all right we’ve got some news from the Canadian housing market this morning another quiet month as National home sales are down according to the Canadian Real Estate Association May was kind of uneventful uh I want to turn now to David McDonald he’s a senior Economist at the Canadian Center for policy Alternatives with more good morning to you David so we’ve got some soft numbers for May typically the summer months are and the spring actually is when we see the biggest boom in in sales but what do you make of the housing numbers coming in this morning well certainly folks are going to be looking at the interest rate and the fact that it came down uh just last week although by a fairly small amount uh certainly there was some concern that if interest rates fell we would just see house prices explode again uh that doesn’t seem to be the case at least with this particular data point part of the reason of course is that uh many Canadians have yet to even Renew at these higher rates June is that Midway point where half of Canadians will have had to renew at the higher rates but half hadn’t uh and just because they’ve got a a fixed term and that term isn’t up yet and so we’re moving past that halfway point and so even if households are renewing uh at 4.75 instead of five that is slightly cheaper but they’re almost certainly renewing it well more than they started at uh when they started their term and so this appears to you know continuing to keep a lid on on volume keeping them very low uh and likely continuing to put some pressure on house prices as opposed to driving them up they seem to be you know relatively stable what about housing starts how will the bank of Canada’s rate cut impact starts do you think and when so there’s new data actually out from statistics Canada this morning looking at housing investment broadly speaking it is down slightly from last month this is the April data compared to the March data um what’s interesting in that is the residential housing side what’s underappreciated I think is the big increase in interest rates not only socks it to mortgage holders but it has a big impact on new construction of residential houses in general this is one of the key ways actually that interest rates affect the economy is that it drives down residential investment uh in this past month we’ve seen a decline particularly in single family home residential investment down 5% since March but this is part of a long Trend that started with the increase in interest rates in February of 2022 uh new single family home Investments down 33% or 36% rather uh from when the rate hike started that’s actually well below where we were at in the middle of the pandemic when sections of the industry were closed down at a time when governments and and and and homeowners are crying for more housing we’re building less as a result of high interest rates if we take a look at the apartment Construction side that’s relatively similar to where it was when the rate hik started in large part though that’s because governments are back stopping new apartment builds through things like tax preferences subsidized loan programs uh federally as well as in some of the provinces and that’s likely what’s making it such that apartment new new residential apartment uh investment is not down it’s not up but at least it’s not down in the same way that we’ve seen on single family homes how long do you think people are going to stay on the sidelines I mean what kind of decrease does there have to be David well clearly it’s more than a quarter of a point um you know in reality folks who started uh you know who who are now renewing their mortgages um they were facing an overnight rate of 0. 25.5% now the overnight rate is 4.75 so you could imagine if if the rate went down by a full point say we were at 3.75 it’s still a lot more expensive than it was four or five years ago to carry a mortgage and so therefore this big increase that folks are concerned about in terms of house prices just doesn’t seem as likely as it might have been we might see volumes increase um that’s one of the areas where we you know the prices haven’t budged that much but volumes are are way down compared to where they were pre pandemic um but you know even with these really high this really rapid increase in interest rates we didn’t really see how prices go down that much they went down about 15% since Peak uh you know bit more or less depending on which city you’re looking at um but it’s not clear to me that the prices are going to go way up just because uh the interest rates come down even if they came down by a fair amount David good to see you this morning
Senior economist with the Canadian Centre for Policy Alternatives David Macdonald discusses the housing market slowing down in May.
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