Entries from July 2017 ↓

Knee jerks

A home that sold in April in Vaughan (an ugly one, too) for $1.85 million didn’t close. You know why. The buyers walked, figuring any legal crap they might endure was better than buying a house for twice what it might eventually be worth.

The owners listed again for $1.6 million. They received a conditional offer for $1.288 million, and took it. Then that deal fell through. And back it goes for sale.

If you think reductions in the street value of houses in the GTA, especially in the wind-whipped, desolate reaches of 905, of 20% or 30% are rare exceptions, you’re not into the market. Such situations are common. Sentiment has turned. Greed has morphed into fear. Fear of missing out has become fear of not being able to get out.

Across the bubble regions in southern Ontario and the Lower Mainland, detached houses are wilting even as horny moisters continue to pour cash into condos. Average prices are declining steadily as a result – and now the Real Estate-Industrial-Financial Complex is fighting back. In fact, it’s in full-on damage control.

Here’s Royal LePage, for example. Right after the Bank of Canada popped the first of several rate increases CEO Phil Soper was out trolling for microphones. “Canadian homeowners are prepared for the marginal increase in mortgage rates,” he said, even knowing that every credible survey has shown the opposite. Among Soper’s other manufactured facts: interest rates will rise only by one quarter point in the next 18 months and house prices will increase 9.5%.

Here’s Re/Max, out with a new ‘report’ showing despite the fact overall GTA prices have fallen hard in each of the last three months – by a shuddering 17% – that “40% of 65 districts” are showing higher prices. A further conclusion: “Toronto’s recent downturn in house prices may reverse course later this year.”

Here’s CMHC, saying yesterday the country’s housing markets are fraught with risk,  now appearing to blame ‘emotional’ buyers instead of greedy, opportunistic sellers and their agents.

“The response we were seeing in the Toronto market seems almost emotional and almost a knee-jerk reaction to some of the changes, which suggests that these impacts will be short-lived if all other fundamentals remain intact,” a CMHC analyst told reporters this week.

And maybe you’ve noticed how the MSM has been giving yards of space to real estate ‘experts’ such as realtors, mortgage brokers, housing marketing execs and economists for banks with huge home loan portfolios. The message is one of reassurance and support to an over-housed, over-indebted and cash-strapped nation. Don’t worry. This is temporary. Houses will go up again, and then probably forever.

So, who’s right? Will Mr. Market keep on falling until demand and supply balance? Or will buyers be talked back to the table with these suggestions that any price decline is temporary, and a buying opp? What of the Millennial conviction than anybody who makes it onto the cover of Rolling Stone is a god and will never let their young butts be singed by the reality of a housing bust?

Beats me. It’s entirely possible sentiment will shift again as quickly as it did at Easter. That’s what the real estate establishment is praying for – a summer of soft landing followed by the resumption of bull market conditions. Of course, if it happens – with a return to rising prices, plumping debt levels and more dependence on housing – you can be sure this correction will eventually be followed by a crash. Any recovery now would be an epic opportunity to sell, not to buy. But, of course, you can count on your co-workers and confused relatives to do exactly the opposite.

Here is why there’s reason to be concerned, if not terrified:

“CMHC chief economist Bob Dugan told reporters that strong job creation and income growth in Toronto favour the housing market. He expects price growth to resume in the city.”

Yup, the big thinker at a federal government agency overseeing $600 billion in debt assets, at the apex of a housing bubble, in a country where personal borrowing exceeds the size of the entire economy, is telling people to buy. If they don’t, they’ll be priced out.

Will the people listen?

Our fate hangs on that answer.

No illusions

In the last three days alone at least 89 mortgage lenders or brokers have raised their rates. On Monday 58 announced increases within the industry. Another thirty or so followed suit yesterday. The hikes are in some cases substantial – about four-tenths of a point. The big banks have now established five-year loan costs at just a wisp below 3%, while HSBC has been forced to abandon the predatory rate it announced just weeks ago, for which it was dissed on this very blog.

And then there’s poor Tangerine (owned by the richer-than-you-think bank). Last week the virtual elves at The Fruit People sent out this message:

It’s a great time to apply for a Tangerine Mortgage!
Apply between July 19, 2017 and October 31, 2017 to take advantage of our special offer on a 5 year fixed rate closed Mortgage of at least $250,000:
A fantastic rate of 2.49% / 2.50% APR*
A $700 cash Bonus* to help cover your closing costs

On Wednesday they sent out this one:

Dear Aws,
On July 19, 2017, we sent you an email in error. This message was regarding a special offer on a Tangerine mortgage. We’ve cancelled this promotional offer, and it’s no no longer available.

Please note that if you already submitted a Mortgage application, the offer will be honoured for you.

We are sorry for any inconvenience this may have caused.


Client Services

So that 2.49% mortgage is now a 2.89% loan. If you had any illusions about where the cost of money is going, best lose them now. The punch bowl has been removed from the party. This is a taste of what’s to come – virtually every lender changing rates on a monthly or even weekly basis, without fanfare or media release.

As you were told here days ago, the bond market is massively aroused. The Canada five-year rate passed 1.6% today (before closing lower), and everybody I talk to on Bay Street says 2% lies ahead (you can tell the kind of firecrackers I hang with). That may not sound like much, but it will push 3% five-year mortgages to 3.5%, and after Christmas likely into the 4% range. Combined with the new stress test for all borrowers (forcing them to quality at 200 basis points above a lender’s offered rate) it changes the dynamics of the marketplace abruptly.

Anyway, let’s move on to the rest of Today’s Bad News.

 Yes, things suck for homeowners when even the boy scouts at CMHC get spooked. On Wednesday the federal housing agency (which many hold responsible for the fact average people can’t afford average homes) said there’s “strong evidence of overall problematic conditions” in the real estate market, citing these area: “Toronto, Vancouver, Hamilton, Victoria and Canada.”

Seriously. It said that. In a news release.

And what are those problematic conditions? First, “slow growth in the young adult population” which means impoverished Millennials are not forming families and popping children. Second, “a decrease in disposal income” (I think they meant “disposable”, but it could be a waste management thing). Third, “imbalances” due to “overbuilding, overvaluation, overheating and price acceleration” which are outside of historical averages.

In short, real estate is pretty much screwed. In Vancouver the problem is excessive demand for entry-level condos, leading to overheated prices while the rest of the market goes limp. In Toronto, “economic fundamentals like income and population growth cannot fully explain the rapid growth in house prices.” There’s even an overbuilding situation in Quebec, CMHC says, and the Prairies, for goodness sake. Like, who wants to live there?

 And speaking of Vancouver, did you catch the latest Zolo market trend numbers? I have no idea how much veracity lies here, but it sure makes you wonder about the comments posted here daily on how YVR is ‘on fire.’ Seems it’s growing colder than Andrew Scheer.