Spotlight of the week: Canadians spend the most on debt and the housing bubble is the second oldest

It’s time for your cheat sheet on this week’s best stories.

Canadian real estate

Canadian households spend more income on debt than any other G7 country: BIS

Canadians spend significantly more income on debt repayment than their G7 peers. Households nationwide had an average debt service ratio (DSR) of 12.4 percent of income in the fourth quarter of 2020. In contrast, the United States was only 7.6 percent and the average G7 outside Canada is 6.9% of income. Canadians even spend more of their income on debt repayment than Americans did in 2008.

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Canada’s real estate bubble is the second longest in the world: US Federal Reserve

Canada is now home to the second oldest real estate bubble in the world. Data from the Federal Reserve shows that the market became exuberant 24 quarters ago. It hasn’t seen a significant correction since then, which has led to further inefficiencies. Germany is the only other advanced economy with a longer bubble. The country is a quarter older, but has seen only half of the price growth since 2005.

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Stationery! Bank of Canada researchers say supply alone can’t explain house prices

Bank of Canada researchers say supply plays a role in home prices, but not responsible for all gains. The central bank found that the median elasticity of supply in Canada is similar to that observed in the United States. They also found that the price growth in Canada is far greater than the supply could have resulted. In other words, more supply will not necessarily lower prices by much. Other factors must slow down, such as credit.

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Inflation in Canada will be high until next year, the media got it wrong: BMO

A national newspaper cited BMO to rule out high inflation, and they want to be clear – that’s a problem. The CPI has shown annual growth above 4%, and it is linked to a base effect. However, not everything is just the base effect. The bank is forecasting an average annual growth of 3% until next year, about 50% above the target. They are firmly in the “high inflation” team.

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New housing in Canada takes off slowly, but a supply tsunami is still ahead

New home starts in Canada are slowing, but there is no need to worry about a supply shortage. The seasonally adjusted annual rate (SAAR) trend fell to 283,971 units in August, from 286,076 a month earlier. This is a drop, but still significantly higher than it has been in recent years, and a little below the record. Housing starts tend to hit the market 18 to 24 months later, so we haven’t even seen the upswing contribute to supply.

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Real estate prices in Canada continue to slow as demand decreases faster than supply

Growth in real estate prices in Canada is slowing as demand declines faster than supply. CREA reported a seasonally adjusted SNLR of 72.4% in August, down from 73.6% the month before. It’s a tight market in the grand scheme of things, but there is certainly a lot less pressure on stocks. As a result, the growth rate of the typical house declined for another month.

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Canadian inflation hits highest in 20 years, boosted by housing

Canadian inflation reached its highest level in almost two decades. The annual CPI growth reached 4.1% in August, down from 3.7% the previous month. This was the highest impression since March 2003, and the shelter, one of the most important components, is the origin of the drive. There is a base effect, but going through the data we show that this is far from the only reason it is high.

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Canadian real estate sales continue to spiral down, the least in over a year

Home sales in Canada have fallen to one of the lowest levels in over a year as the market continues to cool. Seasonally adjusted sales fell to 48,379 units in August, down 0.5% from the previous month. Many attribute this to lower inventories, but ACI data shows 66,830 new listings, up 1.2% from the same period. Supply is higher on a seasonal basis, which means that’s not the reason sales are slowing down.

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Canada is facing a huge shortage of commercial workers, and it’s going to cost you more

Canada is facing a serious shortage of tradespeople, and it will cost consumers more. The projected deficit of registered apprentices is 60,000 people by 2025. This is only partially due to the impact of the pandemic, which saw a 37% drop in registrations last year. Previous years have also failed to attract enough, including a specially designed immigration program. With growing demand and such a severe shortage, the cost of their labor is sure to rise. Rising costs tend to trickle down to consumers.

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Canadian wealth soars relative to debt, but bank manager warned it could be a mirage

Canadian wealth is skyrocketing relative to debt, but a bank executive has warned it could happen and it could be a mirage. Household wealth increased 3.6% in the second quarter of 2021, the fifth consecutive quarter to see it increase. The National Bank estimates that households have seen their wealth increase by 23% since the peak of the pandemic. Debt is growing fast, but not so fast. As a result, the debt-to-asset ratio fell to 16%, the lowest since the early 2000s.

It may seem that the Magic Ticket Printer solved all the issues, but it didn’t. In a quarterly earnings call earlier this year, a BMO executive warned stocks could be “overdone.” This is a similar data problem, where equity in assets is likely inflated. The wealth effect will always be real and people will likely spend more because they feel rich. A perceived increase in wealth-related spending, which could be a mirage, can be problematic, however.

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Canadian construction investment drops for third month due to housing

Investment in construction in Canada has fallen sharply, but it is still much higher than usual. The value of investments reached $ 18.1 billion in July, down 1.7% from the previous month. Compared to the previous year, this represents an increase of 17.6%. Stat Can said the slight decrease was due to a drop in residential housing. That said, the overall investment remains very high, especially compared to previous years.

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Aldrich Stanley

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