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January 8, 2017 | The Predicament

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.

Next week, as you know, everything changes. Trump becomes POTUS. The Dow crosses the 20,000 mark for the first time. America becomes Great Again. But we don’t. And just imagine, as I suggested last week, if Donald does to the Canadian car industry what he just did to Mexico. The last of you in Oshawa and Windsor can turn off the lights.

Big changes are already afoot. Calgary, for example, has a full-blown commercial real estate crisis on its hands. Eight floors in the snazzy giant Bay Street bank tower where I sometimes hang out just emptied, which makes the elevator trip into the sky a lot faster. And, wow, look at Vancouver.

Chris Doherty was a career veterinarian (we love vets on this blog) but these days does economic and business research for other animal-treatment practices.

“Perhaps I have too much time on my hands, or need a new hobby,” he tells me, “but back in late July, I randomly selected a smattering of homes from the GTA, Guelph and Vancouver to keep an eye on. I would check back on them every now and then to see if they were still listed, and if so, what their price was.”

He sent me an elaborate, impressive, colourful spread sheet of the results. “Most of the GTA results are unsurprising,” he reports, “but Vancouver was quite different. For one, it took far longer for the listings in Vancouver to dry up. Additionally, three listings in particular are very interesting:

“3691 W 23RD AVENUE – Originally listed for $4.68m, dropped to $4.498m, and was listed as “Sold over asking” despite the asking price of $1.788m.”

“3312 CHURCH STREET – Originally listed for $1.868m, dropped to $1.79m, and is now listed as “Sold”, with a list price now recently at $849,000.”

“14 8531 BENNETT ROAD – Originally listed for $668k, increased to $769k, then down to $758k and now down to $599k, with ad mentioning a motivated seller.”

Well, there you have it. Three real-life examples of what’s actually happening on the ground in what was, until a few months ago, not only the hottest real estate market in Canada but the steamiest on the planet. It was fed continuously by the volatile fuel of cheap rates, lax lending by outfits like Vancity, pro-housing policies, rampant local speculation and realtor-inspired FOMO using Chinese dudes as the catalyst for panic buying. As average house prices soared way beyond the ability of average families to buy in, it was only a matter of time before the inevitable occurred – as vet Chris chronicles.

“Interesting what you find when you search out data points for yourself,” he says, “rather than relying on the spoon fed conclusions from the Real Estate Boards.”

You bet. And let’s all remember it was the Vancouver board that started using Frankenumbers instead of average monthly prices, knowing full well they’d come in handy one day to mask a rapidly deteriorating market, continuing the fiction that real estate’s safe. Well, it’s not. Especially now.

Here’s some bank-generated evidence of what this pathetic blog told you a while ago. There is only one real estate market still standing. What a stunning reversal from a couple of years ago when homeowners in Winnipeg, Edmonton, Saskatoon, Calgary, Regina, Kelowna and the entire Lower Mainland were crowing about ever-rising house prices. Like most investors who inevitably get squished, they confused a bull market with brains.

Two final points. Almost 80% of potential first-time homebuyers in Ontario are now saying the feds’ new mortgage Moister Street Test is stressing them out, and quashing their ability to purchase. “Our survey indicates that the new stress test will have a negative impact on first-time buyers’ ability to buy a home,” says realtor boss Tim Hudac, who wants the government to give the kids free money so his members will not have to turn in their Audi A7s. “Mortgage stress testing, rising house prices, lack of supply — we’re dealing with a real estate market that is getting tougher and tougher for the first-time buyer to break into, especially in the GTA.”

You bet. Of the moisters surveyed, 45% can’t save enough, a third have to buy a cheaper house and almost a quarter are moving out of town. So, combined with the higher interest rates that the Trumpster will be bringing with him, how long can the Toronto market stay at this altitude?

Lastly, consider the ripple effects when real estate goes bad. Calgary’s a lesson. In the last few days came word the value of downtown office properties has dropped by an eye-popping $4 billion, as the vacancy rate soars above 25%. Look at the city’s shining landmark Bow Tower – whose value has dropped 22%, where dozens of floors are dark and likely to stay that way for years.

“The bigger story is: How far can this go?” Greg Kwong, regional managing director for commercial real estate services firm CBRE Ltd. told the local paper “I can almost guarantee that you’re going to see property values drop further.”

Nobody’s immune from this. And it may get worse if Trump trashes Canada. BTW, did you hear T2 is snubbing his inauguration?

Is there a vet in the house? I’m faint.

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January 8th, 2017

Posted In: The Greater Fool

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