Canadians are looking past signs of damage from low energy prices and predicting the housing surge will continue.
According to weekly polling by Nanos Research, the share of respondents expecting higher real estate prices reached the most since December 2014 last week, or 38.7 percent. That pushed the Bloomberg Nanos Consumer Confidence Index to 54.7 last week, the highest this year, from 54.5 previously.
“The main positive driver for the forward look on the economy was the view that the value of real estate would increase,” said Nik Nanos, chairman at Ottawa-based Nanos Research Group.
The average national home sale price exceeded $500,000 for the first time ever, with Vancouver and Toronto leading gains, Canada’s main realtor group reported on March 15. Policy makers have highlighted other positive forces that will lead the economy out of the slump caused by the collapse in crude oil prices. They include a lower currency, which should help exporters, and a federal budget last month that promises about $120 billion in deficit spending over the next six years to buttress the economy.
There’s some evidence things are turning around. Canada’s gross domestic product grew 0.6 percent in January, the fastest since July 2013. And the country’s trade deficit was narrower than forecast in January as exports of motor vehicle and parts posted a 12-month gain of 39 percent.
Still, there are lingering risks. Housing gains have prompted warnings young families are swimming in debt that would be hard to afford when interest rates climb from today’s historical lows. Finance Minister Bill Morneau tightened mortgage lending rules last year on concern about strains in the Vancouver and Toronto housing markets. The Nanos polling shows just 17.4 percent of those asked see home prices declining in six months.
“Recent events – the budget, better-than-expected GDP growth, the rebound in the Canadian dollar, and increases in housing starts and house prices – should be viewed in the context of a reversal of the oil rally and wage growth that has dropped sharply since the middle of 2014,” said Robert Lawrie of Bloomberg Economics.
The Nanos data showed a divide between provinces that rely on manufacturing such as Ontario and Quebec versus the harder- hit Prairie region including oil hub Alberta, where home sales and prices have slid in some markets. Consumer sentiment in Ontario, Canada’s most-populous province, rose to 59.5, the highest since November. On the Prairies it declined to 41.8, close to a record low.
Other parts of the report also indicated an uneven recovery. The 8.5 percent of respondents who said their jobs are “not at all secure” was the highest since June.
The share of people who said the economy would be stronger in six months rose to the most since December at 24.7 percent. That helped narrow the gap with the 33.1 percent who said it would be weaker.
The Bloomberg Nanos Consumer Confidence Index is based on a four-week rolling average of 1,000 respondents to telephone polling. It’s considered accurate within 3.1 percentage points, 19 times out of 20. The latest round of polling ended March 24.*
*By Greg Quinn, Bloomberg News