The Move-up


too big

“I sold my condo and I have a hundred thousand now,” he said.  “Should I buy a house, or invest, or what?” It was an absurd phone call from a dude in Calgary I’d never met, who had never heard of me. “My friends read you,” he said, “so they dared me to call.” At least he had the stones to do that, even if he can’t face his wife.


One kid, one on the way, she wants a house. Sal does marketing for oil and gas juniors. “Zero job security,” he said. “This place is brutal right now.” One income, and just one hundred grand. So, is Calgary a good buy? “ReMax says so. Just heard that on the radio.”

Two minutes later I discover he sold his first house five years ago, and they pocketed $220,000. Real estate rocked. So they bought the condo, paid all those monthly fees, and when it came time to sell (one kid, one on the way), it took seven months and a big loss. Suddenly half the nestegg was gone.

So why, I asked, sounding as irritated and disgusted as possible, would you make the same mistake again? Put everything into one asset? Create risk for your family?

“Because it’s different here.”

ReMax says it’s different in Winnipeg, too. The ‘news release’ out yesterday claims houses in The Peg rose in price an average of 10.03% each of the last ten years. That’s akin to the escalations seen in Florida or Nevada prior to the collapse which ate the American middle class. “No signs of being in bubble territory,” the company quickly added. “House prices are playing catch up, given a stronger economic status and following decades of steady, but modest, growth.” In other words, this is all completely normal. It’s different in Winnipeg.

But not for two major developers who’ve now given up trying to sell their already-built condos in downtown Winnipeg. The Penthouse on Princess and the H2O development have become 152 rental units, after sales fell off a cliff. In fact, only 15 units were purchased, reflecting a condo reality also impacting Toronto, where prices have already tumbled over 8% in the past year.

Meanwhile in Vancouver and Victoria, sales of homes over $1 million have fallen precipitously – which is bad news in the two cities with the highest proportion of seven-figure listings in the country.

All this is consistent with what I’ve told you to expect. The end of long mortgages creamed the virgins. The end of CMHC insurance creamed the million-plus market. And meanwhile a slowing economy, falling commodity prices and high-profile job losses in Canada, along with negative demographics, foretell the inevitable – a slowly, relentlessly deflating real estate market after a decade of insane, debt-fueled house porn.

And who better to arouse property lust than the S&M crew at ReMax?

The latest report I mentioned above is the latest attempt to encourage people who only scan headlines, grow restless during 60-second commercials or read with their lips to buy a house. After all, it’s different here. In Canada it’s perfectly okay for home prices to rise 93% over a decade and mortgages explode. In fact (as Saskatoon Housing Bubble figures) while real estate was bloating by more than ninety percent and mortgage debt swelling 148%, the average income grew only 31%. How can that possibly be an issue?

Now as the virgins are crushed by crashing condos and the Audi class whacked by the insurance changes, ReMax is trying to tell us the middle is booming. In fact, they have a name for the phenomenon of suicidal forty-year-olds not paying attention: the ReMax Move-Up Buyers Report 2013.

Apparently the realtors don’t understand why the proportion of people in Toronto, for example, buying homes priced between $500,000 and $700,000 has grown from 8% of the market to 20%. This is attributed to growing buyer confidence, cheap interest rates and “move-up buyers taking advantage of the softening market as a chance to buy a bigger home in 14 of the 16 major markets.”

In reporting all of this, one big-city reporter even called it “a buy-up spree.”


“The leapfrogging currently underway allows purchasers to gain greater equity with each move, accumulating wealth in the interim,” says the ReMax report. “They recognize that very few financial vehicles allow them to do that with the security, tangibility and dual purpose that homeownership represents.”

This is what Sal heard on CHQR as he drove home. Just as the ReMax guys had hoped and prayed. Sal also told me that while he has an uncertain job, three (almost) dependents and just a hundred grand, “the bank has offered us financing of between $500,000 and $550,000.”

The realtors. The banks. The media. The huddled masses, yearning.

Obviously, this is too big to fail. What a waste this blog has been.


Average Income, Average House Price and Mortgage Debt Growth 2002 -2012

Saskatoon Housing Bubble

avatarGarth Turner - The Greater Fool posted Thursday, February 21st, 2013.

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