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November 17, 2019 | The Moaning

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.

During that godawful election campaign the cowboy premier argued the mortgage stress test is unfair to Calgary and Edmonton. “One of the reasons why homes are less affordable in Alberta today is because of unfair rules imposed by Ottawa to deal with the overheated real estate markets in Toronto and Vancouver,” thundered Jason Kenney.

The federal Cons agreed. Andrew Scheer promised to ‘modify’ the rules setting minimum mortgage hurdles. And so the Conservatives swept the West. Once again real estate got real political.

So what’s the situation? Are Alberta houses unaffordable? Would gutting the stress test for certain regions of the country make houses accessible? Is Trudeau likely to do this to help keep the prairie Liberation Army at bay?

Hmm. The latest numbers tell a different tale. New house prices in Calgary are falling – down about two and a half per cent over the past year. Resale prices have been on the decline for five years. Sales of detacheds year/year is negative. But that hasn’t halped sales much – they’re at a 23-year low.

House starts have fallen in Calgary. Off 16% from last year. In fact the real estate board says that’s okay since there are already too many houses. The market is oversupplied, and so the value of homes drops – and will continue to do so. Says one realtor in counseling vendors: “If you’re selling your house, you have to take a deep, deep breath and you have to lower your price to probably well below what you thought your house was worth. And even then, you’re in for a challenging time.”

Yes, prices for single-family homes in the Canadian energy capital have now declined for nine straight months. Valuations peaked in the autumn of 2014, and have held a decline of about 10%. Currently the average detached house goes for $459,000, which is 7% cheaper than last year. Of course that amount of money buys you a crappy one-bedroom apartment one hour’s commuting distance from downtown Toronto, or a single-car garage in Vancouver. Well, actually, a garden shed.

“We should all get comfortable in the market we’re in,” realtor Tanya Eklund told some local media. “We’ll likely be in a very similar situation into 2020 and possibly into 2021 unless we start to see some huge migration numbers of people who are employed.”

And Edmonton? Crickets. Prices are stuck at the lowest point in six years. The average is now $316,000, or thirty grand less than in Halifax – a city with 30% less population and sitting in an equally regional, economically-challenged zone. Overall houses cost 9% less than five years ago. Factor in inflation, and it’s closer to a 20% plop. The average detached, at $421,000, is $16,000 lower than way back in 2015.

Says the head of the real estate board: “Our market has been down over the last number of years and we haven’t seen a significant increase in the market, and we’re not anticipating a significant increase soon. The stress test is making it difficult for buyers to be financed, even though in theory we’re in a buyer’s market. Consumers are just saying, ‘I’m happy to go out for dinner, I’m not happy to spend half a million dollars on a new house.’”

Well, there you go. After jumping into bubble territory a decade ago, the Alberta real estate market corrected, and has since stabilized. Here’s the chart for Calgary.

Stable prices: how is this a bad thing?

Now, let’s ask: why is this a problem? The market is drifting sideways. Modest inflation is eroding prices. Affordability has been enhanced over the past half-decade, not decreased (as in Toronto, Montreal or Vancouver). The stress test is still in place to ensure buyers aren’t squished in the future when interest rates rise (and they will) – in other words, to keep people from becoming over-extended. The real news is the average detached in Calgary or Edmonton costs $1 million less than a similar hovel in Van.

So modestly, gently declining real estate values in Alberta are good. Not bad. We should all be so lucky.

The problem is our cult society in which ‘good’ real estate markets means constantly rising prices and sales. Anything other is called – by the media, politicians and (especially) realtors and lenders – ‘poor, ‘declining’ or ‘struggling’. We’ve fallen for this ruse. We’ve come to equate general economic health with rising property values, even when that robs, debilitates, impoverishes and indebts families.

In reality, the ability to buy a fine house for less than half a million should be a big positive feature of life in Calgary or Edmonton. These places are not outposts. Calgary has 1.4 million people, the fourth-largest metro region in the country. An equal number live in Edmonton. Real estate that people can actually buy is an advantage. Not a disease.

Gutting the stress test so the Albertan housing market can inflate, become over-extended and create more risk for the people living there is just as dumbass as thinking the province can exit Canada. But, it comes from the same people. Figures.

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November 17th, 2019

Posted In: The Greater Fool

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