U-haul nation

Five-year mortgages are available this week for 4.8%. Okay, you have to shop around to get that. And it might come from a guy selling them from the back of a dental hygienist’s office in the burbs. But they’re a thing. And soon all the Big Banks will also give you fivers with a four-handle.

This makes Tiff’s big reveal this week less impactful. The Bank of Canada may be keeping its policy rate nailed at 5% and talking darkly about the need for a hike if inflation goes rogue, but, nah, we don’t care. Not happening.

The rate hikes are done. The CB wouldn’t dare increase its rate, lest the economy roll over and unemployment grow. It would take a crisis for that to occur – and in most emergencies rates go down, not up.

There will be cuts in 2024. Maybe April. Maybe the summer. Maybe a full point by Christmas. Perhaps more. But the CB is becoming less relevant as Canadians get used to these levels of interest and as the financial industry pulls out all the stops to reawaken its golden goose – the residential real estate sector. House lust is the goal. Cheaper money is the lure.

Yes, prices are ridiculous and the correction brought on by higher rates was far more modest than anyone expected. As this pathetic blog told you a long time ago, the bottom of the current post-Tiff market dive was January of 2023 in most markets. And as rates now slowly descend the 22-year-high mountain, valuations are likely to climb further. A boom is unlikely. A bump is not. There are enough equity buyers, move-up families and 5%ers to keep this insanity alive.

So, obviously, the cost of housing/rents is going to remain the biggest burr under Canadians’ saddle right through until the federal election.

Now, here’s some context and a snapshot of what we have actually done to ourselves, thanks to FOMO, house horniness and what your Mom wants. In terms of the western world, house prices in Canada – adjusted for inflation – are the worst. They’ve quadrupled.

Source: WOWA.ca. Click to enlarge.

Will this situation worsen?

Probably so. Lenders see the 2024 rutting season as a prime time to write oodles of new mortgages after a year which sales plunged by an historic measure. Higher rates and grocery pries kept buyers sitting on their hands with a stress test hitting 8% and unaffordability (according to RBC) at the worst-ever level. Housing starts careened lower as orders disappeared and construction costs roared. Despite the feds throwing around heaps of money as an ‘accelerator’ for new home building, supply is not growing. But demand soon will.

How long can this situation last?

As long as Canadians stomach it, and so long as politicians think they can solve problems by increasing real estate taxes. The latest bone-headed levy comes from Toronto’s NDP mayor, now pushing a 10% surtax on non-resident buyers, atop the 25% provincial tax (and despite a federal ban). Then there’s the 16.5% property tax hike on the table, plus new land-transfer taxes which already add $60,000 to the price of an average house, ad BC’s ever-expanding idiotic spec tax. Oh yeah, and the massive ’empty-house’ levy if you fail to sleep in the same bed for 183 nights year. Government charges for new builds, by the way, top $130,000 per unit. In other words, real estate is not going down in the near future. But debt is going up.

Now, look what we’ve wrought in terms of personal finances. Of the $2.9 trillion that households owe (a bigger pile than the entire economy), $2.15 trillion is in mortgages – plus $158 billion in HELOCS. It’s an unfathomable amount to shoulder for 15 million households and 20 million adults under 65.

(Always remember a thousand seconds is 17 minutes. A million seconds is a vacation. A billion is a career. A trillion is 31,709 years. Yikes.)

Source: WOWA.ca. Click to enlarge.

Is it hopeless?

If you’re waiting for a housing crash then, yes, 2024 will give you no comfort. It’s an inevitability that as on-the-street lending rates erode, sales will increase along with demand. At the same time, the abject failure of politicians at all levels to come up with policies which will reduce the cost of accommodation will be evident. We’re locked into a mentality that building more houses will solve everything, when such a solution cannot occur. Until land, labour and material costs along with development charges plunge, there will be no correction in market prices. The new stuff will cost the same, or more. Only government- built social housing will be affordable – and only for a needy sliver of the population.

So, if you really need a house, rent one. Way cheaper. Or relocate outside of high-cost areas – more a possibility in this era of remote work than ever before. Stay far away from the GTA, Metro Van or the Lower Mainland. If you want big city buzz, go to Montreal. Little city buzz? Halifax or Saskatoon. Regina or Saint John. There are actually places where people stop their cars so you can cross the street and the FedEx guy knows your dog’s name.

Sure, change the government if you want. Nothing will happen. Until you make it so.

About the picture: “Moxie, our 1.5 year old border collie loves Winter,” writes Richard, “and loves running in the snow. She gets us outside on days we would rather stay in.”

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