DATE

Steve Saretsky -

Second quarter data confirmed Canadian GDP plunged by an annualized 38.7%, officially the worst quarter on record. Household consumption plunged by an annualized 43%, housing investment sank 48%, and non-residential business capital spending was down 57%. Despite this, the housing market continues its torrid pace, defying the laws of economic gravity. It probably helps that disposable incomes were actually up 14%, and household savings rates surged 28% as CERB cheques flowed into household bank accounts and mortgage payments were paused for virtually anyone who asked. While income support is poised to continue as CERB morphs into an expanded EI program, it appears mortgage borrowers will be asked to resume payments later this fall as deferrals expire. With that in mind, let’s take a look at the upcoming deferral cliff, as eloquently named by the CMHC. According to CMHC, deferrals remain elevated for their insured mortgage book. As of the most recent July data, deferral rates by province are as follows: – Alberta 21.0% – Saskatchewan 14.8% – Newfoundland 14.8% – British Columbia 11.1% – Ontario 10.1% – The 3 territories 9.9% – Nova Scotia 9.9% – Manitoba 9.6% – New Brunswick 9.3% – Prince Edward Island 8.4% – Quebec 5.6% Meanwhile,

Steve Saretsky -

The consumer price index registered a donut in July. Inflation ticked in below market expectations, as consumer prices remained flat, and when seasonally adjusted actually fell 0.1%. While one can certainly debate the merits of the consumer price index, since real world inflation is, in reality, much higher, central banks would disagree. In fact, July’s figures scream deflation, the Bank of Canada’s worst nightmare. With an official policy mandate of a 2% inflation target, the Bank of Canada is falling further behind. In fact, recent inflation figures dangerously re-affirm to policy makers that they can conjure money out of thin air with no repercussions. Print as much as you want and still no inflation. So far the Bank of Canada has pumped liquidity into the market an unprecedented pace, with their balance sheet having grown from $120B pre-COVID to nearly $550B today, and it’s about to get much larger. With a new finance minister at them helm in Chrystia Freeland, the liberal government announced a four week extension of the CERB program, which will then transition people to a revamped employment insurance plan that looks incredibly similar to CERB. The new EI program allows self-employed Canadians and those with 120 insurable

Steve Saretsky -

There’s a rift about what to do with the Canadian housing market. The reality is that it has become, quite simply, too big to fail. Canadians have gone all in on housing, after policy makers decided to suppress the market from clearing during the financial crisis. This has resulted in real home prices (inflation adjusted) to grow by 88% since 2005. That’s nearly triple the house price growth of any other G7 country. As a result, the FIRE sector (Finance, insurance and Real Estate) makes up nearly 25% of GDP. While household debt to GDP has ballooned to just over 100% of GDP. Now that a crisis has struck in the form of a global pandemic, it begs the question, what should policy makers do? With a 69% home ownership rate, the majority of Canadians wealth now hangs in the balance. Cue, Evan Siddall, the head of Canadas mortgage and housing corporation. Concerned over the elevated debt levels, and unsustainable price growth, Siddall believes house prices could fall anywhere between 9-18% based on recent forecasts. As a result, he decided to tighten lending standards to protect our tax payer backed mortgage insurance provider. His hope was that the two private

Steve Saretsky -

A much needed bounce for the Canadian economy as it recorded its third straight month of employment gains. After shedding three million jobs at the heigh of the pandemic, about 1.7 million jobs have returned, including 418,500 in July. Unfortunately its not all rainbows and butterflies, as there are still 1.6 million Canadians without a job compared to this time last year. That’s still three times as many jobs lost when compared to the financial crisis nearly a decade ago. The unemployment rate sits at a dizzying 10.9%. Indeed, these are tough times, but you certainly wouldn’t notice it in the Vancouver housing market. A flurry of activity has ensued with July data showing the busiest month of the year so far for both new listings and sales. People are re-assessing their living situations with the thought of quarantines and stay at home orders persisting into the new year. As a result, downtown condos are selling off as buyers flock to single family homes, particularly in the suburbs. Downtown Vancouver condo sales collapsed, falling by 18% year-over-year. Meanwhile, house sales in the Fraser Valley surged 56% on a year-over-year basis, and were 16% above the ten year average in July.

Steve Saretsky -

“When the value of one asset outpaces the economic production of an economy, at some point, it has to end. The dream will become a nightmare.” Those were the stark words from the head of Canada’s Mortgage & Housing Corporation in his latest interview with Yahoo Finance. The often outspoken Evan Siddall worries continued intervention and promotion of home ownership is blowing an unsustainable debt bubble, that will eventually propel prices lower once it pops. “The problem is that we’re in a game of musical chairs and when the music stops playing, it’ll be young first-time homebuyers who are holding the bag.” Siddall and his CMHC employees maintain their view on a house price correction between 9-18% over the coming year. However, like many housing bears who have called for the catastrophic end to the multi-decade run-up in home prices, those warnings haven’t seem to slow the nations impenetrable housing market. Housing sales are on the rise, and so too are prices, at least for single family homes on the outskirts of the city. Bidding wars are ravaging suburban towns as work from home orders push people further away from the city. Armed with record low mortgage rates and a sea of

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The Canadian Economy

Steve Saretsky -

Second quarter data confirmed Canadian GDP plunged by an annualized 38.7%, officially the worst quarter on record. Household consumption plunged by an annualized 43%, housing investment sank 48%, and non-residential business capital spending was down 57%. Despite this, the housing market continues its torrid pace, defying the laws of economic gravity....

Steve Saretsky -

The consumer price index registered a donut in July. Inflation ticked in below market expectations, as consumer prices remained flat, and when seasonally adjusted actually fell 0.1%. While one can certainly debate the merits of the consumer price index, since real world inflation is, in reality, much higher, central banks...

Steve Saretsky -

There’s a rift about what to do with the Canadian housing market. The reality is that it has become, quite simply, too big to fail. Canadians have gone all in on housing, after policy makers decided to suppress the market from clearing during the financial crisis. This has resulted in...

Steve Saretsky -

A much needed bounce for the Canadian economy as it recorded its third straight month of employment gains. After shedding three million jobs at the heigh of the pandemic, about 1.7 million jobs have returned, including 418,500 in July. Unfortunately its not all rainbows and butterflies, as there are still...

Steve Saretsky -

“When the value of one asset outpaces the economic production of an economy, at some point, it has to end. The dream will become a nightmare.” Those were the stark words from the head of Canada’s Mortgage & Housing Corporation in his latest interview with Yahoo Finance. The often outspoken...

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The Saretsky Report. December 2022