The waffling

The realtors are restless. And pissed.

“I’ve got nothing nice to say about the USA Fed Chairman, Bank of Canada Governor Tiffany Macklem nor SpokesMinister (of Slavonic Studies) Freeland,” writes Toronto broker and data analyst Robert Ede. “The second consecutive Spring false rally is sputtering to a close.”

Sputter may be the right descriptor for the resale market. ‘DOA’ is better for the new-build sector. Projects are being cancelled. Sales centres closed. Precon buyers coming up to closing are choking and bolting. And the overall pace of construction has ground to halt. So much for four million new homes in a jiffy.

Why?

Simple. Prices are crazy. Mortgages are too dear. Buyer demand has fallen off a cliff. Everybody was waiting for a series of rate cuts that should have arrived. These were imminent reductions mortgage lenders told clients were in the bag. No more.

“I don’t see a June cut, maybe not even a July cut but the Fall will bring BoC cuts as the economy declines & Tiff moves the language from ‘Not Yet’ to eventually or soon,” says mortgage broker and dodgy influencer Ron Butler. “Central Banks are famous for screwing this stuff up, waiting too long. In a country with huge mortgages.”

Well, what’s the latest?

This morning’s job numbers brought a Tums-level event among headline writers. Some saw a 90,000 surge in new hires (when just 20,000 had been the expected) as confirmation the economy is undead and the CB will stand firm. Others pointed out this level of hiring doesn’t even pace population growth and things are not as peachy as they seem.

Says BMO’s chief economist Doug Porter:

Today’s showy headline jobs increase will give the Bank of Canada some pause, since it reinforces the point that the economy is clearly not rolling over. Still, the reality is that economic slack is still rising, with the jobless rate up 1 point in the past year and the number of unemployed jumping 24% y/y, helping cool wages. That may be the main takeaway for policymakers. Markets are now back to viewing the June rate decision as a toss-up.

But wait. Another big Bay Street cheese (from the Penguin bank) sees it differently. “While today’s increase in employment was much better than expected, this strength appears to largely reflect a further surge in the base population as the labour force count catches up with the quarterly population tally,” says CINC Economics. ”We continue to forecast a first interest rate cut at the next meeting in June.”

The current odds? The betting after the jobs report was 40% in favour of a quarter-point drop on June 5th. That’s down from just over 60% last week.

So, what does this mean to the housing market?

Likely that listing growth will slow as owners absorb the fact rates are stalling. At the same time, buyers will stay on the sideline with the mortgage stress test remaining in the clouds and layoffs rippling through the economy. If no rate reduction happens by July, prices may soften through to September – when just about everyone agrees Tiff will be forced to get off the pot.

You may recall the latest RBC report pegged 2024 as being the most unaffordable year – ever – for house-buying in Canada. Average families are far away from the ability to buy and carry the average house in any major urban centre. The only hope was a rate drop.

“Buyers aren’t taking advantage of an increase in supply,” the bank now says. “Home resales, for the most part, fell between March and April. Vancouver was the lone exception among major markets where we estimate activity picked up (modestly) last month on a seasonally-adjusted basis. High rates and poor affordability clearly continue to weigh heavily on buyers. We expect such pressure to persist until several rate cuts have been implemented.”

‘Several’ rate cuts? Given current events, that might not be the case until two weeks before Christmas (there are five rate dates left this year – June 5, July 24, September 4, October 23 and December 11).

By the way, compared with this time last year, unemployment is up considerably (1%) and across all major population groups. Especially the kids. Wage growth has slowed, but is still running ahead of prices.

The new hot date: May 21.

That’s when the latest inflation report drops. Below 2.8%, realtors keep their Audis.

About the picture: “Here’s Punky,” writes an anonymous, wistful Blog Dog, from somewhere. “He’s tangled up in blue on a cushion of magnolia petals. Always living for the moment, it’s all we have…”

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