DATE

Steve Saretsky -

The flight to the suburbs has become all the rage these days. Since the onset of the pandemic, there has been a mass migration out of dense urban cities and into the sprawling suburbs. The ability to work from home, while providing more space, at a more affordable price point, has become irresistible for many. While the shift in home buyer preferences has been garnering plenty of media headlines these days, the reality is this trend was already underway. It has merely been throttled into overdrive over the past six months. This really isn’t that hard to understand though. The cost of living has inflated over the years, far quicker than wages. An era of near zero interest rates, combined with a decade of quantitative easing has pushed asset prices through the roof, including housing. Remember, a key function of quantitive easing is to push asset prices higher. As defined by the Bank of England, “QE works by making it cheaper for households and businesses to borrow money – encouraging spending. In addition, QE can stimulate the economy by boosting a wide range of financial asset prices.” Mission accomplished. This has forced homebuyers, particularly younger ones, further away from expensive cities,

Steve Saretsky -

Happy Monday Morning! Official data released by the Canadian Real Estate Association this past week highlighted a continuation of a blazing real estate market, ripping across the nation. Home sales across Canada jumped 32% year-over-year in October, it was the busiest month of October on record. Sales were up, and inventory for sale continued to shrink. There was just 2.5 months of inventory on a national basis at the end of October 2020 – the lowest reading on record for this measure. At the local market level, some 18 Ontario markets were under one month of inventory at the end of October. The widely anticipated housing crash has, so far, failed to materialize. Although, given the unprecedented levels of monetary and fiscal support, it really isn’t that hard to believe when you think about it. Thanks to generous support programs and a sea of liquidity printed by the Bank of Canada, Canadian households are sitting on $90B of excess cash since the pandemic. Furthermore, Canada’s M2 Money supply growth has grown by nearly 15% so far this year. Just to clarify, M2 is a measure of the money supply that includes cash, checking deposits, and easily convertible near money. Central banks

Steve Saretsky -

The much hyped mortgage deferral cliff is nearing. At the height of the pandemic, Canadian banks provided nearly 795,000 homeowners with some form of mortgage payment flexibility. In other words, at one point or another, 16% of all mortgages outstanding received a payment deferral. It only takes a small fraction of those deferrals to push the delinquency rate meaningfully higher. Remember, research from National Bank suggested that if 5% of those deferrals failed to resume payments it would lift the 90-day arrears rate from 0.24% to about 0.95%. That would bring the default rate close to the Bank of Canada’s “pessimistic” scenario for the second half of next year. That default rate would be similar to the early 1980s when just over 1% of mortgage borrowers went into arrears, also known as 90-day delinquencies, ultimately dragging the real estate market down with it. That period remains the highest era for delinquencies to date. Now that the recent wave of mortgage deferrals are expiring, we are starting to get a glimpse behind the curtains from some of our banks. Home Capital Group, Canada’s largest alternative lender, has shrunk their number of loans in deferral by 97% as of the end of October. The company had granted a two-month

Steve Saretsky -

Well, it didn’t take long. Canadians confidence in the Real Estate market has returned to pre-pandemic levels. Bloombergs often quoted Nanos Research survey shows 45% of respondents now believe the value of real estate in their neighborhood will increase over the next six months, that’s the highest reading since the country implemented rolling lockdowns. Naturally, that optimism is showing up in the latest sales figures across major metro cities. Early reporting out of Vancouver, Toronto, and Calgary suggest national home sales and prices will continue their bounce higher. In Vancouver, home sales in October jumped 29% year-over-year, it was the busiest October since 2009. In Toronto, the average sales price hit a new record high, up 13.7% from last year. Even the depressed housing market in Calgary received a COVID boost with sales up 23% and the MLS benchmark price increasing 0.6% year-over-year, the first annual increase in three years. Of course it’s not all butterflies and rainbows, despite recent optimism. The housing boom has been uneven, creating obvious winners and losers. A glut of condos is quickly building across the nation, potentially putting the cinderella story of an impenetrable housing market in jeopardy. With people fleeing condos for more space, and

Steve Saretsky -

The Bank of Canada now owns over 30% of the Canadian bond market, and at its current pace will own over 50% of the bond market by this time next year. It’s no surprise that the central banks actions are now coming under increasing scrutiny, particularly from opposing lawmakers. There are growing concerns the central bank is financing government spending beyond COVID-19 emergency measures. Some are calling it the early stages of MMT (Modern Monetary Theory), a radical policy idea which ultimately suggests that there are no limits on fiscal spending when you have a central bank which can print money in your own currency. An idea, which finance minister Chrystia Freeland was quick to dismiss despite saying fiscal anchors, which constrain spending, will only be re instituted once the pandemic has passed. “I am not among those who think Canada should have a fling with Modern Monetary Theory, which holds that deficits don’t matter for a government that issues debt in its own currency.” Still, the lines are becoming increasingly blurry between the actions of the federal government and the central bank. It appears to have prompted the Bank of Canada to dial back its QE (money printing program)

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The Canadian Economy

Steve Saretsky -

The flight to the suburbs has become all the rage these days. Since the onset of the pandemic, there has been a mass migration out of dense urban cities and into the sprawling suburbs. The ability to work from home, while providing more space, at a more affordable price point,...

Steve Saretsky -

Happy Monday Morning! Official data released by the Canadian Real Estate Association this past week highlighted a continuation of a blazing real estate market, ripping across the nation. Home sales across Canada jumped 32% year-over-year in October, it was the busiest month of October on record. Sales were up, and...

Steve Saretsky -

The much hyped mortgage deferral cliff is nearing. At the height of the pandemic, Canadian banks provided nearly 795,000 homeowners with some form of mortgage payment flexibility. In other words, at one point or another, 16% of all mortgages outstanding received a payment deferral. It only takes a small fraction...

Steve Saretsky -

Well, it didn’t take long. Canadians confidence in the Real Estate market has returned to pre-pandemic levels. Bloombergs often quoted Nanos Research survey shows 45% of respondents now believe the value of real estate in their neighborhood will increase over the next six months, that’s the highest reading since the country...

Steve Saretsky -

The Bank of Canada now owns over 30% of the Canadian bond market, and at its current pace will own over 50% of the bond market by this time next year. It’s no surprise that the central banks actions are now coming under increasing scrutiny, particularly from opposing lawmakers. There...

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The Saretsky Report. December 2022