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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

June 15, 2018 | The Chill

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.

Another one bites the dust.

Blog dog Steve was not impressed when he logged on to HouseSigma and found the following notice:

Based on the current Toronto Real Estate Board regulations, we are restricted from providing sold information to the general public. Effective June 15th, 2018, HouseSigma will only provide sold Information to customers who are working with our agents.

Yep. Those mean sonofabitch® realtor lawyers have managed to shut down yet another online source of housing information, feeling that an ill-informed and ignorant consumer is likely to pay more and keep the party going. As you may know, TREB has been in a long-running legal battle with the feds and progressive brokers who think buyers should know what houses sell for, their sales history, days-on-market and how many times they may have been re-listed. So far the Audi-drivers have lost every legal battle, but still maintain the position that MLS data is secret and anyone trying to make it available deserves to have their head on a stick.

“I’ve been using this app for quite a while to keep my finger on the pulse of the market.  I have no intention of buying, but like to keep tabs on the market,” says Steve. “Now the TREB gangsters have restricted access to sale price data. This site also shows detailed listing history.  I wonder how long before they clamp down on that. One thing I’ve learned in life is that people are not shy about telling a good story, so what is TREB hiding?  I’m sure it’s not a good story.”

Well, you can still access this kind of information but only by signing on with a realtor, then requesting it for specific properties. Not the best scenario, and it prevents you from doing analysis and comparisons at your own pace. Too bad Viewpoint.ca is not in Ontario. But just wait.

So, where are the sellers?

Listings have started to swell in Vancouver, the LM and the GTA, but 2018 has been characterized by low sales, scant listings and scarce buyers. Yeah, prices have wilted a bit – way more in Toronto than YVR – but there seems to be standoff between vendors and purchasers, grinding the market towards an awful summer.

So, howcum? Here’s the scoop from one of the biggest condo-floggers, Remax Condo Plus:

The big question is why are people staying in their houses longer? The only answer seems to be that Government has made mortgage financing a whole lot more difficult… If sales are down, why aren’t prices starting to fall? In real estate, sellers have a preconditioned notion of what price they want. If they don’t get it, they just take their property off the market. They only reduce prices when they are forced to sell for financial reasons– which is not now. The media and casual observers tend to look at average prices because it is an easy number. But average prices assume that the mix of sales does not change over time. In 2018, we have seen a very strong market for low rise properties under a million, a neutral market between one million and two, and a soft market over two million. In the condo market, properties under $600,000 are the strongest segment, up to a million it is busy and slower over that mark. This is very different than in 2017 when bigger, more expensive properties were selling quickly up to May.

In the condo market, May sales were 15% lower than for May of 2017. In comparison, the total Board was down by 22% for the same period… Looking at preliminary sales for June, expect sales to be LOWER than in May. That applies to all market segments. Even downtown condo sales will be lower than for May. A new reality has set in.”

When was the last time you heard you heard agents and brokers telling you the market was about to take a dump? Remember, mortgage costs rise again next month, then further in the autumn. The stress test benchmark rate will be just under the 6% mark, and Trump may have sucked all of the oxygen out of our economy.

When rates fall, houses rise – and vice versa

So, have you been spending the last two or three years paying down that mortgage with its crazy-low interest rate? Or maybe you’ve been investing monthly in a balanced portfolio, building up more liquid assets to pay down the principal upon renewal?

No? Well, poochiness is coming your way in the form of an interest shock upon renewal. Blog dog, former litigation lawyer and Vancouver-based venture capitalist Hans has some observations for you, plus a crude little chart to ruin your weekend. Enjoy.

Below  is as graph of the Canada 5 year bond rate going back 10 yrs.   The 5 year fixed mortgage rate, at any time, is roughly 200 basis points over this. So during 2015 and most of 2016 homeowners were able to secure 5 year fixed mortgages at around 2.60 – 2.75% for most of that period.

Thus when the 5 year Canada Bond rate hits 3.00 %, as it may well get to by end of 2019, then 5 year mortgage rates for consumers will have almost DOUBLED from their 2015 bottom, just in time when the 2015 renewals start kicking in, come early 2020.

Given the near flat yield curve, those seeking to renew their 5 year mortgages in 2020 and 2021 will have 3 unpalatable choices:  (1) renew at a fixed rate that is materially higher than their original rate; (2) renew at a variable or very short term rate, which will still be higher than their original 5 year rate, but carries rate risk going forward, or (3) sell [or at least try].    If this gets coupled with a wobble / decline in the economy, look out….

And, finally, more capitulation

Hoping nobody would actually notice, the Canadian Real Estate Association dumped its most recent stats on Friday. The numbers are dreadful. Sales dropped nationally from April (traditionally the second-best month of the year) to May (the best). Not good. Activity in general was 16% below that of last year, while 80% of markets in Canada took a hit, led by the LM and the GTA. No amount of lip gloss will make this porker pucker.

The blame is going to the stress test, of course. Says the association’s chief economist, Gregory Klump: “This year’s new stress-test became even more restrictive in May, since the interest rate used to qualify mortgage applications rose early in the month. Movements in the stress test interest rate are beyond the control of policy makers. Further increases in the rate could weigh on home sales activity at a time when Canadian economic growth is facing headwinds from U.S. trade policy frictions.”

And that is exactly what’s coming.

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June 15th, 2018

Posted In: The Greater Fool

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