Jar people

More about dog artist Topher Brophy here.

The big news soon in the GTA will be an increase in sales. “The scare is over,” wrote a realtor in a failing Toronto tabloid that shall remain nameless. When the local cartel releases numbers in a few days they’ll come cloaked in the patina of ‘recovery.’ The bleeding was staunched! We’re not gonna die after all!

Meanwhile in the Lower Mainland, lots of moisters never got the memo about peak house and the troubles coming. A ho-hum new townhouse development (starting at a garage-sized 500 square feet) in PoCo, of all places (30 clicks from downtown YVR) caused pandemonium late last week. Whipped up by a social media campaign, the kids were camping out in pup tents for four days and three nights prior to Saturday’s launch.

Here’s the vid posted by a triumphant marketing team at Montrose Square.

Well, does all this mean it’s over? The correction, that is. Was it, like geriatric sex, promising but achingly short? Or is this a head fake? A classic bull trap?

Many point to the Van experience as ‘proof’ the GTA will recover fast. Following the imposition of the Chinese Dudes Tax, then the Empty Houses Tax, plus the CRA Specker Tax crackdown, the market slumped and prices wobbled. But lately sales volumes and average prices have picked up, as the sales mix changed dramatically. Condos and towns are hot. Detacheds are not. Luxury properties are growing spores. Priced out of single homes, but horny as ever, Mills have been pouring into ‘affordable’ places, clinging to the belief they must buy-now-or-buy-never.

So cute. An entire generation that grew up with romping prices and declining interest, irrationally afraid of financial assets (their parents’ mutual funds were whacked in 2008), with the financial literacy of a Starbucks Iced Coconut Milk Mocha Macchiato, rushing to spend their pre-approved mortgage money so they can look forward to closing costs, strata fees, property taxes, maintenance and irrepayable debt at increasing rates. Are they smart to be camping on the side of a Port Coquitlam road and peeing in jars so they can buy something in four minutes knowing what’s coming, or is this youthful ignorance on parade?

Beats me. I come here for the dog pictures.

Well, it’s clear economists are concerned. Last week’s personal debt numbers plus fresh warnings from international central bankers were chilling. Looks like the US Fed is on track for four interest rate increases in 12 months with an expected December pop. The Bank of Canada will have one more (at least) this year, for a tripling of its benchmark in 2017. The Dotard-Rocket Man thing threatens to get out of control. Ottawa is about to tax the poop out of two million small business operators. And have you checked out weather events lately?

Mostly, though, the universal stress test is what has experts worried. Expected next month, it’ll add 2% to current rates in terms of income qualification. The impact? Removing between 5% and 20% of available credit (depending who you listen to), with a corresponding impact on pricing.

So here’s a key question: does a rebound in activity from the depths of July have anything to do with people accelerating buying decisions because of rising rates? Are those pre-approved for mortgages for 60 or 120 days scrambling to spend that money before home loans swell again?

Emile is one of those moisters in angst. “My wife and I just happened to get pre-approved for a 5 year fixed at 2.54% on the morning of Sept 7th (the date of the last rate hike),” he says. “We are eligible for this rate for 120 days. We live in a town where the average house is likely about 500k. If I wait till mid-winter and get the same house at 450k (10% drop) I would likely have to finance at a higher rate and the house would be no more affordable for me.  So the real question is this:  What do we do?”

That’s easy. Wait. Buying six months from now after the above takes effect will likely result in a lower price. Yes, rates may be higher so, yep, the monthly will be about the same. The big difference is a lower debt – in this case about $50,000 less. So assuming you stay in that property for a decade or more, two mortgage renewals lie ahead at uncertain rates. Money could cost more or less in 2023 and 2028 – but one certainly will be that you have a smaller amount to finance, minimizing the impact. Plus, if you convert your monthly mortgage into a weekly one, the effective amortization period will be sharply reduced – all for the equivalent of a single extra payment per year.

So, to conclude, higher rates and less credit will reduce the cost of real estate. Surely you didn’t need 828 words to tell you that.