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September 23, 2016 | The Fix

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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The latest goof to call for a Chinese Dudes tax in Toronto is the country’s previous finance minister. If you completely forgot about Joe Oliver, that’s okay. He wouldn’t stand out even if you put him between two shrubs. That kinda guy.

But as Harper’s former No.2, he does have some influence. And he says there should be a 15% Van-style tax on any non-Maple buying a property in the Big Smoke. He joins prominent CIBC economist Benny Tal, who made the same argument a few days ago. And sources tell me that T2 is also pushing Ontario to man up like BC did and off the foreigners.

The goal of all this? Ostensibly it’s to crater prices so people can afford houses. But really it’s about political optics, to be seen ‘doing something’ about a problem which government cannot solve. They can only crash, as it happening now in YVR.

August sales overall were down 24% and the average SFH shed $294,000 in what could be the opening ripples of a property bloodbath. As housing consultant and excommunicated realtor Ross Kay pointed out to me Friday, no housing market in North America has ever seen a 36% year/year sales increase turn into a 50% decline in just six months. “Not 1990 not the Great Recession, not in Canada and not in the USA,” he says. “This is a North American record.”

Well done, premier Christy Clark! You’ve just piloted the local housing market from a Biblical height into a deep, smoky hole devoid of survivors. So much for a soft landing. “I think it is fair to say we have had an impact,” she said yesterday. “That was the impact we wanted to have.”

So what was the impact? Basically, foreign buyers have said phooey to paying a 15% surtax on market value, and departed. In the two months before the tax there were (claims the government, which is suddenly swimming in data) 2,034 deals involving non-Canadians. But in the month after the tax, just 60. The yellow-peril gang of xenophobes who cruise through this pathetic blog argue that these stats – lower sales and prices plus the Chinese exodus – prove Van was a market made by foreigners, or the impact of the tax would have been slight.

But here’s the thing. The market was already rolling over. Sales in Vancouver peaked in March (5,173) then steadily wilted through the spring before hitting bottom (so far) in July (3,226). This 38% toppling in market activity happened at the same time benchmark prices for detached homes were rising by $235,000, or 17.5%.

That’s the essence of a dangerous asset – bloating price on collapsing volume. It shows fewer and fewer buyers were entering the market, that prices were being skewed higher on a reduced number of trades, and a correction was already beginning. That’s exactly the argument made here before the Chinese Dudes tax was cooked up and hastily announced by a government in distress. All it would take to topple the tower of speculation, greed and delusion was one little nudge. And we got it.

So whether foreign buyers were doing 9% of all deals, 3% or 16% is moot. After the realtors and Global TV had told the locals that Chinese Dudes were stealing all the houses, it was pure FOMO that fueled the bidding wars and the obscene mortgages. When the tax hit, the meme changed. Suddenly it made way more sense to wait than to buy. Sales dropped. Prices came next. Now expect more listings.

“I’m on the ground in Vancouver,” says blog dog Jeremy, “and the sentiment has definitely changed. Even at 16.5%, with much of that activity constrained to the top end of the market, your long-standing argument still holds true.”

Of course it’s true. Real estate is the most emotional of assets. People buy it for the damnedest reasons. And the higher it goes, the more they want it. If the tide turns, they flee. This is what booms and busts are made of. When human nature changes, so will this. Don’t hold your breath.

On Friday afternoon in mid-town Toronto several clutches of people populated a slick sidewalk on a boring street in mid-town, waiting to enter a house. The listing was 24 hours old, and hot. Smallish house, newly reno’d, mainly constructed of stucco-over-plywood, postage-stamp lot. Inside it had one of everything (nanny kitchen, media room, wall oven with vid screen) but all of dubious quality. Offers are being held back in anticipation of a bidding war. The price: $2.4 million. At the curb was a fleet of realtor A7s.

“The Ontario government should quickly impose a 15% tax on purchases by non-residents and foreigners of residential property in certain Greater Toronto Area (GTA) communities,” Joe Oliver says. “We have no choice.”

And so the real story begins.

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September 23rd, 2016

Posted In: The Greater Fool

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