Dithering

Regular addicts will recall what used to happen here. For years macroeconomists in the steerage section argued interest rates could not rise. Impossible. The government would never allow it. There’d be a crisis. Families would collapse. Real estate would rot.

Well, up she went. Ten times.

Now read current comments. Yesterday was a fine example. The same experts tell us rates can’t fall. Impossible. Inflation will explode. The currency will crumble. Houses will cost three million. The debt crisis will eat us.

And they’ll be wrong again.

Friday morning we learned US employers put the brakes on hiring. Payroll gains that have averaged almost 270,000 a month dropped to 175,000. The unemployment rate went up. Wage gains went down. Mr. Market immediately raised the odds of a Fed rate cut in September to 50%. Said an actual economist: “For those looking for a rate cut sooner than later, this deceleration in payroll growth is good news, and the weaker wage growth number makes it even better news.”

Well, it’s only one report. Lots more data to come. But the inevitable will occur. As my pal Doug wrote here last weekend, there’s a pattern of multiple rate cuts after a tightening cycle. And we will soon see them triggered now that CB boss Jerome Powell confirmed increases are over. Kaput. Done like dinner.

Also a consensus view is that Canada will cut first. Yesterday we gave you the odds for June: 66%. If not then, circle July 24th. But it will happen.

Now, what’s the impact of all this rate dithering and debate on real estate?

The major markets have reported. Calgary continues to be on its own planet (we’ll call it ‘Danielle’) with locals merrily driving prices higher. Sales are up 7% y/y, prices have romped 10% and new listings just popped 11% (while active listings are down 16%, thanks to the rush of buyers). Higher rates have done zip to stop the hormones.

In the rest of the country, it seems buyers are (a) priced out and suicidal or (b) waiting for rates to drop so they can pay more.

In the mighty GTA, head realtor wizard Jennifer Pearce gives this explanation for a moribund market: “While sales are expected to pick up, many would-be home buyers are likely waiting for the Bank of Canada to actually begin cutting its policy rate before purchasing a home.” And real estate board analyst Jason Mercer is warning of higher prices to come, once that occurs: “Looking forward, the expectation is that lower borrowing costs will prompt tighter market conditions in the months to come, which will result in renewed price growth, especially as we move into 2025.”

Despite the fact it’s prime rutting season, sales dropped 7% y/y. Only 750 detached homes changed hands in all of 416. Ugly. The overall price of properties barely budged and listings bloated. Up 47% for the month and a meaningful 74% advance over last Spring.

The average Toronto detached is $1.8 million – $200,000 off its record, and equally below where Vancouver singles now sit. In that city sales are marginally higher and active listings have hit a four-year high, up 64% y/y.

Says the Van cartel: “The surprise for many market watchers has been the continued strength of demand along with the fact few homeowners have been forced to sell in the face of the highest borrowing costs experienced in over a decade.”

In short, the Bank of Canada generally managed to dampen the housing market, but has done nothing to restore affordability. (That’s actually not its job.) Now as mortgage rates decline (TD just brought in a sizzling 6.1% VRM), inventory is stacking up and buyers are expected to flood in. That’s what Canadians do, of course. When the market is cold, sellers desperate and bargains abound, we stay home. When conditions are steamy and competition driving prices higher, we get FOMO. Never fails.

In summary, rates will go down. Slowly. Pandemic mortgages at sub-2% ain’t coming back. Recession is unlikely. Housing is not going to collapse (if ten rate hikes didn’t do it, nothing will). The rest of 2024 will be volatile and often scary (Trump). The Leafs will lose. And some predictions are easier than others.

About the picture: “Bella-rosa is growing up,” writes Kathryn. “She is 7 months old on May 7. We shared her on your blog when she was about 2 months old, just a little one then. She is quite the young lady now, one with a mind of her own to be sure. Thanks for your wonderful posts, Garth. I always look forward to them.”

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