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September 14, 2017 | Move Along, Folks

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.

 

It’s just a regular house in a nondescript part of a boring place in the nether reaches of the GTA, Newmarket. But a few months ago, digs here were hot. Like everywhere else in the 905. Money flyin’ all over the place. A blizzard of offers and sales. Full frontal house lust.

Sitting on an 80-foot lot, it sold fast in the third week of March for $1,265,000. You may recall that was when realtors and reporters were reveling in 30% year/year gains each month, exactly a month before Ontario unveiled its anti-bubble crusade.

Here

s the offer to purchase. It was firm. The names have been blanked out to protect the predator and the fool.

 

 

So what’s happened in the last six months? Houseageddon, apparently. At least on this street.

Mortgage rates have gone up twice. More to come. Foreign buyer-dudes have been spanked. Rent controls have hit speculators. The CRA has moved into overdrive. There’s talk of an empty-house levy. A new borrowing stress test looms at the banks. And, above all, houses are no longer hot. Sales have crashed, buyers have scampered and a new chill has swept over lenders, plus the appraisers they hire to manage risk.

So the same house was valued a couple of weeks ago after a financing application was made. Here’s the appraiser’s report.

 

Yep. One point two mill down to $725,000 in little more than 150 days. That’s a 41% haircut. If the buyer put down less than $550,000. he’s snorkling. In any case, the greater fool in March has kissed off half a million.

Is there more to come? Or does this shockingly-quick collapse represent the depths of buyer despair?

Well, count on the financial establishment to tell you everything’s under control, that we’ve passed through a corrective phase and entered a period of balanced normalcy. Nothing to see here, folks. Move along.

National Bank economist Marc Pinsonneault is the latest (joining star eggheads from BMO and the other banks), arguing the ratio of listings compared with sales has moved back into yawn territory (from OMG). With 2.5 months of inventory available, he concludes the market is now in balance which will stabilize prices.

“A few years ago we would say this is a normal ratio. It limits the potential for price correction. In order to exacerbate a price correction, it would have to be much higher than that, to the levels we saw during the recession … but that’s not the case.”

Uh-huh.

Let’s not forget Monsieur P works for a company associated with the most messed-up housing indicator ever invented (even worse that the realtor Frankenumber), the Teranet-National Bank House Price Index. Just last week it registered a 23% year/year increase in Toronto prices when values had actually declined 20% in a hundred days and a detached home was worth 1.2% less than twelve months earlier. You have to work very, very hard to be this wrong. Impressive.

But wait, Marc has a chart…

 

Well, back to local broker Alex Prikhodko who offers this on-the-ground assessment: “I think it’s safe to say, as we expected, that ’market will rebound in September’ was nothing more than wishful thinking based on absolutely nothing.” Alex crunched the sales numbers for the first 12 days of the month and extrapolated them over the next couple of weeks, using historic trends.

In the table below you can see actual sales by municipality, the estimated monthly total and (for comparison) the deals registered for August. Following that is the % change from August to this month, then the annual change stat. This looks more like a market in free fall than one which is finding its inner peace. No?

 

“I wonder how the real estate board is going to spin this one,” he says. “Comparing this September with September last year, all municipalities will have SIGNIFICANT declines.”

Yes, and still to come is (probably) yet another interest rate increase within the next six months (or sooner), the OSFI universal Cone of Shame stress test, effectively raising rates by a further 2%, plus the Trudeau-Moreau small business-slaying legislation. The latter will impact about two million households, 70% of which earn less than $200,000.

Oh boy.

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September 14th, 2017

Posted In: The Greater Fool

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