On October 27th, 2021, the BoC projected the global GDP will grow by 6.5% in 2021, 4.25% in 2022 and about 3.5% in 2023. A 5% growth on the Canadian economy was forecasted. The inflation increases was anticipated due to "higher energy prices and pandemic -related supply bottlenecks"; however, the impact appears to be stronger and more persistent than expected. The next scheduled meeting is on December 8th, 2021, and we will keep you updated on the Bank's decision.
Canadian Home Prices Rise Again Due to Insufficient Supply & Excess Demand
latest Canadian Real Estate Association (CREA) release shows national existing-home sales rose 0.9% in September. Although, on a year-over-year basis, the number of transactions dropped 17.5% in September, it still stands as the second highest sales in the month of September (see the chart below).
Housing supply remains a major constraint, forcing many buyers to either pay a higher price for the properties or hold off the purchase entirely. This is particularly troublesome for the first-time homebuyers. As the inflation goes higher, long-term bond yields are expected to rise worldwide. Banks are now lowering down the discounted rates they offer for mortgages, which is why mortgage rates, fixed rates especially, are seeing an upward trend.
The housing inventory on a national basis has dropped slightly from 2.2 months in August to 2.1 in September. The long-term average for this measure is usually about 5 months, so the figure indicates a strong Seller's Market on the national level.
Looking across the province, year-over-year price growth is above 20% in B.C., though it is lower in Vancouver (13.9%) and higher in other parts of the province (see table below).
As mentioned, some of the inflation is a result of COVID induced disruptions, which may solve itself in time. However, the impact has been major and the timeline to have it reduced could be much longer than expected. That being said, we could be expecting higher interest rates going into 2022, although the BoC and the Federal Reserve will likely hold overnight rates steady.
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