Toronto’s best mortgage brokers are back with another episode of the Make Money Count Podcast. In this episode Marcus and Justin give an update to the economic responses of 2022. The topics of discussion: Inflation Surges, Interest Rates Rise, and the housing market correction. Inflation was one of the key stories of 2022. Consistently surprising to the upside and forcing central bankers to revise their projections upwards.

The Bank of Canada eventually performed the first downward revision of the inflation trajectory in October 2022. Despite this, the bank only began responding to inflation in 2022 by raising interest rates. This rapid tightening cycle saw the policy rate go up by 4% within a year. It is the fastest and largest since at least 1994. One of the main indicators of this tightening cycle was the steep yield curve inversion seen in July 2022. Yield curve inversion occurs when yields for shorter durations are higher than those for longer ones. It is an important indicator of recession risk.

In the US, every single one of the six yield curve inversions since 1976 was followed by a recession within 2 years. Despite this, the economy was strong. Unemployment is at the lowest levels on record since at least 1976 and household wealth relative to GDP at a peak.

However, this peak may not be sustainable in the long term, as interest rates dropped to 0.25% in 2020, ending the tailwind for assets valuations. Population growth also saw a record high in 2022. There were strong growth in immigration, non-permanent residents, and asylum claimants. However, this growth was not seen in Toronto, where housing affordability challenges led to a rising outflow of residents both within the province and to other provinces.

The Toronto housing market also saw a correction, with average prices in 2022 being 9% higher than in 2021, and the gap between average and attainable prices being the largest since at least 1982. The investment returns for condos were also unattractive, with the average annual return being less than 1% in 2022. Overall, 2022 was a year of rapid tightening and inflation, with the economy remaining strong but certain indicators pointing towards a potential recession. The housing market also saw a correction, with affordability challenges leading to a rising outflow of residents from Toronto.