The apex

Despite it being February, the spring rutting season has hit with a vengeance. Cheap mortgage rates, seasonal hormones and record low inventory have pushed the housing market into the red zone. If this is not the apex, well, God help us.

In a moment, an example of panicked insanity. First, comb through the 400-odd comments published here yesterday. Most of them are testimony to the insanity of current times. Residential real estate values have created windfall wealth, skewed neighbourhoods and whole cities, led directly to $2 trillion in household debt, fomented xenophobia and Trump-lust, plus scared the crap out of central bankers and politicians. There’s nothing normal, balanced nor healthy about what has happened. The trip up was intoxicating. The trip down, whenever that happens, could be terrifying.

In fact, when a legendary banker starts using the word “dangerous” to describe daily events, pay attention.

This week BMO finally threw in the towel. After years of downplaying what house lust is doing to our society, blaming it all on loose credit, migration shifts, Chinese dudes and macroeconomics, the bank is admitting we’re screwed. Or close to it. “Let’s drop the pretence. The Toronto housing market — and the many cities surrounding it — are in a housing bubble,” says economist Doug Porter, adding that prices are now “dangerously detached” from the economic fundamentals like what people earn (seems kinda important). In fact, houses are appreciating a dozen times faster than wages are rising. Can you spell unsustainable?

Meanwhile listings are plunging – down 17% last month from the month before. The biggest plunk in 15 years, pushing the sales-to-listings ratio to an historic and unbelievable 94%. Check this out:

Source: Bloomberg, Toronto Real Estate Board

Listings are disappearing because owners are afraid to sell – fearing they’d be cast into a vicious bidding war for some piece of crap lesser than the one they’ve just sold. In short, nobody can afford to move. As a result, inventory is shrinking just as demand swells – bloated not only by the fact everyone thinks real estate (at any price) is a gold mine but because the sap’s running.

So on to the house below. Pokey, boring, undistinguished, with a big butt-ugly garage stuck on its face, sitting on a soulless street in the quasi-city of Mississauga. Sigh. Ennui.

Source: Mississauga News

The current owners bought it seven years ago for $404,000 from local agent Milosov (Lucky) Lukaroski. When they came to sell, they called Lucky to set a price, and he went to work combing through recent sales data to gauge appreciation. Should be worthy $650,000 now, he said. To generate more interest, he listed it at $638,600.

That’s when the beasts arrived, the scent of flesh in their flaring nostrils.

Four hundred showings – half of them in one weekend . Two dozen offers. And a sale price of $900,000, more than a quarter million over asking. At 11 pm on the night offers were accepted, they were still pouring in. People even came to the open house with certified cheques.

This is consistent with the tales we brought you days ago of uber-offers, bully bids and frenzied, slobbery buyers. A tacky house in Brampton went for $200,000 over asking in a feeding fest and blizzard of offers.  And days ago the western world was stunned when an unrenovated 1970s house in suburban 416 commanded $1.15 million more than the sellers were asking.

“The market will get crazier, because there’s no inventory at all and interest rates are below three per cent. I came to Canada in 2003 and I’ve been in real estate ever since,” says Lucky. “Something like this has never happened before.”

He’s right. So is Doug Porter. And this pathetic blog. The brave are selling. The weak are buying. Govern yourself accordingly.

$       $       $

And what of yesterday’s topic on the possible intro by T2 of a market-cooling House Tax in Canada? Seems to me it just crawled a bit closer.

You might be interested in this note from blog dog Peter, in YVR:

“Faithful reader, occasional writer. I’m sure you have great sources but I thought I’d pass on some confirmation for something you’ve been talking about recently.

“As we’re expecting our first offspring I noticed an unfair disparity when researching child care benefits. I wrote my MP, and current Justice Minister, Jody Wilson-Raybould about it. Her response was polite and concise but basically was “tough luck, deal with it”, however to end on a sweet note it included this paragraph:

To ensure that all Vancouverites can live comfortably, we are working to ensure that families like yours can find adequate and affordable housing that you deserve. We have increased consistency in mortgage rules by standardizing stress tests for both low and high ratio mortgages. This will help to ensure that households can afford the homes they buy even when economic circumstances change. It will also promote a more stable housing market for current and new homeowners. We are also improving tax fairness by ensuring that the principal residence exemption is available only in appropriate cases, so that everybody pays their fair share.

“Sounds like the “house tax” you mentioned is very real.”

Fess up

Is the government thinking about taxing houses? Of course it is. Just makes sense. Residential real estate’s the biggest pool of personal wealth in the nation. Most gains are claimed tax-free. And the law allowing that gift never, ever contemplated markets where prices would double every half-decade. Or where rental suites would be come ubiquitous. Or where people could do diddly and make a million. Or where the majority of new high-rise units are bought by amateur flippers, speckers or landlords. Or where mortgages cost hardly more than inflation and money flowed like hormones.

But here we are. The amount of wealth transferred from liquid assets into land is epic. So is the debt attached. And a spendy government has a jealous eye on all that windfall, unearned, undeserved, untaxed equity.

An eventual house tax could be facilitated by the principal residence exemption being introduced to this year’s tax return (see yesterday’s hyperventilated post). It could come as a withholding tax on the sale of a property, refunded if you qualify. It could materialize through enforcement of existing rules by the CRA – cracking down on illegal suites, for example. Or simply by including a portion of house profits in capital gains calcs.

In  Vancouver these days the best estimate is that 45% of all detached houses have suites. Could be higher. And odds are a great number of owners collect rent but fail to declare it as taxable income. After all, having a tenant doesn’t increase costs too much, yet every dollar in net rental income must be added to your earned income and taxed at your marginal rate. Ouch. How is a poor working family supposed to pay their $1.3 million mortgage?

Anyway, stats on home ownership are sketchy when compared to who has what in an RRSP or TFSA, for example. That’s why the data search has begun. It’s the rationale for the PRE form in your tax return from now on. People who flip, assign or rent houses may be future targets of a hungry, deficit-soaked bureaucracy.

So in the spirit of unvarnished disclosure always prevalent on this pathetic blog, let’s do our bit and fully disclose our personal real estate holdings to Wild Bill & his boss, Justin. It will be interesting to know how many of those who come here are mansion-owning 1%ers, who are the property-flipping moguls and how many are pale, squinty-eyed, moldy basement dwellers. What percentage of your net worth is in real estate? Or have you been frozen on the outside, looking in at a market you’ll never afford? Are you part of the hated rentier set? Do you declare all rental income?

Our last survey of readership revealed that most people here are billionaires with seven-figure incomes who just come for the dog pictures. And visitor stats continue to reveal only about 1% of those hanging around ever leave a comment, mostly from the deplorable classes.

So let’s hear from the rest of you. What do you own?

“There was an income/wealth survey here last year that had an overwhelming rate of participation,” says a familiar voice from the steerage section. “Perhaps a real estate survey would get the braggarts to respond in droves too, with questions such as:

  •  how many houses do you own, followed by these questions…
  • year of purchase and price
  • % down
  • age of house at that time
  • your age at that time
  • amount owing or number of years it took to pay off
  •  number of years owned
  • value today
  • % of your net worth in house equity

“Results of which would show just how house horny we / or Garth’s investment class groupies are, and what happens when an asset tax arrives.”

Please note that all results and revelations will be held in the strictest confidence. Bill promised.