Even Home Capital Woes Can't Slow Ontario Consumer Confidence
(Bloomberg) -- Optimism about real estate prices is buoying consumer sentiment in Ontario, weekly telephone polling shows, even as some analysts express concern about the future of mortgage-lender Home Capital Group Inc.
Consumer confidence in Canada’s largest province rose to 63.4 last week, the highest reading in the Bloomberg Nanos survey since the end of 2009. The expectations sub-index that measures views on real estate and the economy climbed 1 point to 66.7, while the pocketbook measure, which gauges job prospects and personal finances, was little changed.
Home prices in Toronto and the surrounding cities are gaining at a 30 percent annual pace, prompting provincial leaders to impose a foreign buyers tax and other measures last month to cool what they called dangerous speculation. The latest Nanos polling showed a second week of record nationwide sentiment that home prices will rise, a reflection of how entrenched the views of lasting price gains have become.
“The euphoria regarding real estate certainly appears to be driving consumer sentiment; perhaps even more so than consumers’ increasingly positive views on the Canadian economy,” said Bloomberg economist Robert Lawrie.
Home Capital, which provides mortgages to home buyers who have trouble getting loans from Canada’s big banks, has seen its share price plummet about 80 percent this year, after the Ontario Securities Commission accused the Toronto-based company and some executives of misleading investors and breaking securities laws. The shares were down 21 percent at 10:08 a.m. Toronto time.
High-interest deposits have declined about 80 percent over the past month, and Home Capital has warned the pace may quicken. High-interest deposits dipped to C$391 million, after falling another C$130 million on April 28, the company said Monday.
The national consumer confidence index rose to the highest since August, to 59.4 from 59.1 the prior week, with real estate dominating. The 48.9 percent of people who said local real estate prices will rise was a fresh record -- higher than the average of 37 in records back to 2008 and the average this year of 42.2.
The wider economic backdrop also played a role, with the percentage of people saying it would weaken in the next six months falling to the lowest since August at 22.9 percent. Another 24.3 percent said it would be stronger.
With the Canadian currency depreciating about 20 percent over the past three years, manufacturing-heavyweight Ontario is pulling ahead of its provincial peers. A report Monday from the federal statistics agency showed gross domestic product expanded 2.6 percent in Ontario last year, the second-best performance after British Columbia. Last week the government delivered its first budget surplus in a decade. The jobless rate is also close to the lowest in almost 10 years.
The optimism could be dented by any housing market correction for consumers already carrying record debt loads, or by the prospect U.S. President Donald Trump will keep widening trade disputes after targeting Canada’s exports of softwood lumber and dairy products in recent weeks.
“Perceptions of household personal finances have deteriorated, and expectations for the economy could ultimately be affected by talk of trade restrictions,” Lawrie said.
Consumers reported a negative balance of opinion on their finances over the last year by a margin of 28.3 percent saying they had worsened to 18.4 percent seeing improvement.