Forever and Never

In this business the only thing that stays the same is everything changes. I guess a lot of industries are like that, but it seems the mortgage and real estate world is so susceptible to ebbs and flows, it changes almost daily. Rates, prices, rules, regulations, licensing – you name it, and the only thing I know is that we nothing nothing.

Recently I have heard a lot of talk about things that will ‘ never’ happen, and things that haven’t happened in ‘ forever’. A word of warning – As I have long said in this business – Forever and Never are about 2 years.

Back in the fall of 2021 when everyone was blowing their brains out on overbid purchases, refinancing to the max, and the talks of negative interest rates was everywhere, I was slowly selling off my real estate portfolio. As Warren Buffett would say ” sell what others are buying, and buy what others are selling”. I had several posts, made several comments, and was basically called crazy for the mere suggestion that real estate prices could drop, interest rates could go up – and higher than you think, and housing could all of a sudden become a risk off asset. While it never actually happened, I am convinced their was an intervention planned to sit down, and show me the error of my ways. After all, housing was in short supply, immigration would ensure there would be demand, and of course, if interest rates went up the whole entire system would collapse. So, everyone KNEW beyond a doubt that the gravy train would continue.

Magically – here we are 2 short years later, and real estate has almost become a 4 letter word. Interest rates have shot up ( much higher than I even thought they would ), purchase contracts are falling apart, supply is far from short, and in fact a buyers market has appeared in almost every market except for Calgary, and the entire system that revolved around low rates is starting to unravel.

Car loans, student loans, mortgages, pre cons, the list goes on and on of things that were built around cheap money. While savers got screwed, speculators were rewarded handsomely – until they weren’t. High rates have been the pin in the helium filled bubble of the last 3 to 4 years, and unfortunately, the pin was more like a bazooka, and blew a gaping hole in the entire financial section of peoples lives.

But all is not lost. While now everyone KNOWS higher for longer, the BOC won’t cut quickly, etc. etc. I am beginning to feel like we have topped for this cycle. I still believe that 5 year Canadian bond yields have topped back at the October highs of around 4.45%. I think that housing will continue to drift lower, but is in the process of trying to find a bottom. That could take 3 months, that could take a year – it is a process not an event, but it is starting to try and find where it should be. Price discovery is happening every day that is allowing some of the scars to heal. Inflation will probably remain higher than people think or would like, but I think it won’t stop the BOC from cutting rates. Lower rates will help people, but not enough to fix the damage. The only way to fix the damage is to write off the debt, pay it down, or watch the asset price climb to help offset it. I think writing off the debt is what will most likely be the preferred method.

We are starting to see bankruptcies climb, we are starting to see arrears in mortgage build. Power of Sale listings( foreclosure for my American friends ) are starting to tick higher by the week. Auto loan delinquencies are higher than ever – and that includes the mess of 2008. The number of people that think the housing market will drop further is at a high, and that is typically a contrarian signal.

What I am getting at here, is that through all this carnage is what will reveal the next upswing. We need problems, we need write offs, we need power of sales ,and we need people to go bankrupt. This is capitalism, and this is how it works. Lenders need to have write offs, charge offs, and loan loss provision charges to keep them honest and sensible in the next bull run. They will get worse before they get better for sure, but the fact the issues are showing up is a positive. It means we can start to heal.

While I do not think Canadian housing will achieve take off speed next year, the bottoming process is an important part of the healing, and we are starting to see the early innings of that. Make no mistake – we are not out of the woods, and there is still 8 inning to play, but you have to start something before you finish it.

Bottom line – be careful what you say and how you word it to your clients. Don’t use words like forever and never, or you will forever be the fool. A lot of things can change in a 24 month time span, and I think the landscape will look dramatically different in the last half of 2025 then it does now. Smart brokers will be working with their pre approved clients to help ensure they are ready when a deal comes along. Smart brokers will help identify client needs, and ensure they work along the client to achieve the stated objective. Smart brokers will help manage expectations, cashflow, and outcomes to ensure their client wins the long game. Jeff Gordon once stated that you don’t win a NASCAR race on lap 1, and I think we need to ensure that we are positioned correctly, but realize that there are a lot of laps ahead. Smart brokers know this.

Brokers that aren’t that smart? Well, they will NEVER get the job done, and will FOREVER regret getting a mortgage agents license.