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By Greater Fool (Reporter)
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Everything’s awful.

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Yesterday’s tome about kid buyers getting scorched in a falling real estate market is, well, a harbinger. That swamp called Reddit is rife with such tales of terror. Apparently, houses can go down. Who knew?

Now just as the meme of property collapse and risk spreads, more confusion. CB boss Tiff Macklem this week said, ‘rates are high enough.’ More evidence – after cool inflation reports in Canada and the US – that the tightening cycle imay be over. And it is. More hikes would feed the recessionary fears now infecting social media and become a self-fulfilling prophecy. Tiff ain’t going there. He’s had enough grief.

So, expect a big divergence. Stocks, bonds, prefs and related financial assets are set for sustained growth in the months ahead. Real estate is set for at least one quarter of misery.

It’s classic. High rates hurt housing. But Canadian prices have been shielded by low inventory – now changing fast. New listings are pouring onto MLS. Days-on-market are escalating. Ditto for months of inventory. And the SNLR (sales-to-new-listings ratio) is a complete disaster in most markets (except crazy Cowtown).

Result: prices will go down. Eventually lower rates (mortgages with a 4-handle) will reverse this, but for the months to come we will drift deeply into a buyer’s market.

Just look at what’s happening. Even the Wall Street Journal has written an obit for maple real estate, joining the gloom being spread by bank economists, lenders, builders and miserable Mills.

Here’s a sampling.

  • A new report from CIBC’s seasoned economist Benny Tal has to to be the most brutal he’s ever penned. “The housing market in Canada is in recessionary territory, as it faces its most significant test since the 1991 recession,” he says, “and activity will deteriorate further into the first half of 2024 as interest rates remain elevated, and supply floods the market.”
  • Listings are surging. Up 32%, the bank says, since March. “That surge in part reflects increased distress sales as owners list their properties due to financing issues as mortgage payments increase rapidly… housing market activity will continue to deteriorate.” Sales will not rebound, CIBC forecasts, until the middle of 2025.
  • TD economists have joined the Debbie Downer club, too. A few months ago they forecast a 5% overall price decline for Canadian properties. They’ve now doubled that. Maybe it will double again.
  • Condo building in Toronto has hit a 20-year low, just when politicians are fruitlessly hyping more development. Forty projects have been shelved, meaning an estimated 10,000 planned units will not be built.
  • Power-of-sale transactions are at the highest level since the 1990s and, according to veteran mortgage exec Vince Gaetano, things are just ‘starting to break’. The One condo in Toronto – the largest such development in the country – is bankrupt. A hulking three-tower complex in Kitchener is just an empty site and tens of millions in defaulted-upon bills.
  • Nationally, home sales – which peaked at 64,000 in 2021 – have crashed 45%. We’re now far below pre-pandemic levels, and at the lowest point since 2008 (credit crisis) on a per capita basis.
  • About four million households will be renewing $675 billion in mortgages over the next 24 months, at payment levels between 30% and 40% higher. An estimated $15 billion a year will stop being spent in the economy and instead be sucked off in interest.
  • And National Bank reports a big surge in people researching ‘recession’ online as the economy stalls, the unemployment rate ticks higher and unsold houses pile up.

Well, you see the point. When enough folks believe something, it gets legs. (Just ask Trump.) Lately Canadians have stopped buying houses, even with prices lower and a vastly greater selection available, because they smell danger. FOMO has turned into fear-of-being-hosed. That’s why the young buyers we debated yesterday bailed on a big deposit. They got scared of losing more. They were also shocked and confused because real estate is, you know, always supposed to appreciate. Never tank. In their limited lives, this is a totally new experience.

What now?

Some fear a real estate-induced slowdown (we have let housing grow to 10% of the whole economy, double the average in other countries), especially if persistently higher rates hurt job creation.

That’s possible. But unlikely. The odds are greater of a soft landing – inflation keeps fading. Rates back off a little within six months. Financial markets advance on falling bond yields and rising corporate earnings. The economy mucks along, then crawls back to growth. Incomes gain. Winter ends. Wars end. And people still crave houses.

But for now, sheer, unadulterated, freakin’ misery. Make the most of it.

About the picture: “Morgan is the bigger chocolate labradoodle,” writes Susan.  “He’s 11 now, but a few years ago, we were a certified Therapy dog team. He visited the patients getting chemo, or waiting on tests, at the BC Cancer Centre in Vancouver. He loved nothing more than “hugging” the patients and giving them love. If they wished a visit, he’d go right up and put his paws around them and his head in their lap. One young man broke into tears. His parents were therapy dogs too. Madison is the little lighter coloured labradoodle, 2 yrs old and an incredible athlete. We take her everywhere and hope she’ll certify as a Therapy dog next summer. She loves to go in the shopping cart at non-food stores, and meet people. It’s early training for her. And we love these dogs so much!! Our kids are grown & they’re our kids now.”

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


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