The Manipulator

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Eighteen months ago this was the message to folks in BC: “Homeowners can rest easy their principal place of residence won’t likely encounter any negative equity while investors, with patience, can see their asset grow at a moderate pace.”

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Based on what? The forecast of the realtors’ chief economist, Cameron Muir.

Here’s what Cam revealed this week:

  • “The dollar volume of homes sold through the Multiple Listing Service in BC declined 14.6%  to $2.7 billion in October compared to the same month last year.”
  • October sales of 5,276 were down 10% from last year, and…
  • the average price ($508,292) is lower by 5.1%.
  • Year-to-date, BC residential sales dollar volume declined 18.2% to $31.1 billion.
  • Sales fell 10.5% to 59,946 units, and…
  • the average residential price was 8.6% lower at $518,321

In other words, someone buying the average house a year ago has lost 5% of their property value. If they bought with 5% down, they own nothing but an obligation to pay. And if they bought in January, they’ve lost 8.6%. Given the fact the average down payment these days is 7%, thousands of people are currently in negative equity. Combine that with the current savings rate in BC – negative 8% – (thanks to real estate) and you can see what damage housing can do.

Of course, we’re just starting the descent. Vancouver and Victoria’s situation is well documented. But things are more dire in Parksville, Qualicum or Nanoose, where acres of golf club-hugging West Coast McMansions were built in anticipation of a Boomer tsunami from Mississauga and Calgary. Sales in Parksville are down 17% and have tumbled 15% in Nanaimo. Average prices are lower by 3% from last year, but in the wrinkly areas, relative bargains now abound. Homes that a year ago were trading in the nines are now pushing the bottom eights, newly-built, granitized with enough potlights to safely land an Airbus.

Mississauga prices, in other words, with better housing and no snow times. But still, the Boomers are not coming. Nor will they. Even as prices fall, BC’s a victim of its own real estate excess, and is now irreparably labeled as stupid expensive.

Yesterday I rubbed a few people the wrong way by saying the feds – with their War on the House – did not cause the current correction, but merely exposed it. No bad typing. I meant it. Mortgage brokers and realtors can blame killing off the 30-year mortgage or the end of cash-back loans all they want, but there’s only one reason housing is dangerous. It costs too much. Cheap credit and weak minds created this.

Nobody has done more to foster the destructive belief that everyone deserves a sexed-up house, or that there’s negligible risk in getting one, than the real estate industry. Cameron Muir is a good example. Re/Max is even better.

Days ago, as sales in most major markets wilted and condos crumbled, a new ‘housing outlook’ report led with this prediction: “The trend (higher sales) is expected to continue, with home-buying activity propped-up by low interest rates and an improved economic picture in 2013, according to a report released today by Re/Max.”

“Canadian home sales are expected to almost mirror the 2012 performance next year, holding steady at 454,000 units.  The average price of a Canadian home is expected to remain stable at $364,000 in 2012—on par with the figure reported in 2011.  Values are expected to appreciate nominally in 2013, rising… one per cent above year-end 2012 levels.”

Why would sales and prices rise when the average family can’t afford the average home? Three reasons, says the company: the economy ‘is expected’ to improve; rates will stay low; and the clincher…

“Last, but certainly not least, there’s no denying the universal appeal of bricks and mortar.  Canadians believe in homeownership.  The stability of real estate over the long-term continues to fuel its appeal.”

See what I mean? An entire report and national forecast based on some ‘expected’ outcomes, all unsubstantiated and unresearched, sprinkled with sunshine and ponies. Home sales, says Re/Max, will surge in Vancouver, Calgary and Kingston, while prices will jump in Regina, St, John’s and Halifax.

But all this attempted manipulation may be old news. The Re/Max report days ago was picked up by 24 print media outlets in Canada. The one these guys published last year had five times that coverage. Seems even the newspapers, starved as they are for paying advertisers, are starting to cringe and draw a line just this side of credibility.

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The 100 days following January 1st, 2013, will be historic ones for Canadian real estate and all those recently seduced by it. By the end of March even your mom will be on board

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avatarGarth Turner - The Greater Fool posted Tuesday, November 20th, 2012.

2 Comments for “The Manipulator”

  1. In defense of Garth, it’s pretty well established market wisdom that one can predict price but not time. Nobody knows when any market far beyond its natural limits will break and go down.

    Garth’s been predicting future price declines after the market breaks. Not when the break will happen (although now that appears to be not a long time away). And he will be proven right.

    The truly amazing thing is that Canadians can have observed what’s happened on the Yankee side of the border — including knowledge of all the reasons it happened — and somehow believe it will be “different” for them.

    It never is.

  2. Hmm, Garth has been predicting this since early 2008, which you can verify on his blog. 4.5 years off the mark is pretty bad market timing. Anyone can predict that a downturn will happen in +/- 5 years. You would go broke following his advice.

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