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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

July 27, 2017 | Knee Jerks

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.

 

A home that sold in April in Vaughan (an ugly one, too) for $1.85 million didn’t close. You know why. The buyers walked, figuring any legal crap they might endure was better than buying a house for twice what it might eventually be worth.

The owners listed again for $1.6 million. They received a conditional offer for $1.288 million, and took it. Then that deal fell through. And back it goes for sale.

If you think reductions in the street value of houses in the GTA, especially in the wind-whipped, desolate reaches of 905, of 20% or 30% are rare exceptions, you’re not into the market. Such situations are common. Sentiment has turned. Greed has morphed into fear. Fear of missing out has become fear of not being able to get out.

Across the bubble regions in southern Ontario and the Lower Mainland, detached houses are wilting even as horny moisters continue to pour cash into condos. Average prices are declining steadily as a result – and now the Real Estate-Industrial-Financial Complex is fighting back. In fact, it’s in full-on damage control.

Here’s Royal LePage, for example. Right after the Bank of Canada popped the first of several rate increases CEO Phil Soper was out trolling for microphones. “Canadian homeowners are prepared for the marginal increase in mortgage rates,” he said, even knowing that every credible survey has shown the opposite. Among Soper’s other manufactured facts: interest rates will rise only by one quarter point in the next 18 months and house prices will increase 9.5%.

Here’s Re/Max, out with a new ‘report’ showing despite the fact overall GTA prices have fallen hard in each of the last three months – by a shuddering 17% – that “40% of 65 districts” are showing higher prices. A further conclusion: “Toronto’s recent downturn in house prices may reverse course later this year.”

Here’s CMHC, saying yesterday the country’s housing markets are fraught with risk,  now appearing to blame ‘emotional’ buyers instead of greedy, opportunistic sellers and their agents.

“The response we were seeing in the Toronto market seems almost emotional and almost a knee-jerk reaction to some of the changes, which suggests that these impacts will be short-lived if all other fundamentals remain intact,” a CMHC analyst told reporters this week.

And maybe you’ve noticed how the MSM has been giving yards of space to real estate ‘experts’ such as realtors, mortgage brokers, housing marketing execs and economists for banks with huge home loan portfolios. The message is one of reassurance and support to an over-housed, over-indebted and cash-strapped nation. Don’t worry. This is temporary. Houses will go up again, and then probably forever.

So, who’s right? Will Mr. Market keep on falling until demand and supply balance? Or will buyers be talked back to the table with these suggestions that any price decline is temporary, and a buying opp? What of the Millennial conviction than anybody who makes it onto the cover of Rolling Stone is a god and will never let their young butts be singed by the reality of a housing bust?

Beats me. It’s entirely possible sentiment will shift again as quickly as it did at Easter. That’s what the real estate establishment is praying for – a summer of soft landing followed by the resumption of bull market conditions. Of course, if it happens – with a return to rising prices, plumping debt levels and more dependence on housing – you can be sure this correction will eventually be followed by a crash. Any recovery now would be an epic opportunity to sell, not to buy. But, of course, you can count on your co-workers and confused relatives to do exactly the opposite.

Here is why there’s reason to be concerned, if not terrified:

“CMHC chief economist Bob Dugan told reporters that strong job creation and income growth in Toronto favour the housing market. He expects price growth to resume in the city.”

Yup, the big thinker at a federal government agency overseeing $600 billion in debt assets, at the apex of a housing bubble, in a country where personal borrowing exceeds the size of the entire economy, is telling people to buy. If they don’t, they’ll be priced out.

Will the people listen?

Our fate hangs on that answer.

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July 27th, 2017

Posted In: The Greater Fool

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