Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canadian Real Estate Prices Slipped, Inventory “Jumps” In April
Canadian real estate didn’t move much last month, but the data still hints at an interesting Spring. The price of a typical home slipped 0.3% lower in March. The month also showed a mild increase in sales, as well as an inventory pullback. Diving into more detail, the distribution is the interesting part—new listings began to surge towards the end of the month. CREA made a point to note the first week of April saw a flood of new listings. The question now is whether those listings can be absorbed by the market.
Bank of Canada Just Delivered Bad News For Mortgage Rates, Yields Surge
Canada was expecting its central bank to deliver good news for mortgages, but they got the opposite. The Bank of Canada (BoC) confirmed expectations by holding its key interest rate. They also warn that issues such as geopolitical tensions, have slanted inflation risks to the upside. Bond markets responded by sending yields significantly higher, applying pressure to drive fixed rate mortgage interest costs higher.
Canada To Cut Interest Rates Before US As Labor Market Erodes: BMO
The US is Canada’s largest trade partner, so they tend to move together closely. This is one of those exceptions, according to BMO, one of Canada’s largest banks. The US has been on a tear, adding jobs and chasing massive economic growth. At the same time, Canada has seen rising unemployment, moving closer and closer to recession. As a result, Canada is expected to cut interest rates before the US, in an attempt to kickstart its economy. That puts a new inflationary problem square and center—a weaker loonie.
Canada Tries To Bail Out Real Estate Developers With 30-Year Mortgages
The Government of Canada (GoC) is announcing more demand-side stimulus for first-time buyers. In response to soft new home sales, the GoC will allow 30-year mortgage amortizations to increase potential activity. They’re also dramatically increasing the amount first-time buyers can withdraw from their registered retirement funds to provide a downpayment. The changes are good news for those selling homes, but risks concentrating the economy into housing even further. Especially the last part, since they’re literally encouraging people to withdraw retirement funds from capital markets and put it towards housing.
Canadian Mortgages Just Had One of The Slowest Quarters Ever
Canadians seemed addicted to mortgage credit but apparently higher rates were the cure. Residential mortgage credit at institutional lenders rose just 0.47% in Q4 to $1.8 trillion. It was the slowest quarter since 2019, and the slowest growth for any fourth quarter since 2008. Higher interest rates are working their magic—limiting what can be borrowed, incentivizing people to pay off their debt, and diverting capital to more productive uses. Don’t worry, experts see rate cuts coming soon and the universe will return to its natural state.
This discussion on boc rates increasing or decreasing based on 1. Inflation or 2. An eroding economy fails to recognize Canada’s key rate determination: the US borrowing rate. Canada and the US have a closely integrated financial market. Most of Canada’s borrowing is now denominated in US$, thanks boc and Trudeau. Historically, cdn rates lean 50 bps higher than us rates. Presently, cdn rates are 30 bps lower. The cdn debt market will shift to us debt market because of the higher rates. If cdn rates decrease further the outflow to the US will accelerate. What happens? Our dollar currently at 1.30 US will drop to 1.50 US which will accelerate inflation even more and make the middle and lower class even more stretched. The Trudeau govt is in a catch 22 with its economy in chaos. Be wary of pronogistators predicting lower rates without a proper consideration of the reactions.
Even their supply side market manipulations will increase housing inflation. Demand has been increased by these announcements too. Building new is much more expensive than rehabbing existing units. All that these supply side and demand side programs do is create more buyers to chase the lowest price new product which is priced out of the reach of most of these people. Supply side inflation will go through the roof because of the shortage of skilled trades and ever more expensive building materials. Surges in immigration, Chinese style building sprees and increased demand on anything create havoc and massive inflation. Proper planning and steady growth would have avoided the dire straits most Canadians live in today. IMHO, this never would have happened under the previous administration.