In the post-crash chill of 2009, Alan bought a crappy semi in a dodgy downtown Toronto hood for $355,000. “It was cheap,” he says. “I like cheap.” He started renting out rooms, and tried not to go there too often, for obvious reasons.
In April of 2012, with bidding wars raging and the city streets awash in hormones, some dude offered Alan $556,000. But he didn’t bite. This week in my office I looked at him with my trademark mix of wonder and disgust. Why not, I managed to ask? “My mother said it would be a bad idea. What if prices went up and I never got a house again?”
Alan is 33, lives at home, and his mom has never seen the place. He passed up two hundred grand in free money because of greed. Vicarious maternal greed, actually. Not even his. The place is currently worth about $480,000. “I can’t sell it now,” he said, “at a loss.”
This is why it’s far easier to like dogs.
As I wrote yesterday, housing is turning into the asset class I warned you about. Once bloated on emotion, misinformation, manipulation and speculation, real estate is correcting fast in most markets, despite realtor efforts to obscure the truth.
In Toronto sales are down 19% and in Van by 31% – the same decline as in Edmonton. In Victoria 87 properties have sold so far this year compared with 372 during last January. In the Fraser Valley there are 34% fewer deals this year than last. In Nova Scotia yesterday 70 houses were listed, 30 were reduced and just 20 sold. And across the country, says CREA, sales tumbled 17.4% in December compared to last year.
Clearly buyers have decided to wait on the sidelines, betting it’s only a matter of time before the sellers begin capitulating. But what’s this? The Canadian Real Estate Association says prices are rising:
“The actual (not seasonally adjusted) national average price for homes sold in December 2012 came in just under $352,800, representing an increase of 1.6 per cent from December 2011. The national average price continues to be influenced by fewer sales in Greater Vancouver and Greater Toronto compared to the same period a year earlier. Excluding these two markets from the national average price calculation yields a year-over-year increase of 3.3 per cent.”
Apart from the absurdity of doing a national calculation excluding two of the top three markets in the country, where almost 30% of the people live (duh), CREA has once again shot its credibility in the foot. The average national price of $352,800 last month was lower (not higher) than in any of the previous three months, and has crumbled 6.1% since the spring.
So, sales eroding at the fastest monthly rate since Ottawa scuttled 30-year mortgages, plus falling prices. What say you, association president Wayne Moen? “National sales activity continues to hold fairly steady.”
Argh. No wonder people like Alan are confused, epicene and mortgaged to the pits. Are things dangerous, or are they stable?
Let’s ask F.
“Well, yeah, I don’t mind prices coming down a bit,” he said yesterday. Fact is, the little guy likes being a bubble-pricker, even when he created it. There’s buzz on the Hill that once the elfin deity rings the juice out of the market, and interest rates head higher in the final months of 2013, he’ll “lift” his mortgage restrictions to “restore affordability” in time for the next election. Yes, Ground Hog Day.
But, if even true, it probably won’t matter. Some economists think we’ve just seen a significant permanent drop in housing demand, which makes some sense. Nine million Boomers are steaming towards retirement, after all, most of them with houses and many in hideous financial shape. Expect a multi-year flood of listings as this crowd desperately seeks to turn real estate into income. Simple supply and demand, based on demographics, tells us prices will be falling for a long time. It also says people who bought in the last three years will wish they hadn’t.
If you have any doubt, look at the chart Saskatoon Housing Bubble just hatched:
What this chart says: There’s no economic justification for current house values. They’re based on debt and duct tape. They must, and will, fall. And you can see where.