If you’re a real estate owner or investor in some distress, I’m afraid there’s little about the election that will give you immediate relief.
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 21st, 2024
Activity in the single family market in North Van has ticked up in past weeks, although you may need a microscope to see it. Homes in the entry level category, particularly, are finding bids. Sale prices are now starting to come in consistently >5% below current list price, oftentimes 10-15% below the original (early summer) list price. Additionally, sale prices are now coming in below tax assessed value (of July, 2023), depending of course on the state of alterations. We’ve been expecting (here, for example) capitulation from motivated sellers who are among the 300+ active homes on the market. This trend may accelerate into year end, making it a rare opportunity for move-up buyers to grab a piece of the shrinking single-family market for relatively affordable prices.
This week we are told to expect a “jumbo” rate cut in Canada after inflation fell below the target of 2%, clocking in at 1.6%. This will affect variable rates most as fixed rates have already come down enough to price in this cut, as well as the next few we are expecting. The reality that fixed rates might not come down much below 4% is starting to sink in. What would be needed to get rates even lower would be inflation data that goes further below the target rate for multiple months and/or disastrous employment and economic growth numbers in both the US and Canada. Remember, Canada cannot operate its monetary policy completely independent of the US. Should rates here fall much faster and farther than in the US, the Canadian Dollar will be punished accordingly. The scenario of this happening out of necessity (because our economy is underperforming so much), is nothing to be too excited about. So if we see 5 year mortgages at 3.89% early next year, let’s not be too greedy, capiche?
As of this writing, the BC election result is undetermined. Recounts will take another few days in key ridings to determine the winner. This much is clear: whatever the outcome, the situation in the legislature will be tentative at best. Passing legislation will be difficult with such a slim majority for the Conservatives or for an NDP which requires the Greens’ cooperation. The likelihood is high that we return to the polls again within a year, if not sooner. How this relates to housing is multifold, but also probably overstated. Some would have been hoping for a strong Conservative majority to improve the investment environment around rentals by stripping back many of the recent changes in the Residential Tenancy Act which had flipped the rules heavily in favour of tenants. This was implied, however, as it was not part of their platform. Others were hoping continuity in NDP rule would give a mandate to continue with some of the supply initiatives they were promising. I might write more about this once final results are known. If you’re a real estate owner or investor in some distress, I’m afraid there’s little about the election that will give you immediate relief.
US and Canadian government bond yields have been drifting higher since mid September, keeping a lid on the enthusiasm for cheap money. Stubbornly good economic data in the US is partly to blame.
Another reason for the stickiness in bonds is the continued excellent performance of the stock market, as the broad indexes continue to make new highs. US banks have reported better than expected earnings which underpins confidence in speculations on the broad economy and tech stocks, which we are watching closely for “re-rotation” to power markets even higher. Why do stock markets matter for real estate observers? First, they are telling us an important message about the future expected growth of the economy. Second, their performance is something watched by policymakers when setting interest rates and fiscal policy. Lastly, people will often move money from one asset to another, so money can begin to overflow from stock markets into real estate if relative value appears too good. It would not be prudent to have too bearish an opinion on real estate while the stock market is sending such conflicting messages.
Meanwhile, gold has been hitting new highs above $2700. While tagging along somewhat, gold stocks are still underperforming, as they sit below prices traded for in 2021 when gold was merely at $2100 and even further below 2011 stock prices when gold was at $1900. It’s an icky business with risks all over the place, however. That’s one reason why some investors are preferring bitcoin as their hedge against debasement of the currency. It has just broken out of its 7 month consolidation and is poised to make a move beyond the $74,000 all-time high – so long as traders don’t get too giddy and overleveraged.
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.