Spring thaw

Down she goes. Both fixed-rate fivers and VRMs are in the 4.5% range. The Bank of Canada delivered its second jumbo rate cut in a row yesterday. The Canadian dollar held its ground. Surprisingly. So did bond yields. The earth didn’t move, but realtors sure felt a tremor.

As reported on this pathetic blog recently, house sales have bolted higher even as prices stagnated. Now – at least in the big cities where people lost their minds some time ago – multiple buyers, bidding wars, bully offers and presentation dates are back. And it’s mid-December, when the market’s supposed to be Christmas-comatose.

But this year is different. The central bankers and the politicians are making it so.

Five cuts in a row. A big deal. The policy rate has plunged 175 basis points as the threat of inflation fades, the unemployment rate rises and the economy sputters along near zero. Now inventory levels are beginning to ease and buyers have been coming back – just as (this weekend) some of the biggest mortgage changes in a generation occur.

In a couple of days all new buyers will be able to extend their amortizations to 30 years. That will cost them more interest in the long-run (as shown already) but will also reduce monthly costs. Even more salient is the giant move up in the price cap for insured purchases, from $1 million to $1.5.

The big news here is that once CMHC coverage is available, downpayments crash lower. So a $1.45 million house that today requires 20% in cash ($290,000) will, after this weekend, take ‘only’ $120,000. That’s still serious money, but a drop of almost 60%. (With CMHC insurance, the minimum downpayment is 5% of the first half-million and 10% of the remaining purchase price).

And, of course, the stress test is no longer required for those millions of people who are renewing mortgages, not increasing the amount borrowed and who wish to shop around for the best deal. With that change, and the decline in the Bank of Canada rate, the dreaded mortgage disaster expected as 70% of loans come up for refinancing is fading faster than Canadian women’s soccer.

Okay, so wassup?

As mentioned here yesterday, buyers have been ignited – at least in some hoods, of some urban areas. Despite Trump, tariffs, the spectre of recession, federal elections on the horizon and geopolitical uncertainty, the real estate cartel expects FOMO will once again infect the nation.

Royal Lepage’s Chief Humper put it well. “Buyers have woken up to the reality that property prices are rising again,” Phil Soper said in a statement after the CB rate dump, “and more will feel an urgency to act before affordability erodes. As a result, we are anticipating a ‘pull-ahead’ of activity and an early start to the traditional spring housing market.”

That seems to be gaining currency – a spring market with snow on it. Maybe February instead of March. Perchance even starting about four weeks from now.

A consensus is building that the Bank of Canada has three more quarter-point cuts ahead of it, starting January 29th. This should take the rate down to 2.5% – the so-called ’neutral’ point at which the economy is norther stimulated nor depressed by the cost of money. Then variable-rate loans will be in the low threes, and fixed-rate loans even a tad lower.

Combined with the lower downpayments, longer amortizations, the stress test holiday on renewals plus the crazy FHSA, the fat new RRSP homebuyer allowances and various provincial incentives, agents and brokers think we little beavs will once again get house lusty and lose all self-control.

Will that happen?

Yeah, likely. Humans are weird that way. They crave what they don’t actually need. They confuse shelter with identity. They see debt as equity. They become envious, competitive, covetous and consumed. And they’re easily manipulated by available credit and their sister-in-law’s new kitchen.

Here we go again, says Phil.

Don’t you hate it every time that guy’s right?

About the picture: “On a recent trip to Turkey, this adorable stray cat tried to hitch a ride back to Canada with me,” writes Heather, back home in Sough Surrey, BC. “It was a shame to leave her behind but I knew she’d be okay, thanks to the kind-hearted animal lovers in Turkey … and the animal protection laws. Many thanks for your free daily blog, which I find both enlightening and entertaining.”

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

Source: https://www.greaterfool.ca/2024/12/12/spring-thaw/