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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

May 3, 2018 | Shed II

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.

What comes after house porn? Crash porn, of course. And we have plenty of it on this pathetic blog which just spent the last decade telling you that it’s okay to be house horny so long as you’re balanced. Apparently millions ignored me.

Yesterday it was all blood & guts from YVR and the LM. Today the bleeding continues with damage to 416 and the GTA. Mainstream media and the real estate cartel are spinning the current numbers as being a ‘stabilization.’ Death is also stable. It’s all relative – and the real estate market in southern Ontario is decidedly unhealthy.

On the heels of Van’s numbers, the largest real estate board in North America this week delivered some tough news: sales in the GTA tumbled by a third from April of last year, when everyone on this blog said prices would rise forever. They didn’t. The average value of a detached home has dropped more than 14%. In fact sales of detacheds – the gold standard in the spring of 2017 – crashed almost 40% across this vast region of six million souls.

Despite the obvious, realtors are fighting back. Says the cartel: “The comparison of this year’s sales and price figures to last year’s record peak masks the fact that market conditions should support moderate increases in home prices as we move through the second half of the year, particularly for condominium apartments and higher density low-rise home types.”

You can certainly take issue with that statement, since we’re just freshly into the post-B20 era when the mortgage stress test is seriously reducing available credit. Plus mortgage rates bloated last week, the US Fed will increase four times in 2018, the Bank of Canada is expected to plump its rate again this summer, and benchmark US Treasuries are rocking yields in the bond market.

Well, when your BIL tells you over dinner this Sunday what a loser you are for renting because, of course, houses always go up, share the following. (You might wish to write some of this on your hand.)

  • Despite what realtors tell you, they just had one of their worst months in 15 years. The mood change from last April to this one was intense and profound. The vast majority of agents have had no sales. No wonder they’re bitchy.
  • The 7,800 deals recorded in the region last month was the worst result for an April since 2003. Sales have now declined for four months consecutively.
  • This is the worst start for any year since the financial crisis of 2009.
  • Real estate sales in general just hit the lowest level since 2010.
  • A year ago listings were surging and buyers had more choice. This year they have crashed by 25%, from almost 22,000 to just over 16,000. This lack of quality product (sellers are on strike) is why prices have not plopped further. So, wait.
  • The top end of the market is being pummelled. Houses worth $2 million or more accounted for 10% of all sales last year. Now that’s dropped by 50%.
  • The market is cleaving. Single-family homes are being shunned, even as the price falls, while condo sales have held up and average prices even increased a little. This proves again people buy what’s increasing and flee those things in decline. Big fail.
  • With 20,000 new condo apartments coming in each of the next two years and mortgage rates rising, be very careful about grabbing a pre-sale unit – especially to rent. Remember that about 45% of all amateur landlords in Toronto are in negative cash flow. If prices start to reverse, they’re toast.

Now, finally, there’s an election coming soon in Ontario. One on side are the Libs whose 16-point market-killing plan of last April included a foreign buyers tax, universal rent controls and a crackdown on flippers and speckers. On the other hand are the untested and testosterone-addled Tories who want less government, fewer regs and no taxes on offshore money. Meanwhile McMansions in some parts of the GTA have already shed a quarter or more of their value and – as detailed above – buyers are few and far between.

Yes, this is a confused market full of scared sellers, homeowners in disbelief, moisters overpaying for purchases they’ll regret and a mass of buyers too doubting to make an offer. As always, do the opposite of what everyone thinks is smart. And guess what that is?

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May 3rd, 2018

Posted In: The Greater Fool

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