This Week’s Stop Stories: Canadian Real Estate Problems Pile Up, BMO Warns No Rate Cuts In 2023

Time for your cheat sheet on this week’s top stories.

Canadian Real Estate

Canadian Real Estate Building Boom Hits Historic High, To “Be Tested”: BMO

Canada’s real estate slowdown has developers pumping the breaks on new projects. Don’t worry, says BMO—there’s a record number of homes currently under construction. The seasonally adjusted annual rate (SAAR) starts fell 0.2% from October to just 264,000 homes. The bank expects the market to be “tested” by a level of construction never before seen in the country.

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Canadian Real Estate Prices Are Down $142k As Demand Drops Faster Than Supply

Canadian real estate prices are falling as demand moderates to more balanced levels. The price of a typical home fell to $726,000 in November, down 4.4% (-$33,100) from last year. Doesn’t seem like much until you realize prices have dropped 16.4% (-$142,300) from the March 2022 peak. The drop is attributed to falling demand, which is now much more balanced than last year.

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Canadian Mortgage Payments Are Consuming A Record Share of Income

Canadian households are using a record share of income to service their mortgages. The debt to service ratio (DSR) hit 7.5% in Q3 2022, up 0.5 points from last year. It’s now the highest ratio on record, and surprisingly this isn’t due to interest rates. Large principal payments are driving the ratio. As mortgages renew from their record low stimulus, we can expect the DSR to rise even further.

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Canadian Household Net Worth Falls $331 Billion, First Annual Loss Since 2009

Canadians have seen their household net worth pull back sharply this year. Household net worth fell to $15.1 trillion in Q3 2022, down 1.2% from last year. It was the first negative growth since 2009, and not expected to halt here. As rates climb, nearly every asset has begun to correct in value. Central banks typically expect monetary policy changes to trickle through a market for 18 to 24 months.

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Canadian Household Debt Is Rising Much Faster Than Income, Approaches New Record

Canadian households are carrying a massive load of debt relative to their income. The debt to income ratio reached 183.3% in Q3 2022, rising 4.3 points from last year. In other words, households owe $1.83 for every $1 they take home. Not a record, which was hit in 2018, but a new one is expected soon.

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Canadian Real Estate Market Expects A Rate Cut Next Year, Making It Unlikely: BMO

Canadian investors are preparing for an interest rate cut, but they won’t get one warns BMO. Investors have changed their behavior in anticipation of falling rates next year. This has made inflation more sticky, leading the bank to expect higher-than-consensus inflation. As a result, they don’t see any room for rates to be cut, since that would be counterproductive.

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  • Mark Bayly 1 year ago

    Government keeps vote importing millions of immigrants making the situation worse. Canada seems to be falling apart.

  • Alvin Robertson 1 year ago

    Excellent observations

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