It continues. The meme of a housing crash in the nation’s premier real estate market swells by the day. It’s now part of divorces (more on that sad thought in a moment).To date, sellers have been gods. Buyers, infected with FOMO, have been put through hell. Blind auctions. Certified cheques with offers. Bidding wars. Scant listings. Relentless competition. Crap houses. Insane asking prices. More insane selling ones. Arrogant realtors. Insufferable vendors. Feeling diminished, powerless and manipulated. Revenge will be so sweet.
And it may come sooner than most believe.
So real is the prospect of a residential reversal that it’s now being included as a caveat in family law. “I’m noticing that some lawyers (including myself) are now starting to include warnings in Separation Agreements about the potential for a housing crash,” says Toronto solicitor (and blog dog) Usman Sadiq. “For example, in some cases we have a spouse who opts to take a lump sum payment of spousal support or child support by taking the other spouse’s interest in the home. In such a case we are now advising clients of the potential risk of doing this (ie. housing crash) and we are also including this in our separation agreements.”
Just months ago that would have been amusing. Now the threat’s tangible enough to give bickering, splitting couples one more giant thing to worry about. “I have no doubt in my mind that this is going to end badly for a lot of people,” says Usman. “It’s not sustainable and is literally mirroring what happened in the USA (high household debt, high debt to GDP ratio, speculation, mortgage fraud, etc.).”
The voices are cacophonous. Here’s David Rosenberg, the big econo-cheese at Bay Street’s Gluskin Sheff:
“This is a bubble of historic proportions.
“Not only to have home prices in the GTA now absorb an unprecedented 13 years of median family income, but to have 30 per-cent-ish run-ups against a backdrop of a 2 per cent inflation rate, wages that are barely going up 2 per cent as well, and nominal GDP growth of around 4 per cent. This should put 30 per cent into some sort of perspective when we conclude that what we have on our hands is a near three standard deviation event.
“That alone qualifies as a bubble — if you don’t like that term, then call it a giant sud. In the past, Toronto home prices went up at an annual rate of 4 per cent in real terms, in the past year they have surged by nearly 30 per cent.”
And what does Rosey want? Most importantly for the Bank for Canada to raise interest rates, despite the damage that would do to Halifax or Winnipeg. He joins heavy duty bankers who are calling on – or, actually, begging – governments to intervene before the gasbag blows, throwing spray on everyone. Royal Bank’s CEO Dave McKay told shareholders the market’s “at a point of strain,” with “concerning and unsustainable” prices and is asking politicians for a “multi-faceted solution which address supply constraints and speculative forces.”
“If this issue goes unchecked,” he warned, “it could drag on consumer spending, locking up too much capital unproductively, and potentially becoming an inhibitor to Canada’s future economic growth.” Not to mention bank profits. As referenced here yesterday, Scotiabank is also crying out for intervention.
Lots, apparently. Ontario’s Liberal premier says she’s about to bring the hammer down on landlords, lifting the cap on rent control for properties built after 1991 – to date excluded from tenant-friendly regs. Of course that’ll halt development of new rental units in its tracks, shock amateur landlords who’ll see more negative cash flow, lower cap rates and ultimately devalue investment real estate. The biggest losers – everybody who owns a condo.
The province is almost certain to use its budget this month to hammer the housing market with a spec tax, a levy on foreign buyers, or both. The federal finance minister is muscling back into the picture after his do-nothing budget last month, this week writing the lefty premier and Toronto’s formerly conservative mayor for a summit on the GTA dirigible. The goal: “To consider how we can collectively make progress to ensure that housing in the GTA is both affordable and accessible for the long term. I am concerned that dramatic house price increases will have long-term implications for housing affordability and housing market stability.”
Ironic, isn’t it? The feds gave us historically low mortgage rates, homebuyer tax credits, the RRSP homebuyer’s plan and CHMC to wipe away banker risk so they can loan big to kids with no savings. The province’s last budget dropped land taxes for fist-time buyers to encourage more of them to bid. And now they want to save us from ourselves?
Well, we’re on the way to taxes on empty houses, speculators, condo landlords and Chinese dudes while rent increases are squished. And even without any of it, the frenzy’s already fading and divorces are being crash-proofed.
Did I ever mention this may not end well?