Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canadian Real Estate Nears End of 60-Year Cycle—Transit Use Is The Risk Sign
The decline of public transit use in Canada is a bigger sign than many realize. Since 2020, revenues have returned to normal but ridership hasn’t recovered—even with the addition of millions of people, marking the fastest population boom ever. This isn’t an issue of a lack of transit but the convergence of three economic cycles that will challenge the extended premiums for public transit. In short, transit’s past power to boost home prices may be fading, signaling a big shift for Canadian cities and their residents.
Canadian GDP Surged Entirely Due To Superficial Accounting Mechanics
Canadian GDP surprised markets by growing 0.6% in Q3, with net imports providing 0.7 points of that growth. Yes, the rest of Canadian industry is apparently a net drag on growth. If that sounds odd—good instincts. This is a problem called import compression, which is read as a weakness by experts. The boost to GDP was due to superficial accounting mechanics, and is unlikely to survive the material revisions in trade data.
Canadians Would Pay 75% More Interest With 40-Year Mortgages: PBO
The Canadian Parliament’s budget watchdog is warning that longer mortgages will result in higher costs. At the request of lawmakers, the Parliamentary Budget Officer (PBO) studied whether affordability would improve with 40-year mortgage amortizations. The agency’s calculations reveal payments would shrink, but the extended terms would result in paying up to 75% more interest over the life of a mortgage. While the agency warns its calculations don’t factor in other areas, we pull some Bank of Canada research showing the benefits are short lived and amplify problems.
Canadian House Costs Outpace Land, Only 2nd Time In Recorded History
Canadian new home prices fell 0.41% in October, marking the largest single-month drop since 2009. However, it’s what drove home prices higher in recent periods that’s more interesting: the cost of the house (structure) greatly outpaced land costs. This has only happened once before, in the mid-1980s, ahead of the collapse of Canada’s largest real estate bubble in history. We explain this isn’t a coincidence but a strong sign of exuberance rather than land scarcity as the driver of home prices.
Toronto New Home Sales Hit A Record Low For A 13th Month
Toronto’s new home prices are slowly moving lower, but sales? They’re making an unprecedented plunge: just 570 new homes were sold in October, down 81% from the 10-year average and the weakest on record. At the same time, it isn’t a lack of inventory holding sales back, as inventory has climbed 77% over the past three years to the second-highest October since 2015.
Canadian Banks See Record Mortgage Contraction As Arrears Rise
Canadian banks are seeing arrears rise, but more concerningly, they’re also holding fewer mortgages. The CBA mortgage arrears rate climbed to 0.24% in August, hitting the highest in nearly five years. At the same time, banks are now holding the fewest mortgages in nearly five years as well—the largest sustained drop on record. Fewer buyers and more risk. Probably nothing.
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