Roberta and Johnny got a call from their agent Monday night saying an offer was coming in. That was big news. They can’t wait to dump the condo townhouse they bought three years ago. “It was supposed to be an investment,” she says, “not a nightmare.” Not that the tenant’s much trouble. She’s not. But it’s tough to know what you paid $499,000 for thirty-seven months ago is now worth $358,000.
At least, that’s what the offer’s for. Worse, the deal has hair on it. Lots of conditions. Long close. Small deposit. Not much of an offer at all, actually. But better than no offer, the alternative in a town where the market’s died.
I’m not sure if they’ll take it or send it back (my advice – make it clean), but Johnny sent me this, while he pondered things last night:
“A side note of potential interest to you is that the owner of a comparable unit in the same complex priced $100K (yes, one hundred) over ours and that has been sitting on the market without viewings for months, if not a year now, called me the other day and left a message saying that he wanted to talk to me about my price. He felt that I would be leaving “a lot of money on the table” and gave indication that I must not understand the state of the market in the area very well. In the meantime, another comparable brand new unit (one of many that are coming out) in a complex down the street was just listed under headlines of ‘receivership pricing’ for $345K. Needless to say I haven’t called him back.”
Another story from the street. This is real life. The housing market’s bleeding out in towns and cities across the country. Reality is now completely divorced from the big-city media headlines or the corporate reports behind them. Yesterday I showed you how the Royal Bank’s housing affordability study is deceiving and irresponsible, for example. This is the kind of stuff you expect from Re/Max or LePage, but not from the country’s largest bank. Nor from the government, sadly.
This week Canada Mortgage and Housing Corporation released its quarterly financial report on its web site near the smiling face of the minister responsible, Diane Finley. She’s managed to politicize this agency recently, making it a part of F’s Economic Action Plan, which should come as no surprise. After all, cheap money and easy credit is the K-Y Jelly of fiscal policy. CHMC just gives the push.
Imagine how different the world would be if the feds didn’t force taxpayers into guaranteeing every high-risk, high-ratio mortgage. Twentysomethings with no money wouldn’t be able to borrow money at the same mortgage rate as people who are actually creditworthy, because lenders would be on the hook for the risk. Bidding wars would fizzle. House prices would normalize. And the economy, now 20% fueled by real estate, would flatline. Ms. Finley might not have been re-elected last May. This pathetic blog would not survive – as market forces, not the federal government’s engineering, dictated the value of a home.
But forget that. CHMC now exists solely to grease real estate and, apparently, to lie about it.
“CMHC, in consultation with the Bank of Canada and the Department of Finance, is continuing to refine models and techniques used to help identify risks of house price bubbles,” the latest agency report says. “At the moment, there is little evidence of a significant over-valuation in the Canadian housing market overall, although some centres warrant close monitoring.”
Little evidence? Canadian house prices have climbed on a trajectory paralleling that of pre-crash America. A SFH in Van is $1.1 million and $750,000 in 416. Even RBC’s diddlynuts report shows it takes two-thirds of after tax income to carry a house in Toronto, while in Vancouver an entire city has been whipped into delusional danger.
Worse, CHMC is trying to peddle the story that housing prices are sustainable because of ‘encouraging signals’ that we are no longer debt pigs. The growth of mortgage debt, it says, has decreased ‘significantly’ since earlier in the year. This also supports the agency’s view that prices are just fine, when you factor in demographics and economic growth.
Is this credible? Doesn’t such talk of stable markets and prudent borrowing fly in the face of everyone’s experience? When people without money can buy granite and SS and borrow at less than the inflation rate, are things really under control? Or does the minister think we will lap this up the way, oh, the Globe and Mail did this week? (“Growth of mortgage debt slows: CMHC finding lends credence to the theory that the country’s housing market will hold up”)
As Kevin over at Saskatoon Housing Bubble points out, this report would grow fine mushrooms. The year-over-year growth in new mortgage debt was 7.5% in January, peaked at 8% in April (the spring real estate rush), and dipped to 7% in September, amid global financial turmoil. As frosty little Kev reported here, “So of course mortgage credit growth is down from the spring but the amount of “slowing” is so negligible it does not deserve a press release. I think this is more of a ploy to try and show that the mortgage rules are ‘working’ and no more mortgage tightening is needed. Which of course, as we all know, could not be further from the truth.”
Which we do.
Fact is that for every one of the months this year, mortgage debt has leapt higher. This has happened while employment has declined and incomes have fallen behind inflation. And most of this $1.1 trillion is financed at some of the lowest interest rates in history (thanks to the feds), which will not endure.
Back to Roberta and Johnny. Without cheap and easy money they’d never have bought that townhouse, since rent wouldn’t carry it. Now they’re selling at a loss to a vulture. And neighbours are pissed because there goes the hood.
Yes, it sure is different here.