My daughter told me the other day that the word “copying” is banned in her school.

As in, “Jimmy is copying me.”

Jimmy isn’t copying her answers on the test, aka cheating, but rather Jimmy is copying her.

“I was doing this exercise where we have to draw what we’re looking forward to on the weekend, and I was drawing my family at a picnic, and then Jimmy saw what I was doing, and he started drawing his family at a picnic too!  He was copying me!”

They’re not allowed to say “copy” or “copying.”

They’re told instead to think, and to say, “Jimmy likes and appreciates my ideas.”

Remember when life was so simple that we didn’t need to regulate every single action, thought, or expression that our children had?

Then again, I’m old.  I’m 43 going on 80.

My father told me that when he was at Camp Ponacka in 1955, he had a disagreement with another boy.  They started to push, then shove, then clench their fists.  Perhaps a punch was thrown, but the counselors soon broke it up.  The boys were told to stop….

….then they were each given a set of boxing gloves and told to continue.

“We beat the snot out of each other,” my Dad told me.  “Then we shook hands and that was the last of it.”

Interesting approach, to say the least.

Was that a better time?

Was that a better way of dealing with things?

Sorry, I was busy shaking my fist at a raincloud, I didn’t hear your answer…

While schools (and much of society…) have tried to do away with winners and losers, I still believe in the concept.

So I would like to remind everybody here that we are awaiting the TRB Interest Rate Prediction Game winner, to whom I believe I promised a $200 gift card to their choice of Starbucks or Tim Horton’s.

However, and this is a big “however,” we need to discuss the tiebreaker because this could get really, really complicated.

Here’s the table of predictions as you’ll recall?

JF007 and Jimbo are eliminated.  Sorry, guys!

The following people got June 5th correct as the date of the first rate cut:

-David Fleming
-Peter
-Marina
-House Keys
-Alex

That’s a big one.  But weren’t we awarding one point to each of the three predictions?

That means the following received a point for predicting the 25 basis points:

-David Fleming
-Adrian
-Ed
-Marina
-Vancouver Keith
-TO Planner
-House Keys
-Mike
-JL
-Alex
-Ace Goodheart
-Addison

But it’s clear that nobody is going 3/3.

David Fleming, House Keys, Marina, and Alex have respectively predicted 125, 175, 100, and 150 basis points will be cut in total in 2024, and it’s clear this isn’t going to happen.  The only one that has a chance here is House Keys, as he or she has 100 basis points as the guess.

I’m doing the math here, and if we see one more rate cut of 25 points, for a total of 50 points, then JL and Anwar receive points.  That gives JL two points, and he joins our list.  If we see either one cut of 50-points or two cuts of twenty-five-points, then Addison and Adrian get a second point as well.

So should there be a tiebreaker?

Personally, I feel like House Keys should be declared the winner since he or she has 2/2 so far, but will also be closest in the third category – with a guess of 100 basis points, compared to 125, 175, and 105 for David Fleming, Marina, and Alex.

However, a deal’s a deal.

I don’t think I can change the rules now, can I?  Or alter them?

I said:

Post your predictions below and you get one point for each correct prediction regarding:

1) Date of first interest rate cut
2) Number of basis points of first interest rate cut
3) Total cumulative basis point cut for 2024

And just for fun, I’ll send the winner a $200 gift card to their choice of Starbucks or Tim Horton’s in December.

Looks like “one point for each correct prediction” stands alone.

So that’s a $200 gift card for everybody, even if it’s a six-way tie.

Geez, am I falling into the “participation ribbon” category now? 🙂

Alright, moving on…

So we had an interest rate cut last week.  Did you hear?

Yeah, even my dog heard.  And she doesn’t have a mortgage; just a line of credit.

But the question on my mind, and the minds of many, is very simple:

Now what?

Very simple, indeed.  Just two words.  But “now what” has so many implications.

Now what for the Bank of Canada and their strategic policy?

Now what for direction of the interest rate environment?

Now what for future interest rate cuts?

Now what for banks?

Now what for the real estate market?

Now what for “affordability” in the housing market?

I took a little bit of heat for my blog post on Thursday.

This was my favourite comment, by far:

I mean, he’s not exactly off base.

The ‘last honest realtor’ quip was poignant and a few people on my team offered some you-know-what-eating grins when I mentioned it.

But that was me trying to be honest.  It was me trying to explain what I’m seeing out there.

Despite high inventory and low sales, we’re not seeing a market implosion.  We’re not seeing prices decline.

Yes, the year-over-year price is down 2.5%.  That was pointed out by a reader and he or she is completely correct.

But the month-over-month prices are rising.  Not only that, 2.5% is hardly worth sounding the alarm over.  So a house purchased for $1,000,000, on average, is now worth $975,000, on average?

That’s not the expected result from all-time-low sales figures up against high inventory.

In any event, what’s done is done, what’s said is said, and it’s the “now what” that I want to explore.

Because, and this might not come as a shock to many of you, I suspect that future rate cuts are only going to cause prices to climb higher.

Just think of where we were at the end of 2023.

Think of what the sentiments were among industry onlookers, prognosticators, and economists alike.

Remember this article:

“Interest Rate Cuts Will Be The Story Of 2024 – What That Means For Mortgages And More”
Financial Post
December 27th, 2023

From the article:

The Bank of Canada overnight rate started 2023 at 4.25 per cent and will finish the year at five per cent, for a rise of 0.75 per cent after a rise of four per cent in 2022. I believe we will see a two per cent decline in rates by the end of 2024, back to an overnight rate of three per cent. The impacts of this decline will be the story of 2024.

This was a HUGE prediction!

And I noted this in my early-2024 blog.

The author further offered his own prediction of a rate cut schedule as follows:

January 24th: no rate change
March 6th: no rate change:
April 10th: 25 bps cut
June 5th: 50 bps cut
July 24th: 50 bps cut
Sept 4th: 25 bps cut
Oct 23rd: 25 bps cut
Dec 11th: 25 bps cut

Looking back, this is absurd!

He predicted six rate cuts?  That’s crazy!

He predicted two hundred basis points in total cuts?  That’s insane!

But we’re in June looking back at December.  We have the benefit of hindsight, and many of us are quick to forget that the expectation for 2024 was a lot more than the 50 basis points we’ll likely see.

About two weeks before the Bank of Canada’s rate cut on June 5th, we saw this article hit the wire:

“CIBC’s Benjamin Tal Was One Of The Few To Correctly Predict The BOC’s Rate Moves This Year. Here’s What He’s Predicting Now”
The Globe & Mail
May 16th

Mr. Tal predicted 100 basis points of cuts this year, and further predicted 200-225 basis points will be cut by the end of 2025.

We could keep going.

We could keep finding articles with well-known economists talking about all the wonderful interest cuts that are on the horizon.

But the question becomes:

How are borrowers going to price in these impending rate cuts?

How will they respond?

There are many reasons why people borrow money, but for our purposes, we want to know how home-buyers are going to act now that the first rate cut is underway.

I’ve long maintained, “Smart money buys ahead of the rate cuts.”

Of course, if they have the advantage of buying in cash then the current interest rate environment doesn’t matter.

But who among us does not believe that prices will rise after cumulative cuts of two hundred basis points or more?  So if we were to take it as a given, which many of us are, then wouldn’t that inspire and motivate any on-the-fence home-buyers to become active?

If you consider the metric “anticipated inflation,” which refers not to the actual increase in prices in the economy but rather the increase that consumers expect to see over a given time period, then we could almost create the same metric here in the housing market.  I understand that there are people who really, truly don’t believe the real estate market (at least here in Toronto will increase) but in response to the Bank of Canada starting a period of quantitative easing, betting against higher prices would be a mistake.

Of course, we don’t know what the Bank of Canada is actually going to do.

There was a great article from the CBC last week:

“Cutting Interest Rates Was Easy.  But The Bank Of Canada Still Has A Credibility Problem.”
CBC News
June 6th, 2024

From the article:

Bank of Canada governor Tiff Macklem says the central bank has to rebuild trust with Canadian households. After the last two years of interest rate hikes and messaging missteps, that’s not going to be an easy job.

The central bank cut rates this week for the first time since March 2022, when it embarked on one of the fastest and most aggressive hiking cycles in Canadian history, raising its key overnight lending rate 10 times in an attempt to get inflation back under control.

That meant Canadian households were hit by a double whammy of sorts. They were clobbered by rising prices and squeezed by increased borrowing costs.

That was exacerbated by the fact that none other than the central bank governor himself initially told Canadians that interest rates would remain low.

“If you’ve got a mortgage or if you’re considering making a major purchase, or you’re a business and you’re considering making an investment, you can be confident rates will be low for a long time,” Macklem said in July 2020.

When in doubt, blame the government!

While they’re responsible for getting us out of this mess, it seems they’re, apparently, also responsible for getting us into it?

Tiff Macklem has a tough job, I’ll give him that.  But the comment about rates “being low for a long time” looks really, really bad right now.

If your cup is half-empty, perhaps you’d like to use this comment to suggest that there’s no guarantee the Bank of Canada will follow suit with more rate cuts, or that one cut is a surefire signal that two, four, or six more cuts are on the way.

But I think we can all agree that they are?

Blog readers JF007 and Jimbo both predicted, back in January, that we wouldn’t see any rate cuts in 2024 at all.

What do they say now?  Now that one cut has already been made?

I do believe, and correct me if I’m wrong, that the folks who predicted that the Bank of Canada would not cut rates at all in 2024 weren’t suggesting that this period of quantitative tightening would never end, but rather that the unwinding wouldn’t start yet.

Well, here we are.

The first rate cut; now what?

I would love to hear from those who think this cut, and subsequent cuts, will not lead to higher real estate prices in the GTA.  If I’m “pumping the tires,” then feel free to come by and slash them…