Optimism Canadian home prices haven’t hit their peak and the economy has better days ahead drove consumer sentiment to the biggest gain in more than a year, weekly telephone polling shows.
The Bloomberg Nanos Canadian Confidence Index climbed to 53.2 in the week ending Aug. 21, up from 52.2 in the prior survey, the biggest increase since May 2014. Those who said home prices in their neighborhood will increase in the next six months rose to a 34.1 percent share of respondents, up from 31.7 percent, the largest increase in almost a year.
“There was a noticeable one-week gain in terms of the perceptions of real estate,” said Nanos Research Group Chairman Nik Nanos. “This will have to be monitored to see if this is a potential new trend.” Before the gains of the last two weeks, confidence fell to the lowest since April 2013.
Housing is a bright spot for the world’s 11th economy in a year where lower oil prices have routed exports and business investment. Prime Minister Stephen Harper made housing part of his bid for re-election on Oct. 19 with a pledge this month to restrict foreign speculators who may be squeezing local families out of the market.
“By some estimates as many as 15 percent of the condos in Vancouver sit empty, no dreams are living there,” Harper said at a campaign stop in the west-coast city. “If such foreign non-resident buyers are artificially driving up the cost of real estate, and Canadian families are shut out of the market, that is a matter we can and should do something about.”
Harper also said he would raise the cap on withdrawals from a tax-sheltered retirement savings account to buy a first home to C$35,000 from C$25,000. In addition, he has pledged to re-introduce a tax credit for home renovations.
Canada’s central bank and private economists have warned about record debt burdens that have built up as families vie for more expensive homes. Household debt was 163.3 percent of disposable income in the first quarter.
Bank of Canada Governor Stephen Poloz has cut interest rates twice this year to boost growth and said housing-market excesses should be contained with “macro-prudential” policies.
Demand from domestic buyers and those from countries such as China has pushed the average price for a detached Vancouver home to C$1.1 million ($840,000) in July, up 16 percent from a year earlier.
Political polls show Harper’s Conservatives in a three-way race with Tom Mulcair’s New Democrats and the Liberals led by Justin Trudeau. Harper’s opponents have said his mix of tax cuts for richer families and a move to balance the budget exacerbated a recession triggered by an oil shock.
The Nanos polling showed reduced pessimism about the economy last week. Some 43.1 percent said the economy will be weaker in six months, down from 45 percent a week ago.
Wide differences in sentiment by region persisted in the data. The confidence reading of 51.4 in the prairie provinces including Alberta’s oil-heavy economy lagged the 57.3 reported in Ontario, where a weaker currency is aiding manufacturers.
There are two updates on the health of the economy this week that may change the outlook again. Bank of Canada Deputy Governor Larry Schembri gives a speech Tuesday on “The Long-Term Evolution of House Prices: An International Perspective,” and the finance department is scheduled to report monthly budget figures for June by Aug. 28.