Daily Market Update

Interest rate rise in May 2015? The OECD believes so
Interest rates in Canada will increase in May 2015 and rise steadily thereafter. That’s the forecast of the Organization for Economic Co-operation and Development which would mean rises 6 months before most economists are predicting. It’s based on concerns over inflation, which is currently running above the Bank of Canada’s 2 per cent target. OECD says that the central bank’s policy of holding back due to ‘slack’ in some areas of the economy will have to be scaled back with rate rises as the slack recedes. While any initial rise may be small some experts are expecting a greater demand for fixed-rate mortgages in the coming months.
Forecasters predict housing slowdown in 2015 but still fear crash
A poll of forecasters by Reuters shows a consensus that next year will see a slowdown in housing construction and prices but are still fearful of a market crash. Most of the 23 forecasters polled believe that house prices are higher than they should be. Nine say there is a higher risk of a crash than a year ago, the same number say the risk is the same, while 5 say it is lower. The analysts expect a price rise of 5.2 per cent in 2014, slowing to 2 per cent in 2015 and 2016; roughly in line with inflation. Housing starts are predicted to reduce to 181,000 in Q4 2015 compared to 190,000 in the last three months of this year. The household debt-to-income ratio is a concern for around half of the forecasters.
Is fracking good news for the housing sector?
While some may not like the idea of living in an area where fracking is taking place, the boom in the practice could lead to extra housing demand. Fracking is highly divisive with environmental groups opposed to it but energy firms and their investors very much in favour! In the US it has helped the energy sector overtake Saudi Arabia in production of oil and Canada’s fracking industry is gathering pace. In Saskatchewan there has been an uptick in activity. Towns like Kindersley have found that the fracking industry’s need for water has given them a market for the municipality’s treated wastewater. The province is seeing increased population growth over the last few years as fracking has given legacy oilfields a new purpose.
US house price growth higher than a year ago but slowing
The latest figures on house prices south of the border show a decline in growth. The S&P Case-Shiller Index reveals that prices increased in September from a year earlier by 4.9 per cent; higher than the predicted 4.6 per cent. The month-over-month increase was 0.3 per cent, again higher than the prediction of 0.1 per cent. The overall trend is that the growth is slowing despite the uptick in the US economy. 

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  • by Jim Reid 2014-11-26 10:46:51 AM

    If these remarks by the OECD are meant for Canada and not necessarily the USA, I must disagree with them. In recent times they also bought into the Canadian housing price bubble nonsense as well.

    During the past 50 years, Canada has been quite capable of going its own way during international market upheavals and economic downturns. These foreign agencies and so called experts do not have an accurate understanding of our economy and assume the factors that produce our statistical data are identical to the American factors. This is nonsense as we have our own types of housing to deal with our climates and we have our own immigration pool that constantly is growing at a rate 50% to 100% faster than our normal housing sector.

    The global monetary system is tight as a violin string and it may have to be replaced or reinforced within three years. Market prices on foreign stock exchanges are so leveraged that a major correction is inevitable as well. Thus more QE will be needed to keep everyone else from tanking.

    The financial sector greedily wants more income from higher interest rates, but they are already gouging borrowers. My son needed a car mortgage and the CIBC wanted to charge him 10% interest! Hopefully our monetary authorities will keep them from further interest rate rises until a new round of QE forces rates back down.

    US arbitragers have forced the $CDN down 10%, so it is obvious we will see prices rise 10% in essential goods and services here. This is not inflation, it is the USA creating cheaper imports to help them become more productive and profitable.

    The European Trade Deal and the Trans-Pacific Partnership will stimulate some economic activity in Canada, but not significantly for another year or two.

    It is time for Canada to ignore these ignorant naysayers and to get down to the basics of building a new economy to take advantage of the trade opportunities emerging in foreign markets. We have amazing potential if only our leadership would stop hanging on to the coat tails of the giant economies and get down to creating some flexible supply chains with the many smaller nations who would want to partner with us.

  • by Paipu 2014-11-26 12:38:06 PM

    Well said. Canada is still yet to realize the resources what it has. Like the baby doesn't know it's beauty. The government should stop entering into all this war support nonsense and start building a better, stronger economy by using the best knowledge of immigrants rather that asking them " Do you have a Canadian Experience? ", Invite the businesses who want to make a competitive trade with us and attract the wealthy countries on investment here. As long as the government deal with wars, it'll bring no hope in economic stability in the country and eventually affect each and every one here.

  • by Andrew 2014-11-26 3:55:40 PM

    The naysayers have been predicting a crash for the last 5 years and will continue to do so because one of these years they may be right. Everybody know that real estate has its own up and down but that could happen after 5 - 10 years after price appreciated 25 - 50% ? So buyer may not be so smart to hold on buying.

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