…the large number of sellers on the sidelines waiting for better borrowing conditions before listing might be caught off guard, forcing them to either hang on longer than they expected or list at a lower price before the slowdown at year end.
The Two Minute Market Update is intended to keep readers apprised of what’s going on in local real estate markets and in the global financial markets that affect real estate via inflation, interest rates, capital flows and public policy. It is best suited for those not able to keep up with all the news every day, but still wanting to be informed.
Two Minute Market Update, October 7th, 2024
The expected pickup in sales activity post-summer continues to disappoint, as September’s stats revealed plainly by the real estate board last week. Inventory continues to build, sales are trending lower and with them prices are softening – albeit modestly. These conditions risk further deterioration unless buyers begin to take advantage of recent mortgage rule changes and lower interest rates to scoop up properties.
One of the major risk factors I identified in my annual report was the potential that interest rates do not fall as far or as fast as most market participants expect. We’ve kept an eye on the futures market for rates, which are effectively betting markets, but which give us an idea of “what the market knows”. Up until last week, those markets were increasingly piling into bets that both the Fed and the BoC would be accelerating their rate cutting and the low water mark for the cutting cycle was moving lower and lower. This flipped on a dime last week when US employment data came in far stronger than expected, highlighting the risks we were speaking about. This may prove to be a blip in the greater scheme of things, if future data shows weakness, and/or these strong numbers are revised lower (as happens frequently).
On the back of that employment data, Canadian 5 year government bond rates have increased nearly 40 basis points from their lows, forcing the markets to reevaluate the likelihood of a “jumbo” rate cut in 2024, and thus how quickly rates march to the terminal 2.5% (if they get that far). Desjardins released an interesting research paper last week with an opinion that fixed mortgage rates are already near their low point, as they’ve already priced in most of the expected rate cuts. Should this be proven correct, the large number of sellers on the sidelines waiting for better borrowing conditions before listing might be caught off guard, forcing them to either hang on longer than they expected or list at a lower price before the slowdown at year end. You can trust that I’ll be watching this closely.
Equity markets continue to sit at or near their all-time highs, except with volatility now elevated as broader war in the Middle East is considered increasingly likely and the US Presidential Election approaches with implications for trade, budgets and civil strife. Volatility tends to moderate from levels like these, and the path of stock prices is usually higher as it does so.
Oil took the cue from the escalations by both Israel and Iran to pop back into the trading range is has occupied for the last few years, and with it removed the drag on inflation that was starting to be expected. Gold remains near it’s all-time high, trading more like a liquidity hedge than a “flight-to-safety” asset. Bitcoin remains in its consolidation that began in March, showing signs of attempting a seasonal breakout to the upside.
Matthew Stiles
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Disclaimer: The information provided in this column is for general informational purposes only and does not constitute financial, investment, or other professional advice. While I strive to provide accurate and up-to-date information, I make no warranties or representations as to its accuracy, completeness, or reliability. Any actions taken based on this information are at your own risk. Always consult with a qualified financial advisor before making any investment decisions.