DATE

Steve Saretsky -

I have long argued that a sell-off in Canadian housing will not be self-induced. In other words, policy makers are not going to willingly tank the market. If / when you have a downturn it will be due to something out of our control, likely a crisis in emerging markets that ripples through global financial system. The recent turmoil developing across Ukraine and Russia is undoubtedly something I am watching closely. Western Governments, including Canada have moved to restrict select Russian Banks from using SWIFT, disconnecting Russia from the international financial system. I will not pretend to be a geopolitical expert, nor an expert on the plumbing of the global financial system. However, let’s take a look at what the experts are saying. Zoltan Pozsar, Managing Director and Head of Short-Term Interest Rate Strategy at Credit Suisse, and perhaps the most respected in his field of expertise is warning that exclusion of various Russian lenders from the SWIFT messaging system could result in missed payments and giant overdrafts within the international banking system, and spur monetary authorities to reactivate daily operations to supply the market with dollars. “Exclusions from SWIFT will lead to missed payments and giant overdrafts similar to the

Steve Saretsky -

https://www.youtube.com/watch?v=nBk10CCuFis

Steve Saretsky -

I’m about to walk you through the usual Saretsky Report where we highlight all sorts of charts and data points pertaining to the housing market. What I want to emphasize is that the situation is changing rather quickly. A war has erupted in Ukraine, commodity prices are ripping- adding to inflationary pressures, and the Bank of Canada has begun raising interest rates. To suggest it has been a busy few weeks would be an understatement. All of this to say that real estate data works on a lag. The housing market is beginning to turn and that will not show up in the data for perhaps another month or two. So what exactly are we seeing?

Steve Saretsky -

I know you probably don’t need another reminder on inflation so i’ll keep this brief. Inflation figures ticked higher again in January, with consumer prices rising 5.1% from last year. Prices are now rising at their quickest pace since 1991. In other words, so long as you don’t eat, drive a car or own a home there is no inflation. Speaking of owning a home, shelter costs are now rising at 6.2%. Remember the shelter component of inflation accounts for rent, property taxes, home and mortgage insurance, electricity, and mortgage interest costs. Thanks to falling interest rates over the past couple of years this has kept shelter inflation lower than it otherwise ought to be. If you turn your attention to the resale market, housing inflation is rampant. National real estate figures released this past week show home prices across Canada are up a record 28% from last year. This far surpasses the previous records created during the 2017 bull market. What’s more alarming is that national prices were up 3% from last month which suggests that house price inflation is actually getting worse, not better. Whoops. Here are the Annual price increases by city: Calgary +11.4% Victoria +24.9% Greater

Steve Saretsky -

https://www.youtube.com/watch?v=oS4z-hywuY4

Steve Saretsky -

Inflation in the United States surged to 40 year highs in January, with consumer prices growing by 7.5% year-over-year. The last time inflation was rising this quickly the fed funds rate was sitting at 15%, today it sits at zero. This is ramping up calls for aggressive interest rate increases in order to quell inflation, with Goldman Sachs now calling for 7 rate hikes by the end of this year. It goes without saying that whatever the US does, Canada is essentially forced to follow suit. In other words, housing bears are frothing at the mouth as record high house prices, and massive debt loads collide with rising interest rates. While there is no doubt interest rates are heading higher, i’d argue it’s a complicated path forward. I would like point to a recent letter from Hirschmann Capital here. The argument that the Fed can halt inflation by hiking interest rates as it did to end the 1970s inflation is somewhat of a ridiculous statement when you unpack things further. Per Hirschmann, From 1979-81, the Fed hiked the federal funds rate (FFR) by ~1000bps to curtail inflation. In 1979, however, the US Government’s debt to GDP ratio was only 31% of

Steve Saretsky -

https://www.youtube.com/watch?v=jiRtcB8i_o4

Steve Saretsky -

Everyone is well aware of the great reshuffling throughout the pandemic. People migrated away from the city, opting for more space and privacy while they worked from home. Everyone rushed out to the suburbs. Similar to the toilet paper crisis at the onset of the pandemic, housing inventory in the burbs was swiftly plucked bare. Recent housing data just released for January shows the extent of the mania. Of all the homes sold in the Fraser Valley this January, 1247 homes to be exact, a total of 70% of them sold above the asking price. This was a new high for the valley, surpassing the previous boom in 2016/17. Bidding wars have resulted in a rapid rise in prices, particularly for detached houses. Since the start of the pandemic, March 2020, the typical price of a house in the Fraser Valley has inflated by $581,000. What was once considered home to the middle class has morphed into a speculative mania where the benchmark price of a house sits at $1.569M. Giddy up! Let’s dissect this a bit further, shall we. Since the start of the pandemic, from March 2020 to January 2022, house prices have inflated as follows: – Abbotsford

Steve Saretsky -

https://www.youtube.com/watch?v=bPm_vT8yNSQ

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The Canadian Economy

Steve Saretsky -

I have long argued that a sell-off in Canadian housing will not be self-induced. In other words, policy makers are not going to willingly tank the market. If / when you have a downturn it will be due to something out of our control, likely a crisis in emerging markets...

Steve Saretsky -

https://www.youtube.com/watch?v=nBk10CCuFis

Steve Saretsky -

I’m about to walk you through the usual Saretsky Report where we highlight all sorts of charts and data points pertaining to the housing market. What I want to emphasize is that the situation is changing rather quickly. A war has erupted in Ukraine, commodity prices are ripping- adding to...

Steve Saretsky -

I know you probably don’t need another reminder on inflation so i’ll keep this brief. Inflation figures ticked higher again in January, with consumer prices rising 5.1% from last year. Prices are now rising at their quickest pace since 1991. In other words, so long as you don’t eat, drive...

Steve Saretsky -

https://www.youtube.com/watch?v=oS4z-hywuY4

Steve Saretsky -

Inflation in the United States surged to 40 year highs in January, with consumer prices growing by 7.5% year-over-year. The last time inflation was rising this quickly the fed funds rate was sitting at 15%, today it sits at zero. This is ramping up calls for aggressive interest rate increases...

Steve Saretsky -

https://www.youtube.com/watch?v=jiRtcB8i_o4

Steve Saretsky -

Everyone is well aware of the great reshuffling throughout the pandemic. People migrated away from the city, opting for more space and privacy while they worked from home. Everyone rushed out to the suburbs. Similar to the toilet paper crisis at the onset of the pandemic, housing inventory in the...

Steve Saretsky -

https://www.youtube.com/watch?v=bPm_vT8yNSQ

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The Saretsky Report. December 2022