Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canadian Credit Demand Is Rapidly Collapsing Despite Population Growth
Canadian households aren’t borrowing, which may indicate that they’re weaker than they appear. Annual household credit growth advanced 3.4% in May, just 0.2 points above the cycle’s low hit in October 2023. The problem is, growth is decelerating from the season’s peak already, and October’s low was the slowest rate in over 30 years. Falling below this level would provide a substantial headwind for an economy used to credit-driven consumption—and that means an uncomfortable adjustment.
Big Five Banks Back Most of Toronto’s Negative Cash Flow Condo Investors
Canada’s Big Five Banks are backing the mortgages for new condo investors in Greater Toronto. The five largest banks provided mortgages for 75% of leveraged investor units completed in 2023, up from roughly half a few years ago. That’s only a problem since most leveraged investors for new condos in Toronto are cash flow negative, during record low sales with rising inventory. In short, these lenders are sitting on a larger share of loans where the asset generates negative cash flow and the value drops. A less-than-ideal setup.
Canadian GDP Driven By Public Sector, Per Capita Recession Deepens
Canada’s economy surprised with higher-than-expected gross domestic product (GDP) growth. There’s just one problem—almost half of that growth was based on government spending. Regional and municipal government expansion accounts for 49% of the real GDP growth in May. By itself, it’s not an issue but it tells a different story from one of a healthy economy. During a recession, government spending accounts for an increased share of economic activity. That might be the case considering real GDP per-capita has shown negative growth for eight consecutive quarters.
Canadian Families Captured Bigger Share of New Housing As Rates Climbed
Canada’s policymakers are making noise about elevated rates reducing affordability. Reducing affordability for whom is an interesting question that might need to be asked more often. Since rates have climbed, the share of new condos owned by investors has dropped dramatically. Taking their place? End-users, with more units occupied by their owner. Higher rates may increase the cost of debt, but at the same time it reduces profitability for investors and lowers prices. As a study by the US Federal Reserve emphasized, affordability isn’t just about the cost of debt, but also the quantity of debt needed to buy a home.
Canadian Households Spend $900/Week On Taxes—More Than Shelter & Food
Canadian families spend more of their income on taxes than shelter and food. A new report shows the average household earned $109k in 2023, and paid an average of $47k in taxes. It works out to roughly 43% of income, much higher than the average of 33.5% paid by households back in the ‘60s. Since 1961, household income taxes have climbed 3x the rate of inflation—a whopping 2,705%. That’s a lot more than shelter (+2,006%), food (+901%), and clothing (+478%).
Ah yes. You can smell the wind of prosperity in the air. That or the rot in Canadian governments that can’t help but make bad decisions at every opportunity.