Suck it up

When strident people hear something they don’t like, they call it fake. Trump taught us how powerful a tactic that can be. He used it against the entire media establishment – suggesting only his thoughts, tweets and posts were genuine. Authentic. Trustable.

Yesterday this blog said things a lot of people did not wish to know or accept. The comment section was a swamp, hip-deep in vitriol and angst. Many rightist snowflakes want nothing good said about maple while you-know-who is PM. And a slew of houseless kiddos waiting for a half-off real estate sale are happy to call fake when the news disappoints.

Well, tough. This blog sells nothing. Has no advertisers to placate. And the wizard is too wizened and crusty to really care what you think. If you don’t want to come here and hear reality, then blow off to Reddit. Moaning is welcome there. They have empathy.

If you care to know the truth, read on.

The CB’s action yesterday changed everything. The bank said its weensy quarter-point pimple was the last hike before a pause to give monetary authorities “time to reflect”. This means we have hit the terminal rate. The end. It will take an inflationary disaster – like a vicious wage-price spiral – to unpause the tightening. Politically, that’s a non-starter. Economically it would increase the odds of a recession. And if the CPI can drift down on its own over the next few months, the Bank of Canada will be delighted to sit on its digits and wait.

Now, whazzit mean for housing? As mentioned, everything.

Consider the facts.

First, prices have declined by 23% nationally, about the same in Toronto and Victoria, 30% in the Fraser Valley and K-W, 40% in King and elsewhere in Outer Bunnypatch. This fully reflects the increase in mortgage carrying costs, which suggests the market has been efficient. Do houses still cost an absurdly exaggerated and unjustified, punishing amount? Yup, of course. But this decline may be all that you can expect, given FOMO and widespread public insanity.

Second, sales have crashed by the greatest amount in recorded history in the land of beavers. Down by 40-50% in Vancouver and the GTA, mirrored in the 905, 519, Okanagan, HRM and Vancouver Island. Buyers melted away as interest rates plumped and the recession talk started. They did not stop wanting houses, just shopping for them.

In other words, there’s a huge amount of pent-up desire. Just as 2% mortgages sucked demand from the future and increased debt, now 5% mortgages have dammed up the demand that normally would have exists in the autumn of 2022. That dam could be about to break.

Third, the yield on a five-year GoC bond is way lower than last fall, and this has been reflected in declining fixed-rate mortgages. HSBC this week is the first big guy to break the 5% barrier, now offering a five-year rate of 4.89%, rolling it back to last September. Yeah, five is a lot more than two or three, but it’s far lower than the historic norm of 8%. With rutting season around the corner and financial earnings a little under pressure, figure on a lot of bank competition coming.

Fourth, it’s already happening. Open your eyes. January mortgage originations, inquiries and applications are hugely higher than in the preceding two months. Says our loan broker buddy Rob Butler: “This feels like a “We waited a year and we’re pissed off so we’re going to buy now”.

Prices can moderate or even drop as buyers face a 7% stress test with prices still ridiculous. But it’s a safe bet sales volumes will pop. There were 30 offers on a east-end GTA bung a few days ago, for example. Until inventory levels climb higher (which should happen soon, now that Tiff has blinked), there will be multiple bids. That’s a given.

In a week we’ll have January stats from real estate boards. Compare those numbers with what will be published in the first week of March. Then talk to me about fake.

About the picture: “When I’m not feeling great,” writes Robert, “this is my go-to picture. It’s the screen saver on my phone . Moses and Bella, brother and sister, both passed a few years ago. Let’s hope 2023 is a  lot better .”