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 January 2017 the CCI (solid black line) hit downtrend resistance with tight range in the the seasonal energy sector which is keeping the Calgary's detached housing sector range bound as well. But the downtrend of CAD commodity weakness during the past 31 months of dismay is keeping the plot line well below the July 2008 oil peak even as it attempts to break above the March 2009 Pit of Gloom bottom.
Since the June 2014 high, the CCI has plunged 28% in 31 months. The previous CCI train wreck into the March 2009 Pit of Gloom saw a 44% crash in just 7 months. Is the current commodity deflation a destruction event or just a mere correction event? Oil is slippery, CMHC is worried, and now so is the Department of Finance Canada (DEC 2016)
The Vancouver real price series remains well above the summer highs of 2012. Toronto as well has constructed the classic Eiffel Tower top and the two of them look like 1980 Gold.
With the new federal government, there should be no more surprise BoC rate cuts if the mandate plan is to use their fiscal powers, but as we have seen this month the government can surprise us at any time, eg: the new Mortgage Stress Test and 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 94 months of monetary policy combined with CMHC's out-of-control insurance scheme (also add in the new 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, and still no 2% inflation target; hello Japanada.
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 has been in Canada, appraisers will eventually be in demand again.