It’s time for a cheat sheet on this week’s top stories.
Canadian real estate
Canada’s GDP growth slowing, central bank likely to hike rates: RBC
Canada’s largest bank is warning investors that the country’s economic output is slowing. RBC expects next week’s release of official GDP growth data for the second quarter of 2023 to show a sharp slowdown in growth. Weak consumer spending, low investment and rising inflation are just some of the reasons. If GDP growth remains solid, the Bank of Canada could raise interest rates further. This is the economic equivalent of the Mexican conflict, where everyone survives but no one wins.
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Canadian millennials aren’t keeping up, putting economy in jeopardy: RBC
RBC’s economics team released another outrageous analysis this week with shocking results. The bank found that millennials are far worse off than previous generations at this age. Examples of the problems they face include rising debt, declining assets, and a drastic drop in homeownership rates. For the Boomers, for those who have more than made up for their lost wealth, it may not be such a big deal. However, older households will need to consume less, leading to slower economic growth. As a result, the economy is amplified at recession risks that affect everyone.
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Canadian Mortgage Borrowers Cut Rates FOMO, Ignore 5-Year Terms
Mortgage borrowers are no longer in floating-rate relationships, but they are not ready for long-term relationships. Traditionally, in Canada he 5-year fixed rate mortgages are the most popular product. After the 2020 rate cuts, the situation changed, with floating rates taking the top spot. Rising interest rates brought a return to fixed rates, with 95% of June offerings hitting a record high. 3- and 4-year terms are leading the market this time around, with 5-year fixed rates almost as unpopular as floating rates. Borrowers don’t want to be exposed to higher interest rates, but they also don’t want to miss the chance of a rate cut.
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Bank of Canada eyes housing as inflation risk: BMO
BMO Capital Markets explained that if you look at interest rates, look at housing. Headline inflation has slowed over the past year, driven by new home prices. Momentum seems to be reversing now, and inflation will pick up soon. The central bank expressed concern over persistently high inflation and warned it would act if necessary. Rising new-home prices may prove interest rates aren’t high enough to slow growth.
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Canadian mortgage growth receives a liquidity injection when it was last this low
Canada’s mortgage credit volume hit a new record, but growth was unusually low for the sector. In fact, it is rarely this low, and rarely maintained at this level for any significant period of time. The reason is that policymakers typically reduce stimulus levels at various levels to rekindle growth. Rising inflation and post-pandemic market distortions make stimulus seem a bit reckless. However, there is no shortage of examples of policy makers using reckless means out of self-interest.
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