For the past two years the average DOM in mid-town Toronto has been 17. That means if you listed your house on September 13th, you’d have a firm and executed offer in hand by the thirtieth. This has imbued real estate in such demand areas with a rare and precious quality – liquidity.
In contrast, the average days-on-market on the south shore of Nova Scotia, also a demand area, is 177. Not much liquidity there. And in a place like the Westide of Vancouver, where houses a year ago often sold within hours of listed, there’s now a 13-month supply. Where’s the damn Phillips Lady when you really need her?
Housing grows more turgid each passing week. I tried explaining that yesterday to the airline pilot living deep in the folds and creases of the Okanagan Valley, where he has a $2 million waterfront property and just $100,000 in RRSPs as he nears retirement. “This is not a happy asset allocation,” I said, as he told me how much he was worth. “Try selling the house for six months and see.” As Cap’n Jack will discover, an illiquid house is worth nothing. Just bills.
Let’s use poor Vancouver as an example of what happens when hot turns not. For an on-the-spot report we turn to one of our insiders:
“September’s first week has gone by. We’re well on track to have the worst September in 12 years. A couple of disasters now are North Vancouver (the last bastion of 2-salary professional home buying). Can Richmond really go lower? Well – last month was a disaster – this month we are now on track for only 45 sales (down again from 60). We’ll see how this goes.
“Just saw an interesting sale in Quilchena in Vancouver. Sold for 1.5M which was 600,000 below assessed. The owner was likely 80 years old, bought 55 years ago. This was big lot in a great area. An area I would really like to live in. This was a 6,000 sq foot lot. Took a while to sell and I’m sure the owner said she just wanted her money. They did list close to $2 million but on the 3rd price drop a low ball came in and she took it. Must be shocking.
“Anyhow, we are on track for 1360 sales compared 1585 in 2008. That’s a pretty decent drop – and may even get the MOI above the 2008 level. People here are so completely delusional. It is hard to wish bad things on people but I would just love to see the smugness removed from the faces of the industry ‘experts’. They are all completely useless and biased.”
Hmmm. Didn’t all those Van realtors tell people the summer crash was a fluke and things would bounce back once September arrived? Come to think of it, why are some houses in North Toronto sitting around for a month or more? And suffering the indignity of price reductions?
The answer’s simple. Economics. Supply and demand. Supply may be a decent babe, but demand just screwed off on a Harley headed south. Buyers aren’t just balking at current prices, they’re not even showing up. And no wonder. Now that F & the Peckerettes have made needed changes to slovenly banker lending practices, the market’s fraying before our eyes.
First-time buyers were Ottawa’s target. Only now is it apparent what a big deal it was to murder insured 30-year amortizations, replacing them with terms of just twenty-five. Back in March I told you this was coming, and suggested the impact would be major. Realtors scoffed. Now they weep as they hand over their Bimmer keys.
As Genworth CEO Brian Hurley told a mortgage trade site the other day: “These are pretty dramatic changes, and I think they’re getting close to the tipping point. We see really qualified first-time home buyers with very high credit scores now not meeting the bar because they can’t afford a 25-year amortization. These people should be getting a home.” Sure they should. Along with ponies and slaves.
Said TD Economics to Canadian Mortgage Trends: “There is little doubt that first-time home buyers – a market segment that has comprised as much as half of total Canadian sales in recent years – have been the most affected by the tightening in mortgage insurance rules.”
And homebuilders from BC to Ontario have already started lobbying the feds to roll back the change, which had the same effect as a 1% hike in mortgage rates. It came at the same time banks were told to end cash-back mortgages, get tough on appraisals, and demand borrowers meet a higher income qualification.
In a normal market, this would be minor tweaking. But after years of house horniness, that bloated prices and swelled debt, it’s enough to fell an empire. The consequence is what this pathetic blog has warned about repeatedly, the leveler of the US middle class: Illiquidity.
As DOM goes up, price comes down.
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I notice some wag asked this week what’s wrong with GICs, after I’d callously dissed them.
I’ll let Charles answer that. He just sent me this:
I would like to let you know that I appreciate the help you are giving others. I wish I read your blog 15 years ago and hopefully your advice will help someone else not make the same stupid mistake I made:
When I turned 20 my brother and I inherited 20K each. A month later I found myself at a bank sponsored event where a speaker talked about the virtues of GIC’s and compound interest growth. Unfortunately I turned around and stuck the 20K into a GIC and a high-interest savings account. My brother took his money and bought a bunch of blue chip stock and enrolled in their DRIP programs. He then contributed a bit of extra cash to his DRIP’s every few months. He said I was a fool and should follow his lead. I told him that I preferred the safety of a GIC. Fast forward 12 years and my 20K was worth slightly more than 20K but much less when adjusted for inflation. My brother had close to 500K. Luckily I’ve smarted up and learned how to invest but I sure wish I had that 12 years back.