Leading Indicators

Many market reports tend to focus on local statistics, such as number of units sold and average house price. These important figures should be considered within the broader context of what is happening in the county, province and country.

In This Issue:

The following leading indicators will give you a feel for what has been a support or drag on the real estate market:

• Unemployment
• Gross Domestic Product (GDP)
• Consumer Price Index (CPI)
• Summary

Unemployment

This is a good gauge for how the economy is doing and provides insight on what might be coming 6 months down the road. April was a good month for employment in Canada overall, with growth of 36,000 jobs across the country. When you dig a little deeper, you will find that the bulk of the growth occurred in the self-employment sector.

The bad news for Ontario is that all the growth occurred in B.C. and Quebec. Ontario saw little change in its employment rate, which could be described as a positive (at least we held steady).

Overall, the Unemployment Rate is the highest it has been in seven years, spiking during the last 6 months (graph). Keep an eye on this number as a good indicator that our economy is going to pick up. If there is 3 months of no or little growth, followed by some modest increases in employment for two or three months, that will likely signal that the government’s policies to get the economy kick-started are taking hold. You will surely see inflation and mortgage rates head upwards shortly after that.

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Gross Domestic Product (GDP)

Real gross domestic product edged down 0.1% in February. Economic activity has declined by 2.4% since October 2008.

Although automobile sales showed some strength at the end of last year and during January of this year, the sector as a whole is going through a shake-up. Expect the auto sector to weigh in heavily on the economy as a whole. Linamar in Guelph beat forecasts for net earnings as announced early May, however they have laid a lot of people off in order to maintain profitability. The net affect of this has been slightly negative on unit sales and prices.

With the economy shrinking a bit many people held off on buying in the last 4 months. This is leading to buying opportunities in the area.

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Consumer Price Index (CPI)

Statistics Canada reported (April 2009) that consumer prices rose 1.2% in the 12 months to March 2009, down from the 1.4% increase in February. The increase is a result of higher shelter and food costs. See the chart below to see how the main categories affected the Consumer Price Index.

The 1.2% increase is well below the target that the Bank of Canada has set for inflation, and as a result it has lowered its overnight lending rate to the lowest it has been in decades. The benefit to consumers is low lending rates on both Variable and Fixed rates for mortgages.

These low rates have been fuelling a very strong spring market with many first-time buyers buying homes. Expect this to last into the fall, with rates expected to stay at these levels until the end of 2009.
CMHC Forecast

CMHC is predicting fewer home starts and resale activity in Ontario during 2009. Guelph has been able to make up a lot of ground during March and April, and is likely to finish the year with an equal number of resales over 2008. Housing starts will likely be down 15% in Guelph, however many of the builders I know are experiencing a strong spring and may end the year flat as well.

CMHC makes a lot of great information available to the public. If you would like a copy of their latest Housing Outlook report please contact Gia’s team and they can email you a copy.

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Summary

While the market got off to a slow start, it has rebounded significantly and is expected to end the year on par with last year in Guelph. Expect unit sales to be very close and for prices to be steady.

This is largely due to low mortgage rates, which are a result of actions taken by the Bank of Canada.