Between massages and detailing my Harley in the nude (well, I wore gloves of course), I corresponded over the weekend with Corey. Poor dude. He actually posted on this blog a week ago saying he’d sold a house in Vancouver last year and was sitting on eight hundred grand. In a wretched savings account. Where, he opined, to invest? Then I learned about his wife.
We exchanged a few emails and it became apparent that after a year of renting, Corey’s spouse was hot to burn through all that cash, using it as a downpayment on new digs. “I hope your wife likes losing money,” I replied supportively. “You have a windfall on your hands. Don’t blow it.”
But blowing is popular. Last night, as the nation readied itself for Orange Crush, he sent me this:
I believe you are right, however, my wife is out of patience. She constantly refers to some friends who were waiting for the correction, then capitulated after tiring of living with the in-laws for a year. They built their new dream home (just moved in) and could likely sell for several hundred thousand more than they built for. Everyone believes it is different here because of the Chinese buyers, and the social pressure is enormous.
Nothing makes sense anymore:
- wages are stagnant,
- a lot of people are highly indebt and leveraged but do not seem to worry
- economically things don’t make sense to support an escalating housing market, but everyone here drinks the cool-aid they are fed by the MSM
- people are insane – some in our hood are buying and then trying to flip the house within say 6 months for 200,000 – 300,000 profit (with little or no renos).
- Anyone who dares suggest that interest rates are about to rise soon dismiss the idea saying that the impact will be minimal, or that the government will not raise rates with a high dollar etc.
- If I suggest to friends that the housing market is going to correct they look at me as if I have 2 heads
- Some are so confident that nothing will change that they are buying before they have sold, gambling that they will get their price (or more)
. . . I am beginning to doubt . . . and to wonder myself if the Chinese do make things “different here”?
Economically and financially, Corey’s right. There are no fundamentals supporting current real estate values in Toronto, Calgary or Vancouver, among other places. Personal debt’s at a crushing level. Rates will only go higher, not lower. Swelling taxes are a no-brainer. Unemployment went up in the latest reporting. Last month the economy actually shrunk. US housing continues to free fall. Salaries sure as hell are not increasing. New mortgage rules have zapped first-time buyers. The Boomers are withering by the minute, closer to bailing. It costs twice as much to own as to rent the same house. And we seem ready to be plunged into political deadlock.
In short, there’s no case for current housing values. Nada. And yet they exist. Which brings me back to Corey’s words: “If I suggest to friends that the housing market is going to correct, they look at me as if I have two heads.”
So the wire holding up Canadian real estate is the thinnest, most fragile, gossamer thread possible. That of perception. When people believe something collectively, it’s perceived to be true. When friends and peers express a conviction, you either agree, or question yourself. Because the greatest human need is that of belonging, it’s a hurt and a challenge when somebody looks at you and sees two heads.
But, here we go. Already it was a slam dunk that real estate is going down instead of up. Now we have a whole new bunch of reasons to run screaming for the exits – especially if you have $800,000 hidden from your wife in your athletic supporter.
Assuming there’s no majority government when I post my next piteous entry, and that the socialist barbarians (F’s term) compose the official opposition, Canada will be viewed as mildly insane. The reaction may not be immediate, but it will be incremental. The dollar will likely retreat, and the way will be open for the Bank of Canada to retrace interest rates a bit quicker. And once stock markets correct to where they should be (about 10% lower), bond yields will be marching higher – taking five-year mortgages along with them. All that should happen this summer.
Now, don’t get me wrong. I love Jacko’s cane thing. And the other guys seriously sucked in this election campaign. They all deserve to be paddled by a hot Asian. But people are in a pissy mood, and most of them just reject the idea that their votes can have economic implications. They want different.
I’m sure Corey’s house-horny wife is one of them. It’s all about what you believe, not what you know. What you desire, not what you need. And damn the consequences, you’re gonna get it.
How could this be anything but Jack Layton’s moment?
Note: This blog was the subject of an attack Sunday evening which disabled comments for a period of time. To readers, I apologize to those who tried to post and could not. To the hacker, you are an impotent little weenie. — Garth