Time for your cheat sheet on this week’s most important stories.
Canadian real estate prices have increased 50% since 2020, but a lot of those gains are about to reverse. Oxford Economics reiterated its call for a 24% price drop, seeing it begin this year. By 2024, prices will only retain 14 points of the gains since the peak, but still won’t be affordable. Affordability won’t be back until 2028 as incomes rise faster than home prices.
Canadians might have so much debt it’ll weight the Bank of Canada’s ability to fight inflation. That was the message from the Deputy Governor, explaining why they may need to pause at the neutral rate. We explain why this view relies on the assumption debt vulnerability is worse than reality. In any case, the pause is at the neutral rate, so don’t get too excited about cheap debt. That still means “pausing” at the highest rates since 2008.
Canadian home prices surged so fast that even a big drop will only reverse 3-months of gains. Since December 2021, a typical home across Canada saw its benchmark price rise $91,600 by March. Some markets saw an even faster climb, increasing $128,000 over the same period. A nearly 6-digit price decline may only roll back 3-months of gains in many markets.
RBC, Canada’s largest bank, made an upward revision to its forecast for the Bank of Canada’s overnight rate. They now see an additional 0.5 point hike this year, which would see the overnight rate double within two months. By year-end, RBC expects the overnight rate to reach 2.5% — the highest since 2008.
BMO raised its forecast for the overnight rate, expecting rates to double by this summer. The bank expects Canada’s overnight rate will get two 0.5-point hikes, bringing the overnight rate to 2.0% by July. A more moderate pace of hikes is expected afterward, with the peak forecast at 2.75% by early next year.
Canada’s equity-rich, cash-strapped senior homeowners are borrowing a lot of equity. Reverse mortgage debt surged to $5.4 billion in February, up 2.0% from a month before. From last year, the balance has increased 18.3%, rising close to a billion dollars. Growth slowed at the start of 2020, but borrowers are back to tapping their home equity.
Canadian real estate has hit a record lack of affordability, according to Desjardins. The Desjardins affordability index dropped 10.7 points in Q1 2022, the worst level in 30 years. Rising interest costs, falling incomes, and soaring home prices are behind the drop.
Higher mortgage rates coming off record demand are slowing home price growth. Markets are seeing price growth decelerate, and in some cases fall — up to $40k in one month. Most markets are only seeing growth slow but big gains have turned into small (or negative) ones, very fast.
Canada’s future building intentions are tapering from record high activity. The value of building construction permits fell to $11.7 billion in March, down 9.3% from a month before. This is still 5.2% higher than last year and considered elevated activity. However, growth is slowing on a seasonally adjusted basis.