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  • Writer's pictureAndrew Unsworth

Andrew's Monthly Musings - December 2023

Updated: Feb 7

Interest Rates and Economic Outlook

The consensus in financial circles is that interest rates will stick at 5% until Q2 2024. Then, we're likely to see the Bank of Canada (BOC) start trimming rates, probably by a modest quarter point. This scenario hinges on the broader economy not going into a tailspin. Despite the upbeat revisions to GDP estimates, the reality, especially when you factor in record immigration, suggests the Canadian economy is barely treading water. It's either stagnant or, worse, slipping into a full-blown recession, backpedaling to 2021 levels. Meanwhile, the US is chugging along at a sprightly 5% growth, but like Canada, this seems propped up by government spending rather than organic market forces. The health of both economies, therefore, is a bit of a question mark.

Unemployment Trends

Unemployment's nudged up to 5.8%, largely due to there being more immigrants than available jobs. It's not panic stations yet, but it's something to keep an eye on.

Consumer Debt: The Ticking Time Bomb

Now, about this consumer debt crisis that's growing larger by the day. No shocker here: most of it is in real estate secured lending debt (RESL). But here's the kicker: a whopping 43% of this debt is tangled up in Combined Loan Plans (CLPs) or Readvanceable Mortgages. These financial Frankensteins—part HELOC, part mortgage—let borrowers perpetually borrow against their home equity on interest-only terms. When interest rates were around the 4.5% mark, this was manageable. Now, with rates north of 8% for many, we're skating on thin ice. This debt has ballooned 50% since 2019, hitting a staggering $805 billion. That's two-thirds of household debt!

Demographic Data and Market Movements

Here's a snag, though: BOC's data isn't granular enough to pinpoint which demographics will get hit hardest. What's clear is that there's a financial storm brewing. And then there's the “Oracle of Omaha” cashing out a massive slice of his equity stocks—probably lying in wait for the market to hit rock bottom.

The Silver Lining

For the eternal optimists: property prices have dipped about 20% since their February 2021 peak. With rate cuts potentially in the pipeline, we might see the market rebound. Consider this: a house that cost just north of $1 million is now $200k cheaper. That's a lot of wiggle room, even with slightly higher interest rates. If you've got the guts and the cash, there are deals to be had, especially in those prime neighborhoods with their notoriously low inventories.

Advice for the Times

So, what's my take? Keep cool, stay positive and cautiously optimistic, and be ready to jump on the right opportunities.

Seasonal Cheer Amid Economic Gloom

And hey, it's the holiday season! Time to put the economic gloom on the back burner and revel in the festivities with loved ones. Remember, we're living in a golden age—Henry XIII would've killed for a warm shower without a small army to help!

In other News

DevNorth Capital, our private financing firm, has some exciting deal in the hopper, so please get in touch if interested in details.

Please email me or give me a call anytime.

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