Settle Down, Won’t Ya?

As expected we saw Uncle Tiff cut rates by this morning. Of course a growing number of realtors had thought 50 bps was coming, but 25 was always the consensus. I am sure the dancing will continue on social media now though.

I am not sure exactly why people are elated by the news today. It puzzles me. When Uncle Tiff cut in June, and Uncle Tiff cut in July, all it did was flood the market with overpriced listings. Sales plummeted off of a cliff. Why would we expect this time to be any different? I ask this with all seriousness. Why do we think the 3rd rate cut will be the one that magically lubes up the housing market? Sellers are still stubbornly high on their listing prices, and buyers are stubbornly low on their offering prices. How much closer does today’s announcement bring them? Maybe 10 grand? Maybe 20K? Certainly not enough to close the gap on the difference between offer price and listing price.

Ah, but people will tell me that the 5 year bond yield dropped this morning so all is good. News Flash – the bond yield was dropping for a while because the economic news is getting worse. Yesterday saw a very large equity market sell off with a lot of blue chip stocks down 5% to 10%. BLUE CHIP stocks!!! Hell even the US yields were down by a lot in the last couple of days, and I promise you it isn’t because the US markets care about Uncle Tiff. When shit like that happens, bonds catch a bid, and yields drop. Remember that if people are buying bonds because they are scared it increases the price, and lowers the yield. Canada 5’s are down 5 bps today ( at 11:05 EST anyways ) . Hardly enough to jump for joy over. In fact, Canada 5’s have dropped around 50 bps since Tiff and Co. started cutting the overnight rate. 75 bps off of the overnight rate, and only 50 off of the Canada 5’s.

We are entering a dangerous time in the calendar for financials. September and October have the tendency to be a mine field for stocks, the economy, jobs numbers, etc. A lot of the worst financial disasters happened in September and October. Summer holidays are over, traders are back from the Hamptons, the senior trading staff is back in full swing, and everyone has an eye to year end performance and year end bonuses. If you manage a lot of money, chances are you have had a good year in the market, and as such, your year end bonus is looking good. No chance risking it when you have done a great job, so you start to sell a lot of holdings to sit on cash. Lower prices scare people, other people start to sell, and round and round we go. Words like ‘panic’ start to get used. Bonds catch a bid. This is all normal, cyclical type stuff. Yes, bond yields tend to fall in September and October, but it isn’t because Tiff and Co. or the Fed are cutting rates. It is simply a function of a normal, healthy financial market.

Sure, the BOC will likely continue to cut overnight rates later into 2024, but not because things are good. House prices still have a ways to fall to become affordable. Sellers will have to get this through their head. They cannot sell the house for the 2021 sales price with 2024 interest rates, and a 2024 economy. This will take time to get through to people. Power of sales will start to really hit the market in the next 60 to 90 days. Economic numbers and employment numbers will get worse in the coming months. Now, please don’t get me wrong – this is all good. It is good because we need it to happen so the system can heal. Economics is a cycle, and we need to let nature heal itself from bat shit crazy house house prices. We need to let people fail, and claim bankruptcy, and learn their lesson and start over. We need condo developers and speculators in downtown Toronto to go belly up. We need banks to eat losses by the billions on their books. We need realistic pricing back to the housing market that is based on a house being a home, and not an investment vehicle. We need realtors and mortgage brokers to drop out by the hundreds – lets face it, the majority who entered the industry in the last few years were chasing commissions, and weren’t really looking out for their clients. This will allow the people who really care, and really have a passion for helping people to thrive.

It always gets worse before it gets better – there is never any other way. I am excited to see it get worse, because it means we are that much closer to it getting better and healing. Quite often when you break your nose, and go to the hospital, they have to break it again to get it where it can heal. The market is currently breaking the nose of the housing market to set it in a place where it can heal and function.

While I have zero doubt in my mind the social feeds will be full of mortgage brokers and realtors jumping for joy, I think it is a great time to play the hurry up to wait game. If you have clients who are looking to buy a home, now is a great time to get out into the market and look. Look at what you can get for your price point. Look at what comps sell for, re evaluate every 2 weeks, and see what has changed. Clients will find that what the initially could afford will probably stay the same, but the house they can purchase will be a lot nicer in the coming months. Don’t rush into things, but sit back and let the market come to the client. I think you will find in 6 months or so the property they can purchase will be leagues ahead of what they can buy today for the same price. But the best reason to do this is that the client will then have had months of looking, comparing, budgeting, preparing, and will be confident when they do find the home for them. They won’t feel rushed, they won’t feel pressured, and they will feel like they are working with a mortgage professional that truly cares about their success. That will pay better dividends than anything we can do for our clients.

Sure, today it is all rate hype, and tomorrow is probably more of the same. But if you can help your client steer and navigate all of the noise, the selling pressure, and the bad news, you will have found a client for life. The alternative is to be wound tighter than a fucking clock and it really just adds stress all around. Settle down, mellow out, and start helping your clients get where they want to go in life!!