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October 3, 2019 | Suck. Blow. Repeat.

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.

Here we go again? Arghhh. Say it ain’t so.

Well, we’ll see. But the latest market stats out of Canada’s two major-league delirious real estate markets certainly suggest that for a variety of reasons house lust is back.

The facts: In Toronto prices popped last month the most in about two years, which means houses are creeping back to their ridiculous 2017 record levels. The year/year gain was a little over 5% – the largest move in about 24 month. Listings fell as buyers moved back in, pushing the average price to within a used Kia of its highwater mark – back when governments panicked and started throwing on the brakes.

Sales are also bubbly. Ahead 22% in Toronto and 46% in Vancouver. The number of frenzied buyers is still far less than in 2016 when people made bid on houses after just driving by and realtors delighted in holding blind auctions, but the recovery is evident. Listings are down 14% which means these extra buyers are starting to fight each other, resulting in the highest values this year. GTA detached house sales jumped almost 30%.

Van prices are still 8% below year-ago levels, but the catch-up appears to be on. That’s despite the punishing anti-Chinese tax, the anti-Alberta spec tax, the empty house tax and the uber property tax tax.

YVR listings have started to swell again – up by about a third from August. The kids are back at it, as the sales-to-listings ratio for condos pops up to 22%. The composite price is sitting just below $991,000 and the level for detached homes is $1.4 million. BTW, detached sales jumped 46% from disastrous levels in the late summer of 2018.

So there ya go. The realtors are all happy and out leasing new Audis. Mortgage brokers have stopped sleeping on cardboard. Appraisers and home inspectors are no longer taking in laundry and running daycares. The Holy Grail – a balanced market – is on the horizon.

What happened?

Three things.

First, the cost of a mortgage has crashed. It’s ridiculous. Five-year money is available for 2.44% these days – when the inflation rate is 2%. That makes it almost free. You can bet when Mr. Socks is re-elected (maybe) and the carbon tax ticks higher over the next four years that the cost of living will tick along with it. Locking in today at these rates is a generational opportunity. But the flip side is what this is doing to real estate.

There’s an inverse correlation between the cost of a house and the price of a mortgage. As central banks knuckle under to slower economic growth and political demands, home loans might even dip further. It won’t last, but the impact is starting to be profound.

Second, the stress test is baked into buyer expectations. It was a big, hairy, scary thing a year ago. Now it’s a meh. Once again the market has adapted – as it did to the death of 30-year mortgages, the limit on CHMC loan amounts plus speculation and anti-foreigner taxes.

Third, politicians. And this damn election. In an orgy of giving, real estate has been front and centre. The Libs rolled out the shared-equity mortgage, then goosed it to $800,000. RRSP withdrawal limits for downpayments swelled. The Cons plan to bring back 30-year loans and would gut the stress test. Both parties are showering retrofit money on homeowners. The Dippers and Greens would also put a pony in every garage.

The meme is out there, bigly, that whomever forms the government, breaks, incentives and encouragements for home ownership will be a central policy plank. So on one hand politicians have been trying to tamp down a bubble asset and at the same time working hard to pump it. Suck & blow in its purest, most classic form.

Thus, sales and prices in the nutso markets are creeping back. The much needed correction has been sidelined for a while. Canadians will be nudged into swallowing additional dollops of debt. More and more disposable income will end up in interest payments. Real estate affordability will erode. More of the nation’s net worth will migrate into this one fixed asset. More borrowing. Less saving. Reduced mobility. A nation of nesting.

Until, of course, it all changes. Just hope you’re in the right spot then.

About the picture...

It’s arresting how many blog dogs end up in the weensy coastal fishing village where I bought a little stone castle to escape to whenever possible. Mark from Barrie, Ont. tracked me down this week. “Probably didn’t think of your bank as a tourist destination. Great job on the building,” he says. “Thinking of moving out…let me know when you are Mayor ha! ha!”

Too bad he didn’t come inside. We’d just baked cookies.

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October 3rd, 2019

Posted In: The Greater Fool

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