Trade war impacts intensify,
Canada's real estate market is "cracking,"
house sales across the country are plummeting!
The central bank issues a warning!
The Canadian dollar falls to a three-week low!
Image source: Global News
According to a report released by the Royal Bank of Canada (RBC), under the pressure of the trade war initiated by U.S. President Trump, Canada's real estate market is "cracking," with a significant decline in the number of home resales across the country.
The report cites MLS Home Price Index data, which is an indicator reflecting the median house price in a particular market.
RBC economist Robert Hogue pointed out that the enthusiasm for home buying has dropped most significantly in southern Ontario and British Columbia. The uncertainty brought by the trade war has made many people reluctant to make large financial decisions such as purchasing a home.
Hogue wrote in the report: "The trade war is having an increasingly significant impact on Canada's housing market; the potential economic shock has left many potential buyers hesitant."
Currently, markets such as Toronto, Vancouver, and Fraser Valley are experiencing oversupply due to stagnant home sales, resulting in continuous declines in home prices and increased inventory, giving buyers the upper hand. Similar trends of declining home prices are also seen in cities like Hamilton, Kitchener-Waterloo, and Cambridge in Ontario. Even previously hot markets are cooling rapidly; for example, annual home prices in Calgary have fallen for the first time in five years.
Hogue noted that cities such as Edmonton in Alberta, Saskatoon and Regina in Saskatchewan, Quebec City in Quebec, and Saint John in Atlantic Canada appear relatively stable, but they cannot completely escape the anxiety caused by the trade war.
Although buyers are becoming more cautious, homeowners' willingness to sell has not diminished, and listings continue to increase. For instance, new listings in Toronto have risen by 8.1%, but home resales have plummeted by 23.3%.
Hogue described Toronto's housing market as being in a "low point": "Sales in April were at their lowest level in the past 30 years (only higher than during the pandemic lockdown in 2020), making it the second consecutive month of unusually weak transactions."
The situation in Calgary is even worse, with new listings increasing by 15.7%, but sales falling by 22.3%. The biggest drop was seen in the Fraser Valley region, where new home sales fell by 29.1%.
However, some markets are showing signs of stabilization. In Montreal, home resales have largely stabilized, dropping only 0.2% after declining nearly 12% in the first two months of this year.
Image source: Global News
"Psychological panic" spreads: low interest rates and price cuts fail to stimulate home buying
Experts say that the current hesitation to buy homes is mainly due to psychological concerns, especially worries about how the trade war might affect their own economic conditions.
Penelope Graham, mortgage expert at Ratehub.ca, said: "Many potential buyers are worried that the trade war will affect their income, so they are reluctant to make major financial decisions, such as taking out a mortgage to buy a home. Even though market conditions are relatively favorable now, with moderate interest rates and home prices."
Clay Jarvis, mortgage expert at NerdWallet Canada, pointed out that Trump's trade war is "blocking the arteries of the real estate market," affecting not only residential real estate but also commercial real estate.
"If you're worried about mass layoffs, you won't rush to expand your rental property portfolio," Jarvis said. "Living expenses are also a factor. If people can hardly cope with daily expenses or have to rely on debt to maintain their livelihood, they naturally cannot afford a mortgage."
The "home-buying frenzy" during the pandemic has ended: sellers must return to reality
Jarvis believes that for those planning to buy a home this summer, it is actually a "favorable time."
"If you have a stable job and sufficient down payment, now is actually a good time to buy. Mortgage interest rates are low, and there is ample inventory, meaning less competition and larger negotiation space."
Graham also stated that given the high inventory in the market, buyers can avoid the vicious bidding wars of the past and negotiate inspection clauses before purchasing a home.
Graham suggested: "Those who wish to buy a home should quickly obtain pre-approval for a loan and lock in the current interest rate. The economic environment is changing rapidly, and market sentiment and factors influencing interest rates may change suddenly."
In contrast, the situation for sellers is not so ideal.
"Due to the accumulation of market inventory, selling now is not advantageous. If it must be sold, the price must return to reality. The 'home-buying frenzy' during the pandemic is gone forever."
Central Bank Warns: "Trade War is the Biggest Threat," Housing Prices to Fall by 26%"
On Thursday, the Bank of Canada issued a warning that the ongoing tariff dispute has "disrupted the market" and increased the risk of "irrational" selling, which could pose a serious test to the financial system. This impact could not only affect banks and other financial institutions but also make it harder for households and businesses to repay debts.
Image source: 51 journalist's photos
The Bank of Canada pointed out in its annual Financial System Review Report that although Canada's financial system remains resilient, the tariffs imposed by the U.S. on Canada and the subsequent countermeasures taken by Canada, if prolonged, could trigger more intense market fluctuations, force asset prices to be revalued, and bring severe and sustained liquidity pressures.
"A long-term trade war is the greatest threat to Canada's economy and significantly increases the risks to the financial system." The bank specifically warned in the report. In extreme cases, market volatility could escalate into market dysfunction. If global trade wars persist in the medium to long term, economic growth will be suppressed, unemployment rates may rise, thereby increasing the debt burden on Canadian households and businesses.
According to the IMF scenario forecasts included in the report, Canada's GDP could fall by 5.1%, the unemployment rate could peak at 9.2%, housing prices could fall by 26%, and stock markets could fall by 36%, from peak to trough.
Bank of Canada Governor Tiff Macklem told reporters: "The uncertainty is extremely high, our analysis is not a prediction but an assessment of vulnerabilities."
Image source: Global News
The report states that if the trade war persists, some households with high debt levels may default. Although the banking system currently has ample liquidity and access to financing channels, "if credit losses reach a certain scale, banks may tighten lending, making it harder for struggling households and businesses to obtain loans to get through tough times. This vicious cycle could exacerbate overall economic recession."
The report also mentioned that about 60% of households with mortgages will renew their loans this year or next, and most will face rising repayment amounts because they borrowed when interest rates were extremely low. However, due to current interest rates being lower than last year's expectations, the ratio of household debt to disposable income has eased somewhat.
In contrast, households without mortgages are facing greater financial pressure. Carolyn Rogers, senior deputy governor of the Bank of Canada, pointed out: "The proportion of households without mortgages that are overdue on credit cards and car loans continues to rise."
The bank also warned that some businesses face similar risks. Those with high leverage, weak profitability, and little cash reserves may struggle to withstand debt pressure, and the likelihood of repayment difficulties is also rising.
Additionally, the bank expressed concern about the growing influence of hedge funds in Canada's government bond market. The report stated that these investors typically use substantial leverage and may quickly withdraw funds under market stress, thereby amplifying asset price volatility.
Senior Deputy Governor Carolyn Rogers of the Bank of Canada stated in the statement: "Hedge funds must prepare to meet sudden liquidity demands without disrupting normal market operations."
Despite multiple risks, the bank emphasized that Canada's liquidity levels remain high, the financing environment is sound, and the financial system as a whole is resilient. Bank officials stated that Canada's banks "have the ability to withstand a period of economic and financial pressure."
The Canadian dollar fell to a three-week low today
Under the influence of the Federal Reserve's hawkish signals and the Bank of Canada's risk warnings about the trade war, the Canadian dollar (CAD) fell to its lowest level in three weeks on Thursday, with the exchange rate against the U.S. dollar falling 0.7% to 1 CAD = 1.3930 USD, reaching its lowest level since April 16.
Image source: globeandmail
Fed Chairman Jerome Powell said on Wednesday that unless the economic policies of the Trump administration take full effect, the Fed will not take further easing measures. This "wait-and-see" attitude boosted the U.S. dollar and put pressure on the Canadian dollar.
Jayati Bharadwaj, global foreign exchange strategist at TD Securities, pointed out: "This weakening of the Canadian dollar is mainly driven by the general strengthening of the U.S. dollar, especially after the Fed released relatively hawkish meeting signals. Powell clearly indicated that he is not in a hurry to cut rates again in the short term."
Meanwhile, the Bank of Canada warned in its latest statement that if the trade war persists, it may impact financial system stability. If trade friction persists over the long term, it could weaken the risk resistance capabilities of banks and financial institutions and make it harder for Canadian households and businesses to repay debts.
The downward pressure on the Canadian dollar also reflects Canada's high dependence on the U.S. economy. About 75% of Canada's export products are sold to the U.S., including commodities such as oil. Under the expectation of progress in U.S.-China trade negotiations, U.S. crude oil futures rose 3.1% to $59.87 per barrel.
The market's attention is also focused on Friday's release of April Canadian employment data. Economists generally expect 2,500 new jobs to be added, with the unemployment rate slightly rising to 6.8%, higher than 6.7% in March, which will further reflect the potential impact of the trade war on the domestic economy.
Meanwhile, Canadian government bond yields are rising across the board, following the trend of U.S. Treasury bonds. The 10-year yield rose 10 basis points to 3.20%.
Original article: https://www.toutiao.com/article/7502223734247113268/
Disclaimer: This article represents the author's personal views. Please express your opinions by clicking the 'Top' or 'Downvote' buttons below.