If you keep saying it, maybe it will come true. Then you won’t seem quite so ridiculous in your desperate desire for validation of your dead-wrong RE predictions. – Realtor comment on GreaterFool.
A couple of months ago I hosted two investment banker-type dudes from Wall Street who ventured north to find what could possibly be keeping the Canadian real estate market aloft. I told you about that. It was weird. They had trouble understanding how they could be in a city (Toronto) where the average income is less than $100,000 and the average SFH costs $866,326.
But not me. I understand it perfectly. Most people are nuts.
Not long after, I told you about a piece in the journal of the New York Society of Financial Analysts, which referenced this pathetic blog. More bewildered, bemused Yanks.
“What is great from an American’s perspective is that all of the characters that we saw in the US housing bubble are up there in Canada leading the lambs to the slaughter. In another awesome coincidence the main villain is named Brad J. Lamb. Turner has a great characterization of Lamb, whose nickname is the “Condo King of Toronto.” Lamb reminds me of some sort of motley blend of Angelo Mozilo and Donald Trump. Lamb is encouraging people to lever up their primary residence to go buy a second, third, or fourth piece of real estate as an investment.
“Going through Lamb’s obviously foolish math in Turner’s post makes me think that ultimately shorting the mortgages on Lamb’s projects will be a money maker in time. Just like in the US, eventually people realize there are no more greater fools and the bubble bursts. I want to be ready.”
Speaking of ready, the number of mammon-obsessed Americans looking for ways to short Canada before our real estate blows up is definitely growing. Not only is there now a destructo-Canada hedge fund, but various vultures (like Steve Eisman, the hero of this book) have identified publicly-traded companies they think will not survive the HouseAgeddon which lies ahead.
As you also read here, the eggheads at The Economist think we’re delusional, and the International Monetary Fund won’t be buying a McMansion in Mississauga or Richmond, either. Famed US economist Robert Schiller, shunned when he warned circa 2004 that the American housing market was a ponzi, and now a demi-god, is also perplexed. “I worry that what is happening in Canada is kind of a slow-motion version of what happened in the U.S.”, he said in 2012. And more recently he warned about our unsustainable, steaming pile of consumer debt.
Then there’s that Nobel-winning Paul Krugman guy, who weeks ago made big waves writing this: “Canada ought to be quite vulnerable to a big deleveraging shock despite its boring banks. Of course, people have been saying this for several years, and it hasn’t happened yet — but remember, the US housing bubble took a long time to pop, too.”
Now here’s Adam Peterson, an expat with a New York investment firm writing for the misguided colonials back home. “Housing in Canada is unaffordable. International experts are unequivocal in their concern, and Canadian lawmakers are taking measures to deflate slowly rather than crash. Ironically, only Canadian homebuyers seem to think the market is sustainable. Sale prices are still rising. So when does it all start to unwind? Right about now.”
Peterson frets over two things. First, Canadian house prices are insane relative to what people earn. Second, at 19% of the economy, real estate is a gasbag whose rupture could explode jobs, businesses and the blessed GDP itself. But all the hand-wringing might be academic because, “I believe we are witnessing the crash right now…” Yup, in slo mo.
I mention all of these Americans and various other foreigners since we never heed native intellectuals like William Shatner, Justin Bieber or Pamela Anderson until they cross that bridge. Does this mean we’ve simply lost perspective, sitting here with our beer and Timbits, staring into the national navel? Are we in more trouble than, say, Global TV lets on?
Silly question. Screwed.
Real estate sales have slowed and mortgage rates risen. The feds have done everything but machinegun the young to stop them from buying. There’s nowhere in Canada now that you can buy a house, pay closing costs and reasonably expect to make a profit after occupancy costs and commission within five years. In fact, in every city it’s cheaper by far to rent than to own. And yet the house horniness, and especially the denial, persist. Prices stay sticky because vendors have a sense of entitlement , thanks to the pumpers at Royal LePage and Re/Max. Meanwhile the doubters pour on to this defenceless blog to rain down kidney punches, and question my economic manhood.
But I’m still standing. No wavering. Those with the bulk of their net worth in a house, with a monster mortgage at 3%, or freshly ensconced in their equityless new home, all should be worried. You can ignore me. Millions do. But I’d be asking myself why you’re so much smarter than the dudes referenced above.
Your mother-in-law will be so surprised.