This week’s top stories: Bank of Canada misled rates and sparked a real estate binge
Time to cheat on this week’s top stories.
Canadian real estate
Was it irresponsible for the Bank of Canada (BoC) to tell households that interest rates would be low until 2023? yes Central banks have to respond to market conditions, but that’s not what the BoC did. One of the new governor’s first acts was to tell households that rates would remain low until 2023. The main role of the central bank is to help control inflation, not to promise cheap credit as it did.
Corporate home ownership across Canada got a big boost from low interest rates. The number of Ontario businesses owning at least 100 properties rose to 345 in 2020, a 15% increase over the first 2018 figures. In BC, that number was 85 companies, a 21.4% increase over the same period. The latter, in fact, companies that own at least 100 properties buy more than those that own only one.
The Bank of Canada’s struggle to quickly deal with inflation means even higher rates will be needed. Last week, BMO raised its overnight rate forecast by 50 basis points. They now see a terminal (or peak) rate of 4.5% next year. It would be tied for the highest rate seen in the last 20 years, except for nearly doubling the debt level.
Canadian consumer insolvencies are growing significantly, but have not yet reached alarming levels. OSB issued 9,156 bankruptcy files in September, 3.1% more than the previous month and 22.1% more than last year. Despite the jump, insolvencies are below 2019 levels, so this is largely just normalization. The end of the pandemic-era programs that helped delay insolvency is over.
Canadian real estate prices topped the G7 for growth, but are now lower. In the second quarter of 2022, Canadian home prices fell by 4.3%, the largest decline of any G7 country. On the other hand, house prices in the US rose by 4.7%—the largest increase in the group of advanced economies. Both countries are bubbles according to the US Fed, but at very different stages.
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