Canadian residential mortgages

Canadian Bank Loans to Residential Real Estate Hit New Highs

Steve Saretsky -

Residential Mortgage Loans Continue To Spur Home Prices

Canadian banks continue to funnel money into the historic real estate boom. In the first quarter of 2017, Canadian bank loans to the real estate and construction sector hit a record at C$43.6 billion.

canadian bank loans to real estate
Canadian Bank Loans to Real Estate & Construction.

This of course is ensuring real estate prices stay elevated. As economist Steve Keen has noted, there is a direct relationship between the increase in mortgages and home prices. “The monetary demand for housing is overwhelmingly sourced from new mortgages. Divide the flow of new mortgages per year by the price level, and you have the physical flow of demand for houses per year. There is thus a relationship between the flow of new mortgages and the price level.”

To no surprise, Mortgage payments for new loans in Vancouver are up 4.5% year over year. Coincidentally prices continue to rise,  Vancouver condo prices are increasing by over 2% per month with little signs of slowing.

This dangerous concoction of rising home prices and household debt may finally be reaching a boiling point. It’s estimated household debt to disposable income could reach a mind blowing 180% by 2018 if the Bank of Canada leaves rates untouched.

This sparked a surprisingly hawkish response from the Bank of Canada governor Stephen Poloz who is finally considering hiking interest rates. Investors are now putting a 50% chance of a rate hike on July 12, which could be the first of several rate hikes in the coming months.

Expect the variable rate mortgage of 2.7% to climb in the future.

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The Canadian Economy

Steve Saretsky -

Happy Monday Morning! We got a string of new data this past week confirming inflation in consumer goods, and housing are proving to be more than transitory. Canada’s consumer price index continued to drift higher with prices hitting an 18 year high, up 4.7% from last October. The recent floods in BC...

Steve Saretsky -

The calls for impending interest rate hikes continues. CIBC’s chief economist, Benjamin Tal, was out recently suggesting the Bank of Canada could hike its benchmark interest rate at least six times beginning in early 2022. “I think there is a risk of getting into the market at today’s rates,” noted Tal....

Steve Saretsky -

The BC Government announced it is looking at several cooling measures for the housing market in 2022. They have highlighted two measures. The first is an end to the blind bidding process, and the other is a mandatory “cooling off period” which will allow any buyer a 7 day recession...

Steve Saretsky -

The Bank of Canada continues to slowly drain liquidity after flooding the system with a firehose of cash during the pandemic. Bank of Canada governor Tiff Macklem announced the end of Canada’s QE program (also known as money printing). Furthermore, in Macklems words, “We expect to begin increasing our policy...

Steve Saretsky -

Consumer price inflation ripped higher in September, surging 4.4% year-over-year, the fastest pace of price increases in 18 years. Let’s discuss this further. We have an inflation problem and the Bank of Canada remains of the view that inflation will be transitory. Although they really can’t say otherwise, for if...

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The Saretsky Report. December 2022