DATE

Steve Saretsky -

Bank of Canada deputy governor, Paul Beaudry is worried about the number of investors flooding the housing market. According to the Bank, investor buying has doubled since the start of the pandemic, while purchases by first-time homebuyers have increased about 45 per cent. “A sudden influx of investors in the housing market likely contributed to the rapid price increases we saw earlier this year. In such a case, expectations of future price increases can become self-fulfilling, at least for a while,” Beaudry said. “That can expose the market to a higher chance of a correction. And, if one occurs, the damage can spread far beyond the investors.” Of course there was no mention of the Banks involvement in the flurry of investors piling into the housing market. Need I remind you that the Bank slashed rates to near zero, pumped $5B worth of QE (money printing) into the financial system per week, and then begged the consumer to borrow money last July. And borrow they did. Residential mortgage credit growth is running at 10% right now, the fastest pace in a decade. In other words, the Bank of Canada blaming investors for inflating the housing market is akin to a drug

Steve Saretsky -

Happy Monday Morning! We got a string of new data this past week confirming inflation in consumer goods, and housing are proving to be more than transitory. Canada’s consumer price index continued to drift higher with prices hitting an 18 year high, up 4.7% from last October. The recent floods in BC are already creating significant food and fuel shortages which is likely to compound on top of already high prices. Meanwhile, national home prices jumped again, rising a whopping 2.7% month over month in October. This was the fastest price gain in seven months. This gain was led by Toronto where prices ripped 4.8% in one month. Keep in mind these price gains are tracked using a smoothed out hedonically adjusted index which strips out volatility from high-end home sales. In other words, this was a monster move higher that was not due to a change in the composition of homes selling. Policy makers should absolutely be concerned. On the whole, national home prices are now up 23% from last year. To suggest policy makers have over stimulated the economy would be an understatement. The Bank of Canada should absolutely be reigning in stimulus measures but are trying to delay it

Steve Saretsky -

The calls for impending interest rate hikes continues. CIBC’s chief economist, Benjamin Tal, was out recently suggesting the Bank of Canada could hike its benchmark interest rate at least six times beginning in early 2022. “I think there is a risk of getting into the market at today’s rates,” noted Tal. “We are still dealing with emergency interest rates. Let’s remember that these are not normal interest rates and eventually they will rise. If you’re in the market now and you’re thinking about buying this huge house with a huge mortgage, let’s think about it for a second. Can you afford this mortgage if rates will be 10, 150, 200 basis points higher? If not, buy a smaller house or rent.” I can assure you many Canadians can not afford an additional 100 basis points, let alone 200 basis points on their debt. Ironically, Tal’s bank, CIBC, sure isn’t lending like a tsunami of crippling rate hikes are coming. CIBC’s total mortgage growth is running near 14% year-over-year, that’s even higher than during the 2017 bull market when regulators had to ask CIBC to pump the brakes. In other words, Tal’s comments are akin to the old term, watch what they do, not

Steve Saretsky -

The BC Government announced it is looking at several cooling measures for the housing market in 2022. They have highlighted two measures. The first is an end to the blind bidding process, and the other is a mandatory “cooling off period” which will allow any buyer a 7 day recession period to back out of an offer, similar to what is standard in the pre-sale construction market. Let’s discuss. First, an end to the blind bidding system is welcomed, and to be honest, much needed. The existing system relies purely on trust, and let’s be honest, there are a lot of bad actors out there who might occasionally exaggerate on the number of offers on the table. However, what does an end to the blind bidding system look like? It is not a simple change, for if it were, it would have been done a long time ago. My guess is BC will implement something similar to what Ontario has. In Ontario, all bids are registered on the Real Estate Boards back-end system. Buyers agents are able to see how many offers are registered on the property, and from which brokerages. This provides much needed transparency. Second is a mandatory “cooling

Steve Saretsky -

The Bank of Canada continues to slowly drain liquidity after flooding the system with a firehose of cash during the pandemic. Bank of Canada governor Tiff Macklem announced the end of Canada’s QE program (also known as money printing). Furthermore, in Macklems words, “We expect to begin increasing our policy rate sometime between April and September.” Markets are currently pricing in 4-5 rate hikes by the end of 2022. No doubt this has real estate bears frothing at the mouth. The idea of rising inflation forcing the central banks hands would be a dagger to the nations housing market. Perhaps this is welcoming news, given national home prices are now up 22% year-over-year and overvalued on many measures. Higher interest rates would bring some much needed sanity, and hopefully quell rising inflation in the process. However, the exit strategy for the Bank of Canada is going to prove challenging, and the simple equation of higher inflation must equal higher rates might prove illusive this time around. Let’s discuss. First, it’s important to understand monetary policy, particularly in Canada does not work in a vacuum. Monetary policy is globally coordinated, and largely set by the US, the Euro Zone and Japan.

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The Canadian Economy

Steve Saretsky -

Bank of Canada deputy governor, Paul Beaudry is worried about the number of investors flooding the housing market. According to the Bank, investor buying has doubled since the start of the pandemic, while purchases by first-time homebuyers have increased about 45 per cent. “A sudden influx of investors in the...

Steve Saretsky -

Happy Monday Morning! We got a string of new data this past week confirming inflation in consumer goods, and housing are proving to be more than transitory. Canada’s consumer price index continued to drift higher with prices hitting an 18 year high, up 4.7% from last October. The recent floods in BC...

Steve Saretsky -

The calls for impending interest rate hikes continues. CIBC’s chief economist, Benjamin Tal, was out recently suggesting the Bank of Canada could hike its benchmark interest rate at least six times beginning in early 2022. “I think there is a risk of getting into the market at today’s rates,” noted Tal....

Steve Saretsky -

The BC Government announced it is looking at several cooling measures for the housing market in 2022. They have highlighted two measures. The first is an end to the blind bidding process, and the other is a mandatory “cooling off period” which will allow any buyer a 7 day recession...

Steve Saretsky -

The Bank of Canada continues to slowly drain liquidity after flooding the system with a firehose of cash during the pandemic. Bank of Canada governor Tiff Macklem announced the end of Canada’s QE program (also known as money printing). Furthermore, in Macklems words, “We expect to begin increasing our policy...

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The Saretsky Report. December 2022