Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canadian real estate prices got a boost from low rates, now the opposite is happening. A typical home fell to $735,000 in October, down 15.3% from the peak, wiping out half the gains made since March 2020. Expected after mortgage rates rose enough to wipe out 32% of buying power since February. As higher rates persist, the odds of prices correcting improve greatly.
Global interest rates are climbing, and it’s causing prices to correct virtually everywhere. Oxford Economics warned home prices will make a double-digit correction soon. While prices have been falling, they estimate they’re only halfway to fully corrected. It typically takes 12 to 18 months for interest rate changes to be fully realized in the market. This accelerated cycle could mean the impact is felt about 30% faster than usual.
Canadian auto loan delinquencies are climbing, leading to a possible credit reversal. The delinquency rate reached 1.97% in Q3, up 0.31 basis points from last year. It’s unusually high for Canada, where only 3 quarters (Q4 2019 to Q2 2020) have been higher in at least a decade. Credit cards and lines of credit delinquency rates are also climbing, indicating normalization.
Canadian real estate prices haven’t been this unaffordable since the early 80s. A median household buying in Q3 needed to spend 67.3% of their income just to service a mortgage. That’s across Canada too, not in cities like Toronto or Vancouver, which require over 100%. Affordability is now worse than any point in the 90s bubble, and was last this unaffordable in 1981. Higher rates are expected to lower this over the coming months.
Canada’s economy showed surprising headline growth, but the details were less than encouraging. Annualized GDP growth hit 2.9% in Q3, nearly doubling the expectations. Despite robust headline growth, consumer spending contracted 1% over that time. Canada hasn’t seen consumer spending contract outside of recession. It’s a little ominous, and indicative of the pressure households are feeling.