This week’s top stories: Canada’s housing market slowdown is just beginning and ‘this time is different’
Time for your cheat sheet on this week’s top stories.
Canadian real estate
The Canadian real estate cooldown is just getting started: BMO
Slowing Canadian home sales are dragging home renovation spending. Analysis by BMO Capital Markets shows retail renovation spending is starting to decline. Both segments are still elevated but rate hikes are expected to take them lower. The deep reliance on housing means this will amplify the economic impact of a slowdown.
Canadians have borrowed $22 billion more in home equity, a new growth record
Canada’s housing price boom has resulted in a significant debt mountain backed by equity. The home equity line of credit (HELOC) balance was $168.8 billion in April, up 1.8% year over year. Not huge growth, but a reversal of a negative trend and the highest growth since 2013. Including similar home loans, the balance almost doubles. The growth rate also increases by 4 times.
The number of Canadians leaving the company permanently was unusually high in the first quarter
Canadians are constantly leaving the country at an unusual rate, especially for Q1. Over 13,000 Canadians migrated to other countries in the first quarter of 2022. It was the biggest first quarter since 2017, reversing a half-decade bearish trend. The increase does not mean the population is shrinking as immigration has offset this. However, it could show that more people are seeing opportunities abroad.
Canadians fleeing Ontario are accelerating, Alberta becoming top travel destination
Canada has seen a major shift in where residents see opportunity (or not). The latest inter-provincial migration data shows residents moving from one province to another. Ontario was the biggest loser as many more residents migrated to other provinces. Alberta, Nova Scotia and BC are the biggest gainers, attracting far more people than are left.
Canada’s inflation hits highest level since 1983, but it’s more like the 70’s: BMO
Canadian inflation rose to its highest level since 1983, with annual CPI growth hitting 7.7% in May. But BMO’s chief economist warns that it’s more like the 70s than the 1980s as the CPI slowed in the 80s. Instead, he points to 1973, a decade earlier, when high inflation was just beginning. Monetary policy missteps pushed the CPI to high growth, with an external commodity crisis driving inflation even higher. Sound familiar?
Canadian lawmakers are calling for a federal investigation into money laundering
A Canadian lawmaker is calling for a federal investigation into money laundering. Earlier this month, a BC money laundering investigation revealed that Canada’s resources are unreliable. MP Adam Chambers is now rallying support for an inquiry to find out why. BC could potentially solve its problem with a new provincial probe, but the rest of Canada is still vulnerable.
Big changes for Canadian property after prominent developers face fraud charges
Two prominent Canadian real estate professionals have been charged with fraud. They deny the allegations and have not been proven in court, but it has led to major changes in the industry. Syndicated mortgages, which are common in development, were largely unregulated until recently. After a regulatory failure by similar parties, syndicated mortgages now have rules. More importantly, regulators are warning consumers to stay away from them. They believe the risk is greater than the average person can take.
Canadian mortgagors are again seeing average payment outstripping wages
The narrative is that lower interest rates help lower housing costs, but the data doesn’t show that. Over the past year, the average mortgage payment has increased by 3%, despite interest rates being lower than 2020. The cut in interest rates only briefly caused household wages to exceed mortgage payments. Budgets were adjusted soon after, absorbing more than the discount rates provided.
A Canadian politician wants tough penalties to prevent money laundering, but are others doing the same?
Canada’s register of beneficial owners aims to help stop money laundering. There’s just one problem – the penalties for lying on the register are relatively small fines. MP Chambers, who is also trying to launch a money laundering investigation, wants tougher penalties. His new bill aims to impose harsh penalties for intentionally concealing ownership of assets.
Canada’s percentage of mortgages written off fell, but the average loss rose higher
Canadian lenders are writing off a smaller portion of mortgages, but the scale is increasing. Average mortgage write-offs rose to $71,000 in the first quarter of 2022, up 14.5% sequentially. Larger losses have historically led to an increase in defaults. If this trend continues, mortgage losses can be expected to rise to more historic levels.
US real estate
US housing demand is falling faster than inventory
US housing demand is falling faster than inventory. Existing home sales declined faster than homes for sale. This has increased supply to 2.6 months of inventory (MOI), which is its highest level since August 2021. To find a larger MOI you have to go back to before 2020 when the market was very different. The stock has changed dramatically, now the question is how long it will take buyers to notice.
Global Real Estate
This time it’s different, central banks are tightening into a bear market: Oxford Econ
Central banks face a slowing economy and high inflation, both ominous signs. They choose to tackle the latter, which is likely to slow the economy further. That was the assessment of forecasting company Oxford Economics. High inflation reduces consumption and creates a recession anyway. By focusing on controlling inflation, they could potentially save us from an inflationary recession. These are far worse than a typical recession, so at least that would be a win. Type of.