Not happening

On Tuesday morning the odds were 68% that the Fed will soon chop its policy rate a half point. That’s a big deal. Mr. Market would not be surprised to see US rates a full 1% lower by the end of the year.

That will be the case in Canada as well. Two more cuts (one might be a double) by Christmas. Looks like CIBC and a few other economists nailed it when they called for a full point drop in 2024.

The stock plop and growth scare we witnessed yesterday sealed the deal. Inflation is so 2023 now. We’re on to the next crisis – avoiding a hard landing. Unemployment has been snaking higher in Canada and the States. Economic growth has been anemic. Consumer spending is tapping out. Household debt keeps rising. Politics is a mess. The course of taxation is unclear now that Harris is ascendant. Time for central banks to come back and sprinkle some stimulus sauce over everything.

The realtors will relish that.

The property market is frozen, drifting and drowning in supply. Last month, for example, fewer than 5,400 homes changed hands in the GTA, where six million people live, 70,000 of them selling real estate. In the same month there were 16,296 new listings. That’s almost a five-month supply of homes available, which compares with merely a week when the market was booming three years ago.

How listings are overwhelming sales in GTA

Source: Toronto Regional Real Estate Board

Cheaper financing will change that, the local board hopes. “As more buyers take advantage of more affordable mortgage payments in the months ahead, they will benefit from the substantial build-up in inventory. This will initially keep home prices relatively flat. However, as inventory is absorbed, market conditions will tighten in the absence of a large-scale increase in home completions, ultimately leading to a resumption of price growth.”

Sales are crappy in Van, too, with fewer than 2,500 deals recorded in July. “The trend of buyers remaining hesitant, that began a few months ago, continued in the July data despite a fresh quarter percentage point cut to the Bank of Canada’s policy rate,” say the YVR realtors. “With the recent half percentage point decline in the policy rate over the past few months, and with so much inventory to choose from, it’s a bit surprising transaction levels remain below historical norms as we enter the mid-point of summer.”

Average prices are stuck. In Toronto it’s $1.106 million for all properties and $1.64 million for detached. Down a little from last year, but not reflective of higher rates or ballooning inventory. Sellers have yet to capitulate. And in Van, where there are 14,326 listings to choose from, the average is $1.1 million and detacheds run just over two mill. Who can afford that?

So now that two more rate cuts are on the table for the next four months, will this change? Or are prices just too high, too absurd, too sticky to attract offers, even if home loans are in the 3-4% range? Do we need a meaningful recession to spank homeowners into submission, allowing prices to tumble? But recessions bring unemployment, fear of job loss and an erosion of buyer confidence – so if prices decline will buyers materialize?

“And even if hi-ratio CMHC mortgage rates hit 3.99% in the next 6 or 8 months I don’t believe the Canada real estate business will suddenly mount a major recovery,” says irascible Ron Butler, the mortgage dude. “This economic & RE downturn is going to take time & things could likely get worse before they get better.”

As this blog has documented lately, there us a condo meltdown gathering momentum in Toronto – where seven in ten apartment units in Canada are sold. Tenant-favouring legislation, the capital gains tax change and negative cash flow for a majority of landlords are all leading to an historic reckoning. Meanwhile new-home sales – of high-rise units plus detached homes – have crashed hard, by 70% – leading to the cancellation of many projects and foretelling a supply crunch to come.

This all takes place against a background of excessive household debt with unknown consequences. Interest rates may well decline sharply, but economic downturns also bring lower incomes and fewer employed. It paints a canvas of uncertainty for the housing market going forward.

If you need to sell, be aggressive. Not greedy. If you want to buy, wait. It’ll be a whole new world come January.

About the picture: “Savannahs Kali and Juma have been featured before but when much younger,” writes David, in Calgary. “With the risk of having you have to resort to showing more of our non-finance finance minister, I thought it best that you have another photo in reserve to help stave off that dark day.  Here they are relaxing after having their daily fun which includes repeatedly climbing up a wall corner and kind of wrecking the drywall.”

To be in touch or send a picture of your beast, email to ‘[email protected]’.