Canada's Economic Crossroads: Inflation, Housing, and Fiscal Challenges Explained

Dec 21, 2024

Inflation is cooling in Canada, but rents are unexpectedly climbing, particularly outside major cities. A looming potential for rate cuts from the Bank of Canada contrasts sharply with the Federal Reserve's recent action in the US, highlighting economic divergence. The job market is struggling with high unemployment rates, leading to a significant imbalance in job availability. Meanwhile, the housing market faces challenges despite increased housing starts, driving discussions about government accountability and the need for fiscal responsibility.

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INSIGHT

Cooling Inflation, Rising Rents

Canadian inflation hit 1.9% in November, marking four straight months below 2%.
Rents rose 7.7% nationally, despite declines in major cities like Vancouver.

ADVICE

Variable-Rate Mortgages

Consider variable-rate mortgages as they're gaining popularity with projected rate cuts.
The overnight rate is expected to drop to between 2-2.5% by mid-to-late 2025.

INSIGHT

US Fed Rate Cut and Canadian Dollar

The US Fed cut rates by 0.25%, now at 4.5%, still higher than Canada's.
This gap, the largest since 1997, weakens the Canadian dollar.

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You’d think the housing world would quiet down by mid-December, but this week has been packed with significant developments. Inflation data showed a continued cooling trend, with November’s rate at 1.9%, marking four consecutive months below 2%. The shelter component also eased, but rents defied expectations, rising 7.7% year-over-year nationally despite sharp declines in major cities like Vancouver, where rents are down 10%.

Rate cuts are back on the table, with the Bank of Canada expected to lower rates incrementally in early 2025, while variable-rate mortgages are regaining popularity. South of the border, the Federal Reserve cut rates by 0.25%, signaling caution amid strong GDP and persistent inflation.

The move widened the gap between Canadian and U.S. rates to levels not seen since 1997, weakening the Canadian dollar to under $0.70 USD and highlighting diverging economic paths between the two nations.

Canada’s labor market continues to struggle, with unemployment hitting a seven-year high and job vacancies plunging to a four-year low. Companies are hiring fewer workers, creating a troubling imbalance with less than one job available for every two job seekers.

This dynamic reflects a worsening economic downturn, with nearly 20% of unemployed Canadians classified as long-term unemployed. The construction sector, a key pillar of the workforce, faces additional challenges as housing starts have declined significantly over the year, despite a recent monthly uptick.

Large-scale building permits, which indicate future supply, are also falling sharply, particularly in Ontario. These trends raise concerns about the future of housing affordability and employment in an already strained economy.

Compounding these issues is political upheaval, with both Finance Minister Chrystia Freeland and Housing Minister Sean Fraser stepping down. Freeland’s tenure ended amidst criticism of Canada’s record deficits, with the Fall Economic Statement revealing a $62 billion shortfall—50% over budget.

Meanwhile, B.C.’s 2024-2025 budget projects a staggering $9.4 billion deficit, the largest in provincial history. Fraser, who oversaw record immigration levels that strained housing and healthcare systems, has faced sharp criticism for his policies’ long-term impacts. With mounting government debt, declining investor confidence, and slowing immigration, the outlook for 2025 appears unpredictable.

This perfect storm of economic uncertainty, housing struggles, and political shakeups underscores the challenges and potential opportunities that Canada faces heading into the new year.

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📆 https://calendly.com/thevancouverlife

Dan Wurtele, PREC, REIA

604.809.0834

dan@thevancouverlife.com

Ryan Dash PREC

778.898.0089
ryan@thevancouverlife.com