‘This is historic’

In dropping its interest rate this morning our central banks pulled no punches. Things suck.

How much they suck was proven by what builders had to say hours before. More on that in a few paragraphs.

The bank rate is now 2.25%. The prime rate at the big banks declines tomorrow to 4.45%. Variable rate mortgages also move down overnight. Since topping out at 5% to squish inflation (it worked) the Bank of Canada rate has dropped meaningfully by 2.75%. There’s more to come. This is a far steeper slide than Americans have seen. (The Fed will also trim a little this afternoon.)

Why would our CB take this action, knowinf that next week a massive spend in the federal budget will firehose stimulus onto the economy? Why not wait six weeks until the next rate date?

Because things are serious. In the bank’s own words…

• “US trade actions and related uncertainty are having severe effects on targeted sectors including autos, steel, aluminum, and lumber. As a result, GDP growth is expected to be weak in the second half of the year
• “Canada’s labour market remains soft. Employment gains in September followed two months of sizeable losses. Job losses continue to build in trade-sensitive sectors and hiring has been weak across the economy.
• “The Canadian economy faces a difficult transition. The structural damage caused by the trade conflict reduces the capacity of the economy and adds costs. This limits the role that monetary policy can play to boost demand while maintaining low inflation.”

The economy will closely avoid recession this year, or the next two. Growth will be barely over 1%, and could be utterly derailed by more aggressive US trade policy. The central bankers see more unemployment, big trouble for the car guys and a recovery that does not really take hold until the year the orange guy departs – 2028.

That’s a wicked long time. Can we hold out?

Not a chance, say the people who are supposed to build a few million houses over the same period of time. We’re pooched.

“New home sales across the GTA stumbled to another record low for the month of September,” report industry analysts at Altus Group. “In fact, new home sales are down year-to-date across all the markets tracked led by Toronto, Vancouver, Calgary, Hamilton, and Kitchener-Waterloo where sales have fallen by over half compared to last year.”

It’s hard to grasp the implications of this collapse. Last month in a market of 7,000,000 people – the richest urban area in Canada – a scant 438 new homes sold. Of those, 155 were condos – a level 90% below the long-term average.

There are now 21,749 unsold units in this market, almost 16,000 of which are condo apartments. That equals about two years of inventory – the highest ever.

Says the industry: “The market downturn we are experiencing is historic and will have long-term consequences for housing affordability, the jobs that are provided by our sector, and the economic activity and revenue generated by the new residential construction sector across the country.”

Those consequences include an army of unemployed trades, the builders claim, plus far higher housing costs in the future once the current pipeline of inventory clears. Then (about 2027 or 2028) housing starts will be wholly unable to match demand. Since it takes four or five years to get new product built, they warn, average prices now ($1 million for new condos, $1.4 million for single-family homes) will not hold.

Governments must ride to the rescue and eliminate taxation on new homes, cry the builders. “To do otherwise is an admission of acceptance that the loss of almost 100,000 jobs nationwide and acute affordability challenges in the coming years are acceptable outcomes.”

“Now is not the time for half measures. We are at a moment in time where we have the opportunity to avoid the consequences of this historic national housing downturn through bold action.”

Well, that’s enough depressing news for today. Doomy gloom everywhere. Unless, of course, your five-year mortgage is coming up for renewal this autumn, you just vultched a desperate seller, you own a liquid portfolio bristling with equity exposure or you hold tickets for Friday night.

Bread and circuses. Works every time.

About the picture: “Here is our 5 year old Golden Doodle, Jasper,” writes Patrick. “Living his best life (the stick was much bigger at the start of our run) at the top of the Cochrane Hill with the sun setting behind the Rockies.  A friend of mine tuned me into your chiseled abs and sarcasm toward the middle of 2014 which turned out to be one of the most generous things he has even done for me. Your daily advice and direction has been incredibly valuable in shaping my wife’s and my financial futures and we will be forever grateful. Thank you for continuing to produce such insightful and relevant content, while taking witty shots at the steerage section. Awesome!”

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

Source: https://www.greaterfool.ca/2025/10/29/this-is-historic/