REAL LONG INTEREST RATE The Bank of Canada 30 year Bond Rate less CPI and the TSX Real Estate Index
Real Rates of return fall with the rise in CPI or the drop in nominal yields and are defined as "the nominal rate less CPI".
The chart above shows that in June 2018, the real long interest rate (plum plot line) continued ticking down through the zero return even as CPI remained at 2.2%. The Bank of Canada target is 2%. After 9.3 years of ZIRP and NIRP total CPI is still in a long term downtrend. And the real long rate troughs are happening closer together since the TSX real estate breakout in 1Q 2015.
Total CPI is now 2.2%; in the last 43 prints, CPI has remained below 2.4%.
The June 2017 TSX real estate spike high (green dotted plot) gave way, failing to remain above resistance begun in 1Q 2015; now an attempt to break out again is on. FOMO lives.
Commodity deflation reflects withering global GDP. One should keep an eye on the USD/CAD pair because since February 2018 the USD has been trending stronger and as it does Canadian consumers will need to find or borrow more loons, to maintain lifestyle as import prices increase.
The slow down in real estate sales as well as perhaps a more secular turn in trend may leave the June 2017 TSX Real Estate Index data spike high and dry as investors rethink their 2018 portfolio mix.
Mark your calendars, 2016-17 has been hot for real estate bulls and they have been able to make 2017 memorable despite sales resistance under the growing mountain of debt.