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March 6, 2018 | The Inevitable

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.

The rubble starts to emerge after politicians carpet-bombed the housing market. The numbers out of  Toronto, southern Ontario, Alberta and the Lower Mainland are, well, awful. You can smother these porkers snout to tale in lip gloss and they’re still pigs.

Take the GTA for example. Sales crashed 35%. The average detached is 17% cheaper than it was a year ago. Inventory is scant since sellers are afraid of falling values. Were it not for the crazy moister condo market (which just took a 30% dive), this would be a full-fledged flop.

And here’s how the real estate board sold it:

“Single-family detached and attached benchmark prices were down slightly compared to February 2017.  The overall average selling price for February sales was down 12.4% year-over-year to $767,818. However, putting aside the price spike reported in the first quarter of 2017, it is important to note that February’s average price remained 12 per cent higher than the average reported for February 2016, which represents an annualized increase well above the rate of inflation for the past two years.”

You know things are wobbly when realtors have to reach back two years for a comparison. No comfort there for anyone who – based on realtor hyperbole a year ago – bought last spring at Peak House. And did you notice the reference to the ‘benchmark’ price? This is the fabricated Frankenumber designed to mask current market trends – especially when they’re cascading lower.

After all, how do you reconcile this…

“The MLS® Home Price Index Composite Benchmark was up by 3.2 per cent on a year-over-year basis for the TREB market area as a whole.” (Real estate board news release.)

…with this?

Prices for single detached family homes fell 17.2% in the GTA to just over $1 million – weighed down by an 18.6% decline to $1.28 million in the city of Toronto, and a 17.8%  drop to $911,065 in the 905 region. The number of single detached houses sold in the GTA fell by 41.2%… Prices tumbled, with the average sales price for all housing types falling 12.4% to $767,818. (Financial Post news report.)

You can’t, of course. The market seems to be in price freefall. And no wonder.

Trump’s tariffs (suddenly back on the table) will increase US consumer prices and inflation, and likely bring higher Fed interest rates. Tuesday night’s shocking departure of Trump’s big economic guy, Gary Cohn, is immensely destabilizing. The B20 stress test is just starting to bite – with an estimated 20% of borrowers being punted by the banks. BC’s gone hard-lefty with the fat go-home tax, the empty-house tax and the massive ‘spec tax’ on second properties, now ensnaring fellow Canadians. Mortgage rates have risen and Ontario’s launched universal rent controls and new tenant-friendly, landlord-spanking rules. It’s the perfect storm. Momentum is gone. Buyers are rattled. Sellers stunned.

And look at the results.

In Calgary sales fell 18% last month from year-ago numbers which themselves sucked. “You have to be really realistic,” a local realtor told Cowtown radio listeners yesterday. “The market isn’t what it was three years ago.” Ya think?

In Victoria so far in March sales are running at exactly 50% less than last year. That city is now smothered in both the anti-foreigner 20% tax premium, plus the 2% annual whack on all out-of-towners who own places in this popular winter haven. “It’s a speculation tax, and we are not speculators,” a 72-year-old retiree from Ontario who owns a condo told the CBC. “We’ve lived here for 12 years.” Now she has to cough up $9,400 a year – or sell.

In Vancouver, property sales last month fell 9% and detacheds were creamed with a 17% decline. Prices have yet to move in a market where real estate speculation is eternal and house lust unabated, but the NDP changes – combined with the mortgage stress test – are expected to take a toll over the coming months.

In London February sales fell 33% and inventory’s at the lowest level in a decade. In Montreal – an exception- sales nudged up 5% and prices gained 6% – but at just $310,000 the average house would not buy the average garage in YVR or 416. In Saskatoon, where houses are also cheap and sales were down 6%, local realtors reported their Frankenumber is at the lowest point in six years. “With the exception of a couple of months in the spring of last year, the HPI composite value has been in an overall decline since August of 2016 when the value was $317,600.”

See the pattern? When it comes to residential real estate as an investment, there is a rising tide of risk. New buyers wonder if they’re grasping a falling knife. Families who over-stretched and gave in to FOMO in the last two years may have lost all their equity. Retirees afraid to downsize last year, spooked at where they might go, now see windfall gains pass them by. Amateur landlords and small-time speckers with a condo or two coming to market face negative cash flow, coddled tenants and tax scrutiny. And the poor schmucks ‘from away’ who love BC enough to have a rec property there have just been gulag-ed.

Finally, here’s what housing analyst and blog dog Hanny Elsayed had to say after I asked him to dive into today’s stats:

These are the themes I see for the 12 detached markets that I cover:

  • In most markets, Sales are at, or near, the lowest they have been since 2012/2013 (demand is currently low)
  • In most markets, Active Listings are at, or near, the highest they have been since 2012/2013 (supply is currently high)
  • At this time last year, in most markets, the opposite was true: sales were high and listings were low. This was reflected by Q1 2017 having the highest sales-to-active-listings ratios since 2012.
  • All 12 markets covered now have a lower average and median price than last year.
My site only provides backward-looking data, there are no forecasts. If a reader were to think about the current state of low sales, higher inventories and declining prices, they should ask themselves several questions to guide them toward possible future outcomes.
  • What impact is the Ontario Fair Housing Plan likely have?
  • How are lending conditions changing (due to OSFI B20 and interest rate changes) and what is the likely impact?
  • Is home affordability at a reasonable level today?
  • Why are so few potential buyers buying with the additional inventory now available?
  • What are the catalysts for upward home price movements?
Maybe these questions will be fodder for the comments section discussion tonight. I would love to hear what your readers think.

Real estate was already in danger from debt and delirium. Now governments want to finish it off. If you think we’ll get cheap houses without hurt, think again.

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March 6th, 2018

Posted In: The Greater Fool

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