Entries from September 2013 ↓

Breaking bad


March, 2012: Crowds storm new home sales centre in north GTA

It’s recently come to my attention some people come to this pathetic blog because they lust for a house. By reading this, they think real estate prices will crumble, punishing greedy sellers. In so doing, they hope their friends who already bought at inflated prices with massive mortgages will be wiped out, and stop smirking. And it seems to be working.

Of course, real estate is highly local, and segmented. Halifax, Montreal and the Lower Mainland are painful for sellers, while life for a buyer craving a $750,000 semi in Toronto is impossible. Almost everywhere, though, serious cracks are showing up in two key segments: condos and new-builds. We dealt here with the concrete sarcophagus issue last week. So let’s talk a little about the new housing market.

Did you know that in BC housing starts collapsed by 20% at the end of the summer? Of course not. Why would you? The real estate-humping sycophantic Van media hates news like that, but it’s still true. Urban housing starts dropped by a fifth from mid-summer levels, with Metro Vancouver numbers down 26%. Across the province, we’re back to 2010, and starts for the year to date are running 7% below last year. That’s not too impressive for another whole year of economic recovery and historic low mortgage rates.

Toronto, as you know, is a construction disaster. Yeah, there are cranes everywhere, blotting out the sun. But those are attached to sites which sold out in 2010 and 2011. Come 2015, you’ll see the clouds again.

Sales of new condos have dropped to the lowest level in a decade, and are running at less than half the long-term average. Sales of low-rise units just recorded the third-worst performance ever and are 43% below the average. Builders blame tight land supply and runaway government fees and charges, but the real issue is a buyer shortage.

“Affordability continues to be a challenge for everyone looking to buy a ground-related home in the GTA,” says builder boss Bryan Tuckey. (“Ground-related.” Isn’t that cute?)

When you actually start analyzing market numbers, an interesting pattern emerges. With resale condos, supply is overwhelming demand. Above a million dollars, SFHs have definitely been impacted by F’s decision to cut off mortgage insurance. New-builds are under obvious downward pressure. And that leaves the frantic middle. In the biggest markets this has turned into a feeding frenzy for semis, row houses and a whole lot of crap that in saner parts of the nation would be considered firewood.

For example, here’s a sliver of a house on a 18-foot lot in a dodgy Toronto hood with no parking which was listed for $882,000 days ago, and sold for $992,000. But because it squeaked under seven figures, the ‘lucky’ over-bidders could qualify for as much as 95% financing.


Now, let’s contrast that hipster, GenX, credit-fueled insanity with what’s happening with those new builds. Yes, I know they’re constructed out of glue, sawdust, pesto sauce and petroleum products, but if you want to start vultching, I think this is the place to start. After all, true signs of panic have started to emerge as developers and builders find their backs to the wall when it comes to closings and cash flow.

For example, two years ago the Toronto ex-burb of Brampton was one giant construction site with horny young virgins clotting the presentation centres. These days builders are pulling out all stops, looking for sales. Here’s one offering no-questions-asked financing and a three-year mortgage at 0% interest. “No bank approval necessary.” Just like buying a trouble-free new Kia with no money down!


And here’s something only realtors see – huge amounts of money being thrown at anyone in the business who can bring in buyers. Realtor Ed tells me, “looks like desperation is clicking in” with a Toronto builder promising 6% in instant commission, and promising agents, “You can earn $48,400, or more in one day!”


So, if you came to this blog looking for evidence of blood in the streets, you’ve found it. There is much more to come. Your friends will detest you. Finally.



Scotiabank sent the following email blast to realtors, intending they pass it along to the nation’s property virgins – those unfortunate social misfits, financial losers and shame of mothers-in-law everywhere, known only by the doleful and piteous term, ‘renters’.

Most of us dream of the day when we own our home outright.
Turn your rent payments into ‘own’ payments
When you add it all up, there’s really no better time to purchase your first home than right now.
Renting an apartment is like borrowing a home from someone else – it’s never really yours. In contrast, owning a home allows you to experience the pride of ownership, and the satisfaction of knowing you’re making a smart investment. Buying doesn’t necessarily cost more than renting. And since a home is something that can increase in value over time, the sooner you become a homeowner, the sooner you can benefit.

Banks, natch, are in the business of pumping mortgages. So they have to pump real estate. But in doing so, the very trustworthy financial titans that control the financial system and dominate the economy by  their systemic importance, are no better than Ben Dover, the local Re/Max humper. Just think about that message – given credibility merely because it flows from a $575-billion corporation.

There’s really no better time to purchase your first home,’ is false. No dewey young virgin should be jumping into real estate, at least not in urban BC, Alberta, the delusional bits of Saskatchewan, Winnipeg, the GTA or Montreal. Prices are at or near historic highs, while sales have been inconsistent, condos are wobbling, the economy stifled and rates elevated. Every credible economist has been forecasting some form of correction. Including those at Scotiabank. Check out the bank’s last major housing report:

Record prices combined with incremental regulatory tightening are reducing affordability and the housing market’s earlier momentum, notwithstanding the lowest borrowing costs on record. Pent-up demand has been effectively exhausted after a decade-long housing boom, with Canadian home ownership at record levels. Canada’s housing market is expected to avoid the sharp downturn witnessed in the United States and Europe. However, the downside risks to domestic housing activity are increasing. The full impact of the slowdown may not become fully visible until mid-decade. Affordability will be increasingly strained for existing and potential homeowners when mortgage rates eventually drift up.

And this is the most recent analysis:

Underlying fundamentals are less conducive to further gains in the latter half of the year. Any remaining pent-up housing demand has likely been satisfied with sales now moving back in line with historical averages. Affordability remains a challenge for many buyers, particularly those in high-priced markets such as Vancouver and Toronto, and will be further strained as interest rates inevitably drift higher.

See what I mean? Bank economists clearly underscore the inherent risks of jumping a house right now – weaker fundamentals, deteriorating affordability, exhausted demand and a negative outcome the extent of which may not be known for several years. So how can Scotiabank in conscience say ‘there’s really no better time’ to buy? It can’t. The hypocrisy is breathtaking.

Then there’s the reference to ‘knowing you’re making a smart investment’ when a first-timer buys. If the bank said this of its Scotia Canadian Growth Fund, for example, the regulator would ream it. Funny how a 22-year-old is warned of risk when putting $1,500 into a mutual fund, but when  borrowing $300,000 to buy a condo in a troubled market is told, “the sooner you become a homeowner, the sooner you can benefit.

By the way, the average first-time buyer is 29 years old and will purchase a house worth $443,000 in Vancouver or $347,000 in Toronto. The downpayment will be a combination of savings, the Bank of Mom and cash mortgage incentives. The mortgage will average between 85% and 90% of the purchase price, with 46% locking in to a fixed-rate loan and virtually everyone requiring costly CMHC insurance because of the high-ratio borrowing.

Of course, there’s nothing wrong with buying or owning real estate. I have some myself. But this is now a vaguely deflationary world, where anything can happen (like the US government shutting down this week). We all know interest rates will rise, and a half-decade of cheap money, specking, flipping and house lust have swollen prices painfully.

Owning does not cost the same as renting, as this blog’s often shown. And how’s it responsible in a world of diminished job opportunities and intense competition among the over-educated to push mortgages when what young people really need is mobility? Isn’t the bank being a self-serving, rapacious, uncaring and greedy monolith?

Of course it is. And the kids love it.

Their boomer parents taught ‘em well. They live for mortgage payments; to be moist little versions of their wrinkling, greying, expiring elders.

I have no idea why I keep this up. We’re doomed.