Worried Scotia curbs mortgage lending in GTA & YVR:
'We just took our foot off the gas." - Link here
“There are reasons to believe we may have hit the peak.” Powerful words. Especially when they come from the lips of the dude who’s chief economist for the country’s realtors. So, has Gregory Klump been reading this pathetic blog?
Of course he does. (Hi, Greg.) But it’s growing more obvious by the day that the worm’s turned. The latest stats for the economy are dismal, with negative growth in both February and March. Then came the fires. The Bank of Canada has already said the Alberta blazes, and the oil shutdown they caused, will shrink economic growth by more than a full point, almost guaranteeing the first half of the year will end up in the red.
Meanwhile Canadians have been deep in the trough. Total mortgage debt now equals three-quarters of the entire economy in size. Almost 15% of all our economic activity is related directly to real estate, the only large sector which continues to expand. And the bankers just won’t quit. Yesterday a blog dog reported her TD loans guy dangled 2.39% for a five-year fixed mortgage, ten basis point below the bottom of the rate card. “The economy’s doing poorly,” he said, “so we’re offering a lower rate.”
Actually, the rate war is raging because real estate deals are starting to slide in Toronto and Van, the way they have in other centres. Sales in Toronto, seasonally-adjusted, fell in March from February and flatlined in April. In a few days we will see the May numbers. Similar story in YVR – sales are ahead of year-ago levels, but weakening. If inventory levels were normal, instead of close to historic lows, the bidding wars and FOMO might quickly evaporate.
But even with so few places on the market, multiple offers are diminishing, more listings are languishing and the bully bids are disappearing. No wonder. Prices are at extreme multiples of average incomes, wages are hardly budging and the jobs market sucks. Economic contraction means just that – the pie gets smaller for everyone.
Bank to Ottawa: raise down payments: Link here
Meanwhile every day takes us closer to the end of cheap money. Below are the latest odds of coming rate hikes in the US. They’ve been gaining ground now for two weeks as a summer pop looks all but certain. It has the US dollar rising, ours falling and commodities weakening. By the end of the year there’ll be no doubt that 2016 gave us peak house and debt valley.
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Badboy ex-realtor and housing analyst Ross Kay is issuing this warning: “When you remove all additional activity caused by Canada’s surging housing market from November through March, Canada would have lost net GDP and been in a small negative position each month.” In other words, it’s been real estate and real estate only that has masked a virtual recession. “Govern yourselves accordingly,” he adds.
Whazzat mean? Simple. People buying at peak house prices with mortgages destined to reset higher in a country with a shrinking economy are probably nuts. Homeowners who have made out like bandits as the bubble inflated, yet don’t cash out, are even more nuts. The only reason not to sell is if you think you’ll never be able to buy again. And how can anyone be that thick?
Desjardins economist Benoit Durocher sees average prices starting to decline in 2017. “Since prices are so high, you have fewer buyers in the market and fewer transactions,” he told Reuters this week. “I think it is the first step before an adjustment in the price.”
Well, higher US rates will eventually move Canadian mortgage costs. A contracting economy will restrict job opportunities and constrain incomes. Buyers assuming huge debt and increasing their housing costs to ‘get into’ the market are gambling on future capital gains that now look dubious. Is this really a risk you want to take?
Talked to a doctor visiting the Big Smoke from Saskatchewan yesterday. For giggles he went to an open house down near inner-city Cabbagetown – a semi that hadn’t been renovated in 80 years and would make an iffy pig barn in Swift Current. “They want nine hundred grand for that piece of crap,” he said, amazed. “You people are in trouble.”
The best house in his town is a new McMansion on a giant lot with a triple-car garage, valued at $500,000. “A nurse owns it.”
There are 108,706 realtors in Canada. That’s one for every 245 adults. Put end-to-end, they’d stretch from Calgary, past Red Deer and half way to Edmonton. It would not be pretty.
Anyway, in such a crowded field, marketing’s everything. Getting your listings out there in front of as many prospective buyers as possible is the difference between making your A7 lease payment this month or taking the bus. And, man, sellers have outrageous expectations after watching the house humpers on Global TV every night and reading the FOMO news releases pumped out by local boards. If no instant offers or bidding wars take place, the agent’s toast. You do what you have to in an eat-what-you-kill business.
Which brings us to Rhonda Davis.
Rhonda graduated from running a rags and baubles outlet in the Point Grey area of Van to flogging houses. Of herself she says, “My store clients know that I am an honest hard working, detail oriented agent, who will be their advocate from start to finish. Paying close attention to the details is what sets me apart in both retail and in real estate. Being down to earth, approachable, and honest, allows me to form long lasting relationships with the clients who I work for.”
Being detail-oriented and honest apparently doesn’t cut it in Van’s hyperbolic market however. So when a place doesn’t sell, what to do? Hey, you re-list it at a higher price, tell clients it’s a brand new listing, not a retread, goose the ad copy, and go to market!
Of course it’s always a good idea to take the old listing off your web site. Rhonda. Fail.
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Now to Sophie. “Part of me really hates you,” she says. “Instead of taking responsibility for my choices and sleeping in the bed I’ve laid, I blame you. You used to be a politician, I figure you can take it.” Hey, I like this girl.
Well, you know the rest. Sophie (30s), hubs and two screamers live in Van, make $150,000 a year (like all old Millennials), have saved an equal amount, and have FOMO.
“While I have been a strong proponent of everything you are talking about we are faced with a dilemma. The mania that has taken over YVR has spilt over into the rental market. We looked at moving last year and rents have jumped almost 20% in a year. Unfortunately we are in a school catchment zone that isn’t awesome and our oldest child is going to school next year. So we are faced with a move. We currently pay $1900 a month. We’ve stayed here much longer than we planned because we could save more money. To rent something that isn’t a piece of crap in a decent school district we are looking at a jump of $1000. With two kids in daycare this puts us in a position where we have to watch every dollar and we can’t save a dime.
“Even with an economic shock the “housing is always going up” is so ingrained in people here that it will be sticky while it comes down. We could make an easy move to the island and looked at leaving the lower mainland, but the whole province has gone bonkers.
“So any financial insight you have would be appreciated. We either rent something above our means, rent a dump, move to maple ridge/surrey or put our kid in a not so great school. All of options are not so great. So what does the omnipotent Garth have to say about this one?”
Let’s add Frank to the conversation, while we’re at it. Also has FOMO bad, and he’s an accountant, to boot.
“So a 1,500 foot brand new townhome was ready to be purchased for maybe low to mid 800s in Burnaby near the Skytrain, ready to move in this spring as it is nearly completed development. After GST and PPT we are closer to $900,000. I could afford the 20% down and if I liquidated everything, I would have a manageable mortgage but I said no.
“How do you know the lower mainland won’t be the same as New York or other cities where prices continually climb to a point where only the elite rich can afford them? Maybe I should have purchased it and watched it climb to $1.3 million in 5 years rather than sitting on the sidelines. I think at this point I have missed the boat and I am going to rent forever. Do you really think the market will correct to prices below today in the next 5 years? Thoughts?”
Recall that bubble mentality I’ve talked about a few times here? That feeling of buy-now-or-buy-never, even if you can’t afford it or every scrap of logic tells you it’s insane? It certainly suggests we’re at a top – when a numbers dude seriously compares Burnaby to Manhattan, or a couple contemplates a $1.6 million purchase with a $1.5 million mortgage because they want to avoid a $1,000 rent increase.
Last weekend a new townhouse development went up for pre-sale in Langley. If you haven’t been there, don’t bother. It’s sixty clicks from downtown YVR and the main cultural attraction is a casino. Anyway, demand for the units was so high the developer decided to conduct a raffle. Not to buy, but to win a place in line to buy. When asked why they would be so demeaned, people in the queue said the same thing: if we don’t buy now, we never will.
We’ve seen this movie before. Bullion. Dot-coms. Bre-X. Nortel. Until human nature changes, the outcome remains the same. A market propelled by panic buying will not last. Sure, Sophie and Frank can hand over every dime, shoulder an epic loan and get a piece of the action. But the risk is enormous. For what? The same place you can rent, at no risk?
Maybe Rhonda’s right. People aren’t worth treating with respect.