Best case, worse case

Bad news is good news.

Bad economic news brings rates down. And most people think (wrongly) things are awful.

“So what are buyers going to do?” asks veteran realtor Bob Ede. “Nothing. Absolutely nothing. They’re going to sit on the sidelines until it’s to their advantage to move.”

And why wait to buy, when prices are lower and listings plentiful?

Simple. “Buyers know that interest rates are coming down.” Already they fell twice. We’re coming off the mountain. More cuts are inevitable, expected and a slam-dunk. All the bank economists have gathered on the same side of the page – two more reductions coming in 2024. The CB policy rate will have tumbled from 5% to 4%. Inflation has been driven back down into a ‘acceptable’ range, and there’s more relief ahead in 2025.

I mean, Tiff said it. Right?

“I think what we really tried to signal is that the balance of worries is shifting,” he stated in a media session on Wednesday. “For the last two years, we have been most worried about getting inflation down; we’ve made a lot of progress in getting inflation down, it’s not down to two per cent yet, but it’s come a long way back. What do we see happening? We see growth is going to be picking up, we think inflation will keep easing to our two per cent target, so we’re not expecting a big slowdown in the economy, we’re expecting growth to pick up.”

Inflation under control. Rates easing. No recession. The economy growing. In reality, that’s called the soft landing. It allows the Bank of Canada to wind down the cost of money and watch prices stabilize without having to endure a high-unemployment slowdown. It’s the monetary Holy Grail. In Tiff’s book, this is a huge win.

So back to Ede.

He’s calling this summer the time of ‘buyer’s revenge.’ People who want houses are refusing to buy because prices are still stupid, mortgages still too costly, and they’ve decided not to play this game. That may not be wise.

You can see the results in terms of the gathering inventory. It’s getting heroic. For example, Toronto now has close to 6.5 months of inventory of new condos. The number is rising weekly. Prices are in a daily decline. The last time we saw this many units available was the winter of 2008-9, smack in the middle of the global credit crisis, when Wall Street banks were toppling and the economy was in reverse. Over 20% of the current condo listings have recently had a price reduction.

Says Ede: “When it looks like interest rates have bottomed, prices will go up. But we’re a long ways from that happening. The best-case scenario is that prices slide to 75% of peak values – we’re at 87% right now – and mortgage rates fall to 4-4.5% for a five year loan.

“The worst case scenario is prices slide 50%, and rates fall to 3.5-4.5%. For that to happen we get unemployment like crazy, the worst economy, we get war… I don’t know what… but we don’t want that for sure.”

So what’s likely? A slight price drop. Lousy sales. Inventory rising. The advice for buyers is to be aggressive. The advice for sellers is to withdraw from the market, he says, and wait for September.

That month the Fed should drop its benchmark rate for the first time in half a decade. The Bank of Canada will be readying its next reduction. The outcome of the US election should be better known given extensive polling and a key Trump/Harris debate (which at the moment he’s trying to get out of). Maybe even Gaza will be at peace.

This realtor – a chartist who produces painfully detailed analyses of the market and has done so for decades – confirms what a certain pathetic blog has told you. Without economic collapse, there will be no housing plunge. The great tightening cycle of 2022-4 is over. Real estate prices retreated by about 15% as the bank rate increased 1,900%. And now governments are working to ensure the cherished equity of a nation of homeowners is not further eroded.

It’s a buyer’s market now. And yet the buyers are waiting.

Silly them.

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