‘Discouraging’

Yesterday a certain pathetic blog said to expect the inflation rate to touch 2%. Lo, it did.

We also told you to keep rate-cutting excitement in your pants because the world changed on November 5th. And now, verily, that’s the common chant. Short-term rates may dip a little more, but we’ve hit a wall with long-term rates. Yeah, like five-year mortgages.

The news today from Ottawa is that the rate of inflation rose from 1.6% to 2%. Food went up (2.7%). Property taxes went way up (6%). Mortgage interest costs are running at almost 15% (down a tad) and rents still are swelling 7.3%, but better than September (8.2%).

This apes what’s been going on the in States, where the cost of living increase is now 2.6% and the Fed seems to be putting the brakes on. More on that in a moment.

“Today’s data reinforced the message that the Bank of Canda’s goal of stabilizing inflation won’t be a smooth path,” warns TD Economics. “While the increase in headline inflation was expected, the move higher in core inflation was discouraging. Even worse, on a three-month basis, core inflation moved from just above the BoC’s target, at 2.1%, to 2.8%. That was a big move and points to core inflation remaining above the target in the coming months. High inflation for shelter, food, and health care were behind this, and aren’t looking likely to go away any time soon.”

But that’s just half the tale.

US Treasury yields have increased since the election there. Our debt moved in lockstep. The benchmark Canada Five bond – which influences those long mortgages – has been going in the opposite direction to Tiff’s marker. Mortgage brokers are now telling borrowers to stop waiting for a cheapo 3% five-year home loan. It ain’t coming.

Trump is seen as Mr. Inflation since tariffs are taxes and will increase the price of consumer items. Lower American corporate taxes and less regulation will prove stimulative to the economy. Stocks will go up. So will the GDP. So rates can’t fall significantly there in order to keep monetary policy on neutral turf.

As explained here yesterday, there is already a wide gap between the two countries. Our guys cut four times. They did one. That’s helped kick our dollar’s butt, since capital flows where it can get the best return. And Trump’s economic adrenaline rush has pushed the American dollar higher since the election, making ours drop in value against it. It’s not Trudeau who did this, but the guy who is not even yet president. Likely more to come, too, if he makes good on punishing Canadian exporters.

So want to expect now?

“This heavy result should take some more steam out of the call for another 50 bp rate cut from the Bank of Canada in December,” says BMO’s Dug Porter. “We have been in the 25 bp camp from the start and this report only reinforces that expectation, along with evidence that housing is stirring, the Fed will turn more cautious, and a limping loonie.”

Indeed.

Higher real estate sales stats in October may have made realtors feel fuzzy, but it was not data the central bank wanted to see. To make the situation more complicated, we are just a few weeks away from the advent of 30-year amortizations for all newbie buyers for the first time since Stehen Harper stalked the Hill.

More significant, down payments are about to crash as the cap for CMHC insurance jumps dramatically to $1.5 million. The impact of this could be far-reaching. On a $1.4 million house (a beater in Toronto or Van) the required cash plummets from $280,000 to “just” $115,000. That’s a reduction of almost 60%. Coming December 15th – or just days after the next central bank rate cut.

Without a doubt, politicians have been trying to add demand to the housing market. Concurrently, they are failing at adding supply, with housing starts down about 17% year/year despite massive inflows of public money and the unwise trashing of local zoning laws.

What will the spring market bring, starting in about 90 days?

It’s weirdly unknown. There’s lots of pent-up demand. New, more accommodative financing regs. Lenders starving for new business. But on the other side, mortgages may stall at 4%, the world gets dramatically more volatile after the third week in January, and real estate prices remain unaffordable to all but the well-heeled, Mom’s favourite children or the reckless.

Anyway, you should get pre-qualified now. Lock in some rate protection at the bank. Don’t wear your MAGA hat.

About the picture: “Thanks for all the work you do in writing and maintaining the blog,” writes Jeff. “I’m guessing some days you look on it as a “labour of love” and other days as “trapped in hell”. While I’m quite happy with my portfolio with TI, I look forward to your insights and learning what drives the bus. Here is my Dobersuck, Roxy. She has a lot of personality and a heart of gold.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2024/11/19/discouraging/