The wait

The answer to yesterday’s question, of course, is Trump. More precisely, an orange-guy downturn brought about by trade restrictions, profligate US spending and a resurgence in both inflation and rates. That, ultimately, is what might tank Canadian housing.

Of course, concurrent would be a spike in unemployment, a real estate recession and a painful economic contraction, whacking the self-employed that Chrystia has just taxed more. Speaking of politicians in Ottawa, they’d have a cow.

We have no idea if Trump will win. But a poll after the debate gives him an 8-point lead over the other guy. Biden says he’s staying. The bookies say he’s not. The woman from Albany, NY petting Cody this morning just shook her head and repeated what a majority of Americans think: “Oh, my God. They both suck. How did we let this happen? You guys are so lucky.”

Well, the point is that it will take a nuclear event – like the election of a man found guilty of sex abuse, financial fraud and election interference while facing 60 more charges – to shock housing in places like Toronto and Vancouver back into the realm of affordability. And it will come at a cost few wish to pay.

Recall that landmark Scotiabank Economics report forecasting a GDP contraction in Canada, a surge in inflation and a runup of almost 2% in interest rates here if Trump wins. There is no way house prices here will endure a return to 6% or 7% mortgages and a stress test at 8%. Because, as shown here yesterday – and below – we already have a slow melt going on, even as rates gently decline.

The latest stats out of 416 and 604 are dismal for sellers, realtors and all those who feed from the resale trough.

Before buyers start buying again, says the cartel, rates must fall much further and faster. “The Bank of Canada’s rate cut last month provided some initial relief for homeowners and home buyers,” says Jennifer Pearce, of the Toronto board. “However, the June sales result suggests that most home buyers will require multiple rate cuts before they move off the sidelines. This follows Ipsos polling which suggested that cumulative rate cuts of 100 basis points or more are required to boost home sales by any significant amount.”

By the way, nobody expects rates will be a full 1% lower than the peak last month until next summer. So will the melt continue until then? Or will prices hit a point where pent-up demand is unleashed? Even if we get Trump in November?

Here’s the latest from Toronto and Vancouver: sales down (a lot), prices down (a little) and inventory up bigly. GTA transactions last month fell 16% below year-ago levels while the average selling price was 2% lower. New listings jumped 12% and there are now 67% more homes for sale than a year ago.

Source: Toronto Regional Real Estate Board

It’s a similar tale in Vancouver. Sales off 19%, and now running 23% below the 10-year average. At $1.2 million the average property is only 1% cheaper than this time last year, but inventory continues to swell – up 42%.

“With an interest rate announcement from the Bank of Canada in July, there is a possibility of another cut to the policy rate this summer,” says spokesguy Andrew Lis. “This is yet another factor tilting the market in favour of buyers, even if the boost to affordability is modest. But June’s lower-than-normal transaction volumes suggest many buyers remain hesitant, which has allowed inventory to accumulate and has kept a lid on upward price pressure across market segments.”

In short, they’re worried. The sales-to-active listings ratio for detached houses in Van is only 13%. This is now a buyer’s market. And yet the buyers are staying home, waiting for cheaper rates. Only 694 detached houses in all of urban Van sold last month – and no wonder. The average price was $2,061,000. First-time buyers are almost extinct. And the supply of move-uppers dwindles. In reality, mortgages that are a quarter or half-point lower won’t make much difference while real estate stays at such a nosebleed level.

Trump fears may be overstated. Maybe not. He may win, or lose. We might land hard or soft.

Meanwhile there is a slow housing melt happening, likely to spiral in July and August. Look for a meaningful price decline by Labour Day. And then…

About the picture: “Cypress is a 10yr old Chiweenie and  was born in Mexico, through various volunteers she found her way to Vancouver for adoption at the age of 4 months,” writes Jason. “We went with my wife’s grandparents to an adoption fair to find a companion dog for them … And this little pup peed on my wife’s foot… Love at first pee. We adopted her on the spot.  After some back and forth we settled on calling her Cypress,  as we were shortly leaving Vancouver and that was the street we lived on.  Several years ago, she had a  stroke,  and was severely paralyzed. Thanks to the help of  a dog physical-therapist and much  luck, she regained nearly all of her functional  movement and continues to live a good life. This picture to me is proof that dogs can smile when they are happy!”

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

Source: https://www.greaterfool.ca/2024/07/04/the-wait/