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December 17, 2018 | Reckless

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.

We’ll get to the latest dreary Canadian real estate update in a moment. Seems when central banks take the cheap-money punch bowl away, everything turns to crap. First a reality check on what we’ve done to ourselves – in a sparsely-populated country where the average house prices is just shy of half a million dollars. (Double that in Toronto or Van.)

Compare us to the States, where a brief bout of house lust resulted in a national spankfest with apparently lasting consequences. Sit down and grab something secure while you read the following summary of available listings in five major American cities. Here is a summary of homes available for less than $200,000.

Chicago, population 2.7 million. Median house price: $285,000. Number of current listings less than $200,000: 15,416.

Miami, population 2.75 million. Median house price: $385,050. Number of properties now asking less than $200,000: 9,169.

Philadelphia, population 1.56 million. Median house price: $264,000. Number of listings on the market for under $200,000: 8,575.

Atlanta: population of metro region: 5.7 million. Median home price: $315,050. Number of listings currently available for under $200,000: 8,469.

New York: population of metro area: 20.3 million. Median house price: $529,050. Number of properties (within commuting distance of the core) available for under $200,000: 7,684.

Apples are not oranges and the States is not Canada, but our two countries are among the most similar on the planet. So the difference in real estate values and household debt is worth noting. We little beavers have overreached when it comes to houses, accepted epic levels of mortgage financing, and adopting a reckless one-asset financial strategy. Now, sadly for many, it’s coming unglued. This is what FOMO, financial illiteracy and trashy lenders have wrought.

National home sales faded 2.3% over the last 30-day period. Nationally, sales have fallen more than 11% this year, and the decline is accelerating (12.6% in November). Average prices are down over 4% – the first year/year plop in half a decade – but this is just the start. In Vancouver sale prices toppled almost 2% in November alone – the most in a decade. Across this entire frosty land, prices have dropped for six months straight, back to mid-2017 levels.

This is best that CREA’s chief economist could muster: “The decline in homeownership affordability caused by this year’s new mortgage stress-test remains very much in evidence. Despite supportive economic and demographic fundamentals, national home sales have begun trending lower. While national home sales were anticipated to recover in the wake of a large drop in activity earlier this year due to the introduction of the stress-test, the rebound appears to have run its course.”

You betcha. There are more clouds now. The oil mess in Alberta. Rising interest rates in both Canada and the US (another one this week). The silly, pointless Meng arrest. Ottawa’s move to punt the $15 billion Saudi arms deal (cost = 500 jobs in London). The most indebted households in the world. GM. Trump troubles. Meanwhile we’ve allowed real estate and the entire FIRE sector to grow bigger than manufacturing, larger than oil & gas, and constitute a quarter of the economy. If this turns recessionary, it’ll be utterly home-grown. Remember the blog motto:  the greater fool is the fool who follows.

That the real estate market would disappoint is a given. It’s taken only 2,300 posts here (plus 585,900 comments) to make that point. Sellers today can still do well. Buyers are rolling the dice. And the entire industry is scared. They see what’s coming.

The Ontario Real Estate Association says governments have launched “a war on first-time homebuyers.” The boss of Mattamy Homes calls the 2% stress test “kind of overkill,” given the market’s collapsing state.  Housing economist Will Dunning says government bubble-busting measures are “ridiculously dangerous to the economy.” The president and CEO of Mortgage Professionals Canada, Paul Taylor, is urging a 5% cap on the stress test, to  exempt renewers form it, and a return to 30-year mortgages with their cheaper monthlies.

MPs and T2 are under big pressure to relent, and probably will. The Bank of Canada needs new Depends thanks to the trade war, Alberta’s oil cap, the Bay Street stock plop, the explosion in family debt and now the property unwind. As reported here, the pace of rate hikes will slow and shudder to a halt. Alas, the frog has already croaked.

So the latest housing stats, released this day, are both a confirmation and a warning. If all your net worth’s in one asset, I hope at least you love it.

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December 17th, 2018

Posted In: The Greater Fool

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