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June 19, 2017 | It’s Out There

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.


Last Monday it was the second-fiddle at the Bank of Canada suggesting higher rates may soon come to the land of delusional, debt-snorfling beavers. This Monday was the Fed’s turn. Just a week after the last US rate hike, a senior dude says ending the tightening cycle now would hurt the economy. So up went the American dollar along with expectations for another increase this year – number four within 12 months.

And last Tuesday we got this from Stephen Poloz himself: “The interest rate cuts we put in place in 2015 have largely done their work. So that’s very reassuring, we’re encouraged by the data.” What’s he referring to include great job creation numbers (the best in four years) and a jump in economic growth (highest in the G7).

See a pattern emerging? The days of a 0.5% central bank rate – absurd by historic standards – are nearing an end. The first Canadian hike in years is now expected on October 25th, although it might occur as early as September 6th. Coming, though, it is.

Yes, it’ll only be a quarter point. But it will mark the death of deflation, and cement what we already see taking place – the long process of normalization of the real estate market. Home equity lines of credit ($200 billion of them) will suddenly cost more to carry since they’re almost all demand loans. Also rising will be credit card costs and, of course, variable-rate mortgages. This alone won’t impact on inflated housing values, however add in new taxes on Chinese dudes, big rent controls, a CRA housing crackdown, Home Capital and a lending chill at the big banks and it’s a formula for change.

Many people, like Christina, think it’s already here. Even in Van.

“I have doubted you,” she says, “not gonna lie. I have. I have seen Vancouver prices just keep going up, and up still selling over asking.. while Toronto goes down and people backing out of deals.

“I will now say, you were right. I have a friend who has listed her house in New Westminster, the house has been listed just shy of 2 weeks. I sent her a text tonight to see if the house sold (it is beautiful and updated)… it hasn’t. It’s a beautiful house… she said that we should come by to see it…. but we politely declined as a mortgage of that amount  (even with 2 incomes equaling way over $200k) scares the shit out of us, so why torture ourselves with a house we can’t afford.

“She said that they had multiple offers on offer night, but low and behold with each of the offers they had accepted, the night conditions were to be removed, BOTH buyers backed out. The third one was supposed to close tonight, and the buyer didn’t have any financing put into place … at all. 8pm, on the night conditions were to be lifted, that’s not good news. That is 3 collapsed deals in under 2 weeks.

“Think people are starting to use their brains and realize a mill for a meh house it too much? I hope.”

Check the archives (I think we have some…). This pathetic blog started channeling failed, fractured and futzed deals back in April, even as the media was trumpeting the latest realtor news about historic price gains and sizzling markets. The harbingers of change are always on the street, not in the headlines, and they’ve been in evidence now for months. Empty open houses. Conditional deals. No bidding wars and no more need to staple a $100,000 certified cheque to your offer. Buyers control hoods where they were humiliated last winter.

It will take some time for prices to moderate in any meaningful way, as 10,000 new listings pour into southern Ontario every seven days from owners trying to cash in on peak house. They’ll need 60 or 90 days of crickets before they give up and relist at a reduced price – coming within weeks of that pivotal Bank of Canada move.

If you doubt me, as Christina once did, that’s cool. But it won’t change things. “Recent events, particularly the noticeable change in the Bank of Canada’s tone, have reinforced our belief that a gradual rise in rates should begin shortly,” wrote economists at Desjardins a few days ago. They agree an October pop is likely, but it could come next month. CIBC now says the Bank of Canada will up the cost of money by the end of the year. Says the founder of Ratehub: “Rates might go up much faster than anyone is expecting…”

Now you know.

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June 19th, 2017

Posted In: The Greater Fool

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