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April 12, 2017 | Mr. Market

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.

“We decided,” Alyssa said, “to let the market decide.” It did. Nobody went home happy.

Another day this week, and another example in the personal life of this blog that real estate in the nation’s housing heartland is starting to roll. The property in question is a small rental townhouse, identical to one which sold last month for $730,000. A’s realtor thought he’d try the tactic of listing low to stir the loins of waiting buyers, engendering a fierce bidding war and ultimately a high sale price. So, it went to market more than a hundred thousand below what she was hoping for (to beat the neighbour’s sale price, naturally).

Listed for a week. Last evening was Offer Night, after a busy few days of showings. When the dust settled this was the score. No. of offers: 1. Offering price: $660,000. Mr. Market had spoken.

As you might imagine, Alyssa was dismayed and disappointed. The realtor immediately canceled the listing, and says he’ll now go to market for a hundred more, accepting any offers as they come in. Sadly, however, the property’s effectively been devalued. By not signing back the only offer received, trying to massage a few more bucks out of the buyers (who, after all, coughed up more than was asked) the outcome could be worse.

Here are a few reasons (on top of those detailed yesterday…and the day before) why the lady may regret this week. With every day that passes it looks like peak house – even in the centre of the civilized world (416) and amid orgiastic media (Houses up 33%!) – is in the rear view. This is not March any more. The switch flipped two weeks ago. Here’s today’s new evidence why you should believe it:

So much for a rate cut.

The next move by the Bank of Canada will be up, not down. All that talk by Gov. Poloz about fearing Trump was just that – talk. Our economy’s crushed it lately, creating more jobs and more inflation. The guv now says we’ll have full economic capacity around the middle of 2018 – a dozen months or so away. That’s when the rate hikes will begin, driving variable mortgages higher. Between now and then, three increases by the Fed will boost fixed-rate mortgages in Canada. Gulp.

Hammer down on April 27th.

That’s the expected date of the Ontario budget, and every day lately the politicians in charge have been warning that real estate’s in the crosshairs. If you doubt this, listen to the finance minister: “We’re going to be taking action on the housing affordability issue soon. It’s too urgent a matter… I want to go after . . . what I call ‘property scalpers’ looking at taking advantage of speculation in the marketplace. We need to curb that activity… All things are being considered.” Yes, Alyssa, that means taxes. Taxes scare buyers, and when 50% of all condo sales in the GTA have been to speculators, guess what the impact will be?

Escape from Toronto? Don’t count on it.

Anti-bubble measures from the geniuses running the government may not be contained within the GTA borders. The contagion leapt over the boundary rivers months ago, and has been running rampant through the hinterland. National Bank economists this week concluded that fully half of urban market in Canada – and 67% of all communities in Ontario – are seeing double-digit increases in house values. In fact, this is all very reminiscent of conditions in the States just before real estate blew up and created a global credit crisis. Says chief economist Stefane Marion: “This record proportion is very similar to that observed in the United States in 2005 at the peak of the market.” To remind you, after the American bubble burst, average prices declined 32% across the US, and up to 70% in areas where the greatest speculative activity had taken place.

Source: National Bank, Click to enlarge

Could this be the future?

The BC election happens May 9th, and if polls are to be believed a majority of people (56%) say it’s time for another political party to take over. That could be the NDP, with a sprinkling of Greens. The dippers have been at the forefront of lobbying for fat taxes on foreign buyers and want to see way more government involvement in the housing market, forcing the creation of ‘affordable’ real estate. Meanwhile the Green platform includes a 400% increase in land transfer taxes ($236,000 on a $3.5 million shack), a doubling of the Chinese dudes tax (to 30%), big jumps in property tax rates, and a capital gains tax to be levied on all home sales after a lifetime exemption of $750,000.

Not a list you wanna be on.

There are only four countries in the developed world where a major housing correction seems likely, says rating agency Moody’s. Yup. On the list (along with Australia, NZ and Sweden). And here’s that odious comparison again: “The Moody’s report likens real estate price increases in Canada and the other three countries to the gains seen in the United States, Spain and Ireland in the years leading up to their housing peaks in the mid-2000s, prior to major market corrections.” Because of runaway household debt, Moody’s concludes: “In Canada a housing downturn would involve sizable spillovers to the broader economy through the supply chain and impact on employment and consumption. “

So, Alyssa, why would anyone buy now? Would you?

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April 12th, 2017

Posted In: The Greater Fool

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