Canada’s central bank isn’t really that worried about real estate, it appears. Bank of Canada (BoC) governor Tiff Macklem held a Q&A after a speech for the Edmonton and Calgary Chambers of Commerce yesterday. During the Q&A, the governor dismissed concerns about an overheated housing market. In fact, he welcomed its contribution to the economy as something needed.
Canada’s Economy To Further Lean On Housing
When asked if Canada needs new measures to cool the market, the governor wasn’t worried. Macklem responded, “I think right now the economy is weak… I think we need the support.” Further adding, “We need the growth we can get.” Yeah, it’s an odd take, let’s unpack what he may be referencing, if anything at all.
Canadian Residential Investment
Canadian residential investment as a percent of gross domestic product (GDP). Source: Stat Can, Better Dwelling.One big red flag is Canada’s residential investment as a percent of GDP. Residential investment reached 9.43% of GDP in Q3 2020, up from 7.71% last year. For context, US residential investment peaked at 6.7% in 2006, during their housing bubble. The current rate in the US is just 4.3%, which is still considered high. Reading between the lines, that may have been subtle acknowledgment that Canada doesn’t have much else to lean on at this point. Further, a rise in household debt means a long-term slowdown in growth, which is a gamble they’re taking.
Bank of Canada Is “Surprised” By The Housing Rebound
The governor also stated they were surprised by housing activity during the pandemic. Macklem said, the BoC was “… surprised by the extent and strength of the housing rebound.” Further adding, they only see “some signs of excess exuberance.” It would appear a typical home rising more than the median household income is fairly normal to the BoC.
Canadian Real Estate Prices
The benchmark price of a typical home across Canada, in Canadian dollars. Source: CREA, Better Dwelling.Canadians Shift To Living Outside of Cities
The BoC governor also thinks these are “fundamental” market shifts. Macklem continued, “with respect to single family homes, underlying this demand, is a genuine, fundamental shift in preferences.” Adding, people “want more space. They don’t [want to] commute.” This repeats the perspective the central bank shared a few weeks ago in their FSR report. At the time they said, the rise in sales is just a temporary bump, that will subside later in the year.
When does this become a concern? The governor said he’s watching for buyer expectations. He asked rhetorically, “Are people expecting the kind of unsustainable house prices we’ve seen?” Answering himself, “if people start to think those [price gains] go on indefinitely, that becomes a concern.” Must have been his first day looking at Canada’s real estate market.
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Is anyone surprised he said we need housing for a recovery? I’m surprised they aren’t arguing for more money laundering too. They’re judged on such a narrow criteria, it doesn’t matter if they totally set up the economy for failure, they need 7 years of performance.
I’m old enough to remember when Poloz said it was a bubble when he started. Then he left with things are fine, don’t worry about it.
This was always the issue. They find the gas, and they keep hitting it because they think it gets you there faster, without checking the road.
Still waiting for the first pot-hole, like when the rates starting going up…..
TD becomes first major bank to hike fixed five-year mortgage
https://www.theglobeandmail.com/investing/personal-finance/household-finances/article-td-becomes-first-major-bank-to-hike-fixed-five-year-mortgage-rate-amid/#:~:text=TD%20Canada%20Trust%20was%20the,highest%20it's%20been%20since%20September.
It’s not a good look when you can hear the nervousness in your central banker’s voice. Stop doing Q&As, we beg you.
It’s not good when someone needs to ask your central banker the same question twice. haha.
I’ve been reading his quotes from conferences over the last little while and he is covering.
To be fair, he was given a crappy situation. The issue with the old boys club will always be they’d throw you under the bus before they would acknowledge their predecessor did something wrong.
Yea but that quote about haircuts when asked about economic recovery? He’s parading his short comings.
I have worked in 5 developing countries in the past 7 years and have learned that the greatest threat to a civil society is inequality. When our youth realize they will never be able to afford a home, or have the quality of life older generations have, for all intent and purpose stollen, the beliefs and behaviors that a civil society rely upon quickly disolve. We are being very shortsighted in thinking home prices can continue to increase without consequence.
Yes, no enough people considering the social instability and further loss of trust in public institutions. We need leaders with integrity and willingness to go against insiders, even if it is against their own personal interests.
Absolutely agree with you. Short-sighted
Spot on. To add to your comment, the best and brightest young Canadians will pack up and leave. There are better opportunities in virtually any other Western democracy. Canada is the bottom of the barrel. As a result, the young generation that remains in Canada will be proportionately lower skilled and less easily employed, which further compounds the inequality in a vicious circle.
Lol, this country’s a joke. Keep the ponzi scheme going as long as the government gets a cut.
How is this guy head of the BoC? With responses like that it’s clear he is in way over his head.
Nice try Tiff. Mark Carney already bled the Canadian public dry inflating our housing market out of the 2008 crisis, now we’re flat broke and have no more room to borrow. Better luck next time bud, you’re effectively Canadian Ben Bernanke and will be left holding the bag when the housing bubble pops that your predecessors pumped up. Maybe make better life choices next time, being a blood-sucking banker tool isn’t a great idea right now at the end of the everything bubble.
Canada must take full advantage of the appetite for its real estate and need to embark upon aggresive construction boom. This would allow growth and propel other allied sectors and industries as well and will low its economy to come out of a difficult situation
“now we’re flat broke and have no more room to borrow” — That may be true of average Canadians, but there is a large pool of foreigners who will buy up our real estate. The higher the price, the more trinkets/imports we get in exchange for it. The top 10% of Canadians will also buy it up to front-run the foreigners and build rental empires. I don’t see why this trend can’t continue.
What you are suggesting will eventually lead to riots. Canadians are soft-brained cud-chewers, but even they will have had enough at some point and demand to have their country back. In the meantime, until that happens, Canadians under 40 with skills and ambition will emigrate in droves.
Expect more chinese crawling out of Turdo’s axx !
It;s because Canada has no choice . They put all their eggs in one basket. If real estate doesn’t keep booming like it is now which is impossible long term everything will come crashing down. The coming depression will be horrific. If you don’t think so then you haven’t studied history enough.
But more importantly it all comes down the to over leveraging and debt burden that will cause the coming depression.
Anyone care to make predic as to when this market will stop the upward rise and or when BOC will raise rates again?
I work in the social service field and never before have I seen this level of homelessness, nor working class families unable to afford their homes or find homes. Particularly the working class families reaching out for help, the requests are through the roof. We are so worried about this trajectory
I live in suburban Vancouver and there are literally a dozen high rise condos going up within a kilometre of my 1 bedroom rental. If I move out the REIT that owns all the buildings I live in will put in new flooring and cabinets and double the rent. Rents are already Un affordable to anyone making under $60k a year and buying is not an option because prices have doubled in 5 years for the same crappy condos.
So the Ponzi scheme goes on, offshore buyers and AirBznB slumlords keep leveraging and buying and the Libs keep inviting millions of new immigrants to fill up the towers.
How horribly this country has lost its way – unsustainable growth that’s destroying the working class .
Another tone deaf white guy running our central bank. Great.
Has anyone at the BOC and GOC looked into how much of the CERB payments went into the hands of “property investors.”
My point is, every time the cost of housing goes up, working Canadians have to say bye bye to their hard earned loonies. I have had 7 landlords in my life. All but one lived overseas. I have been punted out of house after house thanks to buying and selling of homes.
So not only do I have a diminished quality of life, having to live like a nomad, but my money cannot be recycled into the economy, instead it’s deposited into some account where it’s presumably funneled offshore.
This is very short sighted. Millennials will need to have some pocket change to help rebuild the economy. How are we going to do that when we are maying 2K a month for a one bedroom?
I couldn’t agree more with the bulk of the comments – unsustainable growth, an economy based real estate to the highest offshore bidder. We prostitute our country, our land to make up for feeble economic leadership. Meantime the cost of simple housing and of home ownership for the average Canadian is needlessly far too high. A lifetime of debt and of diminished quality of life is all that the majority, the working class have to look forward to.
A partial fix, although very painful, would be higher interest rates. I think they are needed to cool housing prices and to reduce the actual dollar measured debt that people are taking on.
In the end whatever is done (if government even does do anything), should be measured or rolled out in a way that it works for modest and average income earners and is not to the benefit of the top 10% or offshore investors.