Money Talks Volume 4
23 November, 2016 / by Bryan Jaskolka
Donald Trump’s surprise election victory appears to be sending a “sell Canada” signal to the financial markets. This edition of Money Talks looks at the state of the Canadian market in the aftermath of the US election.
Donald Trump became the 45th President of the United States after sweeping the battleground states on route to an uncontested victory. Canadians are now asking, what’s next? Volume 4 of Money Talks looks at the implications of a Trump presidency on the Canadian marketplace.
The Canadian dollar plunged to nine-month lows last week, as Donald Trump’s presidential nomination sent the greenback to 14-year highs. While a cheaper loonie is usually seen as favourable for domestic manufacturers, the latest plunge is sending a clear message that investors are concerned about the future of Canada-US free trade. The president-elect has vowed to revisit the North American Free Trade Agreement (NAFTA). His election also pretty much guarantees that the Trans Pacific Partnership is dead in its tracks.
Cash-strapped Canadians might want to think twice about heading south. They should also prepare themselves for the new political realities of an increasingly isolationist United States. (If you thought we paid too much for goods and services, wait until our existing free trade agreements are scrapped).
Canada’s housing market strengthened in October, with the number of homes sold hitting an all-time high. There was a total of 42,473 residential properties sold last month, according to the Canadian Real Estate Association (CREA). Compared to a year ago, home sales rose in about 60% of Canadian markets, with the Greater Toronto Area (GTA) leading the gains. Declines in Lower Mainland British Columbia offset some of the gains.
The national average price for a home sold in October was $481,994, up 5.9% from last year. CREA chief economist Gregory Klump said the impact of tighter mortgage rules on sales has so far been mixed.
If you’re wondering how the Trump effect will impact mortgages, veteran broker Robert McLister has a few words of caution:
“This Trump win is a game-changer for the rate market, everyone in the industry knows it and consumers are going to start hearing more about it.”
Analysts generally agree that the Trump effect will be felt north of the border – they just don’t know when or by how much. They also generally agree that Canada’s housing market outlook is more uncertain today than it has been since the fallout from the US subprime mortgage crisis. In other words, Canada’s housing market will struggle to absorb a material rise in mortgage rates. This has many Canadians rushing to lock in the lowest mortgage rates available. This urgency also extends to homeowners whose mortgages are not currently up for renewal.
The relationship between Canadian and US interest rates is a complex one. Rising US interest rates are expected to place pressure on the interest rate on Canadian bonds, which could also impact mortgage rates. While the Bank of Canada is not expected to raise interest rates anytime soon, it will carefully monitor the impact of Trump’s proposed policies on US monetary policy. Trump’s proposed fiscal spending, tax cuts and deregulation are expected to boost inflation, which could alter the Federal Reserve’s outlook on the economy and monetary policy. Fed Chair Janet Yellen said as much last week in her Congressional testimony.
“The economy is operating relatively close to full employment at this point,” Yellen told the Joint Economic Committee November 18. As a result, massive government spending would boost inflation as employers increase wages to attract a limited pool of labour.
 Waterloo Region Accord (November 15, 2016). ‘Canadian home sales hit record in October.” The Record.
 Rob Carrick (November 14, 2016). “Trump’s win is a game-changer for mortgage strategies in Canada.” The Globe and Mail.
 Rob Carrick (November 9, 2016). “Goodbye calm. How Trump will affect your personal finances.” The Globe and Mail.
 Associated Press (November 18, 2016). “Fed chief Yellen: Trump’s spending plan to stoke inflation, jack up US debt.” South China Morning Post.