Is Activity Increasing in the Canadian Real Estate Market?
Is Activity Increasing in the Canadian Real Estate Market?
Latest on Canadian Real Estate Market Trends by Steve Saretsky, August 19, 2019
Happy Monday Morning!
The Canadian yield curve continued to descend towards further inversion. Earlier this past week long-dated maturities fell further, allowing nearly 90% of the Canadian yield curve to invert. Further, the 30 year vs the 2 year bond went negative for the first time since 2007. The age-old wisdom of the yield curve prompted a flurry of media headlines suggesting a recession may be lurking around the corner.
Canadian households remain unfazed, opting to ignore Mr. Market and his recession warnings. Canadian households, which are currently enjoying the fruits of this decade long economic expansion, are content to keep the party rolling. Residential mortgage credit growth is showing signs of increasing once again, growing by 3.68% year-over-year in June after hitting an eighteen year low earlier this year. This has spurred increased activity in the housing market, with national home sales growth once again in July. Home sales recorded via Canadian MLS® Systems rose for the fifth consecutive month in July, bringing monthly sales right in line with the ten-year average. This prompted a slight increase in the national home price index, where prices inched higher by 0.2% year-over-year.
The recent plunge in borrowing costs is providing a renewed incentive to leverage up into the housing market. This mindset will surely be reinforced once Stephen Poloz at the Bank of Canada gets his turn to slash interest rates once again. That may be coming sooner rather later as an earlier consensus for the Bank of Canada to remain on hold for the foreseeable future is finally starting to shift. Earlier this past week, the Bank of Nova Scotia broke ranks, changing their call from “on hold” to “we believe the Bank will cut rates at the October 30 meeting, but the odds are near even that it cuts on September 4.” Adding, “An inter-meeting cut is possible and may well be desirable. With limited monetary firepower in most advanced economies, and with the need for policy stimulus becoming increasingly evident at the global level, there is a possibility that leading central banks engage in coordinated monetary easing.”
With central banks throwing in the towel, and over-indebted households leveraging up on debt once again, perhaps the bond market has been right all along.
Three Things I’m Watching:
1. 90% of the Canadian Yield curve is now inverted.
2. Despite the inverted yield curve, the sales to new listings ratio suggest Canadian home prices could rise from here.
3. Negative yielding debt globally has officially topped a record $16T.
