Global Economics Archives

Rate Cuts and Housing, The Booming US Economy & Canada’s Innovation Problems

Update Dec 14, 2024: Added Newsletter Email Archive at End of Post.

Bank of Canada Moves 0.5%

Coming off the back of a Bank of Canada rate cut of 0.5% on Wednesday, October 23rd, 2024 there are still some questions in the air about if/how/when we will see this change start to impact fixed rate mortgages, housing market activity, employment rates, inflation etc. I also wanted to briefly mention an anecdote I heard from a friend of mine since we are nearing Halloween and I thought it was interesting, related to the economics of Halloween.

Inflation Down from August

As it stands right now, the 5 yr government bond which fixed rate mortgages are based on, has actually begun to tick up slowly in the past 2 weeks, but the longer term trajectory is declining overall. The Bank of Canada said in their last decision discussion that if the economy begins to evolve in the way they anticipate that more rate cuts are on the table. Inflation as of Sept 2024 was down to 1.6%, oil prices dropped quite a bit more than anticipated which is helping, housing has finally also started to subdue, I have noticed this myself, that prices for housing rentals and purchase are becoming more competitive and even post interest rate cuts the “crazy increase in activity” hasn’t happened.

Prime Time For Home Buyers and Investors

There are still a lot of good deals out there for the savvy investors and home buyers, condos are somewhat oversupplied in many markets and I truly think that now is a once in a long time type of purchasing opportunity (feel like I’ve been saying that for 2 years, but I think we’re approaching the tail end of good deals). There is a great opportunity right now to get into a property at a great price with lots of choice on the market and ride declining interest rates, lock in a fixed rate a year or two from now at something closer to 3-4%. Once companies begin hiring again the hiring freezes are over, economy starts moving again, I’m predicting a very different market 12-18 months from now once these rate cuts have worked their way through the economy.

Local Real Estate Strains and Successes

The Bank of Canada has also predicted in their October 2024 Monetary Policy Report that GDP will climb as we go into 2025 and 2026 as compared to 2024 (which was a tight year, if you tried to renew a mortgage at the start of this year you’ll have felt the strain). So if we’re factoring everything in, expanding economy, lower inflation, decreasing housing prices, decreasing interest rates, 5-7 months of supply in some (great) housing markets, I really think this is a case of buy when others are selling. However, housing tends to be a very regional thing, some areas in Toronto have actually just continued to go up, through all of this, it’s almost like it’s own little bubble where the economic strains didn’t happen (generally in the 1.75 million – 3 million range in particular pockets).

The Problem with Condos (Oversupply & Office)

Condos on the other hand are dime a dozen right now, so much available, great prices if you know where to look, and very few buyers. Now, why are there few buyers, well if you go back to my last post where I talked about the increasing vacancies in office real estate you’ll have noticed that downtowns are having a harder time than suburbs are right now with a majority of office employees working from home 2 or more days a week. There’s simply not as much need to live downtown anymore, so people have moved out to the suburbs where they can get something larger and only have to commute downtown once or twice a week, not a bad deal especially considering you can get a bit more space for the same price as a shoebox downtown. I believe that the general economic malaise, in addition to the shift in expectations for office workers has led to a twofold issue of extremely high office vacancies (20% in some downtown areas), which has led to this oversupply of condo inventory as well. If you look at all these factors of different types of housing supplies building up in different areas they are all somewhat related to a simple yet profound change in the way that our world works post-covid (in part).

Consumers Are in “Wait and See” Mode

Another thing noted in the Monetary Policy report is that consumer spending has continued to decline from the start of the year to Q2 (and likely into the end of the year). Things like cars, vacations, and interest rate sensitive goods are all seeing declines compared to last year. People are feeling the strain, so the interest rate cuts are quite welcome. On a personal note, I was searching for an apartment to rent recently as well as potentially purchasing a used car, and it seemed like every time I looked prices were continuing to decline, “if prices will keep dropping, why not wait until they bottom out.” I’m sure that’s what a lot of people who are looking at housing and cars and any other large purchases are thinking right now. There will have to come a point where interest rates on loans are appealing enough that people will want to purchase their car or home or whatever else, either that or prices are low enough to entice the same. But the issue with just waiting for prices to come down is that we need people to be spending money for our economies to not collapse, so holding rates too high for too long can lead to some negative consequences that most people would not be too happy about.

United States Riding the AI Wave

Strangely through all this downturn stuff, the US economy and stock market has just been doing just fine. The US has a lot of growth companies, and have been able to ride this new “hype wave” of AI which has just injected even more excitement and money into their veins, meanwhile a resource based economy like Canada is suffering because of reduced demand and reduced spending on things like oil and gas, while supply of oil and gas continuing to improve. As an aside, Canada continues to be a bit of a place that is tough on innovators, there are tons of regulations, which arguably is good, but too much can lead to a stifling of innovation. Highly regulated sectors tend to favour incumbents, again, not necessarily a bad thing, especially in some sectors where regulation is extremely important.

Canada’s Lacking Innovation Problem

I don’t know that innovation is quite in the blood of Canada in the same way that some parts of the US “move fast and break things.” On the other hand, if you look at a lot of these “fast movers”, we’re essentially returning to baseline with some modern upgrades where now instead of 20 cable channels we have 20 streaming companies, and instead of taxis we have Ubers which are just as expensive or more expensive in some cases. There’s a great video about how tech companies are becoming worse and worse and basically once they undercut and drive out all their competition they cease to be good deals and with the monopoly they now hold increase their prices and leave people without any other option but to pay for their services.

Tech Company Monopolies, Poor Regulation

It’s a bit more complicated than that, but in a nutshell, that is what has been the ultimate result whether it was the intention from the get go or not. From a business standpoint, it’s just good business to try and get hold of a monopoly or something close to it, patents were invented with that idea in mind. Allow innovators to profit off their creations. But just as I was complaining about too much regulation, there are some sectors that do not have enough regulation or are too highly influenced to properly regulate and encourage competition. There are simple reasons why we can’t have a purely capitalist economy, and why a purely state run economy runs into problems as well. As with anything, there needs to be a good middle ground, in some ways Canada does a better job of this than the US, but with respect to innovation, I think Canada needs to be more encouraging of this and work on keeping our best potential innovators in Canada instead of just hopping over to the US where the rules are a bit more favourable.

Economics of Halloween (God Bless the Dollar!)

To close off this discussion I wanted to divert a bit and talk about Halloween. It’s not the largest shopping holiday, but it is one that almighty capitalism has invented to collect our dollars. I was speaking with a friend recently and was informed of these seasonal Halloween shops and the micro economies that they work in. Some of these smaller stores will top $1,000,000 in revenue just on this one holiday, retail margins tend to be significantly smaller than something like software, but if you have a few stores opened, each doing $1,000,000 in revenue, you have quite a solid business on a few months worth of work each year. So I was curious, how much money does Halloween bring in each year? I only have the US numbers and they tend to spend a bit more than Canadians but it’s interesting nonetheless. In 2023, Americans spent $12.2 Billion on Halloween. Seems like a lot of money. To give a frame of reference Amazons 2 day “Prime Day” sale this year generated $14.2 Billion in revenue. So, while Halloween is quite popular among children and their parents. Amazon, in just 2 days, does more revenue. Other holidays spending for reference: Valentines Day $25.9 Billion, Black Friday online sales $70 Billion, Easter $22.4 Billion. Halloween at $12 Billion is a good attempt at a shopping holiday, but it doesn’t seem to have as much mass appeal as pretty much any other shopping holiday. Moral of the story, give Halloween a boost and buy some chocolates this year :P. Just thought this was kind of interesting. That’s all for my economic brain chaos, thanks for reading.

Keep Investing,

Oliver

Newsletter #24: Bank of Canada Rates and Economic Impacts. Slower Return to Housing Market

This Weeks Blog Post:

Rate Cuts and Housing, The Booming US Economy & Canada’s Innovation Problems:

Why does it seem like the US in invincible
Why tech companies get worse and worse every year, the undercut and monopolize strategy
Small tidbit on Halloween and shopping holiday economics

Read the full article here: https://oliverfoote.ca/canadas-economy-vs-the-us-innovators-technology-housing/

Market Talk:

This weeks market talk is sort of woven into the blog post. But effectively. yay! 50bps rate cut! Bank of Canada says more to come. Economy should improve in 2025-26. Housing still slow, especially condos. Amazing time to be a buyer. Probably won’t see this type of inventory again for 10+ years if rates continue coming down.

Event Update!

Thank you to those who have already indicated interest in my event (details below)!
If you would like to be a part of it you can respond to any of my emails until the event with: “sign me up!”
If you have done so already, expect to receive a Zoom link about 1 week prior to the event.

Topics:

Mortgage rule changes coming Dec 15, 2024,
how interest rates are affecting housing & the economy,
and more!

Details:

Date: Saturday Nov 16th, 2024 @ 10:00AM
Duration: 45 mins – 1 hr
Location: Zoom! (Webinar)
Special guest: Deren Hasip from Mortgage Scout

Hope to see you there!

Market Performance as of Friday October 25, 2024:

S&P 500: 5,808.12 (+22.46% YTD)
NASDAQ: 18,518.60 (+25.41% YTD)
S&P/TSX Composite: 24,463.67 (+17.21% YTD)

Canada CPI Inflation Sep 2024: 1.6% (0.4% Decrease from August 2024)
Current BoC Benchmark Interest Rate: 3.75% (0.5% Decrease on Oct 23, 2024) Unemployment Rate August 2024: 6.6% (0.2% Increase from July 2024)

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The Economics of Gaming

Update Dec 14, 2024: Added Newsletter Email Archive at End of Post.

Startup Costs of Modern Gaming

Video games, what great fun. I’ve been noticing a lot more people getting into gaming who may not have ever played before, and or people are getting back into gaming for one reason or another. On my flight back home I downloaded an emulator in the airport on my phone and played some of my favourite childhood games. Then back in Canada, I found myself in a major big box store, so for the heck of it I went into their gaming section. It has been a while since I bought a new console. The last console gaming related activity I did comprised of modding a Nintendo Wii that I got second hand for $50. The sticker shock in the store was real. A new PlayStation 5 for $659 (+tax) is a nice chunk of change. Want a second controller with that. Try $95 (+tax). Want a new game that came out in the last 6 months, try another $80. Want to play online with your friends, try a $95/year subscription to access “PlayStation online”. So doing some quick math, just to get up and running is $930 (+tax). Over $1000 net. This is in Canadian Rupees by the way. Needless to say $1000 to get started with a modern gaming console is quite the steep price. Although, you could make the argument that it will last longer than a phone and those things cost more than $1000 often times. The point of this exercise is that if you’re not really a gamer day-to-day you likely won’t understand how this pricing makes sense. Let’s just say there is a LOT of money in gaming. So much in fact that it is larger than ALL of the global music, film, and TV markets combined… let that sink in. Now lets try to find out how that makes any sense.

Larger Than TV, Film, and Music… Combined

According to statista the revenue in 2022 from the global gaming market was 347 Billion USD. Sony, the creator of the PlayStation, has sold 36 million of their $500-600 consoles since release in 2020. Xbox has sold 22 million of their Series X/S consoles in a similar price range. Doing some more quick math, for Sony, that’s 18 Billion in revenue in around 2 years. We’ve all lost out minds recently that Taylor Swift is a Billionaire, and she’s top of the top in the music industry, so you know just 9x that in one year for Sony. Not to mention that the 9 Billion is a tiny portion of the overall market. So where is the rest of the money going? Well statista says that around 248 Billion of their 347 Billion is all mobile games, games on your smartphone. Which is kind of crazy to think about, but makes sense. Every single person has a smartphone. So naturally, some are going to play games, some will even pay money for those games or will buy in-game items. The barrier to entry is so much lower since everyone already has a phone, and the price can be more affordable since the size of the market is gigantic. One of the most successful recent games was Fortnite, it was free to download, available on almost all platforms, and they made an absolute killing off in-game purchases. Many games are completely free to play and make their millions just from running ads in between sessions. From the mobile side most people have heard of Candy Crush, and Angry Birds. They are both absolutely huge games, Candy Crush has made $20 Billion in lifetime revenue.

Apple and Google in Gaming

Something to point out here are the companies that truly benefit from the huge mobile gaming market (and arguably make it accessible). Apple with the App Store, and Google with the Play Store. Each respectively taking a 30% cut on any game purchases, in-game purchases, etc. Up until quite recently they have had a strangle hold on the App market for their devices. There have been some anti-trust cases coming up against them for monopolistic practices in recent times. Apple and Google have probably been some of the largest benefactors of the mobile gaming market, alongside the fact that their smartphones already tend to sell quite well. So if you hold any Apple or Google stock, you are already technically benefiting from quite a large segment of the gaming market (among other things). Without getting too much into the details of the lawsuits, a 30% commission on any sale when you can replicate code with the snap of a finger is not a very popular price, especially when you are forced to pay it no matter which platform your game is developed for. Hence the anti-trust lawsuits.

Microsoft and Nintendo’s Dominance

There are also some other major gaming companies. Microsoft, the creators of Microsoft Office and major investors in OpenAI. Own the Xbox and own Minecraft which is the most sold game of all time. They also recently purchased one of the largest publicly traded gaming studios Activision Blizzard who created the Call of Duty series which has been ultra-successful as well. Microsoft, also owns many other gaming franchises and studios which have done quite well. Then there is Nintendo, who recently have created the Nintendo Switch, which is one of the best selling consoles of all time, they also have many classic franchises that I grew up playing like Pokémon, Super Mario, and Legend of Zelda. Nintendo was actually one of the first companies to come out with a small handheld video game console and pioneered that market. Today we are seeing things like the Steam Deck from Valve which allows people to pay PC games on the go. These major studios control a large portion of the non-mobile market.

PC Gaming and Independent Developers

There is also the PC gaming app store Steam which like Google and Apple takes their 30% cut. They are the major gateway to PC games. On the PC there tends to be more room for indie game developers who work solo or with a small to medium sized teams because coding games for PC’s tends to be much more accessible than for consoles (startup costs for console development are in the tens of thousands of dollars). If these PC games become successful, sometimes they will be ported over to gaming consoles by request of the major console makers. The nice part about PC gaming and Mobile gaming from a development perspective is that you don’t have to be a billion dollar corporation to release your game. There have been some super successful games that started off small with one or two developers and have become smash hits, like being a professional musician that gets an early break with a popular song. Some examples that come to mind for me are Hollow Knight which is developed by a team of three, and Stardew Valley which is developed by one guy and has sold over 30 million copies. He’s probably one of the most individually successful game makers of all time. Like being a famous musician however, there are millions and millions of people trying to make their video game, and some become minor hits, but only a tiny few become ultra famous. You’re competing against the incumbents who have collective knowledge among their developers on the scale of millenniums of time spent building games. But hey, no harm in trying, always fun to start a new hobby, and with the sheer size and diversity of gamers (try 3 billion or so), you may find your market.

Watching People Play Games

Another gaming adjacent activity, is livestreaming and watching other people play video games, sometimes on a professional gaming team. If you’re like my parents, when they first saw me watching YouTube videos of other people playing video games, they thought it was weird. I sort of get it. But the best way that I’ve found to explain this phenomenon is like entertainment, or sports. You watch a good movie because the characters are funny, or charming. And you watch a professional gamer because you want to exclaim when they are doing something wrong that you’d never be able to replicate in a million years. Same story, different medium. YouTube itself made something like 30 billion dollars in advertising revenue in 2022, which it shares with the people who post videos on the platform. Many of whom are gaming content creators. There are layers and layers on gaming, and if you get involved enough the rabbit holes can go quite deep. But it has become such an all encompassing medium. You can play it directly on about 10 different platforms. You can develop your own games or work as a developer with a studio or you can watch other people pay for fun or professionally (e-sports).

Gaming Will Only Grow

Gaming is not going away, and the market size is projected to more than double by 2030. With a phone in everyone’s pocket and a computer in everyone’s house, there is always going to be space for a game or two… or three, who’s counting. With the layers of entertainment, modification, customization, development and more. There is space for every type of person within video games and something that will appeal to everyone’s tastes. Each successive generation becomes more and more interested in video games and this will naturally allow the market to continue to grow. It’s still somewhat hard to fathom that gaming is larger than all of TV, film, and music combined. But when you consider all that encompasses a “game”, it can be a very broad term. You never know where inspiration will strike, like this post. But if you get inspired to make a video game, you should go for it, it’s never a bad idea to participate in a growing market. I’m always interested in learning about different markets and gaming is one that you don’t frequently think of as being the behemoth that it is. Hopefully I was able to give a decent synopsis and education about why it is the way it is. As always thank you for reading and have a great day!

Keep Investing,

Oliver Foote

Newsletter #22: Economics of Gaming, Back to School!

This Weeks Blog Post:

The Economics of Gaming:

Gaming is larger than TV, Film, and Music… combined. I explain how this is possible.
Who the major players in the gaming industry are, why Apple and Google are involved.
How individual developers are building a name for themselves in the world of giants.

Read the full article here: https://oliverfoote.ca/the-economics-of-gaming/

Market Talk:

School is back! As someone who is frequently driving in the middle of the day, I have noticed a bit less traffic on the roads as people get back into their regular routines and we make our way into fall with the leaves already changing colours.
The Fed cut rates by 0.5% last week which was big news! The market did nothing because the expectations were that the fed would cut rates by, you guessed it, 0.5%.
For the astute observers of the market, you will have noticed here in Canada and in the US that our longer term bonds, have been steadily dropping for months in anticipation of the rate cuts that we are now seeing. At the start of the year I was finding 5 year fixed mortgage rates in the mid to high 6%, now you can find them in the low 4% range. That’s HUGE and should make purchasing a home more affordable.
The increase in housing activity has been somewhat muted at best, it’s not the most exciting news in the world to hear that things are normalizing again so it’s not getting as much air time, and most people just look to the benchmark interest rate set by the Bank of Canada which determines variable rate mortgages, rather than the 5-yr government bonds which determine fixed rate mortgages (that most people go for anyway).
I also think in general people are a bit tired about hearing about real estate, and they’re somewhat ready to just buckle up for the next little while and hope nothing crazy happens again, but as these rates go lower and lower I do expect that a year from now there will be many more people out there looking for homes, hopefully due to an improving jobs market.
The jobs market in the US was fairly resilient up until a few months ago, Canada’s job market has shown weakening signs for over a year now. Finally the US decided to join the party. The central banks seem to have come to the conclusion that inflation is not quite the concern it used to be (in fact we officially hit 2% inflation in Canada this August, yay!) and are now more worried about higher unemployment (6.6% up from a low of 4.8% in July 2022), so they are likely going to continue to cut rates in the hopes that (business) investment increases and employment improves.
Final aside here, I’ve noticed used car prices are finally coming down, and used cars are sitting on the market a lot longer than they used to be. Dealers are providing lots of promotions on new and used cars.

Market Performance as of Friday September 27, 2024:

S&P 500: 5,738.17 (+20.99% YTD)
NASDAQ: 18,119.59 (+22.71% YTD)
S&P/TSX Composite: 23,956.82 (+14.78% YTD)

Canada CPI Inflation Aug 2024: 2.0% (0.5% Decrease from July 2024)
Current BoC Benchmark Interest Rate: 4.25% (0.25% Decrease on Sept 4, 2024)
Unemployment Rate August 2024: 6.6% (0.2% Increase from June 2024)

Thank you for reading!

-Oliver Foote

Why Exchange Rates Vary, Canada’s Weakening Dollar

Update Dec 14, 2024: Added Newsletter Email Archive at End of Post.

Exchange Rates Introduction

Recently, I have had been lucky enough to go travelling through some countries in Europe and paying for things in a different currency gets one thinking about economics, naturally. To start of my discussion I’m going to mention my visit to Edinburgh because last time I was in the UK it was July of 2022 and I noticed that the exchange rate was significantly different than it is today in September 2024. Back in 2022 the exchange rate was about 1.5 CAD to 1 GBP. This time it was closer to 1.8 CAD to 1 GBP. Basically, it got more expensive for me, but if you think about this on a surface level, currency rates are somewhat of a silly thing. I haven’t changed much, the amount of money that I make hasn’t changed much. On an individual level it’s kind of weird that at different points in time if you want to go and travel, the value of the money you make in your home country can decide the types of things that you can do and how expensive your vacation will be. With so many countries accepting your credit card it makes exchange rates feel even more fake. For example, I was in Denmark and I didn’t see a single Danish Kroner. I couldn’t tell you what that currency looks like, it didn’t even occur to me to exchange money before I went over there because everyone accepts cards. When money is digital it’s somewhat funny to me that there’s different “currencies” at all, it’s just numbers on a screen.

Why Currencies Strengthen or Weaken

Getting past the fact that digital payments are a somewhat funny concept, let’s talk about how the strength of your currency is determined. The different currencies and exchange rates are mostly based on your home countries economy. But this encompasses many things. Employment rates, inflation, Gross National Product, health of trading partners, imports/exports, government policies, etc. All currencies are technically free markets, this means that the market for your countries currency could hypothetically react to a bad piece of news and the currency could temporarily strengthen or weaken, sometimes significantly, on a single news story. Often, there is also a comparison going on, generally the benchmark is the United States, the European Union and various other large economies which are the benchmarks for healthy economies which other currencies are compared against. You may notice in your home country that there is inflation or it’s harder to find a job for a large part of the population, or foreign governments are not buying your governments bonds because the interest rate they are paying is lower than a competitors government. There are a lot of economic dynamics that can determine the value of your currency compared to the currency of another country.

Example of Bad News Affecting Exchange Rates

Let’s take the time that I went to the UK in 2022, arguably, it was a great time to travel to the UK because around that time the country was having governmental problems and their prime minister at the time was ousted, then an interim prime minister was given power, proceeded to break everything by implementing policies everyone agreed were horrible, then was ousted in a matter or weeks or months, all I remember was that a piece of lettuce lasted longer than the PM. These terrible policy decisions led to a loss of confidence in the UK, not quite as crazy as Brexit was, but this period of instability meant that the British Pound took a nice little fall, it was temporary, but the recovery wasn’t immediate. At that time buying British pounds from a foreign exchange perspective would have been a great time to do so since the country itself is largely stable, but this was just a temporary moment of instability. Now, one could argue, that we are getting closer to what the historical exchange rate was. I remember prior to Brexit the British pound was closer to 2.1 CAD to 1 GBP. There’s no saying if it will ever return to that value since Brexit is quite a permanent decision. But we can look towards other interesting economic indicators to get an idea of what exchange rates might look like in the future.

Canada’s Dollar Will Weaken in 2025

For Canada, unfortunately, the Canadian dollar is anticipated to weaken a little bit more in the coming year 2025, which means travel will become more expensive, and arguably makes now a good time to buy foreign currencies such as the USD or the GBP. So why is the Canadian dollar predicted to be weaker? There are a few reasons. Canada is beginning to see quite a jump up in the unemployment rate, people are continuing to lose jobs and new jobs are hard to find. Fewer jobs means fewer people spending money, less demand for goods, less goods produced, this slowing becomes a cycle and our economy “slows”. Since employees are basically business investment, and business investment leads to production or exports/imports. If there is less business investment, and fewer people working, it generally follows that the GDP or GNP of Canada will decline. Another reason this is problematic for Canada is because in the US the GDP has actually been climbing and they are our largest trading partner, so by comparison, we are doing worse, and our currency suffers. Additionally, Canada still has a largely resource based economy, with the largest one being Oil, and Oil prices have not been as strong in recent months, you may see this as a good thing since it’s cheaper to buy gas at home, but it does cause our currency to suffer somewhat. All of these problems, and inflation finally coming down led to the Bank of Canada to cut interest rates in an attempt to stimulate the economy.

Interest Rates, Bonds, and Currencies

Canada was notably the first G10 nation to cut rates. The country has now cut rates three times with another rate cut anticipated before the end of the year. Cutting interest rates means it should in theory be easier for businesses to get loans and invest back into producing goods and get consumers spending again since their loans will also be cheaper, this may also increase housing activity in Canada, which is also a huge part of the economy. But in the interim, our currency will likely suffer while we try to increase output because fewer people will want to purchase Canadian government bonds since the Fed in the United States has yet to cut their rates, making their bonds a more attractive place for people to leave their money. When the government sells bonds, it takes money out of circulation, meaning there are fewer dollars, which means less inflation, less inflation usually leads to a stronger currency. We did somewhat benefit from this since our inflation wasn’t as high as the United States during covid so we had a stronger currency for a while, but the US continues to surprise with their economic output, the machine continues to operate well, while Canada’s is suffering a bit at least from an economics point of view.

Conclusion

In conclusion, Canadians can expect travel to become a bit more expensive over the coming year or two, with the future TBD. I think we need to be pushing to improve investment in technology companies, so much of the world relies on tech and our only claim to fame is Shopify. Economics are a complex problem, and tech won’t solve all of our issues, but we do need to find a way to benefit from the knowledge that we have in the country, because we also suffer from a pretty significant brain drain, the best and highest paying jobs are in the US for our smartest students, so most of them will naturally decide to go there. The US is a great country if you have lots of money and good benefits, and if something goes wrong while they are there, they can always come back, it’s sort of a win-lose for Canadians and Canada. The best way for a Canadian to start a tech company is to move to California, at least last time I checked, so that needs some fixing. This will be a bit of a shorter post because I’m technically on vacation. Currently, I’m sitting outside a coffee shop called Przystanek Kawa in the wonderful Dutch inspired old town square of Gdańsk, Poland (bit of a mouthful, but the city is beautiful), and I’m going to get back to being a tourist and enjoy the sights. I’ll be in Warsaw tomorrow, then it’s off to Lauterbrunnen before returning home (sadly). I will say this solo travel thing does sort of get old quickly (this is only day 2 of 7 days solo) especially when you’re in a place where you aren’t speaking your first language, you can only see so many museums, castles, and church’s before it all starts to feel the same, and hostels have their own quirks and problems, definitely have some stories for another time about rough roommates. Anyway, it’s easy to complain, but I’m extremely happy and lucky that I can do this kind of travel even if it’s not high class luxury travel, I’m quite enjoying the experience and continue to love each new city I go to. That’s all for now, see you in Canada!

Newsletter #21: Exchange Rates in A Digital Economy, August Real Estate Stats

This Weeks Blog Post:

Why Exchange Rates Vary, Canada’s Weakening Dollar:

How exchange rates are determined
Why exchange rates are somewhat strange
Travel experiences and how it gets me thinking about different currencies

Read the full article here: https://oliverfoote.ca/why-exchange-rates-vary-canadas-weakening-dollar/

*Bank of Canada Cuts Rate 0.25%, now sits at 4.25%. – Sept 4, 2024

TRREB August Market Stats Summary:

September has arrived, marking the near end of summer with kids heading back to school and holidays wrapping up. Seasonally August tends to be a slower month of the year when it comes to residential real estate sales. The Greater Toronto Area home sales were down on a year over-year basis with the region’s housing market remaining well-supplied in August. Currently there are approximately 4.5 months of inventory, putting us in what is referred to as a Buyers Market.
The Bank of Canada announced a further rate cut on September 4th which will lead to improvement in affordability. Buyers today are more sensitive than ever to changes in borrowing costs as they pay close attention to what their monthly mortgage payment could be. As mortgage rates continue to trend lower this year and next, we should experience an uptick in buying activity, including in the condo market.
There were 4975 home sales reported by the Toronto Regional Real Estate Board(TRREB) throughout the month of August 2024 – down by 5.3% compared to 5,251 sales reported in August 2023.
Inventory of all home types available for sale were up 46% compared to August of last year, there are currently 22,653 properties for sale. With this jump in inventory you would expect downward pressure on pricing, however, prices remained flat over August 2023 influenced by lowering interest rates and the continued strong demand to live in the Greater Toronto Area. The average selling price was down only 0.7% compared to August 2023 to $1,074,425.
TRREB’s Chief Market Analyst Jason Mercer stated that as borrowing costs trend lower over the next year-and-a-half, home buyers will initially benefit from both lower monthly mortgage payments and lower home prices. Even as demand picks up, especially in 2025, it will take time for the inventory of listings to be absorbed. Ample choice in the market will help keep price growth moderate for the foreseeable future.

Stock Market:

The Fed will cut rates soon, this is already priced into the market, but it’s likely to cause a bit of a temporary happy bump as money becomes a bit cheaper. Getting housing activity moving again will be a sign of a more affordable rate environment as many people in the US do not want to exchange a 30 year fixed mortgage at 2 or 3 percent for a more expensive one at 6 or 7 percent.

Market Performance as of Monday September 16, 2024:

S&P 500: 5,616.19 (+18.41% YTD)
NASDAQ: 17,559.27 (+18.92% YTD)
S&P/TSX Composite: 23,584.56 (+13.00% YTD)

Canada CPI Inflation July 2024: 2.5% (0.2% Decrease from June 2024)
Current BoC Benchmark Interest Rate: 4.25% (0.25% Decrease on Sept 4, 2024) Unemployment Rate June 2024: 6.4% (0.2% Increase from May 2023)

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