Fundamentals today are getting repriced in Real Estate and the Yield Curve (and other asset classes). Appraisers will have to dust off their calculators if today's market action is a harbinger.
The Stream - Vancouver's Housing Crisis
On the 20 plus year commodity boom, we produced a huge positive balance of trade. But now after the crash into the March 2009 pit of gloom and for the last 7+ years, the Canadian export economy is hung at record negative net lows. Monetary policy is busted.
What is working is exporting our cheap capital into offshore markets as evidenced by my new chart of Canadian Household Debt plotted over Foreign Direct Investment, GDP and Canada's Balance of Trade data.
Canadian companies and international affiliates in Canada are using that cheap credit to invest in offshore markets where labour is more productive (they do more for less reward) and those products and services come back into Canada where the same cheap credit fuels our ability to maintain our lifestyles. We are not trading production skills, we are trading future earnings for depreciating assets at record prices.
If you own a single family detached house that was purchased prior to the early 2000's in Toronto or Vancouver or any other isolated but hot Canadian market, you are sitting on a once in a lifetime winning lottery ticket if you can collect.
"The condo you bought is getting 'crusty: Kevin O'Leary'
In a June 9, 2015 note, David Rosenberg chief economist at Gluskin-Sheff, currently thinks "...the Canadian dollar could head as low as the mid-70s coming under pressure as oil prices fall further in the global glut and if the Fed hikes interest rates in September. Since there's "zero chance" the Bank of Canada will follow suit, foreign investors will have even less incentive to be in the Canadian bond or money market." Financial Post, June 9, 2015
Well a mid-70 cent is what it was in the pit of gloom in March 2009 and in terms of FX, we are almost there without any major correction in North American equity, bond or real estate markets... yet.
Commodities on the other hand are depressed (peaked more or less in 2011) and getting more so as the USD climbs the worry wall.
The other target low that might need a retest of course is the January 2002 post-dotcom crash low when the Loon looked like a 60 cent dollar. Market makers don't like the long side of the Loonie trade anymore as the Net Speculative Positions Chart below suggests.
A revaluation of the Canadian Dollar down is not good news for foreign owners of Canadian assets or consumers of imported stuff (that's everybody in Canada). The black swan for real estate in Canada could be more of a loon; a crazy loon if market rates in the bond market continue their uptrend.
The average price comparison of Vancouver, Toronto & Calgary Single Family Dwellings denominated in CAD and USD along with notations of significant changes in the spot price of WTI crude oil and the currency spread is on my monthly UPDATED CHART HERE.
"Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement; and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it." George Santayana Vol. I, Reason in Common Sense
"History, real solemn history, I cannot be interested in.... I read it a little as a duty; but it tells me nothing that does not either vex or weary me. The quarrels of popes and kings, with wars and pestilences in every page; the men all so good for nothing, and hardly any women at all - it is very tiresome." Jane Austen spoken by Catherine Morland in 'Northanger Abbey'