Entries from December 2012 ↓

El predicto


You’re not just a chickenshit cockroach, you’re a sawed-off has-been, fear-mongering, bullshitting charlatan. Your so-called predictions will end up being more toilet paper, asswipe. – Blog comment, December 31, 2011.

Once a year I start a new document for comments I choose not to publish. Like the one above. So far in 2012, it runs 135 pages, single-spaced. In fact ten of those pages were inspired by a single blog post – the one I scrawled out on New Year’s Eve, giving predictions for 2012.

This post was so popular, it even inspired one realtor to post this Haiku:

Your posts are stupid. You are a dumbass, Garth.
At your age, I recommend that you get a real hobby.
Look at all the idiocies you posted here.
Look at yourself in the mirror now.
Shake your head sideways.
Who cares about the market?
Renting just plain sucks.

What inspirational words did I pen to move so many people one year ago? And after 12 tumultuous months of market turmoil, political action, economic roiling, five million hits and 310 blog posts, how did this little cockroach do? Let’s count.

Prediction: The condo market will crumble.
Obviously right. Late last year condo sales in Toronto, for example, were sizzling. Now they’ve collapsed 26%. Buildings are being cancelled, construction’s down 65% and resales are piling up. “But the demise of the virile condo market is not just a condo story,” I said. “Virgin buyers are the fuel for real estate’s continued fire, as young people discover it’s way cooler to rent the same unit for less more and more freedom, the entire food chain of housing will be affected. Consequently, this is a big story.” And it’s far from over. Score 1.

Prediction: Vancouver will be so 2009.
“The region’s unlivable for average families, and real estate’s become the new porn,” this blog said a year ago. “This year will mark the definitive end as the pendulum swings back. If you sold in the first four months of 2011, you were a genius.” Sales in Vancouver have sucked now for seven months. The average single-family home price is down 12.25%. Richmond’s nuked. The Westside is illiquid. Prices are indeed rolling back to 2009 levels, and won’t stop there. Score 1.

Prediction: Mark Carey will actually do it.
He did it all right. He quit. Not the outcome I expected when I said, “Rates will rise in 2012 as Brother Carney takes aim at the very thing which poses the greatest long-term threat: our piggy opinion of debt.” Instead of raising interest rates two quarter points, he scolded Canadians for their profligate ways, then took a job in England for $1 million a year. Score 0.

Prediction: Volatile markets will reward.
A year ago doomers flooded this blog predicting 2012 would be the year America croaked, taking financial markets along with it. Nope, I said. “This year the market will be volatile, but end with a double-digit gain.” With a day or two to go, things could change, but thus far the benchmark S&P index is ahead 12.06%, and a nice, stable balanced portfolio (40% safe stuff, 60% growth assets) is up about ten per cent. Not too shabby, and worth a 1.

Prediction: Europe will bore. Greece will choke.
While I thought a year ago those debauched, tax-evading Greeks would default on a bond or two, I also said it wouldn’t matter. “The big news is there’ll be no big bank failures, no currency collapse, no defaults by any countries that actually matter.” As we now know, Greece voted to stay in the Eurozone, Spain was bailed, France and Italy got new leaders and nobody talks about Europe any more. Yawn. Score .5.

Prediction: Obama will win. US real estate hits bottom.
“Won’t even be close. Within months of the re-election, the American housing market will finally hit bottom and start the long, slow advance.” Obama swept to power, of course, with an unequivocal mandate. Meanwhile the numbers are clear: the American real estate market is in full recovery mode, with Phoenix prices 20% higher and 186 bids recently for a townhouse in Washington. Resale prices, new home construction and sales are all surging. Don’t bet against America. Score 1.

Prediction: House prices will fall.
Prices in December, I said, will be lower than in January – which is a fail. Yes, they’re declining with SFHs worth about 12% less than in the Spring in both 416 and Van. But that 15% national decrease ain’t happening yet. Of course, it will. Score 0.

Prediction: In fact, all asset prices will fall.
A year ago I saw us standing on the threshold of deflation. Still do. I’m sticking with this one: “Houses, cars and iPads will get cheaper, at the same time the cost of gas, insurance and food rises. Asset deflation means what you owns loses value. Price inflation means what you make buys less. This is lousy news if the bulk of your net worth is in your house or a bank savings account.” Priced a tablet lately? Get a salary increase this year? Score 1.

Prediction: F will tighten.
Last DecemberI gave the elfin deity big odds to trash the 30-year mortgage and return to the traditional 25-year term as a way of deliberately cooling off the market. That’s exactly what he did. And it came with special sauce – CMHC insurance stripped from high-end homes and an end to the cash-back, no-money-down mortgage. As a result home sales have been in y/y negative numbers for eight months, and the little guy has apparently been bronzed. Score 1.

Prediction: Most people won’t get it.
The conclusion a year ago: “The back story is one of falling asset values, rising markets, a moribund economy, higher inflation and commodity prices, declining real estate, tighter credit and few jobs.” That means people who spent 2012 paying off 3% mortgages, buying bond funds, holding gold, being afraid of financial markets or putting their TFSAs into GICs, just wasted a perfectly good year. The good news? There’s another one just like it starting in a week.

My 2013 predictions will appear Monday. Hold the abuse.

The soft landing


When government announces something on the Friday before Christmas, it’s a safe bet they hope nobody notices. Few did. So you probably didn’t hear that Ottawa – shortly after trying to blow up the housing market and choke off new mortgage borrowing – may be relenting. Or at least starting.

For the last few months realtors and builders, developers and lenders have been bombarding MPs and the munchkin minister known as F to throttle back on the market-murdering actions taken last summer. Real estate boards have been shocked to see sales in almost all major markets dive in the period since 30-year mortgages were snuffed, cash-back loans outlawed and CHMC insurance throttled back.

Across Canada resales have dipped below year-ago sales levels for eight consecutive months. New home construction has tanked, and everywhere new project financing is drying up. Mortgage broker ranks have thinned dramatically, and suddenly it seems letting residential real estate suck up a third of the national economy was, er, a bad idea. At least if you’re going to purposefully deflate it.

So what’s this?

While making a big deal of capping CMHC mortgage insurance as it nears $600 billion – theoretically putting the brakes on high-ratio, high-risk 5%-down deals – F has now thrown a new $50 billion into the marketplace, but this time to the private sector. Companies like Genworth have just received a massive 20% hike in their allowable coverage, which means the federal government will guarantee $300 billion worth of that company’s debt, up from $250 billion.

In fact so quiet was this announcement, it wasn’t announced at all. Genworth revealed F’s little Yuletide yummy in a media release that helped its stock soar last week, jumping 3% in a single day. And why not? It’s a gift. New legislation about to take effect lets Genworth provide bulk insurance coverage at the same time CMHC is being pushed out of that market. It also allows Genworth to take money previously earmarked for a guarantee fund and use it, presumably for more high-ratio lending.

Already taxpayers are on the hook for over half the $1.2 trillion in residential mortgages outstanding in Canada. It’s been this ocean of money which banks can hand out without risk – knowing any default will be covered by fed-backed insurance – which helped push prices skyward. Should the housing market stall and crash back to earth, Ottawa would suddenly have a liability the size of the entire national debt to deal with.

Of course, F says this will never happen.

“The housing market has softened somewhat in part because of steps that I’ve taken and I’m happy about that. Less demand, lower prices, modestly, in the housing market are much better for Canadians than a boom followed by a bust. So I’m all for a soft landing.”

Is the Genworth deal an admission real estate’s actually crumbling faster than the peckerettes expected? If this all-important Spring market stagnates into a swamp of listings with weak buyer demand and plunging prices, will it backfire on the whole economy? Is F losing his nerve in the face of rapidly-deteriorating sales numbers, a 30% dive in Vancouver and a condo implosion in the GTA? Have the realtors’ furious behind-the-scenes lobbying efforts worked? But is it too late?

Well, soon we’ll know. In Toronto and Vancouver the spring market begins in less than thirty days. Meanwhile the meme of a sick market spreads. For example, “Trump Tower Woes signal Top of Toronto Condo Market,” was the headline Bloomberg stuck on the top of its story detailed the plight of investors suing to get out of Canada’s tallest residential building. And the Globe and Mail days ago broke ground with this: “Shaky foundations: How Ottawa’s computers get Canadian home prices wrong,” showing billions in mortgage loans may have been made on sloppy appraisals. Or this.

This year brought the frothiest, weirdest, most delusional moments in Canadian real estate history. They were followed by hasty and dramatic restrictions which changed rules overnight. And 2012 ends in a funk market, realtor panic and policy disarray.

Six years ago F gave us 40-year mortgages and zero down. Four years ago the amount of government mortgage insurance was doubled. Three years ago came the cheapest mortgage rates in history. In between were new tax credits for first-time buyers and free money for renovations – all designed to goose housing. Then he pulled back hard last summer, sending the market into a dive. Now, desperate, he lays on more gas.

Soft landing? Stand back.