Today's report...

Goldman on where rates and stocks may go from here

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This & That

• Pivotal number: Canadian CPI—due today at 8:30 a.m. ET—is expected to have a 4-handle for the first time since 2021.

Since rates peaked in the early 1980s, there have been six Fed hiking cycles. Those cycles have lasted about 20 months on average.

So far, we're 13 months into this one, and markets think we have just one hike left.

Today's reports...

•  Appraisal innovations from ValueConnect

•  The latest from RateLand

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This & That

• Market turn: Canada's national average home price has increased 12.1% (over $74,000) in just two months. "...The supply issue is still with us," says CREA’s Senior Economist Shaun Cathcart. "New listings are at 20-year lows.” Moreover, we're down to just 3.9 months of inventory again nationwide, a whole month below average. Listings fell in 26 of 31 markets tracked by Scotia Economics. "As buyers see signs of an increase in activity and prices, they may be enticed to rush back to the market before prices go up any further," the bank says. Feels like déjà vu all over again.

• CPI call: "Look for headline prices to have risen 4.4% year-over-year in March, down from the 5.2% annual rate in February," says Desjardins Economics. "That would be the slowest pace since the fall of 2021." The next CPI reading is Tuesday at 8:30 am and we'll need better progress with StatsCan's core measures. They've trended lower but are starting to plateau.

Central bankers are pushing back on 2023 rate cut expectations. And they're succeeding.

As of Friday's close, market expectations are now down to just a 4 in 10 chance of BoC easing this year, and only a single 25 bps rate cut at that. Following last month's Silicon Valley Bank meltdown, markets were pricing in cuts by this summer.

Meanwhile, North American funding costs are running higher. For example, Canada's four-year swap, a leading fixed-rate indicator, is up 44 bps in the last ten days.

Back in the day, appraisers dealt with only a handful of lenders. Today they deal with dozens.

That means appraisers must know far more lender specifications, like how old comparables can be, what sort of comps to use, etc.

All these different lender rules boost the chances appraisers will get something wrong when drafting appraisal reports.

The banking regulator's Assistant Superintendent, Tolga Yalkin just spoke at a C.D. Howe Institute event in Toronto.

We wanted to pass along some of his quotes (highlighted below) straightaway...

Markets predicted the Bank of Canada would leave its key rate at 4.50%, and it did.

"We've come a long way" since last summer, BoC governor Macklem said today. "We are encouraged inflation is declining..."

What matters most for mortgage rates, however, is not where we've come from, but where we're going. The Bank shared these clues in today's official statement and press conference:

• The BoC warned that it "remains prepared to raise the policy rate further if needed to return inflation to the 2% target."
• But Macklem also advised Canadians, "Don't plan on inflation staying high."
• "The Bank expects CPI inflation to fall quickly to around 3% in the middle of this year and then decline more gradually to the 2% target by the end of 2024."
• Rate cuts this year "do not look like the most likely scenario to us," Macklem said. The OIS market responded by trimming its bets for cuts through December:

• "We need growth to be weak," Macklem said, but "We're not forecasting large increases in unemployment."
• The BoC suggests that excess government spending will boost growth. If this pace of expenditures continues, Macklem says it will make it "harder" to bring inflation back to 2%.
• Our government's spending addiction is "further pushing back the day when the Bank can begin cutting rates," BMO Economics wrote today.
• Slowing lending in the U.S.—due to the recent banking scare—will feed through to Canadian growth, the BoC said.
• Going forward, the "Governing Council will be particularly focused on [inflation expectations, service price inflation, wage growth and corporate pricing behaviour]...and the evolution of core inflation."
• "Persistent services price inflation" is the "main upside risk" that could keep interest rates higher for longer, the BoC said.
• "U.S. growth is expected to slow considerably in the coming months, with particular weakness in sectors that are important for Canadian exports," the BoC projects. (As regular readers know, the U.S. inflation outlook significantly impacts Canadian mortgage rates, so MLN reports on it regularly.)

Inflation is falling "mostly for mechanical (arithmetic) reasons," former BoC governor Stephen Poloz told BNN today. For that reason, he expects headline CPI—the metric Canadians care about the most—to have a 2-handle later this year.

Before the Bank of Canada "declares victory," inflation expectations must come down, and they absolutely will in time, Poloz says.

By the way, if Stephen Poloz is not Canada's most informed and sensible monetary economist, we don't know who is. MLN hopes to bring you an interview with him in the not-too-distant future.

The BoC on mortgages

"At current interest rates, the share of income spent on interest payments will continue to rise as homeowners renew their mortgages."—BoC

"...Higher debt-servicing costs leave many households with less money for other spending," the Bank explained today. "This slows overall demand growth—which, in turn, relieves price pressures and helps bring down inflation."