|
Call Now! 1-866-932-8412 or
Email: info@mortgagegirl.ca |
By Avery Shenfeld
research.cibcwm.com
Economics gets interesting for markets at inflection points, and that’s exactly where the global economy sits as spring turns to summer. But are we seeing a turn for the worse — a period of slower, or slow growth — or a turn for the worst, towards renewed recession?
After their recent pull-back, equities might be able to muddle through the former, but would have a lot of additional downside if it’s the latter. Two-year Treasuries are back at the lowest levels since the depths of the recession, reflecting the consensus view that whatever fate awaits the US economy, the Fed is a long way away from a tightening. But equities are, of course, still miles from their March 2009 lows, and are counting on earnings gains, not a recessionary dive in profitability.
Trouble is, a turn to a slowdown looks much like a turn towards outright recession in its early stages. That’s particularly the case when the prior period saw very robust growth. China put in 12% growth in the year to Q1 2010. In Canada, we are coming off two quarters averaging 5½% growth. The US wasn’t quite so heated, but averaged better than a 4% pace in the two quarters ending in March.
Our own long-held view is that the global economy will see much slower growth ahead, with a trough at only 1½% growth in both Canada and the US by Q4. If so, we shouldn’t be shocked, shocked, to see purchasing managers indexes for both the US and China move lower, as they did this month, but to levels still consistent with growth.
Today’s anemic US private sector hiring wasn’t the deeply negative figure associated with recession onsets, but was in line with the deceleration to below trend GDP growth we expect in the quarters ahead. Housing data were boosted by tax incentives, so again, a big drop in the month after their expiry is not a surprise. Our two favourite aggregate US measures, the comprehensive Chicago Fed National Activity Index, and the leaner but more contemporaneous ADS index from the Philadelphia Fed, are still both saying green for growth, if a bit less vociferously in the latter.
Closer to home, Canada’s flat GDP for April, was consistent with a deceleration in growth, rather than a turn to recession, given that it came off of a bloated 0.6% March advance. May GDP looks to be much better, as we already know it was a decent month for hiring. But don’t be surprised to see the week ahead’s Canadian jobs data for June show a deceleration. That’s the stuff that slowdowns are made of.
Outlook for Housing Starts 2010-2013
The outlook for the housing market is more buoyant heading into 2010. Over the long-term it is expected that the global economic recovery will become a positive influence on Canada’s economy and housing market. As a result, residential construction will gradually increase as factors that drive housing become more stimulative and housing demand moves more in line with demographic fundamentals.
Following the downturn in 2009, Canadian GDP is forecast to grow in the range of 1.5 per cent to 3.2 per cent in 2010. The impact of historically-low interest rates and fiscal stimulus at all government levels is expected to lead to a strong rebound in 2011, when GDP growth will be in the 3.0 to 4.5 per cent range. Over the 2012 to 2013 period, growth in GDP is projected to average 2.5 to 3.5 per cent. Employment growth is expected to be constrained in 2009 and 2010, but will strengthen over the medium term to average between 1.2 and 2.0 per cent annually over the 2011 to 2013 period.
Population growth is a key driver of housing demand over the longer term and a major contributor to population growth is immigration. As the outlook becomes more positive over the 2010-2013 period, net migration is expected to increase. This will help boost population growth and household formation. Accordingly, this will support housing starts through 2013.
Housing starts are expected to strengthen as the economy improves. By 2011 starts are forecast to be just over 174,000 units while 2012 will see starts slightly higher than 176,000 units. Finally, by the year 2013, starts are forecast to be approximately 187,000 units.
In 2010 through 2013, global economies will recover. With low, but gradually rising mortgage rates and stronger job growth, housing starts will strengthen. Given the short-lived nature of the housing market slowdown, there will not be a significant build-up of pent-up demand. Because of this, housing starts will not return to the 200,000 plus unit pace of recent years. Rather, housing starts will remain in a range that is consistent with demographic fundamentals over the 2010 to 2013 period.
There will, of course, continue to be some uncertainty over the medium term, so it is appropriate to consider a range for our housing starts forecast in the medium term. On the downside, lingering effects from the financial market crisis and sluggish world economic growth could impede an economic recovery, which would cause housing starts to remain lower than forecast over the medium term.
On the other hand, the considerable monetary and fiscal stimulus introduced in 2009 could lead to stronger than forecast economic and employment growth. In this case, housing starts would be stronger than forecast. As a result, we expect housing starts to be in the 142,000 to 201,000 unit range in 2011, in the 143,600 to 203,300 unit range for 2012, and in the 152,400 to 215,000 unit range in 2013.
See Also:
Canadian Housing Statistics