Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canadian real estate markets continue to soften, with few signs of a break. The benchmark (typical) home price slipped lower in October, and is 14.6% below the March 2022 record high. Slow sales and a surge of sellers is providing significant pressure to low prices. As credit limits the amount people can borrow, sellers are having to adjust their prices lower to liquidate their properties.
Canada is helicopter-ing money for new housing, but who is this money going to, and for what? Over a third of the $1.2 billion investment recently announced is for a single project that was planned years ago. The developer behind the rentals is Tricon Capital, a company that’s attracted significant scrutiny in the US for acquiring 38,000 single-family homes for rentals. Accused of buying the American dream and renting it back to households, the firm isn’t short on cash—it currently targets buying 800 homes per month.
Canadian mortgage debt is unusually slow, and it feels magnified in contrast to the borrowing boom. Annual growth fell to the lowest level since 2001, and the slowest September since 1999. However, low rate stimulus is designed to pull forward borrowing activity. When averaging growth over the past 3 years, growth is still relatively high—especially in contrast to pre-pandemic. In short, the excess credit binge isn’t even close to being balanced.
Canadians looking for some mortgage relief are in luck, as softening US inflation brings costs down. Cooling inflation south of the border is driving bond yields lower. This has helped push the cost of borrowing lower, and may continue to do so. However, it’s important to remember that inflation expectations don’t flow in a straight line, so any return to speculation can push those rates higher again.
The International Monetary Fund (IMF) warns stagflation threatens a third of global bank assets. The organization is urging bank regulators to tighten lending conditions and prepare for a downturn while things are still good. Failing to do so may result in amplifying any shock in the event of a global downturn.