Are Boosted Real Estate Activities Due to Bond Yields?
Are Boosted Real Estate Activities Due to Bond Yields?
Latest on Canadian Real Estate Market Trends by Steve Saretsky, August 26, 2019
Happy Monday Morning!
As central banks across the world compete in a race to debauch each other’s currencies, the resulting plunge in bond yields appears to be boosting purchasing activity in some housing markets. Perhaps no better example than in Australia, where, following fears of a credit crunch bursting a property bubble, the RBA promptly slashed interest rates twice, to all time record lows.
Auction clearance rates have since spiked, with Sydney hitting 80 per cent, marking the third successive week where more than three-quarters of properties on the block sold.
In Melbourne its been a similar story, clearance rates recorded the strongest results since the market hit the skids two years ago. Per ANZ chief economist David Plank, these types of clearance rates have been historically associated with annualized house price growth between 15-20%. While Plank is not convinced prices will rise to that magnitude this time around, The ANZ house view is for house prices to edge up between 3 and 5 per cent next year. “We think the lift in prices so far reflects a ‘pop’, as suppressed demand hits the market following lower interest rates and more certainty around tax.”
It remains to be seen whether or not the fresh pair of rates cuts from the RBA will truly be enough to sustain the Aussie’s debt fuelled property market. However, Aussie’s have have been nudged to keep the party going, despite household debt sitting at a staggering 120% of GDP.
These same fears are undoubtedly shared here in Canada. A growing chorus of economists are begrudgingly coming to the conclusion that the Bank of Canada will be forced to cut rates. The often outspoken David Doyle of Macquarie is now assigning a more than 50% chance of a cut in September, plus another cut in October. Adding, “In the event that we are heading into a global recession and things turn ugly and you get rising unemployment rates globally, then Canada is going to have to ease, maybe even more than the U.S.”
Alas, it appears rates are set to fall further. Despite Canadian household debt hovering around 100% of GDP and property prices already stretched well beyond what is considered rational, households are once again being nudged to borrow more. Meanwhile, household savings rates remain frozen at their lowest levels in more than 59 years.
Three Things I’m Watching:
1. Household Debt to GDP leaders across the world.
2. The plunge in Canadian mortgage rates should lower headline inflation in the months ahead. Providing extra leverage for the Bank of Canada to slash rates.
3. Auction clearance rates have jumped in Sydney. This pace of clearance rates is typically associated with rapid home price inflation of 15-20% annually.
