Bank of Canada Holds Policy Rate Steady Amid Global Uncertainty

General Simon Wong 30 Oct

Bank of Canada Holds Policy Rate Steady Amid Global Uncertainty
It is rare for the Bank of Canada and the US Federal Reserve to announce rate decisions on the same day, but today’s announcements highlight the stark differences in policy in the two countries. The Bank this morning announced they would maintain their target for the overnight rate at 1.75% for the eighth straight meeting. The Fed is widely expected to cut its target for the fed funds rate by another 25 basis points, taking it below the key rate in Canada for the first time since 2016. More than 30 central banks have cut interest rates in the past year and the Bank of Canada in today’s Policy Statement highlighted the weakening in the global economic outlook since the release of its July Monetary Policy Report (MPR).

In today’s MPR, the Bank revised down its forecast for global economic growth this year to below 3.0%, reflecting a downward revision in growth in the United States to 2.3% (from 2.5%), the Euro area (to 1.1% from 1.2%), oil-importing emerging market economies and the rest of the world. China’s growth pace remains at a 30-year low of 6.1%.

Trade conflicts and uncertainty are weakening the world economy to its slowest pace since the 2007-09 economic and financial crisis. The slowdown has been most pronounced in business investment and the manufacturing sector and has coincided with a contraction in global trade (Chart 1). Despite the manufacturing slowdown, unemployment rates continue to be near historic lows in many advanced economies, as growth in employment in service sectors has remained resilient.

Growth is projected to strengthen modestly to around 3.25% by 2021, with a pickup in some emerging-market economies (EMEs) more than offsetting slower growth in the United States and China.
Canada has not been immune to these developments. Commodity prices have fallen amid concerns about global demand. Despite this, the Canada-US exchange rate is still near its July level, and the Canadian dollar has strengthened against other currencies.
Growth in Canada is expected to slow in the second half of this year to a rate below its potential. This reflects the uncertainty associated with trade conflicts, the continuing adjustment in the energy sector, and the unwinding of temporary factors that boosted growth in the second quarter. Business investment and exports are likely to contract before expanding again in 2020 and 2021. At the same time, government spending and lower borrowing rates are supporting domestic demand, and activity in the services sector remains robust. Employment is showing continuing strength and wage growth is picking up, although with some variation among regions. Consumer spending has been choppy but will be supported by solid income growth. Meanwhile, housing activity is picking up in most markets. The Bank continues to monitor the evolution of financial vulnerabilities in light of lower mortgage rates and past changes to housing market policies.

Canadian Economy Boosted By Housing

The Canadian economy grew at a moderate pace over the past year, supported by a healthy labour market and the recent turnaround in housing. However, global trade conflicts and related uncertainty dampened business investment and export activities, and investment in the energy sector continued to decline. The impact on growth of both global headwinds and energy transportation constraints is expected to diminish, and the pace of economic expansion should gradually pick up in 2020 and 2021.

In 2020 and 2021, Canada’s economy is anticipated to grow near potential. Consumer spending is projected to increase at a steady pace, and housing activity to continue its ongoing recovery. Overall, investment and exports are anticipated to grow moderately. In the energy sector, investment is forecast to stabilize, and oil exports should improve as pipeline and rail capacity gradually expands.

In today’s MPR, the Bank states that housing resales have been catching up to underlying demand (see chart 7 from the MPR). Housing markets generally reflect regional economic conditions. Housing starts and resales have been particularly robust in Quebec and Ontario, where labour markets have been strong. These provinces will likely continue to be the main drivers of the growth in residential investment. In Alberta, where the oil industry is expected to stabilize, modest improvements in housing are expected. In British Columbia, residential investment has recovered in recent months and should remain near current levels, reflecting the creation of new households.
Bottom Line

The dovish tone of today’s policy statement suggests that the Bank of Canada has become more cautious in its holding pattern amid a weakening global economy. The central bank “is mindful that the resilience of Canada’s economy will be increasingly tested as trade conflicts and uncertainty persist,” policymakers led by Governor Stephen Poloz said in the statement. “In considering the appropriate path for monetary policy, the Bank will be monitoring the extent to which the global slowdown spreads beyond manufacturing and investment.”

The statement and the fresh batch of more pessimistic growth forecasts will raise questions about the central bank’s commitment to a neutral stance on rates, particularly in the face of global easing in many other countries that has made the Bank of Canada an outlier. If the Federal Reserve lowers its interest rates later today, as expected, the Bank of Canada would have the highest policy rate in the industrialized world.

It may well be that the Bank of Canada cuts rates early next year. Mitigating this prospect is that the Bank was more bullish on consumption and housing–fueled by the robust labour market. Another source of future growth is additional fiscal stimulus from Prime Minister Justin Trudeau’s newly elected Liberal government, which has promised to implement new spending and tax cuts next year. For now, the Bank is maintaining a neutral stance.

First-Time Homebuyers: What Boomers Got Vs. What Millennials Are Getting

General Simon Wong 29 Oct

First-Time Homebuyers: What Boomers Got Vs. What Millennials Are Getting

Living space is much harder to buy now in Toronto and Vancouver.

The homeowner life in Canada is changing. We see it everywhere: The once-endless expansion of suburban neighbourhoods has slowed, and highrise cranes now dot the skyline, often even far from city centres.

But how much have things really changed? Is the dream of a detached home in the suburbs, with a backyard and a barbecue pit, still attainable? Or is it irrelevant in an age when so many homebuyers are choosing an urban lifestyle instead?

Well, it’s probably a good thing young homebuyers are shifting to that lifestyle, because they couldn’t afford a house in the suburbs, anyway.

HuffPost Canada built profiles of the typical first-time homebuyer neighbourhood in three Canadian metro areas, using data on housing construction, first-time homebuyer incomes (ages 25 to 34) and house prices ― one profile for 1977, and another for 2017 (the most recent year for which all the necessary data was available).

What we found is that in the priciest cities ― Toronto and Vancouver ― millennial first-time buyers today can afford roughly a third as much space as their boomer parents could when they were buying their first homes in the late 1970s.

But while prices have soared, falling interest rates have kept monthly mortgage payments in check. Adjusted for inflation, there’s little difference in buyers’ monthly payments in 2017 and 1977. Between those years, the minimum down payment for an insured mortgage came down to 5 per cent from 10 per cent, also taking some pressure off first-time buyers.

But in mid-sized Canadian cities ― as the Halifax example shows ― affordability hasn’t deteriorated to nearly the same extent. In fact, for average-earning first-time buyers, the dream of one’s own front door appears to be alive and well.

Here are the sorts of neighbourhoods first-time buyers could afford ― then and now ― in Toronto, Vancouver and Halifax.

Boomer Toronto: A 2,070-square-foot house in the suburbs

onepony via Getty Images
A ranch-style split level home, typical of the kind built in Toronto suburbs prior to the 1980s.

The 1970s were smack-dab in the middle of the great North American suburban migration, and in 1977, an average-earning household in the 25 to 34 age range could afford a house of up to $340,000 (in 2017 dollars). Since the average selling price for residential properties at that time was $247,000, that meant first-time buyers could afford a typical suburban house, which in the 1970s in the Toronto area averaged around 2,070 square feet in size.

Average first-time buyer household income:

$73,500

Maximum purchase price:

$340,600

Average selling price:

$247,000

Maximum monthly payment:

$2,500

Maximum mortgage:

$318,000

(4.3 times household income)

All figures are 2017 dollars.

Millennial Toronto: A 647-square-foot condo in a high-density neighbourhood

ACH-DP via Getty Images
A view of condo towers at Humber Bay Shores in Toronto’s Etobicoke borough.

Between 1977 and 2017, the average income in first-time homebuyer households in the Toronto area rose by 12 per cent, while inflation-adjusted house prices more than tripled, $794,000 from $247,000. With a maximum purchase price of $505,000 ― about $15,000 short of the average price of a condo ― first-time buyers are limited to smaller condos in the rapidly-growing high-density clusters around the Greater Toronto Area, such as Toronto’s Liberty Village or the central Square One area of Mississauga, Ont. The average size of a new condo in Toronto over the past decade has been 647 square feet.

Average first-time buyer household income:

$82,500

Maximum purchase price: 

$505,000

Average selling price:

$794,000

Maximum monthly payment:

$2,290

Maximum mortgage:

$499,000

(6 times household income)

All figures are 2017 dollars.

Boomer Vancouver: A perfectly average detached house

SteveRosset via Getty Images
A typical residential area in the city of Vancouver.

An average-earning first-time buyer household could afford an average-priced property in 1977, which was $306,000 in 2017 dollars. Like everywhere else on the continent, Vancouver was suburbanizing at the time, and an average house in one of the new suburban subdivisions had 2,180 square feet of living space.

Average first-time buyer household income:  

$79,600

Maximum purchase price: 

$369,000

Average selling price:

$306,000

Maximum monthly payment:

$2,667

Maximum mortgage:

$342,000

(4.3 times household income)

All figures are 2017 dollars.

Millennial Vancouver: Still the suburban lifestyle, only smaller

JosefHanus via Getty Images
A view of apartment towers in Greater Vancouver city of Burnaby, B.C.

The average income for households in the first-time buyer range fell by 6 per cent in Vancouver from 1977 to 2017, while the average house price more than tripled to $998,000. By 2017, an average first-time buyer household could afford a maximum house price of $500,000, or less than a third of the price of a detached house. Even a majority of condos would be out of range, and only about 8 per cent of listings on the market today would fall within range. Most of those are smallish condos farther out from the centre, in communities like Metrotown of Burnaby, B.C., which is pictured above. So it’s still the suburban lifestyle, only smaller and at a higher altitude. A typical condo built in Vancouver in recent years is just under 800 square feet.

Average first-time buyer household income:  

$75,000

Maximum purchase price: 

$500,000

Average selling price:

$998,000

Maximum monthly payment:

$2,262

Maximum mortgage:

$494,000

(6.6 times household income)

All figures are 2017 dollars.

Boomer Halifax: A better-than-average house, wherever you want

shaunl via Getty Images
An aerial view of homes lining the shoreline of Lake Micmac in Dartmouth, N.S.

For Halifax, we used 1980 numbers, because not all data was available for 1977. Haligonians had lower incomes than Torontonians or Vancouverites back then, but the city’s relatively low house prices meant that if you earned the average for a first-time buyer household, you could afford nearly twice the average house price ($288,000 versus $159,900, in 2017 dollars). At the very least, you could buy something considerably larger than the 1,560-square-foot home that was typical for the area at the time.

Average first-time buyer household income: 

$62,000

Maximum purchase price: 

$288,000

Average selling price (detached homes):

$159,900

Maximum monthly payment:

$2,100

Maximum mortgage:

$267,000

(4.3 times household income)

All figures are 2017 dollars.

Millennial Halifax: Nearly the same deal as boomers

shaunl via Getty Images
An aerial view of a suburban neighbourhood in Halifax.

Unlike Toronto and Vancouver, house prices in Halifax didn’t triple over the past 40 years ― they only doubled. As a result, first-time buyer households can still afford their own front door and a backyard, and with homes increasing in size to an average of 2,340 square feet, Nova Scotia millennials might actually have the opportunity to move into homes larger than their parents’ ― truly living the boomer dream.

Average first-time buyer household income: 

$58,000

Maximum purchase price: 

$430,000

Average selling price:

$297,000

Maximum monthly payment:

$425,000

Maximum mortgage: (XX times household income)

All figures are 2017 dollars.

Notes about the data:

Historic house price numbers are based on data from local real estate boards, and adjusted to 2017 dollars. For current prices, we used the average price for 2017, as provided by the real estate board. If no such average number was available, the June 2017 monthly number was used.

Affordability estimates were done using CIBC’s affordability calculator.

Median household income numbers are from Statistics Canada’s Survey of Labour and Income Dynamics (SLID) for older numbers, and the Canadian Income Survey for more recent data. Halifax data is an estimate based on individual income data.

South Granville businesses are leaving en masse and scores of jobs hang in the balance

General Simon Wong 20 Oct

South Granville businesses are leaving en masse and scores of jobs hang in the balance

Vancouver’s high property taxes, labour costs and exorbitant leases are forcing smaller, independent business out of the neighbourhood

A once-in-a-generation bloodletting is killing small, independent business in one of the city’s marquee commercial districts, leaving dozens of Vancouverites without a job before year’s end.

Bound by the area spanning West Sixth to West 16th avenues, the South Granville shopping district is seeing a massive exodus. In the last month alone, the Ouisi Bistro, West Restaurant and women’s clothing store Plum announced closures.

The Ouisi closes Oct. 26, Plum is done at month’s end and West will close on New Year’s Eve.

That’s 65 years’ worth of neighborhood business gone. Plum and the Ouisi are owned by Vancouverites and staff dozens who live in the city as well.

“I don’t think I’d recommend my daughters to go and become entrepreneurs, at least in this city,” Plum co-owner Ed Des Roches told the Courier. “In small business, things change so fast and there’s so much disruption nowadays that it’s impossible to enter into an enterprise thinking that this is what you’re going to do to support your family.”

The Courier counted 25 for-lease signs along a 10-block span on Granville Street and spoke to numerous business owners.

Circumstances differ slightly in each case, but there are common talking points uniting them all: skyrocketing property taxes, fractured lease negotiations and minimum wage increases are killing them.

Des Roches once had nine stores across B.C. and Alberta, employing close to 2,000 people. Most of Des Roches’ employees were women and he paid millions in property taxes in Vancouver, Kelowna, Victoria and Calgary. Five of his stores closed this year, resulting in 65 job losses. His Kitsilano store closed in 2018 after 37 years, while his shop at Granville and 12th has been there for close to two decades.

There are mitigating circumstances in Des Roches’ case above and beyond property taxes, of which he pays $60,000 annually. Changing trends in women’s fashion and off-shore production have forced the business to change and, at 68, Des Roches is looking to retire.

The provincial NDP’s phased minimum wage increase — from $11.35 last year to $15.20 by 2021 — adds close to 40 per cent to Des Roches’ fixed costs.

“I invested quite a bit of money to try and accommodate that and make changes in the company, but I was never seeing a return on it so that put us quite a bit into debt,” Des Roches said. “We really haven’t been making money for a number of years. I’ve had the business up for sale for the last couple of years and nobody’s interested.”

granville2
Numerous businesses along Granville Street are closing, including clothing store Plum, which had been in the area for 20 years. – Dan Toulgoet

Rob Clarke has owned the Ouisi Bistro since it opened on Granville and 14th in 1994. The area’s lone live music venue goes silent on Oct. 26 as a result of lease negotiations that would have doubled his costs.

Sixteen people are out of job, all of whom live in Vancouver.

Clarke said every cost in his world has gone up beyond a point that can be recouped: property taxes, food costs, insurance, utilities and garbage pickup. Even televising sports on the bar’s TVs has become more expensive, after Bell and Rogers increased fees for establishments with liquor licenses.

But it’s the minimum wage hikes in particular that have killed Clarke’s business model. He and others in the food service industry argue that because servers can make big money in tips, the minimum wage increases have thrown the financials out of balance.

“The minimum wage increase was the final straw that broke the camel’s back — we’ve had three successive wage increases in 30 months,” he said. “The last one in June, that was it. We were killed.”

Clarke agrees with Des Roches’ suggestion that young people shouldn’t risk entering the small business sector in Vancouver. His eldest daughter recently moved from Vancouver once she graduated from high school, as will his 14-year-old son. Clarke will leave town once his youngest has graduated.

“It’s critical,” Clarke said of the precarious business climate on South Granville. “We’ve been trying to warn the city about this for years. The system is broken.”

Owen Knowlton is the restaurant director at West Restaurant and has worked there for 15 of its 20 years. He didn’t get into any financial specifics other than to say the restaurant’s closure comes as a result of failed lease re-negotiations. All of the affected staffers are being offered jobs at other establishments that operate under the Toptable Group banner.

In the 60 years that Knowlton, Clarke and Des Roches have been in the area collectively, they’ve never seen the amount of turnover, vacancy or uncertainty they see today.

“What was expected from this area 15 years ago, it never made it,” Knowlton said in an interview. “A lot of South Granville is changing. A lot of the high-end galleries and all of the nice establishments have kind of moved on. It’s a different feel here nowadays.”

Ramin Rahim’s moved into the neighbourhood 10 years ago and had to wait months for an opening near West Sixth and Granville where his fine arts and antiques business Ramin and Sons sits. He spoke to the Courier on a day when three for-lease signs are displayed on his block alone.

Rahim’s store will close as soon as he gets rid of all his inventory. He has to be out by March 2020 at the latest, when his lease ends.

Taxes and the minimum wage increase have been Ramin and Sons’ death knell. Clientele is down, overhead is up and hiring staff is impossible.

“It is really sad what is happening here,” Rahim said.

granville5
West Restaurant recently announced its last day of business will be New Year’s Eve. – Dan Toulgoet

South Granville Business Improvement Association executive director Ivy Haisell said problems facing the neighbourhood only became apparent in May. Until then, vacancy rates were among the lowest in the city, hovering around 10 per cent.

Haisell isn’t sure what changed last spring, but says speculative purchasing or development tied to the Broadway Subway announcement — which will have a stop in Broadway and Granville — isn’t to blame.

Instead, a confluence of factors have all come to surface at the same time: affordability is out of whack for both business and residents, the area’s aging demographic isn’t spending as much and getting the necessary permits from city hall is a drawn out, onerous process.

Legacy businesses — butchers, florists, produce stands — left the area in the last decade or two, and the children of those business owners either didn’t want to take over or couldn’t afford to, Haisell added.

Like others, Haisell says property taxes and the B.C. Assessment model of “best and highest use” for a plot of land is having devastating effects on locally-owned, independent business. The national and multi-national companies in the area — Starbucks, McDonald’s and the Brick, for example — are largely unaffected, or have a higher threshold to absorb the myriad of cost increases.

“The situation is critical,” Haisell said. “It’s not just in my area, it’s across the city. It’s just starting to hit South Granville and it’s really hard to do business.”

Haisell has looked into who owns the land in her area and suggests it’s largely the children of offshore investors. That second generation lives in the city, while their parents don’t, and those young people are making a living by running their parents’ investment properties.

Rosanna Petan has been in the area since 1999, first working alongside her dad and then eventually taking over his business, Frank’s Barber Shop. Her father established the business near West 15th and Granville in 1968 before it moved to its current location on West 11th Avenue, steps away from Granville Street.

She’s one of the few lucky ones in that her property taxes have remained relatively consistent since taking over the shop in 2004. Petan’s landlord owns several businesses on the corner of the block and is “very fair” when it comes to rent increases.

Still, the changing face of the area is a daily source of conversation in her barber shop’s three chairs. Petan said the neighbourhood’s business mix is totally uneven — too many high-end furniture stores and not enough of anything else.

“This is so sad. When we first opened, people were coming from everywhere. You don’t see so many people buzzing around South Granville anymore, even in the summer,” Petan said. “I keep asking ‘Where are all the people?’”

granville3
The Courier recently counted 25 for-lease signs along a 10-block span in the South Granville neighbourhood. – Dan Toulgoet

Studying the problem

The city is working on a study that looks at the issues Petan and others have cited and a report is expected to go to council in November. Along with South Granville, five other shopping districts in the city are being examined: Collingwood, Commercial Drive, Hastings North (East Village), Marpole and West Broadway.

The report will focus on the seven-year period from 2012 until now and key in on business indicators such as: challenges the small business sector faces, the amount of change seen in those six districts, a review of best practices from other cities and suggestions for future policy decisions.

Bizmap is an online tool that’s based on info collected by the city, Small Business B.C. and BIAs. Data is combed from previous census information, and the website provides info on neighbourhood-specific demographics, rents, lease rates, populations and density.

Bizmap indicates 387 businesses operate in South Granville, and retail (at 37 per cent) is the dominant industry in the area. The website says average lease rates hover between $28 and $65 per square foot, but those who spoke to the Courier for this story place those numbers between $75 and $110.

By comparison, the leases rates on Robson Street are $140 per square foot, $60 in downtown, $41 on West Broadway and $29 in Mount Pleasant.

Clarke’s negotiations to keep the Ouisi going saw him faced with an offer of close to $100 per square foot.

He balked, and now after 25 years, he’ll walk.

“It is laughable. I’m done,” Clarke said.

International Students Have Powerful Influence on Real Estate

General Simon Wong 14 Oct

International students have powerful influence on real estate: data

Students from overseas spend $12,000 a year on housing in B.C., one of Canada’s most popular educational destinations

students at ubc

International students represent a powerful economic influence in Canada, according to data from the Canadian Bureau for International Education (CBIE), not the least of which is seen in the real estate sector.

In 2017, the latest numbers available, there were 494,525 international students in Canada, a 119 per cent increase  compared to 2010 and a 20 per cent increase from a year earlier.

U.S. News and World Report ranked Canada the No. 1  country for education in the world in 2017, followed by the United Kingdom, Germany, Australia and the United States.

The three top reasons why international students choose Canada, according to the CBIE, are the quality of the secondary education system, Canada’s reputation as a tolerant and non-discriminatory society and its reputation as a safe country.

Canadian Bureau for International Education
Source: Canadian Bureau for International Education

It is estimated that foreign students spend $8 billion annually in Canada, including tuition costs, housing costs and other living expenses.

This translates into the creation of more than 81,000 jobs and a more than $445 million contribution to government revenue.

Surveys have shown that 95 per cent of international students recommend Canada as a study destination to their peers.

While the majority of international students arrive from China, at 28 per cent of the total, and India, representing 25 per cent of enrolments, the foreign students came from at least 14 countries in 2017, including approximately 15,000 from the United States. 

British Columbia, which attracts an average of 115,000 students each year, is one of Canada’s most popular destinations for international students. Each student pays an average of $12,000 per year on housing, part of an annual $1.8 billion in annual spending in the province. Foreign-student enrolment in B.C. has risen 300 per cent in the past 10 years.

Improving job numbers, wages will keep fuelling our love of debt

General Simon Wong 11 Oct

Improving job numbers, wages will keep fuelling our love of debt

Debt is already growing faster than wages, a dynamic that probably isn’t sustainable

The more the Bank of Canada sifts through the data left behind by the housing boom, the clearer it becomes that the economy would be in trouble if we weren’t so willing to borrow.

Last month, the central bank published a staff note that shows household borrowing against the country’s various real-estate bubbles created a significant amount of domestic demand in recent years.

Higher home prices influence consumption by triggering wealth effects that make us feel richer and, therefore, keener to spend. But we couldn’t act on that impulse without a mechanism to turn paper wealth into cash. It’s the collateral effect that yokes housing prices to spending, since rising values allow individuals to take out bigger lines of credit.

About 380,000 people in 2017 refinanced their mortgages, and another two million had a home equity line of credit, according to the Bank of Canada study, which was based on anonymized credit bureau data of some 25 million consumers. Combined, they borrowed roughly $89 billion, an increase of about 40 per cent from 2013.

The boost in debt at least partially explains how Canada posted surprisingly strong economic growth in 2017, when gross domestic product increased three per cent, the most in the Group of Seven advanced economies.

“Our results establish that equity extraction is economically important in Canada,” the central bank’s Anson Ho, Mikael Khan, Monica Mow, and Brian Peterson wrote. “In particular, we find that increased equity extraction has likely contributed materially to consumption and renovation spending in recent years.”

Governor Stephen Poloz and other leaders at the central bank are probably conflicted by those findings.

On one hand, the results confirm that monetary policy still has a kick. Lower interest rates can be relied on to stoke mortgage lending and construction, as well as additional spending, at least as long as asset prices are rising. That’s useful information for a policymaker.

At the same time, the central bank must be apprehensive about the extent to which Canada’s recent prosperity relies on debt.

Equity extraction dipped in 2018, as Poloz and his deputies on the Governing Council raised interest rates three times and real-estate prices dropped in Vancouver and Toronto. Demand that was based on rising incomes and solid consumer confidence might have pushed through moderately higher borrowing costs. But Canadians recoiled at the sight of fixed five-year mortgage rates north of five per cent, which was still lower than pre-crisis levels, but around 15 per cent higher than a year earlier.

That sensitivity to interest rates doesn’t leave the bank with much margin for error. Household consumption barely grew in the second quarter of 2019, despite robust jobs growth, suggesting higher borrowing costs were squeezing demand.

Unless, of course, all that debt is starting to weigh on consumption. That would be a problem because the trade wars are killing exports and business investment. Canada can’t afford to lose a third economic engine.

Debt is already growing much faster than wages, a dynamic that probably isn’t sustainable. Compensation per hour worked increased only about 11 per cent between the start of 2013 and the end of 2018, according to Statistics Canada’s quarterly report on labour productivity.

The share of income needed for interest payments rose to a record in Q2 2019. An upward shift in the debt-service ratio of one percentage point will slow consumer spending by 0.2 percentage points a year into the future, according to research by Toronto-Dominion Bank.

“Spending more of your income on keeping your debts current leaves less money for other priorities,” Brian DePratto, a TD economist, said in a report on Sept. 30. “Recent dynamics have underscored just how much high household indebtedness has amplified Canadians’ sensitivity to rising borrowing costs.”

He added, “This is one of the reasons why, until the relative debt burden shows meaningful improvement, the current level of 1.75 per cent is as high as the Bank of Canada’s overnight rate is likely to go.”

If not for the trade wars, interest rates would definitely be higher. Canada added 54,000 jobs in September, pushing the employment rate to about 75 per cent, the highest on record, Statistics Canada reported on Oct. 11. The jobless rate dropped to 5.5 per cent, a level that economists associate with full employment, the theoretical state at which everyone who wants a job can find one.

The country is still feeling the effects of oil prices collapsing in 2014 and 2015, and the global economy is decelerating quickly, yet Canada’s labour market has rarely been stronger.

“High levels of consumer debt may concern some observers, but they are likely to be sustainable amid low interest rates and continued job and wage growth,” Julia Pollak, an economist at ZipRecruiter, a digital job-matching platform, said in an email.

Wage growth could be the most important indicator for the central bank in the months ahead. There is evidence that Canada’s impressive run of job creation is finally forcing employers to pay up in order to attract and keep workers as the labour pool shrinks.

The number of job seekers in September who had been unemployed for more than 27 weeks dropped to 158,600, the second fewest since before the financial crisis. Average hourly wages surged 4.3 per cent from a year earlier, one of the fastest increases since early 2009.

And what are Canadians doing with their fatter paycheques? Borrowing money, of course. Consumer credit jumped 5.1 per cent in August, the biggest increase in two years, according to the Bank of Canada’s most recent tally. That debt will help the economy in the short term, and give the central bank a reason to leave interest rates unchanged. Households appear to be doing fine for now.

From housing prices to childcare to transit, Canadian voters are feeling tight on cash

General Simon Wong 7 Oct

From housing prices to childcare to transit, Canadian voters are feeling tight on cash

Politicians are trying to turn financial anxiety into votes by promising tax cuts and other initiatives to make life more affordable

Canada’s political party leaders are making affordability the central talking point of their election campaigns, rolling out targeted measures to alleviate the financial strain besetting voters.

Though broad economic data show the nation’s economy is humming along, Canadians are still feeling tight on cash. The worsening global outlook and unprecedented policy uncertainty are adding to the apprehension.

Liberal Leader Justin Trudeau and his main rival, Conservative Leader Andrew Scheer, along with the leaders of smaller parties are seeking to parlay that stress into votes as the clock winds down on the Oct. 21 election, by promising a slew of tax cuts and other measures to make life more affordable for Canadians.

“Politicians are putting their finger on something, some form of financial anxiety about rising costs, or concerns about future rising costs, or future standard of living,” said Jennifer Robson, associate professor of political management at Carleton University in Ottawa.

Here’s why consumers are feeling pinched.

It’s old news that owning a home in Canada’s biggest cities has become an almost impossible goal for much of the middle class. Skyrocketing prices in recent years pushed potential buyers to the sidelines. New mortgage lending rules, so-called stress tests introduced by federal regulators in 2017, put ownership even further out of reach for many.

Toronto and Vancouver are easily Canada’s two main cities where residents are struggling to find an affordable place to live. The average selling price for a single family home in Vancouver was $1.51 million (US$1.13 million) in September, and $1.1 million in Toronto. Renting in those cities is no easy feat either as low vacancy rates have pushed up prices for accommodation.

Elevated real estate prices are the main driver of the country’s record household debt ratios, now the highest in the Group of Seven. Buyers took out larger and larger mortgages as the housing market heated up, even as incomes failed to keep pace. As a result, household savings rates are hovering near the lowest in decades and the debt service ratio — which measures the share of disposable income paid toward principal and interest — climbed to a record in the second quarter.

While overall price inflation in Canada has been relatively benign, shoppers have experienced sticker shock on many basics. Prices for fruits and vegetables jumped as much as 60 per cent in the past decade, according to Statistics Canada. Childcare and tuition costs rose upwards of 35 per cent and public transit prices ballooned by 50 per cent.

To top it all off, wages after accounting for inflation have remained relatively flat, even as costs for rent and basic goods increased. A puzzle for many economists and policy makers is why unemployment is hovering near record lows, yet incomes are struggling to pick up.

 

‘Arms Race’

The financial pressure on Canadians isn’t likely to ease anytime soon, with the worldwide economic outlook dimming. The International Monetary Fund recently cut its projection for global growth this year to 3.2 per cent. A rate of 3.3 per cent or lower would be the weakest since 2009. Adding to the tension, many workers are worried about robots displacing jobs and the financial impact of an aging population.

“That’s the emotional side of this issue that doesn’t show up in any CPI index or economic data,” said David Coletto, chief executive at Abacus Data. “It’s in the head and the parties are clearly recognizing that emotional side is important. It’s like an arms race right now in Canada to offer up who can save us the most money.”