Social distancing has frozen the Canadian housing market. Sales and new listings in Toronto were down 69% and 64% in April, respectively, from the previous year. Anyone who is selling right now probably has to, so any data economist can glean will be misleading.
To find out where we really are headed, CIBC economists have looked beyond today’s distorted numbers to see what the economy and the market will look like when we are on the other side of this pandemic.
The good news is that the housing market started this crisis on a solid foundation. There were signs that the market was improving after adjusting to the stress test. National average house prices increased double-digit and sales increased.
The bad news is not what happens to the economy once it starts to reopen. “Our working hypothesis is that a flattening of the virus curve will not be a green light to return to normal,” wrote CIBC economists Benjamin Tal and Katherine Judge in a report this morning.
“Simply put, reopening stores and restaurants does not mean that people will feel comfortable shopping and eating again,” they said. There is also the risk that a second wave of infection will bring back the rules of social distancing, dealing another blow to a fragile economy.
CIBC expects volatile growth to continue until there is a vaccine.
“The economy of the post-vaccine era will be a different economy. The cumulative damage suggests that when we recover, potentially sometime in 2021, we will recover in conditions of recession. “
Unemployment is now rising from a pre-crisis rate of 5.5% to over 13%. These are largely temporary layoffs and people will return to work when the economy opens. “But undoubtedly, some of the damage we are witnessing today will be long-lasting, as many small businesses will close permanently and some large businesses will reduce their capacity. The change from 5.5% to 8% in 2021 is therefore in line with a recessive economic environment. “
The housing market will not be spared the volatility, says CIBC. When the market returns to basics in 2021, CIBC anticipates that demand will be reduced by a weaker labor market and lower investment activity.
“Overall, as the fog clears, we expect average prices to drop 5-10% from 2019 levels, as high cost units in the skyscraper segment experience declines in most notable prices, “they said.
The construction of houses will also suffer. It was to be a record year for completions, but it will not happen now. Manufacturers face a shortage of workers and materials, while social isolation slows the speed of work. CIBC estimates that productivity has dropped by around 40% according to conversations with developers.
“Even during previous deep and painful recessions, housing starts in Canada did not fall below an annual rate of 100,000 units. This time they will break this barrier, “said economists.
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SORRY CAPITALISTS, Woodstock is canceled. Berkshire Hathaway’s annual shareholders’ meeting, which legendary investor Warren Buffett calls the highlight of the year, is expected to draw tens of thousands of people to Omaha, Nebraska this weekend for sweets, festive events and, above all, the wisdom of the great man himself. Shareholders will always have wisdom, in a live question and answer session with Buffet and his assistant Greg Abel at 4 p.m. AND Saturday, but the physical rally was canceled due to the coronavirus pandemic. So, in a nod to happier times, here’s a picture from the past: Warren Buffett playing the ukulele with the Fruit of the Loom gang in front of a crowd of shareholders at the 2005 annual meeting. ERIC FRANCIS / BLOOMBERG
- Imperial Oil and AltaGas host virtual annual general meetings
- Today’s data: American-made ISM index
- Notable gains: TC Energy, Imperial Oil, DavidsTea, Restaurant Brands International, Cameco, Exxon Mobil, Chevron
Talk about a half-full glass. Provincial deficits are projected to multiply by six to reach $ 63 billion this year in the fight to survive the coronavirus pandemic. The good news is that it will not be the worst red ink the provinces have ever seen, according to an analysis by RBC Economics which compared the bank’s projections to the deepest deficits on record. As the RBC chart below shows, each province experienced worse conditions during the 1980s and 1990s, although Newfoundland and Labrador and Alberta are moving closer together. This assumes that things are not getting worse than the most likely RBC scenario. “The darker scenarios cannot be excluded. Many health, economic and fiscal effects are uncertain at this point, “said economists Robert Hogue and Ramya Muthukumaran.
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Today’s Posthaste was written by Pamela Heaven (@pamheaven), with files from The Canadian Press, Thomson Reuters and Bloomberg.
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