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July 5, 2017 | The Blame Game

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.

 

The CBC reporter who corralled me with a cameraguy in a downtown Toronto park was cute. “Foreigner buying plunged to less than 5% after the speculation tax,” he blurted. “what’s your comment?”

So here’s the back story. This week the Ontario government revealed the number of real estate deals involving non-beaver people in the month after it brought down a 15% tax upon them. The area surveyed was the urban corridor hugging Lake Ontario from Niagara (where prices have doubled in three years) to Oshawa (where they haven’t). The result? In that period of time 4.7% of buyers were foreign dudes. The other 95.3% were Canadian citizens or permanent residents.

Did this mean the tax was doing its job, quickly kicking these spec-loving interlopers from our pristine soil? After all, while the province had no hard evidence on which to base such a massive tax, the finance guy had mused that “maybe 8%” of all deals involved foreign money.

The answer, of course, is no way. The province counts only real estate closings (in which a deed changes hands and is registered), not contracts between buyers and sellers. Normal practice is to have 60 or 90 days pass between an accepted offer and closing day, which means the sales counted in April and May were probably arranged during February and March – the absolute zenith of the GTA housing bubblefest.

In other words, the level of foreign activity may have indeed peaked at 4.7% when the market was insane with no tax in place. This is almost exactly what local realtors (and a certain pathetic blog) hypothesized. So if you were to conclude the Chinese dudes tax was a kneejerk, jingoistic, xenophobic, opportunistic, deplorable-placating sop, you’d be correct. Ontario just told the world to shove off, for no discernible benefit and much potential harm.

But, what about the argument that the survey area was too large and foreign buying is concentrated in certain pockets, as it has always been in (say) Vancouver?

Good point. It is. But so what? If Ontario brought in a tax on pasty, bearded Millennial homeowners with fixies and Starbucks points cards, then whole hoods of slanty semis held together with bug spit would be at peril. People congregate and pay a premium to do so. Get over it.

There are two conclusions, I told the reporter. First, this tax had no basis in fact, is 100% political and won’t do diddly to bring down the price of a single house. If you want to know who’s responsible for stupid prices and insane borrowing, look in a mirror. Second, the market is toast, all of its own accord. Prices hit a ceiling. Lenders pull back. Debt limits are reached. The sacrifice required to buy a house becomes too great. And once sales and sentiment dip, the correction begins – which is exactly where we are now.

(Get ready for some highly interesting numbers coming out of the Big Smoke real estate board tomorrow. Bring pointy sticks and marshmallows.)

Meanwhile, lest you think only Toronto has a wobbly market where recent buyers may come to bitterly regret their actions, contemplate Calgary and Vancouver. Realtors in both places this week unveiled the latest statistics, which show gathering weakness.

In Cowtown the twin threats of sub-$50 oil and a legislature full of dreamy Dippers remain unabated. House sales last month improved 8% but the number of listings has surged 24% – so there’s now close to six months’ worth of inventory. Not good. The benchmark house price advanced a whopping 1.7% in the past twelve months, which is almost exactly the inflation rate. In other words, real estate stagnated and sellers paying the usual commission would be guaranteed a loss if they bought a year ago.

Condos? Crushed. Only 286 changed hands in an entire month while listings ballooned by a fifth. The benchmark price has now fallen 4% in a year, and demand continues to wilt. Good luck trying to sell one of those suckers.

Finally, poor YVR. The Van board reports that sales overall in June tanked 11.5% year/year and (more worrisome) were lower by more than 10% from just the month before. Detached home sales slumped a hefty 15%, and prices have started to flatline.

The big story is all about the misguided moisters. They’re propelling condo sales higher, masking a real deterioration in the broader market. Look at the sales-to-listings ratio – it was 93.2% for condos (hence, bidding wars) but just 24% for detached. Like Calgary, SFH prices are barely keeping up with inflation, while the kids have shoved condo values up 17.6%, and almost 3% from just last month.

Well, we’re on the path down now. Good luck to everyone who didn’t get the tweet.

Oh, and if you run into a Chinese dude, apologize.

The CBC reporter who corralled me with a cameraguy in a downtown Toronto park was cute. “Foreigner buying plunged to less than 5% after the speculation tax,” he blurted. “what’s your comment?” So here’s the back story. This week the Ontario government revealed the number of real estate deals involving non-beaver people in the month after it brought down a 15% tax upon them. The area surveyed was the urban corridor hugging Lake Ontario from Niagara (where prices have doubled in three years) to Oshawa (where they haven’t). The result? In that period of time 4.7% of buyers were foreign dudes. The other 95.3% were Canadian citizens or permanent residents. Did this mean the tax was doing its job, quickly kicking these spec-loving interlopers from our pristine soil? After all, while the province had no hard evidence on which to base such a massive tax, the finance guy had mused that “maybe 8%” of all deals involved foreign money. The answer, of course, is no way. The province counts only real estate closings (in which a deed changes hands and is registered), not contracts between buyers and sellers. Normal practice is to have 60 or 90 days pass between an accepted offer and closing day, which means the sales counted in April and May were probably arranged during February and March – the absolute zenith of the GTA housing bubblefest. In other words, the level of foreign activity may have indeed peaked at 4.7% when the market was insane with no tax in place. This is almost exactly what local realtors (and a certain pathetic blog) hypothesized. So if you were to conclude the Chinese dudes tax was a kneejerk, jingoistic, xenophobic, opportunistic, deplorable-placating sop, you’d be correct. Ontario just told the world to shove off, for no discernible benefit and much potential harm. But, what about the argument that the survey area was too large and foreign buying is concentrated in certain pockets, as it has always been in (say) Vancouver? Good point. It is. But so what? If Ontario brought in a tax on pasty, bearded Millennial homeowners with fixies and Starbucks points cards, then whole hoods of slanty semis held together with bug spit would be at peril. People congregate and pay a premium to do so. Get over it. There are two conclusions, I told the reporter. First, this tax had no basis in fact, is 100% political and won’t do diddly to bring down the price of a single house. If you want to know who’s responsible for stupid prices and insane borrowing, look in a mirror. Second, the market is toast, all of its own accord. Prices hit a ceiling. Lenders pull back. Debt limits are reached. The sacrifice required to buy a house becomes too great. And once sales and sentiment dip, the correction begins – which is exactly where we are now. (Get ready for some highly interesting numbers coming out of the Big Smoke real estate board tomorrow. Bring pointy sticks and marshmallows.) Meanwhile, lest you think only Toronto has a wobbly market where recent buyers may come to bitterly regret their actions, contemplate Calgary and Vancouver. Realtors in both places this week unveiled the latest statistics, which show gathering weakness. In Cowtown the twin threats of sub-$50 oil and a legislature full of dreamy Dippers remain unabated. House sales last month improved 8% but the number of listings has surged 24% – so there’s now close to six months’ worth of inventory. Not good. The benchmark house price advanced a whopping 1.7% in the past twelve months, which is almost exactly the inflation rate. In other words, real estate stagnated and sellers paying the usual commission would be guaranteed a loss if they bought a year ago. Condos? Crushed. Only 286 changed hands in an entire month while listings ballooned by a fifth. The benchmark price has now fallen 4% in a year, and demand continues to wilt. Good luck trying to sell one of those suckers. Finally, poor YVR. The Van board reports that sales overall in June tanked 11.5% year/year and (more worrisome) were lower by more than 10% from just the month before. Detached home sales slumped a hefty 15%, and prices have started to flatline. The big story is all about the misguided moisters. They’re propelling condo sales higher, masking a real deterioration in the broader market. Look at the sales-to-listings ratio – it was 93.2% for condos (hence, bidding wars) but just 24% for detached. Like Calgary, SFH prices are barely keeping up with inflation, while the kids have shoved condo values up 17.6%, and almost 3% from just last month. Well, we’re on the path down now. Good luck to everyone who didn’t get the tweet. Oh, and if you run into a Chinese dude, apologize.

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July 5th, 2017

Posted In: The Greater Fool

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