No way out

Governments – like that of Doug Ford in Ontario – have been taking lumps for “not building houses fast enough”.

There’s still a misconception more houses will make them affordable. So cute.

Anyway, governments don’t construct homes. They just encourage it by making statements, writing media releases and having the head guy put on a white hardhat and look meaningfully at actual workers during a photo op. In reality, it is buyers who get houses built. If they aren’t buying, nobody’s building.

This week came the latest accounting from the folks behind residential construction in the country’s biggest market. It sucked. Builders are on life support. Sales have tanked. Inventory is extreme. This region of the country is swimming in unpurchased, unloved, available housing units – and we have to ask why. What’s the logic of Ontario adding 1.5 million more homes (or of Chrystia achieving her national target of four million in seven years) if a big surplus isn’t making them affordable? Huh?

Here’s the current situation in this one GTA region. Yes, 21,871 new homes are for sale (and not selling), of which about 4,500 are singles and the rest condos. Add to this 29,000 available resale homes in the region (of which 25,600 are listed with the Toronto board), and there are at least 51,000 properties now sitting, waiting to be acquired.

Source: BILD

Say the builders: “This is a sign of a stagnated market – buyers not buying and builders not adding new projects. The longer sales remain low, the longer the future negative impact on housing starts in the GTA, which will set the region up for inventory shortages and price appreciation in the future. The groundwork for a future supply crunch is being laid out today.”

Last month a mere 600 new homes sold while realtors reposted just under 5,000 resales. This averages out to a supply of almost 10 months. Compare that to 2021 when we were all FOMO-stricken, mortgages were 2% and inventory was exhausted every two weeks.

Today, tons of choice. Less competition. Few bidding wars. More under-ask sales. We’ve had four rate cuts and it looks like another jumbo one is coming next month. Abruptly, 30-year amortizations will soon be available. The CMHC price cap has bolted higher to $1.5 million, resulting in a serious crash in minimum downpayments. Lenders are desperate for clients and discounting rates. Almost a million people have opened tax-cheating FHSAs for home purchases. The RRSP homebuyer’s plan allows big, fat, taxless withdrawals.

What are buyers waiting for? Free refrigerators? A doodle in every yard?

Here’s the latest. The jobs report in the US out this morning was a huge disappointment. The number of new hires plunged – partly because of extreme weather and strikes, but still concerning. As a result bond prices popped and yields crumbled on bets the Fed will have to drop rates significantly, despite a robust economy.

An American rate cut coming after the crazy election on Tuesday will help pave the way for our guys to swing the axe. In the next six to eight months we could see the cost of money collapsing a full 1% in Canada, on top of the 1.75% already carved off.

Yes, that takes us smack into the middle of the spring rutting season. And by then – as noted this week – we’ll be just months (or weeks) away from the Canadian federal election, preceded by a budget likely to shower even more goodies on newbie homebuyers.

Is that a formula for higher prices, even when they’re already crazy?

Yes, probably. When mortgages are 3% people lose their minds. They believe rates will stay low forever. That never happens. But they never stop believing it. Weird.

Consider if Trump wins. And if the economists are right. Our economy is sideswiped. GDP goes down and inflation goes up. The CB reverses course and inevitably – in a year, maybe two – increases rates to fight rising costs and save the currency. Scotiabank says Tiff might have to add 1.9% back onto the federal policy rate. Suddenly housing affordability takes another blow.

As you may surmise, there’s no safe path forward for the houseless. Waiting until the Spring could thrust buyers into a market rife with multiple offers and swelling prices. Buying now means less competition and more choice but higher mortgage rates. Putting off real estate for a year or two could mean navigating a recession and fearing job loss.

Meanwhile the average price here of a new-build condo is $1,025,111. A single averages $1,565,116. The average Toronto detached resale is $1,685,775.

No, this is not going well.

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Source: https://www.greaterfool.ca/2024/11/01/no-way-out/