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March 10, 2019 | Sprouts

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.

When is bad news almost, well, good news?

When you’re a realtor, of course. Actually at Realtor U everybody takes a course on Voodoo Faux Populist & Mythical Economic Theorum which is easily summed up: trees, not forests. Clients see what they want to see. The rest is just background noise.

For example, the economy’s slowing. GDP growth is flatter than a rat on the 401. There might even be a made-in-maple recession out there. But that’s noise. What actually matters to clients is that mortgage rates are going down, as the Bank of Canada gets skittish again. Combine sub-3% mortgages with lower prices and rutting season and, voila, you get a juiced spring market.

Only a few weeks after telling everyone rates would likely rise a few times in 2019, the central bank has changed its tune drastically. The most recent crappy economic stats, showing little or no growth for the last nine months, sealed the deal. Despite great jobs numbers reported Friday, Ottawa’s going into turtle mode, worried about oil, politics and trade.

Markets have gone from pricing in at least two rate jumps this year to… none. Here is a Scotiabank chart on overnight swaps predicting the BoC benchmark rate (now at 1.75%). No movement for about a year, and then come cuts.


And remember that bond chart published here last week? Stunning. The 2.5% yield on Government 5-year debt has crashed down to the 1.6% range. In the bond world that’s Kardashian. It sets the scene for lower fixed-rate mortgages and suggests if the economic data stays swampy, a central bank cut’s not out of the question.

Anything can happen, of course. And remember that this blog is only to be taken seriously when it comes to canines and sexual innuendo. But here are some predictions:

First, as stated, no central bank increase any time soon. Maybe one in late 2019, around October. But probably none.

The prime rate at the big banks is unlikely to move, but the same cannot be said about five-year home loans. Already HSBC (as mentioned last week) has gone Kim Jung Un with a 2.99% mortgage, setting the bar for the Big Five. Currently their fivers are down to 3.5% or less, and discounts of up to half a point are probably just a few weeks away.

Mr. Bond Market is strongly suggesting the bankers cut now, but with weaker-than-wanted earnings on Bay Street lately, there’s no appetite to take the hit sooner than needed. Looks like the mortgage war will be in full swing in about a month.

And what about VRMs? Variable-rate mortgages have been shunned more by borrowers as fixed-rate loans get cheaper, Meanwhile the difference in cost between the two narrows. But remember that history has always favoured going short and if the economy continues to puddle, leading to even a modest rate cut, VRMs will win.

So, trees not the forest. Realtors are counting on (a) cheaper rates encouraging more borrowing and bigger loan amounts; (b) a perception prices are lower than they were two years ago (largely true) creating house lust you can justify to your spouse – the best kind, (c) a federal budget on March 19th bringing back insured 30-year mortgages and an enhanced homebuyer tax credit, and (d) spring. Sprouts. Shoots. Happiness. Hormones.

Immaterial may be the fact economic risks have increased, the jobs machine could slow dramatically, China hates us, families are steeped in debt, the government is wounded, the business cycle is old and we may be going into the mother of all American presidential elections.

Thus, bad news is good news. At least in the short-term, and especially if you survive on commission. House prices may well be higher by September than they are now. If you’ve been waiting for a exit door, here she be.

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March 10th, 2019

Posted In: The Greater Fool

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