Latest news with #Guatieri
Yahoo
10-05-2025
- Business
- Yahoo
'Economic casualties' will mount in Canada and U.S., pushing BoC to three more rate cuts this year: BMO
U.S. President Donald Trump's trade war will cause 'economic casualties' in Canada and the U.S. even if some tariffs are scaled back, according to a new economic outlook from the Bank of Montreal. BMO economist Sal Guatieri writes that 'Canada's economy now likely faces a shallow downturn as a result of the trade war,' with a modest contraction of real gross domestic product (GDP) in the second and third quarters of this year. The bank assumes some tariffs will be rolled back as a result of trade talks, a development that would see Canada's economy growing again by later in 2025. But economic damage from tariffs on steel, aluminum and motor vehicles, as well as crumbling consumer and business confidence, is expected to turn up in the form of reduced exports and rising unemployment in the near term. As a consequence, BMO expects the Bank of Canada to resume interest rate cuts in June, gradually lowering its overnight rate by 75 basis points — to two per cent — by year end. BMO's outlook was published on Tuesday, the same day Canadian Prime Minister Mark Carney met Trump in Washington for their first face-to-face meeting. In the outlook, Guatieri notes that the tariff situation could "change abruptly," pointing to Trump's recent threat of 100 per cent tariffs on foreign films. Guatieri writes that the consequences of the trade war will see the U.S. economy 'nearly stall for a while,' with annual GDP growth slowing, unemployment nudging up and inflation nearing four per cent 'before a moderating trend resumes in response to weaker demand and softer labour market conditions.' BMO expects the Fed to hold interest rates steady in the months ahead before gradually trimming 150 basis points by June 2026. The relatively light tariff outcome for Canada on Trump's April 2 'Liberation Day' and a subsequent delay on auto parts tariffs put the average effective tariff rate for Canadian exports to the U.S. at around five per cent, Guatieri writes — 'much less than feared going into the trade stand-off in early February.' But the remaining tariffs 'could drive exports sharply lower this spring and summer,' BMO's outlook warns, while trade war-stricken supply chains and 'a less efficient allocation of resources' are likely to harm Canada's already struggling productivity. BMO forecasts annual growth to slow to 0.7 per cent this year — down from 1.5 per cent in 2024 — with Ontario hit hardest due to its concentration of automotive and steel manufacturing. Canada's employment situation has held up reasonably well, Guatieri writes, 'but this may be the proverbial calm before the storm.' The projected downturn could see more than 100,000 workers lose their jobs, the economist says, bringing the unemployment rate to 7.7 per cent by the end of 2025. Although inflation may rise in the U.S., BMO does not expect a similar increase in Canada, with lower fuel prices and the end of the carbon tax projected to push the annual consumer price index below the 2.3 per cent recorded in March. 'Counter-tariffs on some U.S. imports will temporarily lift inflation, but the annual rate should still hover around the two per cent target this year and next, given lower energy costs and rising unemployment.' John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf. Download the Yahoo Finance app, available for Apple and Android. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Reuters
28-02-2025
- Business
- Reuters
US housing to get a bit more affordable this year, but mainly due to lower rates: Reuters Poll
BENGALURU, Feb 28 (Reuters) - Affordability in the U.S. housing market will improve modestly in the coming year, according to property market experts polled by Reuters, based on expectations for a few more interest rate cuts, not an increase in homes available to purchase. Home prices are set to keep rising modestly this year and next, in forecasts broadly unchanged from a November survey and suggest little has been done to alleviate relentless financial pressure on aspiring first-time buyers. A 62% majority of respondents, 13 of 21, in a February 14-27 Reuters survey said purchasing affordability for first-time home buyers over the coming year would improve, compared with 53% three months ago who said it would worsen. That was mostly down to an expected dip in 30-year mortgage rates (USMG=ECI), opens new tab from near 7% to an average 6.76% this year, and 6.32% next, poll medians showed. "By various measures, U.S. housing affordability is still the worst in about four decades. While we will see some improvement in the coming year, it will still be a challenge, particularly for many first-time buyers, to get into the market," said Sal Guatieri, a senior economist at BMO Capital Markets. "We expect home prices to continue rising, but at a more moderate rate than recently," Guatieri added. "This just reflects our view the housing market will slowly pick up as mortgage rates decline in response to anticipated Fed easing later this year and through next year." President Donald Trump has announced a series of executive orders and sweeping policy changes over the past month in the White House. But apart from expectations for a deregulation agenda, the administration is yet to announce any plans to address the lack of affordable homes. In the meantime, U.S. home prices based on the S&P CoreLogic Case-Shiller composite index of 20 metropolitan areas (USSHPQ=ECI), opens new tab were expected to rise 3.6% this year, median estimates from 27 property analysts showed. Home prices were then predicted to go up 3.3% and 3.5% respectively, in the coming two years. Part of this has to do with a persistent supply shortage, which has kept average U.S. home prices over 50% above pre-pandemic levels. Over 500 basis points of Fed rate hikes in 2022-23 broadly did nothing to lower house prices. The shortage of homes available to buy is partly driven by existing homeowners who secured historically rock-bottom mortgage rates during the pandemic and are reluctant to sell. "Since such an overwhelming percentage of the outstanding mortgage market is fixed-rate, where borrowers were able to take out loans in 2020-21 with two- or three-handle rates, their incentive in this current environment is to keep their homes off the market," said James Egan, Morgan Stanley housing strategist. "That's kept inventory very constrained and put upward pressure, and a holistic level of support, for home prices," said Egan, who doesn't expect affordability to improve drastically over the next year or two. Asked what would rise faster over the coming year, a 55% majority, 11 of 20, said home prices over rents. Average rents will increase around 3% this year, according to the median estimate from a smaller sample of respondents. Existing home sales (USEHS=ECI), opens new tab, comprising over 90% of total sales, were expected to rise modestly until mid-year and rise to an annualised rate of 4.15 million and 4.23 million units, respectively, in the third and fourth quarters. But those were downgrades from the previous survey and well below the 6.6 million units recorded in early 2021. "Fundamental demand remains strong due to an estimated housing deficit of 2.6 million units providing a floor under house prices," said Cristian deRitis, deputy chief economist at Moody's Analytics. ((Other stories from the Q1 global Reuters housing poll))
