Canada’s Money Supply Prints Another Ominous Signal For The Housing Cycle

Canadian real estate prices are in for some more bad news, if you think credit and prices are related. Bank of Canada (BoC) numbers show the M2++ was still falling quickly in September. The quick declines follow a long period of growth, indicating the end of the business cycle. The end of the business cycle means the end of the housing cycle.

Isn’t That The Gang President Trump Wants To Stop?

You’re thinking of the MS-13. The M2++ is the broad measurement of nearly all money in Canada. Like the M1+, it includes almost any form of currency you can spend, plus chequable deposits. The M2++ also includes other retail debt instruments, Canada Savings Bonds, and non-money market mutual funds. It’s the broadest, most comprehensive measure of money being created across Canada.

The indicator is one of the most important macroeconomic measures. The growth is a major influence on inflation, and therefore interest rates. Generally speaking, fast or prolonged periods of growth of M2++ are followed by weak economic growth and often a recession. When this indicator falls, and we see weak economic growth, central banks tend to slash interest rates and/or provide stimulus. The M2++ is a leading indicator for the business cycle, which means we’ll see a problem on the M2++ before we experience it.

The M2++ Growth Rate Has Dropped Over 20% From Last Year

The growth rate of the M2++ is dropping fast. Numbers show the rate fell to 5.1% in September, down 20.3% from the same month last year. The decline is now 29.16% below the median 5 year trend, and 25% below the median 10 year trend. Anyway you slice it, we’re seeing this number fall very fast.

Canadian M2++ 12 Month Percentage Change

The 12 month percent change of Canada’s M2++.

Source: Bank of Canada, Better Dwelling.

The Debt Rattle?

Hope might be on the horizon, as the short-term trend is pushing higher. The 3 month annualized pace of growth reached 5.1% in September, up 8.51% from the same time last year. Annualizing a trend is a quick way to benchmark short-term growth. It sounds fancy, but we are just taking a short period and projecting it as though it were the whole year. The short-term annualized trend would have to stay above the annual trend for us to see a real uptick. So far, the 3 month annualized trend is equal to the annual trend. Not great, but better than lower.

Canadian M2++ 3 Month Percentage Change (Annualized)

The 3 month percent change of Canada’s M2++, annualized.

Source: Bank of Canada, Better Dwelling.

Don’t get too excited yet, we are comparing it to a strangely low number last year. The 3 month trend is still 23.88% lower than the median 5 year trend, and 19% lower than the 10 year trend. More likely than a recovery is a dead cat bounce on this indicator. Although this would be a case where I would be more than happy to be wrong.

The M2++ is falling fast, after years of sustained high growth. As a leading indicator, the rapid decline is pointing to a potential downturn. After years of high growth, people familiar with the business cycle were likely expecting this. Those not familiar with how the business and credit cycles impact housing, might be in for a surprise.

Like this post? Like us on Facebook for the next one in your feed.



We encourage you to have a civil discussion. Note that reads "civil," which means don't act like jerks to each other. Still unclear? No name-calling, racism, or hate speech. Seriously, you're adults – act like it.

Any comments that violates these simple rules, will be removed promptly – along with your full comment history. Oh yeah, you'll also lose further commenting privileges. So if your comments disappear, it's not because the illuminati is screening you because they hate the truth, it's because you violated our simple rules.

  • Paul A 5 years ago

    I can’t believe there are people still doubting the end of the business cycle. Still hearing people on a daily basis saying they’re looking to buy into equities right now. 🤦‍♂️

    • Kal 5 years ago

      They need to keep saying it’s a good time to buy equities, because I need a good time to sell equities . 🤣

    • Isaac Klug 5 years ago

      Equities are like real estate – it’s never a good time to sell, only a good time to buy. Boomers haven’t learned any lessons on liquidity yet, because the government always rushes to provide it to them. The greatest whiniest generation indeed.

    • Bob 5 years ago

      It is a phenomenal time to buy Canadian energy sector equities right now. They are trading at a deep value discount not seen in my lifetime. Unless of course you believe that Canada is getting out of the oil business altogether.

    • Ms Coral 5 years ago

      A few simple questions/comments:

      Leave the jargon out of the comment section & speak plain English – that’s the sensible & educated way to communicate on forms.

      What is the CPI (Consumer Price index)

      Do you need to buy a house/condo and when. And are you buying the type of property that you need or what you think you want?

      I believe Paul A’s comment that we are at the end of the business cycle.

      Why would a buyer need “private” financing?

      Is it true, most ethical real estate lawyers don’t like these types of deals? And, if so, why don’t they like them. Rationale to be seriously considered.

  • Trevor 5 years ago

    Anyone that thinks we’re hiking to 3% is kidding themselves. We’d be lucky to see two more hikes before we start experiencing the leading indicators .

    • Tristan Brown 5 years ago

      Yesterday’s piece on the Bank of Canada buying CMBs makes a lot more sense now. They can’t hike since they’ll need to provide stimulus, but the risk is piling up. They’ll need to become a market maker for CMBs if mortgage rates detach from interest rates.

  • Ethan Wu 5 years ago

    Leading indicators pointing to a recession

    – collapsing home sales
    – housing starts falling
    – M1+
    – credit growth
    – full employment
    – oil collapse
    – now M2++

    Next year is going to be interesting. Anyone have thoughts on downside protection?

    • Dar Robbins 5 years ago

      At a minimum, write covered calls on lenders.

  • Kyle 5 years ago

    So lets say the doomsday scenario happens, house prices crash. They loose 80% of their value. Let say this happens tomorrow. Then after some period of time (some number of years) business cycle starts back up, house prices start to increase again and start a other cycle of 3-5 years of increasing house prices. I just wonder, what this website will be spitting out for those 3-5 years LOL

    • Jason Li 5 years ago

      2 years ago this website was discussing the upcoming boom in Toronto, which made a lot of condo investors a lot of money. The thing about fundamental analysis is people like you that have no idea how it works, because you don’t have enough money to understand that real investors need liquidity.

      Right now you’re holding onto your home or maybe condo investment, but wouldn’t sell at peak or buy at trough. You’re just a bitcoin investor telling their mom how much money they made, who has to sit silent at the Christmas dinner because you made a fortune and lost it in a year without understanding you have to SELL to make money.

      If everyone bought and sold at the right time, we’d all be rich. Instead, we have 70% of the country discussing how they’re millionaires, not realizing they need to lose 30% of their net worth over the next few years for the market to balance. That’s the way the monetary cookie crumbles.

    • Grizzly Gus 5 years ago

      Hopefully shortly prior to/ at the start of the next up cycle they provide us with information on key indicators that imply the market is coming back. Then 10-15 years after that they can start providing us with warnings again about how we are getting close to the end of another housing cycle.

      In the meantime I would be more worried about holding onto your shirt.

      • Michael Lau 5 years ago

        Kyle is still in the “it always goes up” and “you never sell just keep buying” state of mind. Usually people that just bought, and are trying to justify their buy, or agents worried that their commission.

        Logically, how can an investment never go down in value? Only way someone wouldn’t understand that is if their job/life depended on them not understanding that.

    • Mortgage Guy 5 years ago

      I’m guessing you’re not in the real estate industry. Otherwise you’d know about all of the brokerage partnerships they’re signing. 😜

      This might surprise you, but not everyone in the real estate industry is hell bent on pumping a narrative. A lot of us want long-term customer development. I’d rather be known as being really good at my job over squeezing a few bucks out of clients and potentially ruining their financial lives. My parents got spun by a real estate schiester in the late 80s, and I understand the hardship it puts families through.

      Also, who ever said 80%? You’re putting ridiculous sentiment to something that’s not there, to protect your ego if you’re wrong.

    • Adrian 5 years ago

      Kyle you should take a look at Japan and it’s real estate landscape after they had a severe crash. They have not moved the needle economically in 30 years. By the grace of their population buying their bonds, they have been able to stay afloat. Not so lucky here.

  • PCC 5 years ago

    I am seeing an increasing number of borrowers default on their private mortgages in the GTA.
    Lending at 11.99% for a 2nd 6 month interest only fully open. 4 points to the lender 2 to the broker. The phone is ringing off the hook. Bring in your borrowers I will fund you.

    We’re in the 92nd minute of the game…ref hasn’t blown it yet but rest assured he will.

    • Mortgage Guy 5 years ago

      Ouch! For those that have no reference point, a first private mortgage is about ~8%, maybe a few points lower if you’re low risk. In that scenario, it’s hard to make money on something like a condo, which only increased about 10% this year.

      Cut your Realtor a commission check, pay the feeds on your mortgage, and maintenance fees, and it’s the wrong time to do a private mortgage. If you’re getting a second private mortgage at 12%, you’re in trouble.

  • JNT 5 years ago

    Hypothetical wondering:
    So let’s say that interest rates only get another 2 hikes over the next year given all the factors (low oil, US fed going dovish, credit cycle coming to an end, etc.) and then let’s say the economy starts to experience a downturn- pick any root cause. Lets then suppose the Fed lowers interest rates in response to this.
    What happens to housing prices then? Prices that are already grossly inflated from a decade of low interest rates? Generally housing goes up when interest rates go down right? How does this work in this weird situation we are in?

    • JJ 5 years ago

      Having very little knowledge or experience on this, I would venture a guess that we would entire a VERY long period of stagnation with prices not changing as long as incomes do not change.

    • KMoney 5 years ago

      Short answer is the credit supply has already been exhausted. Defaults would appear, and banks try to clean up their books by becoming more strict in issuing credit.

      If you’re old enough, you might remember how hard it was to get even a credit card in Canada 15 years ago. Now, they’ll send you an application pre-approved, without knowing who you are. Credit is easy today, it won’t necessarily be easy tomorrow. Banks become tight for as long as people keep defaulting, which in Japan has been nearly 30 years. It probably won’t be 30 years in Canada, but it won’t just be a few months for prices to get back to climbing above the peak.

    • @xelan_gta 5 years ago

      JNT, US cut rates by 500bps (5%) in 2008 plus they launched QE.
      Did it help them to avoid RE correction?

      • JNT 5 years ago

        Now thats a interesting point. US Fed had a lot of room there. Cutting rates 500bps. Had they only had rates at, oh I don’t know, say 1.75% and wanted to cut rates to try to cushion the blow, imagine the fall out…

    • Bluetheimpala 5 years ago

      If the junk bond market implodes, while it represents a fraction of the total, similar to sub-prime borrowers it is never the broader populous/economy/market that brings down the house. there is however a ton of BBB that is on the verge of being downgraded which is scary, It is the peripherals that were providing high yield and the wanker-bankers de-risked it through alchemy/bundling/smoothing so they could sell it back to the broader market. We went from CDS to CLOs. Hiding debt via supplier loans is a joke that dropped Carillion for christ sakes and NO ONE knew. And don’t get it twisted JP doesn’t need to jack rates 100-200bps, this junk was already bad at low rates with the companies just buying more time in many cases but not able to course correct. What I’m more concerned about is the aparent back stopping of bad money; essentially making debt slaves of the middle class. No reset. No relief. So fucking orwellian, sickening. Tick tock. BD4L.

      • Bluetheimpala 5 years ago

        Correction: Sub-prime debt…the borrowers who were peddle the toxic product were victims in many cases.

      • John 5 years ago

        This may be the most frustratingly accurate thing you’ve said that most people will probably brush off and ignore Blue…

        ” What I’m more concerned about is the aparent back stopping of bad money; essentially making debt slaves of the middle class. No reset. No relief. So fucking orwellian, sickening.”

        It’s so ridiculous that we’re protecting bad money and thereby preventing good money from entering. There’s so much duct tape wrapped around this thing, it is time to just let it break, throw it out, and replace it!

  • Bluetheimpala 5 years ago

    I came here today to eat some garbage, Jan where are you my friend? I picked up some iraqi dinar and moved into my bunker but I need some entertainment. See you soon. BD4L. Tick tock. ps…yes, I’m nuts.

Comments are closed.