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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

June 30, 2017 | On Guard

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.

“This house sold conditionally,” long-time realtor Yuri Kogan said in a note he sent along with a listing. “Look what the condition is. This probably did not exist anywhere close to GTA for decades!”

And he’s right. There it is – a frumpy but desirable sidesplit selling in the $1.4 million range in north-central TO – with an accepted offer conditional upon (gasp!) the vendor selling his existing property within the next month. Yes, just like back in the 1990s, when we endured Michael Jackson and Jean Chretien and all those irritating Millennials were in Huggies.

Conditions, in fact, are the new black. Upon securing financing. Upon obtaining a satisfactory home inspection. And now even upon the sale of another home. What a difference six months makes. The bidding wars, bully offers, surly realtors and imperious vendors are all but gone. The buyers are taking back the night.

Well, yesterday the Blog that Dog Wrought told you Friday would be pivotal for knowing if the great real estate unwind would pick up steam with higher interest rates. And, verily, it was. Up she goes.

Odds the Bank of Canada will increase in 12 days (for the first time in seven years) were running at 84% going into the long weekend. That was an 11% surge in 24 hours. Just six weeks so the probability was ten per cent. My, how things change. The dollar surged well past 77 cents, and realtor hearts sunk.

Next Thursday when the nation’s largest real estate board screws up its courage and releases June stats, it’ll be confirmed. Average prices will have declined about $100,000 in just two months, down by double digits from their April high. Freehold sales should be lower year/year by 40% and condos down 20%. In some areas (like the northern fringe of the GTA where drywallers and beauticians live) the sales plop could be 60%.

Do you remember back in the winter when this blog calculated there was about seven days of supply on the market as the bidding wars raged? Well, now there’ll soon be about four months’ worth of houses for sale. In fact, as Canada Day dawns, more than 23,000 properties are listed in the arc around 416, about 6,000 of them brought to market in the last week.

And soon, on July 12th, everyone will know there are more reasons to expect price declines. Rising interest charges will encourage buyers to start vultching, or just sit back and wait for twenty thousand vendors to grow more motivated. Meanwhile in BC, the centrist Lib government has gone down in flames, with socialist hordes now overrunning Victoria. The Greens and NDP both campaigned on platforms of whacking real estate owners and valuations, so no joy there, either.

Things for indebted homeowners are about to get worse, ironically, because the economy is doing better. Those two key reports Friday morning – on GDP growth and business conditions – were so good everyone is now expecting the rate romp to start in a few days. As reported, the chartered banks will be increasing their primes, lines of credit, business loans and variable rate mortgages. Bond yields are rising, so you can probably expect fixed-term home loans to be plumping as well.

The economy has been expanding for six straight months, and growth of 3.3% is the best it’s been in three years. That means we’re back to pre-oil-crash levels, meaning the Bank of Canada can (and will) increase rates twice in the next six months. That will double the current level. Meanwhile business confidence is swelling fast, the best in six years, with half of companies saying they expect sales to increase and two-thirds figuring they’ll need to hire within the next 12 months.

The logic of TPTB is simple. The housing boom must end before it implodes. What better time to prick the bubble than now, when a growing economy can wipe away some of the sting? Yes, there will be equity losses, falling prices, gnashing and wailing. Debt service costs will rise, many families will be squeezed and speculators eviscerated. But this moment was inevitable.

The end result may be houses people can afford. Imagine.

Happy Canada Day. What a place.

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June 30th, 2017

Posted In: The Greater Fool

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