Groundhog day

When Covid came to town, people fled. During the dark, confused, weird days of 2020 and 2021 this blog detailed the Flight to Bunnypatch.

Folks wanted away from the germs. They sought to cocoon. No more diseased elevator buttons to push in rabbit-warren urban high rises. They wanted sunshine, back yards and as much distance as possible from, you know, humans. So the exodus to the burbs and beyond was a defining feature of the pandemic. After all, nobody had to go to work anymore, right?

The consequences were stark. And expensive. As the flight continued and mortgage rates sank, Bunnypatch prices went ballistic. The locals were shocked. Those who sold to the desperate migrant Millennials made a killing. The rest watched as they were priced out of their own hoods. The social upheaval was profound.

Then the pandemic was over. Mortgage rates went up. A lot. And a bunch of urban refugees discovered ticks, mice, weeds, groundhogs, the agony of country music and the cost of driving to buy groceries – and everything else. Besides, the boss called and said you had to come back to work two days a week. Disgusting.

Well, here we are in 2024. For many in regional cities and suburbs, things didn’t work out quite as expected. It’s doubtful those buying million-dollar houses in 2021 eighty clicks from downtown Van in Abbotsford would ever imagine their homes might be worth less in three years. But they are. All that expense and interest paid for a net depreciation.

Ditto in Ontario. Real estate sales in London are running 44% below 2021 levels. Prices have dropped 15% since the central bank started diddling with rates two years ago. The average is now $645,000.

In Waterloo Region the price of a detached home has shed $300,000 since the peak during the winter of 2022. The selling price of all properties is lower by $244,000. Inventory is up 49% year/year and running 40% above the ten-year average. Too many pproperties. Not enough offers.

The Fraser Valley board reports sales are 30% below the long-term trend. “Despite two policy rate cuts by the Bank of Canada [now three, as if this week], buyers are still feeling the squeeze of overall affordability challenges in BC,” says spokesguy Jeff Chadha. “With prices for single-family homes, townhouses and condos holding relatively flat year-over-year, many continue to face challenges buying their first home or moving up in the market, as reflected in seasonally slow August sales.”

The board also makes this observation, which applies everywhere in Canada right now: “Buyers continue to wait on the sidelines in anticipation of more cuts to the Bank of Canada’s policy rate.”

So prices in Bunnypatch are down. In some cases, dramatically. Inventory is stacking up. Scores of people want to get back to their Starbucks and mass transit and are ready to eat equity. But buyers are still sitting on their hands, expecting more price reductions and – especially – additional cuts in the cost of financing. The CB has made it clear rates will be going down, not up or sideways. Economists, brokers, realtors and lenders are broadcasting that the Bank of Canada will hack again twice more in 2024. Maybe one of those cuts will be a biggie – half a point – now that the unemployment rate has risen again.

The same knowledge has renewers debating how to react.

“I received a renewal today for (15yrs and 500K left) mortgage on my primary residence,” writes Dean, “and while the rates were thankfully lower, like others, I wonder if I can do better by holding out a bit longer? The offer for a standard 5yr closed is 4.59%, although I don’t have to sign it until December.

“The BOC still has October AND December this year to go for announcements. Should I wait to see what they say before I sign? Or even potentially pay the 6 month convertible rate (8.49%) for 6 months and try again? Thanks as always for your awesome advice.”

Wait, Dean. That fiver rate of 4.59% you’ve just received is a good one if coming from one of the big banks. All lenders are aggressively regrowing their troubled mortgage portfolios. But with two more cuts likely before your loan is up, you might score something closer to 3.99% by the end of the year.

If you don’t have to commit, then don’t. Between now and Santa we’ll see a weakening labour market in Canada, more concern by the central bank, lower loan costs and a completely unknown outcome for the US election.

Buyers are also gambling conditions will be better, come the snow. But will Bunnypatch prices continue to erode? Or will cheaper mortgages rekindle them?

And, above all, what have we learned?

About the picture: “Meet Kevin… a part bengal breed with who knows what other mix,” writes Rich. “He is all of about 4 yrs old and rescued from a family that was unable to take care of him. Now lives the luxury life with excess love however does not shy away from being the “loudest most talkative cat to have ever been at the kennels” we were told after he had a vacation there.  Currently resides in Calgary with his family of 4, including dad who has followed Garth over 15 years including attending perhaps 2 in person talks from back in the day.  Dad (me, the writer) reads the blog quite religiously and have been somewhat successfull’ish enough over the years following general advice.  Still need to do a better job of dodging those MERs but have never forgotten that it’s “time IN the market, not timing of the market” which has been the best long term advice ever.  Hope you can enjoy and use perhaps a photo of our little dude.”

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

Source: https://www.greaterfool.ca/2024/09/06/groundhog-day-3/