The Canadian labour market disappointed for a second straight month, this time shedding 68,000 jobs in May according to Stats Canada. This pushed the unemployment rate back up to 8.2%. If the Bank of Canada was looking for some air cover in order to maintain current stimulus measures, look no further. Sure inflation is running a bit hot at 3.4% but the central bank still thinks its transitory. In fact, I think a bout of inflation is welcomed considering the mountain of debt we have to ultimately inflate our way out of. Inflation has always been a tricky thing to measure, perhaps intentionally. Just think, according to official inflation statistics, food prices are up only 0.9% from last year and shelter costs by just 3.2%. Do either of these sound accurate? To no surprise, the bulk of the inflation is showing up in assets, particularly here in the housing market. Recent data released by local Real Estate Boards highlights rampant price growth across the nation. Here’s the preliminary data for May: – Greater Vancouver +14% – Greater Toronto +19% – Calgary +11% We’re still waiting for other Real Estate Boards to report their numbers but its largely expected the National

It has been fascinating to watch the Governments response to combatting the pandemic from an economic perspective. Remember, in Q2 2020, at the onset of the pandemic, labour income declined by $20B. However, government transfers not only plugged the hole in the leaking ship, they went above and beyond that. Government transfers to households grew by over $70B. In other words, government income support programs paid out $3 for every $1 in lost income in that quarter. While the policy response was certainly necessary, there’s been a lot of discussion about paying it back, and the possible moral hazards of essentially handing out free money. Ironically, we just found out this week that 30,000 Canadians will be able to keep $240 million in Canada Emergency Response Benefits despite originally being ineligible for the money. According to the National Post, the government has decided to forgive the debt of all self-employed Canadians who claimed an average $8,000 in CERB overpayments — worth a total of $240 million. The claimants did not meet the benefit’s eligibility criteria due to confusing government messaging. But of those people, roughly 6,500 already voluntarily reimbursed the government. In those cases, the government will take the unusual step

The Bank of Canada is suddenly worried about rising debt loads and extrapolative expectations in the nations housing market. Following the central banks update to their financial stability review, governor Tiff Macklem took to the airwaves, “Some people may be thinking that the kind of price increases we have seen recently will continue. That would be a mistake.” Adding, “Some of the vulnerabilities that we had before the crisis have come back and top of the list is vulnerabilities related to housing and household indebtedness and they have intensified,” Mr. Macklem said. “The message to Canadians is don’t extrapolate from the current rapid increases we have seen in prices. Don’t expect that those will continue indefinitely.” Of course, the irony is that the Bank of Canada is largely responsible for the imbalances created over the past 12 months. You’ll recall back in July when the Bank pleaded with Canadians to borrow money, hoping to stave off a deeper credit contraction. In July 2020 Macklem said, “Our message to Canadians is that interest rates are very low and they are going to be there for a long time.” Macklem added, “If you’ve got a mortgage of if you’re considering making a major purchase, or

During a Q&A this past week with Canadian university students, Bank of Canada governor Tiff Macklem acknowledged, “QE can boost wealth by increasing the value of assets such as the investments Canadians have in their RRSPs or company pension plans. But of course, these assets aren’t distributed evenly across society. As a result, QE can widen wealth inequality. We will look closely at the outcomes of QE here and elsewhere and will work to more fully understand its impact on both income and wealth inequality.” It is certainly no secret that the younger generation is bearing the consequences of a monetary policy that is designed to boost asset prices, after all these university students are not only short on assets but saddled with student debt. They remain rightfully skeptical that the system isn’t quite working for them. Ironically, the very last question in the Q&A period, a brave student asked, ““if lumber costs 250% more year-over-year and house prices are up 24% is it safe to say inflation is still 2%??” Unfortunately the system isn’t working for everyone. The inflation debate rages on, focused on a CPI that fails to discern between demographics. After all, a millennial in the city of

Inflation is picking up, this is particularly the case for commodities. Commodities jumped to their highest in almost a decade as a rebound in the world’s largest economies stokes demand for metals, food and energy. The Bloomberg commodity index is now up a whopping 50.54% from last year, and 20% year to date. “The surge in commodity prices over the past year now guarantees higher goods price inflation this summer,” IHS Markit Ltd. said in a recent report. Adding, “During the next few months, even top-line consumer price inflation in countries such as the United States will rise to rates not seen in nearly ten years.” The commodities boom is resulting in surging costs for homebuilders, who, at least so far, have been able to pass on these costs to home buyers. Lumber prices have more than quadrupled over the past 12 months, with lumber futures recently hitting an all time high of $1500 USD/ per thousand board feet. According to the National Home Builders Association, this has added an additional $35,872 to the cost of a new single family home. And thats just lumber costs. Copper prices have also soared to record highs, rising more than 30% this year and have

The Real Estate Board of Greater Vancouver is expected to release April’s housing data today. Brace yourself for some eye-popping media headlines. Home sales across Greater Vancouver surged 340% year-over-year. Yes you read that correctly. The move is almost entirely due to weak base-effects from last year, when housing activity collapsed at the onset of the pandemic. However, let’s unpack this a little further. April home sales still hit record highs, regardless of base-effects. The median sales price increased 15% to $920,000. I expect the Real Estate Boards home price index, which is the number the media likes to report on, should show gains of around 12%. Months of inventory for sale remains incredibly tight, at just 2.1 months of supply- a reading which suggests prices will move higher- and they will. All in all, the data looks incredibly bullish and the media will have fun gobbling this one up. However, for fortunate readers of this newsletter, i’d like to share a few additional insights. Despite the obviously bullish data, please keep in mind that the way sales data is reported means it is ultimately a lagging indicator. So while prices will continue to move higher over the coming months,

Leading up to the Federal budget announcement, the rumour mill was churning, with mainstream media outlets salivating over a possible tax on primary residences, including speculation taxes or even increased taxes on capital gains when selling investment properties. Instead, the federal government delivered none of that, ultimately opting not to tinker with the golden goose. But can you blame them? According to Ben Rabidoux with North Cove Advisors, residential investment has accounted for 46% of nominal GDP growth since Q1 2018. Yes housing is the economy. So, naturally, the Liberal Government opted to introduce policy that would provide the illusion they are doing something, while simultaneously ensuring the policy wouldn’t interfere with the red hot housing market. In other words, political lip service. Starting January 01, 2022, there will now be an annual 1% tax on foreign-owned vacant homes. “Houses should not be passive investment vehicles for offshore money. They should be homes for Canadian families,” said Finance Minister Chrystia Freeland in her budget address. However, according to official Government data, foreign ownership is just a small sliver of the market. Remember, back in 2019 CMHC studied non-resident ownership, concluding: Properties that have at least one non-resident owner amount to 6.2% in

It’s budget day. The much anticipated Federal budget is front and centre, with many citizens eagerly watching with bated breath, what, if anything, the Government will do to address the housing crisis. There are rumours suggesting there are plans to tax vacant residential property owned by non-resident, non-Canadian owners. We shall see. However, it’s unlikely any major changes are coming, after all, Canadian Real Estate is the economy. That might be a terrible way to build an economy, after all, buying and selling each other houses at ever higher prices doesn’t necessarily generate a whole lot of productivity. However, it is what it is- housing is driving the economic recovery. Furthermore, just last week finance minister Chrystia Freeland said, “We will continue to monitor housing market conditions across the country. To inform potential steps the government may take, we will closely examine the results of the consultation announced by the Superintendent of Financial Institutions.” Freeland is referring to the recently beefed up mortgage stress test on uninsured mortgages, which is poised to reduce borrowing power by 4.5%. Quick hint, it will do very little. Anyways, the latest figures released from the Canadian Real Estate Association say it all. March home sales hit

At the onset of the pandemic, Bank of Canada Governor Tiff Macklem pounded the table, urging Canadians to borrow money to prevent us from sliding into an economic depression. “Our message to Canadians is that interest rates are very low and they’re going to be there for a long time. If you’ve got a mortgage or if you’re considering making a major purchase, or you’re a business and you’re considering making an investment, you can be confident rates will be low for a long time.” Sure enough, Macklem has made good on his promise, soaking up supply in the bond market, and driving bond yields (borrowing costs) lower. As of today, The Bank of Canada now owns 40% of the entire Government of Canada bond market. Since Q2, 2019, the central bank has absorbed and essentially funded 92% of the Canadian Governments budget deficit. Again this begs the question, are we in the early days of adopting Modern Monetary Theory? If you’re unfamiliar with the term, it’s essentially the new buzz word and a growing idea for reimagining monetary and fiscal policy. The central idea is that governments with a fiat currency system under their control can and should print (or create with

What to do with the hot housing market? There’s probably not a whole lot that you can do right now. While we can attempt to reign in the abundance of liquidity sloshing around financial markets, that also risks derailing the economic recovery. The reality is a global pandemic has completely altered our daily lives, upending our work and living situation, with some people believing, right or wrong, that this is a permanent shift. As a result, people are moving. The past twelve months will go down as the Great Reshuffling. What was once considered “pent-up demand” has clearly morphed into something entirely different. A housing bull market that is being driven not only by excess liquidity but also human emotions. People are spending an inordinate amount of time at home and thus are re-considering not only where they want to live, but how they want to live. Look no further than the recent data coming out of Greater Vancouver. March home sales surged to all time record highs for the month. Despite little to no population growth and a weak labour market, home sales are ripping, surpassing even the 2016 foreign buying boom. Yes home sales are unbelievably high, but

There was widespread fear at the onset of the pandemic, for obvious reasons. Among the likes, was Stephen Poloz, then head of our central bank. Could central bankers save the system once again? Was there enough monetary juice left in the tank to stimulate the economy? In an interview with the Globe & Mail, Poloz recounts, “Reporters were asking me, ‘What’s the maximum, how big could it be?’ I said, ‘Well, it’s unlimited. … It’s whatever the market needs.’ ” Sure enough, $5B of Quantitative Easing per week later and it worked. Financial markets are humming along, credit is flowing, and Canadas national housing market is enjoying record high prices, officially up 17% on the year, a necessary side effect says Poloz. And so far, policymakers have been unwilling to intervene for fear of undermining the economic recovery. “One of the concerns we’re having is there’s starting to be ‘fear of missing out’ … and that might be driving some of the expectations,” Deputy Governor at the Bank of Canada Toni Gravelle noted in a recent speech. Yes, extrapolative expectations are running high, and why wouldn’t they? When policy makers intervene to prevent natural price corrections you create speculative feedback loops. People believe house

There’s no question low interest rates and a seemingly unlimited amount of QE (money printing) is creating distortions across financial markets, and in particular our housing market. However, according to former Bank of Canada governor Stephen Poloz, this all par for the course. “If the side-effect is a hot housing market, that’s one I’ll take every day” noted Poloz in an interview with BNN Bloomberg. Adding, “It’s hot, and we could see signs of speculation, but we have to accept that because otherwise we would have a really, really bad recession.” In case you needed further evidence the housing boom was manufactured in Ottawa, look no further. While Poloz is right in the fact we avoided what would have been a deeper recession, it does not come without consequences. These policies will have a crippling blow on the younger generation, already struggling to enter the housing market. By printing a whole whack of loonies, we have essentially debauched the value of the currency, eroding purchasing power, decimating savers, while simultaneously boosting asset prices. Again, growing the divide between the haves and the have nots. It should come as no surprise that political tensions are boiling over, with increasing calls for government