REAL LONG INTEREST RATE The Bank of Canada 30 year Bond Rate less CPI and the TSX Real Estate Index. Household Savings Rate Chart Below. See also the Real 10yr Rate the Interest Rate Spread and the Canadian Yield Curve
CLICK CHART TO ENLARGE
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 2020, the real long (30yr) interest rate (plum plot line) contimued its path down to new lows with CPI remaining above the Bank of Canada 2% target at now 2.4%. Employment earnings are rising but will they be overcome by rising CPI and chronic real rates?
During the global ZIRP-NIRP experiment, citizens have not be able to earn enough real positive returns on cash assets, so consumption has replaced savings and we have the TSX real estate cash index pushing up into new highs (green dotted plot line). We're all in folks.
The live TradingEconomics.com Canada Household Savings Rate chart follows:
Canada Household Savings Rate
source: tradingeconomics.com
Household Saving Rate in Canada decreased to 3 percent in the fourth quarter of 2019 from 3.20 percent in the third quarter of 2019. In Canada, personal saving is personal disposable income less personal expenditure on consumer goods and services, less current transfers from persons to corporations and to non-residents as a percent of disposable income.
My August 1, 2019 post Japan Redux suggests that the next part of the credit cycle will include the return to savings as spent consumers work on repairing their balance sheets.
My January 25, 2019 post on Peak Consumption shows the relationships among the rates of Canadian household savings at the lows, consumer spending at the highs and retail sales momentum plunging as consumers become tapped out.
If peak real estate has come and gone, those at the margin will turn to a lengthy balance sheet repair discipline by diverting discretionary consumption spending to debt reduction or will turn to a quick transformation of debt to equity via asset liquidation. In either case it will take time as Canadians turn away from consumption back to saving which in the long term will lead back to investment possibilities.
The 20 year transformation of Canadians from producers to consumers is illustrated in my FDI FDO chart. The cost of the last decade of real estate wilding will be heavy for the weak hands that are now being exposed.
