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December 25, 2016 | Boxed

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.


Here’s a fresh blog because, after all, you have nothing better to do today, and the liquor store’s closed. Me too, apparently.


It’s been a while since a single-family house in Calgary was selling for less than half a million. But here we are. Sales are falling, inventory rising and prices declining. The benchmark price for detached houses slipped to $498,300 last month, which is $17,000 or 3.3% less than a year ago. That’s also about four thousand less than a month earlier, which means anyone who bought a year ago and needs to sell today would be leaving about fifty grand on the table. Ouch.

Local realtors aren’t sugar-coating this. Says the local board’s economist, the pneumatic Ann-Marie Lurie, “I think when you look at the aggregate, it’s a reflection of some of the adjustments occurring in the upper ranges of the market and it’s been spreading into the mid-section, as well.” As for the growing number of listings: “Now, potentially, product has been sitting on the market for a lot longer and that’s starts to influence pricing.”

So Cowtown buyers are thin, and those in the market now are reaching for a falling knife. Oil continues to be volatile, and while the OPECers are trying to curtail production (and drive prices up) the Trumpians seem poised to frack things up over the next couple of years (and drive it back down). Combined with this Spring’s rising mortgage rates, expect cheaper houses.


Yeah? Then you’re special. Just like Mom told you. But for most people, there’s a compensation backslide going on.

StatsCan calls this the worst wage slump in 15 years, with the average weekly wage in absolute decline – even before the current inflation rate of 1.2% (or 47% for cauliflower) is factored in. Average compensation for Canadian workers has been zero for a year – so when you adjust for inflation, most people are worse off. By the way, US wage growth for 2016 has been positive whiles ours is negative.

It gets worse in Alberta, natch. Wages there have fallen 2.6% in the past year, which helps explain the item above.



Remember 1990? Sure ya do. Vanilla Ice was topping the charts, just to prove how screwed-up things were. I was a Member of Parliament and five-year mortgages were 12.5% (no relation between those two. Honest).

Because the cost of home loans was so extreme, houses were cheap (the average Toronto house sold for $255,500) but people were struggling to pay for them. So 26 years ago an awesome 63% of gross household income was required to carry the average house after slapping a big 25% down. (The mortgage I took on my townhouse in Ottawa after being elected in 1988 was 14%.)

Today five-year mortgages are (for now) in the 2% range, which has helped push average prices to the point of stupidity ($776,700, including condos). This helps prove the obvious negative correlation between the cost of money and the cost of real estate – verified by the Royal Bank when it tells us that once again 63% of pre-tax Toronto incomes are needed to carry that average shack. (Naturally, this is less than in Vancouver, where the stunned locals require 92% of untaxed income – about 115% of what they actually make – to afford a house.)

So, things are just as unaffordable now as they were when people were slammed with double-digit mortgages. When it comes to Toronto (unlike Vancouver) the market continues to advance, as low inventory combines with rampant speculation to drive prices up 20% year/year. Just imagine what the situation could become when five-year loans are 5%, rather than two. Or if the provincial real estate boss, former politician Tim Hudac, gets his way and persuades the province to dish out free down payment loans to moisters. Yes, just like in BC. It’s all worked out so well there.


…pay attention. Speaking of Vancouver, the trends are unmistakable, and apparently irreversible, according to the country’s biggest housing flogger, Royal LePage. Sales have been falling for five months and average detached prices are $200,000 less than in the summer. Market activity peaked last February – almost 11 long months ago. So if you sell properties in YVR, the trend is not your friend.

LePage boss Phil Soper admits it, as his company calls for a ‘double digit’ drop in prices during 2017. “Home prices had gotten so out of whack with the growth in underlying wages and salaries that there had to be a correction,” he says. “And it’ll happen in 2017. “It’s a twitchy market — people live on more of a hair trigger. When there’s a change in external circumstances — like interest rates or economic confidence or government regulation — you feel it much more acutely if your mortgage eats up twice your disposable income compared to someone elsewhere.”

Rates will be rising in 2017, if not pushed higher by a skittish Bank of Canada, then certainly by the bond market as the US plumps the cost of money. Meanwhile exports are sketchy, job creation dodgy, wages slack and commodity prices uncertain. Soper is stating the obvious. But a ‘double-digit’ decline will not make average houses affordable to average families.

So, yes, more is coming.

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December 25th, 2016

Posted In: The Greater Fool

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