Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canadian mortgage debt continues to grow, rising 7.1% ($137.8 billion) over the past year to hit a total of $2.08 trillion in December. Growth is slower from the peak, but still elevated from a historical perspective. It’s also rising much faster than GDP, with a balance that rivals annual output—meaning this growth will drag the economy.
The Bank of Canada has warned that its current monetary policy may not curb the economy’s overheated state, and further tightening may be necessary. The BoC targets an inflation rate of 2%, but inflation is more than three times that. Factors like employment, wage growth, and service price inflation need to moderate to bring inflation back to target. If these measures are not successful, further monetary tightening may be necessary.
Canadian real estate is still in a deep correction, with prices now 12.5% lower than last year. Annual growth was also the weakest in the benchmark’s history. Prices have dropped 17.8% (-$154,600) since their peak in March 2022, but remain 30.9% ($168,400) higher than in 2020. Experts forecast prices are only halfway to the bottom, with stagnation to follow.
Canada’s central bank recently released a staff paper that revealed mortgage brokers tend to have “riskier” clients, and are often exploited for higher profits through steering. The paper found that broker-clients typically have lower incomes, use more leverage, and have longer amortizations. Steering, the process of directing clients to certain products out of self-interest, is partially blamed for the higher costs, adding an average of 4.5 years to the amortization of a mortgage. The BoC suggests more industry transparency can reduce this risk, and help clients with the best outcome.
According to Statistics Canada, nearly half of Canadians are concerned about their ability to pay for shelter. The cost of living crisis has made life unstable for almost a third of households, with a higher concentration in young adults. Transportation, food, and shelter show the fastest rising prices, with those aged 35-44 the most likely to report difficulty meeting financial needs. In addition, 1 in 4 households can’t handle an unexpected expense of $500, with those between 35-44 and 45-54 most likely to report difficulty.