Entries from April 2012 ↓

Half off

It sits on an acre and a half of rugged waterfront on a picturesque island north of Victoria, almost hugging the Canada-US border. The three-bedroom house has about 1,500 of space, comes with a wood-burning fireplace and French doors leading to a hot tub which gazes off to sea. Vaulted ceilings, zoning for guest cottage. And it even has potlights!

It used to be listed for $525,000. But no more. Now it’s $267,000 – half price.

Yesterday I pointed you to a Vancouver house which is now $1 million less than it was last week. You also got the address of a weird web site which does nothing but track falling prices in our most delusional city. Meanwhile in Victoria, and into the Parksville-Qualicum area, where wrinkles abound, MLS is clogged daily with price reductions. Up the coast, Jonathan tells me his GF’s mom and her two sisters are desperate to sell their condos – where monthly fees have risen sharply, and property values have cascaded 20%. But no offers. Hell, no showings, either.

So how do we square such things with the media headline hours ago, saying, “Home prices move higher in March”? CREA’s at it again, of course, announcing that its home price index “was up 1.3% in March on a month-over-month basis, and up 5.1% compared with a year ago.” The clear impression (intended, of course) is that real estate’s still on a tear, so you’d better grab some before rising prices and higher mortgage rates move it beyond your grasp.

In fact, though, the average Canadian house is selling for less today ($369,677) than it did a year ago ($371,591). Factoring inflation, houses in Calgary are 25% cheaper now than they were in 2007. The Okanagan and SW Ontario are property wastelands. Muskoka and the rest of GTA’s cottage country are having one of the worst Spring markets in memory. And prime maritime spreads in the Annapolis Valley or along Nova Scotia’s bucolic South Shore can now take two years to sell.

A few big sales in urban areas can vault average prices higher, even while most values are retreating. It’s why comparing, say, Halifax to Kelowna is meaningless. There is no national real estate market, and conditions now vary dramatically. Over the last couple of weeks I’ve taken you inside some of Toronto’s bidding wars, as middle-class couples offer a hundred thousand or more beyond the asking price for SFHs. But while that sizzles, unsold inventory piles up in condo towers, and in vast stretches of the country sellers pine for buyers.

The coming months and years will bring profound change for homeowners. F just tipped his hand, for example, unveiling Ottawa’s to get out of the mortgage insurance business. While that develops, interest rates will rise and new lending regs will come into effect later this year putting an end to cash-back mortgages and forcing banks to be a lot choosier about the houses, and the people, they finance.

It’s clear the damage that’s been done allowing people without savings to buy real estate using money loaned cheap and easy because taxpayers backed the loans. Why should bankers worry about having a mortgage when it’s insured against default, then sold off as security for a bond which raises money for more loans? Exactly. They don’t.

But soon, all that changes.

In the last 24 hours some profound things have been said. Like this, from Mark Carney, boss of the Bank of Canada:

“It is reasonable to expect that Canada will attract for the next decade or so sizeable foreign capital … and the question is what are we going to do with that capital? Are we going to build houses … or are we going to invest in our businesses and retool our competitiveness?”

Translation: when housing makes up 8% of the economy all on its own and real estate activities (financing, insuring, selling) are twice as big as manufacturing, we gotta stop. This is exactly what brought down the economy of California, which is the same size as that of Canada. Worse, we’re doing this on the back of debt, not wage gains or economic growth.

And this from F, as he bared all to a Financial Post editorial board:

“I don’t think it’s essential that a government financial institution provide mortgage insurance in Canada. I think what’s key is that mortgage insurance is available at a reasonable cost in Canada. I think there is a role to regulate but whether we, the Canadian people, have to be the owners and shareholders of a financial institution to do this is a question. I don’t think it’s essential in the long run.”

Translation: The feds will not be increasing CHMC’s debt ceiling. Mortgage insurance will soon be harder to find, and likely cost more. Ottawa might even privatize or eliminate the agency. At the least, it will now have the poop regulated out of it. And, as already reported, the feds won’t allow banks to use CMHC insurance any more to help sell their cheap bonds – used to create cheap mortgages.

See what I mean? Everything just changed.

You won’t recognize the country by the time this blog’s finished with it.

Finally?

It might have been F’s finest hour to date. The man who brought us government-insured 0%-down mortgages. The guy who invented lifetime amortizations. The dude who, for three long years, refused to let the B-word depart his lips. The elfin protector of the real estate industrial complex. Amen, brother Flaherty. Have you finally repented? Does it matter anymore?

Well get to the little man’s salvation in a moment. But first…

Say a prayer for Vancouver. No, make that a dirge for the formerly horny who believed Global TV, dissed this unfortunate blog, and leapt headlong and naked into a real estate market 100% destined to shatter. Is what’s now developing in VanCity the future that godless Toronto and clueless Calgary have in store?

We’ve already told you about recent sales. They suck. Down by a third. And prices are doing a Wal-Mart roll-back, sans the nauseating little happy face. In fact, check this out. The price of the home below has just been reduced by $1,000,000.

Here’s the realtor spiel: “Panoramic View. This family home in prestigious Point Grey area offers stunning water, mountain & city view. Over 3,300 sqft of elegant living area features gourmet kitchen with wok room and eating area, living room with 10? high ceiling, hardwood floor on principal rooms, a total of 5 bedrooms, a roof deck with 360 degree unobstructed view and spacious recreation room. Queen Mary Elementary & Lord Byng Secondary catchment. A rare find”.

Rare indeed. It was listed on March 9th for $5.68 million, then removed on April 3rd. after it failed to sell. On Monday it came back onto the market for a measly $4.68 million, down the better part of 20%. I’m happy to announce this pathetic blog has been appointed as official online agent for this sale, so please feel free to make an offer below.

Speaking of sites, Vancouver is apparently so screwed some PhD statistician with way too much time on his hands has started a blog devoted 100% to chronicling Vancouver’s ongoing price crumble. You can find it here.

But there’s more. Even the Royal Bank is warning that Canada’s most sophisticated coastal city with the worst media and the most delusional citizens, is a toxic real estate zone. Senior RBC economist Bob Hogue says there are two scenarios. The best-case is a “modest price decline” of 7% to 12% which could take place over a period of just a few months. That would reduce the average price of a SFH (now$1,056,400) by up to $125,000.

But it could get a lot worse. “With affordability, or rather unaffordability, having moved off the scale in the past three to four years, the historically volatile Vancouver area market is undoubtedly under substantial stress. Indeed it is vulnerable to a marked correction.”  Hogue admits that could mean more like 25% to 30%.

“The Vancouver area market,” he says, “is more vulnerable to a significant downturn than other Canadian markets if an unfavourable economic scenario or unforeseen shock were to unfold.”

Of course, what could be more unfavourable, unforeseen or shocking than F?

So, here’s what he did. As I told you a month ago just before the federal budget was unveiled, the little pecker knows the real estate market is on borrowed time and our debt binge must be corralled, but he doesn’t want the spray. That’s why the plan was always to shove the blame on the bureaucrats and regulators. And it’s happened.

The budget implementation bill tabled this week will make mortgages more expensive and harder to get. It slaps CMHC around and puts the whole home lending business under the thumb of OSFI – the bank cop regulator with the Tommy Lee Jones swagger. No longer will CMHC slop around as a thinly-controlled quasi-department of the government, with a board of directors that might as well be running HGTV. As befits the stature of a financial behemoth with a balance sheet the size of the national debt, this agency will now be stress tested, microscoped and regularly reamed.

Gone is government-backed insurance for mortgages the banks use to back their covered bonds. That means their borrowing costs will rise, and so will mortgages – by about .15% very soon. More later. This is deliberate – a way for F to bump lending costs and cool housing without jacking up interest rates in general and knifing the economy.

This tightening in mortgage funding for the banks will likely make it harder for people without money, the self-employed or misguided property virgins to get financing. As one risk-management guy said after hearing the news:  “It will have the beneficial effect of preventing the most vulnerable borrowers from getting access to mortgages, so these people will have to wait longer to get into the game.”

See the irony? Here’s the father of the 0%-down, 40-year am, government-backed mortgage. The chief money guy of a government which brought in a home-buying tax credit and bloated the RSP Home Buyer’s Plan for first-timers. Now scrambling to chill the market through the back door.

Nobody is more responsible for houses in Toronto, Vancouver, Saskatoon, Calgary or Winnipeg that people can no longer afford, than F.  He’s the architect of the family debt he decries. Now that detached homes cost a million, while incomes trail inflation, he lectures us. How weak and disappointing.

And this was his best day.