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January 4, 2018 | The Storm

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.

Early last year the meme spread that anyone who didn’t buy a house in the GTA, pronto, never would. By March the FOMO was flowing and prices increased 30% year/year. This blog told buyers they were greater fools. And now we know.

The average detached lost $338,000 in value between March and Christmas, a 21% drubbing despite an end-of-the-year recovery. Of course, that doesn’t tell the whole story. To buy the average $1.578 million house required a land transfer tax payment of $56,000. Poof. Gone. Plus selling the property (now worth $1.25 million) would involve handing over $62,500 in commission. Plus $8,125 in HST.

For the first time in the life of most buyers, detached houses in the country’s biggest, hottest market ended the year worth less than when it began. Despite the historic price explosion of the first four months of 2017, properties in 416 shed almost 3% of their value while the burbs fared slightly better at a negative 2.5%. Sales were down too. More than 92,000 listings changed hands, a drop of over 18% from the year before.

Even more depressing, if you happened to ignore this omniscient blog and bought when the media told you to, is this current market snapshot:

 

In December sales continued to decline, down 7% year/year, while homeowners began panic-listing. The number of new properties hitting the market shot up more than 50%, bringing total active listings bloating higher by 172%. Wow. Almost 13,000 houses for sale compared to just 4,700 last year. The average price was dragged down by detached deals, but pushed higher by condos. Just like in Vancouver. The big reset is starting.

It’s a reminder of how human nature doesn’t change and, therefore, neither do markets. It’s never different this time. When an asset rises (bungalows, Bitcoin, weed stocks, Nortel) people lust after it, pay a premium and say it’ll rise forever – especially when supply is limited and competition fierce. When an asset falls, it’s shunned because it’s obviously going to zero and is no longer cool. Sales drop along with prices, even when there’s more supply, less competition and better value. We are herd animals. Tribal. When you add in peer-to-peer social media validation of silly ‘facts’ and fake news like foreigners buying all the houses, it’s greater fool time.

Anyway, this is not just a Toronto story. It’s everywhere.

In Vancouver an average detached house lost 6.5% of its value last year, as the market tilted to condos – simply by virtue of price. Single-family home sales have been tepid for well over a year, while inventory increased and the top end wilted. In the region during the whole year only 2,434 single family homes sold, the worst showing since the depression of 2008 and a significant 38% below activity in 2015 – when FOMO was sweeping the Lower Mainland.

And Calgary? Big mess there. Last month new listings were up 23% while average prices tumbled 8.64%. In fact, housing globally is losing its lustre as money flows back into financial assets and interest rates start to normalize. Global Property Guide this week reports prices in a majority of regions have slowed or gone into reverse. “Globally housing markets are slowing sharply,” it says, with 21 of 47 dropping at the end of 2017.

So 2018 begins. As predicted. Like the Nor’easter in the Maritimes this week, we have the perfect storm gathering over the Canadian real estate market. Interest rates will rise at least three times in the next 12 months, both in Canada and the States. Bond yields are on the march higher and will result in more expensive mortgages, rising above 4% – or double the level of early 2016. The lefties running BC are about to bring in a hammering speculation tax and inflate the Chinese Dudes tax at the same time Van’s empty-headed empty-house tax deflates prices there. The federal banking stress test is already forcing buyers to qualify at 2% higher levels and will restrict credit by up to a fifth. Canadian household debt just achieved a scary new, nose-bleed high, while T2 taxes and Lib minimum wage hikes inflate prices and dampen growth.

Did I forget anything? Oh yeah, it’s minus thirty and we’re all miserable. Blame Trump.

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January 4th, 2018

Posted In: The Greater Fool

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