Apocalypse soon?

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Prepare for ‘real estate apocalypse’: Toronto Star

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To publish this story in Canada’s largest newspaper a year ago would have been unthinkable. But the fact it’s there this Sunday morning speaks volumes to the awakening reality of the marketplace.

When I spoke to the reporter working on this piece last Friday afternoon, he was clearly on his own voyage of discovery. For a generation the mantra has been that real estate was a bullet-proof investment which would always appreciate, always create personal wealth, always be envied, desireable and easily financed. Today there are questions about each of those verities. In a few more months, there could be a growing unease, if not a panic.

As I have detailed in Greater Fool, even mightly housing markets like that of Toronto – home of the most condos in the world – cannot withstand the three threats now at our doorstep. — Garth Turner

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Business Reporter
tony-wong.jpeg Mike Donia has survived several housing market downturns in the Toronto area, and he figures, sure as death and taxes, that all good cycles will come to an end.

“It’s not a question of whether the market will go south, it’s when,” says the veteran ReMax realtor, one of the brokerage’s top agents.

The year has not been off to a great start. In figures released last week, a blustery February knocked existing home sales down by 11 per cent for the month, while residential building permits were down by a significant 47 per cent in January.

Growing uncertainty over the U.S. economy, where housing values have plummeted in some states, has also cast a long shadow over the Toronto market.

In conversations with realtors, economists and buyers, the Star found a growing unease over whether the good times can continue – and whether this year will mark a turning point.

“If the American economy continues to go down, the greatest risks to Canada are in the Greater Toronto Area since we do the most exporting to the U.S.,” says housing analyst Will Dunning. “This is the great unknown.”

The Ontario economy – and particularly the manufacturing sector – has already been bludgeoned by the high Canadian dollar and the U.S. economic freefall.

Manufacturing activity dropped more than 3 per cent in December, the lowest level since 2001, according to Statistics Canada.

And economists are closely watching the impact of a new City of Toronto land transfer tax to see if it will slow sales. The tax, which came into effect last month, adds thousands of dollars to the price of a home.

Some analysts wonder how much more turmoil the economy can handle before it affects housing.

The past decade has been one of the best in the city’s real estate history. It’s also been one of the longest upswings ever, with average prices increasing by 78 per cent for a 5.9 per cent annual compounded rate of appreciation. The market has defied persistent forecasts by some analysts who have predicted a drop in sales every year for the last four years, only to be proven wrong.

But will this year prove them right?

“I don’t want to be an alarmist, but people have to realize there is danger in this market,” says Halton MP Garth Turner who has released a book this month on Canadian real estate. “There are a lot of catalysts happening right now, whether it’s more taxes, or job losses. At some point people will eventually say, why am I spending $700,000 to live in a crappy home in Leaside?”

And the numbers prove Turner right.

To read the rest of this article, click here.

13 comments ↓

#1 Robert on 03.09.08 at 10:51 am

Not all of us have been snoozing.
In 2002 we started losing international investment. Three years ago it dropped to 0 and is now in outflow. We started losing jobs along with investment in 2002 and replaced a great deal with public service jobs at a huge cost to tax payers.
We have 2 million fatherless children that are responsible for 80% of crime while reported crime is only fluctuating, unreported crime has climbed to 6 out of 7 that now go unreported.
The really bad news lies in the global economy which is going into retraction. Because Canada is now totally dependent on global commodity prices it`ll be a lot more than real estate returning to the 80`s. Not a single Cdn politician has a plan to deal with any of these problems let alone crumbling infrastructure or the forecasted 10%+ rise in the cost of living over the next 12 months.
The federal government has failed the people of Canada for decades but the last is unquestionably the worst in our history, as the next few years will clearly show.

#2 Ron Holland on 03.09.08 at 11:07 am

From Wolf Laurel in the NC mountains – The housing recession is negatively impacting property sales in Florida and across the south as well as slowing sales in NC mountain resorts that depend on Florida buyers.

Still the downturn in prices and building of inventories is starting to attract second home buyers from Florida looking for cool temperatures in our mountains. Also the dramatic decline in the dollar combined with weakness in American real estate markets are beginning to interest some bargain hunting European investors.

Ron Holland, Broker/Realtor with Wolf’s Crossing Realty. Ron markets resale mountain and ski resort properties in Wolf Laurel and The Preserve at Wolf Laurel. The credit crisis and housing meltdown offers serious risks but also some opportunities to Americans. He has a free report on the crisis titled “From Real Estate Bubble To Buyers Market”. See http://www.ronaldholland.com for more details.

Hey, this sounds suspiciously like a commercial! — Garth

#3 Robert on 03.09.08 at 11:33 am

Exert from article about dangers facing the Cdn banking industry…

It`s not the stupid economy, it`s the government.
Government lies seem to be infectious. Here`s one from BC on their `Green Budget`.
The new carbon tax on gasoline reduces the carbon footprint of BC by, ummm 0.
The carbon tax will instead be diverted to tax reductions amounting to a massive $2 billion aimed primarily at the already profitable banks.
How did they get profitable? With the Cdn version of sub-prime called Asset Backed Commercial Paper which is now promoting the already greatly used 40 year, 0 down mortgages. There have been many high level discussions over many months on a possible ABCP collapse but no discloser yet.
The new `green` is actually brown as in the colour of used hay. The carbon tax is a pre-emptive ABCP bank bailout on the backs of the consumer while environmental benefits are 0.
If all this wasn`t evident enough they exempted aluminum smelters just to make sure we noticed the new `green tax` will probably increase pollution.
The people of BC are not at all happy getting a load of used hay when it was advertised as green…

#4 MJH on 03.09.08 at 2:23 pm

Young home buyers are very heavily mortgaged believing that their homes will continue to increase in value each year as they have over the last 10 years. Big Mistake!! Many are going to find they have no equity and will walk away. Well maybe not–the government will save them, they hope!

#5 John Jung on 03.09.08 at 3:19 pm

If Toronto real estate is too risky an investment right now, where might I be better off investing the money I’ve been patiently saving for a down payment?

Renting (as I am doing right now) is starting to sound like the better option…

The best strategy is waiting. — Garth

#6 Brian on 03.09.08 at 5:12 pm

Hi Garth,

Thanks for your exposing the end of this real estate bubble for what it is, a media marketing machine where even local papers in my city of Victoria have been clearly under the control of the high paid advertisers calling the shots and no negative articles are allowed.

Victoria and Vancouver real estate is now at the insanity level and the early signs have popped up in Victoria where there has been a 2 month decline in average prices and a rise in inventory.

The “get used to it ” crowd has been sickening the last 6 months especially as even family members are overvaluing their homes cause they put down some new hardwood but to bring up any debate in the reality of affordability and the “there is no subprime in Canada” discussion is not allowed when trying to present facts.

I look forward to reading your book and knowing someone else out there with a brain can see the coming collapse I have seen coming the past 4 years and refused to take part in.

Brian

#7 Keith in Calgary on 03.09.08 at 7:33 pm

Hello Garth…….

Having been a former banker here in Calgary back during the crash of 1982, all I can say it that I saw this one coming. The wife and I made a concious decision to sit out the market back in 2004 when IMHO homes here were already overpriced. I was wrong though, as they spiked dramatically in 2005-2007……however…..being a renter has allowed us to continue saving the equivalent of the difference between rent and mortgage debt every month for the last 4 years. We now have as much in the bank ($240K) as we would have had in equity, had we bought. But, I don’t have to pay a property pimp 7% to make a withdrawl “after” taking a 10% hit on my list price to do so.

We are going to watch from sidelines as the “great depression” of the 21st century occurs. It is going to be a financial and human bloodbath of an unimagineable scale.

The central banks of the world are toast as they cannot stop what is coming. Nor can governments.

I want to touch on Brian’s comments about RE advertising…….Friday’s Calgary Herald had 151 pages.

43 pages were strictly devoted to propping up the “Real Estate Industrial Complex”…..almost 1/3 of the entire paper is advertising and outright shilling for the RE industry.

There is the New Homes section…..New Condos…..Lifestyle Homes……and finally Real Estate Investment and Vacation Homes……

No wonder you’ll never see the Calgary Herald print anything like what you can read here or on other RE blogs. At $10K per page…..that’s roughly $25 Million per annum in revenue.

#8 patriotz on 03.10.08 at 12:47 am

“where might I be better off investing the money I’ve been patiently saving for a down payment?”

High interest savings account (ING etc), GIC’s, CSB’s. Don’t take any chances. If RE tanks the stock market is likely to tank too.

#9 real estate Toronto on 03.10.08 at 6:22 am

As it was said, all good cycles come to end once. On the other hand, all bad cycles come to end once too! That’s what enables best realtors to survive. We in neighbourhoods in Toronto are in business for more than 15 years, so I am optimist. Realtors have some power to influence the market and when prepared, I believe no bich shock could hit us. Of course, if the bank system will survive all possible mortgage problems….

#10 Dale on 03.10.08 at 7:06 am

Hey Garth

I just purchased your book and am SUPER pumped to read it. What took you so long? :) I have been waiting for something like this for a long time. Living in Canmore, no body believed me when I said the US was about to collapse, and they have a tough time with the Canadian market (it can be a tough time for people to see information they don’t want to)

Anyways, I am sure you book will be awesome and I wanted to give a quick thanks for writing it. I wish it much success.

Create a great day
Dale

#11 John Jung on 03.10.08 at 6:14 pm

Hi again…

Wanting very much to get your book, I just checked amazon.ca and they say it’s a 1 to 4 month for your book to ship! Chapters/Indigo isn’t much better at 3 to 4 weeks…

And neither chain in the GTA appears to have it in stock… :(

John:

It is being shipped at this moment, and shoould be in all Chapters stores within a week. Thanks for your patience. BTW, I just got books myself today. — Garth

#12 Daytona Beach Florida Real Estate on 03.11.08 at 12:08 pm

It is amazing to see how our troubles here in the US have spread to other countries and to Canada to our North. Things are starting to pick up and in hardest hit areas Florida, California, Nevada, Arizonia it may just take longer. I don’t see it as all doom and gloom. The goverment here has lowered interest rates and raised loans amounts to entice people to buy. People are leary buy curious and some are taking advantage of what might very well turn out to be the bigest profits on a long term investment every seen in US. I hope our baby boomers with take advantage of the market and buy that retirement home or vacation rental home. I do have concerns about the price of homes that went up so quickly affecting the market. With allowing loan limits to go higher aren’t we just allowing this to continue. I would rather see a decline and people invest in homes with a long term investment not a ATM mentality.

So as we look to the Canadians to see how they handle our economic struggle one can only wonder how it will look one year from now.

#13 Denis Perdue on 03.16.08 at 12:24 pm

Hi Garth,
I’m starting this as if I know you I hope you don’t mind.
I read your blog every day or two and although I don’t agree with everything you say I find it of interest.
I have just bought your book “Greater Fool” and agree with a lot of what you say because I was a real estate agent in Toronto through a previous turn down. However the one think you don’t understand was that there was no mention in the book on the policy of the Federal Government on immigration(I go to Toronto one a year to Sunnybrook Cancer Clinic and see the changes on the subway there). It seems to me that our immigration policy is so much more open then the U.S.A. ; would this not have an effect on house prices?
Yours Sincerely
Denis Perdue