Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canada’s strategy to grow its study permit business has taken off, helping its population soar. Study permits climbed 35% in Q2 2023, putting the country on track to issuing 665k new study permits by year end. International students have increased so rapidly they represent nearly 1 in 48 people in the country. The plan is to use these students as a diplomatic tool, and help stem Canada’s waning influence on the global scale. However, the plan may backfire as students increasingly find themselves in an exploitative environment.
Canada’s economy is flirting with recession as GDP growth stalls. The quarterly growth was virtually unchanged in Q2 2023, as households show signs of fatigue. According to Statistics Canada, real household spending has contracted in three of the past four quarters. As bad as that sounds, it’s a lot worse when you consider the booming population growth.
Canadian real estate affordability hasn’t been this bad in over 30 years. BMO research reveals that a median household buying a home needs to dedicate the most income since 1988. Interest rates aren’t helping, but they’re at a similar level to those seen in 2001. However, easy credit has helped home prices increase 3x faster than incomes.
One of Canada’s Big 3 mortgage insurers is no longer disclosing the share of underwater mortgages. Canada Guaranty disclosed mortgages with a loan-to-value over 100% up until 2022—reporting about $4 billion worth in the quarter. Starting this year, they’ve grouped them together with mortgages worth more than 95% of the value. They were the only insurer reporting the exposure, but with taxpayers ultimately backing all three—shouldn’t all of them report it?
Canadian subprime borrowing has seen explosive growth over the past few months. Transunion reported subprime accounts grew 9% in Q2 2023, making it the fastest growing credit segment. Households are using credit to fill the gap between a soaring cost of living and lagging wages. The sudden surge presents a risk for the general economy, amplifying any potential downturn. At the same time, the credit reporting agency warns that throttling credit to these households can trigger a downturn even sooner.