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August 11, 2017 | Under water in TO

Garth Turner

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

The real estate board won’t tell you, but this blog will. The nation’s biggest, most influential real estate market continues its descent. Internal, super-secret, if-I-tell-you-I-must-kill-you realtor statistics for the first ten days of August aren’t pretty. Unless, of course, you’re rooting for a price collapse. Which just happened.

The average detached GTA digs has fallen through the $900,000 mark, erasing a full year of appreciation. At $895,000 it’s $65,000 lower than just a month ago – which must come as bitter news to the 5,921 people who closed on properties during July.

In fact the average price is 29.8% less than it was in April – only 120 days ago. This is the most rapid price deterioration since market numbers first started to be compiled. It makes the last crash of the early 1990s pale in comparison (that one took three years to play out, then 14 to recover). In terms of market deceleration, it beats the pants off the 2005-7 US housing crash (that one bottomed out with a 32% price dump), and there’s probably more to come.

For the record. A TO detached that cost $1.275 million in April is currently $380,000 cheaper. It means anyone who bought with the standard 20% down is underwater – owing more in mortgage principal than the house is worth. How many people warned you this might occur? That’s right. None. Zippo. Except maybe one bleating, pathetic blog, crying wolf in the night.

When it comes to the real estate establishment, well, this was the message from last Spring:

“Home ownership continues to be a great investment and remains very important to the majority of GTA households. As we move through 2017, we expect the demand for ownership housing to remain strong, including demand from first-time buyers who, according to a recent Ipsos survey, could account for more than half of transactions this year. However, many of these would-be buyers will have problems finding a home that meets their needs in a market with very little inventory,” said (Toronto Real Estate Board president) Cerqua.

“The number of active listings on TREB’s MLS® System at the end of January was essentially half of what was reported as available at the same time last year.  That statistic, on its own, tells us that there is a serious supply problem in the GTA – a problem that will continue to play itself out in 2017.  The result will be very strong price growth for all home types again this year,” said Jason Mercer, TREB’s Director of Market Analysis.

There you go. The voices of responsibility. “A great investment… strong demand… strong price growth for all home types again this year.” Can you imagine such categorical statements being made about stocks? Shackles and a perp walk would be involved.

Well, that didn’t work out so well for anyone who bought since July of last year in Toronto. Meanwhile in Mississauga detached prices fell $82,000 last month, to $878,000. The decline from peak house in April is 20.9%. That house is now $232,000 less. In Markham the average plunged an astonishing 10.1% last month alone ($140,000), erasing a blip higher in July and taking prices back to March of last year. Since the spring, $331,000 in equity has left town. In Brampton prices are 17.1% less, and just fell $37,000. What cost more than $850,000 in March is barely more than $700,000 now.

Some areas seem to have stabilized (Richmond Hill, Vaughan, Newmarket) after suffering big price dives. But it’s August. Sales volumes are low. And this is only ten days’ worth of data. More revealing numbers will come in the weeks ahead, as we inch closer to the new mortgage stress test everyone must pass, plus the October Bank of Canada rate increase.

Well, to Victoria now, where people are so cute. They think it’s different there.

Eight months ago a doc blog dog wrote us for advice on selling his house or staying put. You savaged him. But he’s back with an update:

“Remember me, the ER doc in Victoria who wrote you last December about whether we should sell our house for $1.4 to 1.5 million, pay off our 500K and rent for $3K / month?  Your opinionators  totally skewered me in the comments section for wasting my life until that point with only $1 million in savings.  Little do did they know that front line health care workers like don’t make $500K a year (more like $250K) and we have to pay overhead out of that.  The last kicker is that I didn’t start start earning income until I was 30 and proceeded to get the worst financial advise for the next 10 years .

“We waited until April to list our house.  But by then there was an invisible softening to the market in Victoria.  Home listings when up and sales started to drop.   After 60 days on the market there were no bidding wars and showings fell off to one a week with no seconds.  It was obvious that where weren’t going to get the $1.5 that we listed for and our realtor was confident it would fetch.  The realtor was perplexed and dumb founded.  We dropped that price to gain an edge in the market and sold for $1.3.  Phew – because sales have ground to a halt in our price range!!

“So we didn’t get the $1.5 that the realtor almost guaranteed us but other things worked out in our favour.  The owner of the property we are renting dropped the monthly rent to $2K / month so he could keep a us, a good long-term renter, in the house.  Given the recent changes coming to the small business corporations, rising interest rates and softening real estate,  I think we have made the smart move to short the market.

“I think I still have 10 to 15 years of good work left in me and have close to $2 million in liquid investments, no kids in the house but still on the payroll for education, which we have saved for BTW.  Given how my investments have performed I am hoping never to return to the Canadian real estate market unless there is a major correction or I have a huge shin dig at the new rental and get the boot (you will be invited to that). I feel bad for my children who will likely never own property in a major Canadian centre even if they go to medical school.  Sad statement!!!

The moral: residential real estate is fun, socially sexy, can help you get girls and is oft mistaken as the goal of life. Even by doctors. But what really matters is the fulsome enjoyment of the limited time we all have, and a good way to make that happen is to be rich. Or at least financially secure. And that means having cash flow, not stuff. Doc did the right thing. Sold near the top. Rents cheap. Money for life. Comes here. How is that not perfect?

Finally, the news I shared with you yesterday about the morons among us generated a surprising and unexpected response. Not only did a gush of sucking-up comments appear here, but I was contacted by Internet security experts, lawyers specializing in cyber crime and even some duct-cleaning guys. It was touching. I’m good. Thanks to you.

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August 11th, 2017

Posted In: The Greater Fool

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