The games

“Offer came in today to the office,” Michael the Kitchener lawyer wrote me this morning. “List was $699,000 for a 1,280 square foot slim single with a garage in Cambridge. The offer was for 720, scratched out, then a new offer of 750, scratched out, then the offer of 820 was agreed upon. The games are again afoot!!!!”

So, $120,000 or 17% above asking. Does this mean anything? Are we back in the soup with multiple offers, over-asking bids, rapacious realtors, greedy vendors and more little beavers happily gulping unrepayable debt?

We’ll see. And while the Bank of Canada rate won’t change tomorrow, a lot of people are counting on cheaper money in the months to come.

“The market assumption is that the Bank of Canada has finished hiking rates,” says the supreme leader of the Toronto Real Estate Board this week. “We have recently seen a resurgence in sales activity compared to last year. Consumers are now anticipating rate cuts in the near future. A growing number of homebuyers have also come to terms with elevated mortgage rates over the past two years.”

By the way, in the GTA last month the pattern described here yesterday continues. Sales up year/year (by 18%), listings swelling and prices edging higher (average 416 detached is $1.657 million, compared with the low of $1.486 in January of ’23). The market has not returned to the froth of last April and May ($1.91), but another year of elevated mortgage rates has not brought a return of affordability. In fact, as lawyer Mike points out, a growing number of buyers seem to be losing their minds once more.

Now, let’s review the damage that (a) low rates, (b) accommodative lenders, (c) political policies encouraging homeownership (like tax-free gains) and (d) unbridled FOMO have done. Ontario gives us a fine example, where new stats released by the body responsible for real estate assessments are staggering.

Ten years ago (2013 numbers) almost three-quarters of all homes in the province were valued at less than $500,000. Over 90% were worth less than the ask for that Cambridge townhouse, with a valuation of under $750,000.

Today?

Under-$500,000 properties across Ontario account for just 19% of the housing stock. The number under $750,000 has dropped from 91% to 48%. In SW Ontario, where our legal buddy toils, the story of punted buyers is dramatic. A decade ago in Cambridge 95% of all homes were worth less than half a million. Now that has crashed to 6.9%. “The reality is that current home prices are a reflection of various economic forces at play,” says the agency, MPAC. “Factors like supply and demand, increased construction and labour costs plus inflation are all part of what’s driving today’s house prices.”

So will the Bank of Canada make this situation even more untenable by cutting rates and dropping home loan costs in 2024? Buyers seem to think so. Realtors do. Mortgage lenders agree. And the consensus of economists is now that the first week in June will deliver the premier of several reductions.

But not all are buying it. Our contrarian buddy Derek Holt (Scotia) is a notable outlier, arguing that Tiff won’t dare drop rates too fast, too soon, because FOMO is ready to erupt again (as the Cambridge offer above suggests).

A cut in April, he says, “would be about the dumbest thing the central bank could do. It would be pretty awkward for the Bank of Canada to decide to cut into what I think is going to be a hot spring housing market with another round of stimulative government budgets that heap on more spending. “If they cut in the spring … I fear it would be a sharp policy error that would thwart prospects for greater policy easing later. Patience may pay if they hold off to evaluate conditions and are ideally able to deliver more meaningful and persistent easing later.”

Holt is not saying the CB won’t retreat. Just not until September.

But this is not the thinking of most of his colleagues. Economists at the other banks are calling for the first CB chop to land in early summer – a little more than ten weeks from now. Meanwhile insured five-year fixed mortgages are available with a 4-handle from a bunch of second-tier lenders and a little over 5% at the banks. Also worth noting is a retreat in the yield on benchmark Canada 5-year bonds after spiking in mid-January.

What does it mean for the market?

Actually Derek Holt doesn’t matter. Nor does Tiff and his policy rate. The astonishing rise in real estate values has prevented a lot of people from buying, while validating the house lust of many more.

All that really moves this market is sentiment. At the moment, it’s trending towards optimism, while the comment section prefers suicide. Let’s see who wins.

About the picture: “This is Rieka , my 3 yr old Black Lab,” writes Leigh, in Toronto.  “This is “the look” I get every night around 7 pm in anticipation of disposing of that last dinner scrap  . Quiet but powerful . Motionless . That silent pleading , that seems to imply that she’s been starved for the last 3 weeks. I swear she makes her eyes water up.”

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