Allan called me from Calgary this afternoon, as I hurtled past the hookers and the homeless in downtown Toronto, with woman troubles. And condo worries. “I’ve had my place on the market for two months now,” he says, “and just one lousy showing. I priced it aggressively, too, twenty thou below the latest recent sale.”
Below what he paid three years ago, too. If he sells at his asking price, he’ll be down at least fifty thousand, but in reality the loss will be far steeper. “People in this city are smoking it, telling each other the market’s going up,” he says. “They think oil makes it different, but that’s simply a lie. I know.”
And he does. Oil patch engineer. Convinced that fracking Stateside and pipeline politics mean Calgary’s best days are behind it, at least until oil prices increase by half. “And that’s not gonna happen for a long, long time – not with the kind of debt everybody’s got now.”
The average property price in Calgary (up 8% in a year) is just under $440,000. In the GTA, with almost six times the population and a bigger more diversified economy, it’s a mere 10% higher. As Allan reminds us, the market in Canada’s fourth-largest and most arrogant city, is starting to crumble from the bottom. Most condo buyers in 2010 and 2011 who jumped in with 5% down are under water already. First-timers there are being whacked as hard as those in Vancouver or Toronto by F’s big mortgage changes and tighter bank regs.
Even the local realtors, in trumpeting a sales gain while Toronto, Vancouver, Edmonton and Montreal tank, are covering their butts: “While the Calgary area market has been improving, it is not on the cusp of a dramatic rise or fall. Slower growth trends in the employment market along with changes in lending policy and near-term challenges in the oil sector will likely dampen demand, preventing a boom. The decline in new listings will compensate for any adjustment in demand, helping maintain price stability in the market.”
Of course, this is unlikely to happen. In a few months Calgary will be traveling the same road as every other major market, as a housing correction unfolds that is obvious even from the other side of an ocean. In discussing the upcoming move of Mark Carney from head of the Bank of Canada to boss at the Bank of England, a leading UK money mag had this to say: “Forget about the idea that Carney is coming over here to save us. Quite the contrary. He’s escaping from Canada just in time.”
Did you catch the latest debt numbers this week? Yowsa. We’re now up to 164.6% of disposable income, a record (and more than the Brits or Americans). In the last three-month period we added debt at twice the rate that disposable income increased, which seriously sucks. This piggy attitude towards borrowed money poses the biggest threat extant to the Canadian economy, precisely why the feds are trying to extinguish the real estate market. But the effort comes too late. House prices will fall, for sure. But the debt will remain.
It’s becoming more clear who to blame. Carney for four solid years of emergency interest rates, for sure. You can’t dangle 2.99% mortgages under everyone’s noses without a giant increase in borrowing and a bloating of home prices to match.
But that little pecker F – the elfin deity now claiming credit for a rapidly freezing housing market – is also being fingered as a reason young couples in Vancouver have to leave town to afford property. The 2006 budget that ushered in zero down payments and 40-year mortgages, say the analysts at Pacifica Partners, as a defining moment. “This one decision may be remembered in Canadian economic history books as an extremely grievous policy error.
“Prior to the 2006 loosening of government insured mortgages; the Canadian real estate sector had already experienced a half decade of surging prices. Thus the policy change of 2006 was counter to basic Keynesian economics which advocates the use of fiscal and monetary policy for smoothing of business cycles. This is achieved by stimulating slow growth environments and enacting policies to cool excessively high growth economic environments. The 2006 policy change, however, served a contrary goal of stimulating an already surging market. What followed was a 26% increase in outstanding mortgage credit between mid 2006 and mid 2008. Meanwhile, Canadian nominal GDP grew by half as much, only 13% and weekly Canadian Wages grew at slightly more than one-quarter at only 7%.”
Of course, the omnipotent F rescinded the 40-bagger in stages, starting in the autumn of 2008, finally climbing back down to 25-year mortgages in the summer of 2012. Zero-down is also gone. So are down payments gifted by the banks. And mortgage coverage for million-dollar homes. And liar loans. But all, too late.
Allan drank the Kool-Aid in Calgary. Now he sips regret.
And he still has woman troubles. “I’m selling because she wants a house,” he moans. “What can I do?”
Put her on the line, I barked.
To be continued…