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 February 2020 Canadian commodity prices remained below the most recent 2018 highs and as crude prices plunge, commodity driven real housing prices (solid plots) continue to move up. Counter to commodity deflation, the persistent USD/CAD inflation since 2012 inflates our USD denominated import prices and total CPI which is now above the Bank of Canada 2% inflation target at 2.4% on the January print. |
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On the interest rate side, mortgage rates remain near the lows supporting those "real" housing price plots as nominal prices get a boost from springtime FOMO 2.0.
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 CMHC has announced a new stress test relaxation to begin April 2020. That new stress metric will letsa few more 'less weak' hands join the FOMO crowd.
The Corona Covid 19 virus has now infected the yield curve and inversion of the 10yr less 2yr bond yield spread has aged to the 8th consecutive month. Recession is inevitable in Canada as the energy sector collapses and the fear of a viral infection forces "social distancing" behaviour.
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.
