Potpourri

Wow, what a fascinating couple of weeks!!

1. The Canadian GDP report was out today for January 2024, and while the expectation was for a .40% rise month over month, it came in with a blistering rate on .60% above even the highest estimates. The February flash GDP also is looking strong, although we will get more on February’s growth at the end of April. This put an April rate cut from the BOC on ice, and took down market expectations for a June rate cut. If February’s GDP comes out hot like January’s – look for June rate cut expectations from the market to push back to September. Of course the nominal GDP or GDP per capita is still abysmal as Canada continues to add record numbers to the population.

2. On that note, Canada just surpassed a population of 41 million. Just 9 months after passing the 40 million mark, Canada has added an additional million people to the population. At this rate, Canada’s population is growing about 1.25 million a year. Of course, job growth isn’t anywhere near that, so I am not sure where all these people are going to work. At best Canada is adding 600K jobs a year, so look for the unemployment rate to climb. Let’s not even get into the fact that the jobs that are being created are less than awesome positions. It seems that the labour market went from ” I can’t find any workers ” to lined up around the block for a job at Costco pretty damn quick. I wonder if the growing GDP is related to adding 1.25 million people a year???

3. The RCMP were out with a report last week outlining the biggest risks to Canada. While the report covers your standard issue things like terrorism, espionage, climate change, paranoid populism, WW3 and the like, one of the biggest threats the RCMP mention is housing!!! Yep, housing!!! The RCMP have pointed out that one of the largest threats that Canada faces is once the young people figure out they cannot afford a house. The RCMP are worried about protests, threats of violence etc. Interesting that the RCMP thinks it a big enough of a threat to list on their report. Apparently a society that can never afford a house is at risk of creating an uprising – an Arab Spring if you will. Who knew?? When you start to price an entire generation out of the market, bad things will happen. While I highly doubt the kids will rise up overnight, you just never know. Personally I don’t think the next generation could hack a protest, but I guess you never know what someone is capable of until you they pushed to the brink. Amazing how you increase the population faster than ever before and young people get left behind…..

4. It wouldn’t be a week in the mortgage business without another crazy government idea. This week we have the federal government claiming they will be rolling out a ” renters bill of rights” in the budget. Seriously? First and foremost, rents are handled at the Provincial level, and I highly doubt Provinces are going to let the feds run ramshod over their Provincial responsibilities. Second of all, this will force a lot of small mom and pop landlords out of the game, and leave only the big companies, REIT’s etc left to rent out properties. Interestingly enough, the proposed bill would help ensure tenant rights are protected, but of course there was no mention to protecting landlord rights. This is a sensitive topic for me because I lost hundreds of thousands of dollars in rents and damages over the years because the landlord tenant board in Ontario couldn’t process a piece of paper in a timely manner to save their lives. I have witnessed tenants completely destroy a newly renovated property, and then not pay rent and play the system for months. Yes, tenants need protection from landlords who do wrong, but it needs to be a 2 way street and ensure landlords are protected from scam tenants who play the system. Interesting how only days after the RCMP noted that the young renting population could be a large threat we see the feds roll out a bill aimed at them. I am sure it is just a coincidence.

5. Merge!! This week Fairstone Financial and Home Trust announced they will tie the knot later this year, and become one. While I have nothing but great respect for Stephen Smith, I can’t help but think this is not a great move for the consumer. Between Fairstone and Home Trust, they cover almost 65% of the less than prime market, and I am not exactly sure of a scenario where decreasing competition for the most financially vulnerable people is a win? Canada suffers from the least amount of competition in financial services in the world, so combining 2 current competitors into one large behemoth isn’t exactly going to help that. Home Trust and Fairstone are great businesses, but concentrated ownership has never been good for competition. Mr. Smith owns First National Financial, Home Capital, 50% of Canada Guaranty ( the other half being owned by Teacher Pension Plan ), owns a large portion of Equitable Bank, and also Fairstone Financial. If the Home Trust and Fairstone merger go through, this will concentrate a lot of power in very few hands and reduce competition. Now of course, the competition bureau on Canada will greenlight this, and it will go through. If RBC was allowed to buy HSBC, then there is no chance of stopping the Fairstone and Home Trust merger. This would be akin to letting Bell buy Rogers, and claim it was better for society.

6. Good new for Ontario brokers!! It looks like the competition is about to get easier. With only hours left to get the renewal of the mortgage license into the Provincial regulator, it appears a lot of brokers could find themselves without a license to operate come Monday ( well technically Tuesday as Monday is a government holiday in Ontario ). Depending on who you listen to, around 6500 mortgage agents and brokers have not completed the CE course, and will not be able to renew their license. We don’t at this point know how many were simply lazy and didn’t get it done, and how many decided this was not the career for them, but to all of us still in the business it means some form of reduced competition. With “experts” calling for a reduction in funded volume in 2024 of around 20%, if we can reduce mortgage agents in the business by 25%, we may actually come out ahead in 2024. It remains to be seen whether FSRA will actually be out in full force looking for agents who didn’t renew to catch them or not ( I have my doubts ) but hopefully we can see some agent and broker numbers decline and get back to more normal historical averages in the coming months and years. Less competition is good for those who remain.

7. And finally, let’s look at a new product that rolled out in the market: The Bloom Home Equity Mastercard. For those not familiar, Bloom is a reverse mortgage company. Great Company from what I have heard – although, full disclosure, I have never funded a deal with them. However, their latest product has me scratching my head. Basically, Bloom now has a Mastercard that you can use AND NEVER PAY OFF!!! The credit card works like the reverse mortgage, whereby no payment is required until you move or sell, or die. Now, the rates are not quite as suicidal as a regular credit card ( nor should they be since they are backed by an asset ) but this has trouble written all over it in 46 languages. Based on the fact that Canada has one of the highest debt loads in the entire world, is it really a good idea to allow a credit card tagged to home equity with no monthly payment? I can’t wait for this to go horribly wrong, and then the government will investigate later and decide it was doomed from the get go.

What a week it was. Next week I hope to do some deep dives into bonds, interest rates, and a look ahead to the rest of the year for central bank expectations.