Joan’s been a realtor for long enough to know the last few years were off-the-chart goofy. Buyers got reckless. Sellers turned predatory. But, oh my, what a flip.

“I’m working on a situation this weekend you might find interesting,” she writes. “List price is 3.2M, my clients offered a month ago and we went back and forth but didn’t come to anything as the sellers were not reading the markets…. Seller called yesterday and verbally offered property to my buyer for 2.5M with whatever conditions they want!”

So, a $700,000 reduction – 22% – in a month. Plus conditions, like an inspection or financing. The shoe is on the other foot. Buyers rule.

But, wait, where are they?

As recently as May, there were more than 45,000 showings a month happening in Toronto and region, for example. By last week that had absolutely plummeted to fewer than 8,000. With new listings closing in on the 20,000 mark, it’s not hard to see that sellers are getting very, very, very lonely.

Click to enlarge. Source: Brokerbay

This is the most interesting aspect of current conditions. Fear of missing out (FOMO) has turned into fear of getting screwed (FOGS) and, of course, fear of over-paying (FOOP). Ironically, the odds of being Hoovered and violated were far greater six months ago when sellers were voracious and greedy, every sale was a bloody competition, conditional offers were non-existent and asking prices were mere suggestions.

Yes, mortgages were cheaper in February when you’d probably never heard of Harry Styles, Diljit Dosanjh or Vladimir Zelenskyy, but it was the worst time in human history to bid on real estate in a major Canadian city (or Bunnypatch). Prices, greed and aggression all hit new extremes. Be a seller, not a buyer, this pathetic blog urged. It’s peak house.

As you remember, everybody called it a crisis. Real estate was the focus of the federal election of late 2021, as it’s been in every recent provincial vote. Now house prices have tumbled, inventory has exploded higher, blind auctions are gone, conditions are back, down payments have fallen along with valuations and competition’s vanished. Sellers – like the one Joan spoke to this weekend – are highly motivated. Lowball deals beckon. And now we get headlines this this…


Apparently the real-estate-costs-too-much crisis is now a prices-could-crash crisis. That’s the meme as we pivot from greed to fear. What all the scared homeless Mills and Zs need to recall is that buying for less with a lower debt level and a higher rate beats paying more with an epic mortgage at a cheap rate. The price of borrowing fluctuates. The debt does not. And finally, understand this: we’re not going to 10% mortgages. The central bank will not turn the lights out. 2022 will suck, yes. But the odds are we’re stabilize with mortgages somewhere near 5% for a few years.

That means (a) most of the rate pain is already priced in and (b) people will over time get used to it (like they always do), which leads to the conclusion that (c) real estate valuations will continue to fall for months to come – until the bottom is reached. Then it’s over.

In other words, rutting season 2023 will not look at all like this year, when the spring market went flaccid. Govern yourself accordingly.

Now, with regard to rising rates (this will be ongoing until the autumn), Steve in London has a question:

Our mortgage renewal is due in almost exactly 1 year. We owe $260,000 with 2.89% interest on a house worth a billion or two in London Ontario.  Up until recently our prepayment charge was around $11,000 which is quite steep. I just checked again this morning and it’s down to about $1800. But now I’m even more unsure. Do I cough up this relatively small sum, but lock in at 5% or higher for another 5, betting that rates will be higher than that in a year? I’ve calculated that will cost us $5500 in extra interest for the next year. Or wait until next summer and take our chances, hoping rates won’t be above 7%. But what if they are?

No, rates will not surge past 7% and stay there. Too much. Too extreme. Too many macroeconomic consequences. Stop obsessing about your mortgage. Paying the break fee now and turning your 2.89% loan into one at 5% will cost you more than seven grand in after-tax dollars. That’s a big insurance premium. Personally I’d wait and feel smug about my cheap home loan, then see the lay of the land in a year’s time. If you’re really insecure, talk to the bank about a blend-and-extend on a three-year term. It’s the mushy middle. Very Canadian.

Oh, and John from Abbotsford just wandered in to use the men’s room, and says he also has a question:

We have $35,600 left on our mortgage at 2.67% and the rate is locked in until August 2025. At the current payment schedule, the mortgage should be fully paid before it’s time to renew. We also have a $40,000 investment loan using our HELOC. The $40,000 is invested in a balanced and globally diverse portfolio of low cost funds. The interest rate for the HELOC has crept up to 4.2%. Right now we are paying interest only on the loan like you advise in your blog. What should we do with the extra $4,000 we have left at the end of each month? Start paying down the HELOC investment loan or get aggressive with the mortgage?

Sweet. A loan at 2.67% for three years when inflation is about to crest 8%. That’s free money, John. Do not trash it. Don’t make prepayments. Besides, it’s a trifling amount. The HELOC’s another story. The rate on that will be north of 6% soon as the CB adds 75 bips in two weeks, and heaps on more after that. Yes, the loan interest is (unlike your mortgage) is deductible from taxable income, but it’s time to start reducing the principal.

Next time come with a real problem. You just made the kids boil.

About the picture: “This is our 6 year old shiba inu, named Rio,” writes Robert from Montreal. “Always acting like one of the kids!!”


DOUG  By Guest Blogger Doug Rowat

Based on the amount of media coverage Tesla receives, you’d think everyone drives one.

In reality, electric vehicle penetration of global vehicles owned sits at only about 3%. Less even than wind and solar’s penetration of global energy consumption:

EVs may one day blanket the world, but it’s definitely not now

Source: As above. Graph sourced from MarketWatch. Click to enlarge.

Now, perhaps this illustrates the market-growth opportunity for electric vehicles in some distant future, but in the meantime, the world still massively prefers old fashioned gas-guzzlers.

In other words, with respect to cars and most other things, the world still runs on oil. One more reason why Tesla’s cutting staff and its stock is off almost 45% from its highs.

But investing straight-up in the oil & gas sector also isn’t easy. Constantly having to time boom-bust cycles is nearly impossible. How many, for instance, overweighted oil stocks in anticipation of the tailwind they’d receive this year from…a war in Ukraine? And buying and holding the energy sector isn’t an ideal alternative as the S&P/TSX Composite Energy Sector is up only 5.9% annually on a total-return basis over the past decade, substantially underperforming the S&P/TSX Composite, which has returned 9.3%.

But there’s a better, and more conservative, way to invest in the energy sector: pipelines. The investment rationale’s straightforward: all that oil and gas is of no value if it can’t be transported and nothing beats the efficiency of a pipeline for doing this. Crude oil transport via pipeline, for example, costs only about US$5/bbl—less than half the cost of rail transport. It’s no accident therefore that the US ships almost all of its oil and gas via pipeline.

Pipeline companies invest enormous capital to build out their infrastructure, so in return they insist on long-term delivery contracts. You can’t have massive capital outlays for expansion projects, which sometimes take a decade or more to complete, if you don’t have earnings visibility. These long-term contracts provide that predictability and give pipelines a utility-like structure. An advantage for pipeline stocks therefore is that they avoid much of the share-price volatility inherent in oil & gas producer stocks.

But this isn’t to say that pipeline stocks don’t still have sensitivity to rising energy prices. They do. This is one reason why the Canadian oil & gas storage and transportation sector (the pipeline sector’s more official classification) is up double-digits y-t-d (see table below).

Another advantage of having pipeline exposure is the consistency of the dividend income. While Suncor slashed its dividend a whopping 55% in 2020, for example, Enbridge and TC Energy raised their dividends 10% and 8%, respectively. In fact, TC Energy has increased its dividend for 22 consecutive years. Enbridge for 27 consecutive years. How many oil & gas producers can say the same?

Canadian oil & gas storage and transportation sector

Source: Bloomberg, Turner Investments. Priced as of June 20, 2022. Click to enlarge.

Electric vehicles are great. They’re trendy, fast, quiet. And they allow you to have cool conversations with your friends about how visionary Elon Musk is. But they’re not even coming close to taking a bite out of global oil demand. And anyone who thought that the global pandemic would provide a ‘teaching moment’ and loosen the world’s grip on oil has been sadly mistaken. Below is how quickly oil demand recovered from the pandemic dip. And consider the oil-demand long-term trend—why fight this as you build an investment portfolio?

Global oil and liquid fuel consumption (million/d)

Source: Bloomberg

And all of this oil we use? It needs to be efficiently transported. Enter Canadian pipelines.

To gain exposure to the sector (and hedge risk), select a well-diversified Canadian equity ETF, but there are plenty of such ETFs that also have above-average pipeline weights. And what this pipeline exposure ultimately offers your portfolio is more conservative leverage to oil and gas prices, reliable and growing dividends, and long-term outperformance of the energy sector without the burden of having to time boom-bust cycles.

What’s not to like?

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Investment Advisor, Private Client Group, Raymond James Ltd.