Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Was it reckless for the Bank of Canada (BoC) to tell households that interest rates will be low until 2023? Yes. Central banks are supposed to be responsive to market conditions, but that’s not what the BoC did. One of the new Governor’s first actions was to tell households that rates would be low until 2023. A central bank’s primary role is to help control inflation, not to promise cheap credit as it did.
Corporate ownership of housing across Canada got a big boost from low interest rates. The number of companies in Ontario that own at least 100 homes jumped to 345 in 2020, up 15% from the first data in 2018. In BC, that number was 85 companies, up 21.4% over the same period. The latter actually saw companies that own at least 100 homes buy more than ones that own just one home.
The Bank of Canada’s struggle to tackle inflation fast means even higher rates will be needed. Last week, BMO raised its forecast for the overnight rate by 50 basis points. They now see a terminal (or peak) rate of 4.5% being hit next year. It would be tied at the highest rate seen in the past 20 years, except debt levels have nearly doubled.
Canadian consumer insolvencies are rising sharply but have yet to hit concerning levels. The OSB reported 9,156 insolvency filings in September, up 3.1% from the previous month and 22.1% higher than last year. Despite the jump, insolvencies are below 2019-levels, so this is largely just normalization. The end of pandemic-era programs that helped delay insolvencies are over.
Canadian real estate prices led the G7 higher for growth but now it’s leading lower. In Q2 2022, Canadian home prices fell 4.3%—the biggest drop of any G7 country. On the flip side, US home prices climbed 4.7%—the biggest growth in the group of advanced economies. Both countries are bubbles according to the US Fed, but at very different stages.