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September 2, 2016 | Crushed

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.

GOVERNMENT modified

Yesterday we anticipated some new and consequential data. Today we are digesting it. Ugh. Gruel.

First to the epicentre of the country’s real estate correction, Vancouver. This is what the real estate board boss said in announcing an official 26% plop in region-wide sales:

“The record-breaking sales we saw earlier this year were replaced by more historically normal activity throughout July and August,” Dan Morrison, REBGV president said. “Sales have been trending downward in Metro Vancouver for a few months. The new foreign buyer tax appears to have added to this trend by reducing foreign buyer activity and causing some uncertainty amongst local home buyers and sellers.”

In this case, “historically-normal” can be interpreted as “crash” (analyst Ross Kay) or “chaos” (Van realtor Larry Yatkowsky). This is like an outta control Lambo suddenly slamming on the brakes to try and avoid a cliff. But it doesn’t. Some facts the realtors omitted in their media release on the Friday of a long weekend:

The average price for all properties sold in August ($832,000) is now the same as it was back in January of 2015. That’s 17 months ago – a period of time during which a lot of people paid an epic amount of money for properties which are now, Mr. Market says, worth less. Oops.

Only one in five houses listed for sale last month found a buyer. So, 80.2% of all the sellers just got a taste of illiquidity. More to come. As Kay notes, compare that to the 63% of houses which did not sell in March, and you can see the direction in which this market is headed. It’s interesting that despite the clear trend, the real estate board is calling this “a seller’s market.” They wish.

Meanwhile the first jobs fallout from the Van crash are making headlines. The local homebuilders association is predicting 5,000 hammer-swingers, drywallers and shingle demons will soon be out of work – about 10% of the area’s trades. Like the dismal residential resale market, the new homes business is being decimated by the 15% foreign buyers tax – not so much because deals are collapsing (they are) but because confidence has left town.

“I was surprised at how quick it was,” says the homebuilder boss. “The very next day we were getting emails from our members about contracts falling through.”

The average construction dude in BC earns $55,000 a year, meaning his chances of owning a detached house in 604 are, like, nil. Ironically a tax on Chinese guys intended to reduce house prices, which turns into the catalyst for an industry meltdown, isn’t going to help any carpenter buy the house he builds, especially when unemployed. In fact, a very unhealthy 26% of the entire provincial economy is now real estate-dependent (slightly more than the national number), and currently at risk.

This is a great example of a government pulling out all the stops to encourage rampant housing appreciation (like letting seniors skip paying property tax and allowing first-time buyers to avoid land transfer tax, after gifting them grant money), then murdering the same market with a crushing tax when it was already starting to topple under its own bloated weight. All of those moves, of course, were political – not economic. The unintended consequences have been profound, and what’s happening in the BC market will likely have national implications.

So will the latest US job numbers, also released on Friday. (My know-it-all partner, Doug Rowat, will have more to say about this in tomorrow’s post.) The media portrayed it as “a miss” when 151,000 new positions were created, and the jobless rate stayed sub-5% in August. The doomers said it suggests the US is inching closer to recession and the Fed will never, ever, ever raise rates as a result.

Wrong. The numbers were lighter than expected, but consistent with an economy that’s closing in on full employment. In the wake of the data dump, there’s absolutely no clarity on when the Fed will decide to pull the rate trigger, but the market is giving it a better-than-50% chance for shortly after the Presidential election (which Clinton will win, or we have one momma of a mess on our hands).

In the meantime, will the Bank of Canada panic and cut its key rate given the serious contraction of the economy, our lousy trade numbers and the implosion of BC real estate? The next moment of decision comes on October 19th (the 29th anniversary of the worst stock market dump), and the one after is December 7th (exactly a week before the Fed may move).

The consensus: no.

Stevie Poloz knows where the Fed’s headed. And he understands that dropping five-year mortgage rates below 2% at this instant would cement his role as a Judas goat.

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September 2nd, 2016

Posted In: The Greater Fool

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