When it comes to tracking a nation’s economy, most of the air time is taken up by discussing government expenditure or the stock market, but in reality, consumer spending is king. In Canada, consumer spending accounts for 55-60% of the economy in any given year, which is why consumer confidence is so important.
Last week the Conference Board of Canada released its January update to the Index of Consumer Confidence. The very quick summary of the report is that confidence increased last month but remains low compared to the past few years. Among the items tracked is: percentage who think now is a good time for a major purchase? This is the question that brings the housing market into the conversation, as there is no bigger purchase for the average person than a home.
The table above from the report is shared on the website of the Canadian Real Estate Association. For January CREA was able to report an increase to the amount of people who think now is a good time to make a major purchase. This is important to the housing industry because the larger this number is, the more potential buyers there are in the market.
Over the past year in Toronto, Vancouver and all of Canada, housing reports have been about falling sales and predominately flat prices. While these headlines are important, and they do capture the general mood of the economy, the more important issue for the industry is whether people still believe the housing sector is strong. It is this confidence that will have the most meaningful impact on prices.
This is not to say housing statistics are not important. What the current inventory level is, how many totals sales there are, whether realtors expect multiple offers or not will all impact buying and selling behaviours; however, if fundamental confidence in the market can remain then stable housing conditions will often continue.
Maintaining this confidence is the battle that the housing markets across Canada are facing. Vancouver is currently in the weakest position. Inventory is high, prices are decreasing, and the number of potential buyers seems to be falling as well. Whether people believe this to be a short correction or a fundamental shift in the market will be the difference in how long these struggles continue.
In Toronto, general consumer confidence remains. Sales have fallen but average prices are level. There continue to be enough stories of multiple offers and sales going well above asking price to dispel wide spread fear of a correction. And yet, the warning signs are there. That said, if TREB, OREA and local realtors can maintain people’s confidence in a strong housing future, the GTA may be able to escape Vancouver’s current situation.
Right now, a real fear among economists is that we may talk ourselves into a recession. The fear being that as headlines come in concerned about a recession in the future, people may react by postponing major purchases and slow their spending now, which could be just the push the economy needs to tip into a recession. This is why consumer confidence for the housing market is so important. If people start believing the market is in a correction, a correction will happen. On the other hand, if general confidence can be maintained then despite reduced sales and other warning signs, the current cost of housing will continue.