Slowdown in economic growth expected for most of Ontario in 2018

Apart from Greater Sudbury and St. Catharines-Niagara, Ontario’s medium-sized metropolitan areas can expect economic growth to moderate this year, according to The Conference Board of Canada’s latest Metropolitan OutlookStill, Oshawa and Guelph are expected to boast the fastest growing economies among the 16 cities covered in the report, with growth of 2.6 per cent and 2.3 per cent respectively.

“In most Ontario metropolitan areas, economic growth is slowing in line with the national economy. Rising interest rates, newly implemented tariffs on Canadian exports, and stricter mortgage rules are limiting growth across a number of sectors,” said Alan Arcand, Associate Director, Centre for Municipal Studies, The Conference Board of Canada. “In fact, most Ontario cities covered in this report can expect to see their economies expand by less than 2 per cent this year.”

Highlights

  • Oshawa and Guelph are expected to boast the fastest growing economies this year among the 15 Canadian cities covered in the report.
  • Most of Ontario’s medium-sized cities will see real GDP growth come in under 2 per cent this year.
  • Rising interest rates, newly implemented tariffs on Canadian exports, and tougher mortgage rules are limiting growth across a number of sectors.

Oshawa’s economy is forecast to cool slightly with real GDP advancing 2.6 per cent in 2018, following 3.2 per cent gains in the last two years. Robust non-residential construction, together with output strength in wholesale trade, education, health care, and finance, insurance, and real estate will more than offset the fourth annual contraction in manufacturing this year.

Guelph is poised to see continued, albeit moderating, economic growth of 2.3 per cent in 2018, after a 3.1 per cent gain last year. The city’s manufacturing sector will continue to benefit from a below par Canadian dollar and solid demand from the United StatesGuelph’s trade sector saw an impressive 7.3 per cent output gain in 2017, but a more sustainable 2.7 per cent expansion is in the cards this year.

Windsor’s economic growth exceeded 3.0 per cent in every year between 2014 and 2017. But that streak is expected to end this year. Local economic growth is slowing in tandem with U.S. light vehicle sales and is expected to reach 2.0 per cent in 2018. Higher interest rates and tougher mortgage rules are also putting a damper on the metro area’s previously hot housing market.

After posting a strong gain of 3.0 per cent last yearKingston’s economic growth will moderate to 1.9 per cent in 2018. The public sector—the city’s biggest economic driver—is forecast to experience cooler growth over the near term. The slowdown will not be confined to public sector, as wholesale and retail trade, construction, and manufacturing are also expected to see growth decelerate.

London’s real GDP is set to rise 1.9 per cent in 2018 furthering a string of economic gains going back to the end of the 2009 recession. While overall services growth is set to ease this year, two key industries in London—education and health care—are set to post solid advances of 2.1 per cent and 3.1 per cent, respectively. At the same time, although retail trade output growth is on track to decelerate sharply, this year’s projected gain of 2.3 per cent is consistent with the industry’s historical average annual growth.

KitchenerCambridgeWaterloo’s economy is poised to expand by 1.6 per cent in 2018. The area’s economy remains diverse and broad-based, but strength in manufacturing and the services sector will lead the charge. The finance, insurance and real estate industry has slowed due to housing market cooling measures and growth hit a post-recession low of 1.3 per cent last year. Transactions are expected to edge higher later in the year and the industry should see a slight rebound in output growth at 1.9 per cent.

The Greater Sudbury economy will continue its recovery and expand by 1.2 per cent this year, on the heels of a 0.5 per cent increase in 2017. A decent outlook for nickel is fostering hope for the primary and utilities sector which is set to expand 1.6 per cent in 2018 following four straight annual contractions.

Another year of moderate economic expansion is in store for Thunder Bay, with real GDP slated to slow slightly to 1.2 per cent from 1.3 per cent last year. Manufacturing output growth continues to inch higher this year, mirroring last year’s advance. Meanwhile, a weakening housing market is expected to be partly responsible for limiting growth on the services side of the economy this year.

St. Catharine’s-Niagara’s economy will continue to grow at a moderate but steady pace over the next two years, with real GDP forecast to expand by 1.2 per cent in 2018 and 1.4 per cent in 2019. Decent non-residential activity will offset declining new home construction, allowing the overall construction sector to grow at a healthy rate this year.

SOURCE Conference Board of Canada

For further information: Yvonne Squires, Media Relations, The Conference Board of Canada, Tel.: 613- 526-3090 ext. 221, E-mail: corpcomm@conferenceboard.ca; or Juline Ranger, Director of Communications, The Conference Board of Canada, Tel.: 613- 526-3090 ext. 431, E-mail: corpcomm@conferenceboard.ca

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TransUnion Predicting Increase in Debt Delinquency Rates

credit reporting agency in Canada

 

credit reporting agency in Canada

TransUnion anticipates surge in personal debt delinquencies in parts of western Canada where employment is largely oil related. Alberta and Saskatchewan are forecasted to be hardest hit.

Alberta and Saskatchewan may soon be facing a distinct increase in the amount of consumers getting behind on their debt obligations later in the year, according to credit reporting agency TransUnion.

In a study released Wednesday, by TransUnion, there is a forecasted rise in amount of personal loan delinquencies. This is expected to grow by double-digits in Saskatchewan, and as much as 60% in the province of Alberta. These two provinces are the ones most reliant on oil prices. In Alberta, more than one quarter of the province’s GDP is linked to oil pricing, which as we all know is down 50% in the past year. In Saskatchewan, more than one sixth of GDP is tied to oil.

Low priced oil has affected these provinces in several different ways. “First, oil price drops cause lower oil sector investment,” says TransUnion . That will lead to increasing joblessness which leaves less spendable income going towards other areas of the overall economy.”Consumers then have lower ability to service debt, finally resulting in higher delinquency rates.”

According to the TransUnion study, the amount of individuals who choose to pay off just twice their minimum credit card payment has increased by 10% in the oil town of Fort McMurray, since last summer.

“Based on an historical analysis of the last oil crash and recent payment behavior trends, we expect materially higher delinquency rates in Alberta and Saskatchewan in the second half of 2015,” according to TransUnion’s research director Jason Wang. “If lenders do not take proactive measures to address the impact of the decline in oil prices, we could potentially see double-digit delinquency rate increases in Saskatchewan, and as much as a 60% increase in some areas of Alberta.”

The credit reporting agency arrived at these figures after taking a look at what happened to delinquencies the last time the price of oil declined by this much, in 2008. At that time, the increase in delinquencies developed two quarters following the price of oil fell, and increased by 60% for the following four quarters. “These are particularly noteworthy observations because it shows that Albertans suffered financially for a period much greater than the actual oil slide and recovery,” said Jason Wang.

Frequently the first sign of a future debt problem is a decrease in how much people pay off their credit cards every month. “The fraction of the balance that is paid, and changes in that fraction, are quite effective indicators of future non-repayment risk,” according to TransUnion. In their case study of oil town, Fort McMurray, the percentage of people who pay off no more than twice the minimum payment every month has increased by 10% since last summer.

“Many consumers in Alberta may be facing challenges meeting their monthly payment obligations,” said Jason Wang.

At the moment, there is hardly any evidence that there is any change to nationwide delinquency rates. This could be due to the fact that Alberta only accounts for 12% of Canada’s debt, compared to Ontario’s 39%.

“What is particularly important to understand is that balances are much greater today than they were in the 2008 and 2009 period, therefore any delinquent accounts will place a greater burden on the economy.”

For an alternative to credit card debt consolidation find out more about Grouplend personal loans.

Interest Rates Drop Again

mortgage interest rates

mortgage interest rates

The Bank of Canada’s Governor, Stephen Poloz, publicly accepted the fact that he has been overly optimistic regarding the condition of the Canadian economy. He has now tried to help the economy once again by reducing the central bank’s over night interest rate from 0.75 to 0.50 per cent.

The Canadian dollar has reacted by dropping to 77.43 cents U.S., a level not seen since March 2009. This is when Canada was in the middle of a recession. The economy is now recognized as having contracted slightly in the first half of the this year by the bank, mentioned in a statement accompanying the latest announcement.

The Bank of Canada overnight lending rate is the central bank’s main tool for influencing Canadian interest rates. This important decision comes in the wake of lower oil prices. A number of major banks have concluded the Canadian economy has been in a recession for the first half of this year. The negative growth in Canada’s economy the first half of 2015 fits the typical meaning of a recession. The bank governor consistently refused to make any reference to a recession, claiming that any discussion as to whether we are in a recession or not is unhelpful.

Stephen Poloz, who shocked the financial community in January by delivering in an unanticipated rate decline, had been expecting the overall economy to rebound rapidly from the oil price shock that hurt our economy earlier this year. Now he is saying that he had been overly optimistic, and the bank’s estimation of economic growth in 2015 has been reduced considerably from April. This new position demonstrates even further cutbacks in financial investment in the energy market, combined with weakened exports of non-energy goods.

“Canada’s overall economy is expected to expand by about 1%,” Poloz said, and our economy is not expected to be back to normal until the first half of 2017. The Bank of Canada’s governor also cited international circumstances for Canada’s economic issues, referring mainly to conditions in the United States and China. Poloz stated he anticipates the U.S. economic climate to recover again in the second half of this year, but does not see any immediate change in China.

As with the last quarter point drop was saw, a few months ago,, mortgage interest rates are not going to drop buy the same amount. Mortgage rates are actually dictated more by the bond market than the Bank of Canada’s overnight lending rate, and will likely only drop 0.10%. Some consumer who have a variable rate mortgage will see some savings for now.

Mortgage Interest Rates Hikes Looming

mortgage rates set to increase

mortgage rates set to increase

Residential home purchases are on the rise in the US and are set to be the best in eight years – since 2007. Buyers are surging back into the housing market, and the vast majority are first time purchasers. This influx of home buyers is driving prices up and up, due to strong employment and very low mortgage interest rates.

The busy housing market is a sign that the U.S. economy is firmly on the road to recovery and definite improvement. Buyers are more positive about their own financial futures and appear ready to close sales quickly. Many fear being possibly priced out of the market by potential mortgage rate hikes and steadily increasing home prices.

According to Nela Richardson (Chief Economist at Redfin), “demand is off the charts in 2015, and that is really boosting sales. Last year, buyers were dipping their toes in their water. Now, they’re diving in.”

The National Association of Realtors stated on Monday that sales of existing homes climbed 5.1% last month to a seasonally adjusted annual rate of 5.35 million. May was the third straight month of the sales increasing, and has surpassed 5 million homes.

Listings have not been able to keep up with the increase in demand, leading to the higher than normal price increases. Average home selling prices have risen 7.9 per cent in the last 12 months to $228,700, (US) coming in just below the July 2006 peak before the crash.

Roughly 32% of the homes purchased last month were by first timer buyers. This is up from 27% just one year ago. The increase is significant but is still behind the traditional average of first time buyers making uo 40% of the residential buyers. The larger percentage of non-first-time buyers could be due to the large amount of displaced homeowners re-entering the market after being forced to rent.

The increase in home sales can easily be linked to employment numbers. 3.1 million additional workers have been hired in the past year, and the unemployment rate has dropped to 5.5% from 6.3%. This has led more Americans to start feeling financially comfortable immediately following the most severe housing related downturn in eighty years.

According to Richardson,“that’s the big psychological shift between this year and last year.”

Mortgage rates are reasonably modest, however, may be set to rise as the Federal Reserve considers an interest rate increase – the first time in nearly a ten years. Thirty year fixed rates were up to 4% last week, according to mortgage provider Freddie Mac – that is an increase from a year long low of 3.59%.

“This has plenty of buyers appearing willing to complete their purchase before rates and prices increase any further,” according to Jonathan Smoke, chief economist at Realtor.com. A recent Coldwell Banker survey discovered that 28% of homes are selling within as little as two weeks, in comparison to 19% before the recession. Numerous economists warn that the sales increases in recent months may be only temporary if prices increasees continue and price buyers out of the market.

Whatever happens south of the border will most likely have an effect on Canadian interest rates also. The extremely low mortgage interest rates we are enjoying in Canada currently are about as low as they can go. Combined with a declining Canadian dollar, a move by the Federal Reserve may be all it takes to bump our rates also. Nobody is disputing the fact that interest rates are going up – it is just a matter of when.

Low Mortgage Rates Continue as CMHC Predicts Moderation in Housing Market Activity for Canada in 2015 and 2016

Mortgages insured by CMHC

Mortgages insured by CMHC

Canada’s federal housing division, CMHC, has revised their predictions for new residential housing starts for 2015. CMHC anticipates that the rate of new home development to steadily decelerate in the foreseeable future.

Even though the Canada Mortgage and Housing Corp said on February 6th., it anticipates employment and disposable income to continue to support the country’s robust housing market, it noted the downside risks have increased since its October forecast due to the fact of the decline in oil prices. They stated that low oil prices will detrimentally impact certain economic regions like Alberta, Saskatchewan, and Newfoundland and Labrador. This will only be partially balanced out by the favorable impact of reduced exchange and mortgage interest rates.

Housing starts are expected to range between 154,000 and 201,000 units this year, with a point forecast, or most likely outcome, of 187,400 units, the CMHC stated. This is somewhat reduced from the projection it offered in October, stating a range of 172,800 to 204,000 units, and a point forecast of 189,500. According to its base case scenario, new housing starts will drop by 1% in comparison to 2014. In 2016, the CMHC anticipates a range of 148,000 units to 203,000 units, with a point forecast of 185,100, which is not much of a change.

Canada averted most of the global economic turmoil and has experienced and accelerated housing market helped by continuing lower interest rates on mortgages. Many economists are still expect the Canadian housing market to see a softer landing, even though the sudden slide in the price of crude oil has brought up some anxiety about Canada’s financial future moving forward, since oil is a leading export.

Lastly the CMHC is forecasting average home prices to improve by 1.5 percent in comparison to last year.

See full press Release below or read it on CMHC’s site by clicking HERE:

OTTAWA, ONTARIO–(Marketwired – Feb. 6, 2015) – According to CMHC’s first quarter 2015 Housing Market Outlook, Canada Edition, housing starts in 2015 will remain similar to levels observed in 2014 and broadly in line with economic and demographic trends. By 2016, slight moderation is expected.

“Our market outlook calls for gradual moderation in the pace of new home construction over the next couple of years as employment, disposable income and high net migration continue to support the market,” said Bob Dugan, Chief Economist for CMHC.

“However, downside risks have increased since the previous forecast due mainly to recent declines in oil prices. Lower oil prices will negatively affect oil-producing economies like Alberta, Saskatchewan, and Newfoundland and Labrador, which will only be partly offset by the positive effects of lower exchange rates and interest rates across all provinces. We have widened the forecast ranges for housing starts, MLS® sales and average MLS® prices to reflect these risks.”

Under CMHC’s base case scenario, housing starts are expected to decline by 1.0 per cent in 2015 relative to 2014; Multiple Listing Service®(MLS®2) sales are expected to remain unchanged, and the MLS® average price is expected to increase modestly by 1.5 per cent.

On an annual basis, housing starts are expected to range between 154,000 and 201,000 units in 2015, with a point forecast of 187,400 units. For 2016, housing starts are forecast to range from 148,000 units to 203,000 units, with a point forecast of 185,100 units.

MLS® sales are expected to range between 425,000 and 504,000 units in 2015, with a point forecast of 479,900 units. In 2016, resales are forecast to range from 410,000 units to 505,000 units, with a point forecast of 474,400 units.

The average MLS® price is forecast to be between $384,000 and $428,000 in 2015, with a point forecast of $414,200. For 2016, the average MLS® price is forecast to be between $388,000 and $438,000, with a point forecast of $420,900.

As Canada’s authority on housing, CMHC contributes to the stability of the housing market and financial system, provides support for Canadians in housing need, and offers objective housing research and information to Canadian governments, consumers and the housing industry.

Follow CMHC on Twitter @CMHC_ca.

1 The forecasts included in the Housing Market Outlook reflect information available as at January 21, 2015. Where applicable, forecast ranges are also presented in order to reflect financial and economic risks to the outlook.

2The Multiple Listing Service® (MLS®) is a registered trademark owned by the Canadian Real Estate Association.

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