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November 5, 2018 | The Landing

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Well, that’s it, then.

The final niggling shard of doubt was removed Monday as the man responsible for your next mortgage rate bared all. Central banker Stephen Poloz’s transformation from wuss to warrior over the last year has been remarkable. After seriously lagging his US counterpart for ages, Poloz has amped rates five time in just over a year, now indicating there are five more to come.

The last nail in the coffin of debt-snorflers everywhere came in a speech The Ploz flew to London to deliver. “After a decade of extraordinary effort by central banks to flood markets with liquidity,” he said, “the global economy has reached the stage where stimulus can be steadily withdrawn.”

‘No stimulus’ means rates can return to a ‘neutral bias.’ Neutral, he indicated once again, is around 3%, maybe as high as 3.5%. Given the bank rate is down at 1.75%, this means about 1.25% is yet to come. That will deliver a bank prime of just over 5%. Five-year mortgages will be about the same with a B20 moister-killer stress test rate of 6.5%.

The bank’s projections for growth and inflation indicate one simple conclusion. Rates are going up. As mentioned on this blog last week, we’re half-way there. The fact Poloz has once again taken pains to spell this out in Dick-and-Jane language even pathetic bloggers can fathom means he is serious. He’s telling you to prepare.

This scares some folks, as you might imagine.

One of them is my bud, Benny Tal, chief economist at CIBC – a guy who has always leaned towards real estate as an engine of Canadian economic growth. Says he:

“I suggest three per cent may be way too high given where we are in the economy, given the demographic story, given productivity and many other reasons. My fear is that we’re chasing something that’s in the air, and it might actually impact real life. Because every economic recession was helped, if not caused, by monetary policy error in which central bankers were chasing inflation that was not there, took interest rates much too high and killed the economy.”

Well, the US Fed has increased nine times, and the economy there is still on fire. Jobs numbers are historic, wage gains relatively fat, the GDP’s swelling and while the housing market has slowed as mortgages jump, consumer spending has not. Tomorrow’s elections will also pass judgment.

But Canada is not America. While US houses have increased in valued 24% in a decade (since real estate collapsed), here they’ve inflated an unseemly 56% on average. Meanwhile American incomes have grown more than ours. As a result, it’s harder for locals to buy a property in Vancouver., for example, than it is for people living in Manhattan, SF or LA. You know – real cities – where they don’t double-tax pied-a-terres, moan continuously or hate and fear outsiders.

And speaking of moaning, here’s Van realtor Steve Saretsky’s latest missive to clients, where he lays out the bad news already hitting a market destined to revert:

“Home sales across Greater Vancouver fell 35% year over year, the fewest home sales for the month in six years. Total sales for the month fell 26% below the ten year average, increasing the number of homes for sale by 33%. The market downturn has been led by a sharp decline in the detached housing market where sales are the lowest in ten years, with the median and average sales price having declined by 9% from a year ago. This has finally trickled down into the more affordable condo market where the benchmark price has declined for four consecutive months.”

Now, Steve’s no slouch. No shill, either, as far as we can tell. Unafraid to point out scary things like how much more susceptible Canadians are to bloating interest rates than Americans…


…or that condo sales in the Fraser Valley (the hottest sellers back in 2017, when we were innocent and horny) have just crashed by 50%…


Now add this to the warning issued by a snowflake Toronto realtor (whom I dare not name) that significant numbers of middle-class, homeowning GTA families are going sub-prime – paying 7% to 20% rates because they can’t pass the stress test – and you can see the problem. Most people truly believe rates can’t rise. Four in ten new buyers never heard of the test. Millions of mortgages are coming up for renewal. And the dude pulling the levers is doing everything possible to warn.

Will The Ploz cause a made-in-Canada housing-induced recession, as Benny Tal fears? Will people keep piling on debt, whatever it costs? Will the real estate market soft-land or hurtle headlong to earth, guts everywhere?

Hate to say it, but Tuesday night will answer some of those questions. God help us.

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November 5th, 2018

Posted In: The Greater Fool

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