CANADA
Dave McKay: failure to lower housing costs could 'put our entire economy at risk'
, BNN Bloomberg Apr 5, 2024
, BNN Bloomberg Apr 5, 2024
RBC President and Chief Executive Officer Dave McKay says Canada’s housing crisis presents a longer-term risk to the overall economy.
In an interview with BNN Bloomberg, McKay said many people are experiencing difficulty finding shelter within the country. He says high housing costs are one of the top issues the country faces and worries it could drive people away and impact the overall talent available in the Canadian economy.
“If we don't solve it, we put our entire economy at risk, in that it's too expensive to live here, we don't attract the talent, we don't retain the next generation,” McKay said.
He said the real estate sector currently faces a “catch-22” as higher interest rates deter development needed to increase supply.
“There's a huge demand for housing,” he said. “As we know it’s stabilizing house prices in what would normally be a down market. But we can't satisfy that pent-up demand with more supply because rates are too high.”
McKay also highlighted that the permitting process takes too long and needs to move at a faster pace.
“It's been a challenge for our country from business to construction. It takes too long to get permits to move forward,” he said adding that the slow process results in losing out on business to the U.S.
‘Soft landing’
In the near term, McKay said elevated interest rates are working to bring inflation down, although the process is “a little slower than we would like.”
“Overall, we appear to be fully on a path to engineer a soft landing for the Canadian economy,” he said.
Previous moves by the Bank of Canada to tighten monetary policy are working to ease inflation, McKay said.
“Higher rates have led to a repricing of business loans, have led to higher interest rates for mortgages, which has been difficult. That takes cash flow (out) of the economy and therefore the economy is slowing from a demand perspective as rates are working,” he said.
Despite the easing of inflationary pressures, he added the impact has been “offset a little bit” due to government deficits and “a million new Canadians coming in from abroad.” Those two factors, he said, add slightly to inflationary pressures.
“Still, we're on track for rate cuts this summer and into the fall. I think that relief will be welcomed by Canadians and will help bring down mortgage rates and bring down overall costs of servicing a mortgage for Canadians,” McKay said.
However, even if interest rates are reduced, they are likely to still be high enough to weigh on the overall economy, he highlighted.
“Don't forget, even if rates come down by 100 basis points or 50 basis points, that’s still tightening. A four per cent rate in the economy is still not an expansionary rate, it’s a tightening rate. And therefore that still will have an effect on the economy going forward,” McKay said.
RBC President and Chief Executive Officer Dave McKay says Canada’s housing crisis presents a longer-term risk to the overall economy.
In an interview with BNN Bloomberg, McKay said many people are experiencing difficulty finding shelter within the country. He says high housing costs are one of the top issues the country faces and worries it could drive people away and impact the overall talent available in the Canadian economy.
“If we don't solve it, we put our entire economy at risk, in that it's too expensive to live here, we don't attract the talent, we don't retain the next generation,” McKay said.
He said the real estate sector currently faces a “catch-22” as higher interest rates deter development needed to increase supply.
“There's a huge demand for housing,” he said. “As we know it’s stabilizing house prices in what would normally be a down market. But we can't satisfy that pent-up demand with more supply because rates are too high.”
McKay also highlighted that the permitting process takes too long and needs to move at a faster pace.
“It's been a challenge for our country from business to construction. It takes too long to get permits to move forward,” he said adding that the slow process results in losing out on business to the U.S.
‘Soft landing’
In the near term, McKay said elevated interest rates are working to bring inflation down, although the process is “a little slower than we would like.”
“Overall, we appear to be fully on a path to engineer a soft landing for the Canadian economy,” he said.
Previous moves by the Bank of Canada to tighten monetary policy are working to ease inflation, McKay said.
“Higher rates have led to a repricing of business loans, have led to higher interest rates for mortgages, which has been difficult. That takes cash flow (out) of the economy and therefore the economy is slowing from a demand perspective as rates are working,” he said.
Despite the easing of inflationary pressures, he added the impact has been “offset a little bit” due to government deficits and “a million new Canadians coming in from abroad.” Those two factors, he said, add slightly to inflationary pressures.
“Still, we're on track for rate cuts this summer and into the fall. I think that relief will be welcomed by Canadians and will help bring down mortgage rates and bring down overall costs of servicing a mortgage for Canadians,” McKay said.
However, even if interest rates are reduced, they are likely to still be high enough to weigh on the overall economy, he highlighted.
“Don't forget, even if rates come down by 100 basis points or 50 basis points, that’s still tightening. A four per cent rate in the economy is still not an expansionary rate, it’s a tightening rate. And therefore that still will have an effect on the economy going forward,” McKay said.
Homebuyers facing 'toughest time ever' to buy a home: economist
, BNN Bloomberg
Prospective home buyers are facing peak unaffordable market conditions amid elevated interest rates and high prices, says one economist.
Robert Hogue, assistant chief economist at RBC, said in a report Tuesday that Canadians are experiencing the “toughest time ever to afford a home.” The report said the Bank of Canada’s historic interest rate hiking campaign, which began in March 2022, continues to weigh on the nation's housing market despite more recent moves to hold interest rates. Specifically, Hogue said higher rates have greatly diminished purchasing budgets among house hunters.
“We estimate they’ve shrunk the maximum budget for a household with a median income ($85,400 at the end of 2023) by 22 per cent since the first quarter of 2022 to just under $500,000,” Hogue said adding that those figures assume a 20 per cent down payment and a 25-year amortization.
While higher interest rates have worked to erode the budgets of prospective homebuyers, the report outlined that prices have not drastically moved lower.
“Home prices, meanwhile, have fallen just 1.8 per cent over the same interval. It’s no wonder homebuyer demand has cooled so much. The ability of many Canadians to get into the housing market has greatly diminished,” he said.
As a result of the poor affordability conditions in Canada’s real estate market, Hogue highlighted that many buyers are waiting for rates to go down before getting off the sidelines.
However, the report highlights that Canadian homebuyers could see improving market conditions ahead.
“An improvement in affordability could in fact come sooner if long-term interest rates ease ahead of our central bank policy pivot and household income continues to grow at a solid clip. The outlook will brighten the deeper the Bank of Canada’s cuts get next year,” the report said.
While some improvements in affordability could “rekindle some buyers" enthusiasm,” Hogue said they will be small when compared to the “dramatic loss of affordability that occurred during the pandemic.”
“Under our base case scenario, the share of an average household income needed to cover ownership costs would only fall to mid-2022 levels by 2025.,” the report said.
, BNN Bloomberg
Prospective home buyers are facing peak unaffordable market conditions amid elevated interest rates and high prices, says one economist.
Robert Hogue, assistant chief economist at RBC, said in a report Tuesday that Canadians are experiencing the “toughest time ever to afford a home.” The report said the Bank of Canada’s historic interest rate hiking campaign, which began in March 2022, continues to weigh on the nation's housing market despite more recent moves to hold interest rates. Specifically, Hogue said higher rates have greatly diminished purchasing budgets among house hunters.
“We estimate they’ve shrunk the maximum budget for a household with a median income ($85,400 at the end of 2023) by 22 per cent since the first quarter of 2022 to just under $500,000,” Hogue said adding that those figures assume a 20 per cent down payment and a 25-year amortization.
While higher interest rates have worked to erode the budgets of prospective homebuyers, the report outlined that prices have not drastically moved lower.
“Home prices, meanwhile, have fallen just 1.8 per cent over the same interval. It’s no wonder homebuyer demand has cooled so much. The ability of many Canadians to get into the housing market has greatly diminished,” he said.
As a result of the poor affordability conditions in Canada’s real estate market, Hogue highlighted that many buyers are waiting for rates to go down before getting off the sidelines.
However, the report highlights that Canadian homebuyers could see improving market conditions ahead.
“An improvement in affordability could in fact come sooner if long-term interest rates ease ahead of our central bank policy pivot and household income continues to grow at a solid clip. The outlook will brighten the deeper the Bank of Canada’s cuts get next year,” the report said.
While some improvements in affordability could “rekindle some buyers" enthusiasm,” Hogue said they will be small when compared to the “dramatic loss of affordability that occurred during the pandemic.”
“Under our base case scenario, the share of an average household income needed to cover ownership costs would only fall to mid-2022 levels by 2025.,” the report said.
Canada's housing crisis will persist on tradespeople shortage, CBRE says
, Bloomberg News
Canada doesn’t have enough skilled tradespeople to build its way out of its current housing shortage, threatening long-term damage to the country’s social fabric, according to a top executive at one of the world’s biggest real estate firms.
Housing is becoming the central issue ahead of Canada’s next general election, currently expected in 2025, with a lack of dwellings and rapid population growth driving up prices. The country needs an additional 3.5 million homes, which would involve more than doubling its pace of construction, according to a 2022 study from Canada’s national housing agency.
“The inconvenient truth is that we are not going to hit those targets — we will likely not get anywhere close to those targets,” Paul Morassutti, CBRE Group Inc.’s chairman in Canada, said at the Vancouver Real Estate Forum on Wednesday. “Even if we had approvals across the country to build thousands of units, we cannot physically build them, because we don’t have enough trades.”
Policymakers must “get something done, because this is definitely a crisis,” he said. There’s little sign that home prices will fall as supply-demand imbalances have only gotten worse, and they may even rise once buyers return to the market, Morassutti said.
“The scale of the problem, which has been many years in the making, is massive,” he said. “Income inequality and housing affordability are very pernicious issues. Left unaddressed, the damage to our social and economic fabric will only worsen.”
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