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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

September 20, 2016 | No Choice

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.

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Household debt in Canada is bigger than the economy. I showed you the chart a couple of days ago. We have a 170% average debt-to-income ratio, while the Yanks are at just 130%. The majority of people buying million-dollar houses in Toronto clock in at 450% or greater.

People have no self-discipline. They can’t stop borrowing and spending. “This market is absolutely insane,” a realtor in the 905 above Toronto told me yesterday. “It’s like nobody cares what they shell out. I’ve never seen anything like it.”

Nobody has. Uncharted. And as prices rise listings sink, making the circle tighter. It’s human nature – when values inflate people fear selling and moving and buying again, so they don’t. When markets decline sellers rush to lock in gains before they erode, and listings jump. It can make market fluctuations fast, extreme, shocking.

So in Vancouver last month sales sank by 24% and prices toppled 17%. The average house, in other words, got $294,000 cheaper in a little over four weeks. The immediate catalyst was the Chinese Dude tax, but that was just the push. It wasn’t the cause. And so we got front pages that look like this:

globe-modified

Canadians in general can’t quite absorb the fact they’ve caused this unhealthiness with their own debt obesity. Instead they seek others to blame. The mansion-buying Chinese student with no income is an excellent example. It makes a great headline. The geezers and xenophobes at Timmies cluck over it. The NDP salivates. It’s just so perfect.

But underneath that are the true reasons residential real estate is troubled. And troubles may soon come to the centre of human achievment, the GTA.

This week well-connected and long-time Bay Street economist Benny Tal postulated that the Ontario Libs are contemplating slapping a Chinese Dudes tax on Toronto. In fact, he said, the government “will have little choice but to do the same.” The reason, he argues, is that by restricting foreign demand in one market, it simply augments in another. Already 416 and 905 are suffering from the same paucity of listings that caused Van prices to shoot outrageously higher at the end of the summer. It’s why multiple offers came in last week on a little, old $1.4 million house in Oakville riddled with knob-and-tube wiring, ending in a deal for $1.65 million.

Of course, we know what happened in YVR when a tax was imposed affecting just 9% of the market (the official count of foreign-financed trades). It started to roll over.

VAN4 modified

Is this what awaits the Toronto market if Ontario follows BC’s lead? Remember – a few months ago Ottawa set up a housing task force to deal with runaway prices and fading affordability. On it sit reps of the BC and Ontario governments, as well as officials from Vancouver and Toronto. Just weeks later the Chinese Dudes tax was imposed – clearly intended to shock the market, and obviously finding favour from the T2 cabal. In short, there’s now pressure from the feds on Queen’s Park to follow Victoria. The induced correction is upon us. Mr. Tal may be the unofficial clarion. Pay attention.

Changes may also be coming, he suggests, to raise down payments plus make banks foot their own mortgage insurance (instead of taxpayers), raising home loan rates. And all of this is intended, “to save Canadians from themselves.”

Like that’s going to happen.

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September 20th, 2016

Posted In: The Greater Fool

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