There was widespread fear at the onset of the pandemic, for obvious reasons. Among the likes, was Stephen Poloz, then head of our central bank. Could central bankers save the system once again? Was there enough monetary juice left in the tank to stimulate the economy? In an interview with the Globe & Mail, Poloz recounts, “Reporters were asking me, ‘What’s the maximum, how big could it be?’ I said, ‘Well, it’s unlimited. … It’s whatever the market needs.’ ” Sure enough, $5B of Quantitative Easing per week later and it worked. Financial markets are humming along, credit is flowing, and Canadas national housing market is enjoying record high prices, officially up 17% on the year, a necessary side effect says Poloz. And so far, policymakers have been unwilling to intervene for fear of undermining the economic recovery. “One of the concerns we’re having is there’s starting to be ‘fear of missing out’ … and that might be driving some of the expectations,” Deputy Governor at the Bank of Canada Toni Gravelle noted in a recent speech. Yes, extrapolative expectations are running high, and why wouldn’t they? When policy makers intervene to prevent natural price corrections you create speculative feedback loops. People believe house

There’s no question low interest rates and a seemingly unlimited amount of QE (money printing) is creating distortions across financial markets, and in particular our housing market. However, according to former Bank of Canada governor Stephen Poloz, this all par for the course. “If the side-effect is a hot housing market, that’s one I’ll take every day” noted Poloz in an interview with BNN Bloomberg. Adding, “It’s hot, and we could see signs of speculation, but we have to accept that because otherwise we would have a really, really bad recession.” In case you needed further evidence the housing boom was manufactured in Ottawa, look no further. While Poloz is right in the fact we avoided what would have been a deeper recession, it does not come without consequences. These policies will have a crippling blow on the younger generation, already struggling to enter the housing market. By printing a whole whack of loonies, we have essentially debauched the value of the currency, eroding purchasing power, decimating savers, while simultaneously boosting asset prices. Again, growing the divide between the haves and the have nots. It should come as no surprise that political tensions are boiling over, with increasing calls for government

The Bank of Canada maintained their policy stance this past week, opting to keep the overnight lending rate at 0.25%, while maintaining their QE (money printing) program at the same pace of $4B per week. Once again, the message from the Bank of Canada remains, money will be cheap until at least 2023- and arguably much longer given the crippling debt loads the country faces. As we have talked about before, nothing in this world is free, you simply can not print money without consequences. Recent data from Stats Canada highlights the real world ramifications, which continue to show up in the widening wealth inequality these policies are creating. Remember, one of the intended consequences of QE is to raise asset values. According to Stats Canada, the 2020 housing boom resulted in Canadian homeowners adding over $1 trillion to their net worth. Renters, on the other hand, saw their net worth expand by less than $90 billion. The average homeowner added $66,000 per household, while renters added less than $5,000 per household. This what they call trickle down economics at work, except it’s less of a trickle and more of a slow drip. The Bank of Canada does not have a house price mandate so

If you needed further evidence Canadians are bored at home and shopping for Real Estate, look no further. Per data from Realtor.ca, one of the most popular website for house hunters, property page views topped 1.7 billion in 2020, up 73% year-over-year. Yes, we have a Real Estate boom that mirrors the 2016 frenzy as bidding wars rip across the nation. This time, however, the speculators are local. Unlike 2016, this time around, the foreigners are stuck at home, largely unable to participate in the housing boom. Per data from Canada Border Services, in the last two weeks of January international arrivals fell to 106,000 people, and in the first two weeks of February, the figure fell further to 94,000 people. International travel to Canada is running at about 10% of normal levels. Thanks to a host of government guarantees, mortgage lending is running hot, inspiring locals that Real Estate remains a can’t lose proposition, seemingly backstopped by the Government at any cost. Let’s take a look a further look at February housing data. In Greater Vancouver, home sales surged 73% year-over-year, the second strongest February on record besides 2016. Home prices are being led higher by single family homes,

Now that consensus has finally figured out this is no longer a case of pent-up demand, but rather a new bull market, people are looking for someone to blame. As I mentioned in last months report, this was a housing boom manufactured in Ottawa. Ironically, in a recent media interview, former Bank of Canada governor Stephen Poloz, admitted the recent housing boom was an intended consequence. “If the side-effect is a hot housing market, that’s one I’ll take every day.” – Poloz responded when asked about the extreme monetary policy measures taken at the onset of the pandemic. Adding, “It’s hot, and we could see signs of speculation, but we have to accept that because otherwise we would have a really, really bad recession.”

After a year which tallied record home sales and prices, Bank of Canada Governor, Tiff Macklem, is beginning to take notice. In a recent video conference, Macklem stated, “We are starting to see some early signs of excess exuberance. But we’re along ways away from where we were in 2016/17 when things were really hot.” Of course if you’re taking part in the housing market today, you’re probably more in tune than governor Macklem. Today’s bidding wars have stoked a frenzy, as panicked buyers push prices to dizzying heights. You could certainly argue the exuberance today is stronger than in 2016/17. The housing market has been set a blaze and is in desperate need of a fire extinguisher, and it might just get it through higher borrowing costs. Inflation expectations are surging, as there’s a collective bet that government stimulus plus near-zero interest rates will fuel demand, and generate inflation. This is pushing the price of commodities higher, the Bloomberg Commodity Spot Index, which tracks price movements for 23 raw materials, rose to its highest levels since March 2013. The gauge has already gained more than 60% since reaching a four-year low in March 2020. Meanwhile, lumber prices have hit