The standoff

They listed a week ago for one point nine. In doing so, Tom and Mary thought they were being astute. Look at the comparables? Check. Stay below the two million threshold? Check. Expect scant showings and aggressive buyers? Check. Get an agent experienced in Burnaby? Check. Ensure it was an Asian dude with strong community contacts? Check.

So far, a few showings. One offer. “It was totally insulting,” Mary says. So they didn’t even bother signing it back. Why, I asked? “Because it was a joke. Just one point five.” Of course, even that would have constituted a windfall gain. But it was taken as an affront. An attack. Demeaning. The vicious assault of a down-class vulture.

So I reminded them that two or three days after they hit the market, everything changed – again. The Chinese Dudes tax was the first shoe to drop at the end of July. Wild Bill’s massive mortgage overhaul was the second. On Monday all insured buyers faced a stress test, for the first time, equivalent to a 2% surge in mortgage rates. Brokers found themselves suddenly hobbled. And already sales had been catapulting lower across the Lower Mainland since the late Spring. The evidence that BC real estate peaked last March is now undeniable.

It’s not over yet, of course.

On Friday the T2 gang made good on a promise which has the Bay Street bank titans’ shorts in a twist. After more than six decades, the government is no longer willing to shoulder all of the risk for mortgage defaults. It’s huge news. Heretofore lenders have merrily doled out billions to moisters with no savings, no financial track record and nothing but house lust in their young eyes – at the bottom of the rate chart. In fact, kids with nothing but hormones and 5% down have often received preferential rates – simply because virtually every dollar of their loans was guaranteed by the government with insurance paid for by the borrowers.

How sweet is that? How could there possibly be less incentive to worry about risk? Or more moral hazard?

Now it changes. The feds have just released this consultation paper which seems designed to lead to one conclusion: the bankers will be forking over a deductible, likely 15%, of the loan losses that might occur. And occur they will. Everyone knows we’re in the final, painful phases of a housing bubble which has wildly inflated residential real estate, creating mountainous debt even as the economy slumps, unemployment rises and wages mold. Given government actions like the stress test and the China tax, and the fact fewer and fewer people can now afford houses, this market’s doomed. A swollen stream of mortgage failures has never been more certain.

Imposing a deductible will cost money. Higher costs will be passed on to borrowers, so it’s a fair assumption (since the banks have said as much) this will increase mortgage rates when implemented, likely in 2017. Meanwhile it’s estimated the new stress test alone will remove about 20% of buyers from the market. On Friday CBC carried an interview with a financial planner telling Millennials they’ll just have to get used to having babies in apartments. What a cruel world this is becoming when people without money can no longer buy $800,000 houses with borrowed downpayments, financed by 2% loans.

Anyway, it’s done. Ottawa has formalized a process with an inevitable conclusion. The same governments that helped create this gasbag, driving people into epic debt and wildly inflating the value of Tom and Mary’s suburban home, are now actively bringing it down. They think a soft landing is possible. If so, it will be the first asset bubble in history not ending in tears.

Meanwhile in Burnaby, and Richmond, Surrey, Poco, North Van or the Westside (where sales this month are reduced 93%) it’s a standoff. Sellers like T&M think their house is worth exactly the same as it was two months ago, fervently believe this is all faery dust nuisance that’ll blow away, and have no intention of being screwed out of their gains. Buyers, like the one who ventured an offer and was rebuffed, see a market that’s withering, populated by vulnerable sellers. If prices will be lower every single month – why not bid down?

‘There may soon come a day,’ I said to Mary in words she did not want to hear, ‘that you’ll wish the one point five offer was back sitting on your kitchen table.’ She was silent.

Pride still goeth before a fall.