Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canada’s Big Six banks have a significant share of mortgages with amortizations over 35 years. BMO, CIBC, TD, and RBC all reported over a quarter of their portfolio had amortizations over 30 years. The strategy might be used to avoid negative amortizations when payments fail to cover interest. It’s not a widespread banking issue as two of the Big Six did not report any significant change in the share of mortgages with long amortizations.
Canada’s population boom isn’t enough to prevent its economy from slowing down. Real GDP growth fell to just 0.1% in February, a third of the national statistics agency’s preliminary estimate. They’re expecting the following month to show a 0.1% contraction. The population growth is adding demand and output, but not even enough at the aggregate. Adjusting for population growth, the country is likely doing much worse than many realize.
Canada’s broad money supply (M2++) is expanding at the slowest pace in decades. Annual growth came in at 2.5% for February, the lowest since at least the 1980s. It’s largely the result of higher interest rates, which have slashed borrowing and moderated demand to healthier levels. The measure is also a leading indicator of inflation, which is good news for taming the current elevated levels.
Canada’s economy is expected to hit a roadblock within the next few months. The Bank of Canada’s Market Participant Survey, a quarterly survey of financial professionals, generally sees a recession before the end of 2023. Real GDP is forecast to contract, and not return to modest growth until 2024. Elevated inflation will prevent monetary policy from providing immediate relief. No rate cuts are expected until next year.
Canada’s variable rate mortgage boom is over, as borrowers return to opting for fixed rates. Bank of Canada data shows the share of new loans with variable interest represented just 11% of new mortgages in February. It marks the lowest share of variable rate loans since February 2020, before interest rates began to fall.