Oz Buzz #88: Rumours And More Than Rumours

October 14, 2023

“This may be the most dangerous time the world has seen in decades.” Jamie Dimon (CEO – JP Morgan – Oct.12)

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AGENDA

• RUMOURS AND MORE THAN RUMOURS
• SPRING RALLY IS OVER
• THE NUMBERS: US – TORONTO – VANCOUVER
• INTEREST RATES
• INFLATION/RECESSION
• OUTLOOK
• WHAT TO DO IN OCTOBER
• IN THIS ISSUE – NO Q & A! WILL AIR ON YOUTUBE INSTEAD

COMMENTS

Thank you for all the questions. Really: Thanks!

Funny, first you don’t get any, then you get a few and then you get overwhelmed. That’s where I am … sorry, I can’t deal with the volume. As a test and starting October 20 I will do the questions on Youtube (www.youtube.com/jurockvideo) and on Ozcast (on Ozbuzz.ca).

Let me know what you think. So, in this issue: no direct questions answered!

Rumour Sections

• Mr. Eby will bring in new rules on short term rentals province wide (blaming owners that switch to short term rentals reducing rental stock).
• Some municipality say there is overnight rental allowed, but if you read the fine print, they reserve the right to change the rule overnight and forbid it!
• One major lender has essentially cancelled issuing rate holds due to hemorrhaging money (when bond yields are volatile rate holds turn into a dangerous game of financial roulette).
• Another lender has withdrawn from the “A” lending space and is strictly focusing on “B” lending.

US Rumours: 

• Realtors and mortgage lenders are fearing a serious recession, says Fannie Mae’s Douglas Duncan.
• Jamie Dimon says 7% is possible.
• Markets are NOT hot.
• Builder and RE broker stocks are crashing.
• Higher yields on bonds may help the FED halt rate increases.

More than a rumour:

Dropping ESG

Credit rating firm, S&P Global has stopped handing out ESG scores to corporate borrowers. By dropping the ESG ratings now, maybe S&P is saying “the ratings really are not that useful” -David F. Larcker, professor, Stanford’s graduate school of business.

Underused housing tax

Canada’s Underused Housing Tax Penalty Deadline is October 31 – and it is not foreigners only. The tax generally applies to foreign national owners of housing in Canada. This tax also applies to some Canadian owners (such as certain partners, trustees, and corporations).

Major Point: Read it and don’t weep. You may not have to pay but MUST register!

WAR

When we cautioned about the ‘elephant in the room – war’ before, we were referring to Ukraine. Now there is another in Israel. Untold consequences.

Brief notes:

1. When you pay $6 billion for 5 hostages (US) and when you trade 1,054 criminal prisoners for 1 soldier (Israel) you achieve only one thing: The hostage takers want to take more hostages. And they did, and they will again.
2. Worry 1: What HAMAS did was pre-planned and executions were on purpose. What worries me is this: If they planned the attack so well, they also will have planned for Israeli revenge. What untold horrors await Israel in Gaza and elsewhere?
3. Worry 2: When you have young people demonstrate on behalf of murderous killers of innocent families worldwide, you have the end of multi-culturalism.

INTEREST RATES

Buyers are scared about raising rates October 25 and – at the moment – to get into the market. Perception? I will not be able to afford the continuous higher rates. Can you blame them? Listening to our experts: Benjamin Tal does not like the BOC doing it but forecasts a .25% raise this month. Billionaire Bill Ackman says – rates will stay here, but NOT come down for years. Jamie Dimon – 5.15 yes and rates of 7 percent are possible. So, most economists see a pause in October (Canada) and the US, but an increase before year end for another .25% and then rates could come down as early as April. (Not our call.) It’s also possible—but what we need more is rate stabilization.

All the diverse opinions? Can you blame us for massive confusion? It has been two weeks of absolute madness in the banking space. Bond yields continue to surge – then slow – then re-surge, putting increasing pressure on lenders to raise fixed rates. 10-year (US) treasury yield almost hit 5% (topped at 4.88%) trading at levels not seen in over 15 years.

Add to this confusing inflation numbers: Higher, but not really. Wages, higher but not really. Employment soaring (but only in temporary jobs). Recession pending, but not really. Arrrrgh!  Oh, and Swiss Franc soaring against the Euro? What do the Swiss expect to happen?

Major Point: I maintain my stance on cash is NOT trash. Two years I argued in OzBuzz with super billionaire Ray Dalio’s call that “Cash is trash”. No way, said I, depending on your local market and your age – cash is a necessity. Now last week Mr, Dalio said Cash is ok and NOT trash. Ahem!

We maintain, all is possible. We note Mr. Dimon, calling it the most dangerous time in decades, and the massive confusion and polarized positions from the ‘biggest brains’, so having some cash in GIC’s at 5.7% is good enough while you wait.

What we really need most is certainty. Even at a higher rate. But this roulette of rates (go short, go long) is driving all of crazy. Certainty is what we need.

Brief outlook (come listen to the verbal Q & A October 20.)

1. Interest rates. Higher by .25 – .5% by spring. Staying higher, no pivot down in 2024.
2. US dollar higher
3. Inflation staying much higher and longer than the official target.
4. Unemployment changing to much higher
5. Recession early 2024

To do?

• Review my recommendation in “Age cash” Over age 70 – 50% etc.
• Look for and make stink bids and quality (quality!) pre-sale assignments coming due. We hear of people walking from $50,000, even $100,000 of their deposits, because they can’t/won’t close.
• Don’t get hung up on the “multiple offers” reported. For every multiple offer there are 9 houses unsold for months!
• Watch for ‘under-listing’ to suck you in. Value is $1.5 million. Listed at $1.3 million to get a ‘buyer fever’ going. It still works in the hands of a wily broker, but it works less and less. Price drops will be more common.
• Get pre-approved with a quality mortgage broker. Don’t know one in Alta or BC, write me for recommendation.
• Understand this: Banks are more scared than you!

US (BRIEF) SNAPSHOT

NAR reports that sales in the US are down back to the level last seen in April 2020. No inventory, people with a mortgage staying put and new people needing to pay 7.7 % means falling sales. Remember the 2.5% 30-year mortgage from 2 years ago?

Major Point: There are some hot spots but it’s mostly NOT even lukewarm. Even our favorites like Phoenix, or Texas – all seeing rising inventories, slowing sales and crack in prices. Stay firmly on the sidelines and make stink bids… There will be a lot of opps this winter.

CANADA

Quick Summary (from podcast)

• Sales  in BC are 10% higher than last year but 45% lower than 2020.
• Toronto sales were even lower than the anemic 2022 – down 7%.
• Prices are up in BC 5%, Toronto up 3% y-o-y. 15% down from April 2022.
• Toronto shows much higher listings.
  New listings up 44%
  Active listings up 40%
  
  Market heading lower.
• Vancouver – New listings up 27% and 24%.
• Surrey – Sales up strong – best in BC. New listings up 40%. 
• Edmonton and Calgary – Sales higher and listings LOWER.
• Edmonton: Listings took a 23% dip from 2022, coming in at 4,740 for September of 2023. There were 1,436 sales for the month, which increased by 32.6% compared to last September. 
• Calgary – New records.

BRITISH COLUMBIA 

The British Columbia Real Estate Association – bcrea.com (best stats, easily presented) reports 5,531 residential sales in September 2023, up 10.4 per cent from September 2022. The average price was $966,530 up 4.8 per cent. Look at their very interesting graph below. This is how the volume of sales is directly correlated with interest rates!

Snapshot September 2023

VANCOUVER AND FRASER VALLEY

We told you last year that, as we compare ourselves in 2023 to the same months in 2022, we will look great! The market collapsed last year – now it has recovered? Yes – somewhat.

Note: Vancouver SF homes are up 14% with 597 sales … why? Because last year in SEPTEMBER we performed at an anemic 525 sales rate.

In SEPTEMBER  2021 we had 1,107 sales… New listings higher across the board … but owners rejoice – prices are up also!

VANCOUVER 

NOTE: Vancouver SF new listings are up 24%. Condominium new listings are up 27%.

Below we are looking at a 5-year SEPTEMBER 2023 over SEPTEMBER 2022/2021/2020/2019 comparison. 

VANCOUVER

Major Point: SF sales are 578 up 8% over 2022 (533). Still sharply lower than 2020 (1,319). New listings are UP 24% in SF homes, UP 27% in condos.

Vancouver and Fraser Valley all prices best SEPTEMBER  in last 4 years! (But still behind highest monthly prices achieved in last 4 years (see FV above)

Major Point: Fraser Valley SF Sales are up 22% over 2022. Still we are  46%+ lower than 2021 AND 60% lower than 2020.
New listings – are up 16% in condos; also up A WHOPPING 40% in SF homes. 

Fraser Valley Since March 23 we said every month: “We have started bottom building. We are still not back to 2021 volumes, but we recovered from the doldrums of 2022.”

BUT now…

MAJOR, MAJOR POINT:

NOTE: Now we see market sales and prices reversing to ‘sideways’ even ‘lower.’ 

We expect rates to continue HIGHER! Or sideways NOT lower. See the piece on interest rates. Read it and weep!

Markets are continuing to slow. Pre-sale deals abound: 

$100,000 discount, no assignment fees, raffles for Mercedes, Rolex watches, 5%/10% down, no GST, no strata fees for 3 years, etc.

Also, brokers tell … registrations are still ok, but after the expiration 7 days, conversion to actual sale are slowing sharply. 

CLOSING ON YOUR PRESALE SOON? Get pre-approved now!

Banks are slow to approve, some will not at all (see above), want tons of back up. They will also change the length of time to get the rate fixed for (now up to 4 months).

We said new rates will bite. And they are biting. Buy with caution … rising rates are not going away. In any case, they are NOT going down.

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