Time for your cheat sheet on this week’s most important stories.
Canadian Real Estate
Yield Curves: Canada’s Recession Indicator Is Now Flashing Red Alert
Another indicator is warning that a recession is likely approaching in Canada. The 10-2 spread, the difference between 10 and 2 year government bonds, turned negative. A negative spread, a.k.a. yield inversion, means longer dated bonds are yielding lower than shorter dated one. When this happens, institutional investors are projecting a slower economy in the future.
The inverted yield curve has historically preceded recessions in Canada, with one exception. In 2000, the curve inverted without GDP printing a technical recession. However, there was a large rise in unemployment. Massive credit stimulus also had to be rolled out, with 9 rate cuts to get people borrowing again. Basically, it wasn’t a recession – but it felt like one.
Canadian Rate Cuts May Not Do Much, Since Household Savings Fell To A 59+ Year Low
Canadian households aren’t really saving money these days. The unadjusted household savings rate fell to 0.7% in Q1 2019, down 63.15% from last year. This works out to $2 billion dollars stashed away in the quarter, down 59.3% compared to last year. The rate of savings is the lowest for Q1 in the 59 years of data available. The dollar amount saved is the weakest Q1 since 1975, when the population was 36.7% lower. If you’re still convinced it was a large number, it works out to just $60 per capita. Even if rates are lower, there’s going to be an uphill battle to get households to spend more.
Transunion: Canadian Millennials Are Racking Up Over 2x Debt Over Other Generations
Millennials are racking up debt at more than twice the pace of any other generation in Canada. Transunion numbers show Millennials owe $515.90 billion as of Q2 2019, up 12.33% from last year. The increase works out to $56.63 billion, representing 74% of all debt acquired in the past year.
Gen X and Gen Y shouldered the rest of the growth, while Boomers and the Silent Generation saw declines in debt. That’s a tiny bit of a problem, since Gen X is almost at the age where debt starts shrinking. That would mean the burden of credit growth would fall on just two generations, Gen X and Gen Y. Expect the government to try and push much more debt on these two demographics over the next few years.
National Bank: Canadian Real Estate Price Deflation Hits With Smallest Rise In 10 Years
Canadian real estate prices increased, but it may not be what it seems, according to a Big Six bank. Prices in the C11 index, which is composed of Canada’s 11 largest cities, increased 0.72% from the month before. National Bank sent a note to clients explaining growth is below the 21-year average of 1%. They also added, “The fact that the national HPI registered gains over the last three months does not mean that the market has turned the corner.”
It turns out when seasonal pressures are removed, the index shows declines for the past 3 months. Prices dropped 0.4% in May, 0.5% in June, and 0.1% most recently in July. Prices are growing, but only due to the time of year.
Canadian Real Estate Prices Return To Growth After Brief Decline
Canadian real estate prices are improving, according to the industry itself. CREA’s seasonally adjusted, national benchmark price reached $620,900 in July, up 0.22% from last year. Yeah, it’s not a huge rise, but it’s the first 12-month increase since the beginning of this year. Prices in almost all markets across Canada are on the rise, with a few notable exceptions out West.
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