Entries from June 2017 ↓

On guard

“This house sold conditionally,” long-time realtor Yuri Kogan said in a note he sent along with a listing. “Look what the condition is. This probably did not exist anywhere close to GTA for decades!”

And he’s right. There it is – a frumpy but desirable sidesplit selling in the $1.4 million range in north-central TO – with an accepted offer conditional upon (gasp!) the vendor selling his existing property within the next month. Yes, just like back in the 1990s, when we endured Michael Jackson and Jean Chretien and all those irritating Millennials were in Huggies.

Conditions, in fact, are the new black. Upon securing financing. Upon obtaining a satisfactory home inspection. And now even upon the sale of another home. What a difference six months makes. The bidding wars, bully offers, surly realtors and imperious vendors are all but gone. The buyers are taking back the night.

Well, yesterday the Blog that Dog Wrought told you Friday would be pivotal for knowing if the great real estate unwind would pick up steam with higher interest rates. And, verily, it was. Up she goes.

Odds the Bank of Canada will increase in 12 days (for the first time in seven years) were running at 84% going into the long weekend. That was an 11% surge in 24 hours. Just six weeks so the probability was ten per cent. My, how things change. The dollar surged well past 77 cents, and realtor hearts sunk.

Next Thursday when the nation’s largest real estate board screws up its courage and releases June stats, it’ll be confirmed. Average prices will have declined about $100,000 in just two months, down by double digits from their April high. Freehold sales should be lower year/year by 40% and condos down 20%. In some areas (like the northern fringe of the GTA where drywallers and beauticians live) the sales plop could be 60%.

Do you remember back in the winter when this blog calculated there was about seven days of supply on the market as the bidding wars raged? Well, now there’ll soon be about four months’ worth of houses for sale. In fact, as Canada Day dawns, more than 23,000 properties are listed in the arc around 416, about 6,000 of them brought to market in the last week.

And soon, on July 12th, everyone will know there are more reasons to expect price declines. Rising interest charges will encourage buyers to start vultching, or just sit back and wait for twenty thousand vendors to grow more motivated. Meanwhile in BC, the centrist Lib government has gone down in flames, with socialist hordes now overrunning Victoria. The Greens and NDP both campaigned on platforms of whacking real estate owners and valuations, so no joy there, either.

Things for indebted homeowners are about to get worse, ironically, because the economy is doing better. Those two key reports Friday morning – on GDP growth and business conditions – were so good everyone is now expecting the rate romp to start in a few days. As reported, the chartered banks will be increasing their primes, lines of credit, business loans and variable rate mortgages. Bond yields are rising, so you can probably expect fixed-term home loans to be plumping as well.

The economy has been expanding for six straight months, and growth of 3.3% is the best it’s been in three years. That means we’re back to pre-oil-crash levels, meaning the Bank of Canada can (and will) increase rates twice in the next six months. That will double the current level. Meanwhile business confidence is swelling fast, the best in six years, with half of companies saying they expect sales to increase and two-thirds figuring they’ll need to hire within the next 12 months.

The logic of TPTB is simple. The housing boom must end before it implodes. What better time to prick the bubble than now, when a growing economy can wipe away some of the sting? Yes, there will be equity losses, falling prices, gnashing and wailing. Debt service costs will rise, many families will be squeezed and speculators eviscerated. But this moment was inevitable.

The end result may be houses people can afford. Imagine.

Happy Canada Day. What a place.


So the odds of an interest rate increase in 13 days have shot up to 75%. Don’t bet against that. At least two of the Big Five banks aren’t. BeeMo expects the cost of lines of credit, business loans and variable-rate mortgages to increase in July 12th, along with its prime rate. Scotiabank on Wednesday night surprised a lot of folk by flat-out declaring there are three hikes in the offing. In July, October and then the first 60 days of 2018.

If it happens (more on that in a moment), the Bank of Canada rate will have gone from 0.5% – where it’s sat since early 2015 – to 1.25%. That’s a 150% increase in lending costs in seven or eight months. And it won’t be the end, either. The world just changed, it seems. Thankfully you had eight years of warning from this pathetic blog.

We’ll all know more Friday morning before the long weekend. First (at 8 am EDT) Stats Canada lobs the latest GDP report – showing what level of growth the economy is experiencing. The expectation is for annualized expansion of 2.4% last month, and 3.4% for the year so far – taking us back to pre-oil-crash levels. A green light, in other words, for that rate hike. Two hours later the central bank publishes its business outlook report, expected to highlight job growth (the best since 2013) and corporate optimism. More green.

So, up she goes. And down goes real estate.

Meanwhile there’s an interesting theory circulating. Trump’s making is do this. It’s all his fault.

The argument: American monetary authorities want to raise US interest rates consistently over the next couple of years in order to contain growth, inflation and asset bubble formation. But higher rates mean a stronger US dollar, which hurts that country’s exports. Canada, of course, is a major trading partner, so if our dollar is substantially depressed compared to the greenback, American manufacturers get whacked.

The solution’s simple. Elevate the value of the Canadian dollar at the same time by forcing the Land of Horny Beavers to also increase the cost of money. And how would the Trumpians do this? Well, as a trusted Greater Fool canine correspondent in Europe – who speaks with senior Canadian bankers – whispers:

“Essentially it’s been implied to me that the US is “blackmailing” Canada on the side – with trade wars / disputes – etc – unless they get with the rate hike program. There had apparently been some direct conversations in the past 4 weeks between high ranking Trump officials with their Canadian counterparts – basically saying – you better raise rates or life will be difficult.

“Have you noticed how quick the tone changed? On the trade front – the rhetoric has been quiet now for a while and we suddenly have Poloz coming out and saying that rates will now go up – they did their job? Like – almost a bit out of nowhere.”

Hmm. Just tinfoil talk? Maybe. But you have to admit the tone of central banker boss Stephen Poloz pivoted 180 in just days. And at the same time Washington was threatening to tear up NAFTA, was openly ruminating about a hideous border transfer tax, then slapped a fat tariff on Canadian softwood lumber exports. Seems consistent with the administration of a president who just Tweeted about a female reporter he doesn’t like that she was “bleeding badly from a face-lift.” Bully politics apparently work. Better than gender-parity coloured socks.

Well, whatever the reason, rates will rise. So prepare.

Meanwhile, governments in Canada are doing all they can to ensure the coming residential real estate Hoovering is as disruptive as possible. In Vancouver, city council rode roughshod over the legitimate grievances of people who own condos they occupy 50% of the time for business reasons, forcing them to pay an ‘empty houses’ tax that equals $850 per month on a million-dollar property. This assault on private property ownership is really just a tax on wealth, will do nothing to pump the number of rental units available and certainly telegraph that our most self-absorbed citystate is the last place you’d want to invest.

And in Ontario, politicians are not content to merely murder real estate with a foreign buyer’s tax, universal rent controls, an AirBnB crackdown, a coming flip tax, CRA audits or greenlighting an empty-condo tax in TO, but are now hunting down realtors. Coming is a ban preventing agents from representing both a buyer and seller in a transaction – something which these days is common. The concern is that realtors may be unethical. The solution? Get two of them.

Seriously. You can’t make this up.