- the source for market opinions


July 22, 2019 | How Desperate?

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.

Tim Hudak is, well, terrifying. The former hard-con, right-hand dude of legendary hack-‘n-slash premier Mike Harris of Ontario was largely credited as having handed an election to his Lib opponents, who plunged the hapless province into a morass of spending and debt. And that begat weird Doug Ford. Tim scared people by saying he’d fire a hundred thousand civil servants, corral teachers and be a general badass. Voters recoiled. Hudak lost his job in politics, then found the perfect spot for a hardcore capitalist: real estate.

He’s boss of the Ontario realtors’ association these days and has become a leading voice in trashing the mortgage stress test. Hudak’s not alone. The mortgage brokers all hate it. Real estate boards nation-wide have been lobbying against it. CREA’s all fussed. Even some big-name bank economists (like CIBC’s Benny Tal) have told Ottawa to gut it. The logic is that by forcing people to quality for a mortgage at 5.19% when they can get one for 2.8% (or less) is overkill. With a slowing economy the threat of a rate pop has, they argue, dissipated.

Says the former politician: “The test is disastrously flawed and is an urgent issue that needs to be addressed. Only the federal government can address these harsh one-size-fits-all mortgage restrictions.” So, with a big election coming in October, Hudak and all these other interests are beating on Justin to tell the bank regulator to back off.

Will he? Unlikely. But maybe. Depends on how desperate the federal Libs are for re-election. After all, a powerful force in making T2 the PM were moisters – now in their horniest of house-lusty years. It’s lost on nobody that they form the single-largest demographic (how did that happen?).

As you know, all real estate’s local. BC is a mess. The flat bits are comatose, Ontario is variegated. The GTA’s stable but low-energy. Montreal and Halifax are hot. The rest of the nation is at the beach. But the stats are telling. Mortgage rates are near historic lows and yet mortgage lending is the worst in over two decades. Up to 80% of real estate agents in major markets have not made a single sale in 2019. Prices are lower than 2017 levels in Toronto and Vancouver but still average families are far from being able to afford the average home. High prices mean high rents. It takes an income of almost $58,000 to lease a one-bedder in Toronto, and that’s higher than the median wage.

So, yeah, it’s a political issue.

Now, a reality check. Because we all know Justin reads this blog (bonjour!), let’s flip over to the always-helpful site called ‘Visual Capitalist’ which has just done an update on how humans love to commit death-by-real-estate.  Following up on a study by economist Niraj Shah, the VC dove into four key metrics which are warning signs of a housing bubble. “Ranking high on just one of these metrics is a warning sign for a country’s housing market,” we are told, “while ranking high on multiple measures signals even greater fragility.”

And guess what? We ace all four.


Source: Visual Capitalist. Click to enlarge.

In terms of the House-Price Ratio, House Price-to-Income Ratio, Real House Prices and Credit-to-Household Ratio, Canada sucks. So does New Zealand, but that country has about as many people as Montreal (sheep excluded).

Housing bubbles are destructive events. They never end well. ‘Soft landings’ are the Holy Grail of policymakers, but the normal conclusion is a deep hole with a smoldering fuselage sticking out of it. The stress test has slowed sales, tempered buying, reduced credit demand and erased FOMO. This is exactly why Hudak wants it gone. As does friendly barbarian-premier, Jason Kenney.

Soon we will see what spine the government has.

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So, these are Steve’s two dogs. He sent the picture along just to bribe me into answering his question. Apparently it’s working.

Hi there Garth. Great blog. I love it and regularly send the articles to my friends living in Toronto. I live in the great white North (well Sudbury…more like the grey North) and I have a house that I am renting to a friend. I am tired of renting and want to sell it. Likely I will sell it to them and do privately, but I was wondering how I figure out a good price. If I ask a real estate agent to assess it, they will probably assume they are going to get the listing and they’ll give me either a low ball (so they can sell it fast) or a high ball (so they can make a bigger commission). I was thinking of using a ‘real estate appraisal’ company, but will they give me a real value based on the sales in the area or what? A lot of the house’s value is in the yard and the neighborhood and if they just go by the stats, then I’m afraid it will get appraised very low. How do I get an honest, true value?

The simple, and vaguely unethical, way of doing this is to call three realtors (not one) who work for various brokerages and have experience selling in your area. Ask them to do a market assessment, and back up their opinions with research – which should involve an analysis of the comparables (recent ‘solds’ in the hood). Average out these three opinions for a pretty good ballpark of current value.

But like I said, it’s unfair to expect anyone to work for nothing (except me, on this blog), so best to declare your intention upfront and offer to pay for this process. Or, yes, you can engage a licensed real estate appraiser who will do essentially the same thing, providing data on similar properties’ sale prices and estimating the worth of yours. If your property’s in the city, a SFH and not on the water, this will cost about $400 plus tax.

What’s it really worth? Simple. What your buddy will pay.

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July 22nd, 2019

Posted In: The Greater Fool

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