According to the Bank’s press release, “The Governing Council will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In our projection, this does not happen until into 2023.” Officials are apparently optimistic about the economy’s prospects once the vaccine is sufficiently distributed and injected. There is no indication that they are planning additional measures to ease monetary policy.

This is particularly noteworthy for two reasons: 1) some economists had been speculating that the Bank would lower the overnight rate by 10-to-15 basis points to help mitigate the impact of continued and broadening lockdowns; and, 2) others thought the early development of the vaccine would trigger sufficient growth to warrant a rate hike in 2022. In the Bank’s current view, neither is likely to be the case. Why mess with a minute cut in already record-low interest rates when mortgage lending is still strong? The slow rollout of the vaccine and the mounting second wave of cases assure weak economic activity in Canada at least until the second half of this year.

As well, inflation remains surprisingly muted. In a separate release today, Stats Canada revealed that price pressures in Canada unexpectedly slowed in December as the country endured a new wave of lockdowns. After climbing to the highest since the pandemic in November, the latest reading shows price pressures are still well below the Bank of Canada’s 2% target. That’s consistent with the view from policymakers that inflation will remain subdued for some time.

For the year as a whole, economic growth is expected to be around 4% in 2021, compared to a contraction of -5.5% last year. As the inoculated population grows, the Bank forecasts an acceleration in growth to just under 5% in 2022 and a more-normal 2.5% in 2023. According to the January MPR, “The medium-term outlook is stronger than in the October Report because of vaccines’ positive effects, greater fiscal stimulus, stronger foreign demand and higher commodity prices. Meanwhile, potential output has also been revised up, reflecting an improved projection for business investment and less scarring effects on businesses and workers. There is considerable uncertainty around the medium-term outlook for GDP and the path for potential output. Thus, while the output gap is expected to close in 2023, the timing is particularly uncertain.”

Concerning housing activity, the report said, “Demand for housing has continued to show resilience, despite increasing case numbers and tightening restrictions. Housing activity should remain elevated into the start of 2021, supported by low borrowing rates and resilient disposable incomes. Changes in homebuyers’ preferences have also played a role. For example, price growth has been strongest for single-family homes and in areas outside city centres,” shown in the chart below.

The jobless rate rose a tick to 8.6%–well below the peak of 13.7% in April–but still three percentage points above its pre-pandemic level.

However, there were some bright spots as several sectors churned out small gains (see second chart below).  Among them were finance, insurance and real estate, as well as scientific and tech services. Manufacturing rose 15,400, and public administration reported solid gains.

On a positive note, full-time jobs actually rose 36,500, and average wages pushed back up and are now 5.6% higher than one year ago. This outsized gain, in part, reflects the loss in so many low-wage jobs.

Part-time jobs were down sharply in December, led by losses among workers aged 24 and under and those aged 55 and older. Also, the number of self-employed workers fell by 62,000, its lowest point since the pandemic began.

The December loss of jobs left employment down 571,600 (or -3.0%) from year-ago levels, the deepest annual decline since 1982–but far better than the April reading of -15% y/y. The 2020 job loss in Canada of -3.0% is also a relatively mild downturn compared to today’s US job market release for December, which reported a -6.2% y/y drop in employment. In Canada, the 332,300 y/y loss in accommodation and food services employment alone accounted for 58% of our annual job loss.

It certainly doesn’t appear that the lockdowns will be lifted anytime soon. We keep hitting new records in the number of Covid cases, and the more contagious Covid variant is upon us. What’s more, the rollout of the vaccine has been disturbingly slow. So until winter is behind us, there is unlikely to be a meaningful opening of the economy. All things considered, Canada’s economy has been relatively resilient. That’s not surprising given the government income support–the most generous in the G7 countries. Moreover, financial conditions are extremely accommodative.

Although no one is coming through the pandemic unscathed, most of the employment losses have been lower-paying jobs. Many higher-income earners continue to work from home. And even though the pandemic is worsening, many of Canada’s housing markets recorded their strongest December ever. Rock-bottom interest rates, high household savings and changing housing needs turned 2020 into a spectacular year for housing activity.

According to local real estate boards, December resales were surprisingly strong for what is typically a quiet month. Existing home sales surged between 32% y/y in Montreal, Ottawa and Edmonton and 65% y/y in Toronto based on early results. More distant suburbs attracted many families looking for more space with less concern about long commutes when jobs can be conducted at home. Property values continued to appreciate at accelerating rates in most markets. Downtown condo prices still bucked the trend due to ample inventories in Canada’s largest cities—the downturn in the rental market has prompted many condo investors to sell. That said, softer condo prices are now drawing more buyers in. Existing condo sales soared virtually everywhere in December.

Housing is likely to continue to cushion the blow of the pandemic on the overall economy. And while not everyone is sharing in this windfall, it will ultimately help pave the way to better employment gains in the spring.

However, no question that the bright light at the end of the very dark pandemic tunnel is a widely dispersed vaccine. PM Trudeau reasserted this week that the vaccine will be available to all who want it by September 2021. At the pace, it is now getting into people’s arms, that will not happen. Just over 0.6% of Canada’s population was vaccinated as of Thursday, January 7. By comparison, the US had vaccinated 1.8% of its population by that date, and Israel had inoculated nearly 20%, according to Our World in Data, a nonprofit research project at the University of Oxford. The U.K. had vaccinated about 1.9% of its population by Jan. 3, the latest date for which vaccination numbers were available (see the chart below).

Thanks to the lack of tourism and the reduced influx of immigrants, rents in Toronto have declined, changing the economics of condo investing. Many Airbnb properties in the short-term rental pool are now available for long-term rental, and the supply of newly built condos continues to rise. Lower rents have created a negative cash flow situation for some investors who are now anxious to sell.  As the supply of condo listings rises, demand has also slowed as many buyers look for less densified space. Combine that with the dearth of tourists and new immigrants, and it’s no wonder that the condo sector–especially smaller condos, is the weakest in the housing market.

The Canadian federal government has committed to increased immigration targets for the next three years to make up for the shortfall in 2020. this was featured in a Government of Canada news release stating, “The pandemic has highlighted the contribution of immigrants to the well-being of our communities and across all sectors of the economy. Our health-care system relies on immigrants to keep Canadians safe and healthy. Other industries, such as information technology companies and our farmers and producers, also rely on the talent of newcomers to maintain supply chains, expand their businesses and, in turn, create more jobs for Canadians”. Canada aims to welcome 401,000 new immigrants in 2021, 411,000 in 2022 and 421,000 in 2023.

The newly available vaccine will also encourage a return of short-term renters, but probably not until 2022 at the earliest.

Home Sales

Home sales edged down moderately for extremely high levels in both October and November. Notwithstanding this, monthly activity is still running well above historical levels (see chart below).Actual (not seasonally adjusted) sales activity posted a 32.1% y-o-y gain in November – the same as in October. It was a new record for that month by a margin of well over 11,000 transactions. For the fifth straight month, year-over-year sales activity was up in almost all Canadian housing markets compared to the same month in 2019. Among the few markets that were down on a year-over-year basis, it is likely the handful from Ontario reflect a supply issue rather than a demand issue.

This year, some 511,449 homes have traded hands over Canadian MLS® Systems, up 10.5% from the first 11 months of 2019. It was the second-highest January to November sales figure on record, trailing 2016 by only 0.3% at this point.

Shaun Cathcart, CREA’s Senior Economist, said, “It will be a photo finish, but it’s looking like 2020 will be a record year for home sales in Canada despite historically low supply. We’re almost in 2021, and market conditions nationally are the tightest they have ever been, and sales activity continues to set records. Much like this virus, I don’t see it all turning into a pumpkin on New Year’s Eve, but at least vaccination is a light at the end of the tunnel. Immigration and population growth will ramp back up, mortgage rates are expected to remain very low, and a place to call home is more important than ever. On top of that, the COVID-related shake-up to so much of daily life will likely continue to result in more people choosing to pull up stakes and move around. If anything, our forecast for another annual sales record in 2021 may be on the low side.”

The number of newly listed homes declined by 1.6% in November, led by fewer new listings in the Greater Toronto Area (GTA) and Ottawa.With sales and new supply down by the same percentages in November, the national sales-to-new listings ratio was unchanged at 74.8% – still among the highest levels on record for the measure. The long-term average for the national sales-to-new listings ratio is 54.2%.

Based on a comparison of sales-to-new listings ratio with long-term averages, only about 30% of all local markets were in balanced market territory in November, measured as being within one standard deviation of their long-term average. The other 70% of markets were above long-term norms, in many cases well above.

There were just 2.4 months of inventory on a national basis at the end of November 2020 – the lowest reading on record for this measure. At the local market level, some 21 Ontario markets were under one month of inventory at the end of November.Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose by 1.2% m-o-m in November 2020. Of the 40 markets now tracked by the index, all but one were up between October and November.

The non-seasonally adjusted Aggregate Composite MLS® HPI was up 11.6% on a y-o-y basis in November – the biggest gain since July 2017 (see chart below).

The table below shows the changing preferences of homebuyers for less densely populated areas outside the city core. With more people working from home, shorter commuting times don’t seem to be as important as before.

The largest y-o-y gains – between 25- 30% – were recorded in Quinte & District, Tillsonburg District, Woodstock-Ingersoll, and many Ontario cottage country areas.

Y-o-y price increases in the 20-25% range were seen in Barrie, Bancroft and Area, Brantford, Huron Perth, London & St. Thomas, North Bay, Simcoe & District, Southern Georgian Bay and Ottawa.

Y-o-y price gains in the range of 15-20% were posted in Hamilton, Niagara, Guelph, Cambridge, Grey-Bruce Owen Sound, Kitchener-Waterloo, Northumberland Hills, Peterborough and the Kawarthas, Montreal and Greater Moncton.

Prices were up in the 10-15% range in the GTA, Oakville-Milton and Mississauga.

Meanwhile, y-o-y price gains were in the 5-10% range in Greater Vancouver, the Fraser Valley, Chilliwack, Victoria and elsewhere on Vancouver Island, the Okanagan Valley, Regina, Saskatoon, Winnipeg, Quebec City and St. John’s NL. Price gains also climbed to around 1-2% y-o-y in Calgary and Edmonton.

The MLS® HPI provides the best way to gauge price trends because averages are strongly distorted by changes in sales activity mix from one month to the next.

The actual (not seasonally adjusted) national average home price was just over $603,000 in November 2020, up 13.8% from the same month last year.

Housing strength is largely attributable to record-low mortgage rates and strong demand for more spacious accommodation by households that have maintained their income level during the pandemic. The hardest-hit households are low-wage earners in the accommodation, food services, non-essential retail and tourism-related sectors. These are the folks that can least afford it and typically are not homeowners. The good news is that the housing market is contributing to the recovery in economic activity.  

The level of sales is firm and holding up better than most pundits had expected. Despite the historic setback to the market earlier this year caused by the pandemic, CREA projects national sales will hit a record of 544,413 units in 2020, representing an 11.1% increase from 2019, and rise again next year by 7.2% to around 584,000 units.