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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

July 22, 2016 | Careful What You Wish For

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.

CAT FISH modified

Poor Ian. The dude’s been trying to talk to a couple of his friends about the housing market cracks this blog’s been pointing out of late.

You know. The plunge in detached sales and the withering listing ratio in the Lower Mainland. The soaring vacancy rate and falling prices in Calgary. The job losses last month across Canada. Rising household debt and falling savings. The ascent of a US presidential candidate promising to rip up our free trade deal. That kinda stuff.

“They are new homeowners,†Ian says, “one who has a townhouse in a dodgy location (think prostitutes, auto repair shops) that cost over $800k. Both, who are deeply indebted, had the same reaction; they said GREAT! A housing bust! I can’t wait, I can get a new house cheap! While completely ignoring the fact that their own places with be worth less, and probably unable to sell without owing the bank a small fortune (underwater doesn’t even enter into their minds).â€

“I don’t understand,†Ian adds. “Do people think that once prices go down, the debt magically shrinks as well? That may explain why so many are desperate to fork over vast amounts of future earnings for a house in a lousy location. Clearly, our schools have failed us in that people have no idea they are getting into when signing on the dotted line.

“We as a nation, are toast.â€

More like panini. Crisp on the outside. Mush in the middle. Modern life makes you wonder what Canadians are thinking. After all, the symptoms of slowdown and asset loss are all around us. As Brexit and Trump have clearly demonstrated, walls are the new black. Cries of ‘Americanism not globalism’ echoed around the Cleveland convention this week, evoking the anti-EU, anti-immigration sentiment that set Britain adrift.

(By the way, that economy shrunk more last month than a stud in a cold lake. The latest survey of purchasing managers fell the most in its 20-year history – “a dramatic deterioration†attributed to Brexit. The IMF has slashed its growth estimate for the UK as the economy contracts at the fastest rate since the credit crisis, amid the service sector’s biggest drop since 1996 – when records began. Oops.)

Walls around Britain. More ready to be erected on American borders. Trade treaties biting the dust. Pissed-off voters clamoring for simple solutions, pulling major governments back to a world of barriers, tariffs and country-first. It has a certain tribal appeal, but it’s toxic for a nation like ours, trade dependent with so much national income and wealth based on exports and commodities.

And that takes us to Saskatoon, of course.

It wasn’t long ago this blog was yapping with real estate snorflers across Saskatchewan bragging about catapulting house and land prices. The commodities boom lifting potash, oil, gas and mineral values had people convinced “it was different†on the prairies – that everybody wanted to flood in and real estate could only bloat further. Well, just like it wasn’t different in Calgary (oil) or Halifax (new ships) and won’t be in Vancouver (Chinese dudes), Saskatoon’s now turning into a dud market.

Local realtor Josh Buchanan puts it this way: “We are now halfway through 2016 and it appears as though the local residential real estate market is getting worse, not better. Every month so far this year has seen a decline in the number of sales compared to the same months last year and June was no exception.â€

Sales are down. Listings are up. Prices are retreating. The sales-to-listing ratio is collapsing. This is the slowest year for deals since the end of the credit crisis, despite a big bump in population. “When it comes to prices, we are seeing consistent softening of the average sales price compared to 2015. So far this year, 5 out of the 6 months have shown lower average sales prices than the same months last year…â€

Buchanan adds: “For the second half of 2016, we should even see more downward pressure on the average sales price and I would expect that the average price for the second half of the year will be noticeably lower than that of the first half. Unfortunately, because the sales-to-listings ratio in 2016 is falling even lower than 2015, it means that this will not be a quick correction but rather the fall in prices will continue into 2017 at an accelerating rate.â€

Okay, I get it. Calgary is not Vancouver. Saskatoon ain’t Toronto. Every market is local. All regional economies are unique. But the conditions under which it makes sense to have all your net worth in housing, or to carry a giant mortgage, or be in a leveraged, speculative position on a property, are threatened. The forces that spawned Brexit & Trump, cheered on by the rabble reading this blog, guarantee a long, sustained period of low growth, low yields, low inflation and low jobs.

So, yeah, Ian’s friends are idiots. And I know how they’d vote.

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July 22nd, 2016

Posted In: The Greater Fool

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