“See the attached,” said Uri, the realtor, “Self explanatory… And some people still think it’s not a bubble.”
So here’s the deal – an ugly little half-a-bungalow three-bedroom semi on a 30-foot lot way up north of Toronto where the elk cavort (Newmarket). It was listed for $469,000 less than a year ago – April of 2016 – and sold in a flurry two days later for $512,000. Meh. Above asking, but not worthy of film at 6.
The same place, in the same condition, was listed again a week ago for $569,000. It sold on offer day this past Monday amid another flurry, for $745,000. That, a disgusted Uri notes, was a 46% appreciation in market value in ten months, or an annualized 55%. By way of contrast, inflation is now 2.1%. Incomes are growing 1.6%. And a high-interest savings account at RBC pays 0.5%.
The buyers? In that price range, of course, first-timers – desperate to get into a house, any house, before they’re ‘priced out forever’. In the process of paying a bloated premium in a bidding war for a crappy little half-house, they help ensure lots more young couples are, indeed, priced out. At least for a while.
Speculation, greed, fear. The three Amigos of the Northern Bubble have been riding hard for the last few months, taking us on a new journey. Highest prices ever. Most debt in history. Vast leverage. Reckless buyers. Rapacious sellers. Shrinking supply and surging demand. Risk on. It’s a classic property bubble. Despite all the justification the bulls cough up, the outcome will be the same.
Or perhaps slightly worse. We’ll see.
Things became a little darker this week for two reasons. The price of our biggest export tumbled. Oil is now just $49 a barrel, down 10% in recent days. Ouch. Thanks to Trump, re-energized US shale producers are churning out production, and the spectre of higher interest rates has pumped the American dollar, clobbering commodities and the loonie (now 74 cents). None of that – oil, dollar, rates – is good. Even in Newmarket.
Then we have the political dunces. Ontario’s about to bring in a Chinese dudes tax of its own – a version of the one that dropped sales in Vancouver by 70% in many hoods, and has cratered the top end of the market. This pathetic blog told you some months ago it was being actively considered and now, apparently, it’ll happen. While the number of foreign buyers is by all accounts modest (realtors peg it is 4.9% of sales), any more bureaucratic diddling with an already-stressed market could have big results. It sure did in Van.
Finance Minister Charles Sousa says since house lust has invaded the province, infecting locals’ brains and turning our moisters into mortgaged morons, that he must act. “I am now concerned with the degree of fast appreciation in the short term and what that will do over the long term” he said Thursday.
He has support for this, not only on Toronto city council, but also on Bay Street. BeeMo’s economist Doug Porter dropped this warning last week: “If policy makers leave this market to its own devices, there is a real risk that a still-manageable bubble is pumped by rampant speculation into something much more dangerous.” And a couple of bank CEOs have speculated that since the YVR tax hit, more money was pushed into the GTA, helping fuel a disastrous 28% year/year price romp there.
But would the tax just apply to 416, the cradle of modern civilization? Or the entire Burlington-to-Oshawa, six-million-strong GTA? Or would that just shove prices higher in Guelph, St. Catharines, Brantford, Barrie and Peterbrough? Would it be a province-wide hit, making London, Ottawa and Windsor suffer for the hormonal excess of the flatlanders?
No idea. But it’s reasonable to assume that falling oil, rising interest rates, higher living costs (thanks to the dollar) and a draconian new tax will certainly drop-kick a market as abnormal as Justin Bieber.
Meanwhile, everyone’s worried about us. This week the Bank for International Settlements (sort of like the Bank of Canada’s parent) said we are ‘vulnerable to a crisis’ because of excessive credit levels, house prices and the potential for higher interest rates. Our ratio of debt to the size of the economy is dangerous, while real estate values have deviated wildly from a sustainable long-term trend. More than anything, added the BIS, it could be swelling interest rates that bring Canada down and double payments.
Well, tonight there are excited new owners of 21 Hillview Drive in Newmarket, probably texting their little hearts out, sending selfies from in front of the SOLD sign on the speck of a lawn and spreading the word about how awesome smart they were to trade renter freedom for owner obligation.
This will be interesting.