The Canadian labour market shed over 200,000 jobs in January, far worse than expected. General consensus had estimated a contraction of about 40,000. You know what this means, house prices are going higher. I’m half joking, of course, but it seems the worse the economic fundamentals, the higher house prices seem to go right now.
However, it is certainly true that deteriorating economic figures provide further air cover for the Bank of Canada and the Trudeau Government to keep their foot firmly pressed on the stimulus accelerator. The worse the numbers, the more stimulus will keep coming. Make no mistake, housing is going up based on liquidity, not economics.
In fact, the Bank of Canada was out this past week saying they might target overshooting inflation moving forward. Bank of Canada Deputy Governor Lawrence Schembri commented, “We might be willing to tolerate a small overshoot or, like the Fed has done, actually aim for an overshoot. And that’s a question we are pondering right now.”
Meanwhile, housing inflation is certainly overshooting. National home sales and prices are expected to hit record highs once again when January figures are reported next week. According to data compiled by Ben Rabidoux of North Cove Advisors, residential mortgage credit growth is accelerating at 7.5% year-over-year, the fastest pace of growth in over a decade. Banks are pumping out loans, with home buyers eager to leverage up in the quest for more space during the pandemic.
The drive to qualify is well underway. According to research from CIBC, the majority of the strength in the Greater Toronto Area is clearly in the suburbs. And it makes sense when you consider that, on average, beyond the first 50 km, every 10 km drive further away from the city will buy you an extra $25,000 of house.
In Guelph, a city more than an hour’s drive from Toronto, the benchmark price for single-family homes soared 21% in December compared to a year earlier, according to data from the city’s real estate board. In Abbotsford, about 45 miles southeast of Vancouver, detached homes jumped 14%. Adjacent to Abbotsford, in a small city called Mission, with a population of less than 40,000- home prices have surged 21% over the past twelve months. Zoom Zoom, more stimulus please.