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Credit Growth Acceleration is Boosting the Housing Market

Steve Saretsky -

The national housing market, despite all odds, continues to defy gravity, with both sales and prices picking up after a temporary slowdown near the end of last year and into the early half of this year. I believe this is more a reflection of falling mortgage rates which have finally fed through into increased housing activity.

Per the Canadian Real Estate Association data, national home sales are now slightly above the 10 year average.

Canada national home sales
Canadian home sales are slightly above the 10 year average.

The increase in housing activity has been telegraphed through a noticeable increase in residential mortgage credit growth. This has been accelerating since April, and while the pace of growth is still very weak, residential mortgage credit is actually growing faster than it did prior to the B-20 mortgage stress test!

Canada mortgage credit growth
Residential mortgage credit growth on a 3 month annualized basis.

Of course activity levels vary by city, but the general theme is housing activity is increasing across the vast majority of Canada. Considering we are still enjoying full employment, record high immigration, and near record low borrowing costs it shouldn’t come as a surprise that housing activity remains robust. The question really should be, what happens when any of those three change? It is unlikely rates are going up meaningfully anytime soon, however you could certainly make the argument the current business cycle is long in the tooth and that the Canadian labour market is susceptible to a slowdown. If a recession ensues, migration will also pullback given it mirrors the business cycle.

Regardless, the cycle continues for now. Here is ScotiaBanks current housing activity rankings by city. You’ll notice the strength remains mostly out east.

housing activity across Canada
Housing activity across Canada as ranked by Scotia Bank.

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The Canadian Economy

Steve Saretsky -

Happy Monday Morning! We got a string of new data this past week confirming inflation in consumer goods, and housing are proving to be more than transitory. Canada’s consumer price index continued to drift higher with prices hitting an 18 year high, up 4.7% from last October. The recent floods in BC...

Steve Saretsky -

The calls for impending interest rate hikes continues. CIBC’s chief economist, Benjamin Tal, was out recently suggesting the Bank of Canada could hike its benchmark interest rate at least six times beginning in early 2022. “I think there is a risk of getting into the market at today’s rates,” noted Tal....

Steve Saretsky -

The BC Government announced it is looking at several cooling measures for the housing market in 2022. They have highlighted two measures. The first is an end to the blind bidding process, and the other is a mandatory “cooling off period” which will allow any buyer a 7 day recession...

Steve Saretsky -

The Bank of Canada continues to slowly drain liquidity after flooding the system with a firehose of cash during the pandemic. Bank of Canada governor Tiff Macklem announced the end of Canada’s QE program (also known as money printing). Furthermore, in Macklems words, “We expect to begin increasing our policy...

Steve Saretsky -

Consumer price inflation ripped higher in September, surging 4.4% year-over-year, the fastest pace of price increases in 18 years. Let’s discuss this further. We have an inflation problem and the Bank of Canada remains of the view that inflation will be transitory. Although they really can’t say otherwise, for if...

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The Saretsky Report. December 2022