Patience

A hallmark of this blog is impatience. To be fair, though, it’s endemic today. Nobody can damn wait for anything. It’s why savingsless young couples expect a better first house than their parents ever had. It’s why consumer debt’s exploded. It’s why we’re doomed. At least the impatient ones.

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Those who come here, read my words and expect house prices to plunge 20% by the weekend don’t get it. The market took about a decade to inflate, survived a bubblectomy in the winter of 08-9, and is now etched in the public’s mind. It won’t last, of course. But the deterioration will not be quick, nor will your idiot brother-in-law admit it until the evidence is overwhelming.

The likely scenario is a correction in prices this year – a classic bear trap. Impatient house hornies will jump in thinking they’ve scored a bargain at 15% less than the peak, only to despair at what comes next – several years of steadily eroding values. As house prices revert to their historic mean, adjusted for inflation and a sloth economy, the true bottom will be far lower.

The process has begun. It may be masked in the demand areas of Toronto and Vancouver where the population is deep and the gene pool shallow, where enough greater fools exist to trick the media. But the perimeter is already suffering. Check out recent sales levels along the south shore of Nova Scotia, in Muskoka, the Okanagan or Fraser Valleys – all traditionally demand areas, where realtors are now taking up knitting. And on a drive yesterday through 300 clicks of Ontario heartland, it was impossible not to marvel at a sea of languishing listings.

There are two very slow and immensely powerful forces which will see this malaise spread everywhere. More powerful even than rising interest rates (whenever they arrive) or the inevitable retreat of hot Asian money.

The first is demographics and the inexorably rising influence of millions of wrinkly old farts who will be selling their houses to afford aspirators, corneas and gas for their Harleys. Fact is, 70% of us now have no corporate pensions, with most Boomers thinking their houses were all the financial plans that they needed. Surprise!

This is an unstoppable influence on real estate values spread over the next decade. Not all Boomers will sell of course, since some will reverse-mortgage (those who hate their kids) and others will try to tough it out. But of the nine million in this cohort, more than enough will decide to bail to tank prices for years.

The more influential factor is debt.

Personal indebtedness has grown right alongside real estate values. In some places, this is the dirty little secret never shared. It’s why working families living in million-dollar homes in places like Vancouver have to keep tenants in the basement, and still eat into their lines of credit trying to cope with insane mortgage payments. It’s why we have more per-capita loans now than Americans, why the average down payment has shrunk to well under 10% and mortgage debt’s become an ugly trillion-dollar behemoth.

Fact is, borrowings are easy to get, and a bitch to get out of. Worse, when real estate starts to fall apart, houses get illiquid. It’s a lesson being learned again these days in Abbotsford, Kelowna, Brampton and Lunenburg. You’re next.

And the debt doubts are already with us. A survey done four weeks ago for IG canvassed 1,020 people and found 75% are in hock. Buying or renovating real estate accounted for 87% of that debt. Six of ten people are uncomfortable with their level of indebtedness, and 30% are losing sleep over it. Worse, 35% say they’ll be cutting back on spending to try to cope – which is how recessions start and house values crumble.

With wages static and unemployment stuck, how exactly are people supposed to pay off these fat loans? Will they spend five or ten years living on KD, clipping Wal-Mart coupons and riding bicycles, to make debt repayments? Or try to sell their costly houses to gain mortgage relief? And how’s either of those anything but negative for real estate?

Hard to see how this could be more obvious. Kinda makes you wonder why all the smart people aren’t selling to horny Asians or local house porn addicts.

Unless they’re not.

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