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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

December 13, 2018 | The Agenda

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.

 

Days ago we told you to expect some changes in 2019, as the vote-hungry federal Libs feel intense pressure to throttle back on measures now driving a stake through the cold hearts of real estate bulls. Next year, after all, brings a general election. T2 has spent his mandate cuddling moisters and courting women. Young Tory Scheer has fashioned himself as a kinder, chubbier Harper. Mad Max is the dark, brooding northern Trump. Jagmeet has confirmed he’s one of the NDP’s biggest-ever mistakes (an accomplishment).

Since politics is math, the Trudeau gang feels pretty good. Any votes Max gets will come from the Cons, not the Libs. The Dippers have imploded. Quebec separatists are so done. And the ghost of Tony Clement hangs like an unending flatulence over the opposition lobby. So all Trudeau needs to do, he figures, is retain the burgeoning Mill vote by pandering to that cohort’s inbed house lust.

There’s no doubt the combo of rising rates, the B20 stress test and an uneven landscape of provincial policies (BC’s the worst) have killed housing’s bull market. For example, sales and prices of detached houses in Vancouver have tanked as few imagined.  Sale prices have pizzled between 10% and 17% from East Van to the toniest parts of the Westside. High-end values have cratered and even in places like Burnaby and Richmond it’s tough to find buyers without a serious haircut first.

In Toronto there’s an air of suicidal desperation in the new house industry. Prices continue to wither, with the largest monthly drop since 1996. Detached home sales are currently running 65% below the 10-year average. There are 44% fewer condo sales than a year ago. Prices for singles are down 8.5% over the past year, with demand shifting to cheaper condos. The average new high-rise box now costs a withering $775,000.

And look at debt. Ugly. A fresh CMHC report this week says homeowners in Toronto and Van continue to snorfle record levels of borrowed money. That’s pushed the average debt-to-disposable income level to 208% in the GTA and 242% in Van. Says the federal agency: “With interest rates on the rise, highly indebted households could see their increased required payments exceed their budgets. Highly indebted households have unusually few debt consolidation options to respond to increasing debt service costs.”

Meanwhile the explosion in sub-prime borrowing is epic. In order to circumvent the stress test large numbers of people are opting for the shadows, taking loans from non-bank lenders, often at rates exceeding 8% (and sometimes in the double-digits). These folks do not even show up in federal debt stats.

So the stress test, it’s now generally agreed, has reduced the amount of available credit by about a fifth. Kids who could afford an $800,000 house two years ago are now shopping the in the low-six range. To bridge the gap some municipalities are actually giving away down payments, openly encouraging homeownership and big debt. Like Toronto, where gifted ‘second mortgages’ that require zero interest payments are available for $135,000 to buy some condos valued to close to $600,000.

Finally, out of T2’s hands entirely are the Trotskyites running BC. That province is now the most anti-wealth place in Canada. Since so many people there believe house = rich, it’s no wonder the NDP overlords have a campaign against real estate. The anti-Chinese Dude tax stands at 20% and has been expanded. The ridiculous speculation tax is a levy on secondary houses – nothing to do with specking or flipping. There’s an empty houses tax and an uber property tax. Now we have the infamous Meng arrest, an obvious public policy mistake, further telegraphing that this is a capricious, unstable and hostile place in which to invest. Especially if you’re Asian.

So, what next?

2019 will bring much change. Yes, interest rates will still rise – probably twice next year – but the pace of the increase will be slower than anticipated, following the Fed’s lead. The bank cop, OSFI, may bow to pressure from the PMO and cap the stress test rate, but it will not be eliminated. CMHC might allow 30-year mortgages to again be insured in an attempt to move more sub-prime money to regulated lenders. And the $1 million cap on insured properties could also be modified, since that only buys you a dump in 416 or most of YVR.

Some of this may occur before the autumn, but a wise prime minister fighting to retain his majority government would probably wait and make it a plank of his re-election platform.

First he gave them weed. Now condos. What else are great nations built of?

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December 13th, 2018

Posted In: The Greater Fool

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