Silent spring

“So,” Raj says, “we all know that average prices are rising and people are getting priced out of the market (me included).  That explains the demand side of the equation, but what about the supply side.  No one is selling (at least in the GTA – Mississauga in particular), which is creating tight supply. Question is, why is no one selling? Why aren’t they putting their properties on the market, this is the time it usually happens during the year isn’t it?”

You’re right, Raj. Spring is usually real estate’s rutting season, when rivers of hormones make the streets slick, buyers thrust their offers and sellers lustily receive them. But this year, it’s all turned icky cold – and not just in the GTA – with both sales and listing down in many markets, as prices squirt higher.

In godless Toronto, for example, we’ve had almost a year of year-over-year sales drops, while the price of an average house has jumped by many times the inflation rate. As I mentioned recently, the average SFH in 416 is now one Hyundai away from $800,000.

But this is nothing compared to the sales slaughter and price romp taking place in BC’s Fraser Valley – distant burbs of Vancouver (where zombie Chinese lurch through the streets suffocating the locals in bales of currency). In fact, as the local paper reported days ago: “Realtors in the Fraser Valley are warning people in Abbotsford and Mission not to panic after property sales in the two communities dropped substantially in April.”

Panic?

Actually, digs these stats: Sales of detached houses dropped in Abbotsford last month by 33%. In Mission, down 42%. In fact, in that community deals collapsed by almost 50% from just the month before. Townhouse sales crumbled by 78% and condos tanked 71%. But prices, incredibly, have now soared 11.5% in a single year.

This experience is being repeated elsewhere across the country, as sales and the number of available houses shrink and average sales prices swell. It seems incongruous, but there are solid and disturbing reasons behind the phenom.

Demand? No wonder it’s down. And about to fall further. Unemployment is still way too high (8.5% in the GTA, for example), while household incomes are barely crawling ahead. Household debt’s now higher than in the profligate US of A. Corporate taxes may be falling, but not those slapped on families. In fact, it’s this tax fatigue in BC that has the new preem fighting for her political life, about to hack the HST and up the levy on small businesses.

Everybody knows rates will be rising this year. We also know the Harper feds will be cutting spending and probably the public service. We know Europe is toast, the US faces crippling debt, and Sarah Palin will soon run for president. The 35-year mortgage is dead, banks are finally tightening up on credit and 70% of us already have a house. So, why wouldn’t demand go flaccid?

As for supply, two reasons most people are staying put. The first I just spelled out – financial anxiety. The world is a scary place right now, with wars, bankrupt countries, earthquakes, killer twisters, floods, rogue nukes, no Oprah, street riots and mounting debts. It takes confidence to sell your house, then worry about moving and finding another one. And that’s the second reason. Most people are so bummed out over house prices – thanks to the numbnuts real estate industry constantly pumping them – they fear they can’t replace what they might sell. And as I mentioned some days ago, most sellers would never dream of shelling out for their own homes what they think somebody else should pay.

So, they sit. And this is human nature. People quiver and stall when they can get the highest price, then gush the market with listings as values start to plunge. Go figure.

Finally, price. Weak demand may be chasing weaker supply, but there are sufficient idiots left to punch average prices higher, be they Asian idiots or our beloved Canadian ones. They continue to be gassed by low mortgage rates, and believe Phil Soper and Don Campbell have been sent here to lead the rapture.

So, Raj, the best strategy is to chill. Take off the antlers, dude, and just wait. This will all make a lot more sense in the months to come. Even the OECD is reading this oversexed blog. It’s now warning of a weaker economy due to a litany of global crises, “combined with reduced spending from heavily indebted households dealing with softening housing markets.”

The best strategy is to invest in liquid assets within a balanced portfolio (I’ve already told you how), and get horny on mls.ca when the annual juices flow again a year from now.

In the meantime, zip it.

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