Some correction

Will I never learn to lie like an adult? Apparently not.

About six months ago a swishy, upscale, exclusive magazine catering to the Toronto pony set (sans the ponies, of course) convened a panel of real estate experts to forecast the future of housing. Astonishingly, it included me. You can review the results here.

As you might have imagined, I said the market would fall apart in the coming months for the many reasons this tedious blog keeps yammering on about. Rates, taxes, prices, confidence, jobs, debt and a lousy economy. Everyone else bent over and saw sunshine.

This week that same mag’s pesky editors asked the panellists to pummel each other in an update email thread which I presume will be published (so I won’t reveal much). Of course, being modest, I took complete credit for the collapse in sales, the flight of buyers, global deflation, monetary policy and macroeconomic conditions in general.

BMO senior economist Sherry Cooper retorted: “Toronto’s housing market is merely cooling down. Home prices (which rose at an average rate of 7.0% from 2002 to 2007) are just off recent record highs—some correction. Home sales are returning to more normal levels (pre-2002 boom) after hitting record highs around the turn of the year. Listings have gone up, but not terribly so. All in, the market is becoming better balanced.”

I responded: “You’d have made a damn fine realtor. ‘Balanced’ is the industry’s favourite word. I think David Lereah used that description in 2006 when he told Americans the market was correcting normally, home sales were returning to pre-boom levels and there was no cause for concern. Five years later the US middle class is gutted. Twenty-two per cent of all single family homes are in negative equity, 80% of Arizona homeowners are under water, 3.5 million families have stopped making mortgage payments and consumer-fed economy is floundering. Surely you do not want a statement like the one you just made to go on your record? Just askin’.”

She responded: “The recent clear signs of slowing in Toronto (and Canadian) housing markets were in fact widely predicted by almost every mainstream economist out there through the spring (based on the tighter mortgage rules, the HST and higher rates). We saw a classic pulling forward of activity from the second half into the first half of the year, so just as the underlying market strength was exaggerated by the huge sales gains in the first half of 2010, the weakness is now being exaggerated by sharp sales drops from a year ago.”

I responded: “I appreciate Sherry’s attempted recovery, especially the part about “almost every mainstream economist out there” predicting a real estate correction long ago. In fact in this very magazine in March – when I was warning of a convergence of negatives for real estate – Sherry boldly said: ‘Frankly, I believe that Canada is going to be a real magnet for money. The money’s going to come into stocks and bonds, but it’s going to come into real estate, and it’s serious money. And we are seeing it already.’ That sure doesn’t sound like a note of caution to me, and you are the quintessential mainstream economist. I feel for the young couples who may have read that and bought a home with 5% down, and now face the prospect of losing all of their equity by Christmas. No wonder real estate can suffer such swings on emotionalism, after broad statements such as yours incite blind confidence, where there should be little. At least you’re backpedalling now. That’s something.”

Developer Harry Stinson, standing on the curb to avoid the blood splatter, commented: “Well, Garth I think you can cross BMO off your list of possible financing sources, should you ever need any.”

There’s more. A lot. I will publish it here when the time comes. And I’ll check all my BMO MasterCard statement envelopes for Anthrax in the future.

Of course, the deflating continues, and no matter how a banker or an economist tries to put lipstick on it, this ain’t pretty. Real estate values in every major Canadian city will not be spared from the funk, and I stick with my prediction that 2011 is going to be a whole lot worse than anything sellers or their agents have seen in the past three months.

The meltdown on equity markets this week is also utterly understandable. Hormonal investors were banking on inflationary growth and corporate profits, while experienced ones were trotting on over to the bond market. Now that the US Fed has admitted deflation (not inflation) is the enemy, now that China has proved human, and now that it’s obvious to everyone (even mainstream economists) that Canada will sink right along with America, the flight to quality takes off once again.

Remember how things felt in, say, January of 2009? Remember how you swore that if the depression didn’t come, you’d pay off debt, balance your investments, live more modestly, plant a garden and stop being greedy? Well, recycle those thoughts for the next few months. And pity all those fools who have spent the last year and a half buying houses, walking into record mortgages, saving nothing, listening to Sherry Cooper, gorging on cheap rates and ignoring my bleatings to get a balanced portfolio with bonds, preferreds and sector ETFs.

There will be no depression. It’ll just feel like it some days, especially if you’re underwater on your mortgage and feeling tenuous at work. Eventually there will be growth, expansion and hope. And the best way from here to there remains the path I set out in my January book and the repetitions here since.

But, like I said, I’m a lousy liar. I couldn’t even say no this week when asked to speak at a big real estate investment show in Toronto on November 13th. I should have. I’m sharing a stage with Don Campbell, chief pumper for the cult called REIN.

Holy crap.