Since we last spoke on Monday, are there any other things on your real estate mind?  Any new developments?

It’s only been a few days but already, I feel as though this January real estate market is going to be very slow.

Very few listings have come onto the market, but more importantly, the pattern of behaviour I have established when looking at “new listings” is concerning.

What do I mean by that?

Well, what’s the first thing I do after I click on a new listing?

Click on “HISTORY” and see if it’s been listed before.

That’s a bad sign!

Forget about the fact that most of these “new” listings are re-lists from last fall, but the fact that my gut instinct is not to scroll down and look at the specs, but rather to see if this property is truly new or a re-list, tells you all you need to know about the quality of inventory out there.

On Monday, we started to discuss the topics, themes, issues, and stories that would consume our “real estate minds in 2024,” notably the things that might concern us the most.

Prices topped the list with Sales & Inventory ranking second.

Here are a few more subjects that I think people will ruminate on in 2024…

3) Interest Rates

I wanted to put this fourth on the list, since what I have planned for #4 is more important and will be part of a longer conversation, but unfortunately, interest rates are on everybody’s real estate mind this year, and there’s an argument to be made that this could be #1 on the list.

Let me throw some skin in the game here: my mortgage comes due in November of 2024.

Is it on my mind?

Sort of.

It’s been at the back of my mind since the spring of 2022 when interest rates started increasing, but it’s not something that I think about every day.  It doesn’t consume me.  And not because the increased renewal rate isn’t a factor in my personal finances, but rather because there’s just nothing I can do about it.

I’m on a 2.59% fixed-rate mortgage.

Now what?

What will prevailing rates look like in November of 2024?

Every 1% increase represents a massive increase in the monthly payment amount, but what if we’re talking 3%?  What if a five-year rate is 5.59%?

Do I take a variable rate, pushing 7%, and hope that rates come down in 2025?

In answer to these questions, let me quote what my son told me today when I tried to explain why I was upset with his behaviour: “Bla, Bla, Bla Bla….”

And he said it with a smile.  He knew he was being a shit.

I don’t want to “Bla Bla” your mortgage decisions, but I’m going to Bla Bla my own.

There’s nothing I can do about it right now, so at the risk of seeming naive or cavalier, I simply refuse to let this consume me.

Yes, the increased payments will be felt, and yes, I’m aware that everybody who has a mortgage renewal upcoming in 2024 will exert mental energy thinking about it this year, but not every borrower is in peril, despite what the media has told us.

First of all, a large percentage of borrowers who were on variable-rate mortgages already felt the pain last year.  And anybody with a renewal in 2023 felt the pain.

So why is 2024 going to be any different?

In actual fact, most believe that 2025 will the “year of reckoning,” since the 0.25% Bank of Canada key interest rate began in 2020, and an overwhelming majority of borrowers elect to take a 5-year fixed-rate mortgage, above all else.  Do the math here; 2020 plus five years, it’s not rocket science.

However, those who obtained mortgages in 2019, like yours truly, were still at ultra-low rates, like the aforementioned 2.69% that I obtained that year.  While my 2.69% rate is astronomical compared to some of the 1.49% rates that were handed out on five-year terms in 2020, my 2.69% rate is going to seem like a pittance when compared to renewal rates in 2024.

So unfortunately for those who are tired of this topic, interest rates will remain a massive discussion point for 2024 and will be firmly etched into our real estate minds.

Some apparently believe it will be “the” story of 2024.

Here’s a headline for you:

“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.

A two-percent decline, you say?

Bow-chicka-wow-wow!

The Bank of Canada publishes its yearly schedule for policy interest rate announcements in advance of every calendar year, and as such, there are nine dates on the calendar for 2024, with the first occurring two weeks from yesterday.

The author of the Financial Post article above offered his predictions for each of the scheduled announcements this year.

From the article:

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

You don’t say?

Oh, now you have my full attention!

A two-percent drop in the overnight lending rate in 2024 is something people dream about!

Now, at the risk of taking too much from the above article, here’s the author’s rationale:

These predictions are based on a combination of factors, including the negative direction of the Canadian economy, Canada’s interdependency with other central banks, specifically in the United States and European Union, and how the Bank of Canada has historically made rate moves. It is generally slow to make a change in direction, often starting changes later than it should have (in hindsight), but it tends to move quickly once it finally makes that shift.

The speed at which rates went up is certainly a factor on the speed at which they will then come down. Having said that, we are not returning to the super-low interest rate world that we found ourselves in during 2020 and 2021.

The late-2023 market already seemed to be pricing in potential rate cuts in 2024.

And as we know, fixed-rate mortgages are based on the bond market, not the Bank of Canada overnight lending rate, and we started to some relief late in the year.

Everybody has their own mental “threshold” for the five-year, fixed-rate mortgage.  This is based primarily on one’s age, since that would determine how many different economic cycles a person has lived through, but it also depends on experience with home ownership as well as financial literacy.

My threshold is 5%.

That’s my “oh shit” number.

Anything above 5% for a five-year, fixed-rate mortgage makes me say, “Oh, shit.”

My parents would have a much larger threshold, as would yours.

But my very first mortgage in 2006 was a five-year, fixed-rate mortgage of…..wait for it…..4.99%.

And as I have infamously noted many times, my Dad told me, “You should take the ten-year rate of 6.79%.  Rates will never be this low again!”

Oh, parents.  Always offering opinions.  Always wrong…

After I took my first mortgage at 4.99%, I watched the five-year rate rise as high as 5.99%, and for a very, very short period, I suppose my father was correct.

But rates began to drop and they essentially never stopped.

I remember the first time I saw 3.99%.  That was like looking at the sun.

And I remember the first time I saw 2.99%.  There had to be a catch, right?

March 31st, 2014, I wrote: “Ready, Set, Rate War!”

This was when the Bank of Montreal began offering five-year, fixed-rate mortgages at 2.99%, which led to ScotiaBank offering a 2.94% rate, and so on.

Rates went up and down over the next several years, but never approached my 5% “mental threshold” again.

Rates bottomed out in 2020, as we know, and then shot up like a rocket in 2022 and 2023, as we also know – quite well!

We reached a point in 2023 where the five-year, fixed-rate was over 6.5%.

Today, rates are back below my 5% mental threshold…

“Mortgage Rates Are Finally Dropping As Five-Year Rates Fall Below 5%”
Toronto Star
December 20th, 2023

Here we are again!

Back to 4.99% and some lenders are offering 4.89% or 4.79%.

How much lower can rates go?

Ask yourself: if I had to renew my mortgage today for five years, what rate would I jump at?

For me, that’s 3.49%.  I would absolutely jump at that for a five-year term, and there’s a real chance that this could happen by the end of the year.

I think our worst case is that a five-year fixed is around 4.49% but it’s very realistic that we’re back to 3.99% by the fall.

Now, what does that to to restore affordability?

It really, truly depends on the definition of “affordability” and to whom you want real estate to be affordable.

I often look at these conflicting ideologies like, “Consumers are taking on too much debt and people have too much money in their homes,” along with “We need to help the low-income community enter the housing market,” and I wonder what the hell our respective levels of government are thinking.

I understand that the Bank of Canada is not the Liberal Party of Canada, and I also understand that politicians and governments alike know that Job #1 is to stay in power and thus policies, decisions, and social safety nets are often borne of attraction votes rather than doing what’s best for the economy or the country.  But surely there must be some overlapping goals and objectives, no?

Over the last few years, I’ve been shocked at some of the suggestions I’ve seen regarding “housing affordability” and atop the list is this idea that the only way to make housing “affordable” is for prices to decline by 30-40%.

That’s not happening.  It can’t.  The government wouldn’t let it.  The CMHC would go under and our economy would collapse.

But for our purposes on this blog, we aren’t really concerned with the fantasy of a 100% home ownership rate in Canada, or a 90% drop in real estate values that would let minimum wage earners afford detached, red-brick homes, but rather we want to know if the upcoming interest rate environment will “restore affordability” to a level that will push real estate prices higher.

If we “restore affordability” to the folks who qualified for $1,200,000, but wanted a house that was $1,350,000, will that make them buyers in 2024?  If so, will they, along with others like them, represent the demand that would put upward pressure on prices?

I know that nobody really wants to talk about prices increasing, even those who own their homes and don’t plan to transact again, but this is the net effect of lower interest rates and the idea of “restoring affordability.”

As I said on Monday, the first thing on our real estate mind – prices, can veer off into all kinds of other topics and causes for concerns, which are also on our minds.

The individual looking to renew his or her mortgage in 2024 has interest rates on the mind because it’s about his or her monthly payment, but so many others out there are looking at interest rates as it pertains to affordability, and that will affect prices!

Hey, I have an idea…

Shall we take bets on the first interest rate cut of 2024?  And maybe on the sum total for 2024?

Sure, let’s play a game!

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.

I’ll go first:

-June 5th, 2024
-25 basis points
-125 total basis points for the year

Geez, December.  I can’t even think about looking back at this post eleven months from now…

4) Immigration & Housing

I was shocked to see this get the attention that it did in 2023.

Not because it didn’t deserve the attention, but because I was surprised so many people wanted to opine about it.

A friend of mine recently suggested on our football pool message board, “Cancel culture is a myth.”

I believe it’s that line of thinking that gets people canceled and silences free speech in the first place.

But in 2023, er, 2024 now, I think that people are more careful than ever to express an opinion that might be unfavourable, or at the very least, met with resistance.  This is especially true of liberal social causes, as, dare I say, that their voices are the loudest and most effective.  How else could we have something called “free speech” along with what the Prime Minister refers to as “unacceptable views?”

So when it comes to the idea that “letting a million people into the country every year isn’t going to end well for our beleaguered healthcare system and unaffordable housing market,” I was absolutely shocked to see so many public opinions like this in 2023.

Again, it’s not because it’s untrue.

I have certainly bitten my tongue a lot more over the last decade.  While I remain quite opinionated, I’m not nearly as opinionated as I used to be, and there are a lot of topics that I either won’t touch or on which I will tread quite lightly.

The topic of “immigration and housing” could easily veer off into politics, and quite frankly, it should.  But that might not be productive for today’s discussion, and once a topic or concern is linked to a political party or ideology, I find that many people become close-minded and stick to the principles of that party or ideology.

So let me ask this:

Does it make sense to continue to allow record levels of immigration in Canada when there’s a housing crisis?

No.

Of course not.

And yet, here we are.

My view is not racist, since it has nothing to do with race, and yet for so long, I have feared this would be the response.

People use the term “xenophobic” but that’s really just a convenient label since the actual dislike in the term “xenophobic” refers to the people from other countries, rather than the result of what mass levels of record immigration would do to an already strained healthcare system and housing market.

Isn’t that fair?

There are very important economic reasons for immigration, and that’s why one side of the debate cannot ever be “stop immigration completely.”  We have an aging workforce that will need to be replaced, we have a growing economy, and we need skilled labour.

But how much immigration was a hot topic in 2023, and from that came the topic of what type of immigration.

We use the term “skilled labour” quite often, and while I’m no expert on immigration, I don’t believe there’s a process of weeding out unsophisticated, unintelligent, unskilled individuals who want to immigrate to Canada, nor is there an interview process that includes a would-be immigrant’s level of education, presentation of degrees and certificates, and demonstration of skills.

For the record, I would be in favour of this, but I digress…

I have been writing about the cause-and-effect of high immigration on a strained housing market for years, but just like all those mid-2000’s blog posts about the perils of the pre-construction industry that were a decade ahead of any media coverage or government attention, we really didn’t see people start to talk about “immigration and housing” until late 2022.

“Anxiety Spikes Over Housing Amid Canada’s Plan To Welcome 1.5M New Citizens By 2027”
CBC News
November 8th, 2022

This was the first article I bookmarked on the subject and it represents one of over fifty I have on file.  I’m sure there are more, especially when you take local newspapers into account.

But it was in April of last year, and in a Vancouver newspaper of all places, that I started to see columnists use stronger language and/or start to provide opinions on whether or not we should be going down this road of mass immigration:

“B.C. Desperately Needs Ottawa To Tie Immigration Levels To Housing”
The Vancouver Sun
April 10th, 2023

I remember flagging this article, not only because of the word “desperately” but also because the suggestion of tying immigration levels to housing is a common sense suggestion, but one that the government would never entertain.

From the article:

Wherever B.C. Housing Minister Ravi Kahlon has gone this year, he has urged the federal Liberals to connect their record-high immigration levels to housing in Canada.

Last week, hundreds of B.C. mayors and municipal councillors heard exactly why Ottawa’s failure to do so is causing them grief when it comes to providing adequate infrastructure, particularly affordable housing, but also schools, health-care facilities and daycares.

Delegates to the Union of B.C. Municipalities convention heard the country’s record population growth last year of one million was 96 per cent from offshore arrivals. Forty per cent of those newcomers were permanent residents and 60 per cent were temporary residents, especially foreign students.

The flood of foreign nationals is creating unprecedented demand for homes, which is pushing up rents and housing prices, which are among the highest in the world in cities like Vancouver and Toronto.

The irony is, B.C. is one of the most socially liberal places in the country, where they’ve taken the time to declare it a human right for a person to inject heroin into their vein on a children’s playground, and yet the housing minister is openly asking the Prime Minister’s office to stop the flow of newcomers to the province.

As the year went on, I started to see more and more opinion pieces on immigration and housing in the mainstream media.

“Amid Canada’s Housing Crisis, Immigration Needs To Be Slower, More Focused”
The Globe & Mail
August 9th, 2023

Who’s out there calling this author “anti-immigrant”?  Anybody?

Is anybody zeroing in on the “focus” part and suggesting that it’s exclusionary?

As 2023 went on, it seemed like society was fully willing to engage in a mature, thoughtful, important discussion on how the planned immigration levels would affect the housing market.

I was shocked to see this piece in the CBC, which I believe has become a mouthpiece for the federal government:

“Is It Fair To Increase Immigration When Housing Is Scarce?”
CBC News
September 8th, 2023

Is it fair?

Define “fair,” since those goalposts have been moving quite a bit lately!

And fair to who?

I would think it’s a question of whether it’s fair to Canadians who are currently living in Canada, as increasing immigration would raise housing prices, and that might not be “fair” to them.

But others would ask, “Is it unfair to those who want to come to Canada to exclude them?”

I don’t think I’d get along well with a person asking that question, but I digress once again…

Later in the year, we started to get actual data on public opinions!

How is this for a headline:

“Three In Four Canadians Say Higher Immigration Is Making The Housing Crisis Worse”
CBC News
November 29th, 2023

To be fair, what people say or think in society isn’t always accurate, and I’ve seen both sides of that, many times.

But one could argue that “three in four Canadians” aren’t in favour of higher immigration, and I wonder if that would have any effect on the Liberal government’s plans moving forward?

In December, the Bank of Canada said what many of us wanted the government to say for quite some time:

“Bank Of Canada Says Immigration Hasn’t Added To Inflation, But Has Hit Housing Market”
The Financial Post
December 7th, 2023

From the article:

New home construction is up for the first time since mid-2022, but it’s still not enough to mitigate Canada’s housing crisis, Gravelle said. Immigration is exacerbating the issue, putting upward pressure on rent prices in the short-term because new immigrants tend to rent when they first arrive. Canada’s housing crisis stems from a few key structural issues, including zoning restrictions, the difficulty in acquiring permits in many cities and a shortage of construction workers. The U.S., on the other hand, isn’t experiencing the same crisis, because it’s easier to build there and the country tends to take in large share of immigrants trained in construction, which helps home building.

Well, there we have it!

Cause-and-effect.

And that led to more opinions on the matter, like this one which came with a great headline:

“Population Growth Is The Housing Issue Politicians Can’t Keep Ducking”
The Globe & Mail
December 11th, 2023

From the article:

If there’s a hot political debate over why Canada has a housing crisis, it is important to talk about the proximate cause.

It’s population growth. And the temporary resident boom.

Canadian politicians have spent a lot of time dodging and ignoring this unavoidable fact.

Rapid population growth, driven primarily by an unprecedented boom in temporary residents – mostly temporary workers and foreign students – has turbocharged demand for Canada’s slow-growing stock of apartments and houses.

Then, came a very, very important moment in the “immigration and housing” conversation, or dare I say debate.

The federal government, specifically Housing Minister, Sean Fraser, who ironically was previously the Minister of Immigration, admitted that (gulp!) there is a link between immigration and the housing crisis.

Here was  cheeky write up:

“Trudeau Grits Finally Willing To Admit Immigration Helped Spur Housing Crisis”
Toronto Sun
December 14th, 2023

From the article:

When my parents came to Canada in 1968, we were building almost as many homes as we built last year. In less than five years, they saved up some money and were able to buy a home.

Unless today’s immigrants come with bags of cash, that won’t be the case for them nor will buying a home be in the cards for young people born in Canada and entering the workforce.

By failing to plan and failing to co-ordinate with other levels of government, the Trudeau Liberals have done something I didn’t think was possible: They have broken the Canadian consensus on immigration. Public opinion is turning and things could get ugly if they don’t get a handle on this issue soon.

So, yes, look at the numbers, Minister Fraser, but not just the international student numbers — look at the permanent resident numbers as well. If people can’t get housing when they come here, if they can’t get basic services like health care, then why are we bringing them in?

It’s not fair to anyone for this to continue.

Wow!

I loved that!

Can anybody debate this?

Here’s an article from late-December that furthered this thought of “tying” immigration to housing starts:

“My Christmas Wish? A National GDP Per Capita Target & Immigration Tied To Housing Starts”
The Globe & Mail
December 16th, 2023

So we basically came full circle, from that first Vancouver Sun article in April to this one in December.

Should we be tying immigration to housing starts?

I mean, we won’t.  But should we?

Since I started wrote this section – another article has come out, and a great one at that:

“Immigration And Housing – The Elephants In Canada’s Crisis Room”
The National Post
January 3rd, 2024

From the article:

The inability of Canadians to simply afford a roof over their heads isn’t just some one-off policy conundrum. It has become a chronic condition of life in this country. It’s worse than any time since the early 1980s, during a briefly perfect storm of housing-bubble prices and sky-high inflation rates. And immigration is a big part of this story.

Immigration isn’t the only reason for this state of affairs, but Canada’s population growth rate of three per cent just last year was higher than at any time since a brief anomaly in the late 1950s. Last year, the Canada Mortgage and Housing Corporation reckoned that at this rate of population growth, we’d need to build at least 5.8 million homes in Canada over the next six years, just to restore some semblance of affordability. This isn’t going to happen. The construction industry’s current capability would add only about 2.3 million homes to the country’s housing stock by 2030.

At the current rate, Canada’s population will double within 25 years. Between the summer of 2022 and last August, nearly 700,000 “non-permanent residents” arrived in Canada, on top of the 400,000-plus permanent residents who showed up in Ottawa’s official immigration counts. Statistics Canada reckons there are now roughly 2.5 million non-permanent residents in the country, which is close to the entire working-age population of Alberta.

More than a million people in this transitory or non-citizen population hold work permits and another million or so are “students” with work privileges of varying duration. It’s as though somebody somewhere decided that Canada should be a country of landlords and well-to-do strip mall college entrepreneurs preying upon an underclass of exhausted renters, homeless people and foreign guest workers. Who voted for this?

Phew!

The rest of the article is a good read, albeit has less to do with housing and more to do with politics, but I’ll leave that to you.

Suffice it to say, we saw a lot more written about “immigration and housing” in 2023, and thus it’s definitely on our real estate minds as we enter 2024.

Will we see, talk about, and debate the issue more in 2024?

Yes.  Most certainly.

Will people become more anti-immigration as a result?

Probably.  And that might result in some name-calling, label-applying, and attempts at cancellation.

But there’s an election ahead in our country; at latest, October 20th, 2025.  That means the politicking on hot-button issues is going to ramp up, and as we saw last year, “immigration and housing” is most certainly that.

I hope there’s a solution, er, a resolution here before things get really messy and our country becomes further divided…

Well, I’m going to pause it here, folks!

I have several more things on my real estate mind as we begin 2024, and I believe many of these could be on your real estate minds as well.  But we’re a bit long in the tooth here, so let me pick this up next time and we can talk about the government’s bright ideas, tinkering in the real estate industry, affordable housing, and maybe a few other things that are currently etched into my medulla oblongata…