“How ridiculous is this?” he asked. “The same group did in two other developments. It works for newer Canadians – but it just shows housing has become a commodity. Maybe it’s time for me to retire.”
He’s a senior exec with a Toronto-area housing development company. Not only does he have decades of experience, he’s one of the talking heads on a local TV show aimed at juicing up virgin homebuyers. But some days, even a career real estate dude can only shake his head at the tactics used to whip up buyer frenzy.
Aurora Trails is a development of almost 600 homes to be built in empty fields 60 km north of downtown Toronto, with towns starting north of $500,000 and detached homes available at prices which are currently a secret. All will be revealed three weeks from now when the four builders involved host a thinly-contained riot. But that’s only the tip of this marketing iceberg – then horny homeseekers will have to go through a process ensuring they’re desperate to hand over deposit cheques.
“This is a two day event and no offers will be written,” the barbarians at the gate are warned. “An Open House provides the opportunity to see what each builder has to offer. You can book a Purchaser Appointment online, after the Open House.” And then you can bet several hundred people will buy million-dollar houses in less time than they spent driving there.
David Madani worries about where all this is heading. The chief economist at Capital Economics has been noting the same things this pathetic blog yammers on about with terminal repetition. Namely, the housing market outside of a few bubbly centres of mass delusion (like the GTA) is getting increasingly crappy. “Frayed,” he calls it.
As I’ve told you recently, if you have a house to sell in Montreal, Halifax, Winnipeg or Victoria, good luck. Buyers are hard to find and nobody’s storming the sales trailers. Prices have flatlined. Sales are thinning quickly. The notion is spreading that housing is not such a great place to put all your wealth unless you need a place to live (what a novel way of thinking). Experience is showing that families can buy real estate and easily lose money on it several years later once the punitive costs of buying and selling are factored in.
Says Madani in a new report: “Canada’s housing market performance over the past year or so has been astounding, with rising prices defying fundamentals such as household incomes and rents. While this fact has convinced some observers that the housing market is healthy, the regional breakdown reveals some troubling twists and turns. In short, Canada’s housing market appears to be fraying, surviving for the time being on rapidly rising prices in some of the most overvalued and more thinly traded markets.”
Toronto and Vancouver will continue to see momentum for a few months, he adds, because of sheer velocity. In other words, there are enough greater fools left in large urban centres to be convinced by media boosterism and silly teaser mortgage rates to keep average prices advancing. But higher values on declining volumes is a fundamentally unhealthy thing.
Eventually, says Madani, reality catches up. “With house prices already declining in some smaller regions, it may only be a matter of timing before prices in other larger and much more overvalued markets begin to fall more sharply. We still believe that the housing market is overdue for a longer-term correction of as much as 25%. “
Hmm. A 25% correction would reduce the average GTA property by about $150,000. That would dial the clock back to mid-2010, meaning most people who have bought since then would see a major reversal in their net worth. Worse, if we did have that kind of correction, sellers would have to weigh commission and initial closing costs, meaning many – especially those who bought with less than 20% down – would end up in absolute losses.
Madani is also clear on how he thinks this will happen. No soft landing. Instead, a big smoky hole in the tundra.
“Overall, with house prices already declining in some smaller regions, it may only be a matter of timing then before prices in other larger and much more overvalued markets begin to fall more sharply. We still firmly believe that the housing market will ultimately experience a hard landing with prices falling by as much as 25%.”
The longer the current market bubbles along, the more people believe it will never end. That’s human nature. It’s why everybody bought Nortel. It’s why the boys behind Aurora Trails are convinced their manipulative sales tactics will work, one more time. And they probably will.
Just don’t be the last guy in.