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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

April 5, 2018 | The Last Post

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.

This is the final of three posts. Judging by reaction to the first two, it could be my last. This week the goal of this pathetic blog was to underscore economic conditions, look at Canadian real estate, and give you an assessment on what happens next. Whether you like it or not.

Recall, you were told this day would come. For years the warning has been the same: there will be a correction, then a melt. But no US-style property Armageddon. No 50% decline. No 70% Phoenix-style Hoovering. The only way such an event could occur would be if conditions here mimicked those in the States when that market crashed. A serious recession. Double-digit unemployment. No available credit. And a housing market where people were too pooched or terrified to buy.

That’s not happening. Get used to it. So when a 30% price drop comes along (swaths of the 905) or a 14% trimming of values (Toronto), or stagnation (Calgary, Ottawa, Halifax), maybe you should take notice, and take action. This is simply because it’s now evident (to this blog, anyway) conditions have changed. The Mills are getting unexpectedly aggressive about real estate (look at those ridiculous condo sales), and the economy is about to move forward. The low-rate, low-yield, low-growth years are over. Just watch the US jobs numbers on Friday morning for proof.

This is not to say house values are about to swell. They’re not – for a while. And BC has not yet even felt the ding of the Dippers. But in many other markets, and hoods, waiting for a massive collapse is futile. You might want to take advantage of sellers who this week woke up to these headlines:

Toronto home prices see biggest drop in almost 30 years.
Financial Post

Greater Toronto Homes Sales Drop Nearly 40%, Vancouver Sales Down Almost 30%.
HuffPost

They bought their prebuilt homes at the market’s peak. Now they face financial ruin.
Toronto Star

Home sales fall in Canada’s two largest real estate markets
Reuters

Real estate sales and prices tumble in March
The Spectator

‘You’re starting to witness the slowdown’: declines expected in today’s Vancouver real; estate figures.
CBC

Vancouver home sales fell twise as fast as a bank thought they would after BC NDP’s new taxes.
Global News

Taxes sinking Vancouver’s detached-house sales
Business in Vancouver

Speculation tax expected to impact West Vancouver
Vancouver Courier

Such media coverage is a serious issue, and a market-maker. Real estate runs on confidence, hormones and cheap money. When buyers swarm in and rates are low, prices spike. When it’s perceived prices could start to decline, or fall further, buyers sit on the sidelines (the comment section here is a great example), sniping and telling each other they’ll go lower. The last great example was after the credit crisis, when Toronto prices plopped 15%. Did buyers rush in? Of course not. The market were dormant. As is currently happening in many places.

So, the advice remains. If you want, crave and can swing a house without gutting your finances, try it. Offer what you can afford to people increasingly anxious about selling. Here’s a strategy:

  • Get an agent to front you, but don’t sign a BRA. I’ve explained why many times.
  • Suggest a reasonable price you think is fair and affordable. If it’s a ridiculous low-ball offer the buyer may ignore you or sign it back for full price. In both cases, you’ve created animosity which won’t help going forward.
  • Include lots of conditions, even if you don’t need them. Financing, Home inspection. Water and septic (in the country). You can always strike them to assist in getting a better price as the negotiation goes forward.
  • Don’t make the irrevocable too short. People under pressure don’t cooperate.
  • Never offer after one showing. Go two or three times. Build the drama. You can afford to do this in a market with little buyer competition.
  • Big deposits always help get lower prices.
  • Don’t be too hasty with the sign-back. Wait until the end of the allowed period to respond. The seller will worry that you’re going to walk, and be grateful (and more pliable).
  • If the negotiations fall through, give it up. Take a few days or weeks off, then go in again. You may be surprised at the result.

Finally, just a day after the steerage section tried to take over the blog’s bridge, Canada’s biggest bank published this message in my defence (not that I need):

Canadian homebuyers are seeing a “long overdue” improvement in housing affordability, according to RBC, but the bank is warning Toronto residents to enjoy it while it lasts…the retreat from “dizzying heights earlier last year” will be brief.

“It would be tempting to view the fourth quarter’s affordability improvement in Canada as the start of a new, friendlier trend for homebuyers,” RBC Economic Research wrote. “But this is unlikely to be the case for a few key reasons. First, we expect the reprieve in the Toronto area to be short-lived. We believe that Toronto prices will bottom out sometime this spring. Second, we expect interest rates to rise further.”

There. Now you can hate the bank instead. Much more satisfying. Because I don’t care.

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April 5th, 2018

Posted In: The Greater Fool

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