In Toth and Claw

Yesterday at noon 91 Donalda went nuts. At least the bidders did, all 21 of them. And $600K was just the starting point. “I grew up in that neighbourhood,” Tim says of his east-end Toronto childhood. “They had an open house on the weekend and then took registered offers in at noon.  The 2 story house which sits on a quiet street faces an open field park directed across the street.  I was considering it but am not that stupid nor desperate so decided not to put an offer in.  21 offers…WTF??”

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When the dust settled, a property worth $598,800 before lunch, had a valuation in the afternoon of $740,888. That’s a premium of $140,000, or 23%. For a non-descript 1970s suburban special that would look perfect with a Corvair up on blocks in the driveway.

Let’s go to Calgary now. Here’s Brian.

“I sent you an email two weeks ago about my condo in Calgary,” he reminds me.  “So here’s an update – 3 weeks on the market, no showings.  13 other units listed in our building, no showings for any of them either. Sure is a dead market right now.”

Over in Abbotsford, real estate sales have just hit the lowest point since 2009, while listings pop. There are now 8,320 houses for sale in the Fraser Valley, and last month just 799 sales. Prices are falling and sellers are freaking. “This is good news for home hunters,” says real estate board boss Sukh Sidhu. “For buying power you can’t beat the combination of greater selection, the continuation of extremely low interest rates and stable prices.”

And in Vancouver, just months ago the epicentre of housing lust, veteran realtor Pam Allen told the local paper, “Since October, it was like someone turned off the tap. It became absolutely dead.”

It’s a pattern being replicated across the Pacific port city, in a dramatic turnaround from the bidding wars, show day stampedes, and above-market offers that long dominated North America’s costliest property market. What’s taking the sizzle out of Vancouver prices and putting the brakes on sales are expectations that rock-bottom Canadian mortgage rates will stay low, so there is no rush to buy. At the same time, Chinese investors, who have long helped to underpin the city’s red-hot market, are holding back because property market curbs back home means they have less cash available. — Vancouver Sun

This is the unique nature of real estate. It’s a local commodity, unlike stocks, bonds, REITs or exchange-traded funds, which cost the same today on Bay Street in Toronto or Howe Street in Halifax. When people are desperate to get it, prices erupt past reason. Months later when attitudes change, buyers melt, values crumble. This is why housing is so dangerous, red in tooth and claw.

Economists will tell you it’s all about supply and demand, which is certainly true. To a point. In all of the GTA, home to millions, there are 10,000 listings. In the Fraser Valley, where 257,000 live, you have 8,320 to choose from. In Vancouver, a third the size of the GTA, twice the number of properties on the market – over 19,000.

So demand in the GTA is pushing supply, and prices are swelling as a result. The ensuing bidding wars, multiple offers, panicked buyers, voracious realtors, greedy vendors and cheap mortgages have created a casino mentality. Is this the environment in which you want to spend eight years’ worth of salary?

But it won’t last. Never does. Across the rest of the country listings are more in danger of dying of old age than being trampled. As Van realtor Pam reminds us, markets can change like someone turning off a tap. It can happen in a month. Hell, in a week.

While the deleveraging of real estate is already widely across this confused land, what could bring it to the godless, paved sprawl clinging to Lake Ontario?

Well, a scarcity of houses gets people excited, but changes in mortgage rates are just as profound. This week, as you know, those cheapo home loan rates that had Global anchors wetting their studio chairs are kaput. Not only did BMO’s 2.99 Special get yanked, but so did the competing products the other banks trotted out. Five-year loans are back above 4%, and it looks like an erection in the bond market will be awesome enough to gain even the Amazons’ attention.

Last autumn when this blog was overrun by doomers in Depends, telling you to buy gold and take cover before America defaulted, stock markets fell and bond markets rose. Investors looking for safety flocked to fixed income, driving bond prices higher and yields lower. Since then lots has changed. Every week comes more evidence the US economy is mending. Corporate profits are up, unemployment is down, credit demand is rising and jobless claims falling.

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Stock markets have gained about 8% in the past six weeks, with shorts about to get slaughtered as the S&P 500 passes a milepost. Once again, buying when everyone is selling – as this holy blog suggested – is the path to salvation.

Anyway, bond prices are still high even as stocks advance. This is an anomaly and won’t last long.  A torrent of money seems likely to gush out of bonds and into equities, bringing fixed income down and jacking rates. The good news is that those great preferred shares are about to get cheaper. The bad news is mortgages.

Finally, there’s that elfin bruiser, F. None too happy with BMO’s mortgage quickie at a time he wants real estate to chill, the buzz is he’s ready to murder the 30-year mortgage. Suddenly a nation of horny twentysomethings will have to suck a bigger down from their parents, or condo prices must fall.

Trust me. Or, you can pay some bewildered suburban dude 23% more for his house than he wanted.

Tell us how that turns out.