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SUCK IT UP

January 26th, 2023 — Book Updates — E-mail this blog post to a friend

When strident people hear something they don’t like, they call it fake. Trump
taught us how powerful a tactic that can be. He used it against the entire media
establishment – suggesting only his thoughts, tweets and posts were genuine.
Authentic. Trustable.

Yesterday this blog said things a lot of people did not wish to know or accept.
The comment section was a swamp, hip-deep in vitriol and angst. Many rightist
snowflakes want nothing good said about maple while you-know-who is PM. And a
slew of houseless kiddos waiting for a half-off real estate sale are happy to
call fake when the news disappoints.

Well, tough. This blog sells nothing. Has no advertisers to placate. And the
wizard is too wizened and crusty to really care what you think. If you don’t
want to come here and hear reality, then blow off to Reddit. Moaning is welcome
there. They have empathy.

If you care to know the truth, read on.

The CB’s action yesterday changed everything. The bank said its weensy
quarter-point pimple was the last hike before a pause to give monetary
authorities “time to reflect”. This means we have hit the terminal rate. The
end. It will take an inflationary disaster – like a vicious wage-price spiral –
to unpause the tightening. Politically, that’s a non-starter. Economically it
would increase the odds of a recession. And if the CPI can drift down on its own
over the next few months, the Bank of Canada will be delighted to sit on its
digits and wait.

Now, whazzit mean for housing? As mentioned, everything.

Consider the facts.

First, prices have declined by 23% nationally, about the same in Toronto and
Victoria, 30% in the Fraser Valley and K-W, 40% in King and elsewhere in Outer
Bunnypatch. This fully reflects the increase in mortgage carrying costs, which
suggests the market has been efficient. Do houses still cost an absurdly
exaggerated and unjustified, punishing amount? Yup, of course. But this decline
may be all that you can expect, given FOMO and widespread public insanity.

Second, sales have crashed by the greatest amount in recorded history in the
land of beavers. Down by 40-50% in Vancouver and the GTA, mirrored in the 905,
519, Okanagan, HRM and Vancouver Island. Buyers melted away as interest rates
plumped and the recession talk started. They did not stop wanting houses, just
shopping for them.

In other words, there’s a huge amount of pent-up desire. Just as 2% mortgages
sucked demand from the future and increased debt, now 5% mortgages have dammed
up the demand that normally would have exists in the autumn of 2022. That dam
could be about to break.

Third, the yield on a five-year GoC bond is way lower than last fall, and this
has been reflected in declining fixed-rate mortgages. HSBC this week is the
first big guy to break the 5% barrier, now offering a five-year rate of 4.89%,
rolling it back to last September. Yeah, five is a lot more than two or three,
but it’s far lower than the historic norm of 8%. With rutting season around the
corner and financial earnings a little under pressure, figure on a lot of bank
competition coming.

Fourth, it’s already happening. Open your eyes. January mortgage originations,
inquiries and applications are hugely higher than in the preceding two months.
Says our loan broker buddy Rob Butler: “This feels like a “We waited a year and
we’re pissed off so we’re going to buy now”.

Prices can moderate or even drop as buyers face a 7% stress test with prices
still ridiculous. But it’s a safe bet sales volumes will pop. There were 30
offers on a east-end GTA bung a few days ago, for example. Until inventory
levels climb higher (which should happen soon, now that Tiff has blinked), there
will be multiple bids. That’s a given.

In a week we’ll have January stats from real estate boards. Compare those
numbers with what will be published in the first week of March. Then talk to me
about fake.

About the picture: “When I’m not feeling great,” writes Robert, “this is my
go-to picture. It’s the screen saver on my phone . Moses and Bella, brother and
sister, both passed a few years ago. Let’s hope 2023 is a  lot better .”

32 Comments


BUY CANADA

January 25th, 2023 — Book Updates — E-mail this blog post to a friend

That’s it. She’s so done. Tiff said.

In the media conference held in Ottawa this morning these were the first words
out of the mouth of the Bank of Canada governor: “We’ve raised rates rapidly and
now is the time to pause and reflect…”

As you likely know (and as foretold here) the CB rate just popped a quarter
point (puny) to 4.5%. So the banks’ prime moves to 6.7% tomorrow, the highest in
22 years, with variables over 6% and HELOCs at 7.2%. Folks with home equity
loans, says mortgage broker Ron Butler, “will be in despair because their
minimum payments have ratcheted to a point nearly 250% higher than what they
were 10 months ago. The Big Question: Is this actually the end of increases?”

We’re betting yes. Governor Macklem says inflation will continue to fade this
year, down to 3%, then back to the target of two per cent in ’24. He’s not
calling for a recession – just a ‘stall’ in growth, which will be 1% this year
and 2% thereafter.

“There is growing evidence that restrictive monetary policy is slowing activity,
especially household spending,” he added. “Consumption growth has moderated from
the first half of 2022 and housing market activity has declined substantially.
As the effects of interest rate increases continue to work through the economy,
spending on consumer services and business investment are expected to slow.”

Okay. Sea change. Big news. The tightening (as we forecast) is over. What does
this mean?

First, it’s really, really, really unlikely Tiff will pivot and goose the cost
of money again in a few months. That would take a meaningful jump in inflation,
a surge in job growth, escalating oil prices and a wage-price spiral. Not out of
the question. But not likely. Everybody in Ottawa wants this rate thing to end.

Second, it’s the signal realtors, mortgage guys and sellers were looking for.
This could mean – as we detailed here two days ago – the bottom is in for the
real estate market. That 23% peak-to-now drop in national prices, the 22% plunge
in 416 detacheds and 30% decline in Bunnypatch values, plus the 45% plop in
sales in the GTA and YVR, is the end. The CB move today doesn’t mean prices will
romp higher, because affordability still sucks, but stability is breaking out.
Buyers and sellers waiting for the bottom may just have seen it arrive. Sales
volumes will soon reflect it.

Third, maybe it’s time to put maple into perspective. Americans are still
looking at rate increases, have a debilitating debt ceiling crisis to get
through and are in a stinky tech meltdown at the moment. Yeah, America is an
exceptional country, but this land of beavs and Timmies isn’t too shabby,
either.

The next time some demented offshore soul trashes Canada in the comments
section, or a Pepe, burn-it-all-down fanboy calls this nation garbage because of
its current leadership, bear this in mind…

 * Last month Canada added 104,000 new jobs. Contrast that with the States where
   only 223,000 new hires took place despite having more than ten times the
   population. We rocked.
 * The unemployment rate here is currently 5%, just a hair about its all-time
   low. And this is despite almost a year of interest rate increases and global
   economic turmoil
 *  Our official inflation rate was 8.1% and is now nearing 6%. The CB says it
   will be 3% by summer, and a nothingburger by a year from now. Compare that to
   Europe.
 * Our stock market’s been under pressure, like every other one in the world,
   but lately it’s outperformed the American one. Last year the S&P500 shed 20%.
   The Nasdaq was whacked with a 33% loss. But Bay Street lost just 8.5% – and
   it now doing okay.
 * Everybody has debt. It’s a big global problem. But the US is hitting its
   borrowing ceiling and has debt equal to 120% of its economy. Our debt is a
   disgrace and has mushroomed under Trudeau, but sits at a far more tolerable
   70% of the economy. Plus, we have no crippling government shutdown looming.
   No George Santos.
 * Maybe health care waiting times are awful and the system is stressed. But
   it’s still free. And look at the Covid numbers – 50,300 people perished here.
   Over 1.1 million died in the States. Do the math and see that our result was
   vastly better. The truckers were wrong.
 * Speaking of health, people in Canada can expect to live a life averaging 81.2
   years. American life expectancy is 77.2. Maybe less in Chicago.

And let me leave you with some words about Ukraine, tanks, war and our country
from veteran analyst Ed Pennock:

> The War in Ukraine has had an immense impact. Ukraine is destroyed. Russia
> won’t recover from its Rogue State. NATO found its glue. Finland and Sweden
> joined NATO. Brings the Alliance right to the Russian Border. The Germans are
> going to send Leopard Tanks. Allow Poland to send their dozen or so Leopards.
> Just as long as the US sends M1 Abrams. It’s what the Ukes wanted. Will it
> make the War unwinnable for Russia? Shorten it? This will hasten Investors’
> thinking about the massive “Marshall Plan” that will rebuild Ukraine.
> Another huge demand component for materials. Buy Canada.

Quite a bit is about to change. Hug a moose.

About the picture: “Best financial blog around!” writes Dan. “I work in Capital
Markets, so I have an idea. :-D This is Felix. He is 2 years old and was
fostered to keep company to our other cat, Zorro. He likes books, treats and
chasing squirrels. People say that he is a bit silly, but I do not think so.”

210 Comments

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 * GARTH’S RECENT POSTINGS
   
   * Suck it up
   * Buy Canada
   * Not yet
   * Flawed choices
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   * Slicing and dicing
   * Dr. Garth (AI version)
   * Chatageddon
   * The mash
   * Calling the bottom?
   * The ceiling below
   * When buyers rule
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Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate

Copyright © 2008-2023 Garth Turner. All Rights Reserved.

The views expressed are those of the author, Garth Turner, a Raymond James
Financial Advisor, and not necessarily those of Raymond James Ltd. It is
provided as a general source of information only and should not be considered to
be personal investment advice or a solicitation to buy or sell securities.
Investors considering any investment should consult with their Investment
Advisor to ensure that it is suitable for the investor's circumstances and risk
tolerance before making any investment decision. The information contained in
this blog was obtained from sources believed to be reliable, however, we cannot
represent that it is accurate or complete. Raymond James Ltd. is a member of the
Canadian Investor Protection Fund.

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