Home listings and price reductions are popping up like measles. You can see this by signing into Zillow (or many other sites). Meanwhile, offers are increasingly scarce, and a quick look at any mortgage calculator shows why.

When Canadian variable rate mortgages were available at 1.65% from 2020 to early 2022, one was enabled to buy a $750,000 property with 20% down and a monthly payment of $2441 over a 25-year amortization. At a current rate of 6.14%, buying power is reduced by 38 percent with the same monthly payment enabling a maximum purchase price of $465,000.

To qualify for a CMHC-insured mortgage in Canada (less than 20 percent downpayment), one must qualify based on an interest rate of around 8.14%. At this rate assumption, the same $2400 monthly payment can qualify for a maximum purchase price of $340,000 (54% lower than in 2021). Sellers are in denial–the average Canadian home listing in August was $750,100 and well over $1 million in the highest population areas.

Similar math is evident in America, where a $1k monthly payment today can buy a home priced at $173,000, down 44% from $309,000 in 2020 (chart below courtesy of Jeff Weniger). At the end of June, the average US asking price was $416,100.The inverse correlation between mortgage rates and home sales is evident in the Visual Capitalist chart below since 2014–unsurprisingly, sales have tumbled to the lowest level in more than 20 years. As motivated sellers and lenders rise, steep discounts will be needed.

The liquidity Calvery is not riding to this rescue. The average time from the last Fed rate hike to the first cut has been ten months, ranging from four to 18 months in the previous 30 years. Moreover, once they start, rate cuts, like rate hikes, will be felt throughout the economy at a 12 to 24-month lag. Those who need or want to sell are best to be proactive.