Oh Canada

If you knew a house was repossessed, and for sale, would you offer less? Duh. Of course you would. After all, if some overextended nimrod walked out on their mortgage and the lender was dumping the place, why not vultch?

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If you were the broker handling the listing, or the real estate board overseeing it, wouldn’t this be relevant information for the marketplace? Duh. Of course it would. In fact, trying to hide this fact would be unethical and misleading.

But quietly, maybe fearing what’s ahead, CMHC has been doing exactly that. The government body which controls 75% of the mortgage insurance in Canada, protecting lenders against all those lusty little equityless property virgins and their high-risk loans, has now been exposed as a market manipulator.

Mario owns a real estate shop in Quebec. “So, basically, as a broker I’m not allowed to indicate that the property is a repossession. Hmmm. Kind of makes you think… Yeah, this bubble is probably popping,” he tells me.

Mario got this notice days ago from the Quebec federation of real estate boards: “The Canada Mortgage and Housing Corporation (CMHC) has stated that real estate brokers should not indicate, on a detailed sheet for a property that is for sale by the CMHC, that the property is a repossession. We inquired with the CMHC, and they informed us that this publication rule stems from a national policy that applies to all Canadian provinces.”

There you have it. The government is trying to hide foreclosures. Perfect.

And what does CMHC have to fear? Well, just look west for a glimpse.

It’s the last day in February, which means realtors will be publishing monthly sales numbers next week. In BC they’re a disaster. In the Mouldy City, the Greater Vancouver Real Estate Board recorded just 1,666 sales of all properties in the first 26 days of the month, compared with 2,302 during the same time last year. That’s a dump of 27.6%. And prices are wilting too. (Remember what I’ve told you about sales volume declines preceding price declines.) The average sale this month comes in at $744,281, down 6.3% from last year.

Now, imagine you’re a formerly horny ex-property virgin who bought a concrete skybox in Burnaby last year with 5% down. You’re now under water. After paying the mortgage, the strata fees and the property taxes for 12 months, your unit is not only worth less than it was, but your mortgage is bigger than your place is worth. And, factoring in closing costs (including the CMHC premium) and commission if you wanted to sell, you’re seriously broke.

So, you have a choice. Stay, feed the mortgage, pay twice as much as the renter next door is shelling out for the same unit, hoping that in a few years you might sell for at least enough not to have to borrow even more to get out.  Or, walk. Either way your down payment is toast.

Think CMHC doesn’t know this? By the way, here are more numbers to chew on. Total single-family home sales in the Lower Mainland (combining the Van board and the Fraser Valley Board) total 1,548 so far this month. That’s a stunning 50% drop from last February and (get this) a worse showing than in the same month in 2009, when we were plunging into the economy abyss. There’s little doubt significant price corrections will follow.

On Monday the Toronto real estate cartel, along with those in Victoria, Vancouver, Montreal, Edmonton, Regina and elsewhere will announce lower sales. Some will be moderate, some not. Without a doubt, the trend line will continue. Despite record low interest rates and the incessant pumping lately from ReMax, Royal LePage and the major mortgage-spewing banks, the real estate market is losing volume, price and momentum. The correction will be immensely uneven (bidding wars still erupt in Toronto for $700,000 to $1 million properties), but that’s the nature of housing. Those who get nailed rarely see it coming.

In this context, do we really want a powerful, massively-influential government agency fibbing to buyers? Coaxing them into paying more than an open market might dictate? Fluffing prices?

To be sure, repossessions, foreclosures and sullied virgins talking a walk are rare. Canada will never see a jingle mail revolution as in some US markets, since the only way out of debt here is bankruptcy. But the numbers will undoubtedly rise as wiped-out, whacked young buyers figure anything’s better than suicide by condo.

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Except, maybe, the death of trust.