Mortgage pain has not peaked yet

Despite spring market optimism, US Home sales in March posted their most significant decline in more than a year (-4.3% month-over-month–largest monthly decline since November 2022) as 30-year fixed mortgage rates moved back above 7% from just over 6% in early February. See Housing Market Slumps as Mortgage Rates Top 7%. Also, see, This could be the year the home improvement boom fizzles out.

In Canada, where fixed mortgage rates are back above 5%, March home sales and prices were mostly unchanged month-over-month (Canadian Real Estate Association data (CREA). Home sales activity recorded over Canadian MLS® Systems rose just 0.5% between February and March 2024, some 10% below the average of the last ten years (chart below since 2007). While the Bank of Canada is expected to lower its base rate in the second half of this year, Pandemic-era mortgages that were taken out at rock-bottom interest rates are still likely to face higher interest rates at renewal over the next three years.

Oxford Economics forecasts that mortgage payments will increase by another 6% to $156 billion by the end of 2024 and 18% to $173 billion by the end of 2027. This would take mortgage payment’s share of disposable income to a peak of 9.3% by mid-2025–the highest on records going back to 1990 (chart below).

The implications are less money for everything else and a rash of forced asset sales. See, the Pain of Canadians’ Mortgage Rate Shock is not over–not by a long shot:

The hardest hit will be low to medium-income households, which have little spare income, excess pandemic savings or ability to take on more debt.

According to Oxford, these households hold about 45 per cent of the mortgage debt in this country, with higher-income households accounting for 55 per cent.Higher income households, with more disposable income, are obviously better equipped to deal with rising mortgage payments. For less wealthy Canadians, however, these payments are expected to gobble up 10 per cent of disposable income by mid-2025, compared to 8.8 per cent for higher incomes.

With little to no buffer, lower-income households could be forced to cut discretionary spending, become delinquent on their mortgages or sell their homes, said the economists.

And since these households accounted for 50 per cent of consumption in Canada last year, the pullback will hit the economy, they said.

Oxford’s outlier forecast is that aggregate real consumer spending will slow to 0.5 per cent this year, down from 1.7 per cent growth in 2023, bringing on a mild recession.

“Weaker consumption, which accounts for more than half of GDP, is a key driver of our recession forecast, but we could also see a period of deleveraging in coming years,” said Oxford.

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Solar balconies

Solar energy bombards the earth every day. And, every day, more and more people passively capture it to lower their power costs and move us away from fossil fuels.

Train tracks, roads, car parks, car roofs, cemeteries, building facades… the list of structures getting a solar makeover goes on and on. Humans can be so innovative when we try to be. Plug-and-play systems are affordable and portable when their owners move. See Solar balconies are booming in Germany:

More than 400,000 plug-in solar systems have been installed in Germany, most of them taking up a seamless spot on people’s balconies.

New data shows at least 50,000 of the PV devices were added in the first quarter of 2024 alone. A boom born from Germany’s “very strong solar culture”, in the words of one expert.

Solar balconies are a piece of the wider energy transition across Europe, explains Jan Osenberg, a policy advisor at the SolarPower Europe association.

“We see them as a subset of rooftop solar, but also as something different,” he tells Euronews Green. “We basically see it as a trend to use all possible artificial infrastructure for solar generation.”

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China exporting deflation (encore)

China’s epic property bust has left it with a glut of materials and products that it is now exporting globally. This will help ease inflationary pressures and threaten the viability of competitors.

As construction at home has dried up, Chinese steel exports have risen 33% year over year, and the excess supply goes far beyond steel to textiles, ceramics, semiconductors, electric vehicles and other high-tech equipment like solar panels. See Flood of Chinese Steel Fuels Global Backlash:

Beijing is funnelling investment into factories to rev up growth in an economy beset by restrained consumer spending and real-estate distress. The result is a blast of exports that is bringing back memories of the original China shock of the early 2000s when a torrent of cheap goods brought a bounty for consumers but proved an insurmountable challenge for some U.S. industries exposed to the new competition.

…U.S. Treasury Secretary Janet Yellen, on a recent trip to Beijing, warned that China is now simply too large for the rest of the world to absorb its ballooning industrial output, which U.S. officials say is supported by lavish subsidies and state-directed loans.

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