HISTORY & READINGS at Brian Ripley's Canadian Housing Price Charts & Plunge-O-Meter

Seasonal Oil FEAR

5/28/2019

CLICK CHART TO ENLARGE

CLICK CHART TO ENLARGE

While we wait for the June real estate stats to come out, let's look at the relationship between WTI Oil prices and real estate in Canada.

The top chart shows the WTI oil prices dropping into month end lows and as the inset seasonal chart shows, the drop is happening when the price variability is at one of the four low points in the year which suggests this year may not be much different.

Now look at the Canadian scene via the TSX cash markets in the chart below. As the chart plots since 2015 demonstrate, when the energy sector price drops so does the real estate sector.

These cash markets react quickly to changes "on the ground" and are not restricted by the handicap of finding a buyer.

The relationship between oil prices and real estate are clearly seen in the Calgary housing chart with its total sales plot and the TSX Energy plot overlays, both of which have been descending since 2013 while the energy plot itself has been dropping since the July 2008 peak. It also shows up on my chart of TSX indexes for Energy, Real Estate, Financial Services and Gold... and gold is maybe leading the way for another leg down.

Gold heading down makes sense since the U.S. Dollar (my chart of Canadian real estate in USD) has been rising since 3Q 2017 and a high USD/CAD ratio can quickly unwind marketplace sentiment when it comes to a speculative commodity which real estate has been transformed into with the global suppression of leverage costs.

Oil Breaks Down: Should Stock Market Bulls Be Worried?

CLICK CHART TO ENLARGE

From CHRIS KIMBLE, technical market analyst:

A couple of weeks ago, I wrote an article about crude oil’s recent correlation to the S&P 500 (stock market) and that its initial move lower may be sending a bearish signal to stocks. Since then, crude oil has fallen sharply through its up-trend line, sending a bearish message to Oil bulls.

Is the S&P 500 the next to fall?

Below is an updated chart of Crude Oil showing the multi-month downtrend (1), and the ultimate break down through its near term up-trend line (2).

More importantly, from a pattern perspective, Crude Oil is putting in a large weekly reversal bar (bearish). This warrants watching as Crude Oil and the stock market remain highly correlated since their peak in October. Stay tuned!

Thanks to Chris Kimble for the chart above; get a FREE TRIAL to his work.

CAD Low

6/27/2018

CLICK CHART TO ENLARGE

The Canadian Dollar hit a new low today in it's path to a bottom. This is not good news for foreign buyers who bought real estate in the FOMO craze since the pit of gloom in March 2009.

Currency depreciation on top of foreign buyer taxes and real estate sales that are plunging against a backdrop of rising inventory is evaporating paper profits for would be Canadians.

Locals whether they own or rent are not spared either. A dropping CAD is raising import costs while the Trumpster builds a wall of worry out of trade tariffs and that worry is especially provoking to the over leveraged in Canada.

CLICK CHART TO ENLARGE

Canada is a country of consumers of U.S. production and services and as the USD rises in value so will our cost of living.

For the moment total CPI remains at 2.2% (StatsCan) but the Canadian Yield Curve warning mounts and as Chris Kimble notes below, a U.S. Dollar breakout "...would likely effect the portfolios of investors around the world".

Is King Dollar Creating A Bullish Head & Shoulders Pattern? by Chris Kimble June 28, 2018

King Dollar is a major player in the financial markets. And its moves are especially important to commodities and emerging markets.

Well, portfolio managers and traders in those markets may want to pay attention to today’s chart because the US Dollar may be setting up for a big move. Back at the end of February, we highlighted why the US Dollar was ready to bounce.

That post was written just as King Dollar was testing a confluence of support and nearing resolution from a bullish falling wedge pattern (point 1 on the chart below). Here’s an excerpt:

FROM A TECHNICAL VIEW, THE DOLLAR IS ATTEMPTING TO POKE ITS HEAD ABOVE A BULLISH FALLING WEDGE PATTERN. THIS ALL OCCURRING AFTER HITTING A CLUSTER OF PRICE SUPPORT.

Well, the Dollar did bounce higher. And if today’s chart pattern is a precursor, King Dollar may be ready to morph this bounce into a full-blown rally.

We are testing lateral resistance at the November 2017 highs (point 2). Could this resistance prove to be the neckline of a bullish inverse head and shoulders pattern? It’s currently an incomplete pattern, but even the slightest pullback could form the right shoulder.

In any event, a breakout here would be very bullish for the Dollar (NYSEARCA:UUP). And this would likely effect the portfolios of investors around the world. Stay tuned!

Or get a FREE TRIAL discount to Chris Kimble's peerless financial market research

CLICK CHART TO ENLARGE

Persistent Risk

3/20/2018

CLICK CHART TO ENLARGE

Libor’s spread over the overnight index swap rate, known as Libor-OIS, has widened... another sign that banks face steeper funding costs. Bloomberg March 12, 2018

As noted on the charts: "About $350 trillion of financial products and loans are linked to Libor, with a large chunk hinged to the dollar-based version of the benchmark." Bloomberg March 12, 2018, and...

"...the widening nevertheless reflects an increasing scarcity of dollar funding..." Bloomberg March 20, 2018.

Scarcity of Dollar funding means we should prepare for a rise in the $USD:$CAD pair. In terms of Canadian real estate I chart it in USD here. A strengthening USD means higher import costs for Canadian consumers at a time when interest rates are trending up.

Our Canadian national proclivity to fund our lifestyles via debt rather than income continues to produce a negative Net Trade and FDI, a flattening GDP and growing record household debt levels, charted here.

Why Consumer Debt is Canada's Greatest Economic Risk
"Consumption to Top Off" Bloomberg March 15, 2018

Canada-US-Mexico Wages

9/26/2016

Manufacturing wages in Canada, USA & Mexico

CLICK CHART TO ENLARGE

While we wait for the Clinton Trump toss up at Hofstra U. tonight, let's look at some data that affects everyone on the continent, ie: manufacturing wages measured in USD since the gloom of 2009 in Canada, the U.S. and Mexico. I have been showing for some time now, that Canada's net Federal Direct Investment balance has been negative for nearly 20 years and last year it widened significantly.

Clearly, capital likes to go where the return on investment is high especially in productive sectors like manufacturing where competition for buyers is cutthroat.

The chart above shows that Canadian manufacturing wages have jumped 21% in the last 7 years while in the U.S. they have gone up only 12% and in Mexico they have DROPPED 7% to US$2.10 per hour. (no typo - that's US$2.10/hr)

Canadian households have become highly indebted (168% debt to income) via government insured credit and animal spirit peer pressure. The IMF has been sounding the alarm bell at least since 2011 "Households, however, already have done enough borrowing, at least when it comes to real estate. Any further buildup of debt only risks a painful collapse." That's what they said 5 years ago.

Canadians are just $200 away from being overwhelmed by debt, new survey finds Financial Post September 28, 2016

> Calgary-based MNP LLP, said 56 per cent of those polled — up from 48 per cent surveyed six months ago — are close to facing negative cash flow should they take on up to another $200 in monthly debt.

>The online survey of of 1,502 Canadians conducted between Sept. 6 and Sept. 12 also found 31 per cent are already not paying their bills on time, making them technically insolvent, MNP says.

> A survey this month from TransUnion found 718,000 Canadians can’t even absorb a 25-basis point increase in interest rates without being in a negative cash flow situation. One percentage point would drive 917,000 over the edge, the credit rating agency found.

> In another recent study, the Canadian Payroll Association said 48 per cent of Canadians couldn’t make ends meets if they missed just one paycheque – a dire picture of a country living paycheque-to-paycheque.

> MNP said there is some positive news about debt costs. More Canadians now say they are concerned about their debt: 52 per cent, up from 43 per cent six months ago.

And here we are now trading real estate to each other at prices far greater than most places on the planet and that has attracted global capital into Canada to buy our hovels (speculative consumption). It's kept the F.I.R.E. service sector fully employed but has done very little for long term productive investment because long term bond yields cannot compete with flipping real estate. In the last 43 months, Vancouver single family detached house prices have gone up 1.7% per month or 20.4% per annum for nearly four years!

The latest sales/inventory ratio suggests that the risk of sentiment change is occurring in Vancouver (not yet in Toronto); but our very high labour cost relative to our U.S. and Mexican trade channels is going to put pressure on the Bank of Canada and the Federal Government to let the CAD/USD continue dropping (Bloomberg May 2016) "Currency depreciations would help many of the U.S.'s G7 partners (Canada, France, Germany, Italy, Japan, UK, & EU) a lot while hurting the U.S. little, if at all. In other words, a G7 currency war would be fine as long as the U.S. remained a pacifist."

A lower CAD/USD will help Canadian exporters to some degree but not enough to compete directly with Mexico and other low labour cost and low-bar regulatory regimes (China, Vietnam, Indonesia etal). A lower CAD/USD will also put more inflationary pressure on import costs into Canada reducing disposable consumer income that will affect consumption of domestic services including the demand for credit while debt repayment schedules may have to have their amortization terms lengthened especially if earnings growth slows.

ITEM: BlackBerry Abandons Its Phone New York Times September 28, 2016 - In recent years, BlackBerry has cut thousands of jobs and closed several operating centers, including one in this city (Halifax), over the last three years. A company spokeswoman declined to discuss any future layoffs.

A lower CAD/USD will not be favourable to the foreign buyers of Canadian real estate who purchased in the last 7 years if their own currencies do not drop as much as the CAD. Will they continue to hold a wasting asset that produces a negative cash flow?

The hysterical mania of buying real estate in Canada will come to an end when we see listing inventories rise, perhaps in 1Q 2017 if a shift from greed to fear manifests.

And from CNBC, September 27, 2016:

"Vancouver in Canada has been identified by Swiss bank UBS as the global financial center with the riskiest housing bubble."

"Currently, house prices in Vancouver seem clearly out of step with economic fundamentals, and are in bubble risk territory."

In the meantime, "The OECD warns that a low-growth trap has taken root, as poor growth expectations further depress trade investment, productivity and wages." Sept 21, 2016

CLICK TO CHART TO ENLARGE

Black Loon

6/10/2015

CLICK CHART TO ENLARGE

A 60 Cent CAD? After the dotcom bust began in March 2000, the Canadian Loonie crashed into January 2002 falling below 62 cents valued in USD.

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.

CLICK CHART TO ENLARGE

CLICK CHART TO ENLARGE

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.

Seasonal Oil FEAR

Oil Breaks Down: Should Stock Market Bulls Be Worried?

CAD Low

Persistent Risk

Why Consumer Debt is Canada's Greatest Economic Risk
"Consumption to Top Off" Bloomberg March 15, 2018

Canada-US-Mexico Wages

Black Loon

History, Charts & Curated Readings

Archives

Categories

Seasonal Oil FEAR

​Oil Breaks Down: Should Stock Market Bulls Be Worried?

CAD Low

Persistent Risk

Why Consumer Debt is Canada's Greatest Economic Risk "Consumption to Top Off" Bloomberg March 15, 2018

Canada-US-Mexico Wages

Black Loon

History, Charts & Curated Readings

Archives

Categories

Oil Breaks Down: Should Stock Market Bulls Be Worried?

Why Consumer Debt is Canada's Greatest Economic Risk
"Consumption to Top Off" Bloomberg March 15, 2018