I wanted to provide a quick update here on the housing market. I have been tracking activity on a weekly basis and working with some policy makers to keep them up to date. Obviously everyone is trying to get a handle on what the future will look like. Right now I have monthly sales for Greater Vancouver tracking at 1100 for the month of April. That would put sales down 40% on a year-over-year basis. That doesn’t sound completely terrible, although keep in mind April 2019 sales were the lowest since the year 2000. So yea, at 1100 sales that would be the lowest in history for April. New listings have also catapulted off a cliff, and should finish the month down about 60% on a year-over-year basis. Here’s how the supply demand picture has been shaping up. Even though new listings are way down, months of inventory for sale is building, growing from 3.5 to 7 months of supply in the past four weeks. That puts in a buyers market, and we are seeing prices negotiated lower, albeit only by a couple percent. There’s certainly no panic at the moment, although things will get more interesting as mortgage deferrals

The economic impact from the Coronavirus will be one for the ages. The International Monetary Fund expects the global economy to shrink 3% this year, far worse than its 0.1% dip in the Great Recession year of 2009. Some estimates are pointing towards a $10 trillion hit to economic output, that’s more than the economies of Germany and Japan combined. The obvious reaction from policy makers has been to spend. Governments across the globe have already committed $8 trillion in spending to help patch the hole in the sinking ship. And that number will be much higher when all is said and done. In order to support government spending, central banks have put their foot on the accelerator. Global Quantitative Easing (QE) asset purchases are likely to reach USD $6 trillion in 2020 alone, Fitch Ratings says. That’s in addition to the $17 trillion of existing assets The ECB, Fed and Bank of Japan have accumulated over the years. There are many sane and rational pundits arguing against government action, on the basis that it will cause hyperinflation, and/or give our children an unsustainable burden of government debt to carry in the future. However, as the eloquent professor Steve Keen has articulated,

To get a sense of what the economic outlook and the subsequent recovery will look like, we really have to focus on the businesses. I understand these are difficult times and it is best to try and stay positive. However, from a financial management standpoint we must hope for the best and prepare for the worst. Recent surveys, which I always take with a grain of salt, point to a rather grim outlook for small business. Per data from CFIB (Canadian Federation of Independent Business), a survey from over 10,000 small business across Canada suggests 6% of businesses will fail by end of May. Another 44% say they are unsure if they will survive if this persists past May, while 50% say they will be absolutely fine. These small businesses have lost an average of $203,000 and a significant portion of them are dipping into personal savings or using their credit card to stay afloat. Remember, the economy was not designed to be shut down. Nowhere in any business model does it say you should plan for revenues to go to zero for several months. Furthermore, corporations and households where levered to record highs coming into this exogenous shock. When

These are undoubtedly difficult times, we are witnessing the largest public health issue of our lifetimes. As a result, this is morphing into the largest economic event we have ever faced. It is unsettling news, but something we must be brave enough to face head on. It may be convenient and perhaps less painful to look away, but it certainly won’t help us towards solving tomorrow’s issues. And so, we must first get a grasp on what is happening, right here, right now. As of April 17th, a staggering 7.5 million Canadians have been approved for CERB (Canada Emergency Response Program). That’s nearly 40% of the entire labour force. It’s a depressing statistic that underlines the severity of the economic destruction underway. On a more positive note, it shows just how quick and responsive our Government has been. Money is getting to households, providing a necessary safety net and mitigating some of the hardships. We are all flying blind right now, including our policy makers. Governor Stephen Poloz, in his final monetary policy report before he steps down, offered no official projections for second quarter GDP. Instead, he merely offered a wide range of outcomes, suggesting GDP would contract anywhere

The numbers keep getting bigger, mortgage deferrals in Canada have now topped 600,000 since March 17th. Canada’s six largest banks have deferred about 12% of the mortgages in their combined portfolios so far. Suffice to say bank earnings are taking a beating as loans sour and funding costs increase. I suspect we should see Canadian banks ramp up loan loss provisions when earnings are announced towards the end of May. If US banks are an early indication, JPMorgan Chase & Co. said first-quarter profit tumbled 69% to the lowest in more than six years as credit costs surged and the loan loss provisions climbed to their highest in a decade. Policy makers are certainly doing their best to mitigate the downside. The Bank of Canada was back at it today, announcing a new extension to their QE program. Asset purchases will now include as much as C$50 billion in provincial bonds and C$10 billion in high-grade corporate bonds. Interest rates remain unchanged at 0.25%, which the Bank deems to be the effective lower bound. In other words, interest rates have hit a floor, and they feel dropping them any lower, such as negative rates, would be counterproductive. The news comes on

The Canadian economy shed a whopping one million jobs in March, far surpassing economists median forecast of 500,000 workers. Prior to the pandemic, the biggest decline in Canadian employment was 125,000 in January 2009. Unfortunately, there’s not much of a silver lining here. The labour force survey was actually completed during the first week the Government began imposing social distancing measures, so these numbers are going to look even worse in April. Unemployed Canadians are in desperate need for Government cheques, and they are indeed being printed. Per Carla Qualtrough, the Canadian minister of employment, 3.32 million applications were received this weekend alone for the $2000 per month Canada Emergency Relief Benefit plan. Since March 15th, there have been 8.5M applications for either employment insurance or the CERB. Keep in mind, there has been some double counting (people who applied to both CERB and EI). Either way, at an absolute minimum, about 25% of the entire labour force has sought out assistance. It’s no wonder the Bank of Canada has been so aggressive in its policy response. They’ll be back in the batters cage again this Wednesday, in what will be one of Governor Poloz’s final speeches. It’s widely anticipated he

As I had mentioned a few weeks ago, credit is only going to continue tightening from here. Not only have mortgage rates gone up, nearly 50bps, but we are now getting confirmation that banks are tightening the screws on new mortgage issuance. I highly recommend giving Ron Butler, of Butler Mortgages, a follow on Twitter- he’s been all over this. As of April 09, all new mortgage applications will follow strict qualifications. Banks will be scrutinizing the sustainability of your employment, particularly for certain sectors that are more vulnerable to layoffs. There will be more stringent criteria on rental properties, and as published now on RateSpy, some lenders are pulling back on HELOCs (Home Equity Lines of Credit). The days of using a HELOC to fund the downpayment on an investment property are coming to an end. This is a more common practice in the pre-sale condo space, so I suspect it could hit demand there. Let’s be honest, credit has been very loose for a long time in Canada, as evidenced by our extreme levels of household indebtedness, so you can’t blame the banks for pulling the rug at a time when one million Canadians just lost their job

Detached Housing Market Update   Statistically speaking, the detached housing market looked solid in March. This is one of those situations where you need to overlay the macro with the micro to try and see through this. Detached sales were up a whopping 62% year-over-year. A great headline, however, it is important to contextualize that detached sales for March 2019 were the lowest on record, dating back to 1990. Weak base effects made for a great headline.    New listings really started to fall off towards the back end of the month as sellers delayed the sale of their home due to the virus. This left new listings down 16% on a year-over-year basis in March. As a result, overall inventory plunged 32% on a year-over-year basis. This left months of inventory for sale at 4.5.    Chart title “Greater Vancouver Detached Months of Inventory for Sale” Title “Greater Vancouver Detached Months of Inventory”    Given the dramatic shift in market conditions towards the back half of the month there are a couple things to note here. New listings fell immediately, in real time. Whereas sales which are recorded when they are processed by the Real Estate Board, continued to

Canadian households are buckling in for what is likely to be a turbulent ride. According to the Canadian Bankers Association, there have now been nearly 500,000 mortgage deferrals completed or in the process of completing since the program was announced two weeks ago. That’s nearly 10% of all mortgages outstanding. That number will surely climb in the weeks ahead, placing further strain on Canadian banks. OSFI, the banking regulator, is now looking at slashing the stability buffer once again, potentially even removing it to free up liquidity. “We’re monitoring the situation closely and we stand ready to take further steps. For example, on the capital side, we released about half of the stability buffer that we’ve imposed on the major banks, and we’re monitoring that, and we’re prepared to release some or all of what remains, if need be.” noted Jeremy Rudin, the Superintendent of Financial Institutions. Meanwhile, The Bank of Canada began its first-ever foray into quantitative easing this past week, with the purchase of C$1.0 billion in government bonds. Their balance sheet instantly inflated to new, unprecedented highs and will only balloon further with their pledge to devour $5B of Government bonds each week until a recovery is “well underway.” Suffice to say

Canadian households, which are some of the most indebted in the world, are looking for financial reprieve. According to the Canadian Bankers Association, there have now been nearly 500,000 mortgage deferrals completed or in the process of completing since the program was announced two weeks ago. That’s nearly 10% of all mortgages outstanding. According to the Canada Mortgage and Housing Corporation, the average monthly mortgage payment of Canadian homeowners is $1,326. Therefore, the cash flow freed up for Canadians from the deferrals completed to date is roughly $663 million per month, or nearly $2 billion per quarter. This number will increase over the coming weeks. Make no mistake, there is no such thing as a free lunch. Canadian banks are under pressure, despite immense support from policy makers. OSFI, the bank regulator, recently lowered the capital buffer a few weeks ago (from 2.25% to 1%) is now considering lowering the capital buffer to zero. In simple terms, a capital buffer is mandatory capital that financial institutions are required to hold in addition to regulatory capital requirements. Consider the capital buffer like a rainy day fund for banks. In essence, OSFI is allowing banks to draw down this “rainy day fund”

Unfortunately there’s not a whole lot of good news to report these days. As i’ve said before, the longer this drags on, the weaker the recovery. PM Trudeau was out today, saying “distancing measures will be in place for weeks, maybe months.” In other words, he has no idea. Meanwhile, jobless claims have now climbed to 1.55M people, or about 8% of the total labour force, and set to rise further. We’re gonna need bigger cheques! Obviously budget deficits are out the window, and the Bank of Canada is now determined to help fund this spending. The BoC said last week they’d begin purchasing $5B per week of Government bonds until the nations recovery is “well under way.” According to Bloomberg, Governor Poloz and those at the helm of the BoC officially gobbled up $1B in government bonds today, its first foray into QE (quantitative easing). Although, they prefer not to call it that. Indeed, the situation is pretty dire, we’re not only fighting a pandemic/ economic crisis but also a complete and utter obliteration of the oil market. If you thought things were bad in Alberta before, close your eyes. At $5, a barrel of Western Canadian Select currently