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February 26, 2018 | Debtville

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.

Davisville Moms is a web site about shopping, children, shopping, daycare, shopping, health, parenting and shopping. “ serves a vibrant group of intelligent parents who have embraced the small town feel of their local community, while loving everything big-city living has to offer,” it says.

Davisville is an itsy (2-square-km) hunk of mid-town Toronto where household incomes are twice the norm and the average house sells for $1.4 million. It’s affluent and upscale, but not wealthy and elitist, full of 5%ers and 10%ers, not the 1%ers who crowd into Lawrence Park, Rosedale, Leaside or other surrounding enclaves. In the GTA these days, this is the middle class.

“I came across this post today on one of my mom groups in Toronto,” says Janey, who reads this blog with a flashlight under the covers. “Thought you might be interested.”

As mentioned here yesterday, quietly – without any announcements or media coverage – one in five mortgage applicants are now being kicked out of the big banks, thanks to the stress test that’s set the mortgage bar at 5.15% or higher. Overall, fewer people are being approved for home loans and those who do are being okayed for less. This, plus rising interest rates, is why the decline in house prices – especially single-family homes (like in Davisville) – will accelerate during 2018.

The Moms post gives you another glimpse into the mess that awaits us. People who bought a year ago at peak house, with cheap, variable-rate loans, are screwed. Property prices in 416 are still more than 10% below the peak, while they’ve collapsed by twice that amount or more in desperate-housewifey places like Markham or Richmond Hill. Those who are coming up for renewal cannot count on it happening automatically in a declining market. Banks have every right to determine the value of the property at the time of renewal and may require a lump sum payment in order to renew within regulatory loan-to-value guidelines, if your home’s worth has faded.

Or, you can change lenders – and pass the 5.14% stress test. Or sell.

Recall that between 40% and half of all Canadians with mortgages will be coming up for renewal in 2018 – a tsunami of refinancing at a time when the cost of money is steadily rising after nine years of torpor, when mortgage regs have been seriously tightened, and the lefties running BC have decided to tax empty houses, all foreigners, speculators, rich people, cowboys, and everybody in Canada who owns a second property there. The perfect storm maybe.

Meanwhile, here’s an alarmist piece of news making its way ‘round the web. Since the Dipper budget in BC last week, says Thinkpol, asking prices on houses have been tumbling by double digits. Hoisted as a dubious example is a Richmond sprawler originally listed at $5.8 million now on sale at $1.58 million. Another in Richmond has fallen by 50%, to merely $2.3 million. (Every day this blog’s comments section contains more examples, thanks to the investigative work of one person.) Says the web site’s source: “This is just the tip of the iceberg. Many sellers are delisting and relisting to hide price falls and reset days on the market counter.”

Already the Van property market was in trouble, masked by romping condo sales and moister buyers who have no idea what lies ahead. The sales-to-active listings ratio for detached homes has plunged to just 11.6%, while it is above 57% for apartment units. The local board of trade says, “taxes don’t make homes more affordable”, a sentiment echoed by realtors (of course). Meanwhile the province’s finance minister has stated flatly that the government’s goal is to depress the market and drop prices.

And, no doubt, it will happen.

2018 has the potential to be the single worst year for residential real estate since the credit crisis. Yes, it comes after a decade-long romp as Canadians pigged out on borrowed money and were pushed by greed, house lust and FOMO into a buying frenzy and price excess. Those who got in and out at the right moments have done well. Untold numbers who bought in the last couple of years, or pushed their finances to the margins, stand to lose. As in the American housing bust, it’s these folks who have the power to bring the entire market down in a hurry. Idiot politicians only make it faster and deeper.

Prepare for a lot of whining mommas.

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February 26th, 2018

Posted In: The Greater Fool

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