Wasted

When a Vancouver builder issues a media release yearning for tighter mortgage rules, well, you know the party’s over. It’s like the fox pleading for chicken rights legislation. Clearly we’re running out of birds.

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But that’s just what Bright Coast Homes did on Wednesday. “I think the tightening of some of the lending standards is favourable in our current housing market,” said spokesguy Ken Gee, in a spasm of common sense rarely witnessed in the housing industry. And he’s right. It’s why that elfin pugilist F is on the verge of murdering the 30-year mortgage, which is as much a part of young couples’ lives as (in my case, anyway) edible bras.

In fact, this builder’s little media campaign laments exploding household debt, too-cheap rates and contains this quote from BC builders’ pocket economist Tsur Somerville:  “All you have to do is look around and you’ll see that if a substantial correction does happen, that would be a real big problem. So let’s not let the housing market be driven by a wave of cheap and easy-to-access money.”

Too late, Tsur baby. Horse. Barn. Over.

Many blog dogs sniffed out the latest smelly news from the Okanagan, for example. Just months after local realtors were proclaiming victory over the forces of inevitability, markets in Kelowna, Vernon and Penticton – traditional burial grounds for GTA Boomers – have cratered. As reported yesterday, foreclosures are running at ten times the level of three years ago, with 170 court-ordered sales.

In the last month there have been 60 new foreclosures. Not only is this more evidence Kelowna is Canada’s Stockton (the SF exurb which birthed the US housing crash), but there are two must-know implications. First, the speckers, flippers and HGTV porn addicts have been crushed. Wiped out. Sent packing down the highway and over the Coquihalla.

This is a sure sign of a market approaching the cliff. Speculators can only make money in a continuously rising scenario, full of greater fools too whacked by house lust to see what they’re doing. After all (like Toronto and Vancouver), nobody can make money any more buying a single house or condo unit and renting it out, because rent/price ratios melted down long ago as real estate turned gaseous. So when prices moderate, then flatline, then start to trend lower, the gig’s up. Tens of thousands of amateur property geniuses in Toronto will soon learn the same lesson.

Said a Re/Max guy: “The market in the Okanagan has really come to a standstill on that speculative investment front, and that is really what has been a major portion of the court ordered sale thing that has increased so dramatically.”

But foreclosures have an even bigger impact on sellers. It ain’t pretty. Suddenly there are dozens and dozens and dozens of houses thrown on the market by banks which care only about covering their loans. The effect on prices can be chilling. It was a wave of similar bank-forced sales in the US which infected entire neighbourhoods and subdivisions. Dwindling numbers of potential buyers were sucked off to the bargains, leading all sellers into a race to the bottom. The final destination was negative equity for close to a third of all families.

But there’s more.

CREA’s latest numbers are equally ominous, especially knowing how much lipstick was slapped on before they went public. Seasonally adjusted (ie ‘enhanced’), the real estate association’s report shows existing home sales dropped a substantial 4.5% from December to January. It’s the sharpest plop in two years. Meanwhile prices are up – but the 1.2% annual advance is half the inflation rate and a drastic trimming from just six months ago. In fact, it means all the equity most people are sitting on would have performed better in the orange guy’s shorts.

Is this emblematic of what’s to come? You bet, says TD economist Jacques Marcil. “This month’s decline is reflective of what will shape up to be a softer year in sales.” And as sales fall, so do prices – in fact, the lag time between the two can easily be nine months, depending on the market.

So how do we square this growing body of evidence of housing angst with bidding wars for North Toronto shacks and a near-riot on Sunday outside a Richmond Hill developer’s office?

Why bother trying? If markets were efficient there’d be the instant dissemination of the information investors need to make wise decisions. But that’s utopian. And despite the non-stop news cycle, web-connected devices in every pocket and the glorious existence of this pathetic blog, shocking numbers of Canadians will do exactly what they did with Nortel, Bre-X and RIM. They’ll chase prices to the pinnacle, then wonder what the hell happened.

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This is why the builder guy in Vancouver is right.

To save himself, his company and his industry, somebody’s got to take the punchbowl away. Before we’re all wasted.