New polling shows Canadians are becoming increasingly downbeat about the economic outlook
The beginning of 2022 has been marked by growing pessimism from Canadians on the country’s economic outlook and their personal finances, with polls released in recent weeks indicating a dip in consumer confidence and increased uncertainty about the future.
Business advisory firm MNP Debt reported this month that its Consumer Debt Index – which monitors Canadians’ financial optimism and ability to handle their expenses – had fallen to a historic low, registering a seven-point decrease compared to the previous quarter.
That finding emerged as 43% of survey respondents described themselves as concerned about their current debt levels, a five-point rise over the previous quarter, with the percentage of those who felt they could easily cover their living expenses in the next 12 months falling five points to 55%.
Those results arrived hot on the heels of polling by Bloomberg and Nanos Research for the week ending January 07 that showed a similar dent in consumer views towards the country’s economic prospects.
The Bloomberg-Nanos Canadian Confidence Index fell to 57.08 after standing at 59.98 at the beginning of December, with Nanos’ chief data scientist Nik Nanos noting the continuing prevalence of COVID-19’s Omicron variant as one of the main reasons for that decline.
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A bleak outlook on the economic front also dominated that polling, with less than 18% of Canadians anticipating a stronger economy in the next six months and nearly half of respondents bracing themselves for a weaker performance.
What could the implications of that pessimism be for the country’s mortgage and housing markets? Interestingly, the Nanos polling revealed a drop in the percentage of Canadians who expected home prices in their neighbourhoods to increase over the next six months, although it was a relatively meagre fall from 63.05% to 60.76%.
Indeed, despite that decrease, less than 7% of respondents said that they anticipated lower housing values in the next six months, with around 29% expecting house prices to remain the same during that period.
Growing disillusionment on the economy and personal finances could simply be a consequence of the seemingly never-ending price increases witnessed in the housing market in the last several years, and particularly since the beginning of the pandemic.
Dwight Trafford (pictured top), a broker with The Mortgage Centre in Orangeville, Ontario, told Canadian Mortgage Professional that “sticker shock” was to be expected in the market, given the eyewatering price increases of recent times.
Still, he noted that the reported pessimism of Canadian consumers didn’t appear to be having a significant impact on the market, with activity showing little sign of moderating substantially at the beginning of the year.
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“It’s like walking into a grocery store, and all of a sudden you see the loaf of bread that you were buying for 99 cents is now $4.99,” he said. “We’ve had such an increase in house prices over the last three years in particular that there’s a lot of that price shock.
“People get used to it – it’s to be expected, and it actually hasn’t affected or slowed down sales. I don’t know what’s driving it, but people are still buying like crazy.”
Interest rates could also be weighing heavily on the minds of consumers, with the Bank of Canada having indicated its intention to begin hiking its benchmark rate nearly two years after it was drastically slashed at the onset of the pandemic.
That move could take place as early as tomorrow (January 26), the date of its next rate announcement, with discounted five-year fixed rates also having seen increases in recent weeks.
Meanwhile, analysts are anticipating another spike in home prices across the country over the course of this year, with real estate firm Royal LePage forecasting a 10.5% national increase led by Halifax and the usual suspects of Toronto and Vancouver.
That combination of factors – rising interest rates on the horizon and the continued climb of home prices in Canada – may be one of the reasons that the housing market has remained hot despite the reported increase in consumer pessimism, Trafford said.
“They want to take advantage of the rates before they go up. They also want to get into the market before they get priced out of it,” he said. “There’s a fear of that, too.”
