In the current inflationary environment, 53% of Canadians say they are concerned about their ability to meet their living expenses, according to a Scotiabank survey. Nearly half believe that this factor has a major impact on their ability to save to meet their long-term financial goals (47%) and to maintain their standard of living (37%).
Beyond this Canadian average, perceptions and feelings vary from one province to another, which comes to shine the spotlight on Quebec, where respondents are less likely to say that inflation has a major impact. on their ability to set and stick to a budget (36%). When it comes to financial anxiety, residents of Quebec (57%) are the least likely to worry about their ability to afford day-to-day expenses, compared to those of Alberta (45%), Manitoba and Saskatchewan (44%), Ontario (43%) and the Atlantic provinces (39%), according to the poll released Monday.
The demographic component is obviously not unrelated to the differences. Thus, 20% of Canadian respondents, mostly aged 55 and over, say that rising costs will have no impact. At the other end of the spectrum, young people aged 18 to 34 make up the largest proportion (43%) of people who say they are very concerned about maintaining their standard of living, Scotia continues.
Added to this is the salary issue. Nationally, the average hourly wage rose 5.2% year-over-year in June, Statistics Canada tells us, an acceleration from the 3.9% increase measured in May. In the aftermath, the latest inflation reading as measured by the consumer price index (CPI) points to a 7.7% year-over-year increase in May. Here too, Quebecers are doing better in terms of purchasing power protection, as they benefit from an annual increase in average hourly earnings that rose to 7.5% in June, compared to 6.9% in May, against the backdrop of a CPI up 7.5% in May.
Separate real estate correction
The Quebec “distinction” extends to the ongoing real estate correction. The Royal Bank had to darken its reading of the current real estate correction across Canada, in the wake of a Bank of Canada becoming “aggressive” in the face of the inflationary slippage. Economist Robert Hogue expects the key rate to reach restrictive levels — beyond the so-called neutral rate — this fall. The central bank’s estimate of the neutral rate, i.e. the interest rate compatible with production remaining at its potential level for the long term and an inflation rate remaining on target, is now between 2% and 3% . Royal sees the overnight rate at 3.25% by October. “This will send more buyers to the sidelines, especially in British Columbia and Ontario, where affordability is extremely tight […] The most expensive and interest-sensitive areas facing larger declines and relatively affordable markets showing greater resilience. »
In his latest forecast, the economist predicts that home resales will fall by nearly 23% this year and 15% next year in Canada, and that the national reference price will fall by more than 12% from peak to trough. by the second quarter of 2023. Cumulatively, the 42% plunge in resale from record highs in early 2021 would outpace the peak-to-trough declines of the previous four national downturns, he measured. For its part, the expected 12% decline in the national aggregate index would make the current correction the most marked of the last five national slowdowns.
On an annual basis, the Royal speaks of a benchmark price increase of 10.1% in 2022 followed by a decline of 7.3% in 2023. Quebec should do better, according to the crystal ball of the economist. The 1.5% decline in residential resales in 2021 would be followed by a decline of 16.8% this year and 6.1% next year. And the aggregate benchmark price is expected to be up 7.5% this year and down 5.1% in 2023.
Let us recall other scenarios. Oxford Economics now pegs a 27% peak-to-trough correction in Canadian residential real estate through the first quarter of 2024 — the decline has already reached 11% since February’s peak. For Quebec, recent Desjardins Group projections suggest an average contraction of 12% from a peak that would be reached this summer to extend to 2023.
As you can imagine, the 100 basis point increase in the key rate announced on July 13 was a big bite to swallow, forcing a postponement of home ownership plans for many buyers. “The rise brought variable mortgage rates to roughly the same level as fixed rates, closing the last window of cheap borrowing costs available. These higher rates reduce the size of the mortgage that eligible borrowers can obtain — and therefore the maximum purchase price.
The economist adds that, by the time the Bank of Canada has completed its monetary tightening, the institution’s overall measure of affordability “could easily be at the worst level ever at the national level”.