Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canadian Mortgages Backed By Inflated Home Values, Zero Equity
Canadian lenders are using inflated new home appraisals to increase mortgage leverage. Following the sharp drop in home prices, lenders are turning to blanket appraisals—which recognize the contract price as the asset value. This potentially means that tens of thousands of mortgages may be issued with little to no equity—a problem about to ramp up in coming months. OSFI has acknowledged the issue, but the bank regulator’s official response doesn’t appear to appreciate the scale of the problem.
Canada Is About To See Gold Become Its Second-Largest Export: BMO
Canada’s gold industry has quietly positioned itself for the recent boom. A new BMO report shows precious metal exports—primarily gold—hit $58 billion over the past 12 months, tying vehicle exports as the country’s second-largest export good. While soaring prices helped, output has also climbed ~70% over the past 25 years. Gold may soon pull ahead of vehicles, as it’s a classic countercyclal asset—drawing investment at the end of the busines cycle, when consumers retreat from big ticket purchases like cars and homes.
Canadian Real Estate To See Volatility: RBC Eases Soft Landing Position
Canadian real estate is expected to see volatility in the coming months, according to RBC. Seasonally adjusted home sales fell 1.7% in September, marking the first drop since April. The bank saw this as confirmation that a recovery won’t be a straight line, and explained it now sees further price drops for homes in Toronto and Vancouver. While the bank has eased on its position on a soft landing, RBC’s take has some optimistic but logically inconsistent assumptions that are likely to fade in the coming months.
Canadian Inflation Soars—But More Alarming Is What Wasn’t Mentioned
Canadian headline inflation jumped 0.5 points to 2.4% in September, as the temporary impact of cheap gas prices faded. The trend was driven by rapidly accelerating annual growth for rent (+4.8%), property taxes (+6.0%), and mortgage interest (+3.6%). Inflation is accelerating, but the most concerning sign in the report was the omitted commentary on core inflation. The Bank of Canada’s preferred measures indicate the central bank’s grip on inflation is slipping again, marking the second time in less than five years.
Canadian Mortgages Now A Record 8 In 10 Dollars of Household Debt
Canadian household debt reached a record $3.13 trillion in August, up nearly 5% from a year prior. The big driver here was mortgage debt, which now represents 74.5% of the total—a record high, and a significantly higher share than just a decade prior. This level of concentration presents risk to the entire economy—not just housing.
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