Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canada’s economy is adding a massive amount of jobs, but not nearly enough. The country reported a gain of 60,000 jobs in June, but the unemployment rate rose to 5.4% as well. It turns out the country’s record population growth is producing more labor demand than the country has jobs. Good news for inflation and employers, since more competition for roles will lead to lower input costs. Bad news for people that were hoping for salaries to keep up with inflation, and potentially population growth.
Canadians may have reached the point where they borrowed more than they can handle. Transunion, a major credit reporting agency, found nearly 1 in 4 Canadians won’t be able to make the full payment on their outstanding credit. Policymakers were warned repeatedly by international organizations that the country is fostering high debt levels, making households vulnerable to shock. The calls for stronger regulation were ignored since they thought everything was fine. Until it wasn’t.
Canadian households are in over their head when it comes to debt. The household debt to income ratio (DTI), an economic fundamental, hit 198.5% in the latest data, a new record high. Few households see a problem with these lofty debt levels, as lax regulations, low interest rates, and the belief that central banks will not raise rates is fueling moral hazard. If people see policymakers remediate all consequences for overleveraged investors, it’s hard not to assume the only loser is people that handled their debt loads responsibly.
Canada’s latest bank observed easing conditions in nearly all real estate markets last month. RBC notes an increase in supply nearly everywhere, with price growth moderation in some high-flying, pricey markets. It so far hasn’t been enough to cause flat, or even negative, growth. However, the bank sees further moderation if the current conditions are maintained, or erode further.
Canadian interest rates climbed sharply, but the economy is taking the hikes in stride. BMO sees that as reason to believe interest rates will remain at elevated levels. The purpose of higher rates is to throttle excess demand driving inflation, largely created by the record low rates recently observed. By continuing to print robust data, the economy is sending a message loud and clear—this level of interest is a healthy level that the economy can handle.
Toronto Real Estate
Greater Toronto real estate prices continue to rise, but growth is beginning to slow. A typical home across the region saw prices climb a lofty 0.6% in June, which is a substantial amount. At the same time, it’s much smaller than the gains recently observed when interest costs began to ease. Higher interest rates have once again begun to slow the gains, with the full impact expected to appear as cheaper mortgage contracts roll off over the next few weeks.