Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canadian Real Estate Prices To Correct After Immigration Cuts: BMO
Canada’s oldest bank sees good news for affordability—actual affordability. In a research note to investors, BMO reiterates their belief that Canada has a housing demand problem, not a supply problem. Therefore the Government of Canada (GoC) plan to shrink its population will result in the first real progress towards housing stabilization. In the coming years they expect the population decline will help to bring shelter costs lower, especially rents.
Canada Plans To Shrink Its Population… AFTER Immigration Demand Plummets
Canada surprised the country this week with a big change to its immigration plan. Policymakers no longer have a slowdown in their crosshairs but actual net reductions for the population. It was a perplexing announcement since the very policymakers making the decision label those who called for a similar move “xenophobic.” It turns out the contrary decision wasn’t a change of heart, but saving face as demand to move to Canada plummets. It was the government equivalent of firing someone after they quit.
Bank of Canada Forecasts A Real Estate Frenzy Will Drive GDP
The latest Bank of Canada (BoC) rate cut has the central bank bullish on the economy. In their October forecast, the accompanying forecast shows real GDP getting a big boost from the aggressive easing they’ve embraced. Breaking down the growth segments shows they made some generous assumptions, especially when it comes to housing. According to the BoC, the rate cut would have to spark housing demand equivalent to the 2021-record surge from a nearly zero rate policy. They anticipate that nearly a quarter of all real GDP growth next year will come from real estate investment. Lofty expectations, especially given the decline in population now forecast for the next two years.
Bank of Canada Makes Supersized Cut, Panics Over Slow Economy & Population
The goal of central banks are slow, controlled decisions to demonstrate stability. That’s why the Bank of Canada (BoC) double-cut in October should serve as a warning of how panicked they are to get the policy rate close to zero again. The BoC explicitly stated the cuts were designed to address the deflationary pressures the economy faces, including rising unemployment and slowing population growth. Interestingly, they expressed concerns about a slowing population a day before the GoC revealed its plan to cut immigration. Not surprising, but it does bring up questions about the independence of the central bank.
Canada’s Rising Unemployment Now A Greater Risk Than Mortgage Renewals: RBC
RBC, Canada’s largest bank, is warning the economy overstated the risk from mortgage renewals. Dubbed the mortgage renewal cliff, policymakers and analysts spent the past two years warning people will renew at higher rates, resulting in reduced income that will obliterate the economy. RBC warns that doesn’t mean the economy is risk free—the risk from rising unemployment is now much higher than the risk of the mortgage renewal cliff.
Canadian Household Debt Growth Is Slowing Despite Falling Rates
Falling rates are supposed to stimulate borrowing, but Canadian households may be tapped out. Households owed a whopping $3 trillion in debt this past August. It’s a huge amount but unusually low growth from a historical perspective. As previously discussed, the vast quantities of debt are largely held by a small concentration of households. With lower income and young households locked out of the housing market, they’re unlikely to contribute much to credit growth until home prices or incomes correct.
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