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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today show, will discuss the outlook for the housing market with TD economist Rishi Sondhi.
Money talks Anthony Okolie is going to give us a preview of what to expect from this week's Canadian inflation report.
And in today's WebBroker education segment, Bryan Rogers will explain how Canadian Depository Receipts work and how you can find them on the platform. So here's how you can get in touch with us. Just email moneytalklive@td.com or you can fill out the viewer response box under the video player on WebBroker.
Forget our guest of the day, let's get you an update on the markets. Can't exactly say there's a lot of action on the TSX right now.
You're pretty much just flat on the session, down about half a point. Seeing some strength in the trade weighted US buck. A bit of a pullback in the price of gold so it is hitting some of the miners.
Let's check in on Kinross right now. Nothing too dramatic. At six bucks and $0.
96 per share, your down about 2 1/2%, although you can see it's been quite a run for Kinross. A lot of the other gold miners on the back of that run we have seen in gold recently so a bit of gets back recently. Let's check in on Shopify right now. It seems that investors are moving into the name today at 6438, you've got Shopify up a little bit more than two bucks per share, that's good for about 4% pop. Something's wake against the market, the miners, Shopify putting a few points on the table. You got a bit of a flat read on the top line number. South of the border, we are getting into the thick of earnings season.
He really kicked off just Friday with some of the big Wall Street banks and some of the regionals in today. I think has was on deck later this week. Right now at the S&P 500, that broader read of the market, down about eight points or 1/5 of a percent. Let's check in on the tech heavy NASDAQ. I want to see how it's going against the broader market. A little weaker but nothing too dramatic. Down 47 points, a little more than 1/3 of a percent.
Did notice a weakness in some of the semi stocks, including Advanced Micro Devices. At this hour, at 8893 per share, down a little more than 3%. And that's your market update.
After a year of aggressive interest rate hikes which have weighed on home prices, we do know that the Bank of Canada is on a conditional pause.
What could it all mean for the housing market now that we are heading into the spring selling season?
Joining us now to discuss is TD economist Rishi Sondhi.
Always great to have you on the program.
Welcome back.
> Thanks for having me.
>> So as people try to figure out where this housing market is headed after the pressures of the past year, we did get some fresh data just before the weekend about existing home sales in this country.
One of the big takeaways from that?
>> Well, demand, sales increase for the seconds consecutive months, there up 1.
5% month over month, which is a positive sign there. On a moving average basis, sales or flat. It looks like Canadian home sales are hitting the bottom which is good news for, for example, homeowners.
Average home prices were up 2% month over month and are actually up a little bit month on a month-to-month moving average of Canadian home prices. Very much looks like sales prices are hitting the bottom after a fairly lengthy correction. I would say the big or overarching story over the past couple of months has been supplied, or lack thereof. So new listings were down about 6% month over month, the second straight big drop, big monthly draw. So when there is less available supply, that does away on sales because there's less, there are fewer homes out there to purchase but what it also does is tightens markets. It creates an environment where it encourages multiple bid opportunities so really the pullback and supply is an important one that's generating the positive average price by virtue of the fact that there just isn't much on the market.
>> There's a lot of conversation in this country about building homes to meet the demand out there, but we are talking about existing home sales. So this is an interesting dynamic where you're not seeing these existing homes put on the market.
What's happening there? Why do we think that maybe homeowners are a little reluctant to come to the table right now with the properties and put them up for sale?
>> Well, you got to understand that the market is only surveying its nascent stages of recovery. It's probably going to take a few more months of positive sales for sellers to have the confidence to list their properties.
That's one factor.
Another factor is that it's possible that some sellers have expectations that they will get prices that were sort of prevalent last year or something in that ballpark and I would say that's a bit of an unrealistic expectation. At the moment we are seeing a steep price to client. There may be some hesitancy on the part of sellers because they are not getting the prices they think they should get that sort of look like what we saw last year.
So those are a couple of factors that we think are at play. Another factor rumbling in the backgroundis that Canada's population is aging and an aging population tends to move less anyways. Over time, we will see structural downward pull on the supply, unless things simply due to that aging factor.
Another structural factor all point to is that is taking us a longer time to complete units that we start across all structure types.
So it's taking longer for us to complete units and put them on the market.
I think that sort of a longer-term structural factor that's holding down sales as well.
>> So we got a dearth of supply in terms of people listing their existing properties for sale.
We do have a central bank, after your aggressive rate hikes, that is on pause. It's a conditional pause but we've gone through two meetings now where they have changed their key rate.
How does this all sort of play out in the summer market? A tight market, but compared to a year ago, if people think they were gonna get the prices they got a year ago, the price of borrowinghas moved pretty dramatically for that.
>> It is, I would say, a supportive factor in prices.
the Bank of Canada is on hold and that sends out a fairly strong signal to the people that perhaps they are done there rate hiking campaign and the bottom for the market is sort of coming.
So it creates a bit of an incentive to jump into the market now and gain some appreciation to the upside. We think of the pause is jolted by our psychology and helps buyers come off the sidelines a little bit so that's helpful.
>> And to a certain degree day when I sort of read all of the coverage of the Canadian housing market or even when I think of it from an investor perspective, apart from housing, you do have a certain amount of investors counting on not only a pause but on cuts at some point before the end of the year.
The bond market is trying to price it in, figure out where the Fed might be, where the BOC might be.
Is some of that creeping into the housing market, is there a contingency that things rates will start moving lower before the end of the year?
>> Yeah, definitely.
You see that showing up in bond yields and bond yields, of course, the impact fix points.
The Bank of Canada's latest monetary policy report, they had an interesting chart showing the the share of people taking 2 to 4 year mortgages out as opposed to them more historically popular five year fixed mortgage has been on the rise which means that people think interest rates are going to fall within the next few years.
So we've seen raise kind of calm down across the curve and our position is that rates are going to fall in the two-year space more than the five year space and that's helpful for this market where people are taking out those shorter-term fixed-rate mortgages.
>> Something I've been told in normal times and of course we haven't been living in normal times in the past three years before the pandemic, before the cost of borrowing went to nearly 0, I would ask people, what can undo the Canadian housing market?
Because there is definitely a period of strength there.
They would always say joblessness.
If there is a big spike in the jobless rate, that will hit the housing market. Right now, despite the attempts of central banks to hold marketing cool labour, labour has been pretty strong.
As I constructed going forward?
>> It is.
Well, it's constructive in near-term demand for sure. A tight market will continue to degenerate growth and demand.
Several quarters of subprime growth after the pop in the first quarter so we do expect Canada's economy to slow as the impact of interest rate hikes has been more deeply felt and the economic system.
So as growth slows that will put some pressure on the unemployment rate, it should slow wage growth with a bit of a leg.
That was a highly supportive factor in the current environment and will be less so going forward into 2024.
>> Interesting stuff in a great start the program.
We're going to get your questions about the housing market for Rishi Sondhi in just a moment time.
Our minor, of course, that you get in touch with us at any time.
Just email moneytalklive@td.
com or Philip the viewer response box on the video player on WebBroker.
Right now, let's get you updated on the top stories right now to shares of Google parent company Alphabet in the spotlight today, the following unconfirmed reports that Samsung is considering replacing Google as the default search engine on its devices.
the report suggests Samsung is looking at Microsoft's it being a search engine as a replacement. Being recently integrated the artificial intelligence behind ChatGPT into it search platform.
You can say right now they are down about 3 1/2%. The controlling shareholder of Teck Resources is pushing back against Glencore's unsolicited bid for the company.
In a statement released today, Norman Keevil says he would support a deal with the right partner, but only after Teck carries out its current plan to split the company into two. Keevil says Glencore's bid is, quote the wrong one at the wrong time. Tech jumping now to the tune of almost 6%. Aggressive price cuts in the electric vehicle market will be in focus this week.
Tesla scheduled to report its latest quarterly results on Wednesday, and Gross margins will be front and centre.
The company, course, has been slashing prices to boost demand and defend its market share, and that does have some investors concerned about margin pressures.
A quick check on the markets, we will start here on Bay Street with the TSX Composite Index. Right now we are a modest 12 points or six ticks to the upside. Seeing a bit of downward pressure on the price of gold today, weighing on the minors, taking points of the headline.
South of the border, the S&P 500, as we tried further into earnings season, we are just in the opening innings, there still want to go, got the S&P 500 down about eight points, about 1/5 of a percent.
We are back now with Rishi Sondhi, taking your questions about the housing market. Loss coming in, so let's get to them.
Here's an interesting one.
Our Canada's record immigration levels having any impact on housing?
>> Of course.
I think it's well chronicled at this point that when immigrants first come to Canada, historically, they tend to rent before buying. Thus putting tremendous pressure on the rental market in large markets like Toronto and Vancouver, for example, where rental rates are low and rents are increasing rapidly.
That is increasing rental demand. Higher rents are good if you're an investor. If you own a condo for example when you're renting it out, it's good to have higher rents.
So sort of in that indirect sense it's helping out ownership demand.
Again, if you're an investor.
What I will say about immigration is that immigrants when they come to this country, home ownership still tends to be a pretty desirable goal for them so they push and work towards that and historically immigrant home ownership rates tend to rise, over time, but they do tend to rise to match that of the nativeborn population with a bit of a lag.
So what that indicates is that there is a robust population growth now law and we can expect in a few years now that these immigrants that are coming into the country now will want to transition into ownership of housing which will boost ownership housing demand.
Now the background is that it's relatively unaffordable so it might be more difficult for immigrants to make that transition relatives years gone by but that desire is certainly still there.
>> Of course, when it comes immigration levels, that policy is set by the federal government.
You can talk to any politician, whether they are federal or provincial or municipal, they will say, we know we need to build more housing to welcome new Canadians, they need a place to live. But then again, get it from there as to how these three levels will work together, who is going to ensure that we have the right amount of housing stock being built. Are you seeing any progress on this front writing and making sense saying, we are going to welcome this many people, it's good for the economy and for the diversity of the economy and this is how we are going to give them houses to live in.
>> When you look at housing stats, for example, which is methods in the pipeline or one of the steps in the pipeline to building housing has been robust in recent years.
That's in function of robust demand. Demand has been pushing supply higher. But it is heartening to seethe housing search trending at pretty high levels for most of the duration of the pandemic. Even in February, housing search levels work quite elevated.
There is some hope on that front. Of course, the Ontario government has promised to build a certain number of houses.
They are making steps in that direction and trying to change policy to unlock the opportunity for more building.
So there are some tentative signs that supplies picking up.
that said, is going to take more than just keeping pace with population growth in order toimprove affordability. You're going to have to build in excess of population growth to push affordability down.
So that's our own forecast, anticipates about 220, 225,000 starts each year just to keep up population growth. So we want to have improvements in a Ford ability over the long term, we would have to have homebuilding in excess of that which is a difficult proposition for sure particularly with an aging population.
We are seeing some signs but it's hard to get too hopeful in that regard, I'd say.
>> Okay, let's get another question now. Everyone is always interested to talk about housing. Are some geographic areas of Canada's housing market stronger than others?
Sometimes Vancouver and Toronto take all the oxygen out of the room when we talk about real estate. How does the country look?
>> It's real estate, so it's very much a local story.
There is Canada and then Canada's markets. I would say that broadly the prairies are outperforming relative to sales levels and prices. Sales levels are quite elevated in the prairies. They are above pre-pandemic levels.
Indeed, even Newfoundland and Labrador, sales levels are up relative to pre-pandemic.
The tie that binds in this story is affordability.
These markets are still relatively affordable compared to the rest.
So the interest rate hiking campaign wasn't as severe.
Nursing's performance. Ontario and BC have been the laggards in their cycle.
they have seen the biggest peak to trough sales declines.
we see markets turn around a little bit over the last couple of months. We seen the strongest sales growth on a trending basis in Ontario and BC but this should be judged as sort of a sign of strength.
Activity levels are still low. Sales levels are quite low in these markets.
As opposed to any overt strength in all these markets.
The Atlantic region, again, is sort of in the middle.
I'd say they have relatively steep price declines. We think there is further downside for prices in the Atlantic region. In Québec, it's the middle of the pack. You have the prairies, Ontario and BC, then the other jurisdictions are somewhere in the middle.
>> Only talk about the geographic differences, some of that stories back to what we just talked about for immigration.
We are welcoming a record amount of Canadians but the standard thought is everyone wants to settle into places, it's either BC and Vancouver area or it's Ontario in the Toronto area.
Is that still the theme?
>> Yes.
you are seeing high immigration everywhere but on a relative basis, it's still the big five claiming the lion share of immigrants. But it's quite robust across all jurisdiction.
>> Let's get another question here, this one about some government policy. You expect the first home savings account to have any effect on the real estate market?
>> Yeah, we do.
We think it will have some modest impact on demand. The issue here is that the account, the savings account is capped at $4000 which isn't a great amount, particularly when you have pretty expensive housing in places like Toronto and Vancouver for example.
So it does have the potential to help people save for home quicker but they Associated with the savings account probably limits its effectiveness to some degree.
>> Is always at home, make sure you do your own research before you make any investment decisions.
We'll get back to your questions for Rishi Sondhi on the housing market and just moments time.
And a reminder that you can get in touch with us any time.
just email moneytalklive@td.
com.
Now, let's get our educational segment of the day.
A relatively new asset class that you can find on the WebBroker platform, Canadian Depository Receipts. Bryan Rogers, Senior client education instructor with TD Direct Investing has an explainer.
>> A common question we getespecially from new investors is, can I buy a fractional share of a stock?
So we know that we can buy whole shares and that can be pretty expensive in many cases.
A lot of times he'll ask as well, do I have to buy 100 shares of stock? I think many realize that you can by any number of shares.
You could buy 10, 20, five.
But those are whole numbers and they can be pretty expensive as well if you're looking to buy whole share of stocks like Amazon or Tesla, they are in the hundreds of dollars per share.
Some people might be saying, I want to get some share of ownership of the stocks but I only want to buy a fraction. Is that possible?
The short answer initially is no. There isn't really an ability to do that at first. But there are a couple of products out there. One launched not too long ago on the Canadian market that are called CDR's or Canadian Depository Receipts. The ones that you can buy certain stocks like Amazon and Tesla and larger stocks like Home Depot and Microsoft, you can buy a fractional portion but it's often by another exchange, then you exchange. They do have it available on WebBroker. I would like to show you so you can actually have some ownership of those stocks and own smaller portions or fractional portions of that stock instead of buying 100 shares.
Instead of buying a whole share, you can buy fractional portion. Let's take a look at that.
If we jump into WebBroker, we can see, if I go to the research page, I don't want to just enter in a stock here at the top, you may have noticed, especially if you are fairly new as well, if you typed in for the first time and are looking at Microsoft's stock and you type in MSFT, you will notice there is a Canadian flag there which might be confusing for those who thought it traded on the US exchange.
It might be even more confusing when you click on the NCAA is only $21.
That's a pretty good deal, it's cheap.
But if we go back here and we go to Microsoft on the US exchange, so I will type that again. So anytime you type in a symbol or name, you're going to get a listing of some potential matches.
So if you go to Microsoft in the US, we will see that it's trading right now at $288 US, and that's a lot more than 20 some dollars we just on the Canadian market.
You can even guess right then and there that it's a fractional amount, roughly better chance I would say on that one because there is that conversion for foreign exchange so it does converted from US to Canadian dollars.
So we go back here look at Microsoft one more time, we can see that still there the listing of recent symbols, I now back to the Canadian flag and noticed that the 2151 is up $0.12, is a fractional portion of the stock.
You can see on here, you can view it on the NASDAQ but you will see, the way you know that's a CDR or Canadian Depository Receipts that it says Aequitas NEO, so this is the Neo exchange. They are offering several different stocks.
if I click on the US version of Amazon to give you an idea of the current price, it's $102.
If I go to the Canadian version, type it in again, AMZN… be careful with your typing skills, if you are as bad as me.
we will let up on the Canadian end, we can see it's $12.50, roughly 1/10 or ninth.
There are exact ratios if you want to know what that is and you can look at foreign exchange as well.
You have to do a search on Google. Just type in Google, the CDR, Canadian depository received ratios and go to one of those websites and I will tell he was found with those stocks.
At least now you know you can buy a fractional share of some of those bigger stocks available.
>> Our thanks to Bryan Rogers, Senior client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
NOW before you get back to your questions on the housing market for Rishi Sondhi, a reminder of how you get in touch with us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions. There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
We are back with Rishi Sondhi, we are taking your questions about the housing market.
Lots coming in, so let's get to them.
Here's one for you.
Wire housing starts up with the recent rapid interest rate increase? Why are there more shovels in the ground if it's more extensive tomorrow?
>> Housing starts are a function of past demand.
So when interest rates were at rock-bottom levels, we saw sales shoot up. In the new home market, you by the locked, then sometime later gets constructed. So supply responds with a leg to demand.
So the levels we are seeing now are in big part a response to demand we have seen in the past when interest rates were quite low.
So now that sales have kind of come down a fair bit over the past year or so, one could expect housing starts to then start to moderate moving forward through this year and next and indeed our forecast has housing starts moderating quite a bit through next year in response to past increases to demand. So that's one thing I will say.
Another thing I will say is you're right. With higher interest rates, they raise the cost of financing for housing construction projects, right? But I would say that the price level for homes, even though we've seen a correction in prices, they come down a fair bit, the levels are still quite high for prices and that means it's still probably quite profitable, in fact I can say with 100% confidence that is still profitable to build homes because we are seeing them being built at a pretty robust pace.
That's a supportive factor. Inventory levels in the market are quite low as well.
That's another incentive.
It's not like there's inventory overhang and the pullback effect. New home supplies quite low. So it's encouraging building from that perspective. But I would say it's responding to past increases in demand and it's probably quite profitable to build still, even with interest rates having moved higher because price levels are higher and inventory levels are quite low.
>> Let's get another question here. We were talking affordability earlier.
One viewer wants to know, has the recent decline in prices helped affordability at all?
Another viewer point rate wants to know, we'll younger people ever be able to afford a home in cities like Toronto or Vancouver?
>> It will be quite difficult, I must say. To answer the first question, not much.
average home prices.
But that, mortgage payments are a function of prices and interest rates and the reason prices have gone down is because interest rates have gone up. Overall, affordability hasn't improved that much which is and so agreed.
It still historically quite poor.
That doesn't spell great news for first-time homebuyers.
Even before I would say recent times for first-time homebuyers as a share of the overall housing market has been difficult.
In order to get into the market, it would require some intergenerational wealth transfer, you'd probably have to tap the bank of mom and dad just as first-time homebuyers were doing before the pandemic hit and now it's probably more required even more to jump into the market as a first-time homebuyer.
With that said, relative to earlier on in the pandemic, there has been some gains in household wealth.
Again, pre-pandemic, there had been some gains in non-real estate related wealth.
First-time homebuyers might be a little wealthier than they were before the pandemic hit but still it would be very tough proposition to jump into the market and you'd likely need some help or possibly you'd need some help to supplement the savings that you made.
> When I think about the person who asked about Toronto or Vancouver, I mean, for the past decade when I was watching the previous one of, you thought, eventually isn't the market mechanism going to sort itself out?
You're talking about homes being 15, 17 times the median earnings, this can't go on forever. People who live here need to be able to afford their homes. It didn't seem to sort itself out. I was always left scratching my head about that.
>> Yeah.
It is a bit of a puzzle, right?
In theory and in practice, affordability has a limit.
When we talk about our affordability metric, it can't exceed 100%. There is a maximum, theoretical maximum that should be hit.
But it really comes down to preferences on the part of people.
So maybe people just accept the fact that they are going to have to dedicate a larger portion of their incomes to housing to afford housing moving forward. In that situation, historical comparisons, past periods of affordability are not as relevant because sort of the paradigm the people are gonna be using, it's highly unaffordable but I really want to home, so I'm just going to have to bite the bullet and understand that this is the new world that we are living in.
>> Let's get to another question here.
Any signs that migration trends due to the pandemic are reversing? We all heard the stories and maybe even use of people that thought, if I don't have to go to the office in Toronto, maybe I will live in Owen Sound.
>> Yeah. Well, I would say one interesting trend that emerged during the pandemic was interprovincial migration, largely people moving from Ontario to other provinces.
We saw that in Alberta, the Atlantic region.
So it has sort of reigned in a little bit in BC, so migration into BC isn't as robust.
But people are still leaving Ontario for Alberta and the Atlantic regions.
That trend really hasn't changed that much.
Moving forward, we expect, as people have less of an opportunity to remote work, they are called to the office a little bit more, we have seen some recent announcements to that effect, we think that the ability to travel interprovincial he will be reigned in a little bit and that'll put some downward pressure on housing demand and prices in places like Alberta and the Atlantic region.
>> When I think about affordability and you start talking about migration between the provinces, I was having a chat with two of my buddies. We are all around 50 years old. Their parents moved from Britain, outside the country, in the early 70s, and I always thought it was a labour thing. You come to a country looking for job opportunities.
But for them, one from England and one from Scotland, it was more about housing port ability. They thought, if we stay here, we will never be able to buy a house.
If we were to Canada, we can buy house.
That's a big move. Saying, I'm gonna take my family and go somewhere else. Is that playing out in Canada? I know Alberta is giving the pitch to people in southern Ontario.
It want to be able to afford a home, moved to Alberta.
Our people doing that?
>> Definitely.
Definitely people are leaving Ontario for Alberta.
That's what we're seeing right now. That's certainly a factor stimulating that's outflow from Ontario.
With respect to immigrants, the affordably picture we are seeing right now hasn't deteriorated with record immigration levels.
It is a longer-term concern for sure but so far, people are coming to the country still and they are still, the fact that housing affordability isn't good hasn't been enough of a deterrent to stem that immigration for low.
It could be the case that immigrants coming to the country are a little bit surprised at how low affordability is in Canada or in certain places in Canada.
So there could be an element of surprise there, but so far we haven't seen thatin the data from the immigrants. The nonpermanent residents, those that have been in the country else's sorry, the interprovincial migrants, those moving within the country, those are the ones that are saying, okay, let me move from this poor affordability jurisdiction to this other jurisdiction where affordability isn't that strange. So there's some interesting dynamics going on there.
I will say that it is a long-term concern for immigration.
>>interesting stuff. We'll get back to your questions for Rishi Sondhi on the housing market in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
And a reminder that you can contact us at any time. Do you have a question about investing or what's driving the markets? Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Just last week, the spotlight was on the Bank of Canada. Of course, it kept its key rate unchanged at 4 1/2%.
This week, the focus will turn to the latest inflation rate for this country as some retail sales data. Our Anthony Okolie is joining us now with TD Economics outlook on some of these pretty important data releases.
What are we hearing?
>> Central banking acknowledge that the return to the 2% inflation target could be harder than expected. That assessment is based on the banks recent Business Outlook Survey, which suggests that labour shortages are easing but wage growth is still elevated.
However, the Bank of Canada seems confident that growth is set to slow in the coming months.
As my next chart shows, both headline and especially core inflation, excluding the volatile food and energy sectors, are trending lower as the chart shows. And TD Economics expects further cooling and both headline and core inflation and they see headline inflation pulling back for 1/5 straight month to 4.6% year-over-year.
They see core inflation moderating to 4 1/2% for the March report.
Now also on tap, we've got February Canadian retail sales data which is coming out this week and they are tracking… Retail sales are tracking another gain after strong consumer spending the last two months. And as this chart shows, TD's latest data and credit card spending data shows that consumers kept their purse strings open in February.
Basically what that means is a resilient job market means that consumers were more optimistic at the start of the year consumer confidence hitting its highest level in nine months.
Now breaking it down, the gains and spending in February were really driven by spinning on services, things like entertainment and recreation.
Also at bars and restaurants as well. Looking ahead, TD Economics has upgraded their forecast for retail sales for the first half of the year with consumer expenditure in the second quarter to increase 1.2% in Q2, again due to the strength of the labour market. But they do see or expect consumer spending growth to drop in coming quarters as the past rate hikes continue to buy it and consumers pull back on their spending.
>> Important data point for the Bank of Canada. Rishi and I were talking earlier in the shell about the bond market pricing and cuts from the Bank of Canada before the end of this year. What does TD Economics think about that?
>> Yeah, there seems to be a divergence between with the markets and the Bank of Canada are saying. Markets are expecting the first cut of 25 basis points to occur in December.
That's up from September previously which reflects the economy's cyclical rebound. Now TD Economics notes that when asked about the potential for near-term rate cuts, Gov. Macklem's response was explicit that that doesn't look today like the most likely scenario to us so TD Economics is also leaning against the markets and they are saying that up to 4.5 policy rate is here to stay for the remainder of 2023.
Greg it?
>> Fascinating stuff and a lot of parse through this week. We will keep talking about it as they roll in.
Thanks Anthony. That's my pleasure.
>> Moneytalk's Anthony Okolie.
Let's check in on the market. The TSX Composite Index was flat at the start of the program and it is mostly to the upside now, eight points, just for takes.
We are seeing some strength in the trade weighted US dollar that has gold pulling back a bit from its recent runs and gains and has some minors giving back some of the recent gains.
Nothing too dramatic.
Barrick Gold at 2587 is down about 1 1/2%. Teck Resources coming out again with yet another statement, this time from the controlling family of tacky saying they don't think this Glencore deal is the right one or the right time. They are pursuing this would've Teck Resources into two separate companies, separating the whole business. Right now you got tech at 6404, up about 6% pure the controlling family did say it is open to any kind of ideas in the future, that could mean a wide range of things, just not at this time. Who knows what's going on with the stock right now? But there's definitely some money moving in that direction. South of the border, the S&P 500, burning season is ramping up. Canada big banks kicked it off on Friday, some regionals today, a law for investors to parse through as as they try to get a handle on wherethings are going. The NASDAQ is down 52 points, almost half a percent. Let's check back in on Alphabet, parent company of Google. You had some unconfirmed reports out there that Samsung may be considering switching to being. the stock is down about 3 1/4%.
We're back again with Rishi Sondhi from TD Economics. We are talking about housing so let's get back into it.
Another question. Has forced home selling because of higher interest rates become an issue?definitely a concern in this past year but are we seeing it play out in the market?
>> No. We are seeing the opposite. Supplies pulling back,so it is not moving higher in the face of higher interest rates.
That's not to say that he can't moving forward, but it wouldn't just be higher interest rates because we would have seen it happen already. It would take a combination of higher interest rates and somecooling in the jobs market to sort of push listings or to triggers significant forces. I will say that it hasn't happened yet.
It standing in the opposite direction. It's what we expected in our latest forecast.
>> I guess when people bring up forced to selling the think of it in a bearish way in the sense that if you actually because of either borrowing costs or labour market conditions or the two of them together that you just have to sort of take the prices of them put in front of you because you have to get out of the market and that can have a cascading effect.
You're not seeing any signs of it right now. Is it something we need to keep in mind going forward?
>> Yes, definitely. It is a risk.
I mean, there is some tension going on.
people bought condos for example or preconstruction condos in 2018, their mortgage guarantee was set up.
Now these units have come under construction and are closing and now they have to close the deal and because the units have gone down in price of value and interest rates have gone up, some buyers of these reconstructions may run into some difficulties to secure mortgages and have had two lists there condos.
We don't have good data on this because those units aren't listed on the system where we track sales.
It's not unheard of.
There are stories of their some pressure as a result of higher interest rates and upward pressure on supply.
It is not enough really to kind of… Shape the entire narrative of the market.
It's happening here and there in pockets but overall those things are pulling back quite severely and in fact, in economic downturns or higher interest rates, sales.
.
.
It would take significant cooling in the housing market before we select dynamics unfold but it's a possibility.
>> We've run out of time for questions but before I let you go, let's go back to the beginning of the conversation.
The big question for everyone out there following Canadian housing is where are we in the cycle after a fairly tough year and where might we had from here?
What should we have in mind?
>> Yeah. We are forecasting positive sales growth from here on.
Positive sales growth and positive price growth.
For us, the bottom has already had.
That said, one thing we haven't built into our forecast because we haven't had line of sight on it is been you rule changes that will make it tougher for potential borrowers to qualify for mortgages.
So that will put them downward pressure on demand.
Depending on when it hits. We don't have enough line of sight in that to build it into our forecast.
But if they come out with these rules in the second half of the year, you will probably see some downward pressure there too.
So it's possible that we see a W type pattern or an M type pattern and you see it bounce back in prices which is what we are seeing now and then you see another lay down as these measures aren't cemented.
We don't have a line of sight on that we have them built into our forecast but that's a feasible outcome.
>> Rishi, always great to get your insight. Always a great conversation.
I look forward to the next one.
>> Thank you so much, Greg.
>> Our thanks to Rishi Sondhi, economist with TD. Stay tuned. On tomorrow show, Nicole Ewing, director of tax and estate planning a TD Wealth will be our guest taking your questions about personal finance. And a reminder, of course, that you can get a head start for those questions for Nicole. Just a mill MoneyTalk Live.
That's all the time we have the show today. On behalf of Anthony and I from the desk, thanks for watching and we will see you tomorrow.
[music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today show, will discuss the outlook for the housing market with TD economist Rishi Sondhi.
Money talks Anthony Okolie is going to give us a preview of what to expect from this week's Canadian inflation report.
And in today's WebBroker education segment, Bryan Rogers will explain how Canadian Depository Receipts work and how you can find them on the platform. So here's how you can get in touch with us. Just email moneytalklive@td.com or you can fill out the viewer response box under the video player on WebBroker.
Forget our guest of the day, let's get you an update on the markets. Can't exactly say there's a lot of action on the TSX right now.
You're pretty much just flat on the session, down about half a point. Seeing some strength in the trade weighted US buck. A bit of a pullback in the price of gold so it is hitting some of the miners.
Let's check in on Kinross right now. Nothing too dramatic. At six bucks and $0.
96 per share, your down about 2 1/2%, although you can see it's been quite a run for Kinross. A lot of the other gold miners on the back of that run we have seen in gold recently so a bit of gets back recently. Let's check in on Shopify right now. It seems that investors are moving into the name today at 6438, you've got Shopify up a little bit more than two bucks per share, that's good for about 4% pop. Something's wake against the market, the miners, Shopify putting a few points on the table. You got a bit of a flat read on the top line number. South of the border, we are getting into the thick of earnings season.
He really kicked off just Friday with some of the big Wall Street banks and some of the regionals in today. I think has was on deck later this week. Right now at the S&P 500, that broader read of the market, down about eight points or 1/5 of a percent. Let's check in on the tech heavy NASDAQ. I want to see how it's going against the broader market. A little weaker but nothing too dramatic. Down 47 points, a little more than 1/3 of a percent.
Did notice a weakness in some of the semi stocks, including Advanced Micro Devices. At this hour, at 8893 per share, down a little more than 3%. And that's your market update.
After a year of aggressive interest rate hikes which have weighed on home prices, we do know that the Bank of Canada is on a conditional pause.
What could it all mean for the housing market now that we are heading into the spring selling season?
Joining us now to discuss is TD economist Rishi Sondhi.
Always great to have you on the program.
Welcome back.
> Thanks for having me.
>> So as people try to figure out where this housing market is headed after the pressures of the past year, we did get some fresh data just before the weekend about existing home sales in this country.
One of the big takeaways from that?
>> Well, demand, sales increase for the seconds consecutive months, there up 1.
5% month over month, which is a positive sign there. On a moving average basis, sales or flat. It looks like Canadian home sales are hitting the bottom which is good news for, for example, homeowners.
Average home prices were up 2% month over month and are actually up a little bit month on a month-to-month moving average of Canadian home prices. Very much looks like sales prices are hitting the bottom after a fairly lengthy correction. I would say the big or overarching story over the past couple of months has been supplied, or lack thereof. So new listings were down about 6% month over month, the second straight big drop, big monthly draw. So when there is less available supply, that does away on sales because there's less, there are fewer homes out there to purchase but what it also does is tightens markets. It creates an environment where it encourages multiple bid opportunities so really the pullback and supply is an important one that's generating the positive average price by virtue of the fact that there just isn't much on the market.
>> There's a lot of conversation in this country about building homes to meet the demand out there, but we are talking about existing home sales. So this is an interesting dynamic where you're not seeing these existing homes put on the market.
What's happening there? Why do we think that maybe homeowners are a little reluctant to come to the table right now with the properties and put them up for sale?
>> Well, you got to understand that the market is only surveying its nascent stages of recovery. It's probably going to take a few more months of positive sales for sellers to have the confidence to list their properties.
That's one factor.
Another factor is that it's possible that some sellers have expectations that they will get prices that were sort of prevalent last year or something in that ballpark and I would say that's a bit of an unrealistic expectation. At the moment we are seeing a steep price to client. There may be some hesitancy on the part of sellers because they are not getting the prices they think they should get that sort of look like what we saw last year.
So those are a couple of factors that we think are at play. Another factor rumbling in the backgroundis that Canada's population is aging and an aging population tends to move less anyways. Over time, we will see structural downward pull on the supply, unless things simply due to that aging factor.
Another structural factor all point to is that is taking us a longer time to complete units that we start across all structure types.
So it's taking longer for us to complete units and put them on the market.
I think that sort of a longer-term structural factor that's holding down sales as well.
>> So we got a dearth of supply in terms of people listing their existing properties for sale.
We do have a central bank, after your aggressive rate hikes, that is on pause. It's a conditional pause but we've gone through two meetings now where they have changed their key rate.
How does this all sort of play out in the summer market? A tight market, but compared to a year ago, if people think they were gonna get the prices they got a year ago, the price of borrowinghas moved pretty dramatically for that.
>> It is, I would say, a supportive factor in prices.
the Bank of Canada is on hold and that sends out a fairly strong signal to the people that perhaps they are done there rate hiking campaign and the bottom for the market is sort of coming.
So it creates a bit of an incentive to jump into the market now and gain some appreciation to the upside. We think of the pause is jolted by our psychology and helps buyers come off the sidelines a little bit so that's helpful.
>> And to a certain degree day when I sort of read all of the coverage of the Canadian housing market or even when I think of it from an investor perspective, apart from housing, you do have a certain amount of investors counting on not only a pause but on cuts at some point before the end of the year.
The bond market is trying to price it in, figure out where the Fed might be, where the BOC might be.
Is some of that creeping into the housing market, is there a contingency that things rates will start moving lower before the end of the year?
>> Yeah, definitely.
You see that showing up in bond yields and bond yields, of course, the impact fix points.
The Bank of Canada's latest monetary policy report, they had an interesting chart showing the the share of people taking 2 to 4 year mortgages out as opposed to them more historically popular five year fixed mortgage has been on the rise which means that people think interest rates are going to fall within the next few years.
So we've seen raise kind of calm down across the curve and our position is that rates are going to fall in the two-year space more than the five year space and that's helpful for this market where people are taking out those shorter-term fixed-rate mortgages.
>> Something I've been told in normal times and of course we haven't been living in normal times in the past three years before the pandemic, before the cost of borrowing went to nearly 0, I would ask people, what can undo the Canadian housing market?
Because there is definitely a period of strength there.
They would always say joblessness.
If there is a big spike in the jobless rate, that will hit the housing market. Right now, despite the attempts of central banks to hold marketing cool labour, labour has been pretty strong.
As I constructed going forward?
>> It is.
Well, it's constructive in near-term demand for sure. A tight market will continue to degenerate growth and demand.
Several quarters of subprime growth after the pop in the first quarter so we do expect Canada's economy to slow as the impact of interest rate hikes has been more deeply felt and the economic system.
So as growth slows that will put some pressure on the unemployment rate, it should slow wage growth with a bit of a leg.
That was a highly supportive factor in the current environment and will be less so going forward into 2024.
>> Interesting stuff in a great start the program.
We're going to get your questions about the housing market for Rishi Sondhi in just a moment time.
Our minor, of course, that you get in touch with us at any time.
Just email moneytalklive@td.
com or Philip the viewer response box on the video player on WebBroker.
Right now, let's get you updated on the top stories right now to shares of Google parent company Alphabet in the spotlight today, the following unconfirmed reports that Samsung is considering replacing Google as the default search engine on its devices.
the report suggests Samsung is looking at Microsoft's it being a search engine as a replacement. Being recently integrated the artificial intelligence behind ChatGPT into it search platform.
You can say right now they are down about 3 1/2%. The controlling shareholder of Teck Resources is pushing back against Glencore's unsolicited bid for the company.
In a statement released today, Norman Keevil says he would support a deal with the right partner, but only after Teck carries out its current plan to split the company into two. Keevil says Glencore's bid is, quote the wrong one at the wrong time. Tech jumping now to the tune of almost 6%. Aggressive price cuts in the electric vehicle market will be in focus this week.
Tesla scheduled to report its latest quarterly results on Wednesday, and Gross margins will be front and centre.
The company, course, has been slashing prices to boost demand and defend its market share, and that does have some investors concerned about margin pressures.
A quick check on the markets, we will start here on Bay Street with the TSX Composite Index. Right now we are a modest 12 points or six ticks to the upside. Seeing a bit of downward pressure on the price of gold today, weighing on the minors, taking points of the headline.
South of the border, the S&P 500, as we tried further into earnings season, we are just in the opening innings, there still want to go, got the S&P 500 down about eight points, about 1/5 of a percent.
We are back now with Rishi Sondhi, taking your questions about the housing market. Loss coming in, so let's get to them.
Here's an interesting one.
Our Canada's record immigration levels having any impact on housing?
>> Of course.
I think it's well chronicled at this point that when immigrants first come to Canada, historically, they tend to rent before buying. Thus putting tremendous pressure on the rental market in large markets like Toronto and Vancouver, for example, where rental rates are low and rents are increasing rapidly.
That is increasing rental demand. Higher rents are good if you're an investor. If you own a condo for example when you're renting it out, it's good to have higher rents.
So sort of in that indirect sense it's helping out ownership demand.
Again, if you're an investor.
What I will say about immigration is that immigrants when they come to this country, home ownership still tends to be a pretty desirable goal for them so they push and work towards that and historically immigrant home ownership rates tend to rise, over time, but they do tend to rise to match that of the nativeborn population with a bit of a lag.
So what that indicates is that there is a robust population growth now law and we can expect in a few years now that these immigrants that are coming into the country now will want to transition into ownership of housing which will boost ownership housing demand.
Now the background is that it's relatively unaffordable so it might be more difficult for immigrants to make that transition relatives years gone by but that desire is certainly still there.
>> Of course, when it comes immigration levels, that policy is set by the federal government.
You can talk to any politician, whether they are federal or provincial or municipal, they will say, we know we need to build more housing to welcome new Canadians, they need a place to live. But then again, get it from there as to how these three levels will work together, who is going to ensure that we have the right amount of housing stock being built. Are you seeing any progress on this front writing and making sense saying, we are going to welcome this many people, it's good for the economy and for the diversity of the economy and this is how we are going to give them houses to live in.
>> When you look at housing stats, for example, which is methods in the pipeline or one of the steps in the pipeline to building housing has been robust in recent years.
That's in function of robust demand. Demand has been pushing supply higher. But it is heartening to seethe housing search trending at pretty high levels for most of the duration of the pandemic. Even in February, housing search levels work quite elevated.
There is some hope on that front. Of course, the Ontario government has promised to build a certain number of houses.
They are making steps in that direction and trying to change policy to unlock the opportunity for more building.
So there are some tentative signs that supplies picking up.
that said, is going to take more than just keeping pace with population growth in order toimprove affordability. You're going to have to build in excess of population growth to push affordability down.
So that's our own forecast, anticipates about 220, 225,000 starts each year just to keep up population growth. So we want to have improvements in a Ford ability over the long term, we would have to have homebuilding in excess of that which is a difficult proposition for sure particularly with an aging population.
We are seeing some signs but it's hard to get too hopeful in that regard, I'd say.
>> Okay, let's get another question now. Everyone is always interested to talk about housing. Are some geographic areas of Canada's housing market stronger than others?
Sometimes Vancouver and Toronto take all the oxygen out of the room when we talk about real estate. How does the country look?
>> It's real estate, so it's very much a local story.
There is Canada and then Canada's markets. I would say that broadly the prairies are outperforming relative to sales levels and prices. Sales levels are quite elevated in the prairies. They are above pre-pandemic levels.
Indeed, even Newfoundland and Labrador, sales levels are up relative to pre-pandemic.
The tie that binds in this story is affordability.
These markets are still relatively affordable compared to the rest.
So the interest rate hiking campaign wasn't as severe.
Nursing's performance. Ontario and BC have been the laggards in their cycle.
they have seen the biggest peak to trough sales declines.
we see markets turn around a little bit over the last couple of months. We seen the strongest sales growth on a trending basis in Ontario and BC but this should be judged as sort of a sign of strength.
Activity levels are still low. Sales levels are quite low in these markets.
As opposed to any overt strength in all these markets.
The Atlantic region, again, is sort of in the middle.
I'd say they have relatively steep price declines. We think there is further downside for prices in the Atlantic region. In Québec, it's the middle of the pack. You have the prairies, Ontario and BC, then the other jurisdictions are somewhere in the middle.
>> Only talk about the geographic differences, some of that stories back to what we just talked about for immigration.
We are welcoming a record amount of Canadians but the standard thought is everyone wants to settle into places, it's either BC and Vancouver area or it's Ontario in the Toronto area.
Is that still the theme?
>> Yes.
you are seeing high immigration everywhere but on a relative basis, it's still the big five claiming the lion share of immigrants. But it's quite robust across all jurisdiction.
>> Let's get another question here, this one about some government policy. You expect the first home savings account to have any effect on the real estate market?
>> Yeah, we do.
We think it will have some modest impact on demand. The issue here is that the account, the savings account is capped at $4000 which isn't a great amount, particularly when you have pretty expensive housing in places like Toronto and Vancouver for example.
So it does have the potential to help people save for home quicker but they Associated with the savings account probably limits its effectiveness to some degree.
>> Is always at home, make sure you do your own research before you make any investment decisions.
We'll get back to your questions for Rishi Sondhi on the housing market and just moments time.
And a reminder that you can get in touch with us any time.
just email moneytalklive@td.
com.
Now, let's get our educational segment of the day.
A relatively new asset class that you can find on the WebBroker platform, Canadian Depository Receipts. Bryan Rogers, Senior client education instructor with TD Direct Investing has an explainer.
>> A common question we getespecially from new investors is, can I buy a fractional share of a stock?
So we know that we can buy whole shares and that can be pretty expensive in many cases.
A lot of times he'll ask as well, do I have to buy 100 shares of stock? I think many realize that you can by any number of shares.
You could buy 10, 20, five.
But those are whole numbers and they can be pretty expensive as well if you're looking to buy whole share of stocks like Amazon or Tesla, they are in the hundreds of dollars per share.
Some people might be saying, I want to get some share of ownership of the stocks but I only want to buy a fraction. Is that possible?
The short answer initially is no. There isn't really an ability to do that at first. But there are a couple of products out there. One launched not too long ago on the Canadian market that are called CDR's or Canadian Depository Receipts. The ones that you can buy certain stocks like Amazon and Tesla and larger stocks like Home Depot and Microsoft, you can buy a fractional portion but it's often by another exchange, then you exchange. They do have it available on WebBroker. I would like to show you so you can actually have some ownership of those stocks and own smaller portions or fractional portions of that stock instead of buying 100 shares.
Instead of buying a whole share, you can buy fractional portion. Let's take a look at that.
If we jump into WebBroker, we can see, if I go to the research page, I don't want to just enter in a stock here at the top, you may have noticed, especially if you are fairly new as well, if you typed in for the first time and are looking at Microsoft's stock and you type in MSFT, you will notice there is a Canadian flag there which might be confusing for those who thought it traded on the US exchange.
It might be even more confusing when you click on the NCAA is only $21.
That's a pretty good deal, it's cheap.
But if we go back here and we go to Microsoft on the US exchange, so I will type that again. So anytime you type in a symbol or name, you're going to get a listing of some potential matches.
So if you go to Microsoft in the US, we will see that it's trading right now at $288 US, and that's a lot more than 20 some dollars we just on the Canadian market.
You can even guess right then and there that it's a fractional amount, roughly better chance I would say on that one because there is that conversion for foreign exchange so it does converted from US to Canadian dollars.
So we go back here look at Microsoft one more time, we can see that still there the listing of recent symbols, I now back to the Canadian flag and noticed that the 2151 is up $0.12, is a fractional portion of the stock.
You can see on here, you can view it on the NASDAQ but you will see, the way you know that's a CDR or Canadian Depository Receipts that it says Aequitas NEO, so this is the Neo exchange. They are offering several different stocks.
if I click on the US version of Amazon to give you an idea of the current price, it's $102.
If I go to the Canadian version, type it in again, AMZN… be careful with your typing skills, if you are as bad as me.
we will let up on the Canadian end, we can see it's $12.50, roughly 1/10 or ninth.
There are exact ratios if you want to know what that is and you can look at foreign exchange as well.
You have to do a search on Google. Just type in Google, the CDR, Canadian depository received ratios and go to one of those websites and I will tell he was found with those stocks.
At least now you know you can buy a fractional share of some of those bigger stocks available.
>> Our thanks to Bryan Rogers, Senior client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
NOW before you get back to your questions on the housing market for Rishi Sondhi, a reminder of how you get in touch with us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions. There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
We are back with Rishi Sondhi, we are taking your questions about the housing market.
Lots coming in, so let's get to them.
Here's one for you.
Wire housing starts up with the recent rapid interest rate increase? Why are there more shovels in the ground if it's more extensive tomorrow?
>> Housing starts are a function of past demand.
So when interest rates were at rock-bottom levels, we saw sales shoot up. In the new home market, you by the locked, then sometime later gets constructed. So supply responds with a leg to demand.
So the levels we are seeing now are in big part a response to demand we have seen in the past when interest rates were quite low.
So now that sales have kind of come down a fair bit over the past year or so, one could expect housing starts to then start to moderate moving forward through this year and next and indeed our forecast has housing starts moderating quite a bit through next year in response to past increases to demand. So that's one thing I will say.
Another thing I will say is you're right. With higher interest rates, they raise the cost of financing for housing construction projects, right? But I would say that the price level for homes, even though we've seen a correction in prices, they come down a fair bit, the levels are still quite high for prices and that means it's still probably quite profitable, in fact I can say with 100% confidence that is still profitable to build homes because we are seeing them being built at a pretty robust pace.
That's a supportive factor. Inventory levels in the market are quite low as well.
That's another incentive.
It's not like there's inventory overhang and the pullback effect. New home supplies quite low. So it's encouraging building from that perspective. But I would say it's responding to past increases in demand and it's probably quite profitable to build still, even with interest rates having moved higher because price levels are higher and inventory levels are quite low.
>> Let's get another question here. We were talking affordability earlier.
One viewer wants to know, has the recent decline in prices helped affordability at all?
Another viewer point rate wants to know, we'll younger people ever be able to afford a home in cities like Toronto or Vancouver?
>> It will be quite difficult, I must say. To answer the first question, not much.
average home prices.
But that, mortgage payments are a function of prices and interest rates and the reason prices have gone down is because interest rates have gone up. Overall, affordability hasn't improved that much which is and so agreed.
It still historically quite poor.
That doesn't spell great news for first-time homebuyers.
Even before I would say recent times for first-time homebuyers as a share of the overall housing market has been difficult.
In order to get into the market, it would require some intergenerational wealth transfer, you'd probably have to tap the bank of mom and dad just as first-time homebuyers were doing before the pandemic hit and now it's probably more required even more to jump into the market as a first-time homebuyer.
With that said, relative to earlier on in the pandemic, there has been some gains in household wealth.
Again, pre-pandemic, there had been some gains in non-real estate related wealth.
First-time homebuyers might be a little wealthier than they were before the pandemic hit but still it would be very tough proposition to jump into the market and you'd likely need some help or possibly you'd need some help to supplement the savings that you made.
> When I think about the person who asked about Toronto or Vancouver, I mean, for the past decade when I was watching the previous one of, you thought, eventually isn't the market mechanism going to sort itself out?
You're talking about homes being 15, 17 times the median earnings, this can't go on forever. People who live here need to be able to afford their homes. It didn't seem to sort itself out. I was always left scratching my head about that.
>> Yeah.
It is a bit of a puzzle, right?
In theory and in practice, affordability has a limit.
When we talk about our affordability metric, it can't exceed 100%. There is a maximum, theoretical maximum that should be hit.
But it really comes down to preferences on the part of people.
So maybe people just accept the fact that they are going to have to dedicate a larger portion of their incomes to housing to afford housing moving forward. In that situation, historical comparisons, past periods of affordability are not as relevant because sort of the paradigm the people are gonna be using, it's highly unaffordable but I really want to home, so I'm just going to have to bite the bullet and understand that this is the new world that we are living in.
>> Let's get to another question here.
Any signs that migration trends due to the pandemic are reversing? We all heard the stories and maybe even use of people that thought, if I don't have to go to the office in Toronto, maybe I will live in Owen Sound.
>> Yeah. Well, I would say one interesting trend that emerged during the pandemic was interprovincial migration, largely people moving from Ontario to other provinces.
We saw that in Alberta, the Atlantic region.
So it has sort of reigned in a little bit in BC, so migration into BC isn't as robust.
But people are still leaving Ontario for Alberta and the Atlantic regions.
That trend really hasn't changed that much.
Moving forward, we expect, as people have less of an opportunity to remote work, they are called to the office a little bit more, we have seen some recent announcements to that effect, we think that the ability to travel interprovincial he will be reigned in a little bit and that'll put some downward pressure on housing demand and prices in places like Alberta and the Atlantic region.
>> When I think about affordability and you start talking about migration between the provinces, I was having a chat with two of my buddies. We are all around 50 years old. Their parents moved from Britain, outside the country, in the early 70s, and I always thought it was a labour thing. You come to a country looking for job opportunities.
But for them, one from England and one from Scotland, it was more about housing port ability. They thought, if we stay here, we will never be able to buy a house.
If we were to Canada, we can buy house.
That's a big move. Saying, I'm gonna take my family and go somewhere else. Is that playing out in Canada? I know Alberta is giving the pitch to people in southern Ontario.
It want to be able to afford a home, moved to Alberta.
Our people doing that?
>> Definitely.
Definitely people are leaving Ontario for Alberta.
That's what we're seeing right now. That's certainly a factor stimulating that's outflow from Ontario.
With respect to immigrants, the affordably picture we are seeing right now hasn't deteriorated with record immigration levels.
It is a longer-term concern for sure but so far, people are coming to the country still and they are still, the fact that housing affordability isn't good hasn't been enough of a deterrent to stem that immigration for low.
It could be the case that immigrants coming to the country are a little bit surprised at how low affordability is in Canada or in certain places in Canada.
So there could be an element of surprise there, but so far we haven't seen thatin the data from the immigrants. The nonpermanent residents, those that have been in the country else's sorry, the interprovincial migrants, those moving within the country, those are the ones that are saying, okay, let me move from this poor affordability jurisdiction to this other jurisdiction where affordability isn't that strange. So there's some interesting dynamics going on there.
I will say that it is a long-term concern for immigration.
>>interesting stuff. We'll get back to your questions for Rishi Sondhi on the housing market in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
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Just last week, the spotlight was on the Bank of Canada. Of course, it kept its key rate unchanged at 4 1/2%.
This week, the focus will turn to the latest inflation rate for this country as some retail sales data. Our Anthony Okolie is joining us now with TD Economics outlook on some of these pretty important data releases.
What are we hearing?
>> Central banking acknowledge that the return to the 2% inflation target could be harder than expected. That assessment is based on the banks recent Business Outlook Survey, which suggests that labour shortages are easing but wage growth is still elevated.
However, the Bank of Canada seems confident that growth is set to slow in the coming months.
As my next chart shows, both headline and especially core inflation, excluding the volatile food and energy sectors, are trending lower as the chart shows. And TD Economics expects further cooling and both headline and core inflation and they see headline inflation pulling back for 1/5 straight month to 4.6% year-over-year.
They see core inflation moderating to 4 1/2% for the March report.
Now also on tap, we've got February Canadian retail sales data which is coming out this week and they are tracking… Retail sales are tracking another gain after strong consumer spending the last two months. And as this chart shows, TD's latest data and credit card spending data shows that consumers kept their purse strings open in February.
Basically what that means is a resilient job market means that consumers were more optimistic at the start of the year consumer confidence hitting its highest level in nine months.
Now breaking it down, the gains and spending in February were really driven by spinning on services, things like entertainment and recreation.
Also at bars and restaurants as well. Looking ahead, TD Economics has upgraded their forecast for retail sales for the first half of the year with consumer expenditure in the second quarter to increase 1.2% in Q2, again due to the strength of the labour market. But they do see or expect consumer spending growth to drop in coming quarters as the past rate hikes continue to buy it and consumers pull back on their spending.
>> Important data point for the Bank of Canada. Rishi and I were talking earlier in the shell about the bond market pricing and cuts from the Bank of Canada before the end of this year. What does TD Economics think about that?
>> Yeah, there seems to be a divergence between with the markets and the Bank of Canada are saying. Markets are expecting the first cut of 25 basis points to occur in December.
That's up from September previously which reflects the economy's cyclical rebound. Now TD Economics notes that when asked about the potential for near-term rate cuts, Gov. Macklem's response was explicit that that doesn't look today like the most likely scenario to us so TD Economics is also leaning against the markets and they are saying that up to 4.5 policy rate is here to stay for the remainder of 2023.
Greg it?
>> Fascinating stuff and a lot of parse through this week. We will keep talking about it as they roll in.
Thanks Anthony. That's my pleasure.
>> Moneytalk's Anthony Okolie.
Let's check in on the market. The TSX Composite Index was flat at the start of the program and it is mostly to the upside now, eight points, just for takes.
We are seeing some strength in the trade weighted US dollar that has gold pulling back a bit from its recent runs and gains and has some minors giving back some of the recent gains.
Nothing too dramatic.
Barrick Gold at 2587 is down about 1 1/2%. Teck Resources coming out again with yet another statement, this time from the controlling family of tacky saying they don't think this Glencore deal is the right one or the right time. They are pursuing this would've Teck Resources into two separate companies, separating the whole business. Right now you got tech at 6404, up about 6% pure the controlling family did say it is open to any kind of ideas in the future, that could mean a wide range of things, just not at this time. Who knows what's going on with the stock right now? But there's definitely some money moving in that direction. South of the border, the S&P 500, burning season is ramping up. Canada big banks kicked it off on Friday, some regionals today, a law for investors to parse through as as they try to get a handle on wherethings are going. The NASDAQ is down 52 points, almost half a percent. Let's check back in on Alphabet, parent company of Google. You had some unconfirmed reports out there that Samsung may be considering switching to being. the stock is down about 3 1/4%.
We're back again with Rishi Sondhi from TD Economics. We are talking about housing so let's get back into it.
Another question. Has forced home selling because of higher interest rates become an issue?definitely a concern in this past year but are we seeing it play out in the market?
>> No. We are seeing the opposite. Supplies pulling back,so it is not moving higher in the face of higher interest rates.
That's not to say that he can't moving forward, but it wouldn't just be higher interest rates because we would have seen it happen already. It would take a combination of higher interest rates and somecooling in the jobs market to sort of push listings or to triggers significant forces. I will say that it hasn't happened yet.
It standing in the opposite direction. It's what we expected in our latest forecast.
>> I guess when people bring up forced to selling the think of it in a bearish way in the sense that if you actually because of either borrowing costs or labour market conditions or the two of them together that you just have to sort of take the prices of them put in front of you because you have to get out of the market and that can have a cascading effect.
You're not seeing any signs of it right now. Is it something we need to keep in mind going forward?
>> Yes, definitely. It is a risk.
I mean, there is some tension going on.
people bought condos for example or preconstruction condos in 2018, their mortgage guarantee was set up.
Now these units have come under construction and are closing and now they have to close the deal and because the units have gone down in price of value and interest rates have gone up, some buyers of these reconstructions may run into some difficulties to secure mortgages and have had two lists there condos.
We don't have good data on this because those units aren't listed on the system where we track sales.
It's not unheard of.
There are stories of their some pressure as a result of higher interest rates and upward pressure on supply.
It is not enough really to kind of… Shape the entire narrative of the market.
It's happening here and there in pockets but overall those things are pulling back quite severely and in fact, in economic downturns or higher interest rates, sales.
.
.
It would take significant cooling in the housing market before we select dynamics unfold but it's a possibility.
>> We've run out of time for questions but before I let you go, let's go back to the beginning of the conversation.
The big question for everyone out there following Canadian housing is where are we in the cycle after a fairly tough year and where might we had from here?
What should we have in mind?
>> Yeah. We are forecasting positive sales growth from here on.
Positive sales growth and positive price growth.
For us, the bottom has already had.
That said, one thing we haven't built into our forecast because we haven't had line of sight on it is been you rule changes that will make it tougher for potential borrowers to qualify for mortgages.
So that will put them downward pressure on demand.
Depending on when it hits. We don't have enough line of sight in that to build it into our forecast.
But if they come out with these rules in the second half of the year, you will probably see some downward pressure there too.
So it's possible that we see a W type pattern or an M type pattern and you see it bounce back in prices which is what we are seeing now and then you see another lay down as these measures aren't cemented.
We don't have a line of sight on that we have them built into our forecast but that's a feasible outcome.
>> Rishi, always great to get your insight. Always a great conversation.
I look forward to the next one.
>> Thank you so much, Greg.
>> Our thanks to Rishi Sondhi, economist with TD. Stay tuned. On tomorrow show, Nicole Ewing, director of tax and estate planning a TD Wealth will be our guest taking your questions about personal finance. And a reminder, of course, that you can get a head start for those questions for Nicole. Just a mill MoneyTalk Live.
That's all the time we have the show today. On behalf of Anthony and I from the desk, thanks for watching and we will see you tomorrow.
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