Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canadian Home Prices Near Record Highs In All But 2 Provinces
What Canadian real estate price correction? The price of a typical home across Canada rose 0.3% to $666,400 in April, with prices rising last month in all but one province. The industry may be screaming about slow sales and a historic correction, but prices remain near all-time highs in nearly all markets. In fact, only two provinces have seen a material drop from peak—BC and Ontario—and only the latter has seen a correction that exceeds the national average.
Canadian Mortgage Rates May Climb As Bond Yields Hit 2010 High
Canadian fixed-term borrowing costs are set to climb as government bond yields see upward pressure. Despite the Bank of Canada’s core inflation measures cooling, long-term bond yields have been moving higher. A report from BMO Capital Markets warns the 30-year government bond yield briefly reached the highest level since 2010, double the average from 2015 to 2022. The bank suggests traders are likely paying attention to oil instead of core measures, but a bigger problem lurks—the sheer size of debt that needs financing in Canada. With the PBO estimating roughly a third of the country’s revenue will be spent on just interest payments and elderly benefits, the country’s debt needs are now structural.
Canadian Household Debt Is Further Concentrating In Mortgages
Canadian household debt climbed to a staggering $3.24 trillion in March, rivaling the size of the country’s annual GDP. However, the real story is how this debt is concentrating in a single area—mortgages. Outstanding mortgage credit has grown to 74.8% of total household debt, growing an additional 12.7 points over the past 20 years. The excessive concentration shows that households don’t have the luxury of borrowing for anything but shelter, leaving the economy increasingly vulnerable to shock in a single area.
Canadian Inflation Surges To 23-Month High, Data Shows It’s Higher
Canadian headline inflation saw annual growth climb to 2.8% in April, up from 2.4% in March and marking the highest level in 23 months. The surge was widely expected due to a base effect created by the elimination of the consumer carbon tax, which was helping to artificially suppress the rate. Despite substantial growth, it’s actually smaller than we had previously anticipated. This has more to do with the way CPI is being modeled, with StatCan data showing falling CPI in segments like air travel, while actual ticketing data shows the opposite.
It’s not surprising that mortgages account for 75% of total household debt, given how high the cost of housing is. My neighbour is a C-suite guy at TD who says it is not at all unusual for people to spend 2/3 of their income on their mortgages. Seems bonkers to me.