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2180 Steeles Avenue West,
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ON, L4K 2Z5

Phone:     905-761-7001
Toll Free: 1855-761-7001
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15 May 2019

Capital Economics predicts 2 rate cuts this year

The recent report by Capital Economics says the central bank could be underestimating the cooling effect on the national real estate market, as well as the consequences for the entire economy, supported largely by consumers.

Last year, sales of pre-construction units in Toronto and Vancouver slowed down. As a result, it became more difficult for developers to obtain the necessary financing for their projects, noted Stephen Brown, the firm’s senior economist. This change may affect employment and consumption, which are responsible for about 60% of Canada’s output.

“The Bank of Canada is underestimating the possible influence on residential investment,” - Brown said on Monday.

According to Capital Economics, the BoC may cut its key lending rate twice this year reducing it from 1.75% to 1.25%. Meanwhile, the average markets forecast is only one decline in two years, Bloomberg says.

Capital Economics believes that families will need a larger share of their income to increase savings, as home equity will be restrained by weaker prices growth.

At the beginning of 2018, new home sales in Toronto were down. They remained almost unchanged since then with the average monthly number of 25,530 sales, compared with a 46,841 sales seen in 2017, Altus Group says. The changes in housing starts have only begun. We can see the average monthly result remaining at 39,301 units since January 2018, while it was 39,703 in 2017.

“Condo developers need to sell about 70% of the units in their project even before the construction start in order to get the necessary financing”, - Brown noted. “That means the current housing starts represent units that were actually sold almost 18 months ago.”

According to him, there’s the same tendency in Vancouver.

“This data is quite specific and not many people are looking at it,” – he added.

 

 

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