Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
The Canadian real estate market has been surging since the Bank of Canada’s “pause” announcement, but RBC expects this momentum to slow due to rising interest rates and an improvement in inventory. Rising inventory is expected to release some pressure on the supply side, and rising interest rates will throttle the demand side.
Canadian real estate prices surged from 2019 to 2021, hitting record price growth due to a supply shortage. New stats from Canada’s national statistics agency found that new supply during this period actually significantly outpaced the population growth in at least two of the largest markets. This confirms an earlier BMO analysis arguing price growth was based on exuberance, and a perceived shortage rather than reality.
The Bank of Canada (BoC) surprised the market with a rate hike last week, and it won’t be the last one. That was the take from BMO, who expects at least two more rate hikes in the coming months. It’s already sent mortgage rates higher, which is expected to throttle demand and temper price growth.
Canadian households are dedicating a record high share of their income to debt repayment. The Debt Service Ratio (DSR) rose to 15.8% in Q1 2023, up 1.77 points from the previous quarter. Mortgage DSR climbed to 8.6%, the highest level in at least 30 years. Rising interest rates aren’t helping, but they aren’t entirely responsible for the record share of income dedicated to the repayment of debt. Households are also just sitting on astronomically sized loans, with Canada being one of the most highly indebted countries in the world.