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


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


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


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


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


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

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Dan Wurtele, PREC, REIA

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Ryan Dash PREC

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

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

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

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

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

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

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Contact Us To Book Your Private Consultation:

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Dan Wurtele, PREC, REIA

604.809.0834

dan@thevancouverlife.com

Ryan Dash PREC

778.898.0089
ryan@thevancouverlife.com

www.thevancouverlife.com

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

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

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

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

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

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

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

_________________________________

Contact Us To Book Your Private Consultation:

📆 https://calendly.com/thevancouverlife

Dan Wurtele, PREC, REIA

604.809.0834

dan@thevancouverlife.com

Ryan Dash PREC

778.898.0089
ryan@thevancouverlife.com

www.thevancouverlife.com