Canada’s Economy is Going South, Literally…
What’s happening with Canadian real estate prices? What about the economy in the frozen north? Have Canadians stopped spending in the US? Although the Canadian economy has slowed, the flow of investment by to the US has been largely unaffected.
Housing seems to be following the same path as the United States. Canadian home prices softened in 2008 and should fall further in 2009. Canada’s new house price index dropped again in February, down 0.7%, compared with a decline of 0.6% one month earlier. Prices were down 1.8% from a year earlier, the largest year-on-year decrease since 1996.
Last spring the British Columbia Real Estate Assoc. (www.bcrea.bc.ca) predicted price gains of 8% for 2008 and 5% for 2009. 2008 actually saw a decline of 11%, and the prediction for 2009 is a decline of 13%.
In other areas between January and February of this year, prices declined 3% in Edmonton, followed by Vancouver (-2.9%), Saskatoon (-2.1%), Victoria (-1.7%) and Calgary (-0.9%). In all these cities (except for Saskatoon where other factors were involved), poor market conditions continued to be the main reason for the decreases.
Nevertheless, there doesn’t appear to be a meltdown on the horizon similar to that which occurred to some parts of the metropolitan Phoenix area real estate market.
For example, not all prices declined. In Quebec, new housing prices increased 2.6% from a month earlier, and prices also increased from a month earlier in Regina, Saskatchewan and in London, Ontario, which were both up 0.9%. More Canadian real estate statistics are available at www.crea.ca.
Job losses have increased and are starting to impact the Canadian economy. Canadian job losses reached 129,000 in January, sending the national unemployment rate to 7.2% from 6.6% in December. Over 100,000 of the jobs lost were in manufacturing, with 71,000 lost in Ontario alone. BC lost 35,000 jobs and its unemployment rate now stands at 6.1% – up almost two full points from the end of 2007. Thanks to its oil and gas industry, Alberta is stable so far.
Payroll employment showed employment fell by close to 600,000 – unemployment now stands at 7.6%. Job losses since the start of the recession in December 2007 total 3.6 million. The Financial Post (www.financialpost.com) states that Canada shed another 61,300 jobs in March as employers continued to drastically cut costs amid a deepening economic downturn.
Meanwhile The Globe and Mail reports at www.theglobeandmail.com that Canada recorded its first ever surplus in bilateral direct investment with the U.S. last year, overtaking an economy 10 times its size. Direct Canadian investment in the United States was $17.1billion greater last year than U.S. direct investment in Canada. In 2007, the balance of such investments favored the United States by $62.1billion.
An example of that investment is Toronto-Dominion Bank’s spending of more than $15 billion over the past four years expanding in the United States – buying TD Banknorth, based in Portland, Me., and Cherry Hill, New Jersey based Commerce Bancorp. The flow of Canadian capital southward is the result of Canada “becoming a more mature economy”, said Joseph Martin, who studies Canadian business history at University of Toronto. For more analysis from Mr. Martin, go to www.utoronto.ca.
– N. Mark Kramoltz © 2015