Canada Real Estate

Macro Insights on Canadian Real Estate

Steve Saretsky -

One of my favourite podcasts Macro Voices recently had a guest on to discuss Canadian Real Estate. You can listen to the full podcast here. The interview features Joshua Steiner of Hedgeye Risk Management. The interview had some insightful data on Canadian Real Estate and the economy from a macro perspective. Here are just a few highlights from the slide deck.

Transfer Fees Make Up Nearly 2% of GDP

Real Estate broker commissions, land transfer taxes, and legal fees all of which make up a typical real estate transaction, now equate to nearly 2% of Canadian GDP. This ridiculously mind blowing state equates to more than 3 standard deviations above it’s long term average.

Canada commissions per GDP
Broker Commissions Nearly 2% of Canadian GDP. Source Hedgeye

Household Mortgage Debt

One way to avoid a financial crisis is to try and borrow your way out of it. This was the go to policy in Canada during the 2008 meltdown, as you can see in the chart below. Canadian mortgage debt has outpaced our neighbour to the south since 2008.

Canada vs US mortgage debt
Canada vs US mortgage Debt. Source: Hedgeye

The Fall of the Canadian Dollar

The speculative rise in major Canadian housing markets is coincident with the 29% decline in the $CAD from July 2014 to January 2016. Of course this also lines up with the huge flood of Chinese capital that kicked off the party in early 2015 as the detached housing market surged.

Canadian dollar vs house prices
Housing prices surge as Canadian dollar falls. Source: Hedgeye

These will be metrics to follow in 2018 and alludes to how complex and intertwined the financial markets are, which is critically important considering Vancouver is in the global spotlight.

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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....

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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