"Do you really want to make a big bet that you do know what's going on right now?"—Stephen Poloz on mortgage term selection

In this much-anticipated follow-up with our prior BoC Governor, Stephen Poloz, he saves the best for last. Students of monetary policy, mortgage strategy and housing dynamics should find it well worth the 30 minutes.

Among the topics Mr. Poloz covers:

• The substantial weight the BoC puts on the U.S. outlook when setting policy
• How, and how often, the BoC and Fed communicate
• What could cause U.S. and Canadian rates to deviate
• What's behind our extraordinary labour market, which has defied rate hikes
• Why Canadian job growth has been "net disinflationary" for the last year
• Why today's unemployment is artificially low
• The non-difference between rent and interest
• How co-ownership could disrupt the housing market
• Real estate as a top inflation hedge
• Political pressure on the BoC
• The government's nuclear option for controlling the BoC
• Which mortgage term he'd pick today
• Why there could be a shift to longer mortgage terms.

Below is that interview and the transcript:

Anecdotes from our megabanks lend a sense for what's happening throughout the prime mortgage market. That's why we pour through their quarterlies (every quarter).

Among the general trends they reported in the second quarter:

The Fed's go-to inflation indicator has exceeded expectations again.

The so-called "core PCE deflator," which excludes food and energy, landed 0.1% above consensus, rising 0.4% m/m and 4.7% y/y in April. That's up from 0.3% m/m and 4.6% y/y in March.

Services inflation was even worse, leaping 5.5% y/y compared to 4.6% previously.

Inflation is not only hanging around, it's going in the wrong direction. As far as central bankers are concerned, there are still too many people with jobs, buying too many homes and tapping too much credit/savings to spend money (particularly on services).

Thanks to pricing itself out of the market and tightening borrower criteria, Scotiabank's Canadian mortgage balances fell a couple of billion dollars in Q2 versus Q1. Negative growth, even if just one quarter, is a big deal for a Big 6 bank.

In its conference call, Scotiabank noted that:

From 2008 to 2021, Canada's household debt soared from 80% of GDP to 107%.

U.S. household debt-to-GDP slid from 100% to 75% in that same timeframe.

To belabour the obvious, Canada has a worsening debt problem. And that problem could theoretically come to a head if/when unemployment spikes.

Despite the high probability that a U.S. debt limit deal will be reached by the Treasury's June 1 deadline, traders took U.S. yields higher on Tuesday. Hawkish Fed chatter added further fuel to the gains.

All that U.S. drama dragged Canadian yields higher in sympathy. But Canadian yields were also playing catchup to U.S. rates, given our market was closed for Monday's holiday.

Investors get a bad rap.

In a new report released today, StatsCan says:

"While investors can provide needed rental stock, they have also been found to exacerbate house price volatility and can limit housing market access for first-time homebuyers."

Investors seldom get the credit they deserve for improving the country's housing stock (including renovating neglected properties), revitalizing neighborhoods (which can lead to community development), adding market liquidity and creating equity (retirement assets) for existing owners.

Instead, they're conveniently scapegoated for a housing supply shortage of the government's own making. If there were enough homes to go around—relative to Ottawa's sky-high immigration admissions—perhaps first-time homebuyers would enjoy better affordability, and prices would be far less volatile.

Of course, investors do temporarily distort market fundamentals at times, but that's only because imbalances between supply and demand allow the fundamentals to be distorted.

But hey, this is all a soapbox speech for a different day.

Here's what our statistical agency concluded about Canadian real estate investors, along with tips for mortgage originators at the end:

Rate-weary mortgagors have been waiting for this signal.

The Fed Chair has suddenly shifted his tone and now appears more willing to let high rates do their work, with potentially no further hikes...for now.

Here was Jerome Powell's money quote from Friday:

For those who want to peer into the real estate thinking of ultra-high net worth individuals (UHNWIs), Knight Frank's "Wealth Report" is right up their alley.

UHNWIs are defined as people with a net worth of U.S. $30 million or more, including their primary residence. There were 24,821 in Canada in 2022, up 87.4% since 2017.

The number of high-net-worth Canadians with $1+ million net worth, including their primary residence, totalled 3,072,771 last year. Surging home values helped that number grow 87.1% since 2017 versus 42.5% worldwide.

Here's what else the 2023 "Wealth Report" found, with mortgage implications near the end: