Only in Kanada
It took just eight months of shrinking sales for the nation’s realtors to admit it. The market’s in retreat. The prospects for 2013 kinda suck. And it’s all Ottawa’s fault.
Before we rip that apart and feed it to the jackals, let’s flip over to Moscow. “Dear Garth, my name is Viktoria and I am writing from Russia,” she coos, conjuring up images of a snowy babe swaddled in fur with thigh-highs and a wolf hat, “so you can be sure you and your blog are popular and very helpful worldwide!
“I like what you talk about and the way you help people – each time it is like a business case – people give you initial data about themselves and you provide a resolution what to do. I also like your language it is full of funny and useful words and expressions along with being literary.”
Enough foreplay, Vicky. On to real estate!
“But after a while I realized many things are the same worldwide – people want to have a home whatever it takes, they become indebted without thinking how to return and have a problem choosing where to put their money into. Our situation is even more funny from some perspective – the percent for mortgage my friend has is 13! Another “funny” thing is that we still have so called “kommunalka”. This is an apartment where owners own only rooms inside the apartment and places like bathroom and kitchen are in common use. The friend I said has 13% mortgage had not enough money to buy the whole apartment (as we have exorbitant prices for real estate) and bought a room. So now she is living with complete strangers some of whom behave like crazy ones with no hope or possibility to influence them (remember we do not have working police).”
So, there you go, wussy, spoiled Canadians. There are people in civilized countries carrying 13% mortgages on mere rooms, with strangers lurking in the kitchen and ready to surprise you in the bathtub. And no cops. But we have our own cross to bear, of course. It’s called the Canadian Real Estate Association.
So here’s the news. CREA has lopped its forecast for 2013, coming into line with what this pathetic blog told you months ago. Across the country sales in November were 12% lower than a year earlier, hardly a surprise considering the 19% drop in Montreal and declines of 28.6% and 16% in Vancouver and Toronto respectively. After ignoring this trend completely since last April, the evidence of slowdown is now irrefutable.
But give these guys full marks for Soviet-style media control! As recently as August, this was the storyline the real estate cartel was pumping out: “The national housing market remains firmly entrenched in balanced market territory, supported by stable sales activity and fewer new listings. The national sales-to-new listings ratio, a measure of market balance, stood at 53.4 per cent in July 2012, up from 51.6 per cent in June. Based on a sales-to-new listings ratio of between 40 to 60 per cent, two thirds of all local housing markets were in balanced market territory in July.”
So much for CREA stats. Realize these are the same people who now admit house prices across Canada have fallen about 1%, but their Frankenumber – the MLS Home Price Index – is actually ahead by 3.5%. Proof, comrades, there has never been a better time to buy!
That 2013 will start with downward momentum in the housing market should surprise nobody. Both sales and prices will fall compared to 2012. In fact, April of this year will likely go down in the annals of GreaterFooledness as the climactic apex of excess. Remember how I walked you through a bidding war in North Toronto? Every offer had to be for more than the asking price, without conditions, and come with a certified cheque for fifty or a hundred grand.
On April 18th this blog described a bidding war with 15 couples competing for a $1 million home. “Each one was for more than the asking price of just over one million dollars. After reviewing them all, 12 couples were sent home with their certified cheques. Three others were asked to enter a second round of competition, given a few moments to add fifty or eighty thousand dollars. Within minutes the sellers had a firm offer of one used Hyundai less than $1.3 million. And, thus, the value of this home increased 30%. It became a comparable for every other owner on the block.”
Moments like that – auctions carefully orchestrated by real estate agents – brought buyer capitulation, as prices spiraled beyond absurd. Given the jingoism of the industry, it was inevitable any small barrier would send the pendulum of public sentiment careening in the opposite direction. Three months later the feds obliged. Now the realtors have their straw man.
“Interest rates have remained low and the economic backdrop has remained supportive for housing activity, so that should leave little doubt that recent changes to mortgage regulations are responsible for having cooled activity,” says CREA’s chief economist Gregory Klump.
Untrue, of course. A drop in the maximum amortization from 30 years to 25 should have zero bearing on Audi-driving yuppies throwing cash at a property. But they, too, have stopped buying. Bidding wars are gone. Sales slag. Listings languish.
There’s only one valid reason for what CREA now admits. Houses cost too much. Period. 2013 will go some distance in fixing that.