In May a 66-by-160 lot in a hot neighbourhood in Richmond (if such a thing exists) went to market for $1.3 million. Had it been listed two months earlier, I heard, it would have been snapped by some horny Asian for $1.5. But, too bad. The moment passed. A month later is was $1.1 million, then an even million and finally $900,000. It sold this week for $790,000.
“It goes to show,” says one of my BC insiders, “that in a buyer’s market, sellers have to get their price to where the buyers are willing to pay. When buyers are few, and sellers are many, you can see prices fall quickly and each new low sets the bar.”
Speaking of Denial City, seems sales on the steamy west side are cooling fast, and will be 40% below year-ago levels by the end of the month. Plus, January will start with more inventory on the market than at any time in three years (nine months now in Richmond). “Buyers are disappearing,” says Deep Listing.
In the godless GTA the local real estate board is spinning a different tale. Sales in the first two weeks of December were 11% higher than in the same month a year ago, which sounds smokin’ hot. But the comparison was to December of 2010, when sales crashed from 2009 by almost 20%. So, we’re not even back to levels experienced two years ago.
Meanwhile the average selling price has hit $460,967, which the Toronto Real Estate Board trumpets as being 6% higher than last year. But the SFH average in 416, at $708,993, is $45,813 less than it was thirty days ago. Don’t expect to read that in the Toronto Star, either.
So are we advancing or retreating?
As you’d expect, there’s no national real estate market. Local economies, confidence levels and supplies of greater fools vary widely. In lots of communities realtors are renting themselves out as reindeer since sales have cratered. In others the normal pre-Christmas lull has descended. In still others, scores of sellers have canceled their listings and are waiting for February to flood back during the real estate rutting season.
So it’s worthwhile reflecting on the kind of year 2012 is likely to be. That brings us to these two charts. One (top) measures how much money we save relative to disposable income and the other (bottom) how much we owe.
As you can see, the savings rate is -5% (that’s a negative number, which means we spend on average 105% of what we bring home), while the debt rate is +153% (an historic high, which means we owe one and a half times what we earn). These are averages, of course, so some people are fine and others are screwed. But still, it’s not hard to see how this average guy is living an unsustainable life, and even his real estate has not saved him.
In fact, Capital Economics had this to say a day or two ago: “As we move into 2012, the strong likelihood of a significant drop in house prices and further losses in equity values is troubling in its implication for the household sector.”
You betcha. Had it not been for a massive run-up in real estate values over the past five years, most people would be financial basket cases. Take that away, and we’ll have a national shortage of wicker.
Worse, the implications for the wider economy suck. As these economists remind, at a time when governments take on historic heaps of debt, the country depends on private savings and liquid wealth to shore up the national balance sheet. But, you can now forget that.
“Theoretically, the household sector is meant to be a net saver (or lender), but over the past decade households have been negative savers, or net borrowers. This trend mirrors the sharp rise in household sector debt. More importantly though, this debt-financed household spending spree has been primarily consumption and housing-related, as opposed to investing in cash-flow generating assets. As such, without any offset from additional income generating sources, future household debt obligations are now much heavier than ever before.”
This means most Canadians – with70% of people owning houses and mortgage debt at $1.1 trillion – have gambled on a single asset. They have little, if any, diversification, so if real estate tanks their net worth goes along with it. They’ve also chosen to stuff their money into a thing that costs a lot to own, as opposed to collecting dividends, interest or capital gains from investments that pay. More risk.
So if real estate stumbles, “a sudden weakening in the housing sector could have sizable negative spill over effects on the broader economy.”
This is why those people who come to this blog and salivate over a 50% price drop are morons. Nice morons, of course, but still moronic. Such an event would shave at least 5% off our GDP and immediately plunge the country into a recession. Contrary to what many think, this would not topple any banks or have Bay Streeters trading in their Mercedes for those Fiat 500 tinkertoy things, but it sure would jack unemployment and cream the middle class.
More likely is exactly what I’ve forecast for a while – an eventual 15% decline, and years of sales activity that will make Saskatchewan look mountainous. Let’s all remember that it required only a 17% drop in national housing prices Stateside to send that country spiraling into a swamp so primordial the Tea Party crawled out.
God help us if that happens. Without a gun registry.