Where’s the blood?

Apart from Gaza, Trump and immigrants, it seems nothing gets people more aroused around here than these two fleeting words. Soft landing.

Wazzat?

In short, it occurs when the pace of inflation falls thanks to tighter monetary policy (high rates) but there’s no recession, no unemployment spike, no blood on the street. It’s a rare thing. Especially after a series of central bank hikes like these – fast, hard and high. The cost of money went from a pandemic crazy low to a 22-year peak. Mortgages careened from 1.5% to 6.5%. Yikes.

Those who want cheaper houses and others with an interest in economic decline (for political reasons) have been fighting hard against the notion a SL might actually be happening. But, so far, they’re losing the battle. Daily evidence is mounting that we will, indeed, break out into the sunlight in 2024.

For example, look at the Bloomberg discovery this week that a hedge fund betting against Canada’s housing market and its credit bubble has had its ass handed to it. Spartan’s Libertas Asset Opportunities Fund has managed to lose its initial investors 80% of their money over the past five years. The 2023 toll was another 14% loss for a bunch of financial smarties who bet against the housing industry and its financial backbone.

“Canada is in the midst of a credit bubble, with one of the most overvalued housing markets in the world and an economy that is over-reliant on debt and housing,” says the Libertas marketing material. And it’s not wrong. We have over $2 trillion in mortgage debt, more household borrowing than any other G7 country, average houses average people will never afford and governments proven incapable of doing diddly about it. Makes perfect sense a bunch of suspender-snapping, Tesla-driving suits would bet against us.

But, fail. There’s been no real estate correction of any magnitude. Prices dipped less than a fifth, still sit above pre-pandemic levels, and have paused. The mortgage default tsunami never happened. The bum loan ratio (three months of more of missed payments) sits at 0.16% for late 2023. That’s a scant 8,000 families of a pool of 5.1 million loans, and is about normal.

As for the renewal crisis, that is also dissipating. The CB says 40% of people have renewed and moved on. Of those with loans coming to term this year and next, the average rate is 2.85% and many are now being offered new loans with a 4-handle. Hurtful, not fatal.

Macroeconomics are also against the doomers, as we spelled out last week. There will be no ugly US recession with a 3.7% unemployment rate, robust economic growth, improving corporate earnings and feisty equity markets. It’s been a dusty long time since American jobless levels were below four per cent for two whole years – remarkable given the Fed’s 11 rate increases over that time.

And, as detailed here a few days ago, every single major bank economist is forecasting a rate pivot this year by Tiff and his CB buddies. The extent and timing are unknown, but the consensus is leaning towards a 1-1.5% reduction, and likely kicking off in April. Here is the latest projection from TD Bank.

“We’re obviously watching for a turning point in the (housing) market,” said a bank econ. “We’re getting some indications that the market, at least from a demand perspective, is starting to turn around.”

And, yes, December was stronger in places like Toronto and Vancouver. Detached sale prices in 416 were actually 9.8% higher than they were in January. Across the GTA, sales jumped 11.5%. In crazy Calgary the advance was 14%. (Montreal was the outlier, with a 22% sales decline – and far cheaper prices than Toronto.) It’s “the year of the cut,” says TD. And the spring market is expected to be “seasonally strong.”

Now ponder this statement, made public this week by Van agent Tim Hill. This is why a lot of people hate realtors: “My cautionary tale for my clients right now is let’s not wait to do what everybody else will do. When our markets switch, it’s like the tap just reopens and then everybody comes running. The issue there is now all of our buyers are competing against each other again and they seem to come hot and fast too. It feels like the Wild West.”

Will it be wild again if that soft landing lands?

Some wonder how that could happen when routine incomes fall far short of supporting house prices. But mortgages at 4% instead of 6% mean buyers can finance tens of thousands more, offer more and gamble more. The desire to own real estate never seems to flicker or fade. Canadians still see it as the cornerstone of financial planning and the only real reason to continue living. It’s an obsession. A fetish. An addiction.

Second, in the big cities’ established hoods and swank new burbs, many are equity buyers. No financing. Moving up. Using investment portfolio gains. They may be the 5%ers or even the 1%ers, but there are enough of them to move a market. This just confirms the worst fears that our society is breaking into two chunks and that the wealth divide is growing ever wider.

This blog has often said things will not end well. And they won’t. It’s inevitable. But not yet. This year will test those who are running out of patience, just as Libertas helped its clients run out of money.

Remember. There is no shame in renting, nor in living quietly amid the indebted masses.

About the picture: “This is Winnie,” writes Michelle. “We have many nicknames for her. She’s my grand dog. A rescue who we love wholeheartedly. She came to my son and daughter in law with a lot of baggage from her previous owners. They’ve given her tons of unconditional love. She’s a sweet affectionate girl toward ‘her people’.”

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

Source: https://www.greaterfool.ca/2024/01/09/wheres-the-blood/