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February 9, 2018 | The Triple Header

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.

When Canada’s biggest builder figured its prices had to drop to stay in the game, the media went nuts. For the past few weeks sorry tales have hit mainstream sites, Twitter and FB, pillorying Mattamy Homes for selling unbuilt houses for $90,000 less than outraged buyers paid a year ago – for homes yet to be built.

To its credit, the firm shrugged. Nobody complained when prices were rising, it said. The housing market goes up, it goes down. Deal with it.

Now check this out. Even the well-heeled have decided real estate’s too laden with risk, and values must come down to reduce it. An upscale GTA development has just slashed its asking prices – by $1 million. Just be thankful you didn’t buy a palace in the Upper West Side from Conservatory Group a few months ago. If you did, lawyer up.

New home prices have stalled out in Canada for the first time in memory. Sales of newly-constructed houses in the nation’s biggest market collapsed last year. Resales are being hit too – down 22% last month in the GTA. The price of the average detached fell 9%, or more than $90,000. Listings are 130% higher than a year ago. It takes twice as long to sell a property.

No wonder.

The recent stock market gyrations are telling us something. No, they’re not in trouble and there’s no evidence another 2008 is on the horizon. But markets are signaling the wind has changed. No more are we in an era of cheap money, easy credit, low rates, zero inflation and central bankers throwing cash from helos.

Stocks have been in a wild funk now that CBs are serious about removing stimulus from the economy, letting bond yields run amok and doubling down on inflationary pressures that have the rabble demanding higher wages. Suddenly, after bubbling 30% higher in little more than a year, equity prices looked way too expensive as the tide of cheap money started to recede. As a result, we got a correction.

What’s whacked stocks, however, can be lethal to real estate in a country when 70% own houses and have racked up $1.6 trillion in debt to get them. If the economy here were ever to sputter and people started losing their jobs, well, watch out.

Oh, wait…

Friday’s employment numbers were awful. Where 10,000 new jobs were expected last month, 88,000 were gone. The national jobless rate increased. January became the worst month for people losing their incomes since the beginning of 2009, when the country was plunged into the credit crisis. More part-time jobs were shed than ever before.

Of particular concern was this: the service sector led the retreat, giving up almost 72,000 positions in real estate, insurance, financing and professional services. This matters since our real estate lust has resulted in a bigger share of the economy going to residential real estate than oil and gas. As pointed our recently by Macquarrie economists, property-related commissions alone equal 3% of the country’s GDP. Yikes. So what happens when people stop buying, when mortgage rates rise, and the feds usher in a moister-eating stress test?

You bet. Job loss. Along with the rising cost of money and tougher regs, this is toxic to the real estate orgy.

Also of note: the average number of hours worked last month declined, yet wages surged by 3.3% – the biggest advance in years. Why? “The employment drop coincided with an increase in the minimum wage in Canada’s largest province – Ontario,” noted Bloomberg. “That fueled an acceleration of the national wage rate.”

So there you go. Higher wages and fewer people collecting them. Meanwhile the cost of money is swelling while houses on the Upper West Side get pushed down by a million.

How can anyone be surprised?

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February 9th, 2018

Posted In: The Greater Fool

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