Happy Monday Morning! Perhaps one of the most fascinating stories of the year has been the resiliency in the nations housing market. Prices have bounced sharply since the depths of the 2022 bear market, surprising even the housing bulls. This is no bueno for the Bank of Canada who is desperately trying to reign in inflation after unleashing a firehose of cheap liquidity the past few years. After shaking markets with a surprise 25bps “unpause” in June, it looks like they’ll be back for more blood come July. In their recent publication surrounding their policy deliberations, their decision to raise rates in June was partly attributed to “Housing resale prices, which feed into the CPI with a 1-month lag, had increased for 3 consecutive months.” Rising house prices will not be tolerated, at least in the near term. That’s a difficult concept to swallow for most Canadians, considering the nearly 30 year bull market most homeowners have enjoyed. It’s almost a certainty the Bank of Canada is going to be too late to ease policy, just like they were too late to tighten policy. Remember the first rate hike came one month after the housing bull market had peaked. No

Happy Monday Morning! As mentioned in last weeks note, the great big housing boom is over. You see housing booms need credit, lots of it, to keep the wheels churning. The single largest driver of home prices over the past few years has been cheap and abundant credit. When money is basically free you tend to create speculative bubbles. Suburban houses come to mind. It doesn’t take a genius to figure out what happens when mortgage rates go from 1.5% to 5.5% in the span of twelve months. Mortgage borrowing has slowed to a trickle. Canadian households added a net $11.2 billion in mortgage debt in the first three months of this year, that’s the smallest increase in two decades, and down from a cycle high of $58B in Q1 of 2022. According to Equifax, new mortgage originations plummeted by 42% compared to Q1 2022—the lowest volume witnessed since 2014. In the opinion of rockstar veteran mortgage broker Jim Tourloukis, compensation for most brokers is down 60% year-over-year. Suffice to say the industry is entering a significant consolidation in the coming year or two, and it’s not just mortgage brokers, Realtors and developers are also on the hot seat. Building permits fell

Happy Monday Morning! The Scotia guy was right, and the Bank of Canada delivered with another rate hike. It was only 25bps but the signal sent shockwaves through the bond market. It’s incredibly rare for a central bank to raise rates, pause, and then start hiking again. Pauses are almost always met with inevitable rate cuts. This is unprecedented territory. This is already the largest cumulative rate hiking cycle since the 1980’s. Please don’t send me a long email explaining that rates are still low compared to the 80’s and that we need to keep hiking. In May of 1980 the average sales price in Canada was $65,947 and household debt to GDP hovered around 50%. The typical family had four kids and a big house with one income earner. This is not the 1980’s. Today the average sales price sits at $715,000 and you have to pack multiple generations under one roof just to service the mortgage. Household debt is hovering near an eye watering 105% of GDP. These interest rates are going to hit hard. Don’t be fooled by lagging data artificially inflated by mind blowing levels of immigration. One third of households have not seen an increase

Happy Monday Morning! The Canadian economy grew at an annualized pace of 3.1% in the first quarter, surprising to the upside and trumping the Bank of Canada’s growth forecasts. Four hundred basis points and the economy still hasn’t rolled over. This is prompting calls for the Bank of Canada to move off the sidelines and get back to raising rates once again. Here’s the outspoken chief economist of ScotiaBank, Derek Holt. Canada’s housing market continues to be on a tear as a combination of very little supply, surging immigration, a return of first-time home buyers, strong job markets, a premature halt to BoC rate hikes and returning FOMO sentiment drive renewed imbalances. I’ve argued since last year that consensus was far too negative toward Canadian housing as it over-emphasized the pressures facing a minority of super- stretched mortgage holders in a classic case of the tail wagging the dog. The broad fundamentals of Canada’s housing market remain highly constructive and will carry ongoing positive spillover effects for consumption as we saw in the Q1 GDP accounts. Recall that home sales were up by 11% m/m Seasonally adjusted in April for the biggest monthly gain since the initial stages of the