REAL PRICE of HOUSING of Vancouver, Toronto and Calgary Single Family Detached and the Bank of Canada $CAD Commodity Index and 5 Year Fixed Mortgage Rate
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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.
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In December 2019 Canadian commodity prices remained below the most recent 2018 highs. The persistent USD/CAD inflation since 2012 continues to inflate our USD denominated import prices keeping a lid on commodity driven real housing prices. Official total CPI ticked up above the Bank of Canada 2% inflation target to 2.2% on the November print even as crude oil prices trade in a relatively narrow range dropping into seasonal weakness. |
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Commodity and Interest Rate plots remain in a narrow range. On the interest rate side, mortgage rates have ticked down from their near term highs supporting those "real" housing price plots as nominal prices weaken.
Since July 2017, the Bank of Canada retail 5 year fixed mortgage rate (aqua dotted plot line) had moved up off its outstanding record low of 4.64% to 5.34%, but in July 2019 the CHMC stress test was dialed down to 5.19% although lenders at street level are pushing sub 3% variable and fixed rate mortgages and the new stress metric lets a few more 'less weak' hands join the FOMO crowd.
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 Mortgage Stress Test, the CMHC credit tightening and offloading of risk onto the retail lenders; the threat of new chilling tax and CRA penalties and of course policy flip flops by the federal government like its early reversal on electoral reform and its trading of ethics for corporate partners.
When credit is a lifestyle employer as it continues to be in Canada, appraisers remain in demand.
The CCI train wreck into the March 2009 Pit of Gloom saw a 44% crash in just 7 months and the experiment of ZIRP to NIRP monetary policy from November 2007 to July 2017, 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 in the service of political power and it has replaced affordable housing with indentured mania. There must be a better way.
