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, September 11th, 2024
The fall season is officially upon us and with it comes an influx of properties that have been withheld from the market until people are situated for the school year. While there have been a few sales of single family properties which have sat on the market for most of the summer, the more interesting kernel has been the overall level of optimism from industry participants (and their clients) about near-term prospects. This sentiment views the dropping interest rate environment as positive for property prices and is preparing participants for this eventuality. We will watch closely to see if the pace of sales accelerates to an extent that will fuel the return to a “seller’s market” in single family homes, condos, or both.
The Bank of Canada did reduce rates by a further 25 basis points a week ago, marking their third consecutive cut. Expectations of further cuts continue to be priced in at an intensifying rate – lower and faster – to stem a deteriorating economy and weak private sector job growth. Conditions in the US are similar but not quite as pronounced, yet their slower start on the rate cutting cycle may require them to play “catch-up” by reducing rates by more than merely 25 basis points at a time. Futures markets are pricing in nearly 50% odds of a “jumbo” rate cut (50 bps) either at next week’s meeting or the November meeting just after the presidential election.
Bond yields are still trending lower taking into account all of the above. This is giving bond investors a positive return on their investments and encouraging more “hot money” (investment funds that actively change tack quickly) to flood into bonds – driving yields even lower. One thing to consider in this environment is that as bond prices rise and yields fall, the profit potential of the trade diminishes. This could encourage liquidations of their positions so funds can be moved to asset markets that have better yields and more profit potential. To a large extent, central banks follow interest rate markets, rather than lead. This is why there is a paragraph in these updates dedicated to the market rates for government bonds.
We discussed the potential for aftershocks to the August 5th market meltdown and that materialized last week which saw most indexes experience 5% drawdowns. As of this writing, however, they are recovering once again, this time rallying around weak US inflation readings that will facilitate increasing liquidity from central banks.
Oil prices have finally broken out of the rangebound trading it’s been in for much of the past two years. The break was lower, catching many off-guard. The cause of the weakness in prices is attributed to weak data coming out of China (also a harbinger of global growth). The response to lower prices is usually industry cutting supply, which will likely keep prices from dropping further. But most interesting is the impact lower fuel prices will have on the inflation picture should they persist. Bitcoin prices remain in the sideways to down trend it’s been in since setting all-time highs six months ago, as catalysts for higher prices remain elusive. Yet steady demand exists to keep prices from collapsing completely. As long as support continues to hold, this “distribution” from old to new owners often sets up for bull markets. Similarly, gold is hovering near all-time highs and industry consolidation among mining companies accelerates.
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.