The facts

Well, Friday’s good news is no recession. Rejoice. Go buy your squeeze a chocolate bunny. Eat the ears first.

After all, how could the US economy turn negative when it cranked 517,000 new jobs last month with the unemployment rate down to just 3.4%? Everybody who wants to work can find a job. Even a year of aggressive interest rate hikes, the worst European war since Hitler and Adele on tour has not chilled that economy. Economists, being a delicate bunch, were shocked at the stats. “This is a labor market on heat,” said one, when asked by Bloomberg. “Nobody would have expected a number as monstrous as this!”

As goes America, so goes maple. After all, we created more than 100,000 new positions in December alone – a huge number. It’s hard to imagine our economy will now slump, start to contract and be in negative growth for at least six months – the definition of a recession. If things did turn south, the pullback would surely be, like me, short and agreeable.

The bad news? Such economic strength means the Fed may opt for another hike or two, taking its benchmark rate to 5% before pausing. Our guys at the Bank of Canada might follow. They might not. If the inflation numbers here continue to tick lower, we might score the best possible outcome. Rate stability. No wage-price spiral. No big job losses. A soft landing.

Time will tell. But it’s becoming clearer that the GreaterFool Economic Forecast for 2023 was not so crazy. A year that will end a lot better than it began. Growth, not contraction. Higher financial asset values. Portfolio plumpiness. Less inflation. Rate bumps over. So, get ready.

Now, Friday also brought the latest real estate stats from the country’s two bellweather markets, Vancouver and the GTA. Also what we expected.

Sales crashed (down 45% in Toronto and 55% in Van). Inventory levels have started to blossom (active listings up 124% in the GTA, 32% in YVR, where new listings jumped 173%). Days-on-market have basically doubled in both places. Prices are still dropping, though not as rapidly.

Here’s what the realtors in Toronto had to say:

“Home sales and selling prices appear to have found some support in recent months. This coupled with the Bank of Canada announcement that interest rate hikes are likely on hold for the foreseeable future will prompt some buyers to move off the sidelines in the coming months. Record population growth and tight labour market conditions will continue to support housing demand moving forward.”

Is there any truth to this? Or has the market become a falling knife and the 3,100 people who bought properties in January are complete idiots who, tragically, do not read this blog and will lead hideous lives as a result?

Let’s look at price.

In 416 the gold standard is a detached, single-family pile. Year/year the price of that place has dropped by 21.3% – the steepest, most rapid decline in local history. But the peak-to-now number is even more arresting. In February that house traded for $2,073,989. Now it’s down to $1,486,124. That drop of $587,865 represents a reduction of 28.3% – in eleven months. In the last major Canadian real estate bust (the early 1990s) it took six years for house prices to lose that relative amount.

In Vancouver the sales-to-active-listings ratio for detacheds is a dismal 10% (which means nine in ten houses are not finding a buyer). The average unit now sells for just over $1.8 million, down $337,900 from the peak (last April). The decline here is 16%. Also an all-time record for slippage in nine months.

Is there more to come?

Public sentiment is wretched. It’s on display daily in this pathetic site’s comments section. The negativity is boundless. It’s easy to see the flip side of greed is fear. Most people make decisions based on emotion, which leads to FOMO and intense bidding wars when assets are priced outrageously and a 50% crash in sales when stuff costs a third less. Yes, we buy high. We turtle when things are low. We either think prices will rise forever, or we believe everything’s going to zero. Neither happens.

This weekend chew on a few facts.

The recession ain’t coming. Interest rates could edge higher but this hiking cycle will soon be a memory. Everybody can find a job. House prices are way down from a year ago. More listings means more choice. It’s a buyer’s market. Conditional offers are okay again. Yes, mortgages cost 5% but that’s cheap, cheap compared to past decades. People will get used to them. And a sales slump now will probably mean a buying mood later.

Two conclusions.

First, if you truly believe prices will crash, wait to buy. But that would also mean an economic wipeout. And it’s not going to happen.

Second, if you can’t afford a home in a market that’s tanked almost 30% in a few months maybe you should give it up. Stop being angry and aggressive. A house is not the goal of life. Best to face that now.

About the picture: “Thank you for all your advice over the years,” writes Catherine, in Penticton. “Mainly because of you we don’t have too much house but we do have fully stocked, properly invested TFSAs. This is Juno, who moved in three months after the death of our 16-year-old pooch two years ago. She’s a true mystery, found by a highway and brought to the SPCA. Silent, super soft, thinks only of food and pats, she’s filled the dog-shaped void in our home very nicely.”