DATE

Steve Saretsky -

As expected, the monetary and fiscal bazookas are getting bigger every day. Ironically, after an era of zero interest rate policy which punished households and businesses for saving cash, there’s now a shortage just when everyone needs it. For those who didn’t practice a healthy habit of saving for a rainy day, policy makers are determined to plug the hole in the sinking ship, promising big cheques and “unlimited QE.” Policy makers in Canada dipped into their toolbox this week. First, Trudeau conjured up the Canada Emergency Response Benefit which will offer $2,000 a month in direct support to Canadians who have lost their job and don’t qualify for employment insurance. Meanwhile, the Bank of Canada hammered interest rates into the floor, effectively hitting the lower bound at 0.25%. At the same time, they began their own version of QE. Governor Poloz, announced the banks intentions to start buying a minimum of C$5 billion a week in government securities. For context, that’s $240B per year, which exceeds the expected amount of issuance by the Government this year and next, resulting in net negative Government of Canada issuance. In other words, the Federal Government has been given the green light to

Steve Saretsky -

The magic money tree was ripe for the picking this week, as both the federal and provincial Governments have promised free handouts for those in need. I’m not going to lie, its a little bit overwhelming trying to keep up with all these policies and who qualifies, etc. Although this was all very predictable, as I had outlined the likely policy moves a few weeks ago. First we have the Federal Government announcing that people who have been laid off, sick, or self-employed can receive up to $2,000/month for four months under a new emergency response benefit. This comes on top of the BC provincial Governments pledge to mail out $1,000 cheques to residents who are out of work due to the virus. It will support EI-eligible workers as well as those who may not qualify for EI. As much as these programs are needed, one can’t help but shudder over the thought of free money, and the societal consequences this will create. These debts will never be paid off, and will ultimately be monetized by our central bank overlords. Fun fact, the Bank of Canada announced a new program to support provincial funding markets. In other words, the Bank

Steve Saretsky -

In a mad dash to keep the financial system from seizing up, Canadian policy makers were busy working around the clock to ensure the credit spigots don’t run dry. Here’s a brief summary of recent liquidity operations. OSFI lowers capital buffers for banks from 2.25% to 1% of risk-weighted assets. Bank of Canada to begin purchasing Canada Mortgage Bonds in the secondary market. As a starting point, the Bank will target purchases of up to $500 million per week. Insured Mortgage Purchase Program (IMPP) returns. This is the same program the government used during the 2008-2009 financial crisis. It will soak up C$50 billion in government insured & previously uninsured mortgages through the nation’s housing agency. The IMPP will allow mortgage lenders to pool previously uninsured mortgages into the National Housing Act Mortgage-Backed Securities program for CMHC to then purchase these securities. In simpler terms, banks can effectively offload some of their unwanted mortgages to CMHC. This reduces the banks risk, clears their balance sheet, and allows them to continue issuing new mortgages. LIQUIDITY. “These are extraordinary times and we are taking extraordinary measures. As a result of this measure, banks and lenders will have more liquidity—which, in turn, will enable them to work

Steve Saretsky -

It’s been a whirlwind of a week and we aren’t even finished yet. I want to offer a few thoughts here, as there is a lot happening behind the scenes, a lot of which most people don’t understand. Heck, even the Real Estate industry doesn’t quite understand. Many of the Realtors i’m speaking with think this is just a virus problem and it will clear in a month, and then its back to normal. What I think they are failing to understand is the economic ramifications, and the underlying disfunction in the financial system. First, lets read between the lines. Policy makers are throwing the kitchen sink at this, trying to support the financial system. In the past week, in Canada alone, here’s a brief summary of the liquidity operations. OSFI lowers capital buffers from 2.25% to 1% of risk-weighted assets. Bank of Canada to begin purchasing Canada Mortgage Bonds in the secondary market. As a starting point, the Bank will target purchases of up to $500 million per week. Insured Mortgage Purchase Program. This is a return of a program the government used during the 2008-2009 financial crisis, with plans now to acquire up to C$50 billion in government

Steve Saretsky -

As I write this newsletter on a Sunday evening, I must apologize in advance. By the time you read this, it may already be stale. The pace of the news flow right now is truly unprecedented. While everyone was out enjoying their Sunday afternoon stroll in the park, the Federal Reserve was frantically plugging away, desperately trying to stem a severe liquidity crunch. The Fed slashed its benchmark interest rate by a full percentage point, officially hitting the zero bound. They’ve also promised to boost its bond holdings by at least $700 billion. Not sure if we’re officially calling this QE4 or QE5, to be honest, i’ve lost count. We are on the path to full debt monetization, probably much sooner than anyone would have imagined. Short of throwing the kitchen sink, i’m not sure what else central bankers can do. If this doesn’t work, expect a full market shutdown. In other news, Canadian policy makers are busy making moves of their own. Not only did the Bank of Canada cut interest rates by 50bps, with at least another 50bps expected this week, we had OSFI, the Canadian Bank regulator, unleash an additional $300B in lending capacity. OSFI lowered the domestic stability

Steve Saretsky -

We live in interesting times. I have been fielding a lot of questions regarding the market turmoil and what it may mean for the Canadian Real Estate market (particularly Vancouver). Yes it’s true, The S&P/TSX Composite Index fell 12% Thursday, the biggest one day drop since May 1940 per Bloomberg. Surely this will all have serious implications, but what does it mean for our beloved housing? The short answer is, I don’t know. Nobody does. What I can tell you is there are a few things I’m watching very closely and a few possible outcomes worth considering. First, this is absolutely an economic shock, one that the Bank of Canada is probably ill-prepared for, just like the rest of us. Canadian households are the most indebted in the G7. We chose not to take the medicine in 2008, and thus, household balance sheets remain bloated today. The household debt servicing ratio sits at a record high, despite low interest rates. Further, household savings rates are near 60 year lows. In other words, there’s not a whole lot of cash put aside for a rainy day, households are not well positioned for an economic shock. This shock will unfortunately result in

Steve Saretsky -

As the Coronavirus spreads, officially being declared a global pandemic by WHO, we are left wondering how this will impact the housing market. So far, the plunge in yields has cheapened mortgage rates, no doubt providing a temporary lift for Real Estate. However, the obvious question is how will this impact the broader economy, particularly with the coming job layoffs. To add insult to injury, Canada’s stock market has gone from a bull market to bear in just 14 trading days, wiping out C$454.2 billion, thanks in part to the collapse in oil prices. This will place further stress on Alberta, and have ripple effects across Canada. This will also hit Canadian banks, who have accumulated exposure to the oil & gas sector and may perhaps alter their risk tolerance to extend credit. The other segment to watch is the travel and tourism sector, which is being crushed. Canada pulls in about 20 million visitors annually so it’s safe to say this will not only hurt hotels but local AirBnb operators who might be relying on that income to service their mortgages. On Feb., 28, Airbnb changed its “extenuating circumstances policy,” so that hosts and guests in areas affected by

Steve Saretsky -

Central Banks flinched first, in a coordinated effort to ease financial conditions, interest rates were slashed across many parts of the world, including 50bps from the Bank of Canada. Unfortunately, this did little to ease market uncertainties of further contagion. After all, lower interest rates can’t force people to leave their homes and spend money. While the spreading of the Coronavirus hasn’t quite hit home for Canadians, there are just a few reported cases so far, it seems unlikely we will be sparred. A managed containment is what we should all be hoping for. And while I am certainly no virus expert, I think it’s worth discussing the economics of it all. So far, the media attention has been focused on the interest rate cuts and what it could do to our housing market. Yes, the Bank of Canada has just lowered interest rates at a time when the majority of housing markets across Canada are once again showing signs of exuberance. In Greater Toronto, the benchmark price of a home just hit a new record high, and was up 10% year-over-year in February. Further, the Canada 5 year bond yield has plunged, nearing all time lows. In addition, big

Steve Saretsky -

The detached housing market has come back to life, although only for certain price segments. If we look at the detached housing market as a whole, sales were up 52% from last year. However, last February marked the worst year for detached sales in over 20 years. In other words, it was a very easy comp to beat. Detached sales remain a fraction of what they used to be, coming in well below their ten average for the month of February.  Meanwhile, inventory continues to fall as new listings remain perplexingly below normal. Inventory levels dropped 26% below February 2019 levels. It’s not hard to figure out what happens when sales increase and inventory for sale decreases. Here we can see the MLS benchmark price continue to drift closer towards positive territory, although officially down 0.7% from last year.  Again, it is important to distinguish that this has flipped back to a local market that is price sensitive. The luxury market remains soft. For example, there is 12 months of supply for detached homes above $2M and just 3.6 months of supply for detached homes below $1.5M. Price point is extremely important. Basically locals are competing over the dwindling supply

Steve Saretsky -

If there is one thing I have come to appreciate about writing these reports, effectively documenting my thoughts on a consistent basis for all to see, is that it has held me accountable to you, my readers. I don’t take this responsibility lightly. It has prompted me to become more thorough in my research, and diligent in ensuring you have the most accurate information available to help make one of the largest financial decisions of your life.

Steve Saretsky -

I have been fielding lots of emails today regarding the panic in financial markets, so I figured I would document some of my thoughts here today. In case you’re not up to speed, G7 finance ministers and central banks joined an emergency conference call Tuesday morning, reaffirming their commitment to act to protect their economies, but stopped short of any specific action. A few hours later, the Fed delivered an emergency rate cut of 50bps. Despite the drastic measures, the stock market sank lower anyways. In a flight to safety, bond yields plummeted. As of this writing, The 10-year Treasury yield has officially sunk below 1% for the first time ever. So what to expect here in Canada, particularly as it pertains to Real Estate? The Bank of Canada will be cutting rates tomorrow, markets are assigning 100% odds of a 25bps cut from Poloz tomorrow. We could see as much as 50bps, with markets assigning nearly 70% odds. This will obviously help over indebted Canadians, and could spur further activity in the real estate market. After all, the 5 year bond yield crashed to levels not seen since 2016. In other words, mortgage rates will likely test previous lows

Steve Saretsky -

Human sentiment is a fascinating beast. Sudden fears of contagion sent markets tumbling this past week, vaporizing $6 trillion in global stock market wealth, and setting off negative economic feedback loops that have raised credible fears of a global downturn. The S&P 500 sank 11.5% for the week, the fourth largest weekly drawdown for the index since World War 2. Back home, the TSX slid 8.9%, the worst week since the financial crisis. Ultimately begging the question, now what? There is now widespread belief central banks will come to the rescue. Federal Reserve Chairman Jerome Powell is already standing by ready to cut interest rates after saying Friday that the U.S. central bank will “act as appropriate” as the virus poses “evolving risks” to the economy. Apparently there is no issue cheap money can’t solve, including global pandemics… While it seems highly doubtful cheaper interest rates will force consumers out of quarantine, nor relieve supply chain disruptions, it may at least provide a temporary relief to financial markets. Even still, the global economy was already slowing prior to this black swan event. Canada’s economic growth slowed to an annualized rate of 0.3% in the fourth quarter, the worst performance in almost four

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The Canadian Economy

Steve Saretsky -

As expected, the monetary and fiscal bazookas are getting bigger every day. Ironically, after an era of zero interest rate policy which punished households and businesses for saving cash, there’s now a shortage just when everyone needs it. For those who didn’t practice a healthy habit of saving for a...

Steve Saretsky -

The magic money tree was ripe for the picking this week, as both the federal and provincial Governments have promised free handouts for those in need. I’m not going to lie, its a little bit overwhelming trying to keep up with all these policies and who qualifies, etc. Although this...

Steve Saretsky -

In a mad dash to keep the financial system from seizing up, Canadian policy makers were busy working around the clock to ensure the credit spigots don’t run dry. Here’s a brief summary of recent liquidity operations. OSFI lowers capital buffers for banks from 2.25% to 1% of risk-weighted assets....

Steve Saretsky -

It’s been a whirlwind of a week and we aren’t even finished yet. I want to offer a few thoughts here, as there is a lot happening behind the scenes, a lot of which most people don’t understand. Heck, even the Real Estate industry doesn’t quite understand. Many of the...

Steve Saretsky -

As I write this newsletter on a Sunday evening, I must apologize in advance. By the time you read this, it may already be stale. The pace of the news flow right now is truly unprecedented. While everyone was out enjoying their Sunday afternoon stroll in the park, the Federal...

Steve Saretsky -

We live in interesting times. I have been fielding a lot of questions regarding the market turmoil and what it may mean for the Canadian Real Estate market (particularly Vancouver). Yes it’s true, The S&P/TSX Composite Index fell 12% Thursday, the biggest one day drop since May 1940 per Bloomberg....

Steve Saretsky -

As the Coronavirus spreads, officially being declared a global pandemic by WHO, we are left wondering how this will impact the housing market. So far, the plunge in yields has cheapened mortgage rates, no doubt providing a temporary lift for Real Estate. However, the obvious question is how will this...

Steve Saretsky -

Central Banks flinched first, in a coordinated effort to ease financial conditions, interest rates were slashed across many parts of the world, including 50bps from the Bank of Canada. Unfortunately, this did little to ease market uncertainties of further contagion. After all, lower interest rates can’t force people to leave...

Steve Saretsky -

The detached housing market has come back to life, although only for certain price segments. If we look at the detached housing market as a whole, sales were up 52% from last year. However, last February marked the worst year for detached sales in over 20 years. In other words,...

Steve Saretsky -

If there is one thing I have come to appreciate about writing these reports, effectively documenting my thoughts on a consistent basis for all to see, is that it has held me accountable to you, my readers. I don’t take this responsibility lightly. It has prompted me to become more...

Steve Saretsky -

I have been fielding lots of emails today regarding the panic in financial markets, so I figured I would document some of my thoughts here today. In case you’re not up to speed, G7 finance ministers and central banks joined an emergency conference call Tuesday morning, reaffirming their commitment to...

Steve Saretsky -

Human sentiment is a fascinating beast. Sudden fears of contagion sent markets tumbling this past week, vaporizing $6 trillion in global stock market wealth, and setting off negative economic feedback loops that have raised credible fears of a global downturn. The S&P 500 sank 11.5% for the week, the fourth largest weekly...

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The Saretsky Report. December 2022