Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canadian real estate is being propped up by mortgage pre-approvals, warned BMO. The bank explained to investors last week that many of today’s buyers are using a pre-approval. These secure interest costs for 90 to 120 days, meaning today’s market isn’t reflective of today’s costs. Many buyers will be using a rate nearly 1 point lower than the current market, until October. As these pre-approvals start to fade, an “enormous” shock is expected.
Central banks around the world are front-loading rate hikes to cool inflation. Don’t read that as potential for a soft-landing though — we’re way past that point. RBC warned they no longer think a soft-landing is possible, and expect a moderate recession. At this time, only one central bank has forecast recession, but that’s expected to change soon.
Canadian household debt problems were in retreat, but they’re back and even stronger. The household debt to income ratio climbed to 182% in Q2 2022, getting closer to the record. This means debt is growing much faster than income, and households owe $1.82 for every $1 they take home. Having such a high debt load will limit the flexibility to respond to a crisis.
Canadian real estate prices are falling, but the pain is mostly in Ontario. BMO notes the region saw the biggest gains over the past two years. However, it appears to be leading the way lower, reversing those gains quickly. Markets like the Prairies saw much lower growth, and are seeing small corrections.
Canadian real estate prices continue to fall, with the boom seen earlier this year now gone. The price of a typical home fell $760,400 in August, down 2.80% ($21,900) from a month before. Prices remain 7.05% ($50,000) higher than last year, but the current benchmark is the lowest since November 2022. Without a sudden miracle, annual growth is likely to turn negative within a couple of months.
Canadians have seen their net worth soar since 2020, now some of those gains are rolling back. Households saw their net worth drop by $1 trillion in Q2 2022, the biggest drop in history. It was a broad decline seen in virtually all assets. Experts expect most segments of household wealth will bounce back relatively fast. The one exception is real estate, forecast to see a slower recovery.