DATE

Steve Saretsky -

Another massive week in the rates market with the US Federal Reserve jacking rates up another 75bps. While this was expected, it was the stark comments from Jerome Powell that really shook markets. Powell basically, in a polite way, said Americans need to endure some economic pain, including job loss, to slow demand and get inflation down. Furthermore, he wants to see a correction in the housing market. “What we need is supply and demand to get better aligned so house prices go up at a reasonable level, at a reasonable pace, so that people can afford houses again, so we probably in the housing market need to go through a correction to get back to that place.” How much of a correction does the Fed need to see? In the US, Home sales have declined for seven months in a row. New family home sales are down 30% year-over-year. Source: Global Macro Investor Pending home sales are approaching pandemic lows. Source: Global Macro Investor The Monthly Supply of New Homes just exploded to 10.9 months. Builders are screwed and prices are heading lower. Source: Global Macro Investor The wheels are in motion for a deepening housing correction. This is

Steve Saretsky -

Higher interest rates continue to slow the nations housing market. National home sales, as reported by CREA, fell 25% year-over-year in the month of August. It was also the sixth consecutive monthly decline in home sales. While new listings remain weak as sellers resist selling at recent valuations, inventory is still climbing and prices continue to move lower. The national home price index fell another 1.6% month-over-month in August. The index measures the price of a “typical home” and suggests the typical home has dropped by $108,000 since peaking in March. National prices have now declined 12%, the steepest correction since the index was created in 2005. Of course, there is no national housing market per se, but from a larger macro perspective this kind of move is significant. House prices are dropping across the nation, here’s how the correction looks year to date: Greater Toronto Area -15% Ottawa -11% Greater Vancouver -7% Montreal -6% Calgary -2% Remember, this exactly what the Bank of Canada wanted. Housing is the economy and it’s rolling over, hopefully enough to bring inflation down with it. Per Stats Canada, households lost nearly $1 trillion of net worth in the second quarter as house prices

Steve Saretsky -

As expected, the Bank of Canada raised interest rates another 75bps this past week. The overnight rate is now up a whopping 300bps year to date, the quickest tightening of monetary policy on a percentage basis since the 1980’s. While there was no additional commentary from BoC Governor Tiff Macklem, the official press release notes, “Given the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further.” For what it’s worth, markets are still expecting the Bank of Canada to lift rates to 3.75% before hitting pause. So, assuming they are right we have another 50bps to go. However, even if they stopped here, the damage is already done, let’s assess. The banks prime rate is now at 5.45%, which as per the always brilliant Rob Mclister, implies the following: Payments on a run-of-the-mill prime – 1.00% adjustable rate mortgage (ARM) will now be about $154 higher per month—per $100,000 borrowed—compared to March 1 (before the BoC started this campaign). Interest-only HELOC payments will leap by about $63 a month, per $100,000 borrowed. The lowest nationally available stress test rates have risen to: 6.59% uninsured (a 4.59% one-year fixed from Manulife Bank)

Steve Saretsky -

Canada’s second quarter GDP came in at 3.3% annualized rate, below economists forecasts of 4.4% and below the Bank of Canada’s own estimate of 4%. While weaker than expected, that won’t prevent the Bank of Canada from delivering a super sized rate hike this week on September 07th. Markets are still pricing in a 75bps rate hike, bringing the overnight policy rate higher by a total of 300bps year-to-date. We’ve already discussed the immediate implications for the housing market, with variable rate holders expected to feel the blow and instantly reducing borrowing power for prospective purchasers. August housing data suggests the bear market in housing continues. In Greater Vancouver, home sales fell 40% year-over-year for the month of August. Over the past two decades only the years 2008 & 2012 have seen weaker sales volumes in August. Sellers are putting up a good fight, new listings fell 17% and are running at two decade lows right now. It seems both buyers and sellers aren’t pleased with pricing right now. The home price index continues to leak lower, dropping 2% month over month, bringing prices down 6.7% from their peak earlier this year. In the Fraser Valley prices are off 13%. Meanwhile,

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The Canadian Economy

Steve Saretsky -

Another massive week in the rates market with the US Federal Reserve jacking rates up another 75bps. While this was expected, it was the stark comments from Jerome Powell that really shook markets. Powell basically, in a polite way, said Americans need to endure some economic pain, including job loss,...

Steve Saretsky -

Higher interest rates continue to slow the nations housing market. National home sales, as reported by CREA, fell 25% year-over-year in the month of August. It was also the sixth consecutive monthly decline in home sales. While new listings remain weak as sellers resist selling at recent valuations, inventory is...

Steve Saretsky -

As expected, the Bank of Canada raised interest rates another 75bps this past week. The overnight rate is now up a whopping 300bps year to date, the quickest tightening of monetary policy on a percentage basis since the 1980’s. While there was no additional commentary from BoC Governor Tiff Macklem,...

Steve Saretsky -

Canada’s second quarter GDP came in at 3.3% annualized rate, below economists forecasts of 4.4% and below the Bank of Canada’s own estimate of 4%. While weaker than expected, that won’t prevent the Bank of Canada from delivering a super sized rate hike this week on September 07th. Markets are...

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The Saretsky Report. December 2022