The inevitable

In the wilds of Pickering, bordering a vacant field, stands an almost-built house crowding its 36 feet of dirt. So typical. A garage for a snout. Face brick. Big windows. Fashionably gray. Potential separate suite in the basement.

But no appliances. No a/c, shower glass or grout. Buy it now for $1.3 million and move in (maybe) in a couple of weeks.

The two-storey on Pisces Trail is a distress sale. “Assignment sale – 2.5% co-op commission,” says Hezekiah Tai, the listing agent. “Property currently still under construction… Seller is selling at cost, losing deposit. Contact or text LA for more info. No appliances or AC included with home. Tentative occupancy on Aug 6th, 2024.”

Here she be:

An assignment sale happens when a pre-con buyer tries to bail before closing. Their accepted offer to purchase is then ‘assigned’ to a new purchaser who honours the original completion date with the builder/developer. In this case the first buyer walks with no hope of recouping her deposit and the assignment buyer gets the property for the sale price – which the agent suggests is ‘cost’ or 80% of what the place went for originally. (A similar pile on the same street was on the market a few weeks ago for $1.56 million.)

What does this tell us?

Pain.

The house was likely purchased two years ago (perhaps longer) from plans – back when a variable-rate mortgage cost 2.15%. A $1.5 million house in the sticks would need a deposit of $300,000 with a mortgage now costing the better part of nine grand a month along with property tax. To swing that would take an income of well over $300,000.

This is why new-home construction has collapsed. Activity has dropped 70% in the last year, just as the resale market has seen listings surge in the same area by more than 65%. The cost of money in the last two years has changed everything – except affordability. Prices may be trickling down slowly, but with home loans in the 5% range real estate remains a distant dream for most people. Even in the middle of a former field miles from anywhere selling a litre of milk.

This, economists now say, is why the Bank of Canada will be reducing the price of money again on Wednesday. The CB is expected to chop its policy rate a quarter point, to 4.5% – the second reduction in as many months.

And there’s more to come.

All the major banks are now on the same page – a total of four rate chops by the ed of 2024. The second on Wednesday. The third in October. The fourth in December. Meanwhile the American Fed is expected to start climbing down from its rate pinnacle in September.

What does this mean?

Well, if the predictions hold, the Bank of Caada rate will be 4% by Christmas. The chartered bank prime will drop to just above 6%. Five-year home loans could be in the fours. The CB is watching inflation recede, the Canadian labour market grow weaker and is assessing the risks ahead of a protectionist Trump administration and the impacts of a global trade war which could ensue. (So long, Joe. You did the right thing.)

Of course, everything might change if (a) the cost of living erupts again or (b) silly Canadians become aroused by falling mortgage costs and start flocking to places like Pisces Trail to spend seven figures on an OSB palace.

Odds are the policymakers will take that bet. At least that’s what the majority of economists now believe. The economy cannot endure interest rates at current levels without taking a dump. That would be the end of a soft landing.

After all, look at poor Kelowna.

There are currently 264 empty condo apartments for sale. Add in empty townhouses and vacant detached homes and that total jumps to 670 units. Sure, BC’s can’t-leave-anything-alone government has scorched Airbnb owners and now rammed landlords with a four-month notice period for rotten tenants – but it’s affordability that’s turning a problem into a crisis.

Kelowna has a total of almost 2,500 properties for sale at the moment – with a population not much above 130,000. By the way, there are over 2,600 licensed realtors in the area.

Thank Dog you are not one of them. Or the poor schmuck who bought on Pisces Trail. Or the American president. Things are about to get real.

About the picture: “Hi Garth and Team. This is Lacey, my family’s 13-year-old poodle who, like me, is going grey trying find a birthday present for my dad,” writes Beth. “He doesn’t like presents because why spend money on things you don’t need when you can save and invest it instead? I’m hoping to surprise him with a photo of our dog who he tolerates quite well for not being a dog person. He reads your blog every day and has gotten our family to as well (he check in on a regular basis to see if I’ve been reading). We all appreciate the advice and insights! Happy birthday, Dad!”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca.’