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October 27, 2017 | Trick or Treat

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.

Utterly discouraged, Ted bailed on YVR. He also has a wife issue.

‘She doesn’t want to rent anymore and she doesn’t want to get priced out again on Vancouver “Island (our new home) like we did in Vancouver,” he says. “Further complicating things, my dad passed away and my Mum needs to move in with us asap for family support and we all want something stable.”

Bad timing, Ted?

“I know all about the upcoming stress test that you have been foaming at the mouth about (dog reference) and of course I’m worried about buying now being terrible timing. That said, I’m wondering what you think about the possibility that the stress test might put more pressure on the lower end of the market making it stable or even causing upward pressure because mortgage loans would be smaller and move up buyers would be restricted. Similar to what has happened in Vancouver, where condos and townhouses continue to go up while houses are flat or declining slightly because people can only afford the low end.  Does this make any sense, or am I grasping at straws?”

Trying to time the real estate market is as hard as figuring out when to buy SnapChat stock (never). Today there are immense variable and dark unknowns. Looks like mortgage rates will be higher by the spring, pushing up against 3.75% at the banks for a fiver. With the stress test, that means buyers would have to qualify at 5.75% – a level many of the Nobel-awarded macroeconomists who populate this pathetic blog’s steerage section thought could never happen.

What will this do?

In two words: change everything. So the advice being thrown around liberally by realtors and mortgage dudes – that people should get pre-qualified immediately so they can scoop up a house with a max mortgage in January – is insane. Unethical. Irresponsible. Unprincipled. Dangerous. If OSFI holds banks’ feet to the fire on the new regs (almost guaranteed) we’ll be into an era of real estate financing previously unseen. Every single buyer in need of financing will be affected, regardless of how much equity/down payment they have.

Realtors and mortgage brokers are panicked because approved mortgages will be significantly smaller, buyers will afford less, and the entire market will have to reprice. The more they can push buyers into accelerating decisions based on fear, the more they mitigate against the drought that could be coming as sellers resist reductions and sales collapse as a result.

Meanwhile, look at current conditions leading us into this morass:

CMHC, the official federal pimp of residential real estate, just declared five major cities to be red zones – “highly vulnerable” and at risk because houses cost too damn much. In Toronto, “high house prices cannot be explained by fundamental economic drivers such as income and population growth,” while in Hamilton, “prices continue to grow more quickly than levels supported by economic and demographic fundamentals.” Ditto Vancouver and Victoria. Vacancy rates in Edmonton and Calgary show “serious overbuilding” has also put the entire market at risk.

Meanwhile in the GTA, look what happened to the red-hot new housing sector that just months ago pawned scenes like this:

The latest numbers are stunners. Preconstruction sales of low-rise homes have collapsed 73% from last year. Condo sales are also plopping, off 37%. There are no more riots outside sales offices.

“The launch frenzy that had characterized the market over the past year is over,” says Altus Group, which mines the data. Prices are also coming off as the benchmark for a low-rise new-built dropped 8.5% between July and September. Of course, at $1.2 million, it’s insanely expensive, and in the OSFI stress test crosshairs.

In fact, the only buyers who will not be affected by what’s coming are those sitting on a pile of cash who need not worry about qualifying for anything, and can swoop into a distressed marketplace. And are they buying now? Nope. Of course not. If you’ve been astute enough to cobble together a million or two, chances are you don’t take advice from Monster Mortgage or a Re/Max guy with beads of sweat on his lip.

Back to Ted.

He’s probably right. In the next six months buyers will have less to spend while most sellers will be unrealistic. Those who need to make a purchase, or have been coerced into it, will chase listings they can actually afford. More sales at the bottom on the market, while the top simply atrophies. Six months after that, prices will have moved down in the upper ranges and benchmark prices will be back where they were when this blog was sexually active.

As always, Ted, only buy if you can afford it. A house and a home are not the same thing. Tell her that. Good luck.

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October 27th, 2017

Posted In: The Greater Fool

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