Bank of Canada Governor, Tiff Macklem, delivered some final comments this week at a keynote speech in BC. He didn’t mince words following the fastest rate hiking cycle in recent history. “There’s no question that if you bought a house near the peak, you took a variable rate mortgage with a high loan to income ratio you’re really feeling the squeeze of higher interest rates.” No doubt. Here’s our real life example to refresh your memory. 1. $500,000 mortgage, 25 year amortization, 1.5% mortgage rate = $2000/month $500,0000 mortgage, 25 year amortization, 5.5% mortgage rate = $3052/ month 2. $1,000,000 mortgage, 25 year amortization, 1.5% mortgage rate = $3997/ month $1,000,0000 mortgage, 25 year amortization, 5.5% mortgage rate = $6104/ month “Look, the housing market was unsustainably hot for the last couple of years, part of getting the economy into better balance is getting the housing market in better balance.” Macklem concluded. Have no fear, the housing market is definitely in better balance, at least if you’re a buyer. National housing figures released last week paint a rather drastic turn of events in the nations housing market. Home sales fell 39% year-over-year in November. The 30,135 sales reported across the

To no surprise, the Bank of Canada raised rates again this past week. Another 50bps. Interest rates are now up a whopping 400bps since this tightening cycle began in March. According to Macquarie Research, this is the sharpest calendar year of rate hikes on record going back to 1936. The most common rebuttal you see circulating online is that rates are still low from a historical basis. While that may be true it is an irrelevant point if you’re not also considering the levels of debt. I often hear people comparing todays rate hiking cycle to that of the 1980s. The Bank of Canada had rates as high as 18% in 1981 so we have a lot more room to go! Except household debt to GDP levels were also around 50% in the early 80’s, today household debt to GDP sits at nearly 110%. Source: Acorn Macro, Richard Dias You could also buy a single family house on one income at roughly two to three times your annual salary in the 1980’s. Today that is obviously not the case. The recent 400bps move in interest rates is blowing up highly indebted household balance sheets. Let’s look at a few examples.

Lots to unpack this week so let’s dive in. Sales figures for the month of November are making for more negative headlines, as they probably should. There is little optimism in the latest data. Greater Vancouver home sales were down 53% on a year-over-year basis. Over the past two decades there have only been two slower months of November (2008 and 2018). Prices are still trickling lower, despite inventory levels remaining surprisingly low. It’s a similar story in the GTA, home sales fell 54% from last year, and were the lowest since November 2008. A four hundred basis point rise in mortgage rates is going about as well as one would expect, and we’re about to get another Bank of Canada rate hike this Wednesday. The good news is this is probably the end of the line for the Bank of Canada, at least that’s my view. Macklem will seal the deal with another 25bps and bring this rate hike cycle to a close at 4%. A survey of Bloomberg economists seem to think the same, suggesting Governor Tiff Macklem can comfortably leave their benchmark rate as much as 100 basis points lower than the Fed. I’m not going to