In June, inflation unexpectedly dropped from 2.9% to 2.7%, surpassing expectations of 2.8%. Despite this decrease, the shelter cost index remains a significant driver of inflation, with a current increase rate of 6.2%, compared to 4.8% last year. Mortgage interest costs surged by 22%, and rent has increased by 8.8%, marking the highest rise since March 1983. However, excluding shelter costs, consumer prices only rose by 1.3%.

This better-than-expected inflation report led to market predictions of a 90% chance of a rate cut at the upcoming Bank of Canada (BOC) meeting. With employment at 22-year low and business insolvencies rising, a 0.25% rate cut seems likely, potentially bringing the current rate of 4.5% down, which we hope is still high enough to exert downward pressure on inflation. The impact on the housing market remains uncertain; another rate cut might increase the number of sellers, although buyers seem to remain on the sidelines.

Retail sales data also supports the likelihood of a rate cut. Retail sales fell by 0.8% month-over-month, and excluding volatile items, they dropped by 1.4%. In 2024, retail sales increased in only one month and have been flat since 2022, despite a 6% increase in the population. This stagnation suggests that Canadian consumers are financially stretched, likely due to high mortgage payments.

Housing starts provide further context to the economic challenges. In April, Prime Minister Trudeau promised to build 3.87 million homes by 2031. However, housing starts fell by 9% month-over-month in June and are down 14% from the same month last year. To meet Trudeau's target, housing starts would need to double from last year’s levels, but they are currently 114% below the required mark. The situation is particularly dire in British Columbia, where starts fell by 12% and are 38% below June 2023 levels. In Toronto, new condo sales, a leading indicator for housing starts, are at their lowest since 1997.

This decline contradicts the government's promises, with little incentive for builders to increase housing supply due to rising taxes, fees, and restricted access to affordable credit. The government's efforts have only expanded the size of the government by 42% since 2015, without noticeable improvements in efficiency.

The Prime Minister and parts of his cabinet have also been flirting with the idea of a primary home equity tax with a government-funded think tank, Generation Squeeze. This proposed tax aims to address housing inequity by adding a surtax on homes valued over $1 million, supposedly affecting only the top 12% of high-value homes. Critics argue this approach is politically motivated and overlooks the real issues driving housing prices, such as immigration, development costs, and availability of credit - plus in markets where the average house price exceeds $1mil are many.

Market updates indicate that housing prices fell in June for the first time in 2024 and are expected to drop further in July. As of July 29th, average prices were down by $68,000, and median prices by $10,000. Sales volumes are slightly lower than last year, indicating a slow market. The rest of the summer is expected to see a gradual decline, with potential market stimulation in the fall if there is a third rate cut and an increase in inventory.

Overall, the Canadian economy is facing significant challenges with inflation, housing,

_________________________________

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