The reset

You can’t dismiss the latest jobs stat coming from the balloon-blasting nation to the south. Friday’s numbers were almost unbelievable after ten months of grinding interest rate hikes. Wow. Over five hundred thousand new hires in a month. And recall that the new positions created here in the land of maple-loving beavers were just as incredible. A hundred thou in December.

There are two implications to all of this as more people hear the news. Stability and confidence.

Over the next month it will become obvious no recession looms. The American unemployment rate, after all, is 3.4%. Economists call that ‘full employment.’ Everybody who wants to work can work. Ditto in Canada. The lowest number idle in half a century. Oodles of empty positions, despite recent layoffs in the bloviated tech sector.

Economies do not fall into job-killing trenches of negative growth with stats like these. In fact both Canada and the US have positive GDP numbers at present. There is no recession. There will not be any ugly reversal in 2023.

This will result in swelling consumer, business and investor confidence.

As for stability, just listen again to what our central bank poohbah said: “If economic developments evolve broadly in line with [our] outlook, Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases.”

That’s a pause. And after eight interest rate increases, also a pivot. Yes, strong jobs numbers in the US could bump the cost of money a little more, but essentially this cycle is done. To goose rates more would court recession. To wind the tightening down now enhances the odds of a soft landing. Nobody – other than burn-it-all opposition politicians – wants a crash.

This is where the stability comes in. Five-year mortgages are 5%, no longer on their way to 7%. Meanwhile national real estate values are 23% lower (on average – more in markets like the GTA), adjusting prices to higher borrowing costs. Some people expect a further price collapse. Others are not waiting, given the above.

Two weeks ago this pathetic blog told you a soft landing was the likely destination. Now it seems more certain. In this period of time, coincidentally, a lot has changed in the real estate market. Further examples…

• Two hundred people showed up at an open house for a ‘starter’ home in east-end Toronto, resulting in a dozen offers.
• In one day a Leaside home was shown over 30 times, and sold.
• Not far away an owner received six bully offers after it became known the property would be listed soon.
• In northern Bunnypatch a $2 million home had 60 showings and six offers.
• A city semi received 33 offers and sold for 70% over asking.
• A two-bedroom home sold for 30% over asking with 33 offers.
• A $4 million listing in a not-the-best hood sold last week in three days for more than the vendors wanted.
• And agents are at it again. Offer nights. Blind bidding. Certified cheques of $100,000 stapled to offers. And don’t bother writing in a condition.

This is a huge change in the course of just days. It’s dramatically at odds with the perception most people have of the market, based on flaming headlines of a sales plunge in Toronto (44%), Vancouver (55%) and Montreal (data yet to be published, but I hear 90%). As central banks popped rates aggressively, winter weather set in, stock markets finished 2022 in a funk and recession headlines were ubiquitous, consumer confidence went over the edge. The negativity in this pathetic blog’s comment section stands witness, as do bogus polls claiming four in ten mortgaged families will be selling in shame within ten months, flooding the market.

All wrong. And no matter how much people without houses want prices to crash, it’s not happening. A correction, yes. Already there. A 50%-off sale? Nope. For that to happen we’d need a long, dark downturn. But in an age of jobs-for-all, rate stability and plunging balloons, 2023 is a different breed.

To be crystal, this blog is not saying the price drop now witnessed is the bottom. All real estate is local, for starters. Some markets will wallow and some rebound. Secondary and tertiary cities, which the pandemic fuelled, are at more risk. Places where the inventory of decent listings is thin will see a strong rutting season. In short, nobody knows a bottom until it’s in the rear view.

Canadians have done a number on themselves and their personal finances with an uncontrollable real estate fixation. Family debt is epic. We owe over a trillion in mortgages. Almost 60% of personal net worth sits in a singe asset. Retirement savings are down. Home ownership costs have exploded, not just because of financing, but also from a bevy of taxes. The average family can no longer afford the average property. And we’re about to witness once again that people have lost their way.

In an ideal world, all those rate hikes would have returned us to, oh, 2015. But now the CB is scared.

Logic dictates there will be a reset. It won’t be fun. But it’s not now.

About the picture: “This is Penelope, my 3-year old, tripod, Formosan mountain dog (aka rescue mutt from Taiwan),” writes Cole, in Vancouver. “She lost a leg as a puppy in Taiwan, but that hasn’t slowed her down in the least. Here she is at the top of the Chief in Squamish, BC. (No, she wasn’t carried up. Did it all herself). As we made our way to the top, a chorus of ‘wow, if she can do it I have no excuses’ seemed to follow us through the woods.”