Dollars & Cents
Dollars & Cents
By John Dickie, based on an interview with Benjamin Tal, CIBC Deputy Chief EconomistThe Bank of Canada was and is determined to avoid an inflationary spiral, even at the cost of a recession. When will it decide the risk of inflation is sufficiently reduced, and lower its policy interest rate?
There are plenty of inflation indicators to choose from
Source: StatCan, CIBC Figures Canada wide, as of April 18, 2024. Graph prepared by Jeremy Newman
LEGEND:
Y/Y% = year over year % change
3mma = 3 month moving average
m/m% = month over month % change
ann. = on an annual basis
Higher interest rates limit inflation by limiting consumer spending and business investment, but higher interest rates also drive up shelter costs
Surging shelter costs driven by higher interest rates
Source: StatCan, CIBC
Source: StatCan, CIBC
On a per capita basis, Canada is already in a recession.
Source: Statistics Canada, CIBC
Source: Statistics Canada, CIBC
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-15% -10% -5% 0% 5% 10% 15% 20% 25% 30% 35% 2012 2015 2018 2021 Mortgage interest costs (y/y% change) 0% 2% 4% 6% 8% 10% 2012 2015 2018 2021 Rent (y/y% change) -15% -10% -5% 0% 5% 10% 15% Q1-85 Q4-92 Q3-00 Q2-08 Q1-16 Q4-23 y/y change in GDP per capita -6% -5% -4% -3% -2% -1% 0% 1991 recession 2008 recession Current Cumulative decline in GDP per capita
Source: Statistics Canada , CIBC
Household credit growth in recessionary territory
Source: Statistics Canada , CIBC
Mortgage costs and delinquencies: a foretaste of consumer demand and possible business losses.
Repricing mortgage rates - half-way there
Mortgage payment shock
Source: CIBC
Source: Statistics Canada , CIBC
Mortgage delinquencies – approaching 2019 levels
Source: TU, CIBC
Source: TU, CIBC
The post-pandemic housing boom has been driven by the post-pandemic population boom
Population boom
Source: Statistics Canada , CIBC
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0% 2% 4% 6% 8% 10% 12% 14% 16% 1991 Q1 2001 Q4 2012 Q3 2023 Q2 Real y/y growth in hh credit -10% -5% 0% 5% 10% 15% 1991 Q1 2001 Q4 2012 Q3 2023 Q2 Real consumer and mortgage credit (y/y) Consumer Mortgage 0 20 40 60 80 100 120 Mar 2022 Sep 2022 Mar 2023 Sep 2023 Mar 2024 Sep 2024 Mar 2025 Sep 2025 Mar 2026 Sep 2026 % of portfolios repricing mortgage rates 0% 5% 10% 15% 20% 2024 2025 2026 0.0% 0.1% 0.1% 0.2% 0.2% 0.3% 0.3% 0.4% 0.4% 0.5% Jan'18 Mar'19 May'20 Jul'21 Sep'22 Nov'23 Mortgage 90 days+ and 30 days 90 days+ 30 days 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% Jan'18 Mar'19 May'20 Jul'21 Sep'22 Nov'23 30 days
prime 0 0.5 1 1.5 2 2.5 3 3.5 Mar-84 Aug-88 Jan-93 Jun-97 Nov-01 Apr-06 Sep-10 Feb-15 Jul-19 Dec-23
del. sub-and-near
Dollars & Cents
Source: Statistics Canada, CIBC
Source: Statistics Canada, CIBC
By John Dickie,based on an interview with Benjamin Tal, CIBC
Source: Statistics Canada, CIBC
Deputy Chief EconomistThe homeownership market has come into balance in Toronto and Vancouver.
Source: Statistics Canada, CIBC
The US and Canadian economies are diverging.
Source:
Source: Statistics Canada, CIBC
Source: Statistics Canada, CIBC
50 – theANNUAL 0 10 20 30 40 50 60 70 80 90 100 2000 2004 2008 2012 2016 2020 2024 Sales-to-new listings ratio – Canada-wide balanced market 0 20 40 60 80 BC AB SK MB ON QC NB NS PEI NL GVA GTA Canada Sales-to-new listings ratio
37.5 38.0 38.5 39.0 39.5 40.0 40.5 Stats Canada's 2013 forecast of 2023 population Actual popuation in 2023 ($mn) 1.5 million miss Composition of the miss NPRs Other 85 90 95 100 105 110 115 Q1-19 Q4-19 Q3-20 Q2-21 Q1-22 Q4-22 Q3-23 GDP US vs. Canada index 2019 Q1=100 Canada US 0 1 2 3 4 5 6 01-Jan-21 30-Jan-22 28-Feb-23 28-Mar-24 10-year government bond yield (%) US Canada Population growth to slow dramatically The resale market - location location location Spot the difference Wrong direction The housing crisis is a planning crisis
Statistics Canada, CIBC
Impact
recent government
Annual % growth 0 0.5 1 1.5 2 2.5 3 3.5 Mar-84 Aug-88 Jan-93 Jun-97 Nov-01 Apr-06 Sep-10 Feb-15 Jul-19 Dec-23
of
policies will bring population growth to here
Something is wrong with this picture
US Fed's fund rate vs Canada overnight rate %
Canada: Overnight target rate (EOP, last wed, %)
Federal funds [effective] rate (% p.a.)
Source: Bank of Canada, Federal Reserve Board, CIBC
Budget 2024 will also affect the economy in the near term and the future.
Deficit expected to shrink relative to GDP (l); debt service charges contained as a share of GDP (r)
Source: Finance Canada
Program spending on a higher trajectory with each budget
Program spending ex. actuarial losses ($bn)
2020 Fall Statement
Budget '21
Budget '22
Budget '23
Budget '24
Source: Finance Canada
Key uncertainties that will drive the economy:
• When the Fed lowers interest rates
• When the Bank of Canada lowers interest rates
• The rebalancing of the housing markets
• How much productivity grows
• The result and impacts of the US Presidential election
• The result and impacts of the next Canadian federal election
Source: Finance Canada
ABOUT THE SOURCE
Benjamin Tal is the Deputy Chief Economist at CIBC World Markets. Well-known for his ground-breaking research on all major sectors of the real estate market, on credit markets, and on business economic conditions, Benjamin frequently sets key elements of the public policy agenda. He is also a big believer in the value of a strong residential rental sector. As well, Benjamin has been the keynote speaker at many CFAA conferences over the years. CFAA thanks Benjamin for his support.
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0 1 2 3 4 5 6 Jan-17 Jun-18 Nov-19 Apr-21 Sep-22 Feb-24
-7 -6 -5 -4 -3 -2 -1 0 1 2 3 2000 2005 2010 2015 2020 2025 Budget balance (% of GDP) -15 forecast 0 1 2 3 4 5 2000 2005 2010 2015 2020 2025 Public debt charges (% of GDP) forecast 300 400 500 600 700 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29