Entries from November 2016 ↓

The illusion

metal-modified

This, says Tennysen in Vancouver, is “the illusion of demand.”

How elegant. How concise. The real estate and development industry doing all it can to conceal that market fundamentals are changing by the day. And not for the better. It’s an attempt to fool the media, social media and ultimately consumers. In one Facebook post, we have before us the death knell of our times.

Shannen Carlson is a West Coast publicist, marketer and purveyor of beautiful women as president of Calendar Girl Productions. This time she’s been hired to make a new condo development look like it’s news – a purposeful act to mislead. The intent is not to market the real estate project to potential buyers, but to create FOMO by hiring people to pretend they want it.

Isn’t business great when ethics aren’t involved?

line-up

Needless to say, shams like this – intended to score a precious few minutes on the local TV newscast, or go viral – wouldn’t be required if enough people actually cared about a new set of condo boxes being built. But they don’t. Sales in Vancouver last month were a disaster (again) – down 38.8% from a year ago, and 15% below the declining 10-year average. The market in BC peaked last winter, and was in serious distress even before local politicians polished it off with the Chinese Dudes tax and the vacant-house levy – just as Wild Bill Morneau was stressing the moisters.

What a perfect storm.

“Changing market conditions compounded by a series of government interventions this year have put home buyers and sellers in a holding pattern,” says local realtor boss Dan Morrison. “Potential buyers and sellers are taking a wait-and-see approach to try and better understand what these changes mean for them.”

And that’s when you hire Shannen and her Lawn Asians.

But this is not just about losing a moral compass in troubled BC. People across Canada should see what’s happening in markets that were on fire three years ago – Vancouver, Calgary or even Saskatoon (apartment vacancy rates are now surging there with rents falling) – as harbingers of conditions everywhere. Lots of other people do.

The latest worriers are no slouches. On Monday Canada’s banking regulator gave financial institutions a blunt warning housing could blow up and taken some lenders with it. “A pronounced or prolonged economic downturn could well involve a meaningful housing price correction. This could translate into significant losses for lenders and insurers,” said Jeremy Rudin, head of OSFI (Office of the Superintendent of Financial Institutions). “Given the risks and vulnerabilities arising from the current environment, sound underwriting is now more important than ever.”

“A pronounced or prolonged economic downturn could well involve a meaningful housing price correction. This could translate into significant losses for lenders and insurers… House prices in most Canadian markets have never been higher, supported by mortgage rates that have never been lower.”

But here’s the thing. Bankers are coming off eight years of loaning money recklessly – financing first-timers with no credit history and no money, for example, at the same low rates provided to experienced buyers with 50% deal equity. Foreign students get loans. Retired pensioners get them. There are even mortgages for laneway houses, for people shacking up with unrelated other people and (of course) purchasers who have no down payment and need to borrow that, too. No wonder mortgage debt is off the chart at $1.3 trillion, yet wages have barely budged.

What’s Rudin worried about now? Simple. A real estate correction dropping prices 30% would (says Moody’s) result in $17 billion in losses for the companies he regulates. And just imagine the impact on taxpayers, who stand behind CMHC. No wonder that agency is arguing for higher down payments plus linking the amount a person can borrow to a multiple of their income.

There’s more. Now the OECD is on our case.

The international body has just issued a report spanking Canada for creating an “acute risk” of a housing correction, especially in Vancouver and Toronto. “Such a correction would reduce residential investment and, through wealth effects, private consumption, and in an extreme case could threaten financial stability,” it says, stating the downturn is likely to be “disorderly.”

Well, there ya go. The bank regulator, CMHC, Moody’s and the international community vs Shannen.

But, jeez. Eighteen hundred bucks for sitting outside in a chair? I’m in.

The locals

worries

If you have a house to sell in Cambridge, you win. Ask whatever the hell you want. But if you’re selling in Thompson, Manitoba, fail. Your chances of not finding a buyer quick are almost 90%. So start chopping the price.

As this pathetic blog has oft repeated, all real estate is local. These days among the marquee markets, Vancouver is in correction with dismal sales, the GTA is hot with demand exceeding supply, Calgary’s massively confused, Victoria is awash in YVR refugees while SW Ontario and Niagara accept Toronto’s rejects, and most other places (from Halifax to Montreal, Winnipeg to Edmonton) are in various stages of morbidity.

A measure of market vitality is the sales-to-listings ratio, which most local real estate boards published monthly. This tells you about absorption – how many available units are sold in a given period, expressed as a ratio of the number of listings that appeared in the same market during that time. When the ratio is between 40 and 60, the market is considered ‘balanced’. Above 60 and the sellers are in charge, which means prices are generally rising. Below 40, the opposite – sellers are tormented, buyers are in control and price movements will likely be lower.

It might surprise everybody in BC, where they think only special people live, that this autumn every one of top 10 cities (with the highest sales-to-listings ratios) were in Ontario. And all ten of the worst markets were in the West. As mentioned above, the best was sleepy Cambridge, where houses costing around $400,000 are starting to attract serious attention from GTA buyers 90 minutes down the 401. By the way, the average detached house in 905, that soulless horse collar surrounding Toronto, now costs more than $950,000.

Industry publication BuzzBuzzNews tapped into the following stats, gathered by CREA. You will notice that almost all of the dogs run in the prairies.

Top sellers’ Markets (by Sales-to-Listings Ratios):

1. Cambridge (103)
2. Guelph (93)
3. Woodstock-Ingersoll (92)
4. Northumberland Hills (89)
5. Kitchener-Waterloo (89)
6. Kawarthas (86)
7. Oakville-Milton (85)
8. Hamilton-Burlington (85)
9. Niagara (84)
10. Welland (83)

Top Buyers’ Markets (please pray for the sellers):

1. Thomson (12)
2. SE Saskatchewan (23)
3. Battlefords (26)
4. Fort Mac (29)
5. Yorkton (30)
6. Grande Prairie (30)
7. NE Alberta (31)
8. S Central Alberta (33)
9. Lloydminster (34)
10. Peace River (36)

By the way, the ratio for Toronto (GTA) last month was 72.5. The ratio in Vancouver in October was just 24.4. Ouch. But because everything in YVR is weird, this is what the local board says of that number: “Generally, analysts say that downward pressure on home prices occurs when the ratio dips below the 12 per cent mark for a sustained period, while home prices often experience upward pressure when it surpasses 20 per cent over several months.” Go figure.

Meanwhile there are lots of people who would like to piddle in the GTA’s wine glass during the current boom. Toronto city council will be dealing with a few motions in the coming days which will impact house prices, one of them being a suggestion that Vancouver’s ridiculous vacant-house tax (1% of assessed value annually) be aped in the Big Smoke. At the same time, Ontario has increased the land transfer tax grab on properties changing hands for $2 million or more (try finding even a semi-detached house midtown for less than that), and there is still considerable pressure for a Chinese Dudes levy, also copying the BC tax that finally brought Van back to earth.

A big proponent: BeeMo’s chief economist. Doug Porter.

“I do believe that it is foreign investment that’s really driven prices into the stratosphere, and I do believe it’s a provincial and municipal matter to basically try to offset some of that strength’” he says. “BC attacked it head on. We’ll wait to see how successful it is and whether it does what they wanted it to do. I think Ontario will one day wish they did it.”

Maybe Ontario will wish it didn’t try to engineer the market by doubling the transfer tax break for moisters at exactly the same time the feds were attempting to soft-land this gasbag with a new mortgage stress test. Perhaps BC will feel the same. All across Canada, governments have diddled massively with the housing market, sending out conflicting messages, helping inflate household debt and ensuring millions of families will be negatively impacted when the inevitable occurs.

Rest assured, by then the Chinese dudes’ll be long gone, debt and disappointment in their wake. Just ask around in Saskatchewan.