I’m Mad as Hell and I’m Not Going To Take This Anymore!

A few weeks ago we celebrated my parents 60th wedding anniversary. It is quite a milestone for them and something very few couples achieve. When you really look deeper at my parents' relationship there must be a footnote beside 60 years. You see, my folks worked together for 50 years and their offices were 30 feet apart. When you think about it, most couples (if they are smart) do not work together, so they spend 8 to 10 hours per day apart and 8 hours or so sleeping. That leaves them approximately 6 to 8 awake hours, 5 days a week, and approximately 32 awake hours on the weekends. (Assuming they spend every waking hour together). Therefore its safe to say that an average couple who worked separately and were married for 60 years spent a total of 172,720 hours together. In my parents' case, they spent 8-10 hours working together, another 8-10 hours at home talking about working together, plus the customary 32 hours on the weekend together, for a total of 349,440 hours. If you ask my dad, he would say it was like he was married 120 years give or take a few hours. But I digress. We had a small gathering in my backyard, and we had it catered. For those of you who know me I like to be a part of the cooking. So I inserted myself with the caterers and they indulged me by giving me small tasks to keep me out of their proverbial hair. I had one of my favorite shirts on, and while I was serving or putting something in the oven I spilt a small amount of oil on my shirt. I became obsessed with this small mark on my shirt, so I first dabbed at it with club soda. When that didn’t work the caterer told me to try baking soda, when that didn’t work, my daughter found me a Tide spot remover pen. The stain was still there, and I had to abort mission and put on a new shirt. The event went perfectly, but the trauma of my shirt still lingered, and that night I tossed the shirt in the wash with some bleach. The next morning after the shirt was dried, I could still see the stain but it was faint. I hung up the shirt and that was that. Some time later, I grabbed the shirt put it on and as I was admiring how great I looked in it, my eyes went to the faint stain. Not only was it a faint stain but I had rubbed it so much that I damaged the fibers in the material. I took it off and eventually I bought another shirt. You must be asking yourself, why would Conrad tell such a non-consequential story? The oil stain is inflation and the Bank of Canada, economists, political pundits, and the media are the club soda, the baking soda, the bleach etc. The shirt is the housing industry and I’m a Canadian home buyer/seller. Eventually, no matter what anyone throws at the problem (the stain) people need to buy and sell homes, and they will do whatever it takes to get on with their lives.

So why am I mad as hell????

Look at the headlines. The media, the economists, and the Bank of Canada have been relentless. First of all, lets establish one thing. We are living in unprecedented times and many of the solutions of the past (raising or lowering interest rates) may not be effective now. One message I can get behind that has been bantered about is, ‘We can’t look to the past to solve the issues of today’. I decided to gather a sampling of the headlines over past 2 weeks, and offer some explanation as to why they may be overly exaggerated.

"You Need an Income of Nearly $180k to Buy a Home in Hamilton",?The Hamilton Spectator, July 26, 2022.

The article throws around various average price numbers, which I can’t seem to verify with any data. Is it the average price of a single detached? Is it all the housing stock etc.? Furthermore, average price has been proven time after time to not being a valid indicator of pricing. Benchmark price is the credible standard. As a matter of fact, I recently discovered that the Calgary Real Estate Board (CREB) has stopped publishing average price all together and just uses the Canadian Real Estate Association’s benchmark price calculator.

"Supersized Interest-Rate Rise Surprised Real Estate Industry"?Globe and Mail, July 14, 2022

Who was surprised????? I have never experienced more leaks from the Bank of Canada or the US Federal Reserve in my life!!! Aren’t these meetings and interest rate announcements supposed to be a secret? The Federal Reserve and the Bank of Canada talk to each other constantly. Currently, both Canada and the US’s key rates are the same. The Federal Reserve has been saying their next increase was going to be 75 basis points, (and it did, that meeting just occurred on July 26-27). Before their meeting their key rate sat at 1.75%. Canada’s key rate before their meeting on July 13th, was at 1.5%. The Governor of the Bank of Canada had no choice but to raise it 1 full percent to be on par with the US. I hope these Bank of Canada people enjoy their August holiday. See you again September 8th, October 27th, and December 8th! Quick fact-this year the BOC made two announcements on the 13th of the month. Should we be reading into that? In 2023 there are no 13th announcements.

"Economist Fears Crude Use of Interest-rate ‘Sledgehammer’ Will Kill Jobs", The Spec, July 19, 2022

Unemployment is at an all time low and is currently (4.9%). What is this economist (David McDonald) talking about? The chart here references 3 remarkable periods in the Canadian Real Estate market. You be the judge.

"A Bumpy Real Estate Market Will Rattle Renters, Too",?Globe and Mail, July 22, 2022

I agree with many of the fundamental points of this article. Demand for rental housing will grow as a result of higher interest rates. As buyers may find themselves unable to qualify to buy under a higher interest rate environment, it will force more Canadians to enter the rental market. My problem is that the so called ‘Bumpy Real Estate Market’ has nothing to do with it. It is a supply side issue with not enough rental units or housing units in general, are not being constructed. CMHC just published their latest housing start numbers and found Ontario to be down 11% over last year during this same period. January - June 2021 (43,658 units) vs January - June 2022 (38,883), with Hamilton down a whopping 29%.

"Housing Set For ‘Historic Correction’: RBC", The Spec, July 26, 2022

RBC looked back at two areas where the Canadian real estate market met with headwinds. The early 1990’s and the decline in the market in 2008-2009. According to the recent RBC report, during the 2008 financial crisis there was a decline in unit sales across Canada, but we did not see a significant decrease in prices. Furthermore, in the early 1990’s, unit sales fell 41% and prices dropped by 15% as a result. According to RBC, who has the most dismal outlook for housing of all the 5 major banks, Canada will see home sales drop by 23% this year and 15% next year. If you take the 1990’s as an example with almost double the decline in home sales, and a 15% drop in home prices, why would the drop in unit sales (which is smaller today) result in a larger decrease in prices? I have news for RBC. Most markets have already seen a 12% to 15% drop since March of 2022, and there is evidence of prices stabilizing in various markets already.

It’s Time Our Industry Stands Up To Be Counted

It is contingent upon all of us in our industry (be you a realtor, banker, appraiser, mortgage specialist, lawyer etc.) to call out those people who make bombastic claims. We must all be the stewards of factual information, backed with credible numbers. Did I really need to buy that new shirt? No! But that was my decision. Why does everyone with a pulpit want to shape what people should and shouldn’t do. Never underestimate the Canadian housing consumer, and the long lasting love affair they have with real estate, and its ability to perform. As fast as our real estate market baked in a decrease in housing prices after the interest rate ‘event’ (the first BOC rate increase on March 2, 2022 of 0.25%), prices can level off, and move towards more normal rates of appreciation in no time flat.