The score

The early scores are in. It didn’t work. Common sense 1, Chrystia 0.

It’s hard to imagine more gas being heaped on the smouldering real estate pile than happened in the last few weeks. Simulus poured from every orifice.

• Interest rates and the price of mortgages continued to tumble. The big banks are barely over 4% these days. The discount guys are dangling loans with a 3-handle. Bank of Canada rate cuts that haven’t even happened yet are being factored in by lenders desperate to build their books.
• Renewers – and there are masses of them – no longer need to pass a stress test to shop around for a new lender. It’s a big change after years of being in the clutches of one company, lest a borrower was able to prove they could carry a loan at a far higher ‘test’ rate. No more.
• All of a sudden, 30-year mortgages made a comeback. First it was for new buyers of new builds only. Now – starting next month – any first-time purchaser can opt for a loan with a 30-year amortization, with the potential to (a) lower the monthly or (b) gorge on more debt for the same payment.
• And, as if all the above were not enough to soak the houseless is a hormone shower, the feds goosed the CMHC cap to a whopping $1.5 million, up $500,000. So mortgage insurance is available for purchasers to that limit – a bonanza and risk-reducer for the banks. It also means the requirement for a 20% downpayment when buying anything with a seven-figure price tag is gone. Now it’s just 5% for the first half-mill, then 10% on the balance. For a $1.4 million house, the down falls from $280,000 to just $115,000. A 59% drop.

All this has just happened. Arguably it is more pandering, easing, facilitating and asset-licking than the country has ever seen in such a short period of time. As the federal government gives up on its targets of (a) bringing prices down and (b) building 4 million ore homes in seven years, it has instead opted for increasing demand and lower financing costs (so kids can swallow more debt).

Alas (for Chrystia), it’s not working. At least not yet. Maybe never. We’ll see.

The latest stats show beyond any doubt that demand is staying tepid as homes remain beyond the grasp of average folk. Making debt more palatable is not the same as restoring affordability – even if it’s all that remains possible for governments.

In the GTA, where six million people reside and most of the nation’s newcomers settle, fewer than 5,000 resale units changed hands. That’s less than one-third the level of three years ago. While it is slightly ahead of last September’s number, it spells disaster given all the new stimulus added to the marketplace. At the same time, the benchmark price was 4% lower – but average properties are still $1.1 million, with detached at $1.43 million. New listings jumped 10% and active listings are up 35%, at 25,600. That’s a 5-month supply. Yikes. Three years ago we were down to two weeks.

The realtors stay hopeful, of course. They got all they asked for. “We are pleased with the positive changes to mortgage lending guidelines announced over the past month. The ability for existing mortgage holders to shop around for the best rate without facing the stress test will result in more affordable renewals. Longer amortization periods and the ability to insure mortgages for purchases over $1 million dollars will give home buyers more options as the GTA housing market recovers. TRREB has long been calling for these changes to give buyers more flexibility as they navigate their home buying journey.”

In Vancouver, more evidence of a market becalmed. Sales are down 3% and prices have stagnated. Listings are up. Way up – +31% over last year and a quarter above the long-term average.

Says the local cartel: “Real estate watchers have been monitoring the data for signs of renewed strength in demand in response to recent mortgage rate reductions, but the September figures don’t offer the signal that many are watching for.”

By the way, the sales-to-active listings ratio for detached homes in Van is down to 9%. Anything below 12% signals a buyer’s market. So, where are they?

And in Cowtown, a similar story after months and months of runaway market momentum. Now, crickets. Sales fell last month by 17% and listings have jumped to the highest level since way back in 2008. After surging 9% in a year, prices have just flatlined.

What comes next?

Will two more rate cuts, plus the longer mortgages, lower downpayments and higher price cap, bring the confidence rebound that realtors and the finance minister want, and predict?

Or will sellers capitulate and bail amid an inevitable price collapse? Will billions in house equity be lost? Or will this generational anger continue?

In any case, she’s toast.

About the picture: “I’ve read your blog everyday since 2017,” writes Chris, “and It’s helped immensely to guide our family through life’s financial challenges. We have two beautiful boys but unfortunately my wife had a miscarriage this summer and an emergency surgery and we’ll never be able to have kids again. As a result we now have a puppy. This is Indy, I’ve never been a dog person but I am now! He’s brought us so much joy! Thank you Garth for all you do!”

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

Source: https://www.greaterfool.ca/2024/10/03/the-score/