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August 14, 2017 | ‘Far worse’

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.

 

Someday soon we’ll be able to ignore the Toronto and Vancouver housing markets. But not yet. After all, who can stop staring at a car crash?

Looks like total monthly GTA sales will come in around the 4,000 market for August. Yikes. Compare that with 6,000 in July (which was down 40% from last year), 8,000 in June (down 37%), 10,000 in May (down 20%), 11,500 in April (down 3%) and 12,000 in March (up 18% from 2016).

See the pattern? Even accounting for seasonality and string bikinis, the market’s dying before our very eyes. Last August a whopping 9,800 houses sold, up 23% from the summer before. So if the 4,000 mark holds this month, the decline will be 60%. There’s just no barking your way out of this bag. The GTA is pooched. Buyer sentiment has turned negative. Most importantly, the speculators have left the building, and “facts” everyone used to believe have turned out to be fake news. Like, “immigration will always keep real estate afloat” and “there’s not enough supply of houses.”

First, here’s GreaterFool realtor-correspondent Old Ron, with a fresh report from the field:

“Hi Garth: This market is far worse than anyone is talking about. The MSM is soft soaking this crash. It is like two agents on a putting green while a giant Mushroom cloud rises in the background. Even Old Ron, who is good shape financially, thought it was prudent to scrub his fishing trip to Montana, and hunker down.

“Here are some facts. $920,791. That is the high water mark – the average price in April 2017. The question is when will the average price in the GTA reach that number again? Clue: The crash of 1989 took 14 years for the prices to recover and exceed the previous high.

“The realtor haters on your blog will be pleased to know sales have dropped by about 66% from the peak. If that happened to GM, they would be in Chapter 11 within a year. Then consider that the average price is down about 20% or more depending on the region of TREB. Given that realtor income is a percentage of sale price, the agents have taken a further hit here.

“Finally, I have noticed that commissions are getting much softer. Basically Sellers don’t mind forking over $40K in fees to sell a house when they receive  a million dollar cheque. But when the Seller has just been kicked in the teeth by the market, they are not in a generous mood. The agents are starving from 1) Absurdly high number of realtors. 2) A 66% crash in number of sales. 3) A  20%+ decline in sale prices,  and 4) a softer commission picture. A perfect storm.

“It gets worse, many agents are in the bad habit of paying for their previous years Income taxes with a good spring market. I have spoken to several agents who are in the hole for $60,000 or more to the Revenue Agency, with no deals in the pipeline to pay the Government. These are not big hitters, just average people who thought that absurdly high sales and price numbers would last for ever.

“This can all be summed up @ a lunch I had on Friday with a 30 something agent. It was his turn to pay, so when the bill came, and he plunked down three credit cards on the waiters tray. “One of these should work,” he said blithely.”

As the frothiest housing market in Canadian history unwinds at the fastest pace ever experienced, more ugly (for realtors) truth emerges. Like the latest Stats Canada census numbers which just shattered the belief GTA real estate a slam-bunk forever because home construction can’t pace population growth. Well, forget that. Remember all the comments here about 100,000 new immigrants swelling the region annually – adding half a million house-horny, monied interlopers over the last five years?

Bunk.

The population increased by 146,200 households between 2011 and 2016 (1.3% a year), during which time 175,825 new houses were built. Yup, more new properties became available than there were new families to buy them. So much for this statement which local real estate board poohbahs fed the public back in March to explain 30% annual price increases:

“Over the past year, we have reached a point where government policies that target only the demand side of the market, whether we’re talking about foreign buyers or further changes to mortgage lending guidelines, will not be enough to balance market conditions and moderate the pace of price growth.

“In 2017, policymakers at all three levels of government must turn their attention to the supply of homes available for sale. They should consider revisiting land-use designations in built-up areas to allow for a greater diversity of home types, streamlining development approvals and permitting processes, and looking at ways to incentivize landowners to develop their land.”

Turns out we didn’t have too many immigrants or too few houses. Just too many realtors and a local population that swallowed the Kool-Aid and turned into delusional house-lusty speculators. The number of households owning multiple properties exploded to about 9%. Billions of dollars in down payments came out of home equity through the Bank of Mom. HELOCs exploded nationally to $210 billion, most of it going back into speculative real estate investments. And the debt-to-income ratio of most people buying $1 million houses bloated to 450% or more.

Old Ron is right. The property market isn’t coming back any time soon. Nor has it toed bottom. There’s no reason to expect a rebound in September, and many to anticipate new declines. Listings will swell again. Mortgage rates will increase. Closings will be missed. The bank rate will rise. The new stress test may arrive. And thousands of terrified, squeezed amateurs landlords and speckers will keep throwing equity overboard as they try to get out.

There may be some good, though. We might stop believing what they tell us.

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August 14th, 2017

Posted In: The Greater Fool

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