“I’m in my late 20?s,” Pat says, “and have been watching friend after friend take the plunge, regularly bidding 10% or more over asking price. Note that many are single women who make between $30-$40,000. It’s incredible the pressure I am under.”
When I posted Pat’s comment four months ago, Winnipeg was on fire. Figuratively, I mean, besides being the arson capital of Canada. House prices had surged, there was only a two-month supply of homes for sale (compare that to 20 months right now in parts of Vancouver), cranes were bring new downtown condos, and realtors were prairie rock stars.
My report on The Peg showed that a decade ago the average house sold for $95,000. Now it’s $245,000. Detached homes fetch over $300,000, and the city’s ringed with subdivisions where new builds are $500,000 and up. Real estate has appreciated by 158% in ten years, eclipsing even Vancouver. Demand seems insatiable. Last Spring, for example, there were only 27 houses for sale (out of 3,000) between $180,000 and $300,000 – in a place where the average family earns just under $75,000.
In the summer just about everybody I talked to in Winnipeg said the same thing. You know what… “It’s different here.” The reason given for non-stop housing horniness was immigration, and a paucity of rental housing. Why would people from around the world flock to a place with minus-forty winters, Olympic-sized bugs and empty nothingness beyond the last city streetlight? I have no idea.
But no bother. Seems they’ve stopped coming. Kinda like the non-Ham in Vancouver and condogeddon in Toronto.
Last month sales crumbled by 14%, while the number of listings has increased 3.5%. That two-month supply of houses is now 3.5 months – still low by national standards, but an increase of 75%. Obviously something is happening to bring demand to its knees while bloating supply.
“We are watching the market carefully, especially since other markets across the country have been experiencing these kinds of drops in activity for a few months.” Says real estate board boss Shirley Przybyl. “Other real estate boards are attributing the slow down directly to the Federal Government reducing the amortization period for mortgages from 30 years to 25 years in an attempt to ensure consumers’ debt load is controlled. Other markets have found that this adjustment negatively impacts first time buyers and causes demand to weaken. We will watch this closely as the year winds down to see if Winnipeg is starting to experience the same trend.”
But, Shirl, there no need to watch and wait. We all know what’s happening in Winnipeg is exactly what’s now transpiring in most markets. Months ago this pathetic blog blurted out the obvious: given record high prices, debt obesity and crappy income gains, all it would take to crash housing everywhere was a tweak in financing. And we got it. Shorter mortgages, no cash-backs and tighter borrowing regs for the virgins did the trick.
Turns out it’s not different in Winnipeg, where even hockey has left town. It’s worse.
Where first-time buyers make up about 20% of the national real estate market, in The Peg it’s an astonishing 45%. This means the market is hugely exposed to correction, thanks to F’s War on the House, launched last April, which took effect with a vengeance on July 9th. As I’ve said often enough to bore even me, killing off that 30-year mortgage had the same effect as raising mortgages by almost 1% and in so doing knocked about a fifth of all potential buyers out of the market.
But let’s not lay all the blame at the tiny, perfect feet of the diminutive demigod. Winnipeggers also shoulder blame, as do people living in the other bubble cities. The unsupported run-up in prices brought on by vendor greed, realtor pumping, idiot virgin buyers, voracious mortgage lenders, predatory bankers and rotating helo-parents is equally at fault. The proof is simple, and clear. All it took was the equivalent of a 0.9% interest rate rise to screw over housing. So just imagine what’s in store when rates are two or three per cent higher.
How bad are things? This bad: Veritas Development Group built a 10-unit condo project in a downtown heritage building. How many have sold? None. So the builders gave up, and have rented out nine, keeping one as a display unit.
Not far off the new H2O condo development is under construction with fetching views of the river and the downtown, bringing 43 units to the market, priced from $200,000 to $350,000. So far, only two have sold. Says the builder: “I just don’t know why they’re not selling.” So, he’s converting them to rentals.
Now, maybe you don’t care about Winnipeg. Or Victoria. Saskatoon, Richmond, Kelowna, London, Montreal, Vancouver, Edmonton or Halifax. But you should. Every market is reacting to the same set of stresses, and in each demand is falling while supple snakes up. The bottomless pool of qualified buyers that cheap mortgage rates created has dried up suddenly and decisively. The meme is turning negative. Real estate’s started to sting.
Nobody should be surprised. Everybody is. And this is but foreplay, even with your socks on.