Is the COVID-19 emergency over? An economists perspective.

I recently participated in a conference call with Scotiabank’s Chief Economist & SVP, Jean-Francois Perrault and John Webster President & CEO Scotia Mortgage Corporation.   It was good to hear real financial experts make sense of what has happened and what will most likely happen.

Here are of some of the highlights:

Back in March, the big question was how long would this last? Having settled into a new normal there is more certainty about future outlook than when  COVID-19 first hit in February and early March.

In an initial response, the government locked down the country to reduce the possible number in covid cases. This created tremendous layoffs… at one point there were over 8 Million Canadians on CERB out of 20 Million workers, I repeat 8 Million out of 20 Million workers. Let that sink in for a minute. It is clear financial support that has been provided to canadians during covid far exceeds anything we’ve ever seen. This has helped to sustain loan and mortgage arrears. It has also helped households keep and maintain their standard of living.

We now know we have been reasonably successful in containing and managing covid. Many businesses have since reopened. There is a Strong job market recovery (not fully recovered but a strong recovery) and retail sales are now back to February numbers. The belief is that it could take one to three years to fully recover.

This is all conditional on us controlling the number of covid cases and with students heading back to school this will be something to watch.

Tiff Macklem, the Bank of Canada Governor, said we they not be raising interest rates until inflation hits 2% for a sustained basis and this is not likely to happen for at least three years. That was a very strong and clear statement… Low rates are here to stay! We must take note of this statement, it will and should impact which mortgage product you should choose.  Leaving consumers with some certainty that interest will not go up anytime soon.  

Macklem also said he is thinking of putting in a yield curve control program… meaning if they need to provide more stimulus for longer term borrowing, they will keep this in check too.  

From this call, it is clear that housing market opinions and comments from CMHC are not supported by Scotiabank. Scotiabank believes CMHC is not taking into consideration how support will continue from banks, and all three levels of government.   Therefore, I believe this…  The comments from CMHC recently about an impending housing crash are not valid.

We also heard that immigration levels will continue to rise.  Yes, it’s true, much to my surprise.  While immigration levels will be lower this year than last year, no surprise there, but it will rise next year according to the federal government. Invitation to apply (ITAs) is around 11% higher this year than last year. The border closure is temporary and we will see a huge amount of people come into Canada. Immigration is something that can and does drive housing demand for both renters and buyers.

Population growth is still off the chart compared over the last 3 decades. 

Surprisingly, house prices have not only remained resilient, they’ve gone up.  My own data shows prices are up around 10% to 20% year over year (as of August 2020).  

My final thoughts:

The message from me is clear… Rates are at all time lows and this will help to fuel the housing market.  

Your best interest is my only interest.   I reply to all questions and I welcome your comments.  Like this article?  Share with a friend.

Steve Garganis 416 224 0114 steve@mortgagenow.ca