housing-inflation-0109
Good morning!
Like everything else these days, home sweet home costs are getting more and more expensive.
By the end of 2022, shelter inflation, which includes rents, mortgage interest costs, homeownership replacement costs and other costs, rose from 6.6% in August to 7.2% in November, it said in a new report by Capital Economics.
Mortgage interest expense was a big part of that. Assuming the Bank of Canada raises its interest rate once more to 4.5 per cent at the end of this month, Capital estimates mortgage cost inflation will rise from 14.5 per cent to more than 26 per cent in April.
But there may be relief on the horizon. Capital expects that over the next few months, shelter inflation will fall sharply in Canada as lower home prices enter the equation.
Homeowner replacement costs, which are a measure of depreciation tied to new home prices minus the cost of land, should soon turn negative, along with other costs, Capital reported.
New home prices are expected to fall this year as construction costs fall and real estate commissions also fall.
The wildcard in this is rents. Rental inflation continued to rise in Canada in November, with the average posted rent rising 12.4% from a year earlier to a record high of $2024, according to data from Rentals.ca.
And unlike in the United States, rents show no signs of slowing, rising 2.5 percent from October and 4.9 percent over the past three months.
Capital expects that climb to moderate in the coming months as the labor market weakens and a record number of new apartments are built in Toronto, but Ottawa’s ambitious immigration goals could affect that forecast.
At the same time, “Capital” expects the inflation of the consumer price index of rents to remain between 6 and 7 percent until the end of the year.
Nonetheless, economists expect housing inflation to moderate this quarter and fall to 3.5% by June. If the bank does not raise interest rates above 4.5 percent, base effects will mean that mortgage cost inflation will ease in the second half of the year.
The story continues
By the end of the year, “Capital” foresees an inflation rate of 1.5 percent. While this is not enough to reduce headline inflation from the current 6.8% to the bank’s 2% target, Capital also sees a slowdown in energy, food and commodity inflation in the coming moderate recession.
“For these reasons, we continue to believe that the Bank is underestimating how quickly headline inflation will decline. We expect headline inflation to average close to 1.5 percent in the final quarter of 2023, compared with the Bank’s forecast of 2.8 percent. Lower inflation should encourage the Bank to cut its interest rate to 2.5 percent in early 2024,” wrote Capital economist Stephen Brown.
And that would be a relief.
___________________________________________________________
Were you forwarded this newsletter? Sign up here to get it in your inbox.________________________________________________________________________________
The jobs count “screams for more increases” from the Bank of Canada, one economist wrote after Friday’s release of the Canadian Labor Force Survey.
BofA Global Research economist Carlos Capistran’s view was shared by more than a few observers of the monthly figures. The economy added 104,000 jobs in December, far exceeding economists’ expectations of 5,000. The unemployment rate also fell back to 5% from 5.1% in November, prompting some to quickly reassess and predict another hike from the Bank of -late this month.
Most expect the central bank to raise interest rates by 25 basis points on January 25, but BofA says there’s a chance the hike could be 50 basis points.
“We have a terminal rate of 4.5 percent, but we see upside risks as the BoC may need to hike more to dampen wage growth,” Capistran wrote.
_______________________________________________________
-
North American Leaders Summit in Mexico City, Mexico
-
RBC Capital Markets hosts the Canadian Bank CEO Conference
-
Alberta Accessibility and Utilities Minister Matt Jones, Children’s Services Minister Mickey Amery and Technology and Innovation Minister Nate Glubish will provide details of $600 over six months in upcoming support payments to make living more accessible for families, seniors people and vulnerable Albertans
-
The standing committee on transport, infrastructure and communities meets to discuss a request to carry out an inquiry into travel delays and the treatment of air and rail passengers
-
Tourism Manitoba unveils its new marketing campaign
-
Today’s data: building permits in Canada
-
Earnings: Tilray Brands
_______________________________________________________
__________________________________________________________
With high inflation, you may be looking for ways to reduce your monthly budget.
You can switch to generic brands, cook at home, or cancel subscription services you don’t use. But when was the last time you shopped around for a better rate on your car insurance?
Our content partner MoneyWise can help you with advice on finding the best insurance deal for you. Look
_______________________________________________________
Today’s Posthaste is written by Pamela Heaven, @pamheaven, with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.
Have a story idea, pitch, embargo report, or pitch for this newsletter? Email us at posthaste@postmedia.com or hit reply to send us a note.
Add Comment