Happy Monday Morning! Many of the issues we are facing today are policy decisions. They are choices made by elected officials. While I believe most policy makers are well intentioned it doesn’t mean we should not hold them accountable when mistakes are made. After all, elected officials are put in place to serve the best interests of its citizens, this is why we go to the polls every four years. And so it is worth evaluating some of the data this week to discuss where we could be going wrong. Let’s start with inflation. A global pandemic emerged and our elected officials made the decision to shut down the global economy. It turns out it’s easier to turn off the economy than it is to turn it back on. Governments panicked and the floodgates opened. Massive deficit spending. Too many dollars facing too few goods. And while spending has slowed, it’s still 11.3% higher than pre-pandemic levels on a real per capita basis. This is only making the Bank of Canada’s job even harder! Please keep this in mind when the federal government unveils their budget this week. While inflation is now slowing, it remains elevated, and largely self inflicted.

Happy Monday Morning! National housing data dropped for the month of February, and there’s a lot to unpack here. Home sales plunged 40% year-over-year in February, coming off a blistering hot market this time last year. When you zoom out further it was the weakest February since 2009. However, there’s a caveat. New listings utterly collapsed, falling to their lowest levels since February 2003. Yes, that’s a 20 year low across the country. That’s not even adjusting for the massive growth in both population and housing stock over the past two decades. Quite simply, home sellers have gone missing. As we mentioned a few weeks ago, there are a few reasons for the lack of new listings: So you’ve got a ten year low in sales and a twenty year low in listings. In other words, zero turnover. A horrible market for Realtors and mortgage brokers, although no need to feel sad for them- the previous two years were fairly generous. The illusiveness of new listings are good for prices. They’re firming up in essentially every market. For the right product, which is basically anything entry level (the only thing people can afford) is moving quickly and often in multiple

Happy Monday Morning! Central banks finally broke something. After leaving rates hovering near zero for over a decade and engaging in trillions of dollars worth of QE (Quantitative Easing) you can’t simply raise interest rates by 400bps in less than a year without something going boom in the night. It was never a matter of IF, but WHEN. There are more qualified people than me to talk about the Silicon Valley Bank debacle so i’ll keep this brief. Banks are sitting on huge unrealized losses. The bonds they bought at ultra low interest rates were destroyed in price when the Fed jacked interest rates, and bonds are the collateral supporting the entire financial system. For example, a 1% shift higher on a 9 year duration bond is a 9% hit on the bond price. So the Fed’s ability to hike rates was ALWAYs limited to the extent to which banks invested cash wisely. Silicon Valley Bank is not alone. Lots of chatter that the Fed might be done with their rate hiking crusade. Any more bank failures and we’ll be talking about deflation, not inflation. The Bank of Canada has already moved to the sidelines as confirmed last week when

Happy Monday Morning! Canadian banks reported first quarter earnings this past week. Those earnings provided an important glimpse into what’s shaping the nations housing market. Deep in the footnotes, CIBC reported that $52-billion worth of mortgages – the equivalent of 20% of the bank’s $263-billion residential loan portfolio were in a position where the borrower’s monthly payment was not high enough to cover the interest portion of the loans. The bank has allowed these borrowers to stretch out the length of time it takes to pay off the loan, which is known as the amortization period. As well, borrowers are adding unpaid interest onto their original loan or principal. CIBC isn’t alone. Both TD and BMO also allow mortgages to negatively amortize. Assuming you took out a fixed payment variable rate mortgage at TD, you can allow outstanding interest to be tacked onto the balance of the loan, so long as your loan-to-value ratio does not exceed 80%. In other words, defer any pain resulting from higher interest rates. As a result, amortizations are growing. At TD bank, 25.2% of their residential mortgages now have an amortization of 35 years or greater. A year ago, that number was essentially zero. If you’re