CALL INVITE -> Canadian Housing & Banks; This Time Is Different

Aided by cheap and abundant financing, robust immigration flows, foreign capital flight, and inventory constraints, Canadian housing has been a consistent widow-maker for anyone trying to bet against its momentum over the years. During the pandemic, record low rates and improved household finances from rich government transfer payments, generous borrower relief programs, and limits on discretionary consumption from extended lockdowns catalyzed further home appreciation. 

Although supply limitations and red-hot immigration flows remain favorable to housing, the new structurally higher inflation regime and elevated nominal rate environment have catalyzed a non-positive wealth effect and balance sheet driven slowdown in economic growth based on challenged asset values and higher debt servicing costs. As a leveraged play on the macroeconomy, this remains a highly unfavorable condition set for Canadian banks and is likely to continue to manifest in slowing loan growth and rising credit deterioration.