Time for your cheat sheet on this week’s top stories.
Two Canadian cities landed themselves on the UBS Global Real Estate Bubble Index. The Swiss bank ranked Toronto as the second-largest bubble, and Vancouver as the sixth. Both respective cities are one spot higher than they were on last year’s list. Toronto nearing the top is particularly impressive. The city wasn’t even on the bank’s list of bubble cities as recently as 2016.
The IMF is warning global home prices are at risk of a steep correction, after a sharp climb in prices. The agency’s risk models show in a worst-case scenario, advanced economies can see a 14% decline on average. This is more than double the 6% drop that would have occurred pre-pandemic. Countries with larger asymmetries are likely to be overrepresented in a correction.
The Canadian real estate bubble is seeing prices grow at the fastest rate of any G7 country over the past 30 years. The annual rate of growth for home prices reached 25.6%, one of the largest gains ever. In contrast, peak growth in the US during their epic housing bubble reached 9.13% in 2005.
Canada’s rise in home prices dwarfs anything seen in the G7 over the past 3 decades. One needs to go back to 1989 to find anything larger. More sophisticated central banking was thought to have eliminated such extremes. Boy were they wrong about that one.
Canadian investment in home construction officially dropped into correction territory. Seasonally adjusted residential building construction fell to $13.0 billion in August. This is down 2.9% from the month before, and 14.2% lower than it was at the peak reached in April. It isn’t likely to create supply issues, since the level is still much higher than it was pre-pandemic. Such a significant drop will probably become a drag on the recovery though.
Canadian bond yields hit pre-pandemic levels, a sign higher mortgage rates are near. The Government of Canada (GoC) 5-year bond yield reached 1.24% on October 12th, the highest level in the past year. It was an increase of 13.64 basis points (bps) over 5 days, and 44.19 bps from a month before. Almost a third of the yield’s level was an increase that happened over the past month. Since GoC 5-year bond yields influence the cost of 5-year fixed-rate mortgages, expect mortgage rates to climb soon.
Canadian real estate prices are surging higher, but the size of gains are shrinking, says RPS. The property data giant said typical home prices across Canada hit $746,538 in September, up 17.13% from last year. Annual growth saw the rate drop over 2 points from just a month before. The trend is seen across almost all major markets in the indexes produced by RPS. It’s a very different take from what’s seen in the date produced by real estate boards.
Both Canada and the US are seeing a surge in job vacancies, but only the latter has seen wages rise. That may have to do with the rate at which people are quitting their job. In Canada, just 103,700 people quit due to employee dissatisfaction, down 2.1% from the month before.
The number of people quitting their job is often a sign of perceived economic strength. Workers quit when they’re confident they can find a new job, also giving them more wage negotiation power. In contrast, the number of people quitting in the US surged to a multi-year high. Lower job mobility is often a result of high household debt levels.
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