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March 1, 2018 | Take Shelter

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.

Monday should be interesting.

Realtors in Van and the Big Smoke are set to release February numbers. Expect sales declines plus that yawning divide to continue between detacheds and condos – which is seriously masking overall trends. Has the B20 stress test started to hose down the house-horny moisters yet? Have rising mortgage rates curtailed overall credit? Or has an unusual lack of spring supply fed competition for available listings, keeping prices aloft? And how about the giant discrepancy growing between urban and suburban markets – across the GTA and the LM?

As far as Toronto goes – if you believe Zolo – we have an unfolding disaster for people who bought in the last year. Did any of them ever expect these price hits?

Markham, Stoufville, Bradford, Georgina, Richmond Hill, Vaughan, Unionville – quel mess! – all with 20% or more declines in appraised values or sale prices. There are double-digit drops also in Mattamyville (Milton), Oakville and Pickering, while Mississauga and Ajax have shed close to 10%. Toronto is flat. Caledon is up, so the hipsters and horses are okay.

Toronto broker and number-cruncher John Pasalis is sure tweeting up a doomstorm this week. He figures prices overall have plunged 12% from last year – with the non-condo part of the market taking a 17% hit. Values haven’t changed a lot from January, but energy is sure being sucked out of the marketplace. Even condos sales are being clobbered – down by about a third – while detached sales have crashed closer to 40%.

Here is his summary of the carnage. He confirms there is mucho wailing, gnashing and crashing going on in the northern burbs. Soon we’ll be sending UN relief workers into York Region.

Let’s see what February looks like in official stats, but also try to figure out what comes next. In BC, Victoria, Kelowna and the nether regions are now no-go zones as the new spec tax scares off foreign dudes and Canadians with second properties. Expect big consequences. (Sales in Victoria, by the way, crashed 19.25% in February to merely 545.) In Calgary sales last month dropped by almost 20% over last year, while prices are down a little and listings are rising. Compared to the LM, still a bargain.

Montreal is doing okay, as is most of southern Ontario – but with lagging sales year/year. Nova Scotia prices have picked up in the last year as more Upper Canadian refugees discover the place (still cheap, with lobsters). Regina, Saskatoon and the other flat places – meh. Boring and provincial as usual, little price change and no reason whatsoever for appreciation.

In short, real estate as an investment asset class is in a spiral. If you need a home, can afford it without Hoovering your net worth, plan to stay there a long time and won’t freak when the price plops, go ahead and buy. Otherwise, forget it. Having said that, all real estate is local. Some places will see no decline in values and continued competition for good listings. In other places, not far away, the buyers will be relentlessly in control. But overall, spring 2018 will bear absolutely no resemblance to last year’s rutting season, and the people who bought then no longer wish to discuss it.

Here’s more to weird you out:

Stock markets tanked again Thursday for two reasons that impact Canadian residential real estate. First, interest rates are rising. The new Fed boss has made that abundantly clear this week, and Mr. Market is now factoring in four increases, which has bond yields bulging and equities falling. Our CB will follow eventually and in the meantime the debt market will goose mortgage costs.

Second, steel. Trump. Tariffs. The guy is out of control with a 25% duty being slapped on shipments into the US. Not only will this inflate manufacturing and construction costs in the States, but it kicks the poop out of the Canadian industry with an immediate impact on places like Hamilton and the Sault.

And when March expires in thirty days, so will a lot of  mortgage pre-approvals that were granted near the end of 2017 before the B20 stress test came into effect. Thus, buyers re-applying for loans in April will have to qualify at the whiz-bang level of 5.14% – which may actually be 5.4% by then. Just one year ago delusional bankers were dishing out fivers at barely more than 2% while the Bank of Mom was giving moisters down payment loans designed to get around the newbie stress test in place at that time.

The change in 12 months is epic. Credit has shrunk. Prices and sales are in freefall. Mortgage rates are advancing. Stress everywhere. Buyers remorseful. Sellers scared.

But, fortunately, some things never change. There’s always a greater fool

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March 1st, 2018

Posted In: The Greater Fool

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