Monetary Imprudence

Steve Saretsky -

Christmas came early for the 69% of Canadians who own a home. The latest data released from the Canadian Real Estate Association shows national home prices inflated at the quickest pace ever, rising 25% from last year. The home price index which measures the price of a typical home in Canada now sits at $780,400, up from $582,700 or 34% from when the pandemic commenced in March 2020.

Through the end of November 630,634 residential properties have traded hands via Canadian MLS® Systems, already surpassing the annual record of 552,423 sales for all of 2020. There is currently just 1.8 months of inventory on a national basis, tied with March 2021 for the lowest level ever recorded. Yes, the housing bull market is still in tact and growing more obscene by the day.

Prices gains over the past 12 months:

Greater Vancouver +16%
Victoria +22.4%
Calgary +9.3%
Edmonton +4.1%
Montreal +20.9%
Greater Toronto +28.3%
Winnipeg +12.8%

As I wrote in last weeks piece, Canada is running wartime fiscal and monetary policy. There are no guns this time, but there is a virus, and so there is seemingly no limit on how much money we should throw at this. We just found out the federal government is forecasting a budget deficit of $144B this year. For context, in 2009, following the financial crisis, the deficit that year was less than $35B. Obviously the excesses are showing up in asset prices.

Meanwhile, rolling lockdowns are back, which means more government spending and more central back accommodation is coming. In fact, the house of Commons just passed Bill C-2 (An Act to Provide Further Support In Response To Covid-19) which was slated to be a $7B relief program. An hour after the bill passed that number was raised to $12B. A rounding error perhaps.

Is it possible that all of this money printing, albeit well intentioned, is creating adverse side effects? After all, we have printed 23% of all Canadian dollars into existence over the past 18 months. Unfortunately I’m not sure building a few more homes will solve our monetary imprudence but that is what we are going to try. Let’s watch.

Three Things I’m Watching:

1. Canada’s budget deficit as a percentage of GDP is unlike anything we’ve experienced in modern history. (Source: Acorn Macro)

2. Canada’s non financial sector debt is 345% of GDP. One of the highest in the world. (Source: Acorn Macro) 0085bb26-2546-98fe-dcd7-612a29905b35-7273495

3. National home prices are up 34% since the start of the pandemic. (Source: CREA)

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The Saretsky Report. December 2022