{"id":6834,"date":"2020-12-21T10:42:30","date_gmt":"2020-12-21T18:42:30","guid":{"rendered":"https:\/\/www.stevesaretsky.com\/?p=6834"},"modified":"2020-12-21T10:42:30","modified_gmt":"2020-12-21T18:42:30","slug":"no-froth","status":"publish","type":"post","link":"https:\/\/www.stevesaretsky.com\/2020\/12\/news\/no-froth\/","title":{"rendered":"No Froth"},"content":{"rendered":"

As everybody is well aware, housing is THE pillar supporting the Canadian economy. It is also responsible for\u00a0burdening households with a mountain of debt.\u00a0In fact, the majority of Canadian household debt, 69 per cent, is made up of mortgage debt and by continuing to pile on more debt, house prices have increased, contributing\u00a0to a 70% increase in the aggregate net worth of Canadian households since the end of 2010.<\/p>\n

And so, when the economy plunged into a deep recession, it’s no surprise policy makers were so quick to intervene. The Bank of Canada’s quantitative easing program ran into overdrive. Remember, Quantitative easing involves, large-scale purchases of government bonds which lower the interest rates or \u2018yields\u2019 on those bonds. This pushes down on the interest rates offered on loans (eg mortgages or business loans) and is designed to stimulate the economy by boosting a wide range of financial asset prices.<\/p>\n

Yes, rising real estate prices are quite literally the desired outcome.<\/p>\n

Ironically, when Bank of Canada Governor, Tiff Macklem, was asked this past week about concerns over rising debt loads and home prices, the Governor naturally downplayed those concerns. Quoting, “it’s certainly something that we’re watching, housing markets have come back very strongly, interestingly the strength has been a little less focused than usual in Toronto & Vancouver, and a little bit more spread across the country, which is a good thing.\u00a0 We’re not seeing the kind of frothy\u00a0housing markets that we saw in 2016.”<\/p>\n

Really?<\/p>\n

National home sales are now on pace to have their best year ever, following another record high for the month of\u00a0November. In fact, 2020 home sales will surpass previous highs set in 2016, with home prices now rising\u00a0faster than 1% per month. This is despite mounting job losses and near zero population growth.<\/p>\n

There are zero fundamentals supporting the rise in the housing market, other than the Bank of Canada’s printing press and people’s fears of\u00a0a currency continuing to lose purchasing power.<\/p>\n

When you consider the fact the printing press will run\u00a0in overdrive until the economic recovery remains well underway, and inflation remains sustainably at 2%, I would argue these fears are warranted. After all, official inflation metrics are questionable at best, and subject to manipulation.<\/p>\n

Three Things I’m Watching:<\/h3>\n

1. Canadian home prices rise again in November, up 11.6% year-over-year.
\n0c63f7f3-229e-474a-85e2-9dcbcbc649c0-1293420<\/a><\/p>\n

2. Canada sees slowest population growth since 1946 on travel bans.
\n90ffe825-35c6-4e95-9058-ac983bdf58d0-8330716<\/a><\/p>\n

3. More lockdowns will require more stimulus. Central bank balance sheets will continue to inflate.
\nd144caad-030d-4cea-8333-3e39cbf50536-8051683<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

As everybody is well aware, housing is THE pillar supporting the Canadian economy. It is also responsible for\u00a0burdening households with a mountain of debt.\u00a0In fact, the majority of Canadian household debt, 69 per cent, is made up of mortgage debt and by continuing to pile on more debt, house prices have increased, contributing\u00a0to a 70% […]<\/p>\n","protected":false},"author":1,"featured_media":6835,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[70],"tags":[],"acf":[],"yoast_head":"\nNo Froth - Steve Saretsky<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.stevesaretsky.com\/2020\/12\/news\/no-froth\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"No Froth - Steve Saretsky\" \/>\n<meta property=\"og:description\" content=\"As everybody is well aware, housing is THE pillar supporting the Canadian economy. 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