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August 21, 2017 | The Next 90

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.


“Hi Garth,” says Dan the east-end Toronto realtor. “Even the little deals aren’t closing.”

So, this house on Chadwick – your typical, ugly, garage-snouted, suburban, 1980s place in Ajax – passed into the hands of new buyers in a fog of emotion a few months ago. In fact, it was a bully offer that won  – when a desperate purchaser forked over 126% of the list price in order to avoid an expected bidding war just a few days later.

As it went to market, this is what the realtor had to say about a thoroughly unremarkable house:

Client Remks:Prime Central Ajax Location!! Walk To Go Station, Shopping, Transit. Situated On A Quiet Court, Close To Great Schools And Parks. Solid 3 Bedroom Brick Home With Nice Curb Appeal, Finished Basement With Walkout To Private Fenced Backyard. Roof Reshingled Approx 8 Yrs Ago, Updated 2nd Floor Windows. Add Your Own Personal Touches. Don’t Miss Out! Extras: Ss Fridge, Ss Stove, B/I Dishwasher, Washer, Dryer, Gdo & Remote, All Electric Light Fixtures, All Window Coverings, Rough In For Bathroom In Basement. Appliances Are As Is. No Survey. Brkage Remks:Sentrilock For Easy Showings. Hwt Is A Rental. Please Include Schedule B & Offer Summary. Offers To Be Viewed On Monday May 1 @ 6:30Pm, Seller Reserves Right To Pre Emptive Offer.

Appliances as it. 8-year-old roof. Bathroom roughed-in. No survey. Add your personal touches. You get the picture. Expensive fixer-upper. But back in the third week of April, when listings were scarce and hormones plentiful, with the GTA coming off back-to-back months of 30%+ annual price increases, FOMO was in the air. Even the ugly ducklings looked like voluptuous movie stars. It was realtor game on.

So Chadwick, listed for $499,000, sold in two days for $630,000. Then the Ontario anti-bubble measures started to bite. The Bank of Canada increased its key rate for the first time in seven years. Five-year mortgage rates were hiked. Twice. The cost of lines of credit and variable rate home lines swelled. We heard about the bank regulator’s new stress test for all house buyers. Sales volumes began to collapse. Then prices followed. Fear of missing out turned into fear of not getting out. Scared buyers starting walking. Deals crumbled. And the Ajax house came back on the market.

What sold for $630,000 at the end of April is listed at $589,000. No sale yet. Odds are the final price will be significantly lower and, meanwhile, wall-to-wall stress. The average sold price in this once-affordable, distant Toronto burb was $762,000 in the spring, and has drifted down to $631,000 now – a 17% plop. It’s typical of what’s happening, and continues to unfold.

As I told some kid reporter from a house-pumping web site (BuzzBuzz something or other…) the declines experienced so far are but a prelude to events of the next 90 days. Things may get better for real estate in a dead-cat-bounce kinda way, but it’s a lot more likely they’ll get worse. The universal stress test will be in place before the end of 2017 and mortgage brokers expect it to restrict overall credit by about 18%. In other words, buyers will qualify for 18% less financing, which means they have 18% less to spend. So guess what happens to prices?

At the same time the Bank of Canada seems ready to inflate rates again in the third week of October and, unless Trump blows up, the Fed will also push the cost of money higher – the fourth act of tightening in one year.

The single greatest factor in shoving house prices skyward in Toronto, Vancouver, Victoria, southern Ontario and the Lower Mainland has been the historically-low cost of money. So as rates slowly normalize, and incomes stay stuck, the pendulum will swing back. Add in universal rent controls, vacant house taxes, the CRA’s war on speckers, foreign buyers’ taxes, the new mortgage stress test and a tax sledgehammer on small business and this market is pooched.

“Here’s some great advice,” Gill says in a note to me, “from a realtor in Alberta.”


Want to qualify now for a mortgage you won’t get later, in order to rush-buy a house that’ll likely decline immediately after you close? Good. Call today.

Never underestimate what living on commission will do to a man.

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August 21st, 2017

Posted In: The Greater Fool

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