Friday, August 12, 2016

Canadian millennials still stuck in the basement as youth unemployment surges



Luke Kawa, Bloomberg News | July 19, 2016
The share of unemployed millennial basement-dwellers in Canada is on the rise.
In November 2014, Bank of Canada Governor Stephen Poloz drew attention to this unwelcome legacy of the financial crisis: the enduring presence of young Canadians unable to start their careers and move out of their parents’ homes.
“I bet almost everyone in this room knows at least one family with adult children living in the basement,” the governor said in a Toronto speech. “I’m pretty sure these kids have not taken early retirement.”
According to Bank of America Merrill Lynch North America Economist Emanuella Enenajor, “The basement has gotten a little more crowded.”
The employment rate for Canadians between the ages of 15 and 24 has retreated to 55.2 per cent as of June from 56.1 per cent when Poloz flagged this problem.
“Clearly, prospects for this cohort continue to deteriorate, given the falling employment to population ratio,” writes Enenajor.
One of Poloz’s proposed remedies for this malady — that young people should seek unpaid work in order to build experience and avoid gaping holes in their resumes — provoked a severe backlash, particularly among labor activists. But emphasizing labor market outcomes among youth as proof there’s significant slack in the economy is something that distinguishes Poloz from his predecessor, Mark Carney.
Carney, now at the Bank of England, left Canada’s central bank with a tightening bias, although alternative measures of slack that took into account developments in the labor market, among other factors, showed a significant amount of spare capacity in the economy.
The Bank’s Summer Business Outlook Survey showed that employers generally plan to increase staffing over the next 12 months, but at a slower pace than the expansion prior to the financial crisis.
The labour market’s resilience in 2015 proved surprising, with average monthly job growth exceeding levels recorded in the previous two years. However, the pace of hiring has slowed in 2016, with an average of 7,300 jobs added per month thus far.
If the Bank of Canada still aims to accomplish this goal of luring youths out of the basement, this means that monetary policy makers are still far away from being able to raise interest rates, Enenajor concludes.
“With the labor market struggling, why would Governor Poloz consider a rate hike?” she writes. “We also see no cuts on the horizon, given overheated housing.”
http://business.financialpost.com/news/economy/canadian-millennials-still-stuck-in-the-basement-as-youth-unemployment-surges

Thursday, August 4, 2016

Renovation spending expected to rise in 2016 as people just can’t afford to move



Garry Marr | Financial Post | June 22, 2016
Housing gridlock — that’s what realtors call it. Affordability issues leave you stuck in your existing home, but looking for a better living space.
About the only move left for Canadians demanding a better home has been to renovate the one they have, which has led to record levels of spending on home improvement. A new survey from Canadian Imperial Bank of Commerce out Wednesday suggests that Canadians are now turning their attention to landscaping — a renovation that doesn’t do much for the appreciation of home values.
The findings from the bank might be another clear sign that Canadians are settling into their current houses because of the state of the market, which is increasingly being choked by a lack of affordability.
“The shift in focus from indoors to outdoors is surprising,” said Barry Gollom, vice-president, mortgages and lending, with CIBC.
Between May 19 and 25, 2016, Angus Reid surveyed 2,129 people online about their renovation plans. The top project was basic maintenance, cited by 54 per cent of respondents, down slightly from 55 per cent in 2015. The big jump was in landscaping, with 42 per cent of respondents planning some type of project, up from 25 per cent a year ago.
Gollom said “landscaping, patio and deck,” is a growing phenomenon and might indicate that people have spent so much money inside their house, that they are now turning their attention to the outside.
Separately, Altus Group has noted that renovation spending in 2014 was $20 billion more than was spent on new homes that year. In 2015, Canadians spent $70.1 billion on renos and Altus forecasts that figure to climb to $71.4 billion this year.
The CIBC survey backs that up, with the average renovation project coming in at $13,017, up from the $12,293 average in 2015, although the bank says only 37 per cent of Canadian homeowners plan to renovate this year versus 40 per cent in 2015.
Bathroom renovations were cited by 33 per cent of respondents, down from 40 per cent in 2015. Only 26 per cent plan to update a kitchen in 2016 versus 31 per cent who said they would in 2015.
“I think the shift has gone from seeing renovation as an investment — the return you see from a bathroom or a kitchen tends to be much higher than on landscaping,” said Gollom. “I think there is focus on quality of life versus the return.”
Interestingly enough, renovation spending is highest in struggling Alberta, with the average homeowner planning a project worth an average $22,951, up from $13,520 a year earlier. In British Columbia the average project is expected to drop to $15,522 from $16,639, while in Ontario panelists said their spending would drop to $13,878 from $15,487 a year earlier.
Basically, people are unable to buy what they want
Benjamin Tal, the deputy chief economist with CIBC, says renovation spending has “mostly stabilized” at this point but at a “very high level” he doesn’t expect to decline very soon.
“At first you had a lot of pent up demand from the recession in 2000 and that was behind much of the activity in the first half of the last decade, but in the second half after 2008-2009 you had the beginning of a new trajectory,’ said Tal, adding that the current renovation market is driven by housing prices. “Basically, people are unable to buy what they want.”
The lack of available product has been cited by real estate boards in both Toronto and Vancouver, which have been the driving forces of the housing boom in Canada. In May, detached home prices rose 36.9 per cent from a year earlier in Metro Vancouver to $1,513,800 and in the Greater Toronto Area detached home prices rose 18.9 per cent during the same period to $986,691.
Brad Henderson, chief executive of Sotheby’s International Realty Canada, said he can’t say exactly how directly this housing gridlock is leading to renovation, but it’s part of what is driving home repairs.
“Whilst people are fascinated by the price of homes, more and more people are not selling because, by the time I sell, pay commissions, pay land transfer tax, and go through the hassle of moving I may not be any better off than I am. So, what I’ll do is renovate and just stay where I am,” he says. “As more and more people choose not to put homes on the market it just encourages upward pressure on prices.”
http://business.financialpost.com/personal-finance/mortgages-real-estate/renovation-spending-expected-to-rise-in-2016-as-people-just-cant-afford-to-move

Wednesday, August 3, 2016

Mortgage Professionals Canada says there's no evidence of housing bubble



Some evidence that foreign money is problem, but overall the housing market is solid, brokers group says

There's little evidence of a housing bubble in Canada, a group that represents mortgage brokers says. (David Donnelly/CBC)
There is no housing bubble, and any misguided attempts to fix one will cause bigger problems in the long run.
That's one of the main takeaways of a new report from Mortgage Professionals Canada, an industry group that represents 11,000 mortgage brokers across the country.
"Housing bubbles do not exist in Canada," the group's chief economist Will Dunning says in the report, adding that it would be "tragic" if any misguided attempts to fix a problem that doesn't exist were to happen.
The report cites U.S. economist Joseph Stiglitz as saying a key requirement of bubbles is that the price of something is "high today only because investors believe that the selling price will be high tomorrow."
In other words, a bubble occurs when people buy something solely because prices are rising quickly and they deduce that they will continue to do so.
Unlike other purely financial assets, which people primarily buy because they plan to sell them for a higher amount later, housing is different, because people's main motivation to buy is often to live in it.
That is why Dunning doesn't buy the housing bubble thesis. He says there are reams of evidence that suggest housing price appreciation is solidly backed by fundamentals — people want to buy houses because they want to live in them.
"Price growth in Canada, even in Vancouver and Toronto, is still consistent with the economic fundamental of interest rates and affordability," the report says.
In its recent Monetary Policy Report, no less than the Bank of Canada noted that it is on the lookout for "self-reinforcing price expectations" in the housing market.
As far as Dunning is concerned, however, there's little to worry about in the numbers, because he notes that while mortgage debt is increasing, with rates so low the amount of mortgage payments that go to paying down the principal versus interest payments is near record highs. 
Still, group isn't without some concern about the housing market. On the subject of foreign buyers, the report does concede that there's at least anecdotal evidence that moneyed foreign buyers are driving up prices in Toronto and Vancouver, especially in the market for high-end homes.
As evidence, the group notes that in both cities the "rates of price increase are now much higher for single-detached homes than they are for lower-priced townhomes and condominiums. In other centres covered by the CREA index, that pattern is absent."
"This is consistent with increased buying by affluent foreign investors, although it is not conclusive proof," Dunning says.
"We should accept that foreign buying is very substantial in Vancouver and that the Vancouver housing market is being severely distorted in consequence," the report said. 
"In Toronto, we do not have the same amount of anecdotal evidence, but the recent great strength in the market and an acceleration of price growth have led to suggestions that a similar set of effects may now be developing."
Lawmakers in Ottawa are currently attempting a so-called "deep dive" for more information on the housing market, something that MPC supports, but cautions against drawing the wrong conclusions from the data based on misperceptions of a problem.
One of the factors being discussed would be an increase to down payment requirements, something that critics say would push house prices further out of reach for first time buyers while doing little to deter speculators.
"A much greater risk to the housing market would be policy changes by mortgage insurers or mortgage lenders that make it harder to finance home purchase," the report says.
"Now that the energy sector is no longer a major economic driver, a healthy housing sector is even more essential …. It would be tragic to unnecessarily impair this key economic force."
http://www.cbc.ca/news/business/mortgage-housing-bubble-1.3657598