The Canada Mortgage and Housing Corp. (CMHC) defines a household as being in
“core housing need” if it “falls below at least one of the adequacy, affordability or suitability standards and would have to spend 30% or more of its total before-tax income to pay the median rent of alternative local housing that is acceptable (meets all three housing standards).” thecanadianencyclopedia.ca
The chart above shows the number of homeless people living in Vancouver based on homeless counts conducted between 2005 and 2019. City of Vancouver Data via Global News
The homelessness data in Canada according to Nathalie Rech, (thecanadianencyclopedia.ca) April 29, 2019 are...
"estimated that approximately 35,000 Canadians experience homelessness on any given night, and at least 235,000 Canadians are homeless in any given year." AND According to the Canadian Observatory on Homelessness, mass homelessness in Canada emerged around this time (1987 Conservatives) as a result of government cutbacks to social housing and related programs starting in 1984 (Conservatives). In 1993 (Liberals), federal spending on the construction of new social housing came to an end. In 1996 (Liberals) the federal government transferred responsibility for most existing federal low-income social housing to the provinces.
The chart below is from George Marshall, a research analyst with Statistics Canada’s Insights on Canadian Society published June 26, 2019. Their conclusion follows the chart.
Conclusion from Statistics Canada’s Insights on Canadian Society.
Using data from the 2016 SFS, this study looked at the association between the debt-to-asset and debt-to-income ratios and financial distress, while controlling for various socioeconomic characteristics. Three financial distress indicators were considered—missing non-mortgage payments, missing mortgage payments and taking out a payday loan.
The varied results call for a nuanced interpretation. The first point to note is that the debt-to-asset ratio tells a more consistent story than the debt-to-income ratio. Across all three distress indicators, people in the highest debt-to-asset groups have a higher probability of reporting distress. However, after controlling for other factors, the debt-to-income ratio is not associated with the measures of financial distress since the results are not statistically significant.
The debt-to-asset ratio might be a more predictive indicator because debtors can often sell assets to make debt payments, even if they do not have the income to make payments. Alternatively, those who own homes often have access to home equity lines of credit. These results are important because they suggest that the debt-to-asset ratio is a better indicator of financial precariousness than the debt-to-income ratio.
Additionally, some demographic groups face relatively higher probabilities of reporting financial distress, including lone-parent families, and “other” family types. Conversely, families whose major income earner had a university degree, were less likely to be in financial distress. Similarly, homeowners with or without a mortgage were less likely to miss payments or take out payday loans.
Financial distress has many dimensions and can take multiple forms. Future measurement should provide additional details, such as the frequency at which specific financial services are used when under financial duress. More research will be needed to better comprehend the extent to which Canadians are facing financial difficulties.
As Cities Grow, So Do the Numbers of Homeless
If your capital is tied up in assets that are dropping in value, your lifestyle will come under the scrutiny of your bookkeeper, accountant and banker. And this reappraisal, if your net worth is shrinking, will lead to decisions focused on turning debt into equity. Sell the asset or accelerate the payments on debt principal; either way, your lifestyle will change. If for any reason your cash flow is trending towards negativity, the need to sell assets quickly becomes the first choice. As we know, Canadians are all in on the debt side of their balance sheets with household obligations at record debt to asset levels.
- ITEM JUN 2019 Bloomberg: Delinquency rates rise in Canada as consumers add more debt: Equifax
- ITEM MAY 2019 CBC News: High household debt, possible housing market shocks are main risks to the economy: Bank of Canada
- ITEM APR 2019 Better Dwelling: Canadian Household Debt Is Growing Much Faster Than Asset Values
- ITEM MAR 2019 The Insurance Journal: Many Canadians say they will liquidate assets to pay down debt in 2019
Prominent Canadian economist David Rosenberg is warning that record household debt levels in the country will hinder economic growth...
(ie: your income, your cash flow, your ability to service your debt)
‘Maxed out’: 48% of Canadians on brink of insolvency, survey says.
That's what the recent survey via BNNbloomberg.ca conducted by Ipsos for insolvency firm MNP Ltd. says.
48% - of Canadians are $200 or less away from financial insolvency every month.
35% - say an interest rate increase would move them towards bankruptcy.
54% - worry about their ability to repay debts.
40% - said they won’t be able to cover all living and family expenses in the next 12 months without taking on more debt.
55% - say they are $200 or less away from the financial brink in Atlantic Canada.
51% - say the same thing in Quebec.
48% - say the same thing in Ontario.
The poll is conducted quarterly for MNP and surveyed 2,070 Canadians online from March 13-24... phew.
Fortunately for the rest of us, this is a small sample relative to our more than 35 million residents... but according to sciencebuddies.org a survey of 2000 random people will produce a margin of error of only 2.2%. Oh oh.
If this poll is a reflection of Canadian's ability to continue borrowing to fund lifestyle as they have for the past decade of accelerated leverage, then next up will be a slowdown in consumption which is Canada's major GDP input. The April 2019 IMF table of Global Economy projections is below; Canada's economy is indeed facing a challenge.
But this is not new news because since the July 2008 commodity peak, the Canadian Balance of Trade has been negative for 77% of the time (monthly prints). Also the Federal Direct Investment metrics have been negative for the last 20 years and the spread has widened in the last 3.
...and the Yield Curve
The flattening of the yield curve is a signal from the bond market that it is worried about the economy and its ability to continue to grow. In addition, it is a signal that future inflation is nowhere to be seen. One outcome of an inverted yield curve is a weakening in bank lending as banks begin to earn less profits from making loans. In the most recent earnings announcements, the banks have already made this clear as they expect net interest margins to contract. This is because a bank’s role is to borrow funds at usually lower short-term rates and lend those funds at usually higher longer-term interest rates. The spread between these two rates represents the banks’ profits.
However, with an inverted yield curve, the spread between the short-term and long-term rates narrows and the banks’ incentives to lend are greatly reduced. Not only is the profit margin eroded by the yield curve, but the banks could become worried about the possibility of an economic slowdown. As banks become less incentivized to extend credit (make loans) to their customers, it results in a vital lifeline of the economy being choked off. PacificaPartners.ca
High household debt levels reduce consumption abilities which puts downward pressure on employment which is already facing the digital transformation of supplying goods and services. Lender and borrower risk leads to debt revulsion by both sides of the equation.
On march 11th 2019, David Larock an independent full-time mortgage broker laid out his "Case for Lower Canadian Mortgage Rates", below edited, but read the whole feature report at MoveSmartly.com
The Bank of Canada acknowledged that our current economic slowdown is now “more pronounced and widespread” than it had previously forecast.
Global economic momentum is slowing.
Our economic slowdown has been sharper than expected.
Housing and consumption have slowed, and business investment and exports haven’t picked up the slack as the BoC had hoped.
Inflation expectations have been lowered.
Uncertainty is increasing.
Our output gap is widening because debt is choking off growth, and that is a powerful, long-term headwind, which will continue to exert itself long after global trade networks have been re-established.
On this last item, my Household Debt chart is in agreement.
Tuomas Malinen @mtmalinen for the charts above.
Today, March 13th 2019, the live
Canadian Productivity Chart exhibits a slowdown.
While China’s characteristics are unique, there is a distinct pattern of policy activism that can be seen globally that has been of limited effectiveness in curbing house price appreciation. The housing
Apparently it's still global and a lot of us are in the deep end of the debt pool now. Makeway for China as the water level rises.
By contrast, between 2009 and 2015, households had added an average of just three percentage points to their debt-to-GDP ratio each year, and that includes a large jump of 5.5 percentage points in 2009 as banks ramped up lending in response to the global financial crisis. Before 2009, household debt levels had hovered around 18 percent of GDP for five years. In other words, the debt burden for Chinese consumers has nearly tripled in the past decade.
Part of that rapid debt expansion has been deliberate. China’s government has encouraged increased borrowing and spending on items like cars and houses, to boost both consumption and investment. At the G-20 summit in February 2016, China’s sober central bank chief Zhou Xiaochuan remarked that rising household leverage had “a certain logic to it.”
At the same time, a generational shift is unfolding. Younger, urban Chinese are proving more willing to bring their consumption forward to today rather than pushing it off to the future as their parents did.
Most worryingly, though, skyrocketing home prices seem to be driving much of the increase in household debt. Andrew Polk, Bloomberg, February 2018
China's economy is headed for a difficult decade.
Michael Pettis, March 2018
My recent update of Foreign Direct Investment on my Canadian Household Debt, GDP, and Balance of Trade chart demonstrates that Canadian Capital would rather flee than fight.
But peak debt may be upon us in this business cycle as banks begin to report a drop in mortgage demand.
The Canadian Imperial Bank of Commerce anticipates it will issue half as many new mortgages in the latter part of the year as it did in the same period of 2017 amid cooling in the real estate market. Times Colonist May 23, 2018
David Rosenberg: Ottawa created the debt monster that Canada now faces.
"47% of residential mortgages
are set to roll over for renewal next year."
David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, joins BNN Bloomberg to provide his take on the Canadian economy as Bank of Canada Governor Stephen Poloz sounds the alarm on household debt in this country. Originally aired on May 2, 2018 on BNN Bloomberg
Lance argues in the chart above that the...
Intermediate-Term Picture Remains Bearish
On a intermediate-term basis, both of our weekly “sell signals” remain, and as shown below, the market once again failed at its overhead trend line last week as well as the downtrend resistance from the previous peaks. These failures keep downward pressure on the market as prices continue to follow the “path of least resistance.”
The weekly chart also shows the rare “buy” and “sell” signals issued on a longer-term basis. Currently, as the market struggles with its current correction process, it is also very close to triggering a more important “sell signal” which could indicate a further correctionary process over the next several months.
Over the last 25-years, these sell signals have only been triggered 5-other times.
1. At the peak of the market prior to the “Asian Contagion”
2. Just prior to the peak of the market in 2000
3. At the peak of the market in 2007
4. At the peak of the market 2011 as QE-2 ended and the U.S.was facing the “debt ceiling debate.”
5. Near the peak of the market from the collision of the end QE-3, the “taper tantrum” and “Brexit.”
But I did find this chart here of the S&P 500 vs the Case Shiller U.S. Housing Index:
It is clear that some sort of correlation exists between stock values and real estate values. Stocks started their recent bull run in 2009. As you can see from the chart above, real estate values didn’t start moving up steadily until 2012. So there is a lag here. But what is interesting is the correction in stock values in 2008 matched up with real estate values. In fact, real estate values started trending lower before the market crash. DoctorHousingBubble.com
In January 2018 the S&P 500, DOW and TSX peaked.
U.S. vs Canada Private Debt to GDP
Steve Keen "Can we avoid another financial crisis?"
In December 2017, the 10yr less 2yr Canada Government bond spread narrowed to just 32 beeps away from inversion.
A year and half later the wide reached 230 beeps in May 2009, 2 months after the pit of gloom crash bottom.
We should start watching for further narrowing now especially with equity markets at their historical tops.
Market history is littered with downturns that followed new Republican presidents: Hoover (1929), Eisenhower (1953), Nixon (1969), Reagan (1981), and Bush (2001). The Trump bubble will likely prove to be the mother of all Republican presidential ebullience bubbles. Trade wars are not positive at all for the markets. They are what exacerbated the Great Depression and they should be one of the key triggers of the bursting of the China bubble.
Here's Who Could Lose the Most in a U.S.-China Trade War
Bloomberg, January 23, 2017
The Premier of BC Christy Clark is in the news again with her pre-election enticement of no interest loans for 60 months of up to $37,500 to wannabe buyers who need a bigger cash down payment to qualify for a mortgage to purchase real estate in BC's absurd housing market that has been on ice since the summer. BNN Dec 16, 2016
The chart mashup above was prompted by an observation from a reader (S.B.) that the technical structure of the Vancouver housing market is now within momentum levels for a trend change to the downside as soon as the next retest and failure of the recent highs completes; the setup being the "anti-trade". S.B. made earlier observations here "3 Vancouver Views" Sept 2016 and "Simple as ABCD" May 2016; thanks SB.
The evidence of serious downward repricing has this provincial government attempting to goose the demand side of the market with free ZIRP money provided by you and me dear tax payer. Not only will we tax payers supply the down payments to people who don't qualify under the already sub prime CHMC lending standards, but we are additionally collectively subsidizing the banking and mortgage industry that has little or no lending risk and we are continuing to feed the provincial government tax collector via the property transfer tax. "In total the property transfer tax brought in $1.53 billion for the government, $605 million more than budgeted" said BC Finance Minister Mike de Jong CBC NEWS July 2016.
Ontario and Toronto are also implelled to goose the fence sitters into buying into the market:
Ontario land transfer tax rebate doubled to $4K for first-time homebuyers. City News November 2016.
Ontario’s land transfer tax rises from 0.5 per cent on the first $55,000 of a purchase price to two per cent for everything above $400,000. Toronto’s land transfer tax is one per cent on the first $55,000 and two per cent on the rest. Toronto offers rebates of up to $3,725 for first-time homebuyers.
Sousa also announced a freeze in the property tax on apartment buildings while the government reviews how the tax burden affects rental market affordability. (Will landlords pass this along to tenants?)
Political ideology at all levels of government since the post war "invention" of CMHC has destroyed any possibility of a social contract that includes affordable housing as a basic right of tax payers. It appears to me that governments at all levels in Canada will continue to promote and urge Canadians to add even more household debt to their balance sheets that are already at historic levels nationally and globally. Although the Federal Government appears on the surface to be more rational than the provincial governments by warning Canadians who already have high levels of debt, they are not concerned with Canadian Banks who continue to be sheltered by tax revenue from the private sector. What they are concerned with is a RECESSION and THEIR OWN FEDERAL CASH FLOW. Is it irony or finger wagging and buck passing? The government is hooked on the commodification of real estate; it's a cash cow with a golden udder of debt that we are all attached to.
Here is the Federal Government at work:
CHMC Promotions Oct 2016 by the Globe and Mail
- 1992 Allow RRSP withdrawals for home purchase.
- 1999 Allow purchase with only 5% down payment.
- 2003 Remove house price ceiling on insured mortgages.
- 2003 "Green" mortgage insurance premium reduction and environmental incentives.
- 2005 Self Employed can self declare a 15% gross up of income and access all mortgage insurance products.
- 2005 Amortization increased to 30 years on insured mortgages.
- 2006 Amortization increased to 35 and 40 years on insured mortgages.
Warning from the Bank of Canada:
Risk of household financial stress and a sharp correction in house prices.
Some notes from the Satyajit Das videos below:
- Real growth was produced from the Industrial Revolution.
- But since the 1980's, growth has been fuelled by debt.
- An asset's income should pay for its debt.
- In the 1950's $1 to $2 of debt paid for $1 of GDP.
- By 2007-2008, $4 to $5 of debt paid for $1 of GDP.
- China in 2016 needs $6 to $8 of debt to pay for $1 of GDP.
- In the 20th century, population doubled and was an organic driver of growth. Now population does not drive growth.
- Innovation contributes to growth but productivity is falling.
- Now we have a service economy not a productive one.
- Innovation rates are falling dues to lack of R&D funding.
- We cannot repay debt without growth.
Property is an illusion by Satyajit Das
The End of growth as we know it by Satyajit Das - Key themes of his new book "A Banquet of Consequences"
History, Charts & Curated Readings
"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
Balance Of Trade
Rent Or Buy