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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

May 31, 2016 | Peak House

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.

 

“There are reasons to believe we may have hit the peak.” Powerful words. Especially when they come from the lips of the dude who’s chief economist for the country’s realtors. So, has Gregory Klump been reading this pathetic blog?

Of course he does. (Hi, Greg.) But it’s growing more obvious by the day that the worm’s turned. The latest stats for the economy are dismal, with negative growth in both February and March. Then came the fires. The Bank of Canada has already said the Alberta blazes, and the oil shutdown they caused, will shrink economic growth by more than a full point, almost guaranteeing the first half of the year will end up in the red.

Meanwhile Canadians have been deep in the trough. Total mortgage debt now equals three-quarters of the entire economy in size. Almost 15% of all our economic activity is related directly to real estate, the only large sector which continues to expand. And the bankers just won’t quit. Yesterday a blog dog reported her TD loans guy dangled 2.39% for a five-year fixed mortgage, ten basis point below the bottom of the rate card. “The economy’s doing poorly,” he said, “so we’re offering a lower rate.”

Actually, the rate war is raging because real estate deals are starting to slide in Toronto and Van, the way they have in other centres. Sales in Toronto, seasonally-adjusted, fell in March from February and flatlined in April. In a few days we will see the May numbers. Similar story in YVR – sales are ahead of year-ago levels, but weakening. If inventory levels were normal, instead of close to historic lows, the bidding wars and FOMO might quickly evaporate.

But even with so few places on the market, multiple offers are diminishing, more listings are languishing and the bully bids are disappearing. No wonder. Prices are at extreme multiples of average incomes, wages are hardly budging and the jobs market sucks. Economic contraction means just that – the pie gets smaller for everyone.

Meanwhile every day takes us closer to the end of cheap money. Below are the latest odds of coming rate hikes in the US. They’ve been gaining ground now for two weeks as a summer pop looks all but certain. It has the US dollar rising, ours falling and commodities weakening. By the end of the year there’ll be no doubt that 2016 gave us peak house and debt valley.

(Click to enlarge)

FED ODDS

Badboy ex-realtor and housing analyst Ross Kay is issuing this warning: “When you remove all additional activity caused by Canada’s surging housing market from November through March, Canada would have lost net GDP and been in a small negative position each month.” In other words, it’s been real estate and real estate only that has masked a virtual recession. “Govern yourselves accordingly,” he adds.

Whazzat mean? Simple. People buying at peak house prices with mortgages destined to reset higher in a country with a shrinking economy are probably nuts. Homeowners who have made out like bandits as the bubble inflated, yet don’t cash out, are even more nuts. The only reason not to sell is if you think you’ll never be able to buy again. And how can anyone be that thick?

Desjardins economist Benoit Durocher sees average prices starting to decline in 2017. “Since prices are so high, you have fewer buyers in the market and fewer transactions,” he told Reuters this week. “I think it is the first step before an adjustment in the price.”

Well, higher US rates will eventually move Canadian mortgage costs. A contracting economy will restrict job opportunities and constrain incomes. Buyers assuming huge debt and increasing their housing costs to ‘get into’ the market are gambling on future capital gains that now look dubious. Is this really a risk you want to take?

Talked to a doctor visiting the Big Smoke from Saskatchewan yesterday. For giggles he went to an open house down near inner-city Cabbagetown – a semi that hadn’t been renovated in 80 years and would make an iffy pig barn in Swift Current. “They want nine hundred grand for that piece of crap,” he said, amazed. “You people are in trouble.”

The best house in his town is a new McMansion on a giant lot with a triple-car garage, valued at $500,000. “A nurse owns it.”

Ouch.

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May 31st, 2016

Posted In: The Greater Fool

One Comment

  • Avatar SirTalksAlot says:

    Real estate deals are starting to slide in YVR? Hahahahahahahahaha house now sells in 4 hours vs 2 hours? LOL.

    Remember when Garth came to White Rock wearing his clown shoes and declared the market over valued? What has is doubled since?

    It’s all about the interest rates….

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