Trust

 

It’s a weird Canadian thing. Everybody – buyers, politicians, moms – complains bitterly about houses people can’t afford. But we call markets where sales are brisk and prices rising, ‘healthy’ and ‘robust.’ We say places where real estate is getting cheaper are ‘in distress,’ ‘depressed’ or ‘struggling.’

So are lower prices and less debt a positive or a negative? Have we allowed the Real Estate Industrial Complex to set the agenda? When realtors are making big money on commissions and frequent deals is that a good thing for society? Given the fact we have $1.7 trillion in mortgage debt (a record), a savings rate of less than 1% (almost a record) and 40% of people living paycheque-to-paycheque (definitely a record) the answer would appear simple. Hell, no.

Apparently MLS® has eaten our brains. In Canada real estate values are a proxy for the economy. Even when job creation numbers tank, the banks miss earnings estimates and governments sink further into deficits, the average price of a property in Van or the GTA is supposed to tell the whole story. And speaking of that – news – let’s have a moment of silence to mark the death of reporting. Media no longer discovers, distills and details the news. Its fresh job is to re-run press releases. Especially from the local real estate board. So much for trust.

An example from a day ago:

“Sales soar”, while “prices rebound” – plus we have a “jump in activity” and “unexpected demand.” Yup, all orchestrated to make you believe the market is soaring, rebounding, jumping and that houses are suddenly in demand. The desired result: FOMO. Realtors crave a sense of urgency and competition to spur sales and boost prices. The newspaper, which makes money from real estate, is happy to oblige.

So what’s real? Are things great in Vancouver because people have to pay $1.5 million for a detached house? And are things terrible in Calgary where the same property goes for $450,000 and is getting more affordable every month?

Dane Eitel is one of the few thoughtful analysts calling out the housing cartel. It’s a lonely job in a city like Vancouver, where real estate is porn. But he persists.

The increase in sales, he says, is no reflection of market strength. The people buying need to act for personal reasons. Investors are gone. Nobody should be expecting higher prices in 2020. In fact, the opposite. Eitel points out values are $120,000, or 7%, lower than at the end of 2017.

Not all markets in Greater Vancouver are created equal some areas are closer to the bottom while the majority still have significant percentage losses to come. The time to invest is on the horizon, however not at our feet yet. 2020 will experience needs-based selling as prices dip to 1.4 Million testing the current market cycle’s previously-established prices. At the 1.4 Million price point the market will have correct a total of 23% from the peak – back down to the 2015 level, indicating all gains over the previous 5 years will have been erased. Patience is a virtue and those purchasers willing to wait will be rewarded with stiffer competition amongst sellers in 2020 and 2021.

Newly listed properties that are appropriately priced are likely the ones receiving the acceptable offers. Properties that have been on the market for months are continuing to sit there. 2020 will see the inventory tick back up and surpass the 7000 active listings experienced in the summer of 2018. Largely due to the needs-based selling upcoming. Money save is money earned. Since our initial forecast that the Greater Vancouver Market had indeed topped out and prices would begin to trend lower. The market has realized a $360,000 price loss.

Dan Eitel doesn’t sell houses. Just information.

Re/Max has a different agenda. This is the company’s forecast for 2020 for East and West areas of Vancouver:

The Vancouver East housing market is currently balanced, which is expected to continue into 2020 due to strong market activity in the region. The RE/MAX average sale price for Vancouver East is expected to increase by eight per cent in 2020. Continued population growth and price increases are expected to boost the residential market in Vancouver East.

The Vancouver West market is expected to increase by 4% due to an uptick in buyer confidence returning to the market. Currently there are 4.5 months of inventory left on the market, as sales increase, we are beginning to see inventory levels drop so this is expected to be 15% lower in 2020. The most influential factors impacting market activity in 2020 include supply, interest rates and how sellers price their homes. Higher prices are expected in 2020 due to increasing sales and reduction on inventory.

By the way, the fastest-growing segment of the Canadian economy lately has been real estate commissions. We’re pooched.

 

The slathering

Why do big-city houses cost so much and rents are bonkers? Yeah, mortgages are too cheap and house lust too strong. But as big a reason as any comes packaged in one word: investors. Half all new condos and four in ten existing ones have been snapped up by people with no intention of living there. A bunch are speckers who rent them out (many in negative cash flow). A pile more are Airbnbers. In fact that company now has more than 22,000 listings in Toronto alone – at a time when the rental vacancy rate’s barely over 1%.

As mentioned here recently, Toronto is trying to crack down on the pseudo-hotel business. So far, no impact. In fact the number of Airbnb places for the GTA has actually increased since anti-rental rules were approved.

Let’s compare that with Boston. Politicians there are apparently tough mothers.

Airbnb scrubbed more than three-quarters its listings for the city (from 4,000 to less than 800) this week after Boston banned short-term rentals in any dwelling not owner-occupied for at least nine months of the year. Hosts may own only one single listing (in Toronto there are scads of people with multiple offerings – it’s a business), and they must register annually with the city. Plus pay a licensing fee.

“Across the city, rents are growing more and more out of reach,” says councillor Michelle, sounding familiar.  “Through closing the corporate loopholes for de facto hotels in residential neighborhoods while preserving homeowners’ ability to benefit from home-sharing, the regulations are designed to help more Bostonians stay in their homes.”

Expect more of this. Everywhere Airbnb operates it has helped boost property values, turned homes into hotels, depressed vacancy rates, made real estate less affordable and increased rents – as well as endangering the business models and jobs of people legitimately in the hospitality business, many of them lowly-paid and vulnerable. It’s a scourge. Like vaping. Tats. And that godawful Drake.

Airbnb is getting ready for a blockbuster IPO next year. Don’t even think about investing. You’ll regret it.

$     $     $

Also big news: no rate change from the Bank of Canada (as expected) , Trump calls Trudeau ‘two-faced’ (a step up from blackface) while Calgary is down again, Toronto isn’t and Vancouver sputters, despite the headlines.

Cowtown and Montreal remain the two most affordable big-city markets in the nation. Prices in the second-largest urban area have been going up steadily, month after month, while in Calgary it’s been a story of continual decline. If you’ve been trying to flog a condo in Alberta’s main city you know the story – falling prices, no buyers, no showings and certainly no offers.  Overall the average price of real estate has dropped another 4.5% from a year ago and sellers are giving up, with listings off 11%.

At least the realtors are being truthful: “Achieving more stable conditions will take time. While the amount of supply in the market continues to ease, the persistent oversupply continues to weigh on prices.”

As Wexit sentiment grows, prices will crumble. Be careful, rebels, what you wish for.

More price declines in Vancouver, too. Sales were up a lot from last November (55%) but dropped from the month before (-12%). Prices overall are almost 5% less than last autumn and detached homes have slipped about 6% (to $1.4 million), although a lot more sold (825 as opposed to 516).

So here we are, two years into the Dipper war on VYR real estate and the average price is still just a hair under $1 million. Condos average more than $650,000, and sales of apartments have jumped 50%. Demand has been pushed down to lower price ranges, jacking the cost of units people can afford, while detacheds stay firmly out of reach. And this is in a market where foreign buyers have exited – kicked out by punitive taxes and xenophobic nastiness.

Conclusions: (a) politicians have no idea what they’re doing and are making stuff up as they go along. Like the 25% hike coming in the empty-houses levy. Taxing real estate as never before has not crashed prices. Just hurt owners. (b) The Chinese invasion wasn’t a thing. Punting offshore buyers hasn’t made it any easier for average families to buy average houses. That’s because the impact was over-stated by government and media, and gave people something to hate and blame – when they should have been looking in the mirror.

Real estate is a cult and a fetish in the LM. It’s all people talk about. It’s the goal of their existence on this earth. And they are paying the price of obsession.

Toronto?

The realtors say sales are up year/year (14%), listing down (-22%) and prices ahead (7%). The credit is going to cheap mortgages and a drop in inventory. Of course you will recall that study described here a few days ago which found 70% of sales in a hot Toronto hood were below the asking price. So, who do you believe?

In any case, the average detached house (at $1.36 million) is still lower than it was three years ago, despite all the pumping, the rock-bottom mortgage costs, the political pandering and media slathering. Apparently there are better places to put your money. Who knew?