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Steve Saretsky -

It took over $600 million of tax pay dollars to reach the same outcome, another liberal minority government. I can think of a few better places to spend $600 million, affordable housing supply being one of them. Nonetheless, what’s done is done, and we now have some clarity on the direction of government and how they plan to address housing in the years ahead. Here’s a summary of the housing plan the liberals campaigned on: Ban foreign money from purchasing a non-recreational, residential property in Canada for the next two years, unless this purchase is confirmed to be for future employment or immigration in the next two years. Introduce a new Rent-to-Own program, provide $1B in loans and grants to develop and scale up rent-to-own projects Establish an anti-flipping tax on residential properties, requiring properties to be held for at least 12 months. Reduce the price charged by the Canadian Mortgage and Housing Corporation on mortgage insurance by 25%. For a typical person, this will save $6,100. increase the insured mortgage cut-off from $1 million to $1.25 million, and index this to inflation invest $4 billion in a Housing Accelerator Fund which will grow the annual housing supply in the

Steve Saretsky -

CPI inflation ripped, hitting 4.1% in August. Inflation in Canada is now accelerating at its fastest pace since 2003. The homeowners’ replacement cost index, which is related to the price of new homes, continued to trend upward, rising 14.3% year over year in August—the largest yearly increase since September 1987. Meanwhile, borrowing costs continue to fall. Several of the large Canadian banks slashed their five year fixed rate mortgages, with TD cutting theirs by 40bps to 1.99%. In other words, the REAL cost of borrowing, when adjusted for inflation is negative 2%. If you’re taking out a variable rate mortgage, which sits at about 1.29%, you are looking at a real negative interest rate of nearly 3%. It is simple math, Canadians are essentially being paid to take on debt, it is therefor no surprise to see mortgage loan growth at 10 year highs and national home prices up 21% as of the end of August. Keep the above paragraph in mind as we move on to some election talk. Negative interest rates and the financialization of housing are largely a function of the global financial system and are not in the purview of Justin Trudeau, Erin O’Toole, or even Jagmeet

Steve Saretsky -

The Bank of Canada provided guidance for how it plans to eventually remove stimulus, saying it will first raise interest rates before curbing its holdings of government bonds. The Bank has been using two major policies for suppressing interest rates, first by leaving its overnight policy rate near zero, and secondly by purchasing hundreds of billions of government bonds. Macklem and co believe they’ll start gradually raising interest rates sometime in 2022. My question is how? As of Q4 2020, Canada’s total credit to the non-financial sector sits at a staggering 359% of GDP according to the Bank of International Settlements. This is one of the highest totals in the G-20, right alongside Japan. The Japanese economy has been suffering under a mountain of debt for decades, with current credit to non-financial sector debt sitting at 418% of GDP.  In other words they’re caught in a debt trap and haven’t been able to raise interest rates for over two decades. The Bank of Japan has been forced to keep interest rates pinned to the floor, requiring them to soak up government debt in order to keep bond yields and thus borrowing costs stable. The BoJ now owns over 48% of

Steve Saretsky -

Statistics Canada has revised the latest reading on GDP, highlighting a contraction of 1.1% at an annualized rate in the second quarter, well below the 2.5% expansion forecasted in a Bloomberg survey of economists. It’s a big miss, and one that does not bode well for the Trudeau Government as we head to the polls in less than three weeks. The Canadian economy is currently suffering a bout of stagflation, with CPI inflation currently running at a 10 year high as the economy contracts. This is one of those nightmare scenarios not only for the Trudeau Government but the Bank of Canada as well. Pretty hard to pare back stimulus with a big miss on GDP. The official narrative on inflation is that it remains nothing to be worried about, “transitory” as they like to say. However, with covid lingering around it appears supply chain impairments are going to persist, and inflationary pressures will remain. As my good friend Ben Rabidoux just pointed out, the Canada Farm Product Price Index, which measures the change in prices that farmers receive for the agriculture commodities they produce and sell, has surged 24.4% y/y in June, tied for highest reading since late 1970s. In

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The Canadian Economy

Steve Saretsky -

It took over $600 million of tax pay dollars to reach the same outcome, another liberal minority government. I can think of a few better places to spend $600 million, affordable housing supply being one of them. Nonetheless, what’s done is done, and we now have some clarity on the...

Steve Saretsky -

CPI inflation ripped, hitting 4.1% in August. Inflation in Canada is now accelerating at its fastest pace since 2003. The homeowners’ replacement cost index, which is related to the price of new homes, continued to trend upward, rising 14.3% year over year in August—the largest yearly increase since September 1987. Meanwhile,...

Steve Saretsky -

The Bank of Canada provided guidance for how it plans to eventually remove stimulus, saying it will first raise interest rates before curbing its holdings of government bonds. The Bank has been using two major policies for suppressing interest rates, first by leaving its overnight policy rate near zero, and...

Steve Saretsky -

Statistics Canada has revised the latest reading on GDP, highlighting a contraction of 1.1% at an annualized rate in the second quarter, well below the 2.5% expansion forecasted in a Bloomberg survey of economists. It’s a big miss, and one that does not bode well for the Trudeau Government as...

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The Saretsky Report. December 2022