March 2, 2021 | What Happened?

Sigh*.

Well, sometimes you just blow it. This may be one of them. And Evan is truly sorry about it. Almost.

Did you see that latest? The average property price in Toronto is just breaking the $1 million level. Detached homes are at the $1.68 million mark. As predicted here, condos have rushed back with an 85% sales surge and price bump. And, gasp, the burbs are on fire. The average in big-box Peel is just over a mill and in Halton, where the cows come from, it’s $1.2 million. Ditto in York.

Even Calgary’s weird. Feb sales soared 54%. It’s the best since 2014 when everyone was humming that dipstick song by Pharrell Williams.

Nationally house prices are up 25% year/year. In some places (like Lunenburg), 40%. In others (like Brampton) some hoods are ahead 70%. In Oshawa, it’s 35%. The flippers are back. In Victoria condo sales hiked 66% last month compared with 2020. In Toronto inventory of detached homes and most condos is down to a little more than two weeks. It used to be four months.

So recall that prediction CMHC’s boss, Evan Siddall, made a few months ago? The agency said it expected house prices could decline by up to 18% because of the virus, double-digit unemployment, a plop in immigration, the mortgage deferral cliff and crumbling confidence. But as it turned out, houses now cost a helluva lot more.

416 realtor John Pasalis (who hates me), just sent out this told-ya-so Tweet: “Imagine saving for years so you can have a $70K down payment to buy a home in Durham. Then in a single year the avg home price there jumps from $685K last year to $942K today 38% – $257K in 1 year. And our government couldn’t care less. Young buyers have a right to be furious!” (Be angry at realtors who merrily conduct blind auctions and treat buyers like curs? Never!)

So what went wrong? How did Siddall – normally a smart, perceptive dude – blow it so epicly?

“Our recent work highlights compositional/mix changes, shifting preferences, heightened savings rates, decline in immigration and reverse urbanization as unforeseen developments that help explain our forecast errors,” he says. And he adds this in his defence:

“I don’t recall anyone predicting accurately what actually transpired. Recall that 25% of our workforce was on income support, we had activated $150B of liquidity for lenders, mortgages were being deferred in huge #s and house prices were already inflated. Our publication noted reservations and caveats, and described the -18% case as a highly unlikely worst case, which critics focused on. No one foresaw the extent of the discriminatory impact the virus would have on lower paid workers/renters.”

But the housing czar warns we’re not out of the woods yet. Risks include, “economic adjustments, increased debt, the diversion of economically valuable investment $ into housing, increasing inequality and increased GHG emissions post-pandemic with cities less populated.”

Meanwhile two banks have now come forward with warnings about mortgage rates. CIBC’s chief economic Benny Tal says homeowners, “are simply not ready” for the increases that are likely coming, which could have an “adverse impact” on real estate. And BMO states, “It looks pretty safe to say that five-year fixed rates will soon start grinding back up… Unless there’s another significant shock to the economy coming, we could be looking at a last chance to lock in these rates for some time.”

Yup. Like forever.

Okay, so Siddall admits failure. Like almost everybody who doesn’t think with their pants, he looked at widespread unemployment, the worst recession in decades, lockdowns crippling airlines, retailers and tourist economies, a shrinking GDP, travel restrictions and over twenty thousand dead virus victims in ten months. After all, close to a million people decided to stop paying their mortgages, the borders were closed to newcomers and the government had to go $380 billion in hock to bail society out. How could that possibly end well?

Well, here’s the missing piece.

Turns out the greatest misery was saved for people who could least weather it – those making less money, in lower-paying jobs, in sectors vulnerable to disruption, with little security and fewer assets to fall back on. They got whacked. Many are renters – which helped explained a condo glut and falling lease rates.

The rest of us – like most on this pathetic yet erudite blog – have had a different Covid experience. About five million ended up in the WFH economy, with stable jobs, continued income and yet a drastic drop in household costs. Net worth went up, especially as housing become an object of desire.

Being relegated to home, people craved – and bought – more space. Urbanites afraid of elevator germs moved out into suburban detacheds. Those who had thought about buying a first home took the plunge as mortgage rates dropped to 1.5% or below. Finally they qualified for enough debt. So during the pandemic we borrowed $118 billion more, went into panic-buying mode, jacked real estate to a new unaffordable level and along the way crushed Mr. Siddall.

And it continues. One legacy of the slimy little pathogen will have been to make once-affordable towns and cities into de facto burbs of the big smoke, complete with irritating Millennials walking around in plaid and tats. Like Owen Sound. That Ontario backwater just launched a campaign claiming to be the ‘Work From Home Capital of Canada’. If you visit its web site, you get free pajamas.

And that says it all.

Garth Turner March 2nd, 2021

Posted In: The Greater Fool

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