The Bank of Canada raised rates by another 50bps this past week, pushing prime rate to 5.95% and inflicting more pain on variable rate mortgage holders. We’ll circle back to that in a second. What’s important to note here is markets were fully pricing in a 75bps rate hike from the Bank of Canada and yet they only delivered 50. Tiff had a layup and he didn’t take it. But why? For the first time in awhile, the Bank of Canada has now flagged financial stability concerns. From the October Monetary Policy Report: “As monetary policy tightens in many countries, long-standing global financial vulnerabilities could amplify the impacts on the global economy. Many countries have high levels of sovereign, non-financial corporate and household debt. Some funding markets have become more fragile due to lower levels of liquidity. An abrupt repricing of risk could trigger funding strains for higher-risk borrowers and a prolonged period of deleveraging. The result could lead to a more severe global slowdown and lower commodity prices. The Canadian economy could be affected through weaker foreign demand, lower terms of trade and spillovers into its financial system. The resulting tighter financial conditions and higher unemployment could undermine homebuyer

Inflation in Canada slowed less than expected, growing by 6.9% year-over-year in September, economist expectations were at 6.7%. A small miss that will have big ramifications. Markets immediately repriced Bank of Canada rate hike odds for October 26th, now expecting another jumbo 75bps rate hike. In other words, the beatings will continue until morale improves. Not to beat a dead horse, but the CPI index is a lagging indicator. Per Stats Canada, one of the reasons inflation didn’t come down as much as expected is because furniture and car prices accelerated higher. Really? Every furniture store you go into these days is slashing prices and cutting their workforce. Let’s not forget the comments from the CEO of Restoration Hardware in September, “Anybody who thinks we’re not in a recession is crazy,” Friedman told analysts. “The housing market is in a recession, and it’s just getting started. So it’s probably going to be a difficult 12 to 18 months in our industry.” They say stocks have information in their price. Here’s Restoration Hardware, taken to the woodshed, down 55% year to date. No need for a new couch when nobody’s moving. As the housing market goes so do the things tied

The closely watched US Consumer price index surprised to the upside last week. Consumer prices rose by 0.4% in September, and while inflation is decelerating, down to 8.2% year-over-year, it remains extremely elevated. The recent advance was broad based, with Shelter, food and medical care being the largest contributors. Shelter inflation is surging, at least according to the Feds models. Yet everyone knows the housing market is rolling over. House prices are now falling on a month-over-month basis for the first time since 2012. Meanwhile, according to three of the largest residential REITS in the United States, rents have peaked and in some cases are now falling! AvalonBay Communities: “We’ve assumed that [rents] will decline, just at a more modest pace than pre-COVID periods would typically dictate.” Essex Property Trust: “What we are expecting is normal seasonality. We do have headwinds from tougher year-over-year comps. Last year, in the first half, our blended lease rate was -4%. But in the second half, it surged to about +13.25%. That’s the tough year-over-year comp.” Equity Residential: “We assume we’re going to have rents peak somewhere in this first or second week of August and then have a normal kind of trail off

More housing data trickling out of Canada’s two largest major metros. Greater Vancouver home sales fell 46% year-over-year. It was one of the slowest Septembers on record, other than 2008, 2012, and 2018. Prices are still moving lower, albeit mostly in suburban markets which saw excessive price gains during the pandemic. For example, the median sales price of a detached home in the Fraser Valley inflated by $800,000 from February 2020 to February 2022. Since peaking, prices have dropped a whopping $455,000, giving back a good chunk its initial gains. What’s perhaps even more interesting though is that new listings are plummeting. New listings in Greater Vancouver fell to 20 year lows for the month of September. It appears both buyers and sellers don’t like todays prices. Both are refusing to transact at today’s prices. Negotiations have become hostile. A similar story is playing out in the GTA. Both Toronto home sales and new listings plummeted to 20 year lows in the month of September! Prices are inching lower but at a much slower pace with sellers pulling inventory off the market. Many sellers are choosing to rent out their properties instead, or planning to try selling again in the