- the source for market opinions


September 6, 2017 | Balanced

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.

Mr. Market giveth. He taketh away. Yup, this is the taketh part.

As forecast on this pathetic blog, three significant things have occurred. First, the nation’s largest (by far) housing market has officially slipped into bear territory with prices declining more than 20% across a region encompassing over six million souls. And, mirabile dictu, that’s happened with blistering speed, in about a hundred days.

Second (also as predicted) the average price of a detached digs has gone negative year/year. At $1.191 million, that house now costs 1.2% less in Toronto than it did at this time last year. Ditto in 905. What an astonishing reversal from those months last winter when realtors and the media crowed about 30% monthly price romps and everybody said it would last forever. So much for herd instinct.

And, third, we just got higher rates. The Bank of Canada benchmark has doubled in the last two months, from half a point to 1%. There’s more to come, and you should expect another doubling in the next year or so.

Finally, although these things have not yet occurred, they soon will. The bank regulator will introduce a stress test effectively raising mortgage rates (now on the rise) by a further 2%. And the Liberal government will seriously increase taxes on two million small business operators, 70% of whom have incomes of less than $200,000 and constitute the house-buying middle class.

Then there’s Kim Ding Dong and his nukes, the Trumpster and his Russia problem, the potential death of NAFTA plus the grief an angry planet is throwing at us. Those are unknown knowns. The five points above are known knowns. More than enough to punish the house horny, the debt-snoflers and all those Bank of Mom clients who decided to roll the dice on a one-asset financial strategy with endless leverage.

Bad move. Consider the average detached in TO which fetched $1,578,542 in April when the real estate-industrial complex was milking conditions for all they were worth.

This was in the Toronto Star a few days before Easter:

“If a buyer needs to sit back for a month and watch how regulators respond to the overheated market, that probably won’t make any difference in their ability to buy, says Desmond Brown, a Beaches-area Royal LePage agent. But delaying the purchase a year is another matter, he recently told clients relocating from Australia. They wanted to rent. Brown encouraged them to buy. “If you wait a year, you’ll never get into the market,” he told them.

Great advice, Des. If the Aussies bought the average home, with land transfer tax they spent $1,634,633. Today that home’s worth $1,191,052 – for a loss of more than $100,000 per month. Welcome to Canada! The decline in that property has been stunning – 28.1%, and things continue to deteriorate. We’re not near the bottom yet.

Toronto detached: from +30% to -1% in 100 days

Chart courtesy of

Total sales last month in the GTA fell almost 35% while detached deals collapsed 46.1%. Even at the cheap condo end of the market transactions are off 28%. And this is not just an Ontario thing. Sales declines in the move-up market across the Lower Mainland show a similar slow-mo train wreck taking place.

What next? More.

Wednesday’s rate increase was preemptive, aggressive, hawkish and definitive. The central bank is using recent economic growth as a cover to normalize the cost of money and deal with the major problems of excessive debt growth and a population smitten with house lust. Today variable mortgage rates are higher, along with the prime, HELOCs and personal lines of credit, plus pressure is on five-year loans.

How consequential is this increasing cost of the debt burden we little beavers carry?

First, remember that guy in the Desert Storm Iraq war who kept telling CNN his side (the bad guys) was winning and the allies would soon be smoked, while Baghdad burned in the background? He’s been reincarnated as Jason Mercer, director of market analysis at the Toronto Real Estate Board.

“The relationship between sales and listings in the marketplace today suggests a balanced market,” he said Wednesday, trying to sound like he meant it. “If some buyers move from the sidelines back into the marketplace, as TREB consumer research suggests may happen an acceleration in price growth could result if listings remain at current levels.”

Riiiiight, Jason. Balanced. Maybe you and Desmond should get a room.

Here’s something more realistic to chew on. According to the Canadian Payroll Association, 47% of Canadians live paycheque-to-paycheque, thanks to overspending and over-borrowing. The latest poll is a shocker. A third say they’re “overwhelmed” by debt, even with rates at the lowest point ever. For the first time in the history of these surveys more people state they find their mortgages the most difficult debt to pay – significantly ahead of credit card balances.

So face it. Housing’s not bouncing back this autumn. This winter. Or next spring.

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September 6th, 2017

Posted In: The Greater Fool

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