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May 7, 2018 | The Exodus

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 housing numbers last month sucked just about everywhere in BC and ON. Van and the LM, plus 416 and the GTA are unhealthy places for realtors. Sales have dropped with a thud, especially for detached houses, prices are wobbling and this is shaping up to the worst spring market in memory. Condo prices have held while the value of single-family homes has eroded significantly. The sentiment is negative as rates rise and confidence wanes.

In contrast, money is moving. A two-bedroom condo sold for 25% over asking, topping a million bucks last week in Ottawa. Yes, Ottawa. Boring, snowy, grey flannel Bytown, populated by insufferable people with sensible cars, flat hair and DB pensions. And now Montreal’s hot. The country’s second-biggest real estate market has always been one of the cheapest – and for sound reasons, if you don’t speak French, lack thermal undies or like being married.

Even down into Nova Scotia, houses sell in days instead of months. In the little town I’m visiting, the people on one side are from BC, on the other side from Ontario, and across the street from Connecticut. What cost $300,000 two years ago (a really nice place) now fetches five large.

Why the migration?

Simple. The two big bubble markets have become unhospitable to buyers, populated by sellers who can only be described as greedy, and governed by politicians who have meddled as never before in housing. As the Boomers age, move into retirement mode, become unhitched from employment and finally come to their senses, it’s easy to see a torrent of money leaving regions where real estate Hoovers everyone. It’s a migration I wrote about in a book published in 1995. It’ll come around 2015, I said then. And here we are.

It’s hard to have a good quality of life when you’re carrying a million-dollar mortgage. But to afford the average detached house in the LM or most of the GTA that’s what you need – plus another half-million in cash to put down. The land transfer tax alone in Toronto is enough to buy a Mercedes with – money which is flushed away, adding no value to the property. Property taxes and condo fees are steadily increasing, and now the cost of financing is continuously edging up.

It’s this financial vice which has made a lot of people angry, led to the search for scapegoats, and elected governments pledging to ‘fix’ the market. But that’s not happening. As detailed here lately, measures like BC’s suite of anti-real estate taxes and the federal mortgage stress test are simply making cheap houses cost more and unaffordable ones cost less. Nobody wins. So the anger grows.

The best example, bar none, is in Vancouver – a city obsessed with housing and cleaved by property-related emotion. Once our most beautiful place, it seethes. People have been reduced to taking out dangerous mortgages with friends and roommates, living in glorified laneway garages and spending 75% of their take-home income on basic shelter. The house horniness has led to the election of people who garner huge support by punishing existing homeowners and blaming everyone but themselves for the price of real estate they feel entitled to own.

The savings rate in BC, as a result, is negative. The greatest level of household debt is in Vancouver. The risk embraced by people there is off the chart. So un-Canadian. So ugly. No wonder people are leaving.

The pollsters at Angus Reid track this stuff. Earlier this year after federal stats showed less than 5% of Van properties and about 3.5% of those in the GTA were owned by people not living in Canada they found almost all BCers supported measures aimed at taxing the poop out of foreigners. In fact, even though over 90% of transactions are between locals, the company’s earlier survey findings were upheld. When asked why Van houses cost too much, 65% said it was the other guys doing it. It was classic FOMO at work. Blame the Chinese. Blame rich people. Blame investors. But don’t blame me!

Angus Reid found that three-quarters of people wanted government to get involved, and 43% were actually hoping the entire housing market would crash. So, now they have their wish. Speculators are taxed. Foreigners are taxed. Underutilized houses are taxed. Albertans and Ontarians are taxed. Wealthy people are taxed. And there’s more to come. The market cannot withstand this while the cost of money is rising and credit’s being restricted. As Vancity and others in BC (plus Meridian in Ontario) adopt the B20 stress test, the result can be dramatic.

The meltdown in equity is likely to be long and sustained. But it could also come in a downward gush. The numbers of underwater borrowers will swell, with 8% of households responsible for 20% of $2.1 trillion in mortgage debt. And guess where they live?

No wonder the boonies are sexed.

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May 7th, 2018

Posted In: The Greater Fool

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