REAL PRICE of HOUSING of Vancouver, Toronto and Calgary Single Family Detached and the Bank of Canada $CAD Commodity Index & 5 Year Fixed Mortgage
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 October 2018 commodity prices continued ticking down five months after failing to break above the May 2018 rally. CPI inflation was 3% in July but has ticked down and is now 2.2% on the Sept print. The USD/CAD inflation and new tariffs elevates our USD denominated commodity import prices but crude oil prices are heading to their seasonal lows.
Commodity and Interest Rate plots are narrowing. On the interest rate side, mortgage rates have remained at their near term highs keeping a lid on those "real" housing price plots.
Since July 2017, the Bank of Canada retail 5 year fixed mortgage rate (aqua dotted plot line) has moved up off its outstanding record low of 4.64% and is currently at 5.34% although street vendors are pushing sub 3% variable rate mortgages while the stress test weeds out the weak hands.
The end is in site for fire sale mortgage rates as the major banks push their rates up which forces the real cost of housing (dotted city plot lines) relative to those rates to turn down.
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 reversal on electoral reform.
Albertans are wary of the Trumpster who vows to unleash energy supply 2.0. And when credit is a lifestyle employer as it continues to be in Canada, appraisers are back in demand again.
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. Is there a better way?