LACKIE: Real estate market's winding path humbling

[ad_1]

Columnists

Published Jun 17, 2023 • 3 minute read

Some economists are predicting that we’re looking at rates ticking down no sooner than next spring. Now no one is even considering a reduction in 2023. Photo by iStock /GETTY IMAGES

Here we go again.

It’s been less than two weeks since the Bank of Canada’s 0.25% interest rate bump and depending on whom you feel like asking, we are either looking at much ado about nothing — after all, is a quarter of a basis point really such a biggie when we’ve ridden the interest rate tides this far? — or the beginning of the real undoing with economic calamity coming straight for us.

The opinions, as ever, are hot and forceful and while much of what I am hearing sounds not unreasonable even if completely contradictory, I can’t help but wonder how it is that some of us have learned nothing from the last 16 months, let alone the last three years.

For every Twitter thread or Instagram Reel composed by a self-appointed soothsayer who is, in their own mind at least, an expert on economics or real estate or consumer behaviour is a human being still resisting the biggest life lesson forced upon me since the early days of the pandemic: Few among us have a single clue what comes next, at best we are working with educated guesses so perhaps we could all stay humble.

The market was supposed to crash approximately five times since the first lockdown. The various rallies that we have seen in the months and years since were, according to some, myself included in some cases, never supposed to happen. Consumers were supposed to be scared, hiding at home, drowning in indebtedness and insecurity. They were purportedly re-evaluating all of the things, moving out of town, starting small businesses, giving up small businesses. It’s over, it’s really over this time. Except not.

To the real estate bulls, Toronto real estate is a force to be reckoned with, propped up by chronic insufficiency thanks to municipalities choking development all while financialized real estate and record immigration keeps demand strong. Toronto is a beast; can’t stop, won’t stop.

To the real estate bears, the end is nigh. The market is on its ninth life having spent far too long on shaky ground with an economy propped up by government tinkering. The time of reckoning may have been delayed but it’s coming and it will bring pain.

We apologize, but this video has failed to load.

Play Video

What we actually know at this point:

Fixed rates are up. Five-year offerings are now hovering around 6% when just weeks ago some banks were offering five-year fixed with a 4 out front. Those blue skies that seem to have fuelled the spring market got awfully dark awfully quickly.

Showings and offer registrations reacted almost immediately to June rate hike and dropped off precipitously. There were a number of failed offer nights last week, even on great houses that had strong interest. Buyers are clearly nervous.

Sentiment reigns supreme. Structural aspects endure. The two sides of the coin.

“Higher for longer” is the new refrain. Rates as high as they are and sitting there will bring pain, particularly for the overleveraged. There are many who have been hanging on for dear life, waiting for the rates to come down, who are now wondering how they will make it.

Some economists are predicting that we’re looking at rates ticking down no sooner than next spring. Now no one is even considering a reduction in 2023.

Extended amortizations have absorbed a huge amount of the turbulence and have given the appearance of market strength and resilience, but renewals and unemployment will be the curveballs.

My feeling, based on the conversations I am having with clients and colleagues, is that even if prices dip again the move-up buyers who tend to drive the market will be ok, they will just be impatiently wondering where the inventory went. They will come back.

LACKIE: Gap between haves and have-nots widens as gov’t shrugs

LACKIE: Could spring real estate market be the start of a new cycle?

LACKIE: Lifetime mortgages becoming the new normal

Downsizers sitting on a ton of equity will be equally buffered.

The first-time home buyers will have to sit tight or expand into a bigger, more expensive rental that will eat away at more of their savings for down payment but if and when prices ever soften, they may find their moment.

It is the overleveraged and the speculators who will be in the toughest spot in the near term. Needing to sell but needing the market to get more favourable to find an off ramp to cash out and walk away with some actual cash.

The one thing I would bet the proverbial house on is that we are heading into what will prove to be a very quiet summer. What sits on the other side is anyone’s guess.

Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.