Crickets, 1. Realtors, 0.

One bank alone, RBC, holds $401 billion in residential mortgages. Of those, loans totalling over $72 billion have amortizations in excess of 35 years. These are the turkeys whose fixed monthly payments didn’t cover interest charges. Yes, the pandemic FOMO loans. Many of them Bunnypatch borrowings.

Is the bank worried as they head towards renewal next year and beyond at higher rates?

Well, a little.

“Yes, we’ve had some rate cuts and those have been beneficial, but that doesn’t mitigate rates as a headwind for many of these consumers…when they go to reprice for mortgages,” says the chief risk officer. “It’s maybe not as acute in terms of the payment shock as they were facing when we saw rates where they were last quarter or two quarters ago,” he added. “But it still is a payment shock that many of these consumers will face. And the big repricing schedule there really goes from ’25, ’26 and into ’27.”

As you know, RBC (like all the other guys) has set aside billions to cover loans that go stink. What’s the score so far? Just under $1 billion – equal to .24% of the overall portfolio. That number shrinks as the Bank of Canada plays chicken with inflation and zaps its policy rate lower. The third drop was just yesterday.

Source: Canadian Mortgage Trends

The bigger challenge for lenders and renewers comes in about a year as the bulk of loans hit the end of their terms. If the CB keeps on its rate-cutting path the bankers will be spared and homeowners thankful. If not, if recession comes, if rates backup after the US election, then there’ll be distress.

Meanwhile, speaking of distress, the realtors are feeling some.

As a certain pathetic blog forecast, housing markets in the GTA and Vancouver have been overrun by crickets. Sales down. Listings up. Buyers on strike. Prices stuck.

In Toronto, for example, there were 5% fewer deals last month than a year ago. Prices barely budged – down less than 1% (to an average of $1,074,425). Days-on-market swelled by 40%. But the big story remains listings. We’re drowning in ‘em. In the GTA active listings a year ago – August of ’23, before any interest rate cuts had taken place – were 15,492. Last month that number mushroomed to 22,653, a hike of 46%.

Ditto in Van. Sales last month down 17%. Prices hardly moved (a 0.9% change). But listings jumped by 37%. Actives now number 13,812 – which means the market has 7.2 months of available inventory. Compare that to the pandemic madness of 2021, when inventory on hand was… well… zero.

Says the Vancouver realtor cartel: “Sales remain in a holding pattern, trending roughly 20 per cent below their 10-year seasonal average, which suggests buyers are still feeling the pinch of higher borrowing costs, despite two recent quarter percentage point reductions to the policy rate this summer.” (Now three cuts, of course.)

And in the GTA, this is the official word: “The Bank of Canada’s rate cut announced on September 4 will lead to a further improvement in affordability, especially for those using variable rate mortgages,” says head wizard Jennifer Pearce. “First-time buyers are especially sensitive to changes in borrowing costs. As mortgage rates continue to trend lower this year and next, we should experience an uptick in first-time buying activity, including in the condo market.”

Really?

Buyers have stayed on the sidelines since the first rate cut in early summer. The Bank of Canada is signalling there are more reductions to come. Mr. Market is pricing in chops in October and December. BMO economists are warning of the “risk” that the central bank may err on the downside, with more aggressive drops if the unemployment rate rises or monthly inflation stats erode. Some think Tiff will slide in a drop of a half-point next month or before Christmas.

In short, it looks like purchasers are waiting for those 3% loans to materialize again before jumping back in. But the problem is price. The cost of a resale home in major markets has calcified. Even a hike in financing charges over the past two years and a collapse in demand, along with burgeoning inventory, has not moved the affordability needle. Nor have government policies mattered – the sweetened tax-free RRSP downpayment withdrawals, the crazy FHSA or the billions in local incentive payments.

Some people gaze upon this and conclude the laws of supply (swelling) and demand (flaccid) will correct the imbalance. Others say phooey – Canadians are crazy and real estate is the god we bow to.

Now the traditional autumn market has arrived, along with three rate reductions and 4% loans. If September is a bust, November will be a rout.

About the picture: “Meet Axel,” writes Gary in Vancouver. “Unlike Guns N’ Roses this Gentle Giant does not have an appetite for destruction. He’s the best trained dog I’ve ever met. He’s a greater Swiss mountain dog, and his owners have trained him extremely well. Possibly the best family dog I’ve ever seen.”

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