The big fail?

Feds were giddy this week when the pace of housing starts in Canada hit 263,800. More supply means better affordability, they cried (with no evidence). There are oodles of properties available. They just cost too much.

But this is shaping up to be one of the first big fails of the Carney administration. He is committed to 500,000 new units a year, or about twice what is currently happening (which is better than in recent months).

There is, simply, no universe in which we can build a half million new digs a year. GTA builders are laying off drywallers by the droves. New projects are being cancelled. There are 21,000 new, unsold units on the market. Ditto in Vancouver, where developers were pounded the other day for pleading that a foreign purchaser ban be ended – so at least somebody would be buying.

So what do we need to snap out of this?

Buyer confidence. And how do we get that when house prices are falling far too slowly?

By making loans cheaper. It worked during Covid. And you can bet there is a temptation to do it again.

That brings us to the central banks. As noted here days ago, both the Bank of Cabada and the Fed will review their policy rates on the same day. September 17th. Our guys in the morning. The Yanks in the afternoon.

What will happen?

The current odds for a rate cut in Washinton are 83%. So it appears certain a quarter-point slice will happen after months of cautious pause. The feared inflationary bump from tariffs has not yet happened (but will), and the Fed is under intense presidential pressure to chop rates and goose the economy. That’s especially the case after those recent jobs stats – so negative they caused Trump to throw the data boss overboard.

In Canada, well, things are now looking far less certain.

Yes, the latest inflation number (1.7%) is tame, and an improvement from that last reading (of 1.9%). But the ‘core inflation’ numbers the central bankers fixate on are still higher than the target, and not budging. Gas prices are down now that the carbon tax is gone, but food costs more. The rent and mortgage components of the CPI are also elevated, despite reductions in lease costs and house prices in most cities.

In short, the Bank of Canada may not yet have the ammo it needs, say Bay Street economists. The numbers published this morning, “are still not good enough to prompt the BoC off the sidelines just yet,” says BMO Economics. If core inflation moderates and the economy softens more, it adds, “we believe that will eventually set the stage for BoC cuts.”

Eventually? When is “eventually”?

The boys at CIBC are a tad more optimistic. “Today’s data supports our belief that the acceleration in inflation seen earlier in the year was linked largely to one-off factors, including an earlier than expected pass through from tariffs, and the slack that is evident in the Canadian economy is now starting to put renewed downward pressure on inflation,” they say. “If the August data (released a day before the next Bank of Canada meeting) shows a similar trend, we expect that policymakers will be comfortable cutting interest rates by 25bp at the September meeting.”

Okay, so maybe a cut next month – if the data is peachy.

And at TD, economists point out that job creation so far this year has sucked in Canada, which means  the conditions for a rate cut are forming.

“Between February (when trade tensions really flared) and July the economy has added a total of 27k jobs, and now core inflation appears to be losing steam. All together this looks like the scenario the BoC highlighted as giving rise to the “need for a further reduction in the policy interest rates.” We think the BoC will have room to deliver more easing later this year as the economic slack continues to build and offset inflation pressure.”

So, the best-case scenario for next month is a quarter-point nip in the cost of money. Maybe – if we’re lucky enough to see the economy fall apart after that – another quarter point by Christmas.

Can Mark Carney do magic? He’ll need some.

About the picture: “I see you’re low on dog pics and unfortunately I can’t currently help you with that,” writes Peter.  “I did catch this very handsome polydactyl cat during my Montreal neighbourhood walk. While it’s only a lowly cat, what can’t be seen on the pic is that he’s vigorously wagging his tail back and forth just like a good doggy. So technically, I’m sending you a dog pic disguised as a cat pic. Enjoy!”

Note to readers: Yes. We are down to the cats, now. Time for you dog people to step up and save the blog’s dignity from its current descent towards the litter box. Send a picture of your beast to ‘garth@garth.ca’. Quickly.

Source: https://www.greaterfool.ca/2025/08/19/the-big-fail-2/