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The Economy
The Canadian economy continues to expand at a slower pace. Real gross domestic product (GDP) growth slowed to annualized rate of 1.7% in the third quarter of 2006, down from 3.8 % and 2.0% in the first and second quarters of 2006 respectively. After slipping sharply during the first two quarters of 2006, exports rebounded thanks to sales of industrial goods and materials, machinery and equipment, agricultural and fish products. This good note in the trade sector provided a boost to the economy, along with higher business investment in non-residential structures and equipment, and continued strength in consumer spending, which partially offset by a second drop in residential construction and weak government expenditures. Consequently, growth in the final domestic demand slowed to an annualized rate of 2.8% in the third quarter of 2006
Despite these recent figures, domestic demand will remain the engine of Canada’s economic expansion in 2007 and 2008. Consumer spending should stay vibrant that’s to high employment, income gains and low interest rates. Business investment in non-residential construction and equipment will continue to be strong as well. On the downside, lower housing starts and soft net exports will be a drag on the economic growth. Particularly, the high value of the Canadian dollar and the anticipated economic slow-down south of the border will hurt the trade sector.
Inflationary pressures will remain limited as the Canadian economy is expected to grow at a rate of 2.4% in 2007 and 3.0% in 2008.
Mortgage Rates
A combination of modest economic growth, strong Canadian dollar vis-à-vis the U.S. dollar, and moderate inflation will keep Canadian interest and mortgage rates low over the remainder of this year and into 2008. Mortgage rates will also ease as bond yields nudge down in 2007.
One, three and five-year posted rates are forecast to be in the 5.75-6.75, 6.00-7.00, and 6.25-7.25 percent ranges respectively over the rest of this year and into 2008.
Employment and Income
Employment grew at a strong pace of 1.9 % in 2006 and most of the new jobs created were full time positions. A record share of Canadians was employed in 2006, which led the unemployment rate to drift down to 6.3%, its lowest level on record.
Given that the Canadian economy is close to full employment, the pace of employment growth is expected to slow and stay more in line with the increase in population. Employment is forecast to grow by 1.4% in 2007 and 1.3% in 2008. The unemployment rate is expected to remain low at about 6.3% in both years.
Tight labour market conditions have led to strong growth in average weekly earnings, particularly in western Canada. Income and employment growth will ensure the expected decline in demand for new and existing housing will be modest.
Footnote: data provided by CMHC.
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Xceed Realty Inc. Brokerage - Joseph Kolenc - Broker of Record
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21 Blue Bonnet Drive, Brampton, ON L6Y 4N4 Telephone 416-994-2190 Fax: 905-457-3505
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