USD/CAD: red-hot housing market
Across the western nations, rapidly rising housing costs is fast becoming a crisis. Wage increases are being eclipsed by house price rises— and arguably, the Great White North has been one of hardest hit.
The Canadian Real Estate Association estimates that the national average home price rose 19.6% over the past year to C$720,850 in November 2021. And according to Royal LePage CEO Phil Soper, prices will rise a further 10.5% in 2022, due to ‘to a level of demand that will continue to outpace inventory, keeping prices rising on a steep upward trajectory.’
With average prices in Toronto and Vancouver already surpassing the C$1 million mark, Soper believes the increases will continue as buyers take ‘advantage of increased savings and record-low interest rates.’ Prices will also be supported by high immigration and the continued transition to remote working.
After failing to win a majority in September’s snap election, Prime Minister Justin Trudeau has instructed Housing Minister Ahmed Hussen to discourage property investment by reviewing the rules around deposits as well as housing policies to curb ‘excessive profits.’
Hussen plans to ‘reduce speculative demand in the market and help cool these astronomical increases in prices.’ He has already imposed a 1% tax on foreign-owned vacant homes and intends to ban the controversial practice of blind bidding. He is also proposing C$4 billion for affordable housing but has come up against ‘NIMBYism’ and ‘unreasonable opposition to affordable housing in neighbourhoods.’
New Zealand implemented similar laws to stop property speculation back in March. However, average prices still rose 31% over the year to July to a record NZ$937,000. Its Reserve Bank has finally increased its base rate to 0.75% and plans for further rises in the new year.
But Conference Board of Canada economist Sasan Fouladirad believes that Canada will not raise rates before the US, as ‘Canadian household debt is on average much higher than the US…we expect the Bank to wait until June next year.’
However, as housing inflation continues to skyrocket, the argument for raising rates continues to grow stronger.
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