Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Bank of Canada Research Warns Rate Cuts Can Worsen Housing Affordability
Bank of Canada (BoC) researchers studied the impact of rate cuts on housing. They found that rate cuts boost buying immediately, with demand rising for up to 24 months. New supply follows nearly two years later, responding to the increase in demand. That’s how rate cuts are supposed to work, creating excess demand to boost prices and thus inflation. The researchers conclude that lower rates don’t improve affordability, but do the opposite.
Canada’s “Record” Housing Correction? Prices Near Highs In Most Provinces
The Great Canadian housing crash has produced the largest correction in history. Despite the industry’s headline data, most of the country is seeing the exact opposite. The national index shows that home prices are down 21.3% (-$179.3k) from the peak, but that’s almost entirely due to B.C. and Ontario. Those are the only provinces to show major drops, but most provinces are within 3 points of record highs. Market stimulus isn’t restoring activity; it’s boosting prices to new highs in most provinces.
Canadians Turn To Consumer Credit As Mortgage Debt Slows
Households are still racking up debt, but mortgage debt is playing a smaller role. Total household debt climbed 0.6% to $3.29 trillion in June, up 4.3% from last year. The vast majority remains mortgage debt, which has grown 4.2% over the past year. Meanwhile, consumer credit climbed 4.8% over the same period, one of the highest rates in over 16 years. Studies show consumer credit tends to rise after a housing boom, as recent buyers tap credit. That’s most likely what’s happening here, as credit agencies also note a rise in “distress borrowing.”
Canadian Home Prices Just Made The Sharpest Monthly Drop This Year
The CREA Home Price Index (HPI) shows that the price of a typical home across the country fell sharply. Prices fell 0.6% (-$3.8k) to $661,800 in July, the sharpest monthly drop since December. Sales came in 5.2% lower than last year, while new listings fell 6.0% over the same period, firming conditions. However, with sales near record lows and new listings near highs, the impact has been limited.
Canadian Inflation Hits BoC Limit As Broad Price Pressures Accelerate
Canada’s primary measure of inflation accelerated to 3.0% y/y in July, driven by gasoline (+25.7% y/y). However, this isn’t just a gas story—5 of 8 major components in the CPI basket show acceleration in annual growth. Inflation pressures are broadening while headline CPI is already near the Bank of Canada’s upper tolerance band. That gives the central bank limited options when it comes to responding to any shock.
