Speculation is rife on what impact the burgeoning loonie will have on the housing market. There's also fear of pending increases in interest rates resulting in higher mortgage rates.
The Canadian dollar has been hovering around par with the American dollar for the past couple of weeks. Some prognosticators call for it to break par this spring or summer and continue to be slightly above the U.S. dollar for a year or two. Others think it will settle just under-par by the end of the year. Either way, the Canadian dollar is performing considerably stronger than what we have been accustomed to for decades.
Most Canadian businesses do not have cost structures that are compatible with a Canadian dollar at par. Many in manufacturing are dependent on an historic difference of at least 20 cents between the two dollars.
Some building materials are imported from the U.S. and the elevated Canadian dollar could make these products cheaper for consumers. But if the product has been in inventory for any length of time, it would have been purchased at the higher exchange rate. Even though the U.S. new-home market has not bounced back yet, the demand for lumber is high and costs have been increasing steadily.
There's also anticipation of a slight move on interest rates in June or July of this year, followed by a series of 25 basis-point increases the remainder of this year through mid-2011. The Bank of Canada says this increase is in response to more robust economic growth and rising inflation.
This could result in an increase up to one per cent this year and the same next year. Many new-home buyers are locking into long-term mortgages now in anticipation of these increases. However, mortgage rates have been maintained at extremely low levels for a number of years and, even at five or six per cent, are among lowest in over 40 years.
In summary, the growth in the residential construction industry in Manitoba this year has been gradual and very much under control. External influences such as new taxes, currency value fluctuations and interest rate changes have not impacted us as much as some other regions of the country, thereby making Manitoba a solid economy in which to purchase a new home.
Mike Moore is president of the Manitoba Home Builders' Association.
