During 2016, the Toronto Stock Exchange (TSX) provided weak returns for investors. House prices continued to hit record highs, whereas the Canadian dollar reached multi-year lows. The TSX continued to slide, as many investors were concerned over global issues, such as the Chinese stock market crash, and the collapse of the Greece economy. The weakening of the Canadian dollar is justified by the declining Oil prices, and interest rate cuts by Bank of Canada. Currently, the Bank of Canada rate is 0.5%.
In theory, lower interest rates increase the prices of assets, as lending becomes cheaper. This was evident in 2015, as average home prices rose to $454,976 in October 2015, a 8.3% increase on a year over year basis (CREA). Going into 2016, the Canadian housing market is likely to cool, which is already evident in today’s market, where the majority of the growth is from the Vancouver and Toronto area – Canada’s most active housing market. Without these two markets, average housing prices would have raised only 2.5% on a year over year basis. Some regions have showed signs of slowing down – such as Regina, where home prices are down 4.29% on a year over year basis as of October 2015 (CREA).
Currently, this is the worst performing year for the TSX since 2011. The big five Canadian banks are showing signs up of an upturn. The big five Canadian banks are currently down over 7% YTD, however, on average they have gained over 2.3% in the last three months. A similar pattern is also noticeable in other large-cap Canadian stocks, such as Bell (TO:BCE), and Canadian Tire Corp Ltd (TO:CTCa). In 2016, Canadian home prices are likely to cool, where as the TSX is starting to show signs of an upturn. Investors continue to keep a close eye on the Bank of Canada rate – since an interest rate increase would negatively affect the TSX performance and home prices across Canada.