Entries from September 2010 ↓

What were we thinking?

The imminent collapse of the country’s most expensive condo development is more than a symbol of what’s to come. Everywhere.

As the Millennium Water development drifts towards bankruptcy and ruin, putting the taxpayers of Vancouver and BC on the hook for a billion dollars, there is much blame to go around. The dinks who run the delusional city should never have committed to bailing the thing out when it was just a badly-run project to furnish accommodation for athletes during that brief Olympic thingy. The idiots selling it laughably thought there was a market for units costing an average of $800,000, or 30% more per foot than in Toronto, in a town a third the size.

So now that the city’s called a $561 million defaulted loan, it symbolizes a real estate market whose reach exceeded its grasp. Worse, it embodies the role government’s played in propping up an asset that’s been begging for a bullet. It all but ensures this will not end well.

Hey, and the madness continues.

Here’s a long-standing NDP member of Parliament, for example, tabling a bill to help people get more in debt and rob their retirements just so they can buy a home and watch it decline in value. Peter Julian tabled a private member’s bill Thursday to further goose the amount of money that can be sucked out of an RRSP and used as a real estate down payment.

“This bill would help ensure that the ability of Canadians to purchase homes does not diminish with time and inflation,” he rationalized. “RRSP contributions to home ownership must reflect the increased cost of housing. This is only fair and should help make homeownership more accessible to more families.”

This nutty law would index the RSP Home Buyer’s plan to inflation, allowing the $25,000 maximum down payment withdrawal to grow larger each year. Just what we need. More property virgins thrown on the pyre.

Putting fool politicians catering to dumbass realtors aside for a moment, and as Vancouver slides into the sea, I called about a commercial building I fancied in mid-town Toronto. A business tenant there told me it’d been available for three months, but no offers. I asked the agent on the cell if it was still available. ‘Yes,’ she gushed, ‘and it’s so special that you called. We’re accepting offers on the property tomorrow afternoon.’ How much?, I growled. ‘Two million,’ she said, ‘but you can come in with less.’

You bet I can. And I’d also have the only offer in the room. Even facing career death, some people never learn.

But all this chicanery, greed, bad judgment, delusion and political debauchery is lurching towards the cliff. You can tell this when even the biggest financial players in the country are doing what they can to minimize the body count. Earlier this week the Royal Bank warned affordability is sinking as average families see half their pre-tax income sucked off by their houses.

Now CIBC cautions real estate is overpriced by 12% – strangely in the middle of my long-standing estimate of a 10-15% average price drop in the first phase of the correction. Housing is overvalued in BC (by 17%), Alberta (12.5%)  and Ontario (11.6%) with the West “looking vulnerable.” Ya think?

“No part of Canada looks to be immune to further housing market weakness, with significant momentum having been more recently lost,” said economist Warren Lovely. “… But it’s in B.C. and Alberta where housing prices have overshot fair market value by the largest margin … with an ongoing correction expected to dull residential construction activity and blunt consumer enthusiasm.”

But the juiciest words come from our own Mark Carney, head of the Bank of Canada , now doing his repentance thing for having dropping mortgage rates so low that house porn swept the nation. Goaded by F, the BoC crashed the cost of money to its lowest level in history in the hope people would borrow their brains out and buy stuff. It worked.

Now he warns we have too much debt, which makes him such a funny guy.

“This cannot continue,” he said darkly in a speech in Windsor, of all places. “With Canadians working, but not as much as they would like, they have been borrowing. Real household credit expanded rapidly throughout the recession, in contrast to previous downturns, and has continued to grow through the recovery. Canadian households have now collectively run a net financial deficit for 37 consecutive quarters. That is, their investment in housing has outstripped their total savings for over nine straight years. In effect, households are demanding funds from the rest of the economy, rather than providing them, as had been the case through the 1960s, 1970s, 1980s and 1990s.”

This is central banker talk for, holy crap.

It means what just happened to the $800-square-foot condos in Vancouver is about to visit everywhere else. Carney’s crack cocaine loans and our insatiable need for a granite-&-stainless fix have produced the overarching reason real estate is sunk: debt.

It feels a lot like Vegas or Miami, circa 2005. As an incredulous Yank said to me recently, ‘Don’t you guys get CNN?’

Well, yah. But it’s different here.


First, a couple of notes. One I am happy to report, one I am not.

Feeling culturally deprived, the smart people at Mount Royal University in Calgary have invited me to come and give a lecture later this month. As a humanitarian gesture, I accepted. And while the event is open only to invited guests and students, I have also accepted an invitation to give a talk for Chapters on Thursday October 21st That one’s entirely public. So to all those on this unruly site who have been yipping at me to  put on my cowboy boots with the pink flames and visit, there ya go. Details below.

Not so happily, I report the miserable blog you are reading has been the subject of more attacks in recent days. Called DOS, these assaults attempt to deny service by overwhelming the site with a massive flood of simultaneous requests which flow in from an army of slave computers. My webmaster and his team of Humvee-driving, armed-to-the-teeth commandoes have been successfully repelling the invaders, but from time to time the little pricks succeed. If you have trouble loading the site, just be patient and think of attractive allegorical women in negligees.

Well, the humpers and pumpers at BNN had their shorts in an excited knot yesterday upon news the latest Teranet-National Bank Composite Home Price Index showed house prices are going up. Huh?

Of course this was interpreted as all the evidence any good journalist would need that real estate has cast off the mantle of imminent death and is into its second renaissance in the last three years. As evidence: Prices of homes in the six biggest urban areas are up 12% from a year ago (well, from last July), and this is the 15th monthly advance.

Let’s dig a little deeper.

First, this survey is two and a half months old and one hell of a lot can happen in that period of time with an asset as volatile and emotional as real estate. As you know, sales have been sliding in the biggest markets of Toronto and Vancouver for four months now – a pattern I fully expect to see continue when the latest stats are out next week.

Second, the monthly price increase was one half of one per cent in July – the smallest since last March. This is a decelerating market, not one gaining strength.

Third, prices actually dropped in Vancouver from the month before, while in Halifax, Calgary and Montreal there was virtually no change. In Toronto, July prices beat June by 1.2%.

Fourth, that jump in housing activity in Toronto was likely the result of pre-HST sales activity, since virtually every realtor with a condo to flog was telling clients they had to ‘beat the tax’ even the harmonized sales tax was inconsequential. Sadly, a lot of people so deprived they never read this blog actually believed it. They bit.

Lastly, while I applaud the Teranet-NB index guys for trying to pull off a Canadian version of the Case-Shiller in the States, the data we’re being provided is both dated and suspect. Americans have constant access to various sources of market info (such as Zillow), and organizations like S&P actually do original research, rather than depending on the National Association of Realtors (the USA version of CREA) for their numbers. Maybe if the Competition Bureau is successful in loosening the grip of the real estate cartel in Canada, some entrepreneurs will start giving us real-time and unskewed views of housing’s health. That would be cool.

The bottom line: once again the MSM is filled with distortion and half-truth. A picture of an improving real estate market is painted at exactly the time it’s losing altitude. This is the equivalent of what the gold pumpers try to do every two or three days on this blog – encouraging people to buy an asset at the most expensive price in history on the absurd belief it will go up forever. Sane people will tell you this blows. You buy low and sell high.

Say, has the attack started yet? I feel like shooting something.