Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canada might have been making headlines for its population-driven growth. However, that’s looking at aggregate GDP, which fails to adjust for population growth. Looking at GDP per capita reveals households are falling behind, and the economy is struggling to keep up with its peers. Over the past decade, American GDP capita has been growing at nearly 10x the rate of Canada.
Canada’s central bank is talking directly to consumers, and it’s not good news. BMO Capital Markets found the relationship between Bank of Canada (BoC) announcements and home price growth expectations have aligned. They warn the first sign of weakness from the BoC may reignite investor exuberance, and that can come as early as this Spring.
A new survey reveals that Canadian households are struggling with their debt. Most consumers surveyed regret borrowing as much as they did, and worry about their repayment ability. While they express regrets, it’s not clear they could have stopped it. Many borrowers attribute their debt problems to wages failing to keep up with their cost of living. After decades of shelter costs growing at multiples of income, debt is, and will continue to be, how many households make ends meet.
The Canadian real estate industry expects housing to heat up when rates begin to soften later this year. BMO does expect more sales, but it’s unclear if it can translate into higher home prices in the country’s most expensive market. Greater Toronto real estate is already so expensive buyers may struggle to pay the current prices—even with lower interest costs. It may seem unusual, but virtually all historical home price corrections occurred while interest rates were falling.
Global Real Estate
The BIS, the central bank for central banks, is warning of a global home price correction. Advanced economies that saw the biggest gains, are now leading the way lower. Emerging market economies on the other hand, saw a more modest boom and bust cycle. According to the BIS, they’re closer to returning to normal—something advanced economies are struggling to do.