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December 1, 2016 | The Sucker

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.


When 263 Wright Avenue, in Toronto’s leafy west end, hit the market last Spring, it was sad. Vacant. Neglected. The listing agent said it must sell in an “As is, Where is” state. The pitch: “Attention Builders, Investors And Contractors, An Opportunity To Bring This Gem Back To Its Glory. Private Driveway With Detached Garage.”

In other words, a beater. But in a good hood. The price: $979,000.

Well, it sold in seven days. Bidding war. Lots of emotion. Cars lined up down the street on offer night. The final sale price was $1,303,000, or $323,000 over list – a premium of 31%, plus double land transfer tax of $44,320.

But if you missed out on this tarnished gem the first time, here’s another chance. Six months later it’s for sale all over again. “Attention Builders, Investors And Contractors, An Opportunity To Bring This Gem Back To Its Glory,” says the new listing. “House Being Sold In ‘As Is’ Where Is Condition.”

In other words, nothing’s changed since it changed hands in the Spring for $1.3 million. Except the price. Now it’s on the market for $999,000. Says an experienced local realtor who shared this with me: “Unless this sells for north of $1.42mm, this sucker will absolutely lose money (and this doesn’t count for carrying costs or a penalty for breaking a mortgage). Either the house was crap (which it is), or they realized there’s no money to be made (also likely true). This is too funny.”

Well, here it is…


So on Thursday Bloomberg ran a story with this headline: “Why 2016 may be the year of ‘Peak Housing’ for Canada.” This proves (a) Bloomberg’s a lot smarter than most Canadian media outlets, probably because (b) they read this blog, which is where ‘peak house’ first appeared (May 31st). So when you read about Moisters visiting [email protected] in the New York Times, you’ll know.

Three years ago in Canada there were three bubbly, frothy, horny, outta control housing markets in Canada. Two years ago two were left. Now there’s one. And as more properties like 263 Wright find their way to market, we might be on our way to zero. After all, the arguments against real estate are piling up by the day. TD raised mortgages again yesterday, this time for rental properties and long-am borrowers. The latest onerous regs brought in by Ottawa clicked in this week. CMHC’s boss in recent days has suggested minimum down payments rise, that borrowing should be linked to the income of the borrower and Chinese dudes are not responsible for stupid prices in Vancouver.

Where have you read those things before?

Bond yields are backing up and the Fed will be raising its key rate in 13 days. The latest GDP numbers for Canada (much better) guarantee the Bank of Canada’s next rate move will be up, not down. US rates will rise again twice in 2017, observers believe, and Canadian mortgages will swell right along with them. Meanwhile the Moister Street Test is having an impact on first-timers who now qualify to borrow less than they did in September. Up to 20% of them, swear mortgage brokers, will be punted from the marketplace by the new rules.

Meanwhile sales are down about 40% in VYR, and this week I detailed for you the landlord-rental crisis sweeping Alberta and Saskatchewan (as well as Atlantic Canada). How much evidence is needed to make the obvious, well, obvious?

So what did Bloomberg mean by peak house now being in the rear view mirror?

Simple. The economic stats this week were great, with the exception of one thing – a collapse in residential real estate investment. The downturn was the worst since the financial crisis and seems to be based on a sharp decline in the “Audi A7 Index” – in other words, realtor commissions. They were sitting at an elevated level almost identical to that achieved in the US just prior to that country’s housing gasbag rupturing and blowing up the indebted middle class.

This is interesting:

“The run-up in residential investment as a whole in years past, and this segment in particular, bears eerie resemblance to what transpired south of the border in the 2000s, Doyle observes. If history repeats itself, moving past this peak in real estate commissions won’t necessarily be a harbinger of imminent doom, but rather an early warning sign that a key driver of economic growth has been tapped out — which could foster more widespread weakness further down the road. Ahead of the U.S. housing bust, the downturn in brokers’ commissions and other ownership transfer costs started in the fourth quarter of 2005, well before the beginning of the financial crisis.”

What does it mean? That’s simple, too. Since we’ve allowed real estate to become such a large part of the economy (bigger than all manufacturing, more profound than oil & gas and mining) as property sales and values unwind and the epic household debt remains, things get a lot slower. The dollar takes a hit. Banks, as mentioned here days ago, could lose $17 billion in earnings if houses shed 30% of their value – as happened in Toronto during the last correction.

By the way, did you hear house prices will drop by 8.7% in Vancouver next year? It means if you own the average detached house, you will see a loss in tax-free equity of $139,000. That prediction was just issued by the BC Real Estate Association, and represents at 14.5% reduction from their last prediction – three months ago.

Well, if you’re interested in 263 Wright, or taking over an A7 lease, leave your name with the blog concierge.

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December 1st, 2016

Posted In: The Greater Fool

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