Entries from April 2016 ↓

No kidding

PEANUTS modified

Besides the Globe and Mail, and possibly the weird Vancouver dailies, the biggest house-pushers in the land work for CMHC. No wonder.

These are the guys who let people without any money buy $800,000 houses with 5% down (that they got from their Mom) and enjoy the same interest rate as the 50-year-old dude who has 50% to deposit. It’s a twisted system we have. CHMC institutionalizes risk. By backstopping lenders who make high-ratio loans, it creates a massive moral hazard.

Canada Mortgage and Housing Corp has close to $600 billion on the books. Not all of is it high-risk, high-ratio stuff, but enough to give any accountant the runs. The agency has a vested interest in a residential real estate market that continues to expand and, in fact, gets more expensive. It’s a far cry from the origins of this federal agency, which was to help WW2 soldiers get digs. Now it helps dig the financial graves of Millennials.

This is worth mentioning, since the latest CMHC report paints a somewhat sobering picture of the state of real estate. The feds have concluded that nine of the major 15 markets in Canada are overvalued. In other words, new buyers are paying too much – in Vancouver, Saskatoon, Toronto, Hamilton, Quebec City, Edmonton, Calgary, Regina and Montreal.

There are distinct reasons for this.

First, overvaluation comes because idiot purchasers pay too much when buying from greedy sellers. They engage in bully offers, bidding wars, blind auctions and unconditional deals. This is the result of prices surging past economic fundamentals – when they’re no longer supported by family incomes, population growth, economic expansion or job creation. If you live in Vancouver or hot slices of 905, you know what they mean.

Prices here are based on rank speculation or on FOMO. It’s the fear-of-missing-out that worries everyone the most. That gave us the Nortel bubble and the subsequent collapse. It fueled the US housing gasbag, which blew up and took the middle class with it.

Overvaluation also comes when the economy starts to suck, but real estate values stay sticky. Poor Saskatoon’s a good example. Prices there are down 2% and sales are off 6%, but the economy is unraveling a lot faster, thanks to the commodity slide. Calgary and Edmonton obviously fall into the same category, thanks to oil (despite the recent bounce to $45). Cowtown’s rush hour traffic has thinned out along with energy executives, while the commercial vacancy rate skyrockets. House sales are 11% lower than this time last year, but the average price is up 1.2%. If you need any more evidence of the irrationality of your fellow beavers, there it is.

Then there’s overvaluation because of migration. Like in Hamilton, a grimy but gentrifying city of 520,000 (slightly smaller than Halifax) which has been invaded by alarming numbers of metrosexual, panini-pressing, specialty beverage-sipping, bearded hipsters from the Kingdom of 416, where they have zero chance of ever owning a SFH of their own. You can put Victoria in the same silo, or maybe even PoCo or parts of the Okanagan, where YVR refugees are swelling local prices like a hormonal frog.

Overbuilding is a concern, too. Like in Toronto where the inventory of built but unsold condos continues to escalate. In Saskatoon and Regina the supply of new houses is outpacing demand. And days ago we told you about a giant surplus of unsold houses in Edmonton – enough to threaten average prices with a serious downwards tug.

The point is this: real estate is local. Mortgage rates and regs may be national in nature, but every market is different, constantly changing and influenced by a lot more than just the cost of money. These days the media is playing a big role. Giants like the Globe are feeding a social obsession with housing, running story after story about “what they got” or “Millennials priced out.” Plus, of course, serious column inches on the yellow peril or assignment clauses – that feed our new anti-Chinese, anti-realtor prejudices.

There’s nothing wrong with owning property. I do. But never fall for this fairy tale that prices will continue to rise, without risk of reversal, because things are different this time. They aren’t. House values went up because the cost of money went down and the fear of debt faded. When you see CMHC highlight concerns, pay attention. If you live in one of those nine markets, pay even more attention.

Or, ignore me. See what happens.


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When I sold my pile in beloved Lunenburg last winter, the young couple who took it knew everything. They knew when I bought it, and how much I’d paid. They knew how many days it had been on the market when I made my offer. They also knew how long the previous owners had been there, what they paid, and how long it took to find me. They had the property’s tax history going back years, plus they could do their own comparables by tracing the sales history of neighbouring properties.

In short, these two were informed buyers, able to judge whether they were paying a fair price or not, and knowledgeable in advance about price trends and the time it might take them to sell in future. And they still bought it. We all won.

Of course, Lunenburg is on the South Shore of Nova Scotia, a province where realtors are far less anal about things and the real estate board releases its data freely. So house-shoppers can log on to ViewPoint.ca and see everybody’s undies. It’s the future, of course. A big step to breaking down a realtor-designed system which, in most of the country, profits by keeping consumers blind and ignorant.

Until now.

This week the country’s biggest real estate cartel took a mortal hit. After five years of fighting the inevitable, trying to hold back the digital tide sweeping through all of our lives, it’s the Feds, 1, and TREB, 0. Soon buying a house might be a whole different, and vastly more informed, experience.

The realtors argued that the MLS system (and its trove of data) belongs to real estate board, and they can control it as they wish. They also argued releasing sales histories, days-on-market numbers, relistings, price reductions and so on could infringe on the privacy of a seller, past and present. But the Competition Bureau pressed on with its case that the Toronto Real Estate Board was “abusing its dominance” by shutting down agents who tried to publish sales history data on their websites, or make such key information public.

As you understand, buying a property is hard enough, now that you have to pay a ransom for it. Buying it without any historic context only fuels bidding wars, cranks up emotions and leaves inexperienced buyers with no useful, statistical context for their actions. In short, blinded buyers spend more. They can be more easily swayed, influenced, manipulated and goaded.

By preventing purchasers from knowing what the current owner paid, when, and what the market action has been, they go into an offer heavily influenced by the listing agent, unless they’ve been smart enough to enlist their own guy. Most aren’t. Just one more reason we now have average house prices that average people can’t afford – and yet keep reaching for more debt in order to do so.

The ruling Thursday could be a total game-changer. Says the competition watchdog: “TREB restricts how its member agents provide information to consumers, such as previous listings and previous sale prices, thereby denying agents the ability to introduce new and innovative real estate brokerage services using the Internet… The restrictions the have had, are having and are likely to have the effect of preventing competition substantially in a market.”

You bet. There are lots of agents itching to publish reams of data on area houses, allowing prospective buyers to sift through it on their own, coming to an informed decision on what listings they want to chase. To date, the cartel has threatened to shut them down entirely by simply cutting off their feed of MLS data, unless they comply.

Things won’t change overnight, but by the end of this year (or sooner) there may finally be some clarity delivered to a market which has relished the dark corners. Just imagine if the stock market operated this way, with investors forced to guess what shares traded for yesterday, last month or last year, and expected to simply pony up whatever the seller was asking. It would collapse.  Financial regulators have worked hard to ensure there’s transparency, disclosure and complete information disseminated to all parties at exactly the same time. Anything else amounts to insider trading. And that sends you to jail.

It’s a good week with ethics.