With more rate hikes likely to come, has the housing bust finally begun? I’ve seen one pundit call this the equivalent of crossing the event horizon.
The association noted that sales slid as well, with 8,214 residential homes exchanging hands last month, down approximately 35 per cent from last May and eight per cent from April.
“Canadian mortgage rates continue to climb,” said BCREA chief economist Brendon Ogmundson in a press release accompanying the data. “The average five-year fixed mortgage rate reached 4.49 per cent in June. That is the highest mortgage rates have been since 2009.”
When I bought my first home in 1990 in Calgary, we assumed a mortgage at 11.5% and took out a second at 13.25%, if my memory is still working.
The big difference, of course, was that even with just $7,500 down, we were still only borrowing about $82,000…. not $820,000 that many probably need today.
It is time to invest in mobile homes, trailers, RVs. That is where people are going to live now that housing is no long affordable to buy or even rent.
I hope our governing clowns understand that when hard-working, but now, homeless folks realize that the game is so stacked against them that they have absolutely nothing to lose, will do what comes naturally… ‘sack Rome’.
J6 was a party … I’m talking about total societal collapse. When those workers who keep things running see no point in working for nothing to get nowhere … guess what happens …. third world living happens complete with all the violence and crime possible. We can see it already.
I think that they are hoping for total societal collapse. We are thinking that they care. They don’t. The SJWs have their heads on the levers of power and they want to bring down the patriarchy and this oppressive system and that’s exactly what they are doing. Sad, really just sad.
The Soviet Revolution is a reminder that the elites are not immune to being dragged out of their mansions and getting lynched.
Once the Revolutionary Governments are established, where will those fools hide? Nuclear Powers like the US will hunt them down with carrier battlegroups if need be. Heck, Stalin had Trotsky offed in Mexico City!
After the Revolution, the WEF jetset won’t have any friends anywhere on the planet. At least not any friends who wouldn’t hand bunches of them over to our redistributive justice committees in exchange for a future trade deal.
SJWs are simply tools, useful idiots as Ivan Illych referred to them. Once they discover that their “causes” don’t mean s#!t to the elites in power they will be eliminated. That is one saving grace in the future.
What I don’t understand is the US Fed has increased the money supply by over 1/3 in 2 years which devalued the dollar (relative to goods and services, not other currencies which pulled the same trick) and led to massive inflation … so it raises interest rates to cool the economy? Why not just stop printing money and leave interest rates alone?
I imagine that if you stopped printing money (lowering supply), but didn’t increase interest rates (not decreasing demand) retail interest rates would go up do to a restricted supply and no change in demand.
In my brain there is no “lowering supply” but a limit on supply. This should work against inflation. Raising interest rates adds to house inflation because it makes renting / mortgages more expensive. If you wanted to cool the housing market you would increase borrowing requirements. Instead they continue to increase the money supply and intend to slow the market through higher interest rates, leaving the low hurdle to get into the housing market. Seems like a recipe for disaster.
“Seems like a recipe for disaster.”
Now you’re getting it. This is not incompetence, it is malice and greed.
There’s a critical housing shortage in the US … so making housing more unaffordable with higher interest rates will make it worse … then the government will have to hand MORE free money to assist the 44 Million illegals find housing … and … the tent cities will expand.
BTW having JUST driven from SF to LA … the tent cities are already increasing … and The North Face must be making MORE $$$ than ever in their history as the government and NGO’s purchase brand new tents for the homeless. Seriously … all of the tents on the streets of San Francisco and under every overpass are brand freaking new!! Brightly colored tents everywhere.
With a critical housing crisis … housing prices will NOT crater … despite increasing the unaffordability of housing
Printing of money, and dumping it into the economy has been going on for much longer than just the last 2 years.
https://tradingeconomics.com/canada/money-supply-m1
We’ve gone from $200 billion in 2000, to $1.6 trillion today, but according to the bank of canada inflation calculator, the comparative value of $100 has only risen to $158.52. I doubt you’d be able to claim that the rest of the economy has grown by 741% in the last 22 years to account for the rest of the expansion.
The other issue, is the regulatory hostility towards cheap energy, which means more money is chasing more expensive energy, and there is no short term fix for that.
Getting out of this, it begs the question will it be a 1980s style recession, or what should have happened in 2008 when the subprime market rightly imploded, and now the government doesn’t have the same space to play bailout.
Because inflation was the point of the exercise. They are inflating their way out of debt.
Owing a million Canadian dollars in 1962 was a big deal. That would buy you a whole apartment building, maybe more. A million Canadian dollars in 2022 is a single house. Just wind it forward a bit and you get Zimbabwe, where a million dollars is a loaf of bread.
Get it? They’re just stealing your money.
^1,000
This is the crux of the matter.
Yep. Everybody laughed when Trudeau said the budget will balance itself, but he wasn’t kidding.
“They are inflating their way out of debt”
No they are not. They are digger deeper holes. The debt continues to get bigger and bigger.
The way out of debt is to pay it back or default. Neither has happened.
You can run the series by writing yourself $1, $10 and $100 IOUs. A $1000 IOU dwarfs the original $1 debt but the new total still has to be paid back in full to be out out debt. Until there is no deficit and meaningful repayments are made, which is not happening the contrary is, inflation does not reduce the debt load until we stop borrowing more.
The increase in the money supply is through lending.
Consider interest rates as rent. You rent someone’s money, and you pay back the money and a rental fee.
If you have an asset that can only be rented if you price it below cost, the asset isn’t worth what you think it is.
Inflation is not rising prices. It is the value of the asset decreasing. You need more of those pieces of paper than you did 6 months ago to exchange for the same item.
Central banks have convinced us over the last few decades that money isn’t worth anything because you can rent it for very little. Eventually it sinks in, and this is where we are.
Steve go searching and you will find lots on your question …. I found this in a jiff but there is much much more:
Why does the fed say that they are adjusting the money supply when they change interest rates?
The Fed says it, because they are accurately describing what happens. The Fed doesn’t “change” interest rates by fiat. Instead, it “targets” interest rates. When the Fed makes an announcement about a change in rates, that announcement is about a change in the Fed’s target for interest rates. And how does the Fed change the economy in order to achieve that target? By adjusting the money supply — exactly as it says it does. The fundamental, concrete action that the Fed takes is an Open Market Operation, which alters the quantity of the Monetary Base. The change in interest rates that is later observed is a consequence of this initial change in the money supply.
I’m a bit simple minded Stewart. The Fed increased the money supply and decreased interest rates. Now they are tightening the money supply and increasing interest rates. Why could they not limit the increase, not drop interest rates to zero, and not have to tighten and raise rates later? It’s like they’re driving a car that has a time-lag on the controls of 2 years. It steers right into the ditch every time.
It is not just the Fed that has increased the money supply. Banks have been extending credit to everyone and anyone. Every day they send out credit offers for $15 to 50 K credit card offers. Some take up the offers and the banks thereby increase the money supply by billions of dollars.
4.5% for 5 years? Lock in, it will get much, much worse.
I would suggest going for ten, then you have a lot of breathing space if you have secure cash flow.
2% with a $500,000 mortgage is monthly payments of $2120
4.5% with a $500,000 mortgage is monthly payments of $2779 (payment goes up $660 monthly or +31%)
Looked at another way, if you can pay $2120, you should now only borrow $380,000 rather than $500,000 (down 24%)
Other interesting aspect is on renewal in 5 years:
with 2% paying $2120 monthly your mortgage renews with $420,000 principal outstanding
with 4.5% paying $2779 monthly your mortgage renews with $440,000 principal outstanding
= pay more but still owe more
Also, if you had borrowed $500,000 at 2% and it is now renewing after 5 yrs, you have $420,000 owing and even if you extend amort 5 yrs to a new 25 year term, your payment at 4.5% still goes up to $2339 (up $219 a month from $2120); paying more to remain in debt longer This is going to squeeze existing owners at the same time as all of our other bills are climbing.
Excellent points. Most don’t see the consequences of an uptick in rates. If you don’t own a home right now, you just stay out of the market. But if you already own one and your loan comes up for renewal, you now pay more to service a much bigger debt. How many marginal mortgage holders are headed for default in the coming months?
What a wonderful way to move people from being home owners into renters.
The new reality of the great reset. You will own nothing and you will be happy (in your dependency if you comply).
The real problem is that for most Canadians 2700$ is their monthly after tax income. Down east, its even less.
Mike f-ing ridiculous money, this from an old guy who knows w t f is going on.
This article might be a bit miss leading.
Sales are down 35% but how is inventory?
I suspect that low inventory coupled with a more picky buyer (due to recent sentiment shift) are likely dragging the number of sales. Basically there is not a lot of “good” inventory, if there was more inventory the sales numbers would likley only be down 10% or so.
There is zero inventory in most markets. Everybody took their house off the market after the first rate hike, prices have not dropped much, if at all. Waterloo, Hamilton, Toronto, all the same. Almost nothing for sale, bidding war for what is.
This is what happens when you make home builders stop working for two years.
The house I was in for 20 months, new house, small town Ontario sold for 570 hundred thousand, this week. It was built for maybe 325 thousand. The market is not even close to soft. It has to die before young “Canadian” people will be able buy a home. Million dollars mortgages are f*****g stupid and reflect nothing of value, just government induced inflation. Does anyone have a functioning brain these days?
Cracker
You are wrong, and I know that for a fact.
Somebody wake me when the -price- of a house goes back to 2019 levels. These alarm bells every time the sales rate dips, it’s annoying. “Oh noes, we didn’t make our sales numbers this month!!!!”
Average price of a crappy old house in an unfashionable neighborhood in Toronto/Montreal/Vancouver is well north of a million bucks. Guess who votes Liberal? Home owners in Toronto, Montreal, Vancouver.
Does anyone really think that even the shiny Pony himself is stupid enough to anger his own hard-core voting base by deliberately destroying their only nest-egg? (I do think they are fool enough to do it by accident, even I doubt they’d do it on purpose.)
fantom
George town, one month 18 properties for sale, next month 120 properties for sale. And houses are on the market around here for weeks, and some for over a month now.
Good.
If you can’t handle 7 or 8 percent interest, you are borrowing to much. Low interest punishes savers and rewards spendrhrifts, and rewards ‘I want it all, and I want it now’ behaviour. We are just beginning to see the correction I hope. H
Justin here.
What housing shortage? I talked to my buddy Gerry Butts and he says there’s lots of housing. Canadians will just have to double up; two families per dwelling.
Bunk beds in each room.
The extra bodies in the house will help warm it up, reducing the need for heating.
I don’t think he is that stupid…vindictive yes…..you know he is only doing this so he can do an IOC and charge a Tax on you when you sell your property. A quick side note….a real estate agent was telling me the other day he could get me a bag of money for my home. I asked him where would I go his answer was he had a couple of very low maintenance properties listed, they were only 150K more than what I was told he could get me for my home. I said no I would look into getting an apartment. At $1800.00 mo. for a 1 bedroom apt. decided to stay put.
This is good. Interest rates need to go up a few percent more at least. Housing prices must drop.
Lots of mortgage defaults. Lots of pain.
Discretionary spending is gonna get a good squeeze. Restaurants. Vacations. Entertainment. Vehicles, appliances, computers and TVs.
Need to make a lot of stupid money disappear. And stupid people must bear the pain.
My dad likes to quote John Wayne, “life is tough. But it’s tougher if you’re stupid.”
Harsh but 100% correct. Canadians have lived in fantasyland for a long time now. It’s past time for reality to slap this silly country up side of the head.
The worst part of it is, whatever is on the other side of this coming recession / depression isn’t going to look like the good times. The cost of energy isn’t going to return to what it once was. Material prosperity will go down. And stay down.
Mortgage rates are still ridiculously LOW, from a historical perspective. Prepare for a late 1970s – 1990 interest rate environment… This time is worse though, because the inflation is driven by energy SUPPLY constraints and labour constraints….
Why can’t the government set mortgage rates at 4% and leave them constant. Let everything else vary.
Rural lake house paid off
Cash aside
Been a prepper since 2015
Very handy & self sufficient.
Got 15 cords wood for the winter stacked & drying
Got 225L gas aside
Got booze, tabaco & Cannabis to barter.
Got 9 lbs pickerels in my lake, grouse and moose aplenty in the 1000 acres crown land around me.
Ya’ll have fun in big cities this fall when the world collapses.
They’ll be heading your way for forage … in the hundreds and thousands.
Remember the BLM riots? And that was over one dead guy. Imagine when they are hungry and broke with nothing to lose? And a justice system that won’t touch them.
Prep all you want, but unless your plans include LAVs, you may have a tough time holding onto it.
Rumoring a .75 vrs forecast .5 rate increase at tomorrows fed meeting. Could have a lot of impact. The increases have already been at historically high percentages . What could possibly go wrong?
House prices might come down a little, but no bubble is going to burst. That is what immigration is for. Build 300k houses a year and bring in 400k immigrants looking for a home. Some economic laws always work like supply and demand.
Immigrants are willing to live in tight quarters, so two or three families per house will continue to be the norm for them. Anyone interested in easing the market could easily just halt immigration for a year.
Divorce is the biggest driver for home demand. But no one wants to talk about that. H
I hadn’t thought of that, but yes. One more driver of demand. Although I believe the vast majority of Canadian born youth aren’t getting married anymore
Same effect – two people who might have shared a home will now need two places to live.
Juthtin is bringing in over 400,000 people every year.
That won’t affect housing demand for buyers or renters.
Nope.
The first new house I bought in 1970 had a mortgage rate of 8.25%. In 1979 the house I sold had a mortgage rate of 15% + something percent. Lets get back to that reality and million dollar houses will become 200 thousand dollar houses. The government was, is and continues to be the problem.
Same here, only our interest rate was over 17 percent, late eighties. My nephew recently bought a 35 year old semi in NS and he went 120,000 over asking price. He paid 400,000 for his first home. I can’t imagine spending that kind of money in my early twenties.
The problem is that if million dollar houses become $200,000 houses, the banks that hold all those mortgages will become insolvent. Depositors may awaken one day to find that their savings account has a withdrawal limit on it.
The owners of those houses will find that they are “underwater” as well. In the event of a divorce or some other reason for a forced sale, they will be making mortgage payments for many years on something they no longer own. They will also find that their ability to borrow for other reasons might be severely constrained.
The main problem is central banking, which functions to force down interest rates to unrealistically low levels in order to finance government borrowing at bargain rates.
Some history: Back in 1975, I bought a house for $30,000(New Brunswick) at 10.5% mortgage rate. Five years later, the rate became 13%. I took it in my stride. The 1975 total household income(me and da wife) was $23,000. Sold the house, got another in 1981($80,000 mortgage, forget what the rate was) and became mortgage free ever since 1988 due to making large lump sum payments on the principal. However I certainly would be totally aghast if I had to pay over 5% mortgage rate now.
I live in a mini home park for over 50, without kids. When I first moved in I rented for a year, and the park was half empty and you couldn’t give them away. I bought two years ago and the market went boom, the park is full-he expanded to semis and upscale single homes and they sold before they were built. Word of mouth sold the few units that have come up and then boom, it’s all stalled one is up for sale by owner and not one bite from the public. The market is going to go bust and it’s going to get ugly. Our first home cost 50-000 and the interest rate was almost 20 percent-our taxes and mortgage was around 900 a month. Oh the good ole recession days, can’t wait to apply for a job as a repo woman.
The meltdown has started in the USA. https://www.youtube.com/watch?v=wIMcx-2OKL4&list=PL7vUOWh5dtHN0HL-ckjHLeXfW8vZgo0H8
And will be spilling over soon to Canada.