Mark went for a road trip last weekend.  “Drove through Boomer Heaven, Prince Edward County,” he said, referring to that verdant oasis two hours east of the Big Smoke, “and noticed about half the property, maybe more —  cottages, farms, vacant land — between Picton and Deseronto — had “for sale” signs. Something pretty bad is happening to people who thought they could afford a second property in the country.”

In Muskoka, historically the recreational playground of the urban wasted, prices for all properties in the first three months of this year (the latest numbers, for some strange reason) were down a substantial 28% from last year. For waterfront sales (average price now just $369,351), the haircut’s a withering 45%.

Across the nation, says shameful Re/Max in one of its famous ‘news’ releases, sales of luxury homes are up everywhere, except Vancouver – where they crashed by 31%. And in Victoria these days a stunning 151 houses priced between $1 million and $2 million are on the market in a small city where the average household earns just $76,650. Sales, as you might imagine, suck. Says one experienced realtor, “Anyone who wanted into this price range and waited six months, just saved $500,000.”

But the industry continues to pump out a different story. CREA made headlines earlier this week saying sales and prices across the country are just peachy – with the value of homes up 0.9% from last year, to an average of $375,810. The Toronto Real Estate Board’s mid-month stats show sales ahead 14% and prices up 6%, with the average SFH in 416 changing hands for $835,000. And that Re/Max report on ‘luxury’ home claims sales galloped higher in 13 of 16 Canadian markets.

“While the ranks of the rich expand in both population and wealth, their impact on the Canadian residential landscape is undeniable,” says the company hyperventilated. “Their confidence abounds from coast-to-coast, irrespective of price point.”

Unpublished are a few salient facts. Like ‘sales’ in Toronto count pre-sales of condo units, thousands of which may never be built if conditions change, with no actual property changing hands. In reality these are just futures contracts, not real estate transactions. Also of interest is the fact there are 4,500 houses for sale in Victoria (population 330,000), and 8,749 in the GTA (population 5,583,064). As you can see, at 10,000 sales a month, Toronto has a 3.5 week supply of homes. With about 550 sales monthly, Victoria’s supply is 8 months. And in VanCity, 16,500 listings. Good luck.

This is why numbers so mislead. If you’re in most of BC, central Canada cottage country, southwestern or eastern Ontario, or anywhere in New Brunswick or Nova Scotia outside of the HRM, real estate is a lonely mummy in want of Lady Croft. In Vancouver, for example, the malaise this malevolent blog has moaned about is now the stuff of the MSM. Check out this snippet from yesterday’s Globe:

“In a market once famous for being overheated, Mr. Arora (a real estate broker) said he hasn’t seen a bidding war in months. “It’s totally a buyers’ market. Buyers are determining the price,” he said. “And sellers are surprisingly accepting it. They are taking it.”

And recall that days ago I posted a video clip from CTV which aired last weekend telling homebuyers they must beware of new mortgage rules (from OSFI) which could actually cost them their properties, should financial conditions change. It’s exactly this kind of message, now repeated in daily media, which makes the danger of a credit and housing bubble real. The fools who fall for the siren song of Re/Max, CREA or a real estate board will soon find the music ending, and no chair.

Already there’s solid evidence of what happens when you leave the thinking up to your glands.

A new survey by BeeMo is chilling. It tells us 51% of Canadians expect to be still paying a mortgage by the time they retire. In BC (big surprise), the number shoots to 60%. Not only does this leave less money for personal lubricant and butt lifts, but it promises to kick the stuffing out of consumer spending, and hit the economy as a whole. That, in turn, makes real estate weaker.

By the way, for those who still believe Boomers will just take over reverse mortgages and stay in their homes until they collapse into dust bunnies, the bank survey calls you out. Ain’t gonna happen. Not with more than half shouldering mortgages which will be resetting at higher rates.

Of course, you know all this. You are the chosen ones. You’re all coming on my ark.

Unlike these people. They turned up last weekend to view plans for 600 unbuilt homes in a distant GTA pasture called Upper Unionville, where demand for $500,000 to $1 million houses is so great bidders have to pre-qualify online, then wait for a lottery to gain a sales appointment, to which they must bring a chequebook.

They can swim.

“I’m a realtor in Toronto,” he says, “and I’ve been telling my clients since the beginning of the year to expect a big crash. No, I’m not telling them what to do, but I feel it’s my duty to inform them. Interestingly, 100% of the first-time buyers that I was in touch with (all with a small down payment) have decided not to buy.”

But, Uri Kogan says, homeowners are a tougher sell. “Most of them – some who have minimal equity as well – are either completely oblivious or just hope for the best. Even though a price adjustment of just 15% will probably force them to sell. How can they not listen?”

Easy, Uri. Most people who own houses would rather eat roofing nails than contemplate a market correction. Reading this blog alone causes cardiac arrest. So just imagine if they heard about Vlasios Melessanakis.

That dude’s just made some news after words he wrote for his employer – OSFI, the bank regulator cop – fell into the hands of a reporter. The number Vlas is throwing around as a possible correction? A withering 40%.

As you may know (because I keep telling you), the bank cop is about to do F’s dirty work through regulation instead of legislation. Come the end of this year there’ll be new rules trashing HELOCs, killing cash-backs, forcing banks into more careful screening of borrowers and mortgaged properties and closely tying the size of a mortgage to the equity people have and their ability to pay. Imagine. The nerve.

To some this is draconian stuff. Like Robert McLister, a mortgage broker and editor of Canadian Mortgage Trends, who whined about OSFI when the draft guidelines were published in March. In response, Vlas (the agency’s manager of policy development) wrote some stuff for internal consumption you might want to know about:

• “Canada is not immune. Just because nothing happened in Canada in 2008 does not mean that Canada is not vulnerable to a housing correction now.”
• “The market may break because the fundamentals are not sound (ie. overvaluation of homes), not because of OSFI guidance.”
• Mortgage arrears, “can change fast. Are the banks equipped to handle a 40% drop (what occurred in Toronto market in early 1990’s)? Need to stress test to find out.”
• HELOCS “have contributed significantly to growing overall household debt. This is not sustainable. If (or when) housing prices drop, households will be vulnerable.”

What this means, simply, is the banks’ regulator is serious. As McLister says, the changes coming down the pipe could have a dramatic impact on the market, slowing lending, restricting credit, eliminating many horny yet cashless newbie buyers and setting the stage for how the banks deal with the day prices plop.

Like now.

The latest numbers show what this miserable blog has been bleating about for months. Vancouver – the most oversexed market on the planet a year ago – is out of juice. The average selling price has plopped just a shade under 10% in the past year, down to $735,315. Sales have plunged in many hoods – and this is even before lending regs tighten, rates rise or Global TV leaves the Ladies Room  and discovers it.

Face it, the inevitable has commenced. Governments will not support a further bloating of the credit bubble. People without a load of equity in their homes are materially at risk. And, as I discussed yesterday, Boomers will soon be delivering their final, hideous, wrinkly revenge.

This will not be evident to your brother-in-law until he hears on TV the market’s tanked, tries to sell, and can’t. The condo collapse in Toronto will go unknown until no recovery’s possible. People will still be strutting around Calgary talking about the next housing boom, when it’s already over. And poor Saskatoon might get it by the time pelicans return to the weir.

People are so hard to train.

Casey watches the house across the street in her upscale neighbourhood populated with Land Rover-driving moms in designer shades. The neighbours bought the lot for $1 million, then built a McMansion. It hit the market last September at $3.8 million. These days it’s priced at half a million less, the cheapest house in the hood. But after three reductions, it’s still for sale. And so are the other 25.

“There is no way I’m buying again until houses come down 40%,” she says (Casey pocketed $1.2 million by selling a year ago, and rents). “I see friends moving further out so they can have bigger places. The people I know aren’t rich, but they certainly aren’t poor.  Household incomes around $200k or more.  If these people are struggling to buy, it doesn’t make any sense.”

What does, Casey?

Yesterday’s blog post about looming changes to bank mortgage lending practices brought a howl of denial (you should have seen the posts I didn’t publish) from realtors, mortgage floggers and people with mortgages the size of regret. Cheap, ever-available money has created a weird moment in social history. A house is now a right. So’s a mortgage. Someone actually posted that if a home loan were refused renewal under the new rules, forcing someone to sell, “they would then be homeless.” Coffee came out my nose.

Real estate is a mania. Exactly why it’s so dangerous. People do crazy things when smitten, like assuming the world today (rising prices, cheap money, easy bankers) will last without end. Because housing is so emotionally-driven, the volatility ahead will likely be intense – just as it’s proven to be in the US – making stock markets look prudish. As the market turns, we know from experience that listings swell, then prices crumble. It’s already happening in many cities. None will be spared.

Capital Economics has it right. In a note to clients this week the Toronto-based company warned that housing-fueled growth can’t last. “Interestingly, the shape of the rapid rise in Canadian house prices looks fairly similar to what happened to US house prices before the bubble burst there. From 1995 to its respective peak, US house prices increased by just over 140 per cent. Since that same time Canada’s house prices have risen by 130 per cent.”

In doing so, Canadians have also managed to accumulate more debt than did Americans. And you wonder why F and the federal peckerettes are so keen to jack mortgage regs and turn off the borrowing. Not doing so will lead to an obvious result. Which is coming anyway.

BTW, Capital Economics is on record as forecasting a 25% decline in national housing prices over the next three years. You can assume that means 15% or so in the GTA and a hulking hole in the Lower Mainland.

But this is not the big news today.

It’s time to crack another myth held closely by legions of deluded people who come here for god-only-knows-what reason. As shown, the myth that Ottawa would never do nothing to prick the bubble is kaput. OSFI and the overhaul of CMHC murdered that one. Also paws-up is the argument that high-ratio, high-risk borrowers form too small a group to shiv the market. Did you see that Kelowna graph yesterday? Yikes.

The third big lie au courant among greater fools is that Boomers would rather gum drywall in abject retirement poverty than give up their homes. You’ve seen it said often on this pathetic blog by the house pumpers that the threat posed to real estate by nine million members of the Depends cult is minimal. No big flood of listings in the years to come, they say. The wrinklies will not sell.

Of course, it’s bunk. The single most troubling aspect of real estate’s future (and the most inescapable) is demographics.

Need proof? Here’s a new survey by RBC, asking people about their retirement plan. The results are brutal. Forty per cent say they’re worried about not having enough money to finance a retirement, and another 30% say they’ll have to work past 65 to make ends meets. How could we get to a point where three-quarters of people have no money? RBC also learned six in ten of us don’t save for retirement, while four in ten expect they’ll do worse than their parents.

So what? Are we supposed to feel sorry for Boomers who rotated for five decades, doing little more than producing mean little offspring who now own minivans, attitudes and hate their parents?

That’s your choice. But at least understand where this is going. The survey found almost half – about 45% – of people said they plan on financing their retirements (as meagre as they may be) by selling their homes.

Hmm. Nine million boomers owning about three million houses, so half of that is 1,500,000 units, or a four-year supply if nobody else in the whole country moved. But it’s safe to say this deluge will largely be in addition to the normal listings, since people in retirement have typically stayed in their homes for significant periods of time.

Now, imagine a few years hence. Rates higher. Mortgages dearer. Bankers tougher. And a million desperate Boomers trying to turn their illiquid suburban barns into cash flow. Supply washes over demand already weakened by new lending standards, chasing valuations lower in a vicious circle. Is this really where you want to have the bulk of your net worth?

Maybe it’s time more people learned a few lessons from the Boomer experience instead of just being prickish and resentful. (Of what?)

There’s never one safe place to put your money. Having wealth beats owning a house ten out of ten. If you don’t save and invest, you fail. Nobody who matters, cares where you live. Diversify. Don’t be a financial illiterate.

Or, just get a reverse mortgage and prove to your kids you actually have a sense of humour.

Imagine you’re sitting home one night eating burritos and cream cheese waiting for The Biggest Loser or Canada’s Got Talent! when the TV newsguy comes on and tells you this:

“Homeowners beware! Canadian banks may soon force you to requalify your mortgage at the end of every term, if your circumstances change… say you lose your job or get divorced, you could risk losing your home.”

Well, he just did. CTV aired this:

Of course regular readers of this pathetic blog knew all this back in March, when we highlighted the changes that OSFI – the Office of the Superintendent of Financial Institutions (Ottawa’s bank cop) – is preparing to implement. The first stage was an announcement. The second was a discussion paper. The third will be regulation. By the end of the year it seems assured the feds will have a new set of regs for the banks aimed at squishing the credit bubble without having to jack up rates.

The changes would require far more scrutiny of a buyer’s finances, verification of a home’s true value (not the bidding-war price), elimination of cash-back mortgages and also test borrowers every time they renew a loan to ensure they still qualify. The key here is LTV – loan-to-value. If you bought a $400,000 place in 2010 with 5% down, then your mortgage is $380,000 and your LTV is 95%.

If the same place is worth $340,000 in 2015 (after a 15% correction) when the loan renews, then the LTV means the maximum loan is $323,000. If you took a 3% VRM when you bought, with a 30-year amortization and made 5 years worth of payments, then (counting in the mortgage insurance premium), you still owe $349,000 upon renewal. So, you’d have to come up with $26,000 in cash to maintain your home loan – after spending $101,457 on mortgage payments.

Let’s see, that’s a downpayment of $20,000, plus $101,457 in payments, plus a $26,000 mortgage renewal payment – or a total of $147,457 in cash for a home worth $340,000 on which you still owe $323,000. This is a nice, simple example of why all those horny young virgins with their 5% downpayments are at risk of being wiped out financially.

Perhaps you see the threat here.

It’s not just that the bank cop would bring in such a draconian change (and it will), but that the potential of its happening has hit the MSM. Your granite-loving mother-in-law can ignore this marginal, slightly diseased blog, of course, but when it’s on the TV it becomes just as real as The Bachelor.

So the big threat to all those recent purchasers is a market decline plunging them into negative equity event before OSFI gets all Nazi on us. Homeowners with 20% or 40% equity can withstand such an event (although they won’t be happy they’re less wealthy), but high-ratio, high-risk borrowers will end up with nothing but debt. Are they mentally prepared for that? Did the kids buying those townhomes and condos with cash-back downpayment money from TD Canada Trust really consider that they’d be, well, screwed?

Of course not. Never crossed their mind. And the nice loans officer at the bank skipped mentioning that part. In fact, homeownership has been sold by the banks, the real estate industry, the media and even governments as a risk-free strategy. So what happens in a couple of years when prices correct, lending rules tighten and equity leaves town? Will the kids just shrug and keep on with their monthlies? Or will they panic, bail at any cost, and drag down market values?

If you say it doesn’t matter much because there aren’t that many of them, think again. Consistently over the last three years, the majority of new mortgage originations have been for 5% down deals. In cities like Toronto, where 2,000 condos a month are flogged, you can bet the ratio’s dramatic.

In fact, even in a market where first-time buyers are a distinct minority, like Kelowna, the numbers give pause. First-time buyers accounted for 21% of all transactions in 2011, and of those about 90% used high-ratio financing, with downpayments of less than 20%.

So, if Kelowna prices correct by 20% (that seems like a no-brainer), a fifth of all the people who bought last year could be underwater. Is this likely to have a further dampening effect on the overall market? Are you kidding?

Finally, one more reason this real estate market is cooked. Especially in BC. Buyer disgust.

This past weekend one of the Vancouver papers ran pictures of the 35 cheapest houses currently for sale on the west side. I rest my case.

$1,120,000

$1,299,000

$1,375,000

$1,250,000