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February 8, 2019 | Vulnerable

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.

And just when you thought the central bank would chicken out on interest rates… Well, forget it. With the latest jobs stats there’s no way the cost of money’s going down in 2019.

Economists expected 5,000 new hires in January. We got 66,800. More people joined the labour force (103,700) that in any other month in the past decade. Private sector employment surged 111,500. The number of self-employed dogwalkers and hot yoga instructors dropped by 60,700. Yes, more people had real jobs. And this brought the number of new workers over the past year to 327,000.

Does that sound like an economy needing stimulus?

Right. No rate drop. Maybe a hike April 24th. Just in time for the spring rutting season.

And here’s some key news: lots of companies are hiring, but wages are still stuck in the snow. Pay for permanent employees is increasing at just 1.8% annually. But inflation is 2% – even with cheap gas. Disposable income is going down, not up, despite more people with jobs.

You can come to your own conclusions as to what this means for the autumn election plus the housing market. But it’s unlikely that elevated mortgage rates, swollen taxes and static wages will be changing this chart any time soon:

Van’s wild ride: sales-to-listing ratio plunges


Just over two years ago, with FOMO running hot and Vancouverites being told hungry foreign buyers would Hoover up every available property, there was a buying frenzy. About 70% of all listings were snapped up as they hit the market. That’s now plunged to less than 10% – which means nine of ten listings remain unsold. This is a recipe for further price declines.


Meanwhile the very outfit that may soon be instructed to restore default insurance (and cheap down payments) to $1 million+ properties is warning that the nation’s real estate market is “vulnerable.” In fact, CMHC has now said this ten times – once every three months for the past three years. Being vulnerable means an imbalance – overbuilding, overheating or unsustainable prices.

Given the above, plus a furious lobbying effort by the real estate-industrial complex, we should expect that Election ’19 will have a serious real estate component to it. The three issues are a raiding of inured property values (as above), a return to insured 30-year mortgages (decried here yesterday) plus some diddling with the stress test.

On that note, this comment just poured in:

Was reading your blog yesterday and thought to provide my two cents on something you wrote, for future consideration. Wrt the stress test, my understanding of the tests (one for the insured and one for the uninsured), the goal is not to “fix expensive markets”.

In particular, for the uninsured stress test, the intent is prudential — to support resilience of regulated financial institutions. To the degree borrowers are less levered, the better they are prepared to navigate unexpected shocks; institutions are less exposed to the type of situation that occurred south of the border ~10 years ago.

My belief is that neither test is designed to (or capable of) addressing house prices — which is very much influenced by interest rates, housing supply,  incomes, demographics, and did i mention interest rates? That the Canadian demographic is characterized by older rich folk (in diapers, no less) means their bigger marginal dollars (and very lower interest rates) are a huge influence.

Anyway — pretty big fan. Keep up the blog. You’re a Canadian institution!

Well, despite the tepid suck-up, this is absolutely correct. The stress test was instituted by the federal bank regulator (with the support of the banks) in order to protect the integrity of their mortgage portfolios, especially from the destructive influence of the Bank of Mom. By gifting Junior a bag of money, borrowers had been able to put 20% down and skirt the requirements of mortgage insurance. So the banks found they had a worrisome number of loans made to people who were actually high risk – and they were unprotected. OSFI acted, ensuring everyone is tested. In so doing they punted about 20% of potential borrowers.

Without a doubt, the test has helped crash sales and grease a price decline. It’s been more acute in markets where the economy blows (hello Calgary) or (like Vancouver) where the mushy-headed rule. This was not the point of the test, but certainly anticipated. As long as it remains in place, expect more charts like the one above.

When the sales ratio plunges it says buyers expect lower prices. And so it shall be.

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February 8th, 2019

Posted In: The Greater Fool

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