Two months ago a work crew screwed cement board onto the front of a mid-town Toronto semi, then glued face stone to it. They gutted the inside and turned the main floor into one big room with a SS&G kitchen in the back. Above the front door was installed a glass canopy, and the front lawn was ripped out and paved. After all, the skinny mutual drive is useless.
The asking was $795,000, and it sold in three days for $810,000. Multiple offers.
Across Toronto, semi sales so far this month are down 6% and prices are up 5.5%. Ditto for detached homes – sales off 7% and prices up (year/year) by 2%. Condos? Sales lower by 13.6% and prices higher by 2.1%. Across all housing types in the biggest market, deals have fallen over 11%, yet the average price has travelled from $516,089 a year ago to $543,838 now.
So where’s the correction this pathetic blog keeps bleating on about?
Right before your eyes.
In recent days I’ve detailed what’s going on with the new housing market. It sucks. Starts are off 25% across the country, by half in BC and 70% in the GTA. Fewer starts mean way fewer jobs, and the economy’s already crawling. So the only lift real estate has left is with resales. But in April, for the first time since the economic crisis, sales were year/year negative in virtually every market in the country – even self-obsessed Calgary.
Now, in the merry month of May when virgins are supposed to cavort in their skimpy gay apparel ‘round every new listing, we have a weird thing happening. In the bellweather 416 in the last two weeks detached homes sales are -6.7%, semi sales (as I said) are -6.0%, townhouse sales are -21.3% and condos -13%. Yes, those are all negative numbers. It’s been a long time since that happened.
And let’s remember (a) this is spring, prime time for hormonal house-hunting, and (b) you can get a 5-year fixed mortgage for 2.79% if you pass a breathing test. There’s every reason last year’s boffo market should have been replicated this year, except for one: most people you know are tapped out. Debt is endemic. They use lines of credit to make mortgage payments. They routinely increase the size of their home loans to renovate. Four in ten people now say they have trouble paying their monthly bills. And yet 70% own a house. Prices have been bloated by cheap money, not greater income.
Now a new study of Canadian net worth by Carleton University confirms the obvious: people have twice the amount of money in houses than they do in retirement savings, and half of all wealth in the country is represented by our inflated, pumped-up, bloated real estate. This is worse than having half you money in the shares of a single company, which no financial guy would ever recommend. But with your home, this asset can not only fluctuate in value, but turn illiquid. Just ask some of the 5,000 people in Vancouver trying to flog over-$1 million houses.
So why are prices not falling, if sales are? That’s simple. Same reason listings haven’t ballooned. Canadians are so invested in their houses, and have taken on such extraordinary debt in doing so, that they’d rather eat bugs than sell to a vulture. So sellers hold back on marketing their homes, hoping for better offers, while those who have listed hang tough for the biggest buck. This can go on for some period of time, and all the while we see the phenomenon of slowly rising prices on rapidly decreasing sales. It’s the mark of the beast.
The number of available buyers has dropped dramatically, but so has the choice. In demand areas like the one the faux stone semi inhabits, it still means competition among those who aren’t paying attention, or just don’t care. They will seriously regret their actions.
If only potential sellers would realize this may be the last, shining chance in a decade to cash out at the top, they’d flock to do it. But most won’t. They will need a shock to learn. It’s coming.
Be quick to sell. Be in no hurry to buy.
The numbers say again, there will be no soft landing.