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June 12, 2017 | Cracks

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.


Another day, another chink. A few of them actually. I sure hope, like Denise, you reaped real estate’s unearned, windfall gains when this pathetic blog begged you to do so. Cuz, after all, it’s too late now.

She’s giving her notice at work in the next week or two, plans to retire in August and will be taking more gains out of her investment portfolio than her clerical job paid monthly for the last 21 years. “If I had not sold that house in March, I’d be working another seven or eight years,” she says. “I just can’t believe that this has happened to me. I am blessed.”

Nah, just smart. When a house triples in value, why on earth wouldn’t you cash in? Greed? Inertia? Fake news? Now Denise’s portfolio will be paying her rent – a better place than she sold – and replacing her salary at a lower tax rate. “I got out just in time,” she says, looking like she ate the entire pie.

As mentioned here when it happened Friday, the latest job creation stats in Canada will help end this era of rock-bottom interest rates. Our dollar spiked Monday on words coming from the second in command at the Bank of Canada suggesting the first rate hike in seven long years may be coming a lot sooner than it takes to grow one of those awful man buns. The word on Bay Street is the cost of money might even start creeping higher before the end of this year, given the latest GDP pop and now the labour numbers. That’ll sure surprise folks.

Meanwhile the US hikes its key rate for the third time in about six months on Thursday. Things won’t stop there. Trump or no Trump, the States is sliding into a wage-price dance that will bring more inflation and mortgage increases. You can dis me, or lock in. Only one of those two will be smart.

There’s more.

Toronto dropped a bomb on Airbnb this week – and the condo market. Local politicians will soon outlaw short-term rentals, except in properties people own as principal residences. Ouch. There are thousands of high-rise units in the downtown core which “investors” bought for the sole purpose of leasing them out by the night or the week. In fact, this has been one of the only ways to financially justify buying a condo since sticking a long-term tenant in there guarantees negative cash flow.

But no more. Toronto will almost certainly ban people from listing for rent properties they don’t occupy. Airbnb will be regulated locally with rentals recorded and monitored, including a registry of all people putting units online. This info, for sure, will be pipelined to the CRA. Says the mayor: “It is taking housing off the market that might otherwise be available for long-term permanent renters as it were — and that’s a problem for us.”

This is the second sucker-punch the condo market’s taken lately – after the imposition of universal rent controls by the Ontario government, as part of its anti-bubble crusade. The impact of that is already palpable. May housing numbers sucked with lower sales, falling prices and swelling inventory. June’s no better.

According to veteran realtor John Pasalis, boss at Realosophy, the lights continue to go out, with a holy-crap! decrease of 44% in house sales last week compared to the one which went before. Says John: “The sales numbers keep getting worse. It’s like they’ve fallen off a cliff. It’s this downward momentum week after week.”

Hmm. And all this news is giving a patina of respectability to David Madani, a long-time housing bear who thinks we’re just nuts. Vancouver and Toronto are now on the cusp of a “severe downturn” that will ripple out into the hinterland. The damage? “I see a correction of between 20 to 40 per cent in the Canadian housing market – over five years,” he told a dreadful little business television network that shall remain nameless on Monday. “The uptick in Vancouver home sales is nothing more than a head fake,” he also said on BNN, “while the worsening sales slump in Toronto’s much larger housing market points to a correction in prices.”

So, this could be a summer to remember. Higher mortgages creeping in. Condo speculators and investors jamming the exits. Bloating listings and listless buyers. Sales cratering now, prices fading later. As potential purchasers figure that out, they stay home in droves. Prices slip further.

Is a 30% haircut possible during this melt? Of course it is. That’s exactly the magnitude of the last major correction in the early 1990s. Yes, prices eventually recovered, but it took 14 years.

More time that Denise has.

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June 12th, 2017

Posted In: The Greater Fool

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