The soulless semi in lifeless Whitby was sold in days. Multiples. Dan was one of the realtors representing disappointed bidders. His people tried to buy with an offer worth 26% more than the listed price. Futile, he said. “There was no hope.”
And so 148 Brownridge Place went in a flurry for $730,000 or 146% of the asking price of $499,000. For half a house, 26 feet wide. Sixty clicks from the downtown core of Toronto.
Lately the light’s been going on for more people. “We’ve been in this place for 16 years,” Andy told me on Thursday morning from his north Toronto home, “and I’m stunned at what I’m told it’s worth.” He retired a few months ago and worries if his million in investments (no pension) will carry him through. But if he sells, he suddenly has $2.5 million to deploy and a forever income above $12,000 a month. “How,” he asked, “can I afford not to do this?”
Sellers today – at least in the one frothy market remaining, our nation’s largest – are gods. Every decent property is gone after one or two open houses and a night of offer warfare. Every asking price is but a starting point. Every bid is unconditional. No need to stage your home to solicit interest. Hell, forget scooping the cat’s litter box. Sometimes you don’t even need to let people inside. Own it, and they will come. Supplicant purchasers, begging you to take their money. However much you want. P-l-e-a-s-e.
This is unique and historic. Year/year gains are 20% each month. Yet incomes are flat. The economy blows. Trump’s a threat. Debt is epic. But the froth continues. A classic bubble, driven not by fundamentals but by speculation, greed and groupthink.
A bubble’s most vulnerable when people argue it’s invincible. That would seem to be now.
This week the threat became more real. After their surge higher, stock markets retreated Thursday as the odds of a March interest rate hike approached 90%. Astonishing. Two weeks ago there was an 80% chance of no increase – that’s how fast the landscape changes. Yet another Fed insider has come to Jesus. For months Lael Brainard argued against higher rates, saying the conditions were not right. No more. “It will likely be appropriate soon to remove additional accommodation, continuing on a gradual path,” she said in a Harvard speech. “We are closing in on full employment, inflation is moving gradually toward our target, foreign growth is on more solid footing and risks to the outlook are as close to balanced as they have been in some time.”
She joins the others mentioned here this week lining up to vote for a rise in the cost of money on March 15th. This may yield three increases in 2017 – tripling the US bank rate by the end of 2017. In anticipation, the US$ is advancing (our loonie is falling) and bond yields are spiking. US Treasuries just hit a seven-year high.
Of course, the Bank of Canada will follow. Not immediately, but inevitably. And in the meantime, fixed-rate mortgages have only one direction in which to travel. Apart from the greater fools trying to buy houses in a time of excess with scant listings, a growing chorus of smart people are sounding the alarm. In recent days, the head of RBC did it. BeeMo’s senior economist called out. Now Scotiabank’s boss, Brian Porter, is reminding buyers how nuts they are. “This is a complicated issue. We’re concerned from the perspective that trees don’t grow through the sky and markets will correct at some stage here.”
On that very topic, sales in Vancouver dropped 39.5% last month, and 11% from December – and are running well below the 10-year average. Listings continue to collapse. No surprise. When almost every house in the city costs at least a million, and the average family earns $68,000, who the hell can afford to move?
On Friday Fed chair Janet Yellen delivers a speech which will be scoured for nuances as to the possible March hike – now being given an 88% chance of happening. And why not? Unemployment has crashed to just 4.8%. New jobless claims sit at a 44-year low. Corporate profits are set to swell by double-digits. Financial markets and consumer confidence are scraping the ceiling. And all this is even before Trump slashes business taxes, spends big on infrastructure and the military or shreds regs. America’s hot. Inflation’s back. The years of free money are ending.
Don’t expect Canadian real estate markets to crash and burn. Won’t happen. Prices are sticky, as they’ve learned in Calgary. But new buyers face potential loss. Severe, perhaps. Especially if they’ve borrowed big.
Sellers, on the other hand, are omnipotent. Relish it.