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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

May 3, 2019 | The Grumpy Spring

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 pressure mounts. The market falters. Confusion reigns. Just another week in a drifting nation.

Real estate in Vancouver is in tough shape. Worse, even, than most locals understand. If they listen to the local real estate board, they have no true idea of what is causing this, or where a bottom may be.

First the facts: Sales down another 29%. The worst showing in a quarter century. Inventory is exploding. Up 16% from last month and 46% from last year. The message is finally getting out – sell now for less than you expected, or sell later for a helluva lot less. Average prices down close to 9%, and well into the double-digits for detached homes. Stories flow of high-end properties changing hands at a 30-50% discount from asking.

The reason realtors give is consistent and aimed at Ottawa’s stress test: “The federal government’s mortgage stress test has reduced buyers’ purchasing power by about 20 per cent, which is causing people at the entry-level side of the market to struggle to secure financing,” says the local board. “Suppressing housing activity through government policy not only reduces home sales, it harms the job market, economic growth and creates pent-up demand.”

In the GTA, it is also a grumpy spring.

Sales of new condos have plopped to a six-year low. The smallest number of new projects launched in the first three months of the year than at any time in a decade. Mortgage originations crashing, even as desperate lenders offer rates as low as 2%. Meanwhile the real estate board missed its Friday to report on April stats. Hmmm. Maybe the dog ate them.

In Victoria, sales slumped by 10% last month and prices also dipped below $750,000 for the first time in coon’s age. “Spring has been a non-traditional market,” says the realtor boss there. And guess what he blames? You bet: “Consumer purchasing power continues to be negatively impacted by the mortgage stress test, causing many buyers to step back while they save more money for a down payment.”

And Victoria owners are also staring to bail. Inventory has grown a substantial 27% in the city, and is elevated across all of Vancouver Island. The stress test, the board adds, is “wreaking havoc” across the entire region. “We’re seeing many sellers who want to list their homes at 2016 and 2017 prices, expecting to get the same amount of money their neighbour did two years ago, which isn’t realistic.”

You bet. And the real culprit is not the stress test, but a market bouncing a price ceiling, then running smack into a wall of new taxes. In Calgary, sales up 2% from a miserable April in 2018, but prices are down another 5%. In Ottawa, sales were flat in April but prices up, mostly because of condos. Realtors there note sellers are reluctant because of a drop in inventory (Ottawa is a unique market). “Add to this a stress test for buyers, that can limit purchasing capacity in a market where prices are accelerating, and it becomes a Catch 22”situation for the foreseeable future,” they say.

No numbers yet from Montreal or Halifax, both buoyant lately for sales but stable for prices. In Regina, a big pop (28%) for transactions last month, but the price of homes continues to cascade lower. “Despite the surge in sales in April, the benchmark price continued a general downward trend, indicating downward pressure on home prices due predominately to elevated supply levels and weakened demand,” say the locals. “Over the last five years, the benchmark price is down 12.8%.”

Notice a trend?

Markets everywhere are treading water or slowly sinking. Nobody who bought in the last few years has made money. After closing and selling costs, real estate’s a turkey. This will end up being the worst spring market in decades when you factor in a mortgage rate war and new home-buyer incentives, like the $70,000-per-couple RRSP gift. Buyers are retreating not just due to the stress test, but because FOMO no longer blinds them, leading to absurd and reckless buying decisions. And while it’s becoming clearer the worried T2 gang may yet gut B-20, it would be unwise to predict the kids will come rushing back in.

Prices are still too high in the major markets of Vancouver, Victoria, the Lower Mainland and the GTA. Incomes have barely budged. The carbon tax is draining cash flow. Debt is growing, not shrinking. The economy is slowing. And Jason Kenney wants to join the States. (Expect to see a vid of him soon, shirtless, astride a snorting stallion. Hide your daughters.)

Meanwhile stock markets have gained 13% in the last 12 months. Aren’t you happy you come here?

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May 3rd, 2019

Posted In: The Greater Fool

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