REAL PRICE of HOUSING of Vancouver, Toronto and Calgary Single Family Detached and the Bank of Canada $CAD Commodity Index & 5 Year Fixed Mortgage
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The chart above shows the "real price" of Vancouver, Toronto & Calgary SFDs when looked at from the point of view of the BoC Canadian Commodity Index (CCI) and Borrowing Costs (retail 5yr Mortgage) which are the main input costs apart from operating expenses and tax.
In April 2017 the Toronto data plots appear to be topping; Vancouver data rolled over in July of 2016. Although Calgary prices look rational, the recent selloff in oil and the pending seasonal slowdown in the energy sector could bring those prices down even more.
The commodity index (CCI solid black line) is rising on a dropping CAD/USD and is now breaking out above the March 2009 Pit of Gloom bottom well below the July 2008 oil peak.
The CCI train wreck into the March 2009 Pit of Gloom saw a 44% crash in just 7 months. Oil is slippery, CMHC is worried, and so is the Department of Finance Canada (DEC 2016). The oil majors are moving out of Alberta.
The commodity index (CCI solid black line) is rising on a dropping CAD/USD and is now breaking out above the March 2009 Pit of Gloom bottom well below the July 2008 oil peak.
The CCI train wreck into the March 2009 Pit of Gloom saw a 44% crash in just 7 months. Oil is slippery, CMHC is worried, and so is the Department of Finance Canada (DEC 2016). The oil majors are moving out of Alberta.
The Vancouver real price series remains well above the summer highs of 2012 but dropping while the Toronto's price series constructs a classic Eiffel Tower top as well.
There should be no more surprise BoC rate cuts if the federal government mandate plan is to use their fiscal powers, but as we know, the government can surprise us at any time, eg: the new Mortgage Stress Test, the CMHC credit tightening and offloading of risk onto the retail lenders; and of course the flip flop on electoral reform by the federal government.
The last 8.1 years of ZIRP & NIRP monetary policy combined with CMHC's out-of-control insurance scheme (also add in the BC Gov't Sub Prime Cash give-away) has been a terrible social experiment that has replaced affordable housing with indentured mania. Is there a better way?
In a commodity crash, producers lose pricing power as international competitors drop finished prices neutralizing any gains for Canadian exporters from a withering CAD/USD while the +/- 70% of Canadian employees working in the consumer and service sectors look for ways to leverage their deflating earnings at the supermarket and or job fair.
The other major cost input, the retail 5 year fixed mortgage rate (aqua dotted plot line) remains at the outstanding record low of 4.64%, although street vendors are still pushing sub 3% five year fixed mortgages while the stress test weeds out the weak hands. In January 2015 the BoC cut the bank rate by 25 beeps and again in July 2015 another 25 bps.
For Vancouver, the fire sale mortgage rates are allowing the real cost of housing relative to rates (dotted city plot lines) to remain elevated. It's the same in Toronto and even in Calgary although not so much, as the Trumpster vows to unleash energy supply 2.0. But when credit is a lifestyle employer as it continues to be in Canada, appraisers will eventually be in demand again.
