Happy Monday Morning! The Trudeau liberals shuffled the deck this past week, replacing several key cabinet positions. Amongst those moves was a change of the housing minister. Ahmed Hussen is out, which should not come as a surprise given house prices have doubled under the current government, with an election not far away. Hussen’s track record since he took the job in 2021 has been uneventful to say the least, and his tone-deaf op-ed a few weeks ago was the final nail in the coffin. If you haven’t read the op-ed i’ll summarize it for you here. Don’t blame us, and don’t blame the municipalities. Zero accountability. Anyways, we now have a new housing minister. His name is Sean Fraser, the same guy in charge of immigration. The same minister who ramped up immigration to mind blowing levels in the midst of a housing supply crisis. He is now responsible for fixing the problem he helped create. Yes, the arsonist has become the firefighter. Canada’s population boom has strained both public services and housing. According to the economics team at TD, Canada’s 1.2 million population expansion over the past year is more than double the pace in 2019 and in the years that

Happy Monday Morning! CPI headline inflation came in lower than expected this past week. Markets were calling for 3% and we got 2.8%, a pleasant surprise and back to its lowest levels since March 2021. Perhaps the 475bps of rate hikes are finally starting to work their way through the system? We are back within the BoC’s target range of 1-3%. If you strip out mortgage interest costs, which were up 30% year-over-year and are entirely self-inflicted by the Bank of Canada, then headline inflation sits right at 2%. And yes, I know about gasoline prices. Please don’t misconstrue this as problem solved. We all know inflation has been pervasive over the last couple of years. It has wrecked havoc on the bottom half of society. That price growth is now baked into the cake, and prices are not going down, they’re just going up a lot less than they used to. However, if you’re skeptical about government inflation data then i’d encourage you take a look at Truflation.com. Inflation peaked at 11% in the US and is now running at 2.3%. Central banks have already over tightened, they just don’t know it yet. I wouldn’t be surprised if inflation

Happy Monday Morning! As expected, the Bank of Canada tightened the screws once again, jacking rates up another 25bps, and bringing the overnight rate to 5%, its highest level since 2001. “It’s working,” Macklem said in an exclusive interview with The Globe and Mail on Wednesday, several hours after raising borrowing costs for the 10th time in a year and a half. “But it’s not working as quickly or as powerfully as we thought it would.” In other words, despite inflation falling from a peak of 8.1% to 3.4% in May (2.5% when stripping out mortgage interest costs) the job is not done, and the beatings shall continue until morale improves. One of the perplexing pain points for the BoC is the resiliency of the housing market. Here’s an excerpt from the latest monetary policy report. “The faster-than-expected pickup in housing resales, combined with a lack of supply, has pushed house prices higher than anticipated in January. The previously unforeseen strength in house prices is likely to persist and boost inflation by as much as 0.3 percentage points by the end of 2023, compared with the January outlook.” It’s true the price action in the housing market continues to surprise to the upside.

Happy Monday Morning! There are growing concerns about the state of variable rate mortgage holders across the country. At this point nearly everyone who’s on a variable rate mortgage has essentially hit their trigger rate. It’s become front page news, and rightfully so. Unfortunately this story isn’t going away anytime soon, as Tiff Macklem and his econs at the BoC look poised to jack rates another 25bps this week. The market is placing nearly 60% odds of a rate hike, while 20 of 24 economists polled by Reuters expect a hike on July 12th. That would push prime rate to a dizzying 7.2%. It isn’t getting much better on the fixed rate side either. A slew of lagging job data pushed yields higher across the curve. The Canada 5 year bond yield touched 4% for the first time since 2007, which means fixed rates are moving higher once again. Several of the big banks will increase mortgage rates again this week. Suffice to say this is all escalating into one giant shit sandwich and we’re all going to have to take a bite. The feds knew this was going to be a problem . Remember the March 2023 budget? Here’s

Happy Monday Morning! Headline inflation dropped like a stone in the month of May, now down to 3.4%. Mortgage interest costs surged 30% and remains the largest contributor to the year-over-year CPI increase. Strip out self inflicted mortgage interest cost, and CPI sits at 2.5% in May, back within the Bank of Canada’s control range of 1-3%. The job is done. Sure, core remains sticky, base effects are favourable, but for the most part prices have moderated. There’s nothing more to do but wait for the highest interest rates in two decades to work their way through a country suffocating on debt. The BoC has already overtightened, but that won’t prevent them from putting a nail in the coffin later this month. Remember this is an institution that sat idle while national home prices ripped 30% on an annual basis. They eventually raised rates for the first time in March of 2022, one month after the housing market had already peaked. These guys are not forward looking, regardless of how many PhD’s they employ. So here we are, 450bps later, and still pushing higher, even the banking regulator has been caught off guard. OSFI says these fixed payment variable mortgages