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Two significant reports released yesterday revealed contrasting trends in the Canadian economy. Firstly, the Canadian inflation rate dropped to its lowest level since 2001, while, on the other hand, housing starts experienced a substantial surge in June, indicating potential relief in the housing market.
According to Statistics Canada’s latest report, the consumer price index rose by 2.8% in June compared to the previous year, marking a significant decline from May’s 3.4% pace. This decrease in inflation follows a peak of 8.1% in June 2022. Analysts had anticipated a 3% inflation rate, weakening the figure. Notably, core inflation, a key indicator monitored by the Bank of Canada, continues to pose a challenge despite a 21.6% drop in gasoline prices. The rising costs of groceries, with a 9.1% annual increase in June, particularly affecting fresh fruit prices due to a sharp 30% surge in grape costs, have added to the persistent inflationary pressures.
In contrast, the Canadian Mortgage and Housing Corporation (CMHC) reported a remarkable upswing in housing starts. The annual pace of housing starts reached 281,373 units in June, a substantial increase from the revised 200,018 units in May. This surge in housing construction is the most significant monthly gain in a decade, primarily driven by the initiation of new multi-unit projects. Urban housing starts experienced the most significant boost, rising by 46% to 262,815 units. Multi-unit urban starts surged by 59%, reaching 219,914 units, while single-detached urban homes rose by 3% to 42,901 units compared to May.
These reports carry significant implications for homeowners, aspiring homeowners, and renters. While the decline in the inflation rate may provide some relief, the Bank of Canada’s continuous interest rate hikes to curb demand might signal that inflation could rise again if these measures persist. On the housing front, the surge in housing starts indicates a step toward addressing the housing crisis. However, if these new properties, particularly condos, are primarily purchased by investors. It may not alleviate the rental market’s upward price pressure in that case.
Considering the core inflation figures and expectations of sustained high immigration rates, it is unlikely that mortgage rates will decrease as quickly as previously predicted, potentially affecting affordability for homeowners.
To navigate this landscape, if you want to purchase a home, renew or refinance your mortgage, plan and call our office to see what you qualify for. Mortgage holders who must refinance or renew their mortgages should consider a pre-approval for multiple-year terms rather than single-year mortgages. Securing a mortgage approval well in advance, at least 120 days before the renewal date, can protect against potential rate increases.
