpse into potential rate adjustments by major banks. However, the uncertainty surrounding the June rate announcement adds another layer of complexity to the discussion, especially as Canada has just revealed it added 90,000 jobs to the economy.

The prolonged inversion of the US Treasury yield curve serves as a stark reminder of looming economic uncertainties. Historically, such inversions have often preceded every single recession except one, raising concerns about the broader economic outlook and investor sentiment.

In the midst of these macroeconomic discussions, we're also delving into buyer behavior and affordability challenges. As home prices continue to hold at very high levels, buyers are becoming increasingly price-sensitive. Yet, intergenerational wealth transfers and shifting attitudes towards homeownership continue to shape the market dynamics, highlighting the resilience of demand despite affordability constraints.

By exploring these interconnected themes, we aim to gain a holistic understanding of the current economic landscape and its implications for the real estate market. Through informed discussions and strategic insights, we can navigate the uncertainties and capitalize on emerging opportunities in this ever-evolving environment.

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Dan Wurtele, PREC, REIA

604.809.0834

dan@thevancouverlife.com

Ryan Dash PREC

778.898.0089
ryan@thevancouverlife.com

www.thevancouverlife.com

In April 2024, the Vancouver real estate market experienced an unprecedented surge in inventory, reaching its highest point in four years. This surge was particularly notable given the market's recent trends and economic uncertainties. The sudden influx of properties for sale had significant implications for both buyers and sellers, prompting a re-evaluation of market dynamics.

Total sales in April showed a modest increase compared to the previous year, suggesting some resilience despite prevailing economic challenges. However, the more substantial jump from the previous month indicated a potential shift in momentum. Despite these increases, sales remained below the 10-year average, signaling a sluggish market characterized by cautious buyer behavior and constrained affordability.

The most striking aspect of April's market data was the sharp rise in new listings, which surged by a remarkable 65% compared to the same period last year. This surge was also significant when compared to the previous month, with a 40% increase in listings. Moreover, new listings exceeded the 10-year average by a considerable margin, marking a departure from recent trends. This sudden influx of listings can be attributed to various factors, including delayed expectations of interest rate cuts and economic uncertainties affecting both buyers and sellers.

Looking ahead, predicting the market's trajectory remains challenging due to various economic and policy factors. The potential for rate cuts by the Bank of Canada in June could influence market dynamics, although their immediate impact may be limited. Broader economic challenges, such as declining GDP and increasing business insolvencies, suggest that significant changes in the real estate market may take time to materialize.

Despite the increased inventory providing more options for buyers, uncertainties persist, making it difficult to gauge the market's future direction. Economic indicators, such as declining per capita GDP and rising unemployment in the United States, add further complexity to the outlook - not to mention the pending US election.

However, we should recognize that Canada has all the tools necessary to change its current trajectory and if we look at better leveraging other parts of our economy, like focusing on Canada's robust resource-based economy, our economy will not only recover but return to state of growth, confidence and affordability - especially in the housing market .

April's market data reflects a complex interplay of economic factors shaping Vancouver's real estate landscape. While the surge in inventory offers opportunities for buyers, uncertainties surrounding economic performance and policy decisions highlight the need for them to be cautious as well. This will put pressure on Sellers as inventory climbs and doesn't get consumed at the levels we've become accustom to. The market's trajectory will depend on various factors, including future rate cuts, economic recovery efforts, and broader policy changes aimed at revitalizing Canada's economy - but it is possible we could see a recession before things get better.

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Dan Wurtele, PREC, REIA

604.809.0834

dan@thevancouverlife.com

Ryan Dash PREC

778.898.0089
ryan@thevancouverlife.com

www.thevancouverlife.com

The recent developments in the Canadian housing market paint a daunting picture, especially in light of the ambitious promises made in Budget 2024. The government's pledge to construct an additional 2 million homes over the next 7 years appears increasingly improbable when examined against the current realities across various industries.

Consider housing starts - Despite the government's optimistic goals, data reveals a staggering housing supply deficit in Canada. The ratio of growth in the working-age population to housing starts has widened significantly, indicating a severe shortfall in housing construction. Moreover, building permits, a leading indicator, have plummeted to their lowest levels since 1983, foreshadowing a bleak outlook for future construction.

When we look to mortgages, renewal rates for fixed-rate mortgages have seen an unexpected increase in payment obligations, while there has been a notable shift towards shorter-term fixed-rate mortgages. However, the majority of homeowners possess substantial equity in their properties, signaling a sense of stability in the housing market.

The government has also woken up to the amount of mortgage Fraud we are seeing in our system. The government has finally acknowledged the prevalence of it, and has proposed solutions including direct income verification from the CRA, a measure that is long overdue and essential for maintaining the integrity of the mortgage system.

Credit card loans and HELOC payments are also on the rise, indicating increased financial strain among Canadians. Corporate insolvencies are climbing, and banks are reducing their own exposure to local business loans, further exacerbating economic pressures and driving down our overall GDP.

Despite economic uncertainties, Canadians remain optimistic about the housing market, buoyed by prolonged stability and government promises... However, the disparity between sales volumes and population growth highlights underlying challenges in the market. Even though we have more sales this April over last April, the number of sales overall has continued to diminish compared to long term historical averages. Think 2005 when April saw over 4,000 sales (nearly 50% more than we see today) with 600,000 less people in the region.

Lastly, we look at the weakening Canadian Dollar. The potential for interest rate cuts by the Bank of Canada threatens to devalue the Canadian dollar, exacerbating inflationary pressures and lowering living standards. Economic indicators suggest a fragile recovery,
characterized by labor market uncertainties, a cautious Federal Reserve, an inverted yield curve, and fluctuating oil prices.

While the Budget 2024's housing initiatives aim to address pressing issues, the prevailing economic landscape presents formidable obstacles to their successful implementation. From housing supply deficits to escalating debt levels and external economic factors, the road ahead is fraught with challenges that must be carefully navigated to achieve meaningful progress in the Canadian housing market.

_________________________________

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Dan Wurtele, PREC, REIA

604.809.0834

dan@thevancouverlife.com

Ryan Dash PREC

778.898.0089
ryan@thevancouverlife.com

www.thevancouverlife.com

The Consumer Price Index (CPI) for March revealed a 2.9% year-on-year increase, slightly up from February's 2.8%, primarily driven by surging gasoline prices. However, the report unveiled a concerning trend in the Bank of Canada's preferred measures of core inflation. Both CPI median and CPI trim not only declined on a 12-month basis but also fell well below 2% when measured over three and six months. This decline in core inflation underscores the dominance of shelter costs in driving overall inflation, with mortgage interest expenses rising by 25.4% and rent by 8.5%. Excluding shelter costs, consumer prices rose by a modest 1.5% year over year.


This data adds weight to arguments favoring a rate cut by the Bank of Canada in June, as lower rates could effectively address the rising shelter-driven inflation. However, the potential impact of such a cut might not be as significant as previously anticipated, given the approaching slower season and the likely modest reduction of only 0.25%. Yet, sentiment in the housing market remains buoyant, with recent months witnessing an increase in home prices, largely driven by optimistic sentiment.


In parallel, the Federal Budget 2024 places a significant emphasis on housing, earmarking $8.5 billion of the $53 billion total spending over the next five years for this sector. The government aims to address the affordability crisis by unlocking 3.87 million new homes by 2031, predominantly through initiatives focused on increasing supply - we'll see how realistic this is as there's an awful lot of skepticism arising around the feasibility of this ambitious target, as it necessitates a substantial increase in annual home constructions, potentially straining resources and exacerbating construction material costs.


The budget introduces various measures to incentivize housing supply, including the Housing Accelerator Fund, Apartment Construction Loan Program, and Affordable Housing Fund. Additionally, initiatives like leveraging federal land for housing development and investing in infrastructure aim to facilitate the creation of new homes. However, concerns are raised regarding the effectiveness of these measures, particularly in light of challenges such as a shortage of construction trades and logistical hurdles in implementing zoning reforms and building approvals.


Furthermore, changes in capital gains tax regulations, notably raising the tax rate for gains over $250,000 from 50% to 67%, could have profound implications for the housing market. Investors may expedite selling off assets to avoid the higher tax rate, potentially impacting market dynamics in the short term. Additionally, the budget's deficit spending raises concerns about future economic stability, as it may exacerbate inflationary pressures and hinder the ability to navigate future downturns or unprecedented events effectively causing potentially greater or deeper pain in future recessions


While the budget demonstrates a commitment to addressing housing affordability, questions persist regarding the feasibility and long-term implications of the proposed measures (think trades, speed, investment and cost) especially amidst broader economic uncertainties and challenges.

_________________________________

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Dan Wurtele, PREC, REIA

604.809.0834

dan@thevancouverlife.com

Ryan Dash PREC

778.898.0089
ryan@thevancouverlife.com

www.thevancouverlife.com

In a landscape of economic uncertainty and shifting market expectations, the Bank of Canada's decision to maintain its overnight rate at 5% on Wednesday marks the sixth consecutive hold. This is solidifying a rate that has remained unchanged since July, now spanning nine months. With the next announcement slated for June 5th, Canadians are hoping to find relief but a level of uncertainty still remains and expectations continue to be on the move. With that said, there has been extended period of stability over the last
year and possibly lasting until at least 2025 when the Bank projects inflation to finally reach its 2% target.

Despite indications of excess supply in the Canadian economy, the Bank anticipates growth in the coming years, albeit amidst lingering inflationary pressures, particularly in the housing sector. Financial markets, however, foresee a departure from this status quo, anticipating a series of rate cuts starting in June. This speculation is fueled by mounting evidence of economic strain, including a recent uptick in unemployment, signaling potential challenges ahead.

Meanwhile, south of the border, the US economy continues to outperform expectations, buoyed by robust consumer spending and resilient business activity, albeit accompanied by stubborn inflationary pressures. However, recent data suggests that the Federal Reserve may postpone rate cuts until September, as consumer prices continue to rise, prompting concerns about how that could impact the upcoming presidential election.

The juxtaposition of economic indicators paints a complex picture, leaving analysts and policymakers grappling with the question of whether inflation can be tempered without triggering a recession. With each passing day, new data points emerge, fueling speculation and uncertainty about the future trajectory of interest rates and the possibility of recession.

In Canada's largest city, Toronto, the real estate market faces mixed signals, with declining home sales but resilient prices, especially in the condo segment. Conversely, Calgary and Edmonton experience surging demand and dwindling inventory, driving substantial price appreciation and highlighting migration patterns influenced by affordability.

Amidst these economic fluctuations, one thing remains clear: the road ahead is uncertain, and stakeholders must navigate a landscape fraught with both challenges and opportunities, as they await further developments in the months to come.

_________________________________

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Dan Wurtele, PREC, REIA

604.809.0834

dan@thevancouverlife.com

Ryan Dash PREC

778.898.0089
ryan@thevancouverlife.com

www.thevancouverlife.com

In March 2024, the Canadian housing market experienced another notable increase in home prices, particularly in the condominium segment, which reached a new all-time high. This surge in prices reflects ongoing trends in the housing market, characterized by persistent demand and limited supply. The condominium market's resilience, despite broader economic conditions and rising interest rates, underscores the segment's attractiveness to buyers seeking relatively more affordable options in an increasingly expensive market.

More and more we are hearing about rising mortgage delinquencies and When you consider the March 2024 statistics an analysis of Mortgage Delinquencies. Despite concerns about a potential mortgage renewal crisis, the data reveals that Canada's mortgage delinquency rate remains relatively low, especially compared to other countries like the UK and USA. The comparison offers insights into the robustness of Canada's housing market and its ability to weather economic fluctuations.

Moreover, we explore the impact of inflation on mortgage interest costs, a significant factor influencing housing affordability. In Canada, where mortgage interest costs are included in the Consumer Price Index (not the case in most countries), the surge in these costs contributes to inflationary pressures, affecting overall affordability for homeowners.

We also delve into the new 'Renters Bill of Rights' and its implications for rental housing providers. The government's initiatives to regulate the rental housing market are raising concerns among landlords, potentially affecting their profitability, usability
and investment incentives for would be housing providers. This regulatory environment may lead to a slowdown in rental property development, exacerbating existing supply shortages in rental housing.

Furthermore, the announcement of a $6 billion federal housing program aimed at funding provincial housing infrastructure signals government intervention to address housing affordability and supply issues, or at least attempt to. By incentivizing municipalities to adopt policies that promote housing development, the program aims to alleviate supply constraints and stimulate construction activity - such as putting a freeze on development costs for the next 3 years.

February 2024 housing stats are also out and we delve into them in detail on this week's podcast, providing additional insights into market dynamics, including sales volumes, new listings, inventory levels, and the sales-to-active ratio. Despite fluctuations in these indicators, largely to the upside, the overarching trend reflects a market that is skewed towards sellers, with limited inventory and high demand contributing to rising home prices.

Looking ahead, the housing market remains a hot topic amidst tight inventory and rising prices despite lending conditions. Anticipated adjustments in response to potential interest rate movements underscore the market's sensitivity to economic factors, policy changes and of course, affordability.

_________________________________

Contact Us To Book Your Private Consultation:

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Dan Wurtele, PREC, REIA

604.809.0834

dan@thevancouverlife.com

Ryan Dash PREC

778.898.0089
ryan@thevancouverlife.com

www.thevancouverlife.com