Listen to Garth’s interview on the financial turmoil, here.
Reno’d houses in Toronto’s Leaside have been fetching up to $1 million
“You’re done, you’re screwed. It’s one of the worst times to be in debt.” — Laurie Campbell, executive director of Credit Canada.
â€œHistory has proven time and time again that real estate is a solid, long-term investment that appreciates at a rate of about five per cent annually.â€ — Michael Polzler, spokesman for Re/Max in Canada.
â€œWe are getting more alarmed by the day (over Canadian housing market).â€ — David Wolf, economist, Merrill Lynch Canada
Lo, six months ago I started this blog. At that time I lamented the immediate future of real estate, even when experts said the markets were strong. I laid out my reasons that Canada would not be immune to the American contagion. I attacked 0/40 mortgages and warned the Canadian federal government was making policy decisions which invited the mess to slither north.
Half a year later, here we are. And yet there are deniers who earn consistently more media than the alamists. Every day the evidence builds that we are almost exactly two years behind the US housing market curve. This is why some time ago I forecast a minimum valuation drop of 15% in Toronto and 40% in the West. Both have happened, or are in the process. As I also said at the time, I am probably too conservative. And I am.
Half a year later, Ottawa has dumped the 0/40 mortgages, and yet the move was â€“ also as forecast here â€“ too late. In the next six months we will see the following:
- Eastern cities, including Toronto, will have markets fall another 10%, for a peak-to-Spring decline of 25%.
- Albertan cities will decline another 10% as well, for a rout of 30%.
- Vancouver will crash 20%, taking the average price down 25%, on its way to 40% prior to the 2010 games.
- Montreal and Ottawa will decline about 12% by Spring from the peak, while Maritime cities will escape absolute reductions, and merely flat-line.
- Condo prices will erode the most, especially in Vancouver and Toronto.
- Flashy new landmark towers in those same cities will never be built, while in Calgary they already know the score.
- Large builders like Mattamy, now desperately cutting prices by more than $30,000 a unit and giving away free cars, could see their business volumes fall by two-thirds.
- Recent, equity-less owners will owe more than they own, and enough of them will walk to generate shocked headlines.
- Interest rates will crash lower, but mortgage rates decline far less.
- Renters will trump owners.
- Sometime next summer, maybe the fall, perhaps sooner, there will be major buying opportunity on certain kinds of real estate which have a sustainable future. More to come on that.
Finally, a word on MLâ€™s David Wolf (whom I have not met) and Michael Polzler (whom I have). Wolf gets it â€“ real estate is an emotion-driven commodity whose future course can only partly be gleaned by a chartist. If enough people perceive itâ€™s a dangerous time to buy, they wonâ€™t. Supply accumulates as demand dissipates and valuations plunge. This is what will happen for some time. The charts do tell us far too many units have been built, or are in the pipeline; the headlines tell us credit’s no longer available for speculative real estate; and the word on the street (and this blog) says we have fallen out of love with houses. They are now seen as a destructor of wealth equal to the stock market. No sale.
Mr. Polzler, on the other hand, is a salesguy. Give him all the trust and respect he deserves. After all, he told a Toronto real estate conference this week that Canadian housing is solid in part because, â€œWe have less debt than our neighbours south of the border.â€
This is my response: