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August 11, 2015 | Throttled

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.


China devalues its currency. Oil slams down to forty-three bucks. The dollar slides to 76 cents and markets wobble. Another Fed official confirms US interest rates will rise in five weeks, and we’re all talking about little Norway.

Every day this summer there are more reasons to believe those people buying real estate (there were 9,880 of them in Toronto last month) are absorbing epic risk. As detailed here, the average price of a detached shack in 416 has declined $120,000 over the past five months, and yet the meme is that the market’s on fire.

Pfft. Maybe not. Vancouver, either. The flames and smoke may be more in the eyes of the beholders, based on data the real estate boards would rather you don’t see.

For example, YVR. As housing consultant and excommunicated realtor Ross Kay tells me, there have been 47,796 homes listed so far in 2015. Just over 46% of those have failed to sell, which means the “average price” number published by the industry reflects only the best five in ten houses that hit the market. The other five that languish are not counted, and did not pull the index down.

The average is now $865,071, but Kay’s analysis shows it’s bogus. Three-quarters of all properties can be purchased for less than the average, and 57% of all detached houses are sitting at values under the average for detached listings. So, how ethical is it to tell the public only about average sale prices, without adding the average price of all houses for sale at any one time (as in the US)?

You’re right. It’s not. This creates a false impression, especially among naïve buyers who end up getting their tails shot off in a needless bidding war.

Also interesting is that of the 114,659 properties hitting the Toronto market this year, 44% haven’t found buyers, also skewing the average sale higher (since it’s based on only 56%). Kay also says the Toronto Real Estate Board has fibbed about how long sellers need to find buyers. Instead of the reported 20 days, it’s actually 67 – or more than three times longer. This results from properties being relisted or repriced, which is important information never shared with MLS porn addicts.

Now, let’s yak about housing starts. The numbers CMHC fed us yesterday were unremarkable on the surface, but some people are seeing a massive supply glut on the horizon, even as condo sales to hapless, unsuspecting virgins rebound.

“The number of housing units under construction has risen to unprecedented levels, mainly in the multi-unit market,” says economist David Madani. “Many of those are condo projects that will soon be completed. Although most of these have already been purchased by investors, the 81% absorption rate suggests that as many as an annualized 325,000 units will be added over time to the growing glut of newly completed unoccupied units. This oversupply continues to suggest that the economy is vulnerable to a sudden shift in investor sentiment that could trigger a potentially severe market correction.”

And why would sentiment change?

Simple. Next year 2.4% fixed-rate, five-year mortgages will be nothing but a memory. Worse, oil and other commodity prices could still be in the ditch, which begets higher unemployment and swampy growth. Household debt continues to ratchet higher every month, so any new hit – higher mortgage service charges or maybe one of the tax increases all the people who read this blog want – will throttle consumer spending. Says Madani: “We expect housing demand to soften considerably next year in response to rising long-term interest rates and souring investor sentiment in the condo market.”

Is your daughter about to buy that condo? Bad idea. Here are a few more things to consider, from the dudes at Urbanation, in Toronto:

The number of new condo starts this year has increased an astonishing 78%. There are now 50,540 units under construction. New condo sales are up 11% year/year and, for the first time, the average resale values pushed passed the $400,000 mark.

How much more evidence do you need that public sentiment is scarily divorced from reality? Beyond this blog, I mean.

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August 11th, 2015

Posted In: The Greater Fool

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