Weekly Digest — April 21, 2023

Inflation Slows to 4.30%

With lower inflation comes lower interest rates. Tiff Macklem spoke at the Parliament’s Standing Committee on Finance Tuesday. “We are encouraged by the progress so far”. This is the first time we have seen inflation reports that begin with a “4” since 2021.

“Mortgage interest costs are now the most significant contributor to inflation, rising a record 26.4% y/y,” says BMO Economics. Lower rates will help eliminate some of this pressure, but it will take sometime. Now that inflation is below the overnight rate for the first time since 2020, we should continue to see down ward pressure.

Bank of Canada is predicting 3.00% inflation by this summer. Unless we see a dramatic surge in crude oil or another surprise event, that prediction is looking very likely.

Housing Starts

Its no surprise we have a supply shortage in Ontario and across Canada. Housing starts slipped to 213,900 in March which is 17% less than the 12 month average.

In our higher interest rate environment, construction activity has been slowed as some projects may become unviable at current financing rates. Construction financing is also harder to obtain.

Job vacancies in the construction industry are also becoming a larger problem. JLL released its 2023 construction outlook and emphasized Canada will have a 100,000 trade worker shortage by 2029.

The Floor is Here?

Sales to listing ratios have rebounded to 63.50%, the tightest market in a year. The long-term average for this measure is 55.1%. Furthermore, Canada’s national average home price has increased 12.1% in just two months. This is over $74,000 and we are now down to just to just 3.9 months of inventory Canada wide.

We have noticed a significant pick up to activity in our office.

Stock Market Predictions

When we near the end of rate hikes, what happens to the stock market?

On a 12-month basis, the S&P 500 has returned an average of 19%, rising in 5 of 6 episodes and rallying by more than 10%.

On the contrary, if a recession occurs within 12 months of the end of the tightening cycle (years 1973, 1981, and 2001) the S&P 500 performed poorly. Goldman Sacks expects a drop in stocks if we get a recession near-term.

Current Interest Rates

CONVENTIONAL

• 5 year fixed, 30 yr amortization – 4.79%

• 3 year fixed, 30 yr amortization – 4.99%

• 5 year variable, 30 yr amortization – Prime – 0.40% = 6.30%

• 5 year fixed, 25 yr amortization – 4.69%

• 3 year fixed, 25 yr amortization – 4.94%

• 5 year variable, 25 yr amortization – Prime – 0.50% = 6.20%

INSURED

• 5 year fixed, 25 yr amortization – 4.49%

• 4 year fixed, 25 yr amortization – 4.64%

• 3 year fixed, 25 yr amortization – 4.84%

• 5 year variable, 25 yr amortization – Prime – .90% = 5.80%

Fast Facts

• The top 10% of Canadian households have an average household income of $299,930. Of this, a staggering 58.40% of their income is paid in taxes. This includes federal, provincial and local government levy’s. Data is for 2022.

• US $2,200,000 – That was the winning bid for a pair of Air Jordan XIII sneakers worn by Michael Jordan himself during the 1998 NBA finals.