The big day

The best hope for lower house prices was higher mortgage rates.

Why?

Simple. Home loans at 6% and a stress test even higher meant fewer people could buy. Fewer is better. That reduces demand. When demand falls, sales languish. And with faltering sales volumes come lower prices. That’s because sellers have a shallow pool of buyers to fish in. A cheaper ask is the bait.

Well, we now know how that worked.

The average property (all types) in Canada’s largest market currently sells for $1,108,720. In the spring of 2022, when sales and prices were mega-frothy, the average sale price was $1,334,5544. So, a decline of 17%.

But wait. Two years ago a five-year bank mortgage was available for 3.2%. Now a fiver is 5.6%. So the $225,824 price reduction has been wiped out by higher monthly payments. Houses are no more affordable than they were before the Bank of Canada jacked its policy rates from 0.25% all the way to 5%.

During that time the feds brought in an anti-flip law. They banned non-resident buyers from even making offers for two years. Then they extended that two more. The cut the GST on new rental construction. They threw $4 billion into a fund to bribe cities into allowing more building. They bullied municipalities into trashing zoning laws. They dropped a hammer on Airbnb. They brought in (and then ended) a shared-equity mortgage. They cooked up a Canadian Mortgage Charter to soften the blow for families renewing a total of $600 billion in loans. And Ottawa promised that, some how, impossibly, 5.8 million more houses would be built in the years to come.

All for naught?

Well, with sales swelling again, Ottawa is about to do more. In the budget set for April 16 it looks like we’ll get a significant federal push to increase the demand for real estate – just as mortgage rates are heading south and the central bank is about to retreat.

In fact, the coming budget will be all about houses. Chrystia said so herself in announcing it: “Our economic plan is about building more homes, faster, making life more affordable… because Canada is stronger when everyone has an equal chance to succeed.”

So, what’s coming?

“More affordability measures,” says CIBC’s chief economist Benny Tal. “The government realizes that housing is a major issue and the next elections will be all about housing.”

Of course it does. We all know that. Canadian voters don’t really care about Ukraine, Gaza, NATO, Putin, Trump, trade, Xi or the climate. They want condos, baby. Backyards, driveways, quartz countertops and equity. The kiddos crave to become their parents. The wrinklies want a one-asset financial plan. There’s no doubt the next vote will be all about housing, and at this moment it’s not looking too hot for the Libs.

So on April 16th there may be a new package of incentives for first-time buyers aimed at taking the edge off prices and financing charges, and thereby goosing demand. As well, we may be about to see the return of 30-year insured amortizations.

The Canadian Homebuilders Association is calling for longer mortgages for new-builds, as well as a drop of the stress test rate and the level of GST charged on new homes. The builders also asking for less red tape and a more targeted labour strategy to build up the workforce needed to erect a forest of new dwellings.

Meanwhile realtors are also demanding more new housing, faster, plus a seat at the policy table. “Establish a permanent national housing roundtable to bring together housing stakeholders to help address the housing crisis through an inclusive, holistic approach emphasizing collaboration, innovation, and policy coordination,” says their pre-budget submission.

Hmm. Being holistic, inclusive and collaborative is all nice and sweet, but there’s an election coming and the Trudeau government has to move the housing needle fast, lest a blue wave wash over the floor of the House of Commons. That’s why April 16th could be a pivotal day. When Chrystia says her budget will “unlock pathways to a good middle class life,” whazzit mean?

She said this last week: “The single biggest thing in a family’s budget is paying your mortgage or the rent. We just have to build more, faster. We are committed to that.” But promises to erect millions of new units by, say, 2032 will do diddly to bend an election in the second half of 2025.

This could signal some radical stuff. It will come six days after the Bank of Canada’s next interest rate announcement (now looking like another pause) and six weeks before most economists forecast the first rate drop. In short, supply will be the same. Demand will be kicked higher. And guess where that lands us?

They might as well quit now.

About the picture: “Hi Garth, long time reader,” writes Kirk, in Edmonton. “Here’s a couple pics of Rosie, one of two dogs we adopted in 2019. She will pick the strangest positions to chill because princess can’t stand laying on the ground.”

To be in touch or send a picture of your beast, email to ‘[email protected]’.