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Now that the United States-Mexico-Canada Trade Agreement is settled, expect the real estate market to receive a boost.
According to Royal LePage, the USMCA will function as a double-edged sword, but it will mainly be positive and the country’s real estate should bear witness to a 1.5% price gain.
“On the positive side, if you look at the underlying economy in 2018, it was a buoyant place—the best we’ve seen in 40 years,” said Phil Soper, Royal LePage’s CEO. “GDP growth has been strong, household formation is marching along, and yet for large purchases in particular in the housing industry, the number of transactions were down considerably. Our feeling is that the trade friction that existed between Canada and the United States—some of the very unstatesmanlike, aggressive attacks from the American administration aimed directly at Canada, Canadian leaders and business sectors were worrying people considerably to the point where there was actual job insecurity.”
Indeed, President Donald Trump threatened auto tariffs at one point, which could have decimated the industry north of the board. While the new trade agreement has allayed those fears, the psychological impact on the market was real.
“When consumer confidence wanes and there are employment concerns—people worrying about their jobs—it has a direct negative impact on large asset purchases such a buying a home,” said Soper. “That impediment, that drag on the market, was lifted with the US-Mexico-Canada Agreement, therefore, it should be a positive stimulus to consumer confidence and people’s willingness to engage in real estate transactions.”
Employment concerns may have subsided, but the Bank of Canada will almost certainly raise the interest rate—probably by 25 basis points, as it usually does—on Wednesday now that the USMCA has been established. That could result in a temporal decline in activity.
“With the agreement, it clears a path for the Bank of Canada to raise interest rates, which will be a drag on the market. On balance, the two things work against each other. A significant increase in consumer confidence and the drag from a quarter point increase in the interest rate will have a positive impact on the Canadian and American real estate industries. Overall, it’s a good thing, but not without its qualification.”
by Neil Sharma
18 Oct 2018