A new hell?

The Canada 5 bond yield has shed almost a full 1% in the last ten weeks. Tomorrow the Tiffster will sit on his hands and keep the Bank of Canada rate paused. Meanwhile one of the banks is now offering a five-year 4.99% insured mortgage (through a broker).

All this is feeding the meme that what sucks now will be beautiful by April.

Look at this bold statement from the Chief Principal Wizard of the Toronto realtor board:

“Inflation and elevated borrowing costs have taken their toll on affordability. This has been no more apparent than in the interest rate-sensitive housing market. However, it does appear relief is on the horizon. Bond yields, which underpin fixed rate mortgages have been trending lower and an increasing number of forecasters are anticipating Bank of Canada rate cuts in the first half of 2024. Lower rates will help alleviate affordability issues for existing homeowners and those looking to enter the market.”

It’s echoed by the boss at the Vancouver board as well. Says Andrew Lis: “With most economists expecting mortgage rates to fall modestly in 2024, market conditions for buyers are arguably the most favorable we’ve seen in some time in our market.”

Here’s the latest.

In Canada’s largest housing market sales are predictably awful (4,226 compared with over 9,000 in May). Inventory is piling up with a 16.5% hike in new listings. The average property (condos, freeholds and parking spaces) is $1.08 million, which is 2.2% less than the month before.

January remains the low point of the year. December is barely better. The apex came in the Spring (the last time the CB put rates on pause) and since then the average 416 detached has shed $300,000, or just under 15.5%.

Is that it?

Likely not. There are a few more months of angst to get through and consumer sentiment is still sour. But the realtors’ chief economist is pumping the Cybertruck accelerator: “As mortgage rates trend lower next year and the population continues to grow at a record pace, expect demand to increase relative to supply. This will eventually lead to renewed growth in home prices.”

In Van, similar.

Sales in that city are flat. Prices are flat. And inventory has risen to the point where there’s now a 6.4 month supply – which is a ton. (During the pandemic-FOMO panic, inventory was running at about two weeks in some markets). Sale prices have fallen month/month and the sales-to-listings ratio has plunged to just 16%. Like elsewhere, good luck if you’re trying to flog your house. (Tomorrow’s post may be of some assistance, by the way.)

In Victoria, same.

Both sales and prices down on a monthly basis in what may be Canada’s most ridiculously-overpriced small city. The average detached is trading at $1.286 million, which is still forty grand ahead of last year. Listings are up by a quarter, and now represent 6.7 months of inventory.

And it’s interesting that in Winsor, Ontario (population about 250,000 – not much less than Victoria region), the average property costs $558,000 – which is 10.2% less than a year ago, and 12% off its 2023 peak.

Prices are moribund even in this cheap city

Source: Windsor Essex Real Estate Board

This is what people see today. Lower prices. Heaps more unsold homes. Realtors under bridges. Meanwhile they’re being fed a steady diet of negativity by a media that is hemorrhaging jobs, hope and revenue and a federal opposition leader determined to prove things have never been worse, with nurses sleeping in their cars and desolation row ahead for the rest.

Expect the drumbeat of disaster to continue. This winter will be a challenge to the souls of those who buy into the fiction that one politician caused mass houselessness and another politician can fix it. Instead, we’re on a long path of real estate lust that collided with a pandemic and monetary policy. This mess took more than a decade and a half to create (back to Harper’s 0% downpayments and 40-year loans), and it will be that long getting fixed. Especially given what the spring promises.

A majority of economists, equity and bond markets, traders, fund managers, real estate agents, boards and brokers are all singing the same song this December. The hikes are done. The cuts are coming. April 10th, remember? Maybe even sooner.

Some experts warn of the consequences. Rightly so.

Says Scotia Economics’ Derek Holt:

Mortgage rate cuts are back in vogue now and thanks to the fact that a key driver of fixed term mortgage rate pricing—the five-year GoC yield—is down by almost a percentage point from the peak and back to levels unseen since early last June. This is exactly the scenario I was most worried about in terms of containing pressures on housing affordability and holding inflation risks at bay should the BoC waffle.

Will 4-handle mortgages deliver a new gasbag and an enhanced housing hell? It’s possible.

And one guy will love it.

About the picture: “My friend and I volunteered to help another friend out who needed assistance,” writes Della. “We got to deliver this litter of puppies and spend several weeks looking after them. We did spend a lot of time fooling around taking fun pictures. This is my favourite. I ended up keeping the girl and my friend kept a boy. They just turned 5 years old.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.