Brad and Melissa are 26, no kids, three years out of school and would be doing great if they’d ignored their damn parents. “Upon graduation (saddled with tons of student loans for my Mechanical Engineering degree), both of our sets of parents pushed us to buy a condo because ‘It’s a great investment!’ Three years later” Brad says, “the condo that we bought with no money down (genius, I know), is worth 10% less than it was then.”
By the way, this is in Calgary where rising oil prices were supposed to bring cowboys, engineers and the house-horny a real estate windfall. Oil in 2009 was $56 and today it’s a hundred. So much for that theory.
“We just listed our condo for 10k less than what we bought it for, and expect to end up paying at least 15k out of our own pocket to get out of it and pay off the bank. We’re currently paying about $2,400 a month to carry our condo – a lot more than people told us we’d be paying (cheaper than rent!).”
In fact, B&M could have leased the same place for half what they now pay monthly in financing, condo fees and taxes, plus no $15,000 loss. Let’s see… umm… that’s about $60,000 more to live over three years in the same place. Thanks, mom. Thanks, dad. Remind us not to ask you about birth control.
It’s not just poor deluded Calgary. Add in Edmonton, Victoria, Brampton, Kelowna, London and now Vancouver. January numbers will be ugly, as sales and prices slide while listings pop. “We are starting to see losses on most apartment sale transactions for buyers within the past four years,” says an industry insider in Canada’s fantasy city. “Sellers first deny they are in a loss which creates a standoff and volume slows. Then they have to chase what buyers there are out there.”
The past twenty-four hours have been a bubblethon in the mainstream media. Did you notice? Almost like investigative reporters snuck into the Bunker and lifted tomorrow’s pathetic blog post from the moistened, sensuous fingers of my Amazonian typist as we slept on the tiles, sated, in a Bacchian swirl of oiled limbs and clothing fragments. Do these people have no morals?
Why here’s Maclean’s magazine, panting. “Yes, Canada’s in a housing bubble, and it could pop soon. The signs of a bubble are unequivocal. At 13 years and counting, Canada’s current housing boom is one of the longest lasting in the world…the real price of Canadian homes has increased 85%… household debt set a new record… The Economist figures the market is overvalued by over 70%… no wonder a recent international survey of housing affordability found Vancouver to be the second-least affordable city in the world!”
And here’s CTV, and the Globe, even the pumpsters at Global reporting on the release of docs yesterday by the country’s bank regulator. As Bloomberg put it in a headline: “Canada’s sub-prime crisis seen with US-styled loans, mortgages.”
Here’s all you need to know:
Canadian lenders are loosening standards, offering mortgages similar to U.S. subprime loans that pose an “emerging risk” to financial institutions, according to the country’s banking regulator.
Banks and other lenders are becoming “increasingly liberal” with mortgages and home-equity credit lines that don’t require individuals to prove their income, according to 152 pages of documents obtained by Bloomberg News under freedom of information law from the Office of the Superintendent of Financial Institutions. The mortgages, typically granted to the self-employed and recent immigrants, “have some similarities to non-prime loans in the U.S. retail lending market,” the documents show.
And looking all the world like a woman with a $3 million house still for sale in Toronto, BMO economist Sherry Cooper tried valiantly to tank this talk of real estate danger. “With the exception of a few regions, valuations remain only moderately high across the country, especially when low interest rates, demographics, construction costs, land-use regulations and foreign capital inflows are considered,” she wrote in a media salvo. “A dramatic correction is unlikely… the national housing market is more like a balloon than a bubble.”
What to make of all this angst?
Well, I’m sticking with my forecast. Nationally, prices will correct – gently in some areas and violently in others – until the average is 15% lower, followed by a number of years in which prices will just… drift… away. It no longer matters how cheap mortgage rates become. There’s no quick fix for the economy, jobs, incomes or debts. Houses which are stupid inflated will cost less in a year and a lot less in three. Newbie buyers, along with house-heavy Boomers, will wish they’d found this over-sexed site in 2010.
Before then, probably more market silliness, especially in Toronto. Condo marketers are preparing some desperate pitches, while SFH inventories are low. Sellers will be ecstatic they found that last, great rush of greater fools.
There’s little doubt the growing chorus of media warnings, however, will have an effect. Real estate is the most emotional of assets, bought for the worst of reasons – like pressure from your Boomer parents or sheer house horniness. But when the meme spreads that real estate’s teetering and likely to tumble, that it’s all about danger, sentiment spins. When the buyers take off, prices cascade lower. It can take years to rebuild confidence.
Proof? Look south. Prices have dropped by a third, mortgages sit at historic lows, owning’s cheaper than renting, yet houses linger unwanted and unloved, declining daily.
There are way better places for your money. Just don’t ask your dad.