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 February 2018, the real long interest rate (purple plot line) continued the rise off of zero return began last month as the CPI "spike" continues to evade the Bank of Canada target.
Total CPI at 1.7% continues failing to breakout to the upside after three years of coiling sideways.
The BoC "target" is 2% but 9 years of ZIRP and NIRP has not changed the fact that CPI is still in a long term downtrend.
The June 2017 TSX real estate spike high (green dotted plot) has given way, failing to remain above resistance begun in 1Q 2015. The real long rate troughs are happening closer together since the TSX real estate breakout in 1Q 2015.
Commodity deflation reflects withering global GDP. The recent "strength" in the Canadian dollar has helped importers and consumers but exporters don't like it. Since February 1st, the FX pair has reversed so that the USD/CAD is now rising and Canadian consumers will need to find or borrow more loons, to maintain lifestyle.
The seasonal 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 new year's 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.
That debt is now under the influence of rising nominal rates.