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Interest Rates & Commodity Prices Surge On Economic Rebound Optimism.

General Beata Gratton 26 Feb

Interest Rates & Commodity Prices Surge On Economic Rebound Optimism.

Canadian 5-Year Bond Yield Surges 

In an unprecedented move, bond yields are spiking around the world. Yields globally are now at levels last seen before the coronavirus spread worldwide. At the same time, commodity prices are surging, including energy, metals and minerals, agricultural products and lumber. The Biden administration’s $1.9 trillion stimulus package is has triggered fears that if the US economy returns to full employment too quickly, inflation might be the result.

Central banks have attempted to soothe markets, with European Central Bank chief economist Philip Lane saying the institution can buy bonds flexibly. Fed Chair Jerome Powell called the recent run-up in yields “a statement of confidence” in the economic outlook. Bank of Canada Governor Tiff Macklem told us earlier this week that it’s a long road to recovery for the Canadian economy. The Bank of Canada will continue to provide support every step of the way. Many Bay Street economists took this to mean that he reinforced the BoC’s commitment to keeping the policy rate at its effective lower bound of 25 bps until sometime in 2023.

These global developments have sideswiped Canada. On Tuesday, I warned that the 5-year government bond yield had risen 27 bps to 0.69% since the beginning of this month, shown in the first chart below. This morning, the rise has become exponential, hitting 1.00%, shown in the second chart.

Keep in mind that Canada’s economy has considerable slack with unemployment rising in recent months and the lockdown continuing for at least a couple more weeks in the GTA. Moreover, Canada has fallen far behind other countries in the vaccine rollout. But there is no denying that pent-up demand in Canada is high. Not only have home sales been breaking records, but auto sales and anything housing-related–such as Home Depot earning growth–have skyrocketed.

Savings rates are high, and the big banks have reported a surge in deposit growth as consumers squirrel away those savings. Remember, the Roaring Twenties was a response to the 1918 Pandemic, more than anything else.

The CRB commodity price index, shown below, is on a tear, and the gains are in every sector except gold and orange juice. That means that new home construction costs are also rising, as home sales remain well above listings.

Bottom Line

It’s time to lock-in mortgage rates. For those in the market, preapprovals are prudent. Rising rates will likely trigger more housing activity in the near-term as those thinking of buying might move off the sidelines, pushing prices higher over the first half of this year.

The surge in interest rates would undoubtedly stall or reverse if we see a third wave of new variant COVID cases in advance of a full rollout of the vaccines in Canada. However, there is enough monetary and fiscal stimulus in global markets, and oil prices are expected to continue to rally sufficiently that an ultimate rise in interest rates cannot be far off. This is indicated by the loonie moving to a near a 3-year high.

-Dr. Sherry Cooper

Latest in Mortgage News: BoC Sees Early Signs of Housing Overheating, but Will Keep Rates Low for Now

General Beata Gratton 26 Feb

Latest in Mortgage News: BoC Sees Early Signs of Housing Overheating, but Will Keep Rates Low for Now

Fixed rates may be heading higher, but variable-rate holders can rest assured their rates won’t be going up just yet, at least according to Bank of Canada Governor Tiff Macklem.

During a speech on Canada’s labour market, Macklem said monetary policy will need to continue to provide stimulus for a “considerable period” because a complete economic recovery is “still a long way off.”

We have committed to keeping our policy interest rate at the effective lower bound until economic slack is absorbed so that our inflation target is sustainably achieved,” he said, repeating a line often used during the Bank’s policy meetings. “And we have backed up this commitment with our program of large-scale government bond purchases.”

In statements released at past rate decision meetings, the Bank has repeated that it currently sees its policy rate at its “effective lower bound,” currently at 0.25%, and that it doesn’t foresee raising rates until 2023.

As for the Bank of Canada’s bond-buying program, which has helped keep fixed rates lower over the past year, watch for the BoC to further reduce its commitments in the coming months, says CIBC.

“The Bank has been pointing to its aversion to owning half or more of the outstanding stock of bonds due to the potential impacts on market functioning, and it would be on that path if it failed to slow its purchase plans,” noted Avery Shenfeld of CIBC Capital Markets. “Thus, come April, don’t be surprised to see a further reduction in bond purchases.”

BoC Keeping an Eye on Housing Market

Macklem also commented on growing signs of overheating in the country’s housing markets, but noted that while the Bank is watching the situation closely, the situation isn’t yet critical.

“We are starting to see some early signs of excess exuberance, but we’re a long way from where we were, say, in 2016, 2017 when things were really hot,” he said during the Q&A.

“What we get worried about is when we start to see extrapolative expectations, when we start to see people expecting the kind of unsustainable price rises we’ve seen recently go on indefinitely, and they’re basing their decision on those kinds of assumptions.”

…as Fixed Rates Continue to Rise

Earlier this week, we reported that a handful of lenders had started raising interest rates in response to surging bond yields. That handful is now a crowd.

Most lenders have been increasing their rates over the course of the week, and many brokers have been forced to follow their lead. On Friday, TD Bank became the first Big 6 bank to raise its 5-year fixed rates.

Canada’s 5-year bond yield shot up even higher on Thursday, closing at a near-12-month high of 0.95%, signalling yet more rate increases on the horizon.

Mortgage Professionals Canada Marks 13,000-Member Milestone

Canada’s national association of mortgage brokers, Mortgage Professionals Canada, announced that as of January 2021, its membership now comprises more than 13,000 members from across the country.

“An increased membership means we have a stronger representative voice with regulators and governments,” said MPC Board Chair Dong Lee in a video posted to social media.

MPC President and CEO Paul Taylor added the association will “continue to strive to increase our industry footprint, and we look forward to further growth and strength within our community.”

Steve Huebl

Canadian Home Sales Hit An All-Time Record High in January.

General Beata Gratton 17 Feb

Canadian Home Sales Hit An All-Time Record High in January.

Housing Continued to Surge in January

Today the Canadian Real Estate Association (CREA) released statistics showing national home sales hit another all-time high in January 2021. Canadian home sales increased 2.0% month-on-month (m-o-m) building on December’s 7.0% gain. On a year-over-year (y-o-y) basis, existing home sales surged 35.2%. As the chart below shows, January activity blew out all previous records for the month.

The seasonally adjusted activity was running at an annualized pace of 736,452 units in January, significantly above CREA’s current 2021 forecast for 583,635 home sales this year. Sales will be hard-pressed to maintain current activity levels in the busier months to come, absent a surge of much-needed new supply; However, that could materialize as current COVID-19 restrictions are increasingly eased and the weather starts to improve.

A mixed bag of gains led to the month-over-month increase in national sales activity from December to January, including Edmonton, the Greater Toronto Area (GTA), and Chilliwack B.C., Calgary, Montreal and Winnipeg. There was more of a pattern to the declines in January. Many of those were in Ontario markets, following predictions that sales in that part of the country might dip to start the year with so little inventory currently available and many of this year’s sellers likely to remain on the sidelines until spring.

Actual (not seasonally adjusted) sales activity posted a 35.2% y-o-y gain in January. In line with activity since last summer, it was a new record for January by a considerable margin. For the seventh straight month, sales activity was up in almost all Canadian housing markets compared to the same month the previous year. Among the 11 markets that posted year-over-year sales declines, nine were in Ontario, where supply is extremely limited at the moment.

CREA Chair Costa Poulopoulos said, “The two big challenges facing housing markets this year are the same ones we were facing last year – COVID and a lack of supply. It’s looking like our collective efforts to bring those COVID cases down over the last month and a half are working. With luck, some potential sellers who balked at wading into the market last year will feel more comfortable listing this year.”

New Listings

The dearth of new listings continues to be the biggest problem in the housing market. As we move into the spring market and continue to see fewer COVID cases, the likelihood is that new supply will emerge. But for now, the number of newly listed homes plunged 13.3% in January, led by double-digit declines in the GTA, Hamilton-Burlington, London and St. Thomas, Ottawa, Montreal, Quebec and Halifax Dartmouth.

With sales edging higher and new supply falling considerably in January, the national sales-to-new listings ratio tightened to 90.7% – the highest level on record for the measure by a significant margin. The previous monthly record was 81.5%, set 19 years ago. The long-term average for the national sales-to-new listings ratio is 54.3%.

Based on a comparison of sales-to-new listings ratio with long-term averages, only about 20% of all local markets were in balanced market territory in January, measured as being within one standard deviation of their long-term average. The other 80% were above long-term norms, in many cases well above. This was a record for the number of markets in seller’s market territory.

There were only 1.9 months of inventory on a national basis at the end of January 2021 – the lowest reading on record for this measure. At the local market level, some 35 Ontario markets were under one month of inventory at the end of January.

Low available supply is the reason property values will continue to go up. Strong demand pre-pandemic and the historic market rally since summer have cleaned up inventories in many parts of the country. Relative to the 10-year average, active listings had plummeted between 50% and 61% in Ontario, Quebec and most of Atlantic Canada, and 29% in BC by the late stages of 2020. And that’s despite a surge in downtown condo listings since spring in Canada’s largest cities. With so few options to choose from (outside downtown condos), buyers will continue to compete fiercely. Buyers in the Prairie Provinces, and Newfoundland and Labrador, however, will feel less pressure to outbid each other given supply isn’t quite as scarce in these markets.

Home Prices

Viewed from another angle, sellers enter 2021 holding a powerful hand when setting prices in most of Canada. We see this continuing during most of 2021. We expect provincial sales-to-new listings ratios—a reliable gauge of price pressure—to generally stay above the threshold (0.60) where sellers have historically yielded more pricing power. In several cases (including BC, Ontario and Quebec), ratios are well above the threshold, providing plenty of buffer against demand-supply conditions flipping in favour of buyers.

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose by 1.9% m-o-m in January 2021. Of the 40 markets now tracked by the index, prices were up on a m-o-m basis in 36.

The non-seasonally adjusted Aggregate Composite MLS® HPI was up 13.5% on a y-o-y basis in January – the biggest gain since June 2017.

The largest y-o-y gains – above 30% – were recorded in the Lakelands region of Ontario cottage country, Northumberland Hills, Quinte & District, Tillsonburg District and Woodstock-Ingersoll.

Y-o-y price increases in the 25-30% range were seen in Barrie, Niagara, Grey-Bruce Owen Sound, Huron Perth, Kawartha Lakes, London & St. Thomas, North Bay, Simcoe & District and Southern Georgian Bay.

Y-o-y price gains followed this in the range of 20-25% in Hamilton, Guelph, Oakville-Milton, Bancroft and Area, Brantford, Cambridge, Kitchener-Waterloo, Peterborough and the Kawarthas, Ottawa and Greater Moncton.

Prices were up 16.6% compared to last January in Montreal. Meanwhile, y-o-y price gains were in the 10-15% range on Vancouver Island, Chilliwack, the Okanagan Valley, Winnipeg, the GTA and Mississauga. Prices rose in the 5-10% range in Victoria, Greater Vancouver, Regina and Saskatoon. Home prices were up 2% and 2.2% in Calgary and Edmonton, respectively.

Bottom Line

The rollercoaster that was 2020 left Canada’s housing market more or less where it started the year: full of bidding wars, escalating prices and exasperated buyers unable to find a home they can afford. The pandemic changed some dynamics—it drove many buyers to the suburbs, exurbs and beyond, ground immigration to a virtual halt, triggered a downturn in big cities’ rental markets and caused households to build up their savings—but it didn’t dial down the market’s heat.

The marked shift in housing strength from urban centres–Toronto, Vancouver, Montreal–to perimeter cities is ongoing. For example, Toronto’s prices are up ‘only’ 11.9% y-o-y, but Barrie (+27%) and London (26%) have far outpaced these gains.

Condo price growth has slowed to just 3.1% y-o-y, or a record 14.3 percentage points below the price gains in single-detached homes. That’s by far the widest gap in 20 years and reflects the hunt for space and social distancing.

Housing starts (reported yesterday by CMHC) surged to 282,428 annualized units in January, the second-highest monthly posting since 1990. This figure could be distorted upward by the unseasonably mild January weather in much of the country. But the new high in starts is in line with record sales and solid building permits.

For policymakers, it doesn’t appear that there’s much interest in leaning against a sector that is helping to prop up the economy, especially with years of tightening mortgage rules already in place.

There appears to be little on the horizon to stop sales or prices from reaching new heights in 2021. Yet, cooling signs will emerge as the year progresses, which will come into fuller view next year. The foremost restraining factors will be a rise in new listings, waning pandemic-induced market churn, a modest creep-up in interest rates and an erosion of affordability. Call it a 2022 soft landing.

Dr. Sherry Cooper

Canadian Home Prices Set New Record High in January. Should We Be Worried?

General Beata Gratton 17 Feb

Canadian Home Prices Set New Record High in January. Should We Be Worried?

It should come as no surprise that home prices continued their upward trajectory in January, setting a new all-time record.

The average price reached $621,525, a 22.8% year-over-year (not seasonally adjusted) gain from a year earlier, reported the Canadian Real Estate Association (CREA).

Home sales were also up 35.2% compared to January 2019, to an annualized rate of 736,452–well above CREA’s 2021 forecast for 583,635 sales this year.

“The two big challenges facing housing markets this year are the same ones we were facing last year–COVID and a lack of supply,” said Costa Poulopoulos, Chair of CREA.

Here are some other key stats for the month:

  • Newly listed homes were down 13.3% year-over-year.
  • The national sales-to-new listings ratio tightened to 90.7%–the highest level on record for the measure by a “significant margin,” CREA reported. The previous record was 81.5%, set 19 years ago, and well above the long-term average of 54.3%.
  • There were just 1.9 months of housing inventory in January, a new record low. This is how long it would take to liquidate current inventories at the current sales rate. In Ontario, there are now 35 markets with less than one month of housing inventory, up from 29 markets in December.

“The problem with this time of year is that the buyers and sellers that will in time define the Canadian housing story of 2021 are mostly all still waiting in the wings,” noted Shaun Cathcart, CREA’s Senior Economist.

“The best-case scenario would be if we see a lot of sellers who were gun-shy to engage in the market last year making a move this year,” he added. “A big surge in supply is what so many markets really need this year to get people into the homes they want, and to keep prices from accelerating any more than they already are.”

Here’s a look at some regional and local housing market results from January:

  • Ontario: $796,884 (+26.7%)
  • Quebec: $408,061 (+20.7%)
  • B.C.: $843,830 (+15.9%)
  • Alberta: $421,903 (+9.1%)
  • Halifax-Dartmouth: $433,308 (+30.7%)
  • Barrie & District: $637,500 (+27.6%)
  • Ottawa: $555,200 (+22.3%)
  • Greater Montreal Area: $434,000 (+16.7%)
  • Greater Toronto Area: $927,700 (+11.9%)
  • Winnipeg: $293,500 (+10.3)
  • Victoria: $742,600 (+5.6%)
  • Greater Vancouver Area: $1,056,600 (+5.5%)
  • Edmonton: $320,800 (2.2%)
  • Calgary: $420,000 (+2%)

Should We Be Worried?

“Rock-bottom interest rates, changing housing needs, high household savings and perhaps nervousness that accelerating prices will crush affordability down the road continued to fuel huge buyer interest,” wrote RBC Economics’ Robert Hogue, noting that the ongoing run-up in prices could bring calls for policy intervention.

“With prices rising more than 20% from a year ago in virtually every small southern Ontario market, parts of Quebec and Atlantic Canada—and most still on an accelerating path—affordability issues will soon confront many Canadian communities. Pressure will build on policy-makers to ‘do something about it’,” he said.

Yet, there’s also reason for them to take a hands-off approach, according to BMO’s Robert Kavcic.

“For policy-makers, it doesn’t appear that there’s much interest in leaning against an area of the economy that is actually strong at this time, especially with years of tightening mortgage rules already in place.”

A notable ongoing trend is the faster pace of price acceleration in communities surrounding large urban areas, Kavcic added.

“…almost all of the country is seeing housing market strength…That said, the shift in strength from big urban markets (i.e., Toronto, Montreal, Vancouver) to perimeter cities is ongoing,” he wrote, pointing to the 11.9% annual increase in Toronto prices vs. 27% in Barrie and 26% in London.

But this rapid rise in prices in outlying areas is also easily explained.

“If a household sells a typical house in Toronto to buy one in Barrie, they could offer 10% over asking and still only pay 66% of what they’re selling for,” he continued. “With very limited supply, it’s easy to see how a lot of new buyers entering a particular region can be insensitive to prices, and therefore push them up quickly.”

So, what can anxious homebuyers expect in the months ahead?

“We expect the dearth of supply—including in smaller markets—will soon restrain activity but keep the heat intense,” says Hogue.

Even the condo market is once again starting to see increased demand, wrote Rishi Sondhi of TD Economics.

“Also notable was that benchmark condo prices grew for the first time in several months in Toronto. Although supply remains elevated, conditions are becoming tighter than what we saw last fall. This suggests that further gains are in store.”

Canada’s ‘Energizer Bunny’ Housing Market: 2021 Forecasts

General Beata Gratton 27 Jan

Canada’s ‘Energizer Bunny’ Housing Market: 2021 Forecasts

The Canadian real estate market defied gravity last year in spite of a global pandemic and nationwide lockdowns.

The year ended with the seasonally adjusted MLS Home Price Index up 13% year-over-year with the average house price surpassing the $600,000 mark.

“It’s official, despite all the challenges, 2020 was a record year for Canadian resale housing activity,” Costa Poulopoulos, Chair of the Canadian Real Estate Association (CREA), declared.

But where do prices go from here?

Will prices finally fall, as many have been predicting since early last year? Will they moderate and return to more sustainable growth, or is it still full steam ahead?

Nobody knows for sure, of course. But we’ve compiled a rundown of some of the many (and varied) 2021 house price forecasts to get an idea of what some of the smart minds in the industry think.

Keeping in mind the fallibility of forecasting the future, we’ve also included some of the 2020 forecasts where possible.

In case we need a reminder of how “off” forecasts can be, one need not look further than the Canada Mortgage and Housing Corporation’s (CMHC) prediction of a 9% to 18% decline from the pre-COVID peak by the end of 2020. That was a prediction that did not age well.

CREA

  • 2021 forecast: +9.1%
    • 2020 forecast: +6.2%
  • Commentary: “(we are) anticipating healthy housing price growth in 2021, with move-up and move-over buyers continuing to drive activity in many regions across the Canadian housing market. An ongoing housing supply shortage is likely to continue, presenting challenges for homebuyers and putting upward pressure on prices.”
  • Link

CMHC

  • 2021 forecast: -9% to -18% (pre-COVID peak-to-trough decline)
    • The agency first released this forecast last spring at the height of the first wave of the pandemic. While the timeframe has been been pushed out, CMHC continues to stand by this forecast.
    • 2020 forecast: an average MLS Price of between $506,200 and $531,000
  • Commentary: “When I say I stand by our forecasts, it’s really with respect to what are the broad trends we expect moving forward,” CMHC Chief Economist Bob told reporters in September. “When I look at the housing market there are a tremendous number of risks.”
  • Link

Real Estate Firms

Royal LePage

  • 2021 forecast: +5.5%
    • 2020 forecast: +3.2%
  • Commentary: “Across the country, a large number of hopeful buyers intent on improving their housing situation were not able to find the home they were looking for this year, as the inventory of properties for sale came nowhere near to meeting surging demand. With policy-makers all but promising record-low, industry-supportive interest rates to continue, we do not see this imbalance improving (this) year. The upward pressure on home prices will continue.”
  • Link

RE/MAX

  • 2021 forecast: +4% to 6%
    • 2020 forecast: +3.7%
  • Commentary: “(We are) anticipating healthy housing price growth in 2021, with move-up and move-over buyers continuing to drive activity in many regions across the Canadian housing market. An ongoing housing supply shortage is likely to continue, presenting challenges for homebuyers and putting upward pressure on prices.”
  • Link

The Banks

RBC

  • 2021 forecast: +8.4%
  • Commentary: “We see little that will stop activity or prices from reaching new heights in the year ahead…Yet we also expect cooling signs to emerge, which will come into fuller display in 2022. The main restraining factors will be a lack of supply, waning pandemic-induced market churn, a modest creep-up in interest rates and an erosion of affordability. Call it a 2022 soft landing.”
  • Link

TD

  • 2021 forecast: +5.8%
    • TD is calling for an initial plunge in home prices of 7% in early 2021, before recovering in the latter part of the year to post an overall year-over-year price gain.
  • Commentary: “Canadian prices will likely drop through the first half of 2021 by around 7%, before regaining some traction later (in the) year. While this sounds like a big hit, it would still leave the upward trend in prices, established prior to the pandemic, in place. Some added pressure on prices could emerge on the supply side. Case in point, the end of mortgage deferral programs is likely to spark some additional supply on the market.”
  • Link

CIBC

  • 2021 forecast: +2.4%
    • This is based on an average of the bank’s upside case of an 11.2% price gain vs. its downside case of a 6.9% decline over the next 12 months.
  • Link

National Bank of Canada

  • 2021 forecast: -5.2%
    • This is based on an average of the bank’s upside case of a 1.5% price decline in 2021 vs. its downside case of a 9.9% decline.
  • Commentary: “We were pleasantly surprised by the performance and house prices so far during the pandemic. Although in our forecasts, particularly in the pessimistic case, we don’t assume strength in the housing market. I think for the macroeconomic scenarios, and that which goes into generating our allowances, you can consider those scenarios quite prudent.”

BMO

  • 2021 forecast: +6.6%
    • This is based on an average of the bank’s quarterly MLS Home Price Index forecasts, ranging from +11.6% in Q1 to +0.5% by Q4.
  • Commentary: “We expect the market to lose some momentum in the months ahead, as tighter mobility restrictions, the small back-up in long-term yields, the ongoing absence of immigration, and still-soft employment conditions will weigh. To be clear, we don’t look for a reversal in the broader (housing) market, just some moderation from (December’s) extraordinary results. After all, ‘stay at home’ doesn’t translate to ‘don’t buy a home.’
  • Link

Scotiabank

  • 2021 forecast: +0.4%
  • Commentary: “The delay of some activity into H2-2021, when we had already expected widespread inoculation to lift economic growth, likely means stronger second-half activity than we previously anticipated. Rock-bottom interest rates, ongoing federal and provincial fiscal supports, and the current supply-demand tightness should also contribute to home price gains over the medium-term.”

Credit Rating Agencies

Moody’s Analytics

  • 2021 forecast: -7% (peak-to-trough decline)
  • Commentary: “The housing market will no longer be able to escape the poor condition of the labour market as vacancy and delinquency rates rise in 2021…Fortunately, the declines will be brief and the restoration of robust job growth in 2022 along with Canada’s strong demographics will put a floor under the housing market.”
  • Link

Fitch Ratings

  • 2021 forecast: -5%
  • Commentary: “We attribute the expected decline to lower demand caused by elevated levels of unemployment and increasing affordability issues…Although we expect delinquencies to increase in 2021, we do not expect the level of delinquencies, distressed sales or foreclosures to increase to the levels seen in the U.S. during the financial crisis.”
  • Link

Steve Huebl

Bank of Canada Still Expects No Rate Increases Until 2023

General Beata Gratton 20 Jan

Bank of Canada Still Expects No Rate Increases Until 2023.

The Bank of Canada, this morning, released its January Monetary Policy Report (MPR), showing they expect to keep overnight interest rates at its “effective lower bound” of 0.25% until 2023 (see chart below). To reinforce this commitment and keep interest rates low across the yield curve, the Bank will continue its Quantitative Easing (QE) program–buying $4 billion of Government of Canada bonds every week until the recovery is well underway. The central bank indicated it could pare purchases once the recovery regains its footing.

According to the Bank’s press release, “The Governing Council will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In our projection, this does not happen until into 2023.” Officials are apparently optimistic about the economy’s prospects once the vaccine is sufficiently distributed and injected. There is no indication that they are planning additional measures to ease monetary policy.

This is particularly noteworthy for two reasons: 1) some economists had been speculating that the Bank would lower the overnight rate by 10-to-15 basis points to help mitigate the impact of continued and broadening lockdowns; and, 2) others thought the early development of the vaccine would trigger sufficient growth to warrant a rate hike in 2022. In the Bank’s current view, neither is likely to be the case. Why mess with a minute cut in already record-low interest rates when mortgage lending is still strong? The slow rollout of the vaccine and the mounting second wave of cases assure weak economic activity in Canada at least until the second half of this year.

As well, inflation remains surprisingly muted. In a separate release today, Stats Canada revealed that price pressures in Canada unexpectedly slowed in December as the country endured a new wave of lockdowns. After climbing to the highest since the pandemic in November, the latest reading shows price pressures are still well below the Bank of Canada’s 2% target. That’s consistent with the view from policymakers that inflation will remain subdued for some time.

The pandemic’s second wave has hit Canada very hard, and the vaccine rollout has been disappointing (see chart below). Today’s MPR predicts that the economy will contract in the first quarter of this year. Economic weakness could be exacerbated by the Canadian dollar’s strength, which moved to above 79 cents US following today’s BoC announcement. Ten-year yields edged up modestly as well.

Bottom Line

For the year as a whole, economic growth is expected to be around 4% in 2021, compared to a contraction of -5.5% last year. As the inoculated population grows, the Bank forecasts an acceleration in growth to just under 5% in 2022 and a more-normal 2.5% in 2023. According to the January MPR, “The medium-term outlook is stronger than in the October Report because of vaccines’ positive effects, greater fiscal stimulus, stronger foreign demand and higher commodity prices. Meanwhile, potential output has also been revised up, reflecting an improved projection for business investment and less scarring effects on businesses and workers. There is considerable uncertainty around the medium-term outlook for GDP and the path for potential output. Thus, while the output gap is expected to close in 2023, the timing is particularly uncertain.”

Concerning housing activity, the report said, “Demand for housing has continued to show resilience, despite increasing case numbers and tightening restrictions. Housing activity should remain elevated into the start of 2021, supported by low borrowing rates and resilient disposable incomes. Changes in homebuyers’ preferences have also played a role. For example, price growth has been strongest for single-family homes and in areas outside city centers,” shown in the chart below.

Dr. Sherry Cooper

Record December Canadian Housing Market Caps Record Year.

General Beata Gratton 19 Jan

2020 Was a Blockbuster Year for Housing

Despite the fears leading into the pandemic last Spring, 2020 marked a record number of home resales as new listings lagged and prices climbed. December housing data released by the Canadian Real Estate Association (CREA) today shows national home sales surged 7.2% month-over-month (m-o-m) at a time of the year when housing is normally slow. The chart below shows that resales were impressively above their 10-year average. The seasonally adjusted activity was running at an annualized 714,516-unit pace in December 2020 – the first time on record that monthly sales (at seasonally adjusted annual rates) have ever topped the 700,000 mark.  It was a new record for December by a margin of more than 12,000 transactions. For the sixth straight month, sales activity was up in almost all Canadian housing markets compared to the same month in 2019.

The increase in national sales activity from November to December was driven by gains of more than 20% in the Greater Toronto Area (GTA) and Greater Vancouver.

On a year-over-year basis (y-o-y), activity rocketed upward by 47.2% as interest rates hit record lows, housing needs changed owing to the pandemic, and supply was insufficient to meet demand. The housing boom occurred despite the fall in population growth, reflecting the dearth of new immigration. The yearly change in population growth in Canada nosedived in 2020 after climbing powerfully in the prior four years. Despite this headwind, for 2020 as a whole, 551,392 homes traded hands over Canadian MLS® Systems – a new annual record. This is an increase of 12.6% from 2019 and stood 2.3% above the previous record set in 2016.

New Listings

“The stat to watch in 2021 will be new listings, particularly in the spring – how many existing owners will put their homes up for sale?” said Shaun Cathcart, CREA’s Senior Economist. “We already have record-setting sales, but we know demand is much stronger than those numbers suggest because we see can see it impacting prices. On New Year’s Day, there were fewer than 100,000 residential listings on all Canadian MLS® Systems, the lowest ever based on records going back three decades. Compare that to five years ago, when there was a quarter of a million listings available for sale. So we have record-high demand and record-low supply to start the year. How that plays out in the sales and price data will depend on how many homes become available to buy in the months ahead. Ideally, we’d like for households to be able to find and acquire the homes that best suit their needs and for housing to remain affordable, but the fact is we’re facing a major supply problem in 2021.”

The number of newly listed homes climbed by 3.4% in December, led by more new listings in the GTA and B.C. Lower Mainland, the same parts of Canada that saw the biggest sales gains in December.

With sales up by more than new supply in December, the national sales-to-new listings ratio tightened to 77.4% – among the highest levels on record for the measure. The long-term average for the national sales-to-new listings ratio is 54.2%.

Based on a comparison of sales-to-new listings ratio with long-term averages, only about 30% of all local markets were in balanced market territory in December, measured as being within one standard deviation of their long-term average. The other 70% of markets were above long-term norms, in many cases well above.

There were just 2.1 months of inventory on a national basis at the end of December 2020 – the lowest reading on record for this measure. At the local market level, 29 Ontario markets were under one month of inventory at the end of December.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose by 1.5% m-o-m in December 2020. Of the 40 markets now tracked by the index, only one was down between November and December.

The non-seasonally adjusted Aggregate Composite MLS® HPI was up 13% on a y-o-y basis in December – the biggest gain since June 2017 (see chart below).

Home price activity largely reflected the desire of home purchasers to move away from city centres to a greener, less-expensive suburbs and exurbs now that telecommuting appears to be a sustainable option, at least part-time.

The largest y-o-y gains – above 30% – were recorded in Quinte & District, Simcoe & District, Woodstock-Ingersoll and the Lakelands region of the Ontario cottage country (see the table below for details).

Y-o-y price increases in the 25-30% range were seen in Bancroft and Area, Grey Bruce Owen Sound, Kawartha Lakes, North Bay, Northumberland Hills and Tillsonburg District.

This was followed by y-o-y price gains in the range of 20-25% in Barrie, Hamilton, Niagara, Brantford, Cambridge, Huron Perth, Kitchener-Waterloo, London & St. Thomas, Southern Georgian Bay and Ottawa.

Prices were up in the 15-20% range compared to last December in Oakville-Milton, Peterborough and the Kawarthas, Montreal and Greater Moncton.

Meanwhile, y-o-y price gains were in the 10-15% range in the GTA and Mississauga, Quebec City, and the 5-10% range across B.C., and in Regina, Saskatoon, Winnipeg and St. John’s NL.

Alberta still lagged owing to the still-negative oil market scene, where home prices were up only 1.5% and 2.7% in Calgary and Edmonton, respectively.

The MLS® HPI provides the best way to gauge price trends because averages are strongly distorted by changes in sales activity mix from one month to the next.

The actual (not seasonally adjusted) national average home price was a record $607,280 in December 2020, up 17.1% from the same month last year.

Bottom Line

Housing strength is largely attributable to record-low mortgage rates and strong demand for more spacious accommodation by households that have maintained their income level during the pandemic. The hardest-hit households are low-wage earners in the accommodation, food services, non-essential retail and tourism-related sectors. These are the folks that can least afford it and typically are not homeowners.  

We end 2020 with the national average home price up 17.1%–a dramatic surge rather than the 9-18% decline forecast by CMHC last March. Moreover, 2021 is likely to be another strong year for housing.  It would not surprise me if annual sales reached a new high in 2021, especially in the first half of the year. There will, however, be cooling signs as the year progresses and especially into 2022. Firstly, supply constraints are a major factor as new listings remain low relative to demand. As well, the pandemic-induced changes in housing needs will have a waning effect over time. As vaccine injections rise across the country and we return to a new normal, interest rates will creep up moderately. This along with higher home prices will slow the pace of activity as affordability erodes.

There will be mitigating factors in 2022: the number of new immigrants is slated to rise to roughly 500,000 that year and demand for short-term Airbnb rentals will rise sharply as tourism revives.

Dr. Sherry Cooper

Canadian Jobs Market Tanked in December

General Beata Gratton 8 Jan

Canadian Jobs Market Tanks in December.

Canadian employment fell 62,600 last month, a bit weaker than expected, following seven months of recovery (see chart below). The rapid rise in COVID cases and the ensuing lockdown measures in many key regions caused the net loss in jobs in the mid-December survey.  Especially hard hit were workers at restaurants and hotels who suffered a hefty 56,700 employment loss.

The jobless rate rose a tick to 8.6%–well below the peak of 13.7% in April–but still three percentage points above its pre-pandemic level.

However, there were some bright spots as several sectors churned out small gains (see second chart below).  Among them were finance, insurance and real estate, as well as scientific and tech services. Manufacturing rose 15,400, and public administration reported solid gains.

On a positive note, full-time jobs actually rose 36,500, and average wages pushed back up and are now 5.6% higher than one year ago. This outsized gain, in part, reflects the loss in so many low-wage jobs.

Part-time jobs were down sharply in December, led by losses among workers aged 24 and under and those aged 55 and older. Also, the number of self-employed workers fell by 62,000, its lowest point since the pandemic began.

The December loss of jobs left employment down 571,600 (or -3.0%) from year-ago levels, the deepest annual decline since 1982–but far better than the April reading of -15% y/y. The 2020 job loss in Canada of -3.0% is also a relatively mild downturn compared to today’s US job market release for December, which reported a -6.2% y/y drop in employment. In Canada, the 332,300 y/y loss in accommodation and food services employment alone accounted for 58% of our annual job loss.

Employment was down in nine out of ten provinces last month. The lucky exception was British Columbia. None of the provinces stood out on the low side. The table below shows the unemployment rate by province. Jobless rates rise and fall with labour force participation rates. You are not considered unemployed if you are not seeking work. The number of people counted as either employed or unemployed dropped by 42,000 (-0.2%) in December, the first significant decline since April. Core-aged women and young males were largely responsible for the fall.

Bottom Line 

It certainly doesn’t appear that the lockdowns will be lifted anytime soon. We keep hitting new records in the number of Covid cases, and the more contagious Covid variant is upon us. What’s more, the rollout of the vaccine has been disturbingly slow. So until winter is behind us, there is unlikely to be a meaningful opening of the economy. All things considered, Canada’s economy has been relatively resilient. That’s not surprising given the government income support–the most generous in the G7 countries. Moreover, financial conditions are extremely accommodative.

Although no one is coming through the pandemic unscathed, most of the employment losses have been lower-paying jobs. Many higher-income earners continue to work from home. And even though the pandemic is worsening, many of Canada’s housing markets recorded their strongest December ever. Rock-bottom interest rates, high household savings and changing housing needs turned 2020 into a spectacular year for housing activity.

According to local real estate boards, December resales were surprisingly strong for what is typically a quiet month. Existing home sales surged between 32% y/y in Montreal, Ottawa and Edmonton and 65% y/y in Toronto based on early results. More distant suburbs attracted many families looking for more space with less concern about long commutes when jobs can be conducted at home. Property values continued to appreciate at accelerating rates in most markets. Downtown condo prices still bucked the trend due to ample inventories in Canada’s largest cities—the downturn in the rental market has prompted many condo investors to sell. That said, softer condo prices are now drawing more buyers in. Existing condo sales soared virtually everywhere in December.

Housing is likely to continue to cushion the blow of the pandemic on the overall economy. And while not everyone is sharing in this windfall, it will ultimately help pave the way to better employment gains in the spring.

However, no question that the bright light at the end of the very dark pandemic tunnel is a widely dispersed vaccine. PM Trudeau reasserted this week that the vaccine will be available to all who want it by September 2021. At the pace, it is now getting into people’s arms, that will not happen. Just over 0.6% of Canada’s population was vaccinated as of Thursday, January 7. By comparison, the US had vaccinated 1.8% of its population by that date, and Israel had inoculated nearly 20%, according to Our World in Data, a nonprofit research project at the University of Oxford. The U.K. had vaccinated about 1.9% of its population by Jan. 3, the latest date for which vaccination numbers were available (see the chart below).

Dr. Sherry Cooper

2020 – Year in Review

General Beata Gratton 5 Jan

Now that the page has finally been turned on 2020, we wanted to take a look back at how mortgage rates fared over the course of what was a tumultuous year.

It’s safe to say that COVID-19 stole the show in terms of the year’s biggest newsmaker. On the mortgage front, one of the biggest themes of the year ended up being the downward trend in interest rates to historic lows. Not to mention a resilient housing market that not only held its ground in the face of a global pandemic, but one that continued to produce record-high house prices.

Here’s an overview of some of the year’s top stories, rate movements and mortgage-related stocks.

**********

Top Mortgage Stories of 2020

COVID-19 and Mortgage Deferrals

The COVID-19 pandemic was indisputably the largest event of 2020, and one with far-reaching effects. One of the key reasons Canada’s housing and mortgage markets held up so well is thanks to the Herculean and unprecedented response from the country’s mortgage lenders, including the mortgage deferral options offered by most of them.

At the height of the program, nearly 800,000 mortgages were in deferral. By December, the far majority of those mortgage holders have successfully transitioned back to making their regular payments. It’s clear that without this coordinated mortgage payment relief, far more homeowners would likely have defaulted on their payments, leading to more severe personal and economic consequences.

Bank of Canada’s COVID Response

The Bank of Canada’s role in keeping the country’s financial system liquid and maintaining confidence throughout the year can’t go unrecognized. The Bank’s Governing Council dropped the key lending rate from 1.75% in February to just 0.25% by the end of March. Over the course of the year the Bank bought up tens of billions of dollars in government bonds. By the end of October, the Bank had acquired $156 billion worth of bonds, according to Governor Tiff Macklem—or about 32% of the bond market. At the current pace, the central bank is expected to control more than half of the country’s bond market by the end of next year, according to estimates by CIBC’s Ian Pollick.

Mortgage Rates Reach Historic Lows

One very important impact for homebuyers was the steady downward decline in mortgage rates over the course of the year. Not only did mortgage rates end the year lower from where they started the year, they reached all-time lows, with rates for most terms falling below 2.00%. And in December, HSBC unveiled the lowest mortgage rate in Canadian history, a 5-year high-ratio insured variable rate of 0.99%.

Unstoppable Real Estate Market

Despite a plunge in home sales and a dip in home prices in the early days of the pandemic, the real estate market quickly regained its footing and by the fall was once again posting fresh price highs.

As of November, the Canadian Real Estate Association reported an average sale price of $603,000 (up 13.8% from 2020), or $481,000 (+19%) after removing the high-priced markets of Toronto and Vancouver. With housing supply ending the year at a record low, prices are expected to maintain upward momentum, albeit at a more moderate pace, according to forecasts.

This Year’s Top Deals & Lender Moves

DLC Merger with Founders Advantage

Genworth Acquired by Brookfield, Renamed to Sagen MI

CMHC’s Rule Changes

Finastra Purchases Doorr

Lendesk Acquires Finmo

Rate Movement

The foundation for Canadian interest rates is the overnight rate. It ended the year down significantly from where it began at the start of the year. Meanwhile, the most important benchmark for fixed-rate pricingthe 5-year government bondended the year down 130 basis points.

Indicator Year End 2020
Change
BoC Overnight Rate 0.25% -150 bps
Prime Rate 2.45% -150 bps
Avg. 5-yr Discounted Fixed Rate1 1.52% -109 bps
Avg. Discount Variable Rate1 1.17% -160 bps
5-yr Posted Rate 4.79% -40 bps
5-yr Government Bond Yield 0.39% -130 bps

Stock Moves

And finally, here’s a look at the performance of Canada’s big banks along with the public companies that make the majority of their revenue in the mortgage business.

Big Banks
Share
Price
2020
% Change
Annual
Dividend Yield
Bank of Montreal $96.78 -4% 4.38%
CIBC $108.72 +1% 5.37%
Laurentian Bank $31.20 -30% 5.13%
National Bank $71.64 -0.3% 3.96%
Royal Bank of Canada $104.59 +2% 4.13%
Scotiabank $68.80 -6% 5.23%
TD Canada Trust $71.92 -1% 4.39%

 

Mortgage Companies Share
Price
2020
% Change
Annual
Dividend Yield
Atrium MIC $12.65 -13% 7.12%
Equitable Group $101 -9% 1.47%
Firm Capital MIC $12.73 -14% 5.06%
First National $41.48 +9% 8.84%
Genworth MI $43.41 +43% 4.98%
Home Capital Group $29.70 -10%
MCAN Mtg Corp $15.77 -8% 8.62%
Timbercreek Financial $8.65 -14% 7.98%
Trez Capital MIC $2.41 +-14%

 


1 Discounted mortgage rates reflect the average advertised rates of Canada’s top super brokers, as of December 31.

 

Steve Huebl

Canada’s Jobs Recovery Slowed Again in November With Second Wave

General Beata Gratton 4 Dec

Canada’s Jobs Recovery Slowed Again in November With Second Wave

The Canadian economy rebounded sharply in the third quarter, posting its most rapid expansion ever. Still, it was a lower than expected gain, and early data show that momentum is quickly fading in the face of a second wave of the pandemic.

Gross domestic product rose by a massive 40.5% annual rate in Q3, reversing much of the historic 38.1% plunge in Q2 (revised from -37.8%). No matter how impressive the Q3 bounce was, it fell short of well-telegraphed expectations—even yesterday’s Fall Fiscal Statement assumed a 47.5% surge, reflecting the widespread reopening of the economy. Still, thanks to the magic of upward revisions to prior quarters (stretching back years), it appears that the economy is headed for roughly an annual decline of about 5.7% this year. The rebound brings total output to 95% of pre-pandemic levels.

With the huge second wave in COVID cases, renewed restrictions have been implemented across the country in recent weeks, assuring that the Q3 rebound has stalled in the fourth quarter. Today’s news that September’s monthly GDP growth was a solid +0.8% and October’s first estimate is +0.2% is moderately encouraging. Even so, economic activity is likely to flatten in November and decline in December, holding Q4 growth to a 0-to- 2% annual pace.

The big bounce in Q3 left GDP down 5.2% from a year ago for the quarter. But the gain in October brings the latest monthly tally to down less than 4% y/y.

As shown in the table below, the big “miss” in Q3 GDP growth was mostly attributed to the decline in inventories. Otherwise, the picture was one of a massive snap-back in activity from the spring shutdowns. There were triple-digit annualized rebounds in housing, capital spending on machinery & equipment, and imports. Housing grew at a record 187.3% q/q annual rate, the strongest component of the economy. Housing was also up 9.5% year-over-year.

Hospitals and schools drive growth in public sector employment

The number of public sector employees grew by 32,000 (+0.8%) in November and exceeded its pre-COVID February level by 1.5%. On a year-over-year basis, the number of public sector workers was up 61,000 (+1.6%), driven mostly by increases in hospitals and elementary and secondary schools (not seasonally adjusted).

The number of private-sector employees was little changed in November but was down by 411,000 (-3.3%) compared with 12 months earlier. This decline was largest in accommodation and food services, while employment in professional, scientific and technical services increased (see chart below).

Growth in self-employment stalled in November, and this group remained furthest from November 2019 (-4.5%; -131,000) and from the February pre-COVID level (-4.7%; -136,000).

Employment declines in leisure activities & accommodation and food services

In November, employment in information, culture and recreation declined by 26,000 (-3.5%), the first notable decline for this industry since April. Employment fell for a second consecutive month in Quebec, where restrictions on public gatherings had been notably tightened as of the Labour Force Survey reference week. At the national level, employment in information, culture and recreation was 10.5% lower in November than in February (see chart below).

Employment in accommodation and food services declined for the second consecutive month, falling by 24,000 (-2.4%) in November, with the drop being shared between Ontario, Manitoba and Quebec. Nearly 1 in 10 (8.9%) employees in accommodation and food services worked less than half their usual hours in November—the third-highest share among all industries, following business, building and other support services (10.3%), and transportation and warehousing (9.2%) (not seasonally adjusted).

Statistics Canada conducted the Canadian Survey on Business Conditions to collect information on businesses’ expectations moving forward from mid-September to late October. Almost one-quarter of businesses in accommodation and food services (22.5%) expected to reduce their number of employees over the next three months, more than double the average across all businesses (10.4%).

Second consecutive employment increase in retail trade

In retail trade, employment grew for the second consecutive month, rising 1.5% in November (+32,000), with most of the month-over-month increase in Ontario. Shutdowns of in-person shopping at non-essential retailers were introduced in Toronto and Peel on November 23, after the LFS reference week. They may be reflected in the December LFS results. December results may also shed light on the effect of tighter restrictions in other provinces such as Manitoba and Alberta.

At the national level, the employment increase in November brought retail trade within 3.7% of its pre-COVID employment level.

Employment growth resumes for construction and transportation and warehousing

Employment in construction rose by 26,000 (+1.9%) in November, the first increase since July, largely due to a 5.5% (+28,000) increase in Ontario. Nationally, employment in construction was 5.7% below its February level.

After pausing in October, employment growth resumed in transportation and warehousing in November (+20,000; +2.1%). The increase was largely the result of gains in Ontario and British Columbia, bringing employment in this industry to within 6.4% of its pre-COVID level.

Finance, insurance, real estate, rental and leasing now exceeding pre-COVID employment levels

Employment rose for the third consecutive month in finance, insurance, real estate, rental and leasing, up by 15,000 (+1.2%). The recent employment growth in this industry pushed it fully into recovery territory, surpassing its February level by 2.3%.

Employment up in natural resources for the second consecutive month

In natural resources, employment rose for the second consecutive month, rising 3.1% in November (+10,000) and returning to its pre-COVID level. The month-over-month gain was nearly equally split between Alberta and British Columbia. Data for this industry over the next few months may shed light on Alberta’s impact, ending its limits on oil production in December, allowing producers to utilize available pipeline capacity and increase employment.

Labour market conditions vary across provinces

Employment increased in six provinces: Ontario, British Columbia and in all four Atlantic provinces. Manitoba experienced its first employment loss since April, while the number of people with a job or business held steady in Quebec, Saskatchewan and Alberta.

By November, employment levels in Newfoundland and Labrador, Nova Scotia and New Brunswick had returned to pre-COVID levels. Employment was nearest February levels in British Columbia (-1.5%) in November and farthest in Manitoba (-4.8%) and Alberta (-4.9%).

Employment growth continues to slow in Central Canada

Following average monthly employment growth of 3.1% from June to September, Ontario saw slow growth in October. This continued in November, as employment rose by 37,000 (+0.5%), mostly in full-time work. Employment in the Toronto CMA was at a standstill in November after increasing for five consecutive months. The Ontario unemployment rate fell 0.5 percentage points to 9.1%.

The largest employment gain was in construction, an industry not affected by recent restrictions. Simultaneously, there were declines in accommodation and food services amid the tightening of public health measures in the City of Toronto and the Region of Peel.

Employment in Quebec was little changed for the second consecutive month. In the Montréal CMA, employment was flat for the second consecutive month following average monthly growth of 3.8% from May to September. The Quebec unemployment rate fell 0.5 percentage points to 7.2% as fewer people were on temporary layoff.

Employment fell in accommodation and food services and information, culture and recreation, coinciding with the targeted public health measures since October. Employment increased in professional, scientific and technical services.

Continued employment growth in British Columbia

Just before the start of the LFS reference week of November 8 to 14, the Vancouver Coastal Health Region and the Fraser Health Region introduced new restrictions on social gatherings, travel, gyms, and indoor sports facilities as new COVID-related workplace safety requirements.

Despite these new restrictions, employment in British Columbia grew by 24,000 (+1.0%) in November, adding to the gains over the previous six months (+335,000). Losses in part-time employment partly offset gains in full-time work. Several industries saw increases, including accommodation and food services, transportation and warehousing, wholesale and retail trade, and construction. The unemployment rate fell 0.9 percentage points to 7.1%.

Employment grew (+1.2%) in the Vancouver CMA, albeit slower than in the previous two months.

More people working in Atlantic Canada

Newfoundland and Labrador, Prince Edward Island, Nova Scotia and New Brunswick all had employment gains in November.

Nova Scotia posted the largest employment increase among the Atlantic provinces, up 10,000 (+2.2%), continuing the upward trend since April. The increase in November was mostly in full-time work. The unemployment rate fell 2.3 percentage points to 6.4%, the lowest since March 2019 and the lowest among the provinces.

New Brunswick posted its first significant employment gain (+4,200; +1.2%) since the substantial increases in May and June. The increase in November was nearly all in full-time work, and the unemployment rate fell 0.5 percentage points to 9.6%.

Employment in Newfoundland and Labrador rose for the seventh consecutive month, up 2,300 (+1.0%) in November, and regained all of the losses sustained since February. The unemployment rate in November was little changed at 12.2%. Industries with employment losses at the start of the pandemic, such as natural resources, construction and manufacturing, saw small increases in subsequent months and offset the declines in March and April. Others, such as healthcare and social assistance and public administration, continued to gain employment in recent months, pushing their employment above February levels.

Prince Edward Island also had more people working in November (+1,000; +1.3%), and the unemployment rate was 10.2%.

Employment losses in Manitoba

Employment in Manitoba decreased by 18,000 in November, nearly all in part-time work. This was the first notable decline since April and coincided with tighter public health measures introduced in early November for the Winnipeg metropolitan region and the rest of the province by the LFS reference week. The largest employment decrease was in accommodation and food services. The unemployment rate was little changed in November at 7.4% as fewer Manitobans participated in the labour market.

In both Saskatchewan and Alberta, there was little employment change in November. As of the LFS reference week of November 8 to November 14, both provinces had largely avoided introducing tighter public health measures. The unemployment rate in Saskatchewan increased 0.5 percentage points to 6.9%, with more people looking for work, while the Alberta unemployment rate was little changed at 11.1%.

Bottom Line

The economic recovery remains dependent on the evolution of the pandemic. The best news we’ve had in the past month is the successful development of efficacious vaccines. The timing of approvals and distribution is uncertain, but it is safe to say that the worst of the pandemic will continue this winter, with a seasonal reprieve in the spring and summer. By then, the distribution of the vaccine will hopefully be well underway. That means that 2021 will be a transition year, and in 2022 we can expect the economy can move from recovery to expansion.

There was good news in this Labour Force Report. Although job gains slowed, total hours worked rose by an impressive 1.2% m/m. Following a decent 0.8% rise in the prior month, this big gain “builds in” a strong 14% annualized gain for all Q4 for hours worked. Note that total hours are one of Ottawa’s three new “guardrails” for judging when to rein in fiscal stimulus; both of the other two also improved, with unemployment falling 81,000 and the employment rate nudging up 0.1 tick to 59.5% (it’s still 2.3 ppt below pre-Covid levels). Average hourly wages eased again, as expected, but remain robust at 5.0% y/y.

We suspect the job cuts in the hospitality sector, and possibly retail, will bite much deeper in next month’s report, as restrictions tightened notably immediately after this survey period. Overall, the report is firmer than expected and suggests that the economy is dealing a bit better than anticipated with the early stages of the second wave.

-Sherry Cooper