Blog, 1. Doomers, 0.

Sometimes it’s no fun being prescient. Especially when the rabble’s nipping at your (shapely) butt. However, here we go.

One year ago the average detached pile in 416 hit Peak House. It traded for $2.074 million.

By the end of January of 2023, that valuation has plunged to $1.486 million. That was a decline of 28.3%. The steepest, fastest, most arresting descent in national history. Suddenly social media was papered with headlines saying four in 10 Canadians with mortgages would be forced to sell within a few months. And people actually believed it.

Let me remind you what this blog said at that time:

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.

That was February 3. Two days later we added:

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.

We told you to wait until the first few days of March to see if market momentum had truly changed. Now we’re there. Yesterday we showed you prices are moving higher in Vancouver and Calgary even as year/year sales volumes were crushed.

And today comes word the average detached house in 416 is trading at $1,712,364. Therefore that 28% decline evident at the end of January has turned into a 17.4% drop. A buyer who waited for the correction to deepen and for homes to descend further today faces an increase of $226,240. Oops.

How could this have happened?

We told you. The pendulum. It swings both ways. The decline in pricing in many areas of the country was (as mentioned) historic. This coincided with the most aggressive tightening of monetary policy in living memory. Concurrent with that was the Ukraine war, a stock market plop, rapidly escalating inflation and wall-to-wall recession talk.

Now we know much has changed. The inflationary spiral has been tempered. There’s full employment and no recession evident. The European war rages, but has become wallpaper for financial markets. CBs are near the end of their rate hiking. Our Bank of Canada, in fact, has paused. Most Bay Street economists think that hiatus will last all year. Mortgage rates have stabilized just slightly above 5%.

Regarding real estate, sales have cratered by 50% over the past year, so demand has been bottled-up. Prices dropped enough (almost a third) by late January to compensate for traditional mortgages having swollen from 3% to five. Confused sellers moved to the sidelines, causing inventory levels to languish. Buyers started moving down the price scale as luxe homes sat unsold and unloved. And while average households cannot afford average houses in the big cities, lots of people can. They are moving up, using windfall equity from the boom, buying with cash and eschewing financing, or porting over a cheap existing mortgage.

In short, the doomers were wrong. Again. A housing correction of close to 30% in a market like the GTA may be all that we get. By the way, that is entirely consistent with the multi-year correction of 28% in the early 1990s in Canada’s biggest market, and 32% at the trough of a US housing crash which precipitated the 2009 credit crisis.

Could the current price creep reverse and houses tumble in value further?

Of course. But as we’ve told you, that would take a spate of crappy things happening. Interest rates spiking much higher. The jobless rate taking a U-turn. A meaningful recession hitting. Business investment falling. Lots of people out of work with inflation, wages and consumer confidence falling hard. Do you really want that? Me, neither. And it’s not happening.

Finally, nothing is normal at the moment. RBC just announced its new mortgage business has fallen 40%. CIBC said this week a fifth of its clients with home loans can’t make interest payments. Lots of people who bought too much house with too much debt at the wrong moment may never recover. The world is at risk of serious political polarization (happening here, now), war creep, tribalism and potentially a 2023 tour by Drake.

It’s unseemly writing a blog that suggests I told ya so. But, well…

About the picture: “Teddy is turning 7 month his Saturday,” writes Bogdan. “He’s gone from a tiny pup to a 80lbs puppy … still the best dog ever. Feel like this picture would sum up perfectly the look you have while going thru the comments. Just remember that the silent majority appreciates what you do for us.”