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June 15, 2021 | Chilled, not shaken

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.

Are you feelin’ frothy? Bubbly? Along with those frisky Kiwis and sexy Swedes, Bloomberg Economics says we have the most emotional (and therefore likely unstable) housing market in the world, along with New Zealand and Sweden.

Why? “A cocktail of ingredients,” we’re told, including cheap loans, bushels of government money, FOMO, a shortage of listings and all the cash we saved during the WFH blip. This conclusion is based on our price-to-income and price-to-rent ratios, which have both landed in the “Holy Sh!t” zone.

So what happens?

No crash, says the report. But the market will be stressed and chill in the months ahead. “When borrowing costs do start to rise, real estate markets — and broader measures put in place to safeguard financial stability — will face a critical test.”

Has it begun?

Well this is interesting. CREA reports the average house price across this great nation of property-horny little beavers is actually moving in reverse. From $716,000 in March it retreated to $696,000 in April and ended May at $688.000. This is up a ridiculous 38% from last year at this time (when Covid crushed the market), but the two-month decline still amounts to 4%. In that period of time, it’s a lot.

But wait. Sales are declining, too. The peak was (again) March at around 70,000 across Canada. That number toppled by 11%, then again last month by 7%. Also significant.

Says CREA’s boss, Cliff Stevenson: “More and more, there is anecdotal evidence of offer fatigue and frustration among buyers, and the urgency to lock down a place to ride out COVID would also be expected to fade at this point, given where we are with the pandemic.”

And here is what chief economist Shaun Cathcart concludes:

“Maybe we all finally have something else to think about other than housing and being stuck at home all the time. For now at least, with the light at the end of the tunnel so close, it feels like housing may take a back seat to us all starting to get our lives back to normal this summer.”

As detailed here recently, both the GTA and YVR have seen slowing markets. Bidding wars have quelled and many ‘offer nights’ are ending with no deals at all. This isn’t because listings have been flooding the market (just a trickle) or mortgage rates zipping higher (not much of a bump lately). Mostly it’s because the insane increases of the Covid months have frozen out buyers and rendered renting a more attractive alternative, while disgusting realtor tactics like blind auctions have made a trip to the dentist for a root canal way funner than house-buying.

This blog has said it often. There’s no shame in tenancy. Renting is a totally valid and proud option. There is much wisdom in not surrendering your mobility, flexibility or liquid savings for a real asset that involves massive leverage, ongoing and rising costs and which cements you into a single city. One spouse in your life is a good thing. A single house in your life is suffocation.

Now speaking of renting, some maladjusted people this week are bemoaning the plans of a Toronto-based developer to buy up a mess of houses for rental stock. It’s a model which has worked well for investors in the US, and greatly expanded the stock of affordable, well-maintained, non-apartment, leased accommodation there. Core Development says it might spend up to $1 billion over the next five years to purchase, reno and lease out detached houses in Guelph, Kingston, St. Catharines, London, Barrie, Hamilton, Peterborough and Cambridge. Eventually the company wants 4,000 units in Ontario, Quebec, BC and the Maritimes.

In the States houses are way cheaper, so similar outfits have been able to offer a whole SFD place for about $1,500 a month. Far more affordable than owning. In Canada houses cost too much, so Core will likely duplex each and offer two units in order to be cash-flow positive. Maybe two grand a month, which gives people a two or three-bedroom unit with a garden, parking and street presence. So far Core has about 400 properties in its portfolio.

Now, how could this possibly be a bad thing?

Will Core (and maybe others) compete for a limited number of homes and drive prices up?

Nah. It needs to purchase properties at the best price possible to make the economics work, and is highly unlikely to compete with any individual bidder. In fact, by adding eight thousand decent, well-run, renovated, affordable housing units to the national mix, these guys may actually suck a lot of pressure off the overall market. People who thought they had to mortgage their souls, abandon their savings and eat KD forever to escape a rented high-rise condo would have a great alternative. Live well. Within their means. Have money left for the kid’s RESP. Avoid debt. No noodles.

We vex a lot on this pathetic blog about the state of the market. It would be a better country if we stopped shaming people into real estate they can’t afford in order to justify the myopic, obsessive and now destructive mania of the masses. Let the Swedes implode.

This is progress.

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June 15th, 2021

Posted In: The Greater Fool

One Comment

  • George Summers says:

    The landLORD can always (and does) raise the rent, and he will raise it to your maximum level of affordability. He will squeeze you for everything he can. With the people I’ve talked to the number one reason for wanting to own a home is to get rid of the landLORD. I once saw that even the Alberta Treasury Branch (now ATB Financial) had a sign in their window: “kiss the landlord goodbye”.

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