MacBeth: Every hard landing starts as a soft landing

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Hilliard MacBeth, author of When the Bubble Bursts, points to something big happening in the Canadian housing market. For real estate flippers and Liberal Party of Canada politicians, that is probably not a good thing. In an exclusive interview with HoweStreet.com available on Canadian Insider, MacBeth alerts Canadians that mortgage growth has fallen to dangerous levels.

Based on the most recent monthly data, new mortgage growth has sunk to about 3.5%. According to MacBeth:

Any time mortgage growth has slowed that much in the past, and probably won’t be different this time, although some people will say it is different this time, any time mortgage growth has slowed below 4 or 5 % there has been a recession.

The important point for residential real estate speculators is mortgage growth. For speculators who require a healthy does of risk taking to keep prices rising, MacBeth points to vulnerabilities in the trade-up market where the dominos appear set to fall:

Once people move out of that animal spirits phase, and they start looking at things the cold, hard and analytical way, they just decide I don’t need to move, I can stay where I am. Next thing you know they are just paying back their mortgages rather than taking out new mortgages, and the whole system kind of falls apart at that point, unfortunately.

In other words, watch them all fall down (Domino Dancing).

 

We would suggest that the important point for the Liberal government is recession. We suspect that the MacBeth recession warning will be a deciding factor in the upcoming election. The Canada 10-year minus 2-year yield curve is about 0.07% from inverting. Once the curve inverts (2-year yields higher than 10-year ones), a recession is probably only a matter of time.

As it turns out, Trudeau’s polling numbers seem to be reflecting that recession risk as they are tanking along with the yield curve. Accord to the most recent Nanos survey, he is now in a statistical dead heat with opposition leader Andrew Scheer in terms of who is going to win the next election.

Meanwhile, we would also add that with a Harper appointed central bank governor at the helm, don’t expect the Bank of Canada to come to the Trudeau government’s rescue in time. The way things are going, Trudeau will be hard pressed to emulate his father in asking for a second term because the land is strong. Of course, that slogan didn’t work out so well in any event.

The interview is worth a listen as Hilliard doesn't stop with housing. He even talks about the challenges of driving a Tesla around the Canadian oil patch in the middle of winter. My favourite part is when MacBeth suggests Canada may have to take the gloves off more often, particularly when it comes to tangles over security issues such as 5G networks.

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