Market update

How much angst lies ahead for real estate? Well, you tell me.

As of last night about 1,100 people had requested tickets to come to my Vancouver event next month. This happened without any media notice or advertisements. Just this blog and people yakking. As you know, the latest numbers show a 45% drop in house sales in what was – until 90 days ago – the hottest market in North America. Worse, that was 24% worse than the month before.

Prices have started to erode, of course, and listings are declining. This is very human. Very predictable. Buyers move in herds, and right now they’re all in Starbucks on Robson Street. The sellers are in denial. There are some reasonably shocking things ahead for the Lower Mainland, which will be the subject of my talk – as well as how to survive them. The simple fact so many would sign up to hear me – a financial dude with all the charisma of a backhoe – must tell ya something. And it smells like fear.

If fact after I finished a national media interview while talking illegally on my cell phone at 140 clicks on the 401 in my Humvee today, I received an email from the reporter. Apparently he lives in Vancouver, a fact I did not know.

Said he: “I was going to mention that I bought a house a year ago here in Vancouver. Now I’m frightened… My down payment was about 40% of the purchase price, but still, that’s my investment savings at risk… I hope it’s not too late to sell, if I start to think that way!”

Smart guy. Given the magic of mortgage leverage, a 20% real estate correction can shave $150,000 off the value of a typical, crummy $750,000 Van house, reducing it to $600,000. That means if you put 40% ($300,000) down and took a $450,000 mortgage, you just lost 50% of your savings.

Meanwhile in Toronto the latest real estate cartel numbers should scare even Sherry Cooper and Brad Lamb. Sales dropped another 29% in the first two weeks of August, with listings off 8% as misinformed vendors decided to wait out the storm (which is just gathering). As for prices, the average is now $412,934, which is down 2% from July. Hey, wait… that was just 17 days ago.

But whadda I know? Apparently not one hell of a lot, according to this guy. He’s a Toronto realtor specializing in hot properties in The Beaches and was so lubed that I mentioned his site on this blog a day or two ago that he’s devoted a video to why I am full of crap. Surprisingly, it took a whole seven minutes. (My wife’s more efficient.)

His arguments: Garth does not understand real estate is local. And, of course, ‘it’s different in Toronto.’ Sure. Second, Garth tells you to sell your house and buy stocks which is irresponsible and gambling. Actually Garth tells you to keep real estate to 40% of net worth and ensure the rest is in a balanced portfolio. Third, Garth says buy bonds which everyone knows will go down when interest rates rise (as if real estate will not crash). But, of course, bonds pay you money to own them and you sell when rates start to rise – which you can do in 15 minutes. Try that with a house.

Fear. Uncertainty. Doubt. Distortion. The four horsemen of the housing apocalypse. Riding, riding.