Amoebas

Okay, so we both know you have ‘realtor.ca’ included in your bookmarks, along with GreaterFool and that underwear place. Go there, select ‘Toronto’ then pull back to include all the real estate from Belleville to Barrie, to K-W and down to Niagara – the so-called Greater Golden Horseshoe. Now choose “Listed Since” on the menu bar and pick seven days ago. Click and behold.

In that period of time, in that wide region, more than 10,000 listings have come to market since last Monday. Yes, some of them are duplicates and some are re-listings which expired or changed price. But, whoa mama, that’s a lot of fresh meat!

For the past two months this pathetic but oddly fetching blog has been telling you about the winds of change. Suddenly the bidding wars ended. Buyers started to back out of deals. Realtors held offer nights and went to bed lonely. Sellers saw their great, greedy expectations smashed. Now listings are sitting for weeks, not hours. Sales have started to sag and, as mentioned above, we have a listings orgy in play.

All of this was evident even before April 20th, when Ontario dropped the hammer on the housing market in a move with national implications. Since real estate provides a fifth of the entire economy and 40% of current growth, the abrupt shift will be felt far beyond the shimmering glass condo towers of the Big Smoke. Imposing universal rent controls alone is expected to halt about $6.5 billion in residential development and actually increase tenant costs. Ah, yes. Government.

Well, all that anecdotal evidence here – the stories of jilted and unrequited sellers – now has some statistical support. The numbers are early, but decisive. This baby’s going down.

Sales of pre-owned homes across the country dropped 2% last month from March – which is a lot for the primo selling period of the entire year – and in Toronto they tanked 7.5% from April of 2016. CREA also revealed overall housing activity took a hit in 70% of all the markets in the country. Ouch.

That’s one shoe dropping. The other is the surge in listings – as evidenced by that 10,731 bloat in the GGH area mentioned above. It’s turning into an historic tsunami of properties flooding the market. By the realtors’ count, listings in the GTA have jumped 36%, which means May 2017 will be a far different month than was seen last year. Buyers have dozens more houses to see in any given area or price range, more time to shop around without jumping into a frenzied blind auction, and (increasingly) more motivated and less moronic sellers to work with.

Prices, of course, have not started to decline – and won’t until summer brings the realization that what sold for $1.9 million in February may never again fetch those dollars. House prices are sticky. Vendors are rushing to market to try and cash in at peak values, so it will take 60-90 days, until their initial listings expire, for reality to set in.

Then, natch, there’s Home Capital. While that company accounts for just 1% of the national mortgage pool, it is a lot more significant in the GTA, where subprime lending is common for $1 million+ houses for which a minimum 20% downpayment is required. Add in double land transfer tax, and a so-so $1.5 million unrenovated house with issues requires a down payment of more than $350,000. Scores of people borrow much of that, then arrange a conventional first with a big bank.

Home Cap may not be the stuff contagion is made of, but it’s helped douse the libido of the serially house-horny. Combined with the widely-publicized downgrading of the Big Six banks last week, this stuff all sends a signal we may be facing systemic risks that were undetectable a year ago.

Well, no bank will fail. Home Capital will be salvaged and subsumed somewhere. The financial system will roll along undented, but there will be consequences. After real estate sales decline, prices will stop rising and then, selectively, begin to falter. Nobody knows where the bottom will be, so it’s pointless to guess. But given the way we’ve embraced debt and allowed the economy to be hijacked by housing, a recession seems the obvious next phase.

So if you can sell, do it. If you don’t need to buy, then don’t. Hug your employer and offer to work late. Pray for your brother-in-law drywaller with the three condos and a new Mercedes CLA. Invest prudently, maybe with the portfolio outlined here yesterday. The time to vultch shall come.

In the meantime, watch the blue dots multiply like crazed amoebas. Many lives will soon change.