Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
One of Canada’s largest banks sees the global era of cheap credit coming to an end. Post-Global Financial Crisis (GFC) the world was flooded with liquidity— pressuring real yields lower, and creating a cheap credit environment. Now that central banks are trying to tackle elevated inflation, real yields are rising and taking credit costs back to historically normal levels.
Canadian real estate price strength faded in July, ending a five-month winning streak. Prices remain 1.5% lower than last year, as affordability and buyer psychology shifts. The boost that occurred shortly after the Bank of Canada “paused” rate hikes, appears to have completely reversed after the central bank demonstrated there was really no pause.
Does Downtown Toronto seem quieter than usual? That might be due to all of the empty offices since 2020. Office occupancy has recovered to an average of 51% of pre-2020 levels, showing steady improvements over the past-few months. Even with the improvement, the rate still remains at roughly half the level it should be, despite the population growth boom. A shift to work-from-home has been very popular in Canada, and it might be difficult to reverse it.
Canadian real estate markets have recovered a significant share of the losses post-rate hikes. Home prices peaked in February 2022, and continued to fall until the Bank of Canada “paused” rate hikes. From there, home prices launched back, retracing nearly half of losses in just a few months. Sentiment seems to be tied closely to the central bank though, with prices resuming a decline after it demonstrated the pause was a bluff, and they continued to hike rates.
Canadian real estate markets are expected to slow down, following recent rate hikes. BMO, one of Canada’s largest banks, forecasted that home prices and sales would both slow in this week’s data. That proved right after the official data came in. They see this trend persisting in the near term, as higher rates challenge lofty, unaffordable home prices.