The cycle

The day before the first bomb fell the yield on the Canada 5-year bond was 2.6%. Today it’s 3.2%.

In the debt world that’s an elephantine move. Meanwhile the yield on 30-year money has jumped to 4%.

So, whazzat mean?

Investors want protection from inflation, so bond prices fall and yields rise. The war sucks. Energy prices won’t be meaningfully lower for a long time (even as the US and Iran start talking and the TACO trade takes hold). On top of Trump’s costly tariffs, this energy shock is too much.

One outcome the bond market braces for is stagflation – interest rates going up and the economy degrading.

The Canada 5 bond, as you know, has a big influence on five-year mortgage rates. So a half-point jump in a few weeks has already been pushing loan rates higher. This has occurred as house prices are pushing lower.

It feels like the war may end sooner than later (that could change in a few hours), but it won’t fix real estate. Unemployment has been rising. The last jobs report was a roadapple. Canada’s population is stalling out. Home sales have plunged and the new-housing business is on its knees. Rents are falling. Unsold inventory is plentiful. Home prices have dropped an average of 20%.

But amid those deflating indicators, consumer prices have been rising. Everything seems crazy expensive. The ho-hum new composite exterior door I had installed last week to replace the cracked wooden one cost four grand. One door. So imagine an entire new house. It’s insane. Property taxes are up. So are charges for water and sewage. Electricity and nat gas. Insurance premiums. Everything.

The war just underscores what a boom-bust rollercoaster we’ve all been on.

As economist Bob Kavcic points out, unique conditions created that once-in-a-gen real estate eruption during and immediately after the pandemic.

• Covid caused a cocooning effect as people sought refuge within their own walls.
• Urban flight from germs, WFH and strangers coughing on you in the elevator created a real estate boom in faraway Bunnypatch.
• Fighting deflation and economic crisis, the central bank dropped interest rates to near zero.
• The Millennials aged out of their parents’ basement and jumped into home ownership.
• The Trudeau government used immigration as an economic tool and swelled the population.
• During our first-ever social media housing craze, FOMO rapidly swept through society, leading to bidding wars, blind auctions, bully bids and vendor greed.

But that was then. It’s gone now. All of it.

Kavcic has traced out other housing boom-bust cycles of the past and finds a pattern. Rapid rise, a quick but longer time of decline and a w-a-y longer period of recovery. The last time Canada went through a 30% house prices correction, for example, the trip down took about four years – followed by a 22-year path back.

The current mess, he concludes, looks a lot like that. Then add in the war. Final outcome unknown.

One fact remains, of course. The courageous who bought during the busts were as wise as the FOMO-inflicted were reckless.

About the picture: “I sent you a pic in the fall of my new puppy, Bristol digging holes in the yard that you posted,” writes Della. “Thought you might like to see what the little angel looked like when she wasn’t covered in dirt . I can barely remember her looking this adorable. She was about 10 weeks old in this photo.”

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

Source: https://www.greaterfool.ca/2026/03/25/the-cycle/