Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canadian Real Estate Is About To Experience A “Full-Scale Attack,” Warns Big Six Bank
Canada’s oldest bank warned investors of a “full-scale attack” on real estate this week. Climbing mortgage interest costs are just the start. Foreign buyer taxes, vacancy taxes, and new Federal rules are a few of the market hurdles coming. After ignoring the meteoric rise over the past two years, policymakers are now piling on… after market-based interest rates decided to resolve the issue on its own.
Canadian Interest Rates Forecast To Double In 2 Weeks, Timeline Accelerated: RBC
Canadian interest rates are forecast to double within two weeks, and then double that by year-end. RBC expects the Bank of Canada (BoC) will hike interest rates by 50 basis points (bps) at the April meeting. By the end of the year, they see the overnight rate at 2.0%, basically doubling again. Higher than the peak of the last business cycle, and the highest since the Great Recession.
Canadian Mortgages To See The Largest Rate Hike In 40 Years As Bonds Go 90s-Style
Soaring bond yields are pushing mortgage costs at one of the fastest rates ever. The 5-year yield climbed 2.47% on March 29th, up 80.2 basis points from a month before. It was the largest move in bonds since the late 1990s, and took 5-year fixed mortgages along for the ride.
Think Foreign Buyer Taxes Don’t Work? Look At Windsor & Toronto Real Estate: BMO
To see the impact of Ontario’s foreign buyer tax, look at Windsor, says BMO. The ratio between Windsor and Toronto home prices immediately began shrinking post-tax. This means home prices in Windsor began outperforming Toronto. BMO says this is due to investors looking for housing outside of the taxable region. Now with Ontario extending the tax province-wide, it’s possible investors will pull back. Even domestic ones likely, as they try to reassess the market.
Over 1 In 5 New Canadians Are Considering Leaving, Cost of Living A Major Factor
Canada’s sky-high cost of living may become a deterrent for new immigration. A survey found 1 in 5 new immigrants to the country are considering leaving within the next 2 years. Additionally, 31% of Canadians feel cost of living will deter future immigration. Isolating recent immigrants, the share that see cost of living as a deterrent doubles (64%). Immigrants move for more opportunity, which is difficult to seize while struggling with the cost of living.
Canadian Business Confidence Gets A Boost, But Inflation Expectations Keep Climbing
Small businesses are more optimistic about the economy, but inflation expectations are rising. The CFIB business confidence index climbed in March, showing improved sentiment. At the same time, inflation expectations climbed to a record high. Small businesses feel positive, but don’t see the BoC controlling inflation.
Canadian Real Estate Is “Worrisome,” “Grim,” and “Impossible” To Buy: RBC
The Canadian real estate situation is “worrisome” and “grim,” as well as impossible to own for many. That was the take from RBC last week, after they found households need to spend 49.4% of income to service a mortgage. The share increased 7.2 points from a year before, the fastest deterioration of prices since the 90s. The bank expects the situation to get worse as interest rates rise.
Canadian Mortgage Rates Are Heading “Straight Up,” Will Test Real Estate: BMO
Mortgage rates are set to rise straight up and it’s going to test Canadian real estate. Interest costs for a 5-year fixed-term mortgage has now breached 3.5%. BMO expects variable mortgage rates to breach 3.0% by mid-summer as well. Buyers will see the maximum credit available shrink significantly in just a year. If low rates helped spark a surge of demand, higher rates will… Well, we’ll find out, won’t we?
Canada’s Gap Between Home Price and Income Growth Is Getting More Absurd
Canadian home prices are outperforming incomes at an absurd rate, and it’s only getting worse. Real annual home price growth reached 21.4% in Q3 2021. Disposable income only advanced 1.7% over the same period. The trend isn’t recent, with real home prices rising 3x the rate of real disposable income since 1975. Over the past year though, home prices are rising 12.5x the rate of income.
BoC Is Suddenly Able To Tackle Inflation After We Explain To Parliament What They Did
Canadian Parliament gave us the opportunity to provide insights on inflation. We listed every policy the Bank of Canada (BoC) used to intentionally create inflation. Prior to this, the BoC had blamed external forces beyond reach for driving inflation. One day after the explanation, they made a speech saying they would control it. Do higher interest rates in Canada speed up the supply chain in China, or were they lying the whole time? Mystery for the ages.
Bank of Canada Expected To Begin Doubling Rate Hikes Next Month, Reverse QE
Interest rates were forecast to rise at double the usual pace last month, and QE will begin reversing. That’s the forecast from BMO, who sees a 50 basis point (bp) hike in April and June, followed by a 25 bp hike in July. The overnight rate would be 1.75% by July, hitting the pre-2020 level and eliminating stimulus. It isn’t expected to stop at that point either, but keep rising further.
US Real Estate
The American Real Estate Bubble Is Finally Mentioned By Federal Reserve Researchers
Researchers at the Dallas branch of the Federal Reserve have declared a bubble. We explained back in December that the central bank’s models show American real estate is in a bubble. The researchers finally confirmed this, as it entered its sixth quarter in bubble territory. A sixth quarter sounds bad, but in contrast a country like Canada is rounding out its 26th quarter. By acknowledging and addressing the issue early, the central bank can avoid any 2008-like meltdowns.