Also ice is cold and fire is hot.
Despite the 0.25% rate hike ‘everyone’ thought was coming in July arriving a month early, which is a lot different than Christmas arriving early, the word is that there’s a ‘100% chance’ of another 0.25% hike come July’s Bank Of Canada meeting.
The net result; volatility.
In fact, Canada managed to create financial volatility in markets across the globe last week. We’re a bit like the little engine that could, but; is this 15 minutes of fame we really want on the world stage?
Let’s narrow the focus from the global perspective down to you, your family, your household.
What should you be doing right now?
What matters?
These are questions I ask myself regularly.
Amidst all the noise out there, there do seem to be some common themes supported by data.
Personally, I believe the following points press home the fact that owning a detached house – ideally with a basement suite – as close to a major city centre or transit hub as possible is one of the best investments any of us could possibly make at this point in time. This applies to any and all markets across the country, big and small.
You know your neighbourhood, you can see what’s happening, or not happening, very clearly.
I live in an area where it increasingly sounds like fewer than 35 detached homes will ever be added to the housing stock.
In fact, we’re seeing detached home sites being consolidated into larger parcels of land for townhouse or condominium construction. The City of Vancouver is losing about 1,000 detached homes per year – the supply of that type of housing will only ever decrease from here forward. Think about how powerful that could be over a decade or two.
There’s also legislation essentially forcing all municipalities to allow up to four dwelling units per currently zoned single-family detached home lots.
If every single city lot with a single home on it suddenly has a fourplex built on it, what is that going to do to prices?
Speaking of prices, let’s circle back to that surprise quarter-point retake last week and the volatility it has created in the markets and the minds of many, including home builders.
There’s (finally) a lot of noise being made about the lack of supply, hence the proposed rezoning of single-family lots to allow up to four families per lot.
Yet increasing interest rates and the increasingly volatile movement from the Bank of Canada doesn’t just freak out mortgage holders, it also freaks out mortgage lenders and more so the developers who take on tens of millions, sometimes hundreds of millions, in debt to fund a construction project.
A key point: in Canada, if you want to build say 200 homes (of any type), unless you have the cash to build them, you’re not starting to build until you have 60% of them pre-sold. 120 sold gives you an advance to buy a shovel and start digging the first foundation.
In other words, by the time you see a crane coming out of the ground, that project is almost certainly 80 to 90% sold out, if not 100%. When’s the last time you saw a sales centre in a finished building?
There’s a lot of talk about the record number of condo completions coming up in downtown Toronto this year.
There were similar concerns and headlines back in 2014 when there was a record number of condos completed in that year.
They will complete.
All those projects are 90%+ sold.
Most at 2018, 2019 or 2020 prices. Much lower prices than today.
So even if an original buyer cannot complete, there is another to step in instantly and take their place.
I know this to be a fact.
Bottom line; the rate volatility is creating an even more significant supply shortage, which will truly start to come to a head over the next 2-3 years unless we get back on track and get building!
Which is of course the last thing the Bank Of Canada wants to see.
We are a nation conflicted.
At the very least the many branches of our government have conflicting agendas.
And conflict interrupts progress.