Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canada’s oldest bank is warning the bear market is far from over — it’s just getting started. BMO Capital Markets explained inventory is at a much healthier level. Months of supply have doubled the low hit this year, with the SNLR now showing a balanced market. The bank explains the SNLR leads prices by roughly 3-months, so prices are likely to keep falling for now.
Canada’s headline inflation is down, but it might not show what we think it does. Core inflation, preferred by the Bank of Canada (BoC), hit 5.3% — a 32-year high. Core inflation is preferred to headline since it eliminates the most volatile components. However, the bank notes two major revisions in two months that show it isn’t as reliable as thought.
They point to January’s annual growth as an example, which went from a robust 2.3% to a frothy 3.6% with the latest revision. It’s fairly common to revise numbers, but National Bank explains this is the second in 2 months. Revised numbers likely would have supported the BoC hiking in the fall. Instead the central bank was still using inflation creation tools like QE during that time.
Canada’s major real estate markets have seen demand plummet, restoring healthy inventory. The sales to new listings ratio (SNLR) reached 51.7% in July, a big change from the 89% earlier this year. It’s now considered a “balanced’ market, helping to eliminate the emotional premiums paid. That helps to explain prices falling tens of thousands per month in key markets.
Canadian home equity line of credit (HELOC) debt is growing at the fastest rate in nearly a decade. The outstanding balance hit $171.1 billion in June, up 2.9% (+$4.8 billion) from last year. It was the biggest growth since February 2013. It’s a huge number, but might seem small in contrast to your anecdotal experience. That’s because HELOCs are just a fraction of the home equity loans. A fixed-rate home equity loan for example, would not be considered a HELOC.
Canadian mortgage debt reached a new record and it advanced at one of the fastest rates ever. The outstanding balance hit $2.03 trillion in June, up 9.7% ($178.7 billion) compared to the same month last year. Annual growth is the lowest rate since May 2021, but that’s still higher than recent years before 2020. Aren’t larger numbers supposed to be harder to grow?
Canadian real estate prices continue to erode from the peak as rate stimulus turns FOMO to NOMO. Markets have seen prices fall as much as $355,000 from their all-time high. Other markets have lost as much as a fifth of their value in a matter of months. However, the real estate bubble inflated so fast, no market is lower than last year, as of yet.