Pendulums

Lotsa moaning and gnashing on this blog lately as the timorous beasties attracted to it quaver over the future. Surveys show most people are crazy scared. The steerage section below bears this out. But (as usual) it will be Pathetic Blog, 1, Doubters, 0. Just wait.

Or not.

Regarding the prediction there may actually be a Spring real estate market with higher sales and stiffening prices after a 23% correction – it might be already happening. GTA real estate data freak Scott Ingram brings this tidbit of market info. Here’s his report on the number of homes that have sold for over the list (asking) prices:

33% of houses sold in Toronto last week were sold over asking. Only one week was higher than that, going back to last July 3 (week ending Sept 18 was 37%). The last half of last year averaged 26%. Give it another week to see if sustains but last 4 weeks: 12%, 18%, 24%, 33%

Yes, maybe over-asking sales that doubled in less than a month mean nothing. Perhaps they mean everything. In that period of time inflation has tempered, the central bank announced an end to interest rate increases, bond yields fell, five-year mortgage rates dipped again into the 4% range and the bank regulator announced  tighter mortgage rules may be coming later this year. Meanwhile sales in the GTA, like YVR and elsewhere, crashed by half, meaning a slew of buyers have been sitting around waiting for the bottom. If prices tick higher in the coming weeks, you now what will happen.

This does not mean the market’s healthy, that houses are suddenly affordable or the current situation doesn’t suck for anyone wanting to own real estate. It does. But reality is reality, and those who eschewed a 23% price drop because they were waiting for one of 50% might regret it. Just sayin’. Not espousing.

There also seems to be grumbling below decks over comments made here about a soft landing, rebounding macroeconomics and rising financial assets. Yup, we know most people are indebted, cash-starved, inflation-ravaged, savingless and spendy victims of their own misadventures. But this is the Kingdom of Greater Fool, and ye subjects know better. When the wails are loudest, the opportunities are greatest.

Did you see that Bay Street had the best January in three years? Up 6% in a single month. Sweet. Down in New York the S&P 500 also logged its finest start since 2019, with that index 6.2% higher. There is a long-standing and widely-held belief that the first month of a year clearly sets the tone for markets over the course of the following eleven months. If that is anything more than myth, we’re feeling foxy.

Why would investors be going risk-on? Simple. Look around. Inflation has dropped from over 9% in the States (similar here) to 6%, and is expected to keep on retreating. The Bank of Canada figures we’ll be back to 3% by the autumn. Our CB has paused rates after a piddly quarter-point increase and today the Fed moved in the same direction.

The American central bank also opted for a small jump of 25 basis points, while saying inflation was being reigned in but still a work in progress. Unlike the maple guys, Jerome Powell did not promise a pause is coming, leaving the door open to more hikes if consumer prices go squirrelly. In short, it was what analysts had predicted – and consistent with an economy that grew an astonishing 2.9% in the second half of 2022.

So, investors remain hopeful a soft landing will happen. Not too hot. Not too cold. No recession. No big jump in the jobless rate. Just a gentle descent from the threat of a wage-price spiral or a serious downturn caused by too much Fed tightening or Republican Trumpers creating a debt ceiling crisis.

Yes, risks remain. Putin is crazy, Ukraine is a mess, China’s weird, politics is polarizing and debt is everywhere. We haven’t actually recovered from the pandemic yet and are now told we have a climate emergency, a drug overdone emergency, a housing crisis and, oh yeah, a health care collapse. If you like whimpering, enjoy.

Having said that, the macro financial stuff is improving. It could turn out 2022 was the time of correction – for real estate values, monetary policy, bond prices and equity markets. This may be the year those pendulums swing back.

Or, I guess, Vlad could always nuke us. That would put Galen Weston and grocery prices in perspective.

About the picture: “I’ve been reading the blog almost consistently for roughly two years now,” writes Dan. “I appreciate the time and effort put into it, and recommend it to many who are looking to get into housing, invest.  I decided to make a comment on the “Generations” article from the 30th. I didn’t notice the amounts I was quoting were in inflation-adjusted dollars,  for which you ousted me…. Touche’. It would appear the more things change the more they stay the same with regards to affordability.  Due to my misquote I feel obliged to provide something in return, so here is a picture of Pippa, with Pearl the new addition. I will be awaiting another time to comment but will not do so hastily next time.”