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April 12, 2018 | Stages

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.

Friday morning should bring fresh realtor numbers showing national sales have slowed and prices hit a wall. What this blog told you would happen, is. Prices corrected 14-26% in the largest market, sales have toppled in almost all major urban centres, and we’re now into a slow melt phase. This is Stage 3 (more on that in a moment). The next one gets even more interesting.

We also said B20 would matter, and the evidence is now emerging. That Leger survey showing a ton of buyers have decided to stay on the sidelines is part of it. So is the insane jump in condo prices as buyer demand is pushed from detached homes into dreary apartments with mortgages, monthly fees and property taxes. There’s only one reason most of these people are making such a bad real estate choice – it’s all they can afford. They’d all be better off renting, saving, investing and waiting but, alas, they’re daft.

And here’s the latest news confirming one other thing about B20 this blog flagged: nearly half of all mortgages renew in 2018 (this is rare), and it couldn’t happen at a worse time. Rates have almost doubled in the past year and a half, plus B20 is trapping borrowers. Two and three years ago FOMO-addled, financially-stretched buyers opted for short term home loans because (a) they were cheaper than fivers and (b) there was no stress test. Now it’s show time. The loans need to be renewed, and so much has changed.

The new rules (as reported here last year) are crystal: if you stay with your existing lender the regulators will not require you to pass the test (although your lender has that option). However if you leave your bank and start shopping around for a better deal, you’re zapped. You must now qualify at the offered rate +2%, or be declined.

This means a lot of people will be taking loans at higher rates than they’ve enjoyed for the past number of years and (of course) their banks are unlikely to cut them any screaming great deals. CIBC Capital Markets is the latest to make this point, saying 47% of all residential mortgages will be affected this year, when “everything is falling on top of one another.”

Higher monthly payments put more strain on families already shouldering record household debt. At the same time, the wealth effect is fading as it becomes more and more obvious to more and more people (even in BC) the party’s over. Excessive borrowing can no longer be wiped away by windfall gains in house values.

So this is it. Stage 3.

Stage one happened here. This blog (and a very few others, like Ross Kay and Hilliard Macbeth) screamed ‘peak house’ for the last couple of years, warning that any market built on house lust, speculation, debt, FOMO and faerie dust was destined to end badly. The award-winning macroeconomists in the steerage section, plus a hundred thousand realtors in Audi A7s, said pshaw. Ain’t gonna happen.

Stage two is the spreading of peer-to-peer information that real estate is suddenly risky. It can, like, go down. Who knew? How can Justin let this happen? #pissed.

Just as Bitcoin turned on a dime from boom to bust, with the ignorance and greed of its buyers becoming fear and loathing almost overnight, so too is the housing story changing, Social media is feeding that, and it’s only just started. Look at what Mr. Flop has been doing on this blog for months. Every day brings more evidence the realtor-financial complex is zooming you.

Stage three started a couple of weeks ago. The momentum is now thundering. This is when the mainstream media jumps on board with a vengeance.

Remember blog dog Derek, whose story we have followed here for a few months? He sold at peak house, the buyers choked, and our guy just won a $470,000 judgment against them for not closing. The resolution was published here on Sunday, and has now hit every major media outlet. Poor D tells me, “the reporters have been after me now at work, but I just keep dodging them. They called my lawyer too, and even my father.”

Toronto broker John Pasalis (who unwisely dissed me in a Tweet this week) followed up the Derek story with a report claiming almost a thousand homeowners lost $136 million in less than five months in similar failed deals in the GTA alone. Also included were people who bought, realized they paid too much (or more than they could carry) and sold within a year for a loss.

There have been all those media stories about the whiny Mattamy buyers in Whitby and Oakville who are distraught because their unbuilt homes are worth less than they paid during peak house. Many say they cannot now afford those $1.5 million digs, begging the government to intervene. (The politicians told them, correctly, to shove off.)

Closing defaults hit Toronto sellers hard in housing plunge: report,” said the Globe and Mail this week. And it is exactly headlines like this, retweeted over and again, which bring us to this inevitable point.

If you crave a house, really need one and can afford it without gutting your net worth and shouldering an eternity of debt, go ahead. Pick the right area, and you might even score a deep discount. Just don’t try to tell us it’s an investment.

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April 12th, 2018

Posted In: The Greater Fool

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