August 13, 2020 | Mr. Reckless

Buy a house off the Internet? That you never walked through? Based on a creative realtor’s description of ‘a chef’s kitchen… 10+++ spa-like master retreat bathroom… meticulous attention to detail… on a coveted street..’? And with photos that can make a beater property look like Martha Stewart just moved out?

Well a year ago few (if any) would fall for that. No wonder. MLS property write-ups often enter the category of steamy fiction and wide-angle, filtered photography can turn a 12-foot-wide hovel into a commodious estate. But that was then. Before Covid came. This is now. After FOMO hit.

Off-the-Net sales have become common in a lot of places since travelling is a hassle, yet many want to flee urban centres for a safer, virus-free bucolic life elsewhere. FaceTime walk-throughs with a masked, gloved, Lysol-swabbed agent are a bonus. Home inspections have once again turned rare. Buyers are buying with scant protection, often in multiple-bid scenarios, and continuing low inventory levels in many places have jacked prices skyward.

On the surface, this makes no sense. We’re in recession. Unemployment’s 13%. There’s a global pandemic. The government’s broke. Whole industries are decimated. Immigration curtailed. There may be another virus wave coming. Everybody has stuff on their faces and fear in their veins. Where did all this house-buying-at-any-price bravado come from, combined with the stunning risk of securing property you’ve never actually seen?

Former Royal Bank CEO Gord Nixon was doing some media yesterday and attributed this insanity to just two things: people aren’t traveling anymore. They’re cocooning. Everybody wants a safe house to hide in. And, second, condos are going down. The flight to SFHs is a direct result of the virus, which he says has ‘encouraged this behaviour.’

Others disagree.

Yesterday we featured rebel Evan Siddall on this pathetic blog. The head of CMHC accused other mortgage insurers of pandering to high-risk households, fomenting excessive debt and setting up Canadian real estate for a painful fall. Prices, he said, could be 20% lower by the end of the year because of joblessness, recession, Covid, the end of CERB and the coming deferral cliff. Siddall described the ‘dark underbelly’ of the market, and did so in a stark, historic, three-page letter to his competitors, the industry and the nation at large. The stir was palpable.

So we have a real dichotomy here. Eager, almost panicked, buyers snorfling new levels of debt and paying whatever it takes to get homes they often have not visited, and a grizzled industry pro warning that the sheep have no idea what awaits them at the bottom of the chute.

Yesterday the mortgage brokerage business was agog at CMHC’s brash berating. Leading the resistance was veteran broker Rob McLister who detailed seven reasons he thinks Siddall sucks and the letter was “divisive… never should have been sent…”

The criticisms are stinging, deep, bitter, even hostile. “Industry leaders confiding in me today,” says McLister, “were united on two fronts: that Mr. Siddall has lost their trust with such reckless assertions, and by virtue of that, has now officially overstayed his welcome in the Canadian mortgage market.” Ouch.

The mortgage dudes argue CMHC dropped the ball for consumers by not helping create more inventory to shelter middle-class buyers, by coming up with a stress test imposing too-high a bar on borrowers and restricted economic activity and by forcing more people into the rental market, goosing costs. It’s CMHC’s own fault, the industry says, if the agency’s market share has fallen from 90% a few years ago to 40% now and more and more borrowers are forced into the arms of private, more lenient insurers. Finally, Siddall and his bearish view of real estate is undermining confidence in our financial system, driving off investors and their capital.

And this: “Siddall’s constant unfounded charges that the industry facilitates “excessive borrowing” paints lenders and insurers as profit-hungry robber barons who couldn’t care less about doing the right thing for the country. That’s not the most endearing or effective management style.”

Well, not everybody can be on the winning side of this dust-up.

Either residential real estate is partying like it’s 2017 for valid reasons (pent-up demand, cheap money, low listings) or we’re headed for a come-to-Jesus reckoning (pandemic, recession, job loss). Sales have literally exploded, from Vancouver Island, to the Lower Mainland, through the Okanagan, in southern Ontario, the GTA, Ottawa, Montreal, Halifax and even sleepy little Lunenburg where listings that sat for a year now sell in a day to people who viewed them online. The current trends are obvious. Dirt, not condos. Space and privacy. Social distance. Doors that open onto streets. Small over big. And lower-priced places to live since you can now Zoom anywhere.

In the midst of the worst times since the 1930s, the buying seems bottomless. Intuitive. Evan Siddall cannot understand. But then, he is a rational man.

Garth Turner August 13th, 2020

Posted In: The Greater Fool

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