Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canadian mortgage rates are set to increase as the Government of Canada 5-year bond yield hit a 16-year high. This yield directly influences the 5-year fixed mortgage rate, which is traditionally the most popular mortgage product. The increase has a Big Six bank warning investors of slowing home sales and price growth, though it’s not all bad news. Higher bond yields are typically linked to higher wage growth.
Canada has seen a 53% increase in temporary residents since 2020 to help address labor shortages resulting from pandemic stimulus. While the influx of labor is helping to fill essential roles in industries like farming, it’s failing to fill many skill gaps being created by the Baby Boomer retirement cliff. RBC Economics warns that Canada would be wise to adopt more targeted growth, as excess demand in housing is being created with the current approach.
Canadian households are being left behind as real disposable income fails to keep up with inflation. Average household disposable income has dropped 0.5% in the past year, and more than 4% when adjusted for population growth. High levels of debt are consuming a significant share of income for payments, slowing the country’s economic growth. The OECD previously warned that Canada’s per capita GDP growth would be the lowest of any advanced economy for the next 40 years, and falling disposable income is where it starts.
Canada’s federal government spending has been rising faster than the country’s economic output, contributing to higher inflation and interest rates. BMO Capital Markets says this trend has been going on before the pandemic, and that central banks have had to hike its key policy interest rate in order to curb the issues created by fiscal policy.
Canadian mortgage borrowing is showing nearly zero real growth, as sky-high prices meet rising interest rates. Bank of Canada (BoC) data shows mortgage credit continues to decelerate in May, with real, or inflation-adjusted, annual growth over the same period being just 1.0%. This is the slowest growth since 2019, and a growth rate typically not seen outside of recession. Slowing mortgage credit, either nominal or real, is a sign of a slowing economy, which may be a critical blow in Canada’s overly housing-dependent economy.