That little Mediterranean baldy George Papandreou is such a tease. The Greek leader shocked financial markets, and seems ready to douse the Canadian housing market in moussaka cream sauce. And not the good kind.
In case you missed it, here’s the story so far: Euro leaders sweat bullets and took political flak to come up with a plan to rescue the testy, irritating, tax-evading, revolting deadbeat country. Bondholders would eat 50%. Taxpayers in France, Germany and elsewhere would cough up a trillion bucks. Finally, a solution that protected the asses and assets of bankers who loaned money to the souvlaki republic.
But then (surprise, everyone!) Papa said he’d put the deal to a referendum. And the odds of Greeks voting in favour of cutting their wages, pensions, benefits and services while raising their taxes are as good as me being elected president of CREA. So, if the vote happens, expect default. The markets are.
No disaster. But there’ll be eggplant everywhere. No financial collapse. However, years more of glacial growth, sideways markets and mounting pressure on every Canadian’s fav asset, their house. In fact, may already be happening.
Some points worth chewing on, as change swirls around us:
Here’s a survey taken within the real estate sector by PricewaterhouseCooper which is sounding an alarm within the industry. “Canadian consumers who have been on a spending and home-buying spree, encouraged by low interest rates, could see their self-assurance ebb and job growth has decelerated in response to all the noise about European and U.S. debt woes.” Also flagged: too many condo units in Toronto and Vancouver bought by Asian speckers which could swamp the rental market and sink prices.
Speaking of Vancouver, monthly sales will be announced in a day or two and likely show it was the second worst October on record – trumped only by 2008.
Says a well-connected local player: “An increase in rates or a reduction in credit would cause this whole house of cards to fall – and many people are afraid of that and won’t openly talk about it. The Gov’t is out of amunition – people are tapped out – ownership rates are now at the highest – - HAM? Well – look at the latest from the Chinese market. We’ll get some for sure but this will not be like Spring 2011. This will likely lead to a fairly good decrease in the price at the high-end of the market. However – overall – the market will likely fall only 10% (my prediction) as these things never happen instantly. But a 10% reduction will take a lot of the people at the bottom into negative equity – - which as you know slows the market more as they cannot sell to move up. Not pretty.”
By the way, the average SFH price in Vancouver has bounced back above $1.1 million. There are about 750 detached homes for sale in Richmond alone, of which 600 are listed for more than a million. Can you imagine the scope of the correction if the Eggplant Revolution gives us, say, five years of no growth and salary stagnation?
And then there’s the big crisis of expectations to deal with in Toronto and Calgary, which by a fluke of nature elected each other’s mayor. In Cowtown they’ve yet to even fathom what might happen to commodity prices should ouzo run in the streets. I mean, here’s the president of the Calgary Real Estate Board zooming the media: “Undoubtedly, there are a lot of unknowns in the world’s current financial situation, but Calgary and Alberta may be relatively safe havens amid this uncertainty… we are seeing signs of improvements. Our province’s growth is expected to outperform the national average, and this will help buoy consumer confidence in Calgary and Alberta.”
With an average house price of $455,399 last month, and oil suddenly struggling again, how long can a 29% premium over the average Canadian abode last?
Meanwhile in Toronto, what can you say when the senior economist of the Conference Board of Canada is trotted out to sell this?: “The good news is that the situation in Toronto had nothing to do with speculation — which can lead to a bubble — but was driven by economic fundamentals…. In truth, there was never a serious bubble threat in Toronto. Even in Vancouver, the speculation about a housing bubble is overblown.”
Of course. The average SFH in 416 is $705,000, or eight times family income, and 600 houses in Richmond are worth $600 million. Eighty per cent of 17,000 GTA condos sold this year went to speckers and flippers. It takes 90% of income in Van to carry an average house. What bubble?
What does all this mean?
Like I said, lots of eggplant, no aramageddon. Greece will likely default, but the system will be ready. Those who have nicely-run diversified financial portfolios will weather it. People who actually don’t care what their paid-for houses are worth and don’t need cash, they’ll be fine, too.
But a few more swampy years is something most (indebted) people need to prepare for.
- Stop borrowing.
- Use cheap rates to repay, not to suck more.
- Lock in your mortgage.
- Buy assets that pay you to own them.
- House rich, cash poor? Sell now.
- Get a weekly mortgage.
- No equity? Bail.
- Avoid getting pregnant, divorced or laid off.
- Occupy a Mr. Greek franchise.
Or you could simply borrow your buns off, buy everything, debauch, stop paying and tell the bank you’re planning a referendum. Ethics is so over-rated.