The doves

Stocks are rocking again lately. Mr. Market figures the Fed may cut rates by a big, juicy half-point next month. We may know more after the CB boss talks at the Wyoming monetary love-in tomorrow.

The latest US jobs stats support a cut. The central bankers are sounding dovish. In Canada we should see a quarter-point hack (the third one in a row) just after Labour Day. Two more in October and December. The trip down will not be as fast as the wild ride up, but close. Little more than a year from now we will have seen at least seven reductions.

Some people think this will goose real estate markets as we get 3% loans again (maybe even dipping to 2-something in a year). Others insist prices are already causing nosebleeds and a boom is impossible. The reality is probably closer to this: troubles in certain segments of the market (like condos), lower sales volumes than in the last eruption (2021) but higher average prices as cheap money facilitates move-up buyers who have been trapped in their listings.

Of course, every market is different and unique, but Canadians are still deeply afflicted with latent FOMO which those seven rate cuts will likely rekindle. You can be sure the bankers, brokers, agents, mortgage lenders, realtor boards and even political leaders will be back on the housing bandwagon come rutting season ’25.

Look at the latest fluff survey from those supreme house-humpers at LePage. A commissioned Leger poll finds 84% of kids between 18 and 34 value real estate with three-quarters saying owning one is “a priority”.

How pathetic is it when a 20-year-old believes getting a deed and a mortgage is the goal of life? But this is Canada. We are insane.

The polls found 54% believe think a home is achievable. (Only 20% are giving up.) This is possible only if rates plunge and prices continue to soften (not gonna happen) or if the young buyers are counting on big withdrawals from the Bank of Mom (yes).

In any case, the sad reality for those awaiting a Biblical correction in Canadian real estate valuations, replete with tempests, halitosis and locusts is that it’s not coming. The kids are hot to buy. Parents are willing to facilitate it. More sales will unlock the equity existing owners want to use to advance. Pent-up demand is tangible. The masses still believe a house is a slam-dunk. And central bankers are racing to reduce the cost of borrowing, lest economies start to slide and people hate them.

Finally, as often reported here, politicians do not really want houses to tumble in value. None of them. Despite their weasel words. And, hence, it won’t happen. We’ve just been through an historic rate runup and public policy effectively prevented a real estate meltdown. If it did not occur in 2023, it’s not coming for years to come.

Especially now with President Harris on the horizon.

Granted, the November election is a long way off. But the Dems’ momentum is palpable and Trump’s response thus far (questioning her race and intelligence and calling her a commie) is a tactical disaster. Walz is folksy. JD is scary. The polls have mapped out an abrupt shift. And suddenly the election most Americans didn’t want – the choice between two fossils – has been turned on its head. If this direction continues, she wins. But, of course, anything could happen.

For Canada?

A Harris presidency would nix the threat of new trade tariffs, prevent a growing American isolationism, support NATO and Ukraine, avoid labour market disruption with mass deportations and forestall what economists warn might be a recession in this country accompanied by a return to inflation around 4% and a reversal in interest rates. In fact Scotiabank says our rates would eventually rise 2% if Trump won.

So, kids, there ya go.

This coming Spring will feature sustained interest rate reductions. More sales as mortgages hurtle towards three per cent. An increased number of equity buyers. And maybe, political stability and even higher values. By the way, no recession. No unemployment disaster. No bank distress from the home loan renewal cliff. And a farewell federal Liberal budget promising everyone a pony.

Yes, a majority of people without property have been shut out of the Canadian real estate market. But already seven in ten families own. Most can’t afford to move. It doesn’t take a flood of buyers or sellers to set new price benchmarks, and it looks like that may happen in the next seven months. Especially given what Ottawa’s likely to do in March or April.

Some things you can’t fight. Stop moaning.

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Source: https://www.greaterfool.ca/2024/08/22/the-doves/