It s Complicated Benjamin Tal, Deputy Chief Economist & Managing Director

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1 It s Complicated Benjamin Tal, Deputy Chief Economist & Managing Director September 214

2 EZ Vulnerability to Russia Limited, Outside Energy Russian Federation, % of exports, Russian Federation, % of Banks' Foreign Claims Average: All European Banks Latvia Estonia Germany France Eurozone. Italy France Germany UK Source: IMF, BIS, CIBC 2

3 Global Systemic Risk by Country/Area* 1,4 $Bn 1,2 1, 8 *Added capital needed to maintain solvency of key financial institutions in the event of another 28-style financial crisis Europe Japan China US India Brazil Source: CIBC, NY Stern School Volatility Lab, Acharya, Engle and Richardson (212) 3

4 China-Rebounding, But Less Vigour Title (L) As Housing Headwinds Mount (R) 4 Sales, y/y % Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun Industrial production, y/y % Source: NBS, CIBC 4

5 US Existing Home Sales 8, 7, 6, sa, s bubble government programs Investors leaving 5, 4, rotation 3, crash investment 2, Source: National Association of Realtors 5

6 Mortgage Lending Conditions Improving Again (L), But Stock of Property For Sale Sitting Idle (R) Lending Conditions For Prime Mortgages (% Balance) 2 Looser/ 1 Improving Q4 21 Q3 211 Q2 Tighter/ Deteriorating 212 Q1 212 Q4 213 Q3 214 Q2 Vacant Housing by Length of Time on Market (Millions) Less Than 6 Months Pre-Recession Recent More Than 6 Months Source: Federal Reserve, Census Bureau, NAR, CIBC 6

7 Real Neutral Rates Have Fallen Title (L) And Are Correlated with Potential GDP Pace (R) % Canada US N eutral Inflatio n-a djusted Po licy R ate, R-Squared = US Potential GDP Growth (IMF estimates) Source: OECD Working Paper #181, Nov 213, CIBC 7

8 Cooler Heads Won t Prevail Judged by Past Mild Tightening Cycles 35 3 increase in rates, bps Jan94 Feb95 Oct93- Nov94 Jun99- May Oct98- Jun Feb13- Jul14 Fed Funds 1-yr Treasury (mnth ave) Source: Haver, CIBC 8

9 Canada, the Energy Explorer (L); Industry Production Estimates Imply More of the Same (R) 3 25 Energy Products Share of Total Exports (%) mn bbl fcst Two Decades Ago A Decade Ago June '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 Canadian Production US Imports from Canada Source: Statistics Canada, CARP, EIA, CIBC 9

10 Investing But Not At Home Growth Rate % Domestic Capital Expenditure Foreign Direct Investment Source: Statistics Canada, CIBC 1

11 The Canadian Housing Market Average Price - Jun 214 (Y/Y % chg, 3-mo moving avg) Distribution of Unit Sales by House Price Appreciation 21Q1-214Q1 Thunder Bay Toronto Vancouver Calgary St. Catharines-Niagara Trois-Rivieres Kitchener Windsor Sherbrooke Edmonton Saguenay Winnipeg Hamilton London Montreal Greater Sudbury St. John s Ottawa-C arleton Kingston Halifax Saskatoon Regina Victoria Quebec Saint John Above inflation 73.% Below inflation 27.% Source: CREA, CIBC 11

12 Robust Activity in Pricy Centers Title Bias Average Price y/y % chg 3-mo moving avg Weighted avg price Unweighted avg price Gap Between Unweighted and Weighted Average Price %-pts Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul (Jul) Source: CREA, CIBC 12

13 Stable Unit Sales (L) Mask Diverse Activity by Price Level (R) 45, 4, Unit Sales 3-months moving average units Unit Sales 21Q1-214Q1 % chg 35, 2 3, 25, 2, Low-Mid Mid-High High Price range Source: CIBC calculations based on CREA s unpublished tabulations 13

14 Soft First-Time Buyers Activity Mainly in Single-Detached Units 11 Index Unit Sales : Low-Mid Price Range 3-qtr moving avg, 21Q1= Single-Detached Apartments 5 1Q1 11Q1 12Q1 13Q1 14Q1 Source: CIBC calculations based on CREA s unpublished tabulations 14

15 Lower Homeownership Rate Among Young Canadians % of Homeowners (Age 25-34) Source: Canadian Financial Monitor, CIBC 15

16 Toronto Pricy is Getting Pricier 6 5 Growth in Average House Prices in Toronto 21Q1-214Q1 % $3K- $5K $5K- $8K $8K- $1.2mn Price range - Single-Detached $1.2mn- $1.6mn Source: CIBC calculations based on Brookfield s unpublished tabulations 16

17 Vancouver Most Price Activity is in the High-End Market Growth in Average House Prices in Vancouver 21Q1-214Q1 % $3K- $5K $5K- $8K $8K- $1.1mn Price range - Single-Detached $1.1mn+ Source: CIBC calculations based on CREA s unpublished tabulations 17

18 Do It Yourself Share of Renovations in Total Residential Investment Share by Province (214Q1) % Average of 5 years ending ATL QUE ONT MAN BC ALB % Source: Statistics Canada, CIBC 18

19 Signs of Excess Supply at the Upper End of the Market % Growth in Active Listings 21Q1-214Q1 Low-Mid Mid-High High Price range Source: CIBC calculations based on CREA s unpublished tabulations 19

20 End Slide Thank You Benjamin Tal, Managing Director, Deputy Chief Economist CIBC World Markets Inc 2

The R Word. Benjamin Tal Senior Economist. April 2008 Economics & Strategy

The R Word. Benjamin Tal Senior Economist. April 2008 Economics & Strategy The R Word Benjamin Tal Senior Economist April 28 Economics & Strategy An Unprecedented US Housing Downturn Is Unfolding 11 Housing Starts 11 Home Sales 1 9 1 8 9 7 8 6 5 4 7 6 3 1 5 9 13 17 21 25 months