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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

June 25, 2017 | Mr. Math

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.

 

Thomas is the kind of guy you probably hated when you were eleven. He teaches math. He expects the world to be logical, orderly and transparent. Numbers don’t lie. They lack emotions. So if only everybody could be guided by the same data set, we’d all be cool.

“I think a key component of having the market work efficiently (on the upside and down),” he says, “is to ensure that homeowners and prospective buyers are aware of the most recent and undoctored statistics.”

His crusade now is to show his fellow Newmarket, ON citizens that they’re fools and pawns for having helped create the Hindenburg of all housing gasbags, then continuing to trade within in. He has tracked and catalogued, as only a mathematics nerd can, the last 1,136 real estate transactions in this northern GTA housing hotbed of 90,000 people.

Now, what does the official Toronto Real Estate Board data “prove” to us about the local market? Well, everything’s ducky, of course. Last month 128 properties changed hands for an average price of just under $879,000, which is $90,500 or 11.6% more than a year earlier. The sales-to-new-listings ratio was okay at 61% (Toronto was at 69%) and there was one month’s worth of inventory for sale (1.2 months in TO).

So, whazza problem, Tommy?

“I have been compiling up to date information on the market, until last Friday,” he says, “which appears to confirm all of the negative trends of late. I am appalled by the insanity.” The mathematician’s data clearly shows a market imploding, even as the real estate cartel suggests everything’s okay and people should keep buying. Given the fact Thomas is plotting actual transactions – recorded asking and selling prices, as well as the number of deals over time – it’s hard to argue this is not a stone-cold-sober snapshot of a community hemorrhaging equity. All those families who put all that wealth into a single asset? My, oh, my.

Average daily selling price down 300K in 3 months

 

Number of daily sales has plunged by 75%

 

Asking prices falling – $200K lower since March

 

From over-asking to below-list in 90 days


 

In case you question Mr. Math’s methodology or his completeness in capturing all of the relevant data, here’s the territory he’s been researching, and the 1,136 different property listings and completions included in the graphs above. This data is current to the beginning of this past weekend.

 

Sure, this is only one community of less than 100,000 people in an urban area of six million. But Newmarket and the surrounding hoods have typified the housing lust infecting the entire region. It’s now representative of what happens when the pendulum swings back. It never rests at neutral, but almost always shifts first to the extreme – suggesting there’s more pain and loss to come.

“My macro thesis,” adds T, “is based on a few key ideas:

1) Mortgage rates have likely bottomed – this creates an asymmetric bet on housing (rates stay flat, at best)
2) Demographics – we are currently trying to squeeze two generations into houses at once (millennials and boomers). This creates (temporary) extra demand.
3) Ownership rates are historically high (an indication of point #3) and will likely revert. If the US is a guide, ownership rates will revert, as prices start to come down.
4) Ontario affordability is peaking out (even with record low rates).”

Just as it was emotion – house lust, then greed, speculation and the irrational fear of missing out – that propelled us into a bubble, so it will be emotion that crushes it. This time buyers are afraid of catching a falling knife, walking into extreme leverage only to experience losses, or of doing something everyone else isn’t doing. The reasons they feel that way are irrelevant. We can yak all day about the mortgage stress test, foreign buyer’s tax, rent controls, Home Capital, an empty houses levy, CRA meanies, higher interest rates or an AirBnB crackdown – but in the end, real estate’s moved by emotion, not logic. That is what makes this asset class such a dangerous place to gamble the bulk of your net worth on.

So, this is not about Thomas. Or Newmarket. It’s a lesson in human nature. We buy high, we sell low. We never change.

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June 25th, 2017

Posted In: The Greater Fool

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