Despite headline-grabbing stories about million-dollar houses pushing home ownership out of reach in Canada’s large cities, there’s still plenty of opportunity for first-time buyers in certain segments of the Canadian real estate market, says Dominion Lending Centres Chief Economist Sherry Cooper.

Single-family home prices have been surging in cities like Toronto and Vancouver, but that’s driven largely by a shortage of land: You practically need to knock down an older home in order to build a new one. It’s the supply-demand story, Cooper says. Land for single-family homes is in short supply while demand is strong, driving double-digit price increases.

But that’s not the case in the condo market, where prices have not been escalating as quickly. Condos, and housing in those parts of Canada where the land supply is not an issue, are still an affordable option.

Pre-approvals are certainly beneficial. However, they can also be very disappointing if you are not prepared to know what they actually mean.

They DON’T mean…

They don’t mean that you have a mortgage. Until there is a Purchase Agreement (a written up contract to purchase a property) actually submitted to a bank and a commitment from the bank offered to the client, there is no mortgage. Your bank will often say, “You are pre-approved on a mortgage based on a specific rate that is being offered during this time.” Factors such as the amount of income you bring in, the amount of debt you have and even the property itself will determine whether or not the bank will actually give you a mortgage.

They don’t mean that the rate you are pre-approved for will be the rate you pay. Rate holds are temporary and depending on whether or not you qualify for the rate, you may not get what you initially bargained for.

Please note that a good preapproval will pull your credit to make sure there are no suprises. 

Preapprovals are not sent to CMHC. CMHC Insurance is required on mortgages with less than 20% down payment. CMHC cannot review your file until you have a purchase agreement. If you have any concerns please mention them to your mortgage broker/advisor so that they can be addressed before you have an offer.

Another woeful jobs report in Canada for the month of July triggers further pessimism. Following three consecutive months of stagnant employment, payrolls fell by a much-worse-than-expected 31,000 in July as the unemployment rate increased 0.1 percentage point to 6.9 percent. Gloomily, all of the loss was in full-time employment, which fell by 71,000 from June to July, while part-time work was up 40,000. 

On a year-over-year basis, total employment in Canada increased by 71,000 or 0.4 percent, with all of the growth in part-time work. Hardest hit last month were young people aged 15 to 24 whose unemployment rate hit 13.3 percent. Youth unemployment in the summer months is often quite volatile, but compared to the same month one year ago, payrolls were down 2.7 percent. 

Employment fell in Ontario and Newfoundland and increased in British Columbia and New Brunswick. This was the first decline in Ontario since September 2015, where the unemployment rate currently stands at 6.4 percent. B.C.’s positive jobs performance extends an uptrend that began in the spring of last year. The unemployment rate in B.C. is the lowest in the country, at 5.6 percent, helping to explain–at least in part–the booming housing market in Vancouver and environs. 

In direct contrast, the jobless rate in Alberta increased sharply to 8.6 percent, its highest level since September 1994. Alberta’s economy has been brutalized by the oil price rout, which began in June 2014 and, more recently, the Fort McMurray wildfires. Oil prices have come under renewed downward pressure in recent weeks, largely reflecting seasonal forces.

From an industry perspective, all of the decline in Canadian employment last month was in the government sector.

In another piece of bad economic news released today, Canada’s trade deficit widened to $3.6 billion in June, hitting a record high. The Bank of Canada has long been hoping that non-energy exports would help offset the weakness in Canada’s energy sector. Clearly, the Bank of Canada will remain on the sidelines for an extended period. It is unlikely they will risk cutting interest rates again given the surge in household borrowing. 
 

A Very Welcome U.S. Employment Report–Welcome for Hillary

U.S. payrolls jumped in July for a second month and wages climbed, which is great news and portends  sustained growth in consumer spending in the second half of the year. Employment climbed in July by 255,000 well above the 180,000 expected job gain, which followed an upwardly revised increase of 292,00 in June.Gains in July payrolls were broad-based, including manufacturers, health-care and retailers.

The unemployment rate was unchanged at 4.9 percent as many formerly discouraged workers streamed back into the labour force. Even the broadest measure of unemployment, so-called U-6, which includes discouraged workers and those involuntarily working less than full-time, has moved down to 9.7 percent, compared to over 17 percent in late 2009. As well, the average duration of unemployment has fallen considerably. 

Other indicators of the labor market are sending clear, positive signals. Jobless claims have held below 300,000 for 74 straight weeks — the longest stretch since 1973 and a level economists say is typically consistent with a healthy labour market. Job vacancies are hovering near 15-year highs, with just 1.4 unemployed workers for every available role. And the quit rate, which measures voluntary job exits, has trended upward since early 2010 suggesting improved confidence.

The long-awaited wage growth showed promising signs of acceleration last month, with average hourly earnings rising a more-than-forecast 0.3 percent. Year-over year gains remain at 2.6 percent. Wage growth has been sluggish throughout the expansion even as unemployment has diminished. Normally, a tightening labor market prompts hiring managers to offer more pay to attract and retain skilled and experienced workers. However, a potentially more representative data series created by the Atlanta Fed. the Wage Growth Tracker, shows an uptrend in annual worker compensation growth to 3.6 percent. 

Last week, the Commerce Department  reported that the U.S. economy grew at a mere 1.2 percent annual rate in the second quarter, less than half the median projection of economists. It is obvious that potential noninflationary growth in the U.S. has slowed as labour force growth diminishes owing to demographic factors. In other words, judging from the payroll figures, the U.S. economy is at or near full-employment. Second-half GDP growth in the U.S. is likely to pick up to about a 2 percent pace.

Though many have judged the likelihood of a Fed tightening move this year to be relatively low, policy makers last week did affirm that risks to the U.S. economy have eased and the job market has continued to tighten. This suggests that a boost to borrowing costs at the Fed’s next meeting September 20-21 remains a real possibility.