A year ago this week scores of people lined up outside a sales trailer in a distant GTA burb to buy million-dollar houses. They jostled and competed for lots which were $190,000 more than companion ones had been a year earlier. Some people had been there all night, running back to warm up for a while in the idling Audi or BMW.
On average, buyers spent $1,000,000 in less than ten minutes. The developer cleared $80 million in sales in a day.
Said this blog’s correspondent: “This is clearly out of control and people bought these houses in a matter of minutes! It’s almost like they have a fear that no other opportunity will exist to buy a home and it’s now or never.”
It was early April, 2012. You could still buy a seven-figure home with 5% down and get government mortgage insurance on a 30-year amortization. The entire GTA housing market was on steroids. In March a stunning 9,690 properties changed hands, up 8% from 2011 with the average price rising 10%. Bidding wars were everywhere, in all price ranges. It was the pinnacle moment for Canadian real estate, in Toronto as in Vancouver, Halifax, Montreal and the prairie cities.
This week we’ll get the latest numbers. Looks like sales in Toronto could be lower by about 25%, based on mid-month numbers. Listings are scarce and action in the hottest part of the market – between $700,000 and a million – has pushed the average price higher by about $30,000. Condos are a wasteland, thanks to F’s murdering of long mortgages, and action above $1,000,000 is anemic, since buyers now have to cough up 20% plus closing costs. Mortgages are still cheap, but the thrill’s gone. We’re entering an entirely new era of investing.
In Vancouver, realtor Sam Wyatt is telling his clients (mostly high-end sellers) to face reality; “The trend since the run-up after the credit crisis has been declining sales volumes in which both the high and low seasons (Spring and Winter) have generally seen progressively fewer sales each year.”
Despite weak listings and cheap financing (you can still get 2.74% five-year money), months of inventory continue to swell. “The bottom line continues to be that prices are falling. The Real Estate Board of Greater Vancouver’s Westside detached home HPI index is down over 10% from its high point last Spring. By end of summer I expect this to have fallen another 10%.”
In Halifax sales are down 28%. In Montreal, a 22% drop. In Saskatoon, down 12%. Victoria, off 18%. Vancouver, 29% lower. Only Alberta’s bucking the trend, even as that economy weakens with commodity prices.
In short, the housing correction progresses, but far too slowly for Patrick.
“I’m a blog reader and huge fan. We live in Vancouver and are both almost 30. We’re tired of renting and waiting for the market to hit the bottom. Okay, I get all the stuff you keep telling us about falling sales and yadda, yadda. But this sucks waiting. Tell us when to buy, Garth!”
Well, Pat, houses will get cheaper but not necessarily more affordable in places like Vancouver or 416. Sure, a 30% haircut in Van SFHs is possible by the time we hit the bottom of the trough (it won’t be this year), but that’ll still leave them languishing in the $700,000 range. Meanwhile mortgage rates are not (repeat, not) staying at current levels forever, nor are 30-year loans coming back.
This means buyers need to have about $50,000 to close on the average detached, and an income of $130,000 just to carry the place. But the average household income in Vancouver is currently $68,000. This suggests unless the skies fill again with Airbuses full of horny HAM, real estate in Vancouver is in for a long, secular decline.
In fact, it might already be happening in Victoria, Canada’s other hotbed of real estate delusion. Look at this:
– House Hunt Victoria blog
As I mentioned a few days ago, a lot of younger people are beginning to understand they may never own. Royal LePage’s latest self-serving survey found 72% of people born between 1980 and 1994 think they’ll be reamed out of home ownership. About half of them blame F’s tighter mortgage rules and want them eased. LePage, of course, agrees.
Ironically, though, it’s cheap money, lax lending, lack of oversight and the fact people without money could buy houses that have propelled real estate values higher. A generation ago (when the Boomers still had hormones and hair) a 5% downpayment was unimaginable and mortgages were 11%. But, houses cost less than $100,000.
We’re on the path back down. But, Patrick, you’re not entitled to real estate. If you can’t afford it in Van, move to Hope. If buying a house takes 90% of your after-tax income, you’re a fool to even consider it. Why trade youth for debt, when you can rent?
Meanwhile in the million-dollar moose pastures of subarctic GTA, ample proof the parents are equally smitten. Some things, we refuse to learn. Now or never.