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February 23, 2017 | Parabolic

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.

Spring, 2017. Ah, rutting season. The saps are flowing. Molting and moaning everywhere. Twenty-one degrees in the Big Smoke. Warm zephyrs virtually coast-to-coast. House lust is on the rise along with the temps and the collective anxiety of our leaders. And the next two or three months may prove to be critical times for you and your real estate wealth.

First, we’re entering the horninest time of the year in an already-aroused state – at least in the one remaining puddle of froth in the nation. GTA prices are ridiculous, according to the local realtor stats. In real, on-the-street terms, they’re insane. Raymond told me yesterday about his $540,000 house (bought in 2009) which sold last week for $2.1 million. “Ugly, 1980s subdivision thing with a garage stuck on the front,” he says. “I did nothing to it for years.” Typical. Values have suddenly gone parabolic. A house bought 20 months ago in the northern burbs for $1.7 million was just sold for $2.8 million – by people who ended up sitting across from me, giggling.

“Talk about your greater fool,” Luigi said. “We just met him. And his fool wife.”

This is reminiscent of Vancouver exactly a year ago when, in the final stages of the orgiastic eruption of hormonal and speculative excess, the market went vertical before it croaked. Within months, sales of detached homes were plunging, buyers recoiling from fanciful prices and conditions set up for the coup de grace – the Chinese Dudes tax.

Could the pattern be repeating in the GTA (and now, all of southern Ontario), or is it different there? Silly question. It’s never different. People just believe it to be so, until it isn’t.

Supporting this pathetic blog’s oft-trashed position (do not put all your eggs in the RE basket) is Sun Life chief investment officer Sadiq Adatia who this week told the hated BNN network: “If you look at Vancouver, we’ve already seen the bubble burst there. A lot of people think it’s just the foreign players and that tax that came through, but it actually started before the tax actually got implemented. So, what we’re seeing is probably a further extension of that downturn as result of the foreign tax.”

As for Toronto, same story. Only a matter of time, says Adatia – echoing virtually all major economists. Off a cliff, baby…

“Eventually we are going to see this market kind of stop and then come off a cliff,” he said. “The longer we stay in this run-up, the bigger the downturn is going to be. Toronto for many years had been an under-valued real estate market. The difference is, though, that we’ve moved up so significantly in a short amount of time. And so, what will likely happen is that we’ll start seeing selling pressure down the road, we’ll see sales coming off. Right now demand is still there but demand is slowly coming off.”

What could be the catalyst?

A foreign buyer tax, maybe. While TPTB have so far dismissed the idea (along with the realtors, of course) it keeps bubbling up, with widespread support among Toronto city council members. This is still a definite possibility after the shocking price appreciation of late. Also possible are further actions from Ottawa, driven by Wild Bill Morneau (who lives in a $5 million house just off Bayview), the man who last October tried to slow down the train with a series of reforms, including the Moister Stress Test. Apparently, they didn’t work.

Then we have the Fed to worry about. While another rate hike in a couple of weeks at the March meeting is still a long shot, the odds of central bank action in the US are growing weekly. Count on at least two increases in 2017, and potentially three. Then three more in 2018. And, yes, the Bank of Canada will be unable to resist for too long. There’s no viable economic scenario now being floated in which the cost of money does not rise, for which you can heap thanks on the shoulders of the new Inflation President. His pro-business, pro-growth, trade-restricting policies are guaranteed to increase wages, prices, the US$, markets and rates.

Finally, real estate rutters should also be a tad worried about our own glorious leader. The Trudeau assault on rich people – already manifested in a special tax bracket – has apparently just started. By upping capital gains, diddling with dividends and bringing in a corporation-bashing Doctor Tax, Ottawa is ramming it to the very people who are out there buying $2-5 million houses, and keeping the market juices flowing.

Or, maybe it’s just a subtle combination of some of these factors, combined with the fact nervous bankers have started to pull back credit in a country with $2 trillion in outstanding personal debt, stagnant incomes, and more house porn than the rest of the planet combined.

We won’t know until it’s happened. But I don’t think Luigi cares. There’s no wiping the smile off that dude’s face.

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February 23rd, 2017

Posted In: The Greater Fool

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