Matthew Lekushoff | www.matthewlekushoff.ca

CANADIAN HOUSING

Something strange is happening in the Canadian housing market. The number of sales are down, yet some areas are reacting differently to others. In the Greater Toronto Area, sales (not prices) were down 40% in July. 

As to whether prices are up or down, that appears to be up for debate.  According to the Teranet house price index, house prices were up 14% year-over-year as of July. However, the Toronto Real Estate Board's data showed the average house price falling by 19% from April to July. While some feel Teranet's numbers, which reflect land registries, may be dated, the Toronto Real Estate Board's 19% decline may not be a direct comparison. From what I can see, there isn't a way to determine if the compared April to July numbers were for similar homes. 

However, we do know the government's recent regulations and the interest rate hike have dramatically reduced the number of home sales. That being said, we'll likely need to wait at least a few more months to see how things turn out. 

Anecdotally -----  meaning to be taken with a grain of salt -----  I've talked to a number of people who have decided to take their homes off the market due to lower than desired bids. A good friend's agent also mentioned that she has seen a considerable weakening in prices over the last few months.

Given the housing sector has been the biggest contributor to Canadian economic growth the past few years, and is responsible for nearly one million jobs in Canada, should the number of sales and prices fall off, it could have fairly negative repercussions for the Canadian economy. 

In terms of how a potential real estate crash would affect our portfolios, we would likely weather the storm far better than most due to the fact that we probably have less of a home country bias than other investors. We have significant international holdings, and, of the Canadian securities we hold, more than one third are in the energy sector (considerably more affected by oil prices than the Canadian economy).

MARKET UPDATE

Although we're in the dog days of summer when market fluctuations generally diminish to a faint heartbeat...someone forgot to tell that to the financial markets. 

We aren't seeing significant volatility, but the markets are definitely more active than usual for this time of year.
 
Last week was a fairly bad week for most global commodities and securities with gold being a notable exception. This isn't too surprising given gold's propensity to move counter to most global markets.

Canadian, especially energy sector securities, continue to be the under-performers of the year. Although they are thankfully north of their year-to-date lows, some of their strong gains since early July were sacrificed to the market gods last week. This week has been better as we've seen most markets bounce back a bit.
 
With the last two weeks of August historically being two of the slowest in the year, I suspect/hope there will be relatively little to write about market-wise in my next letter. 

IN THE REVIEW QUEUE

The Effect of Scale in Social Science, or Why Utopia Doesn't Work  by Farnam Street: A good reminder that in the social sciences most things don't scale in a linear manner. Situations and strategies that work in one scenario can often fall apart when the number of people increases.
 
8 Things Every Person Should Do Before 8 A.M.  by Benjamin Hardy: A great article on how to start your day the right way.
 
Bayes for days: What to do with signal   by Kara Lilly: Although it feels like facts are mattering less and less in today's world, Bayes Theorem can give you a big advantage when trying to solve problems or make important decisions. Don't let the formulas in this article scare you off, they aren't as bad as they first seem, and you can still get a clear idea of how Bayes Theorem works without getting into the weeds.
 
Worldly Wisdom from Lee Kuan Yew: 9 Lessons You Can Learn from LKY  by Ludvig Sunstrom: I recently enjoyed a book of interviews with the late Lee Kuan Yew, the man credited with transforming Singapore from a poor backwater state into the world's third richest (per capita) country in the world. This past weekend I came across Ludvig Sunstrom's tribute to him shortly after his passing. Although many of his actions are considered controversial, especially for those of us in democracies, it's easy to see how his uncompromising style enabled Singapore to surge economically.
 
The Triple Package   by Amy Chua and Jed Rubenfeld: The Triple Package tracked and analyzed the U.S.'s most successful groups (measured by income, occupational status, test scores, etc.). Interestingly, they found every group shared the counter-intuitive qualities of having a superiority complex, while also being insecure and having a high degree of impulse control. Although I found the research and conclusions thorough and compelling, I plan to examine this topic further to find other perspectives.

GOING VIRAL

Matthew Lekushoff
416-777-6368
matthew.lekushoff@raymondjames.ca
www.matthewlekushoff.ca


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