194 Euclid Avenue is, of course, butt ugly. But to the old Portuguese couple who have lived there for years, it’s a bela casa. No wonder. Listed for $849,000, it just sold for $1,080,000.
The sawed-off bung in Toronto’s lower west side has 1,700 square feet, a basement suite, garage and two bedrooms. It was for sale for a week and got eight young couples excited enough to start a bidding war. But here’s the thing. A new semi not far away just went for $1.2 million, and a townhouse in the hood changed hands for one Kia less than $1 million. So because this sad, tired, little pile of bricks is detached, it jumped into the seven-figure range.
Here’s a picture, courtesy of Toronto Life mag, which makes this comment, “the home proves that $1 million doesn’t buy what it used to.”
About the time I was reflecting on the stupidity of man, a CBC reporter wrote me asking for a comment on the latest report card on Canadian real estate, as seen through the eyes of the federal agency known as CMHC. In case you missed this piece of trickery, let me summarize.
But before I do so, be reminded that CMHC is massively invested in the national property market. In fact without it, houses prices would be a fraction of what they are today. By allowing banks to lend to people who basically have no money, without taking risk, this agency has made cheap mortgage rates available to everyone. No matter if a kid wants 95% financing, or a 60-year-old wants just 20%, they get the same rate. Unlike, say insurance – where a smoker pays more because he’s likely to kick sooner – a penniless virgin borrows at the lowest rate because if she defaults, the government will pay the bank back.
Hence, with almost $600 billion invested in residential real estate it helped to inflate, and enabling most of the high-ratio, high-risk mortgages in the nation, CMHC’s hardly an independent or impartial player.
Having said that, I believed the analysts working there had a modicum of pride. I was wrong.
It’s called the House Price Analysis and Assessment framework, which is the agency’s Big Look at the entire Canadian housing market. Yes, it’s the same market which this pathetic blog has been reporting on almost daily with shocking tedium. You will remember the published numbers – sales reductions in more than 60% of the largest cities, price declines erupting in many, and yet three regions (Toronto, Vancouver and Calgary) where people are on drugs.
Most of the world agrees. The International Monetary Fund thinks we’ve flipped. US housing guru/economist Robert Shiller says we are on the same path that ate the American middle class. Even the big Canadian banks are on record as stating we’ve overvalued houses by about 15%.
Evidence abounds that conditions are unstable. Regional markets that popped wildly a few years ago, like Regina, are in tough shape. The second-biggest market in Canada, Montreal, has seen monthly sales declines. There’s a two-year supply of houses for sale in Halifax. Single-family home sales in Edmonton just fell 12%. All of this is happening even while five-year mortgage rates sink to the lowest point ever, down close to 2.5%.
The reason is clear. Incomes are not rising, and consumers have historic levels of debt, which keep bloating. As I showed last week, we’re adding a net new $10 billion a month in mortgage borrowing, and now a stunning 49% of all sales are going to first-time buyers – CMHC’s cannon fodder. (In the US only 29% of sales are to virgins, down from an historic average of 40%.)
Well, the feds say this: “Housing markets in Canada remain broadly consistent with underlying demographic and economic factors such as employment and interest rates. Nevertheless, a modest amount of overvaluation is observed, meaning that house prices are slightly higher than what the underlying factors would suggest.”
On Vancouver: “Low Risk — The level of home prices in Vancouver is supported by local growth in personal disposable income and long-term population growth.”
On Calgary: “Low Risk — Overvaluation in Calgary reflects the combination of strong growth in house prices and modest gains in personal disposable income.”
On Toronto: “Moderate Risk — Overvaluation in Toronto is due to steady price growth that has not quite been matched by growth in personal disposable income.”
There isn’t much doubt this will further stoke the fire, as it is intended to do. The report will be used by realtors to ‘prove’ that if the markets have any risk, it’s ‘slight’ or ‘modest.’ CHMC, which facilitated the creation of real estate values so extreme they suck off the majority of family cash flow, is now officially sanctioning them.
Meanwhile, at 194 Euclid, the wrinklies won the lotto. At least somebody gets the joke.