High anxiety

It’s May this week. Looks like Rutting Season 24 failed.

In a few days we’ll know the housing numbers, but in the bellweather markets of 416, 905 and 604 expect a fizzle. The April rate cut never came. The June chop is looking dodgy. And in the US, interest rates will fall between half a point …and zero… between now and Christmas.

Taxes went up in the budget. A fat wave of mortgage renewals is coming at rates which were supposed to be lower by now. Public sentiment has soured. House prices have not materially declined. Affordability is at a record low. Housing starts are going down, not up.

As we told you a few days ago, sales of new condos and detacheds have crashed and burned. Down 80%. Unsold inventory is stacking up. Precon buyers are defaulting in serious numbers, unable to close deals they signed two and three years ago. Over sixty developments containing 21,000 units in the GTA alone have been axed. On every level, government policy has been unable to deal with the real estate conundrum. So, soon, Canadians will likely change governments.

This week the US Fed will again leave rates on pause, and is likely to toughen up its language. More hawk talk. Rates may not move at all until the end of the year, given economic growth and persistently high prices (plus the explosively divisive American election in November). Bond yields on both sides of the border went up, and some economists are openly opining that CBs got their rate strategies wrong.

“I had favoured that view and remain of the belief that had the Fed not stopped at 5.5%, then we wouldn’t be faced with as pervasive inflation risk today,” says our economist pal Derek Holt. “Forecasting inflation is difficult, but inflation risk remained high and should have been more decisively snuffed out. To pause at 5.5% was a policy error in my view but now we have to live with it. That window has passed.”

Did you catch the latest Ipsos poll on Friday. Brutal. Canadians are pissed. It seems a prelude to trouble.

The survey found 80% feel owning a home s now “only for the rich.” That’s an increase of 11% in a year. The Zs believe this 90%. Mills are at 82%. Even the Boomers are there, at 78%. Almost three-quarters of people without a house have given up trying to get one. “You can see why the anxiety is so high,” says pollster Darrell Bricker, “because an increasing number of people believe they need to own a home, but fewer and fewer people believe that they can.” And 77% of respondents said the federal government had failed them. Correctly, they don’t believe political claims of massive house-building or falling prices.

A fifth of people are saving less for retirement. A third are depleting savings to pay bills. Most people now believe interest rates won’t be coming down. And when you put all of this together, it explains why the spring housing market has quickly faded into nothingness.

Well, none of this deters some people who are determined to buy. Like Bill and his squeeze.

“My wife and I are in our early 30s, renting an apartment in Toronto. We’ve been in our current place for a few years, and because of that, our rent is below market. We’re happy in this place, but it’s too small for a family, which we’re hoping to start this year.

“We’ve been looking to buy a home for a few years (for the usual reasons – more room, and safety from the infamous “family moving in eviction”), and have saved up enough for a 20% downpayment on a lower-end Toronto freehold home in a non-registered account (~$200,000). Our income is high, around $300,000 (slightly skewed towards my salary), but that would drop with only EI to cover my wife’s maternity leave. While there isn’t a whole lot of flexibility on timing for the purchase (hoping for within 2024), I’m trying to soak up as much information as I can to figure out when might be ideal – including daily reading of your blog!

“Your post on April 26th had the following ominous conclusion – do you have any advice for me?…Well, it’s a mess. Soon we will move into the next phase. More ugly coming. Stay liquid.”

Advice? Sure. Wait.

First, you do not need to rush into real estate because you might have a family this year. Babies don’t actually know  much about deeds vs rental agreements. You have at least a couple of years to get this right. Second, buying in Toronto means even with $200k down you’ll end up with a mortgage of $1 million or more (maybe a lot more). Is that really he way you want to start out family life, especially with only EI during a mat leave? Why not wait until she’s back at work? Keep the stress in check.

Mostly, a lot has changed – as referenced above. The big rate cuts ain’t coming. The market may well start to correct as sellers accept the inevitable. The pool of buyers is shrinking. Realtor ranks are thinning fast. Politicians are on life support. And the potential for disruption spilling over from the States is palpable.

A real estate crash, especially in the Big Smoke, is unlikely. Too many people. Too few good listings. But DOM should lengthen. Months of inventory will grow. Sellers will get anxious and flexible. A buyer’s market. Your liquidity will become more powerful. You may end up owing less, or owning more.

And she will thank you.

About the picture: “Snapped by a family member,” writes Leslie, “whilst I was reading yesterday’s blog post aloud. I even showed them the photo of the wet dog but… didn’t pique their interest. They have a good home on year two of a 5 year fixed with occasional extra smack downs on the principal. No worries. One of them is Tarzan and the other one is Bear. (I will leave it with your astute readers to guess which is which.) They are snoozing. (Ya think?)”

To be in touch or send a picture of your beast, email to ‘[email protected]’.