DATE

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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

Mohit Chawla -

https://www.youtube.com/watch?v=GniAmgIBZAA&list=PLOZmgBQcELMcCILSrDmXzrEDJr7dBkjpB&index=52

Mohit Chawla -

https://www.youtube.com/watch?v=0S1KkhtaH0w&list=PLOZmgBQcELMcCILSrDmXzrEDJr7dBkjpB&index=52

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

Mohit Chawla -

Toronto and Vancouver home sales fell nearly 50% in the month of December. The comps are going to look awful from now until March. Is the Fed looking in the rearview mirror? Why the jobs data is lagging and why it’s possible inflation can come down quicker than we might expect. Another recession signal just flashed red. Sign up for Shakepay with the promo code: LOONIEHOUR, and you’ll receive $10 after you buy your first $100 worth of bitcoin. https://shakepay.me/r/LOONIEHOUR Listen to The Loonie Hour on your favourite podcast platform: The Loonie Hour on Spotify: https://open.spotify.com/show/4vA4m1d9RVo9KitszSHzN0 The Loonie Hour on Apple Podcasts: https://podcasts.apple.com/ca/podcast/the-loonie-hour/id1591470469 #TheLoonieHour #Macroeconomics #PersonalFinanceCanada

Steve Saretsky -

Sales activity remains subdued across Greater Vancouver as we close out the year. Buyers are tepid, not eager to write offers and are looking to negotiate, can you blame them? Sales activity remains historically weak. In the month of November, sales across Greater Vancouver totalled 1624, down 54% from November 2021 and marking the third slowest November in two decades.

Steve Saretsky -

https://www.youtube.com/watch?v=plb0BnsR3Qo

Steve Saretsky -

https://www.youtube.com/watch?v=LABYEJH_bTY

Steve Saretsky -

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

Steve Saretsky -

https://www.youtube.com/watch?v=edEwcKX0XX8

Steve Saretsky -

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.

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The Canadian Economy

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...

Mohit Chawla -

https://www.youtube.com/watch?v=GniAmgIBZAA&list=PLOZmgBQcELMcCILSrDmXzrEDJr7dBkjpB&index=52

Mohit Chawla -

https://www.youtube.com/watch?v=0S1KkhtaH0w&list=PLOZmgBQcELMcCILSrDmXzrEDJr7dBkjpB&index=52

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…...

Mohit Chawla -

Toronto and Vancouver home sales fell nearly 50% in the month of December. The comps are going to look awful from now until March. Is the Fed looking in the rearview mirror? Why the jobs data is lagging and why it’s possible inflation can come down quicker than we might...

Steve Saretsky -

Sales activity remains subdued across Greater Vancouver as we close out the year. Buyers are tepid, not eager to write offers and are looking to negotiate, can you blame them? Sales activity remains historically weak. In the month of November, sales across Greater Vancouver totalled 1624, down 54% from November...

Steve Saretsky -

https://www.youtube.com/watch?v=plb0BnsR3Qo

Steve Saretsky -

https://www.youtube.com/watch?v=LABYEJH_bTY

Steve Saretsky -

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...

Steve Saretsky -

https://www.youtube.com/watch?v=edEwcKX0XX8

Steve Saretsky -

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...

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The Saretsky Report. December 2022