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The hard way

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Bond yields jumped again. Canada 5s up another 2.5% today. That brings a yield of 4.3%. A year ago those bonds paid 2.7%. Throughout 2020 they were at one third of one per cent. Hell, yields are 11% higher than at the beginning of this month.

What does this mean? Why should you care about Mr. Bond Market?

Because that sets mortgage rates, which influences real estate and deeply affects your love life. (“Be a man. Buy a condo…”) The banks now have five-year home loans running between 6.8% and 7.24%. That keeps the stress test north of 8%, and it’s levitating. The higher it goes, the less people can borrow and the fewer who can afford to make an offer.

The consequence may well be a recession. Maybe we’re in one now. (Recession = at least six months of a shrinking economy.)

Two months ago we thought the rate hikes were ending, with meaningful cuts in 2024. But forget that. Even though the Fed (and the Bank of Canada) paused this month, as this blog told you last week here is the prediction:

  • Another central bank increase in the final 90 days of the year.
  • A higher-for-longer rate at least .25% above current levels for most of 2024.
  • Mortgages in the 6%+ range throughout next year. No pivot back to 4% like your broker told you.
  • Fewer cuts over the next two years, meaning the bulk of renewals in Canada will see monthly costs rise an average of 50%.

Higher for longer. Three words to send wee shivers down realtor spines, and responsible for wiping away a decent Autumn housing market. Look at the SNLR. That’s the ‘sales-to-new-listings-ratio,’ a barometer of market activity and buyer zeal. These days it’s, well, flaccid. Sales are limp. Listings are rising. The SNLR in the bellweather GTA is 36%. That, officially, is a ‘buyer’s market.’ The first one in almost 15 years.

Here it is. The first buyer’s market since 2009.


A new survey by the professional mortgage dudes finds 48% of the houseless believe they’ll never own. That number a year ago was 33%. It has rocketed in the past six months. Higher rates have made 77% of potential buyers set their sights lower while almost a third have given up.

This, the lenders say, is “a crisis with little sign of easing in sight. We hear this every day from our members right across the country, and that is why we continue to advocate for policies that break down the barriers to homeownership.”

Politicians agree. The Trudeau gang has dumped $4 billion into a housing construction accelerator fund. The Cons say they will give loads of money to cities that build and starve those that don’t. Meanwhile the bank regulator, OSFI, the Financial Consumer Agency of Canada and the Minister of Finance have all been trying to staunch the blood about to flow from variable-rate mortgage holders facing renewal. Days ago we gave you a taste of this. Crazy-long amortizations. Banks being told to waive mortgage-break fees. A new mortgage code of conduct hanging over the head of the major landers.

In short, here’s the deal. The housing market is struggling, sales are slipping and a buyer’s market has emerged for the first time in a decade and a half. Half of potential purchasers are giving up. Bond yields and mortgage rates have increased again. The stress test is reaching towards 9%. Central bank rates are at a 22-year high with more to come. And ‘higher for longer’ means no relief is in the cards this year or well into 2024.

But wait. Is this really a crisis, or what was supposed to happen?

Isn’t a crappy housing market, stressed-out buyers, anguished borrowers and realtors with indigestion exactly why we have a tightening cycle? Was not this – less economic activity leading to lower inflation – precisely the goal? That’s why rates have gone up ten times, right? Why are we surprised? That it worked?

If you believe that (and you should) then ask why every level of government and all elected officials are trying to thwart the central bank. Why are we trying (and failing) to build houses everywhere all at once? Why are cities being ordered to break up hoods that were always devoted to single-family homes? Why are people with VRMs being so coddled after they made really bad choices? Why the interventions? Why don’t we just, you know… wait?

If the feds, the provinces and the cities did nothing a real estate Armageddon would come, after mortgages zipped from 1.5% to 7% in less than 18 months.

Over the next three years, 65% of mortgaged homeowners expect to face a loan renewal. All of them will be paying more. Some dramatically extra. And a bunch of folks will be unable to do so, selling their properties into a storm, increasing inventory, pressuring prices and blowing up that SNLR.

Then we’d have cheaper, more affordable homes. Lower rates. Less inflation. Houses your kids and grandchildren could own and carry. Just what everybody’s chirping about.

Too bad we have to get there the hard way.

About the picture: “Garth,  if you’re ever out of photos…,” writes Barb. “Here’s our grandson’s 3.5 month old pup, Echo, guarding supplies for their construction project.”

To send a picture of your beast, email to ‘[email protected]’.


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