“You know, I hate times like this.” John spat out the words, each one coated in disgust. “That’s three people today who have walked. Never happened before.” We’re hanging out in the back office of his real estate brokerage, looking at the harbour, yakking about the market. Things are not going well. Listings are growing mold. Buyers are balking. The three deals were lost for the same reason – sellers signed back higher than buyers thought reasonable. They got up and left.
Turns out John’s been in this gig for 25 years. Long enough to see markets turn on a dime, and leave change. Like now. “There’s always a period between a seller’s market and a buyer’s market when nobody’s happy. And not a damn thing I can do about it. The sellers are still deluded, thinking everybody’s crazy to get what they’ve got. The buyers know what’s coming, and smell blood. I hate times like this.”
How long does the hate go on? “Two years,” John says. “Maybe more.” The good news, at least in this market (I spent yesterday in Nova Scotia), is that the change is already on. Months have passed with the same story – every day there are twice as many price reductions and new listings across the entire province as there are solds.
Seasoned realtors like John will probably survive. Newbies like Mary Cleaver in Vancouver could be crushed. (You may recall I wrote about her on the weekend, and posted her infuriating video. She called me yesterday to ask for advice. This is progress.)
In fact, look at this killer graphic from the MSM yesterday. Could there be a clearer snapshot of what John’s saying? Listings surge. Sales crash. Prices are doomed.
Just hours after RBC economists made headlines claiming the only bubble in Toronto lives in Mayor Ford’s pants, another batch of experts said phooey. Capital Economics is sticking with its prediction of a withering 25% dump for Canadian real estate values over the next two years – not a whole lot off the 32% correction which ate the US middle class.
Says Capital’s David Madani: “There is always a stand-off period at the end of a housing bubble, when prospective buyers refuse to meet the price of sellers, who refuse to drop the asking price. Eventually it begins to dawn on sellers that the market has shifted and, as they become more desperate, they eventually agree to lower their asking price. But until that happens, any stagnation in prices can be misinterpreted as a successful soft landing.”
That could have been Realtor John talking, of course, as a few houseflies pollinated the listings brochures racked on the wall behind him. The spitting match between vendors and purchasers in a weakening market always looks inconclusive. But there’s always one outcome. The buyers win.
Adds Madani: “The willingness of buyers to pay these historically high house prices now looks to be proving fragile against the increasingly disappointing macroeconomic backdrop. The housing bubble in Vancouver already appears to be deflating, with only Toronto defying the inevitable. Accordingly, we expect substantial declines in house prices over the next year or two.”
Just as this pathetic blog has been saying. Hell even RBC is expecting a price decline of up to 7% in the condo market, plus the cancellation or delay of projects. TD is calling for a 15% housing drop. And the rest of the world thinks it’s just so damn amusing when people in Saskatoon nod and tell each other, “it’s different here.”
Finally, as if any more evidence of excess is needed, here’s MPAC, the quasi-government body in charge of assessing five million properties in Ontario. As you may know, municipalities look to these guys to tell them how much the serfs have in real estate, so property taxes can be adjusted accordingly.
The latest report says Toronto prices increased on average 23% in the last three years, which is three times the inflation rate and five times income growth. This is for a region of six million people, which is twice the population of Alberta and equal to six Saskatchewans or Nova Scotias. Within that, some areas doubled.
Said an MPAC official: “The continuing strength is very positive, particularly when you look to the border. You always expect that the trend that occurs there occurs in Canada, but we’ve reversed that situation through prudent financing and not overbuilding.”
Why does ‘strength’ mean higher prices? How is it ‘very positive’ when the average family can no longer afford the average home and has terminally indebted itself trying? How does ‘prudent financing’ include 30-year mortgages, cash-back downpayments, zero-down financing and teaser rates?
Every single day the real estate industry lies to consumers, and media reports it. Sellers are lulled into believing the bull market’s eternal. Prices stay sticky even as demand wanes, until the point of surrender arrives. It always does. Then the pendulum swings wildly in the other direction. Where once everyone believed values would rise endlessly, suddenly they fear there’s no floor.
The veterans have seen it all before. The HGTV crowd hasn’t. One group will survive.