Calling the bottom?

So. Is it over?

Here are some reasons the realtors who skulk among us think the worst is over. The bottom has been plumbed. The commission drought may be ending.

First, inflation. A big drop last month, down to 6.3%. That beat economists’ forecasts. It was a hefty half-point plop from November’s annualized number. And it was the lowest month/month change since April, of 2020, when the slimy little pathogen was just slithering into our lives.

So, second, the betting now is the central bank can stop with the toxic-masculine rate increases. Another quarter point pop next week, the industry figures, then a pause. The Bank of Canada rate will have gone from 0.25% last March to 4.5% today. Mission accomplished.

Third, a soft landing is looking more plausible. Did you see the latest jobs numbers for Canada? Staggering. A hundred thousand new hires, when the mighty US came in at just over two hundred. This suggests the economy is cooling enough for interest pain to ease, but not enough to curtail employment or income growth. It rarely happens. But maybe this time is different?

Fourth, listings still suck. The inventory of resale homes is scant. Choice is seriously reduced, so even with far few buyers in the market, the big price declines seem to have halted. After all, rutting season is around the corner. Loins are rustling. Hormones coursing. The kiddos can’t help it.

Fifth, sales volumes have stabilized. Yes, the year/year numbers are still awful but the month/month stats tell another story.

Six, prices have fallen far more than the media is reporting and have actually pushed national real estate into a bear market. While CREA announced an average price drop of 12% year/year this week (the largest on record), the number is far bigger. Since the peak (last February), the typical house in Canada has lost 23% of its value. In Bunnypatch, up to 40%. Even detacheds in the Kingdom of 416 are off 22%. The realtors now figure (delusionally or not) that valuations cannot fade much further.

And look at mortgage rates. At least two of the Big Five guys are offering five-year fixed-rate home loans at 5.2% or less. How can that be such a bad deal when inflation is still 6.3% and the chartered bank prime rate is even higher? Those scary predictions of 7% or 9% loans never materialized, so won’t buyers just acclimatize to these levels once the rate tightening ends and stability breaks out all over?

Those are some of the reasons Audis are not being turned in, the lights are still on at the Re/Max skyscraper and rock star realtors may again strut.

But wait. Is this even reasonable?

After all, the combo of 5% mortgages and prices still far above pre-pandemic levels is deadly. RBC tells us affordability has never been this bad. Not even when loans were priced at 19%. Generation Squeeze (bless its little ageist, egomaniacal heart) says it still takes Mills and Zs decades to amass a downpayment. The bank regulator has indicated new mortgage restrictions will be coming later this year, aimed at making it harder to buy. The stress test of more than 7% still stands, and going nowhere. Household debt is at record levels and MNP’s latest survey finds nearly half of Canadians are worried about how much they owe with a third saying they don’t earn enough to cover payments.

Moreover, wonky stock markets have not been kind to those using RRSPs to build up house money. Lots of people still think a recession is around the corner. Wage gains still seriously trail increases in the cost of living. And crap houses on dodgy city streets still cost well over a million.

So, when average couples cannot afford to buy average houses, how can this real estate correction be done? Do we not need a chop of forty or fifty per cent before sanity is restored?

Rishi Sondhi’s an economist at TD. He looked at the CREA numbers just published for December and says they “signal that a bottom in the housing market may be forming.

“With new listings dropping significantly last month and the level remaining low, there are no real signs so far that forced selling is dominating the supply picture.”

Is this correct? You don’t know. I don’t know. Rishi doesn’t know.

Sorry, kids.

About the picture: “How about a pic of a one-humped camel with attitude?” ask Fred and Heather. “We stumbled across this handsome dromedary on our recent trip to Morocco, and we thought  a photo of said camel would be perfect for your blog. We never miss a day of reading your delightful free blog,  no matter where our travels take us.”