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 April 2020 Canadian commodity prices as represented by the CCI (black plot line) plunged to new lows with crude futures prices hitting negative numbers (USD -37.63) and as a result, commodity driven real housing prices (solid coloured plots) spiked up. Total CPI also crashed to 0.9% well below the Bank of Canada 2% inflation target on the March print (one month lag). |
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Counter to commodity deflation, the persistent USD/CAD inflation since 2012 inflates our USD denominated import prices.
On the interest rate side, mortgage rates remain at the lows supporting those "real" housing price plots while nominal prices deteriorate.
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 pushed sub 3% variable and fixed rate mortgages and CMHC tinkered with a new stress test relaxation to begin April 2020. That new stress metric will let a few more 'less weak' hands join in with the dwindling FOMO crowd.
The yield curve inversion of the 10yr less 2yr bond yield spread marked its 8th consecutive print in February 2020 and the Covid 19 virus has now made recession an inevitable result in Canada as the energy sector collapses and the fear of a viral infection forces physical distancing behaviour.
On the interest rate side, mortgage rates remain at the lows supporting those "real" housing price plots while nominal prices deteriorate.
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 pushed sub 3% variable and fixed rate mortgages and CMHC tinkered with a new stress test relaxation to begin April 2020. That new stress metric will let a few more 'less weak' hands join in with the dwindling FOMO crowd.
The yield curve inversion of the 10yr less 2yr bond yield spread marked its 8th consecutive print in February 2020 and the Covid 19 virus has now made recession an inevitable result in Canada as the energy sector collapses and the fear of a viral infection forces physical distancing behaviour.
When credit is a lifestyle employer as it has been in Canada, the demand for equity appraisers and margin clerks will spike as well.
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.
