“Dead Cat Bounce” is Not a Viral Dance
I am bracing myself for the pile of hate mail that will probably come our way with the title of this month’s video. No, we don’t hate cats here at Propel.
Hello, my name is Ehsan, and thank you for coming back to view our market commentary video. In this video, I’ll touch on an asset value phenomenon known as a “dead cat bounce,” which I briefly touched on in our previous video, and what it could mean for the market in 2023.
For those of you new to the phrase, it’s an investing term for the temporary rise in the price of a stock or other asset. During a long period of decline That’s the technical definition, but the morbid term comes from the idea that if it falls far enough, even a dead cat will bounce.
So, in the case of our real estate market, that bounces back from the short-term price increase we saw in September and October, when the average price of condo two was back above $1.25 million, only to begin the descent back down to one point two million in November. Yes, a 50 percent decline on 1.25 million is not an earth-shattering amount by any means and is only one month’s worth of data, but I would expect it to continue for a multitude of reasons.
There’s an upcoming Bank of Canada interest rate announcement on the 7th of December, and it’s almost certain we are going to see yet another increase in the rates. This increase will take another tranche of buyers on the cusp of qualifying for a home purchase out of the market completely. And this afternoon, November saw only 1624 sales for contacts. The last time a sales figure that low outside of the pandemic era was recorded was in January of 2020. With 1573 sales, coupled with the fact that we’re going into traditionally slower months of December and January, it’s going to be really difficult for the market’s rally with an increase in sales.
By the way, if you haven’t acknowledged it yet, we are in the early stages of a recession and actually have been for a few months now. If you’re in doubt about that statement, I would highly encourage you to speak to a small- or medium-sized business owner, and they will most likely set the record straight for you. Don’t just take my word for it.
Lastly, we saw a consistently high month of inventory figure, with September, October, and November all hovering around the six months of inventory. As a reminder, any figure greater than six months of inventory is considered a buyer’s market. For me to say that the market is going to crater in 2023, I’m sorry to disappoint, but I don’t believe that is in the cards.
That doesn’t mean that the market is going to rebound or even balance out in 2023. The simple crash that, honestly speaking, feels like a lot of people are almost hoping for is not likely to take place. At the risk of sounding like a broken record, it’s our inventory figures that are preventing sharp declines in prices. Currently, inventory is just above 9000 homes, which is an incredibly low figure.
The other significant factor to note is the anticipated stabilization of interest rates. I don’t think anyone is willing to publicly predict a lowering of interest rates in 2023, but Benjamin told the deputy chief economist of CIBC to anticipate one. We will see a stop to rate increases in the latter half of 2023. This will not result in a sudden rebound of sales and prices; rather, it will signal the beginning of a period of certainty for homebuyers and sellers.
Remember, volatility in the market is a direct result of uncertainty. So it with a potential halt to rate hikes, providing the soul, a glimmer of hope for the 2023 market. We all simply need to hunker down and prepare for the recession, which will further move our market in favour of buyers until the rates stop their historical trend.
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