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Steve Saretsky -

Happy Monday Morning! As expected, one and done from the BoC this past week. Here’s Tiff Macklem, “With today’s modest increase, we expect to pause rate hikes while we assess the impacts. To be clear, this is a conditional pause. Its conditional on economic developments evolving broadly inline with our outlook.” For those playing along at home, their outlook involves a soft landing. Those hopes, of course, largely depend on the trajectory of the housing market. We’ve noticed a lot more optimism in the housing market these days. Buyers are finally coming off the sidelines after being nearly non-existent over the past six months. Stale inventory is suddenly finding a bid, sometimes going back into multiple offers. Is this the bottom? The CEO of Redfin seems to think so. At least for the US housing market. Up North i’m a bit more skeptical. While interest rates may have peaked, they remain elevated. Affordability still sucks. Variable rate mortgages are sitting at 6%, up nearly 500bps from last year. Let’s not forget about trigger rates. According to National Bank, between 73% to 80% of variable-rate fixed payment mortgages originated between 2020 and 2022 have been triggered during this tightening campaign. Variable

Steve Saretsky -

Happy Monday Morning! We got more encouraging news on the inflation front. Consumer prices in Canada fell on a seasonally adjusted basis, dropping -0.1% month over month, the first drop since July 2020. Yes, annual inflation still looks very high at 6.3%, but that only tells us what happened a year ago. We discussed these big fat, laggy indexes last week so no need to beat a dead horse. Let’s try to filter through the noise here. As my good friend Ben Rabidoux points out, Consumer prices have been nearly flat over the past 6 months. Remember, prices don’t have to drop, they just have to stop going up a lot. Shelter inflation remains stubbornly high, despite house prices cratering. Ironically, the largest contributor to annual inflation in Canada right now is now mortgage interest costs. A whopping 400bps of tightening on a highly levered household sector will do that. And we might not be done yet. The Bank of Canada will provide an important update this Wednesday. Markets are still expecting the BoC to squeeze in another 25bps before pausing. Twitter seems to agree. The Bank of Canada has been pretty unpredictable over the past year. My bet is on 25bps

Steve Saretsky -

Happy Monday Morning! Canadian inflation data drops this week on Wednesday, January 17th. This will be an important headline given that the Bank of Canada is set to meet the following week on January 25th. As of right now the market is still expecting a 25bps rate hike, but that could change if CPI comes in a lot weaker than expected. As of right now, RBC is calling for headline CPI to fall to 6.4% for December, down from 6.8% in November. That seems about right given the drop we saw last week in the US. Inflation has now fallen for six consecutive months in the US. In fact, if you remove shelter costs (huge lag), you have deflation on a monthly basis. Of course people will say you can’t remove shelter, it makes up nearly 30% of the CPI basket and people need a place to live! Of course this is true, but we all know the housing market is in the dumps, prices are falling and rents have peaked. Here’s the Zillow rent index against the shelter component of the CPI index. Shelter inflation is going to drop like a stone, give it time. The Fed knows this

Steve Saretsky -

Happy Monday Morning! Back to our regularly scheduled programming after a few weeks off during the holidays. Last year was an eventful year across the Canadian Real Estate spectrum to say the least. I figured i’d start off the New Year with a quick sentiment check. And the survey says… things are going to get worse. My poll on Twitter garnered nearly 5000 votes, with almost 80% of respondents calling for a further correction in prices by the end of 2023. Yes, it’s true Twitter tends to skew bearish, however it’s hard to deny that further downside is likely given the rapid surge in home prices suddenly colliding with the fastest rate hiking cycle most people have ever seen. In fact, on a debt adjusted basis, this rate cycle is more than twice as severe as the 1980’s. Prices have already dropped quite a bit. The national home price index is down 16% since it peaked in March 2022, that’s the steepest decline on record, dating back to 2005. While we are nearing the end of this rate hiking cycle, markets are still expecting more pain ahead from Tiff Macklem thanks to another strong labour report. The Canadian economy added

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The Canadian Economy

Steve Saretsky -

Happy Monday Morning! As expected, one and done from the BoC this past week. Here’s Tiff Macklem, “With today’s modest increase, we expect to pause rate hikes while we assess the impacts. To be clear, this is a conditional pause. Its conditional on economic developments evolving broadly inline with our...

Steve Saretsky -

Happy Monday Morning! We got more encouraging news on the inflation front. Consumer prices in Canada fell on a seasonally adjusted basis, dropping -0.1% month over month, the first drop since July 2020. Yes, annual inflation still looks very high at 6.3%, but that only tells us what happened a...

Steve Saretsky -

Happy Monday Morning! Canadian inflation data drops this week on Wednesday, January 17th. This will be an important headline given that the Bank of Canada is set to meet the following week on January 25th. As of right now the market is still expecting a 25bps rate hike, but that...

Steve Saretsky -

Happy Monday Morning! Back to our regularly scheduled programming after a few weeks off during the holidays. Last year was an eventful year across the Canadian Real Estate spectrum to say the least. I figured i’d start off the New Year with a quick sentiment check. And the survey says…...

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The Saretsky Report. December 2022