It’s hard to believe we are already halfway through August. Summer is flying by!
My wife is already talking and planning for back to school.
I told her to cool her jets on that…
It’s like I have PTSD from my own back-to-school days… I wanted to squeeze every day out of the summer… I didn’t start thinking about back to school until the night before.
We’ve had a jam-packed Summer, already.
A family vacation, a weekend getaway, a few day trips, several get-togethers with family and friends, and lots of swimming and soccer with the kids.
Things at work have been quite busy as well.
Almost too busy… it’s difficult to keep up at times.
By no means am I complaining, but it has been a pleasant surprise.
Going into the Summer I expected to have some downtime. And my intent was to make the most of that downtime by getting started on some initiatives that I want to implement in the Fall.
Well, I haven’t been able to get to any of those initiatives yet, so August better slow the heck down, lol.
Part of the reason I expected a slower Summer is because I didn’t expect to see much of an uptick in activity in the real estate market over the Summer.
And I think I was right about that.
I was initially thinking that we would be in for a busy Fall if interest rates started dropping… which they have!
But I’m beginning to think that might not be the case.
It’s safe to say that the two most recent rate cuts by the bank of Canada, have had very little impact the price of Canadian Real Estate.
In fact, the Toronto Regional Real Estate Board (TRREB) data shows that home prices actually slipped lower in July.
And the number of listings increased.
Isn’t this counter intuitive? Home prices shot up during the pandemic era rate cutting cycle… shouldn’t they do the same again?
Okay, maybe two 25 bps rate cuts isn’t enough… but surely another 50 bps drop this year (which is almost a lock in my opinion), will cause housing prices to increase.
I’m not so sure about that.
In my opinion, the difference between this rate cutting cycle and the previous one, is that during the previous cycle, the decision makers were very reactionary.
They acted fast and swift to cut rates, without really knowing what was ahead of them.
Their thought process was that it was better to cut rates too much, too fast and be wrong, than too little, too late.
And that’s exactly what happened. Aggressive rate cuts at a time when most of the population fared better finically, than initially predicted.
This time around it’s a bit different.
The policy makers have been very meticulous about this rate cutting cycle.
They are very calculated about when and how much they are cutting rates.
This time they are cutting rates knowing full well what’s ahead…
And what’s ahead is not great.
What’s ahead is likely unemployment and lack of affordability.
I’ve posted this chart before, but I think it’s appropriate to post again.
What this chart shows us, is that typically, after a first interest rate cut, mortgage delinquencies go up.
History has a way of repeating itself.
The Office of the Superintendent of Bankruptcy (OSB) filings show that consumer insolvencies just had one of the biggest June’s on record.
What’s even more concerning, is that this comes at a time when things are still supposedly good with the economy.
The politicians are out there telling everybody that will listen that we are leading the G7 in growth, and soon we will be the envy of our economic peers.
If insolvencies are up this much during “good times,” what’s going to happen when the economy isn’t doing so great?
Again, policy makers are cutting rates for a reason… because they see the cracks forming in the economy…
There’s usually a lag between the movement of interest rates and its impact on the economy.
The impact of the interest rate hiking cycle over the last few years, is just now starting to show itself.
And the impact of rate cuts, will take some time before they have any real notable impact.
So, circling back to housing prices… I don’t believe the formula is as simple as “rates go down, prices go up, and vice versa.”
These things take time.
I remain steadfast in my belief that Canadian real estate will increase in value in the long term.
But in the next 12-18 months… I’m not nearly as optimistic… we shall see.
Until next time,
Vince
P.S. There’s still a lot of Summer left… so make the most of it!
