Remorse

The bottom may fall out of the southern Ontario housing market a week from Monday. That’s the day local realtors, shocked, dismayed, in disbelief and caressing their A7 key fobs a final time, release the stats for May. Expect epic.

So far we know listings have exploded. Up almost 50% in the first two weeks of this month compared to last year. Sales are going in the other direction – down about a fifth. And sentiment is changing fast. Just two weeks ago this breathless blog told you that for the first time in the history of polling more than half the people expected house prices to keep on going up. Well, that was then. Now it’s a mere 45% or so – but a significant change in 14 days.

Suddenly the headlines are graphic. “Bidding Warns Turn to Homebuyers’ Remorse in Toronto,” yells Bloomberg. And remorse it is. Deals are falling apart all over the place as buyers who suddenly realize they were the greater fools – buying at the tippy-top of an inflated market in a FOMO frenzy – do everything they can to avoid closing.

Mortgage originations are drying up. Open houses are empty. Agents are starting to completely abandon (thankfully) the barbaric cultural ritual of staging blind auctions. Suddenly buyers have a wide choice of properties to browse, no pressure to make an immediate offer, the ability to demand financing or home inspection conditions, and can even make a low-ball offer without shame or ridicule.

How is it for sellers? Wicked bad.

A few weeks ago 94% of new listings were snapped up as they hit the market. Now that ratio has plunged to 52%, and could be on its way to the Credit Crisis low of about 35%, hit when the world was ending in early 2009.

There are two stories at play. First, the sellers. Another 9,500 properties came on the market in the Greater Golden Horseshoe area since last Wednesday. This is historic, with almost 30,000 active listings now in the region. As the meme spreads that the boom is over, tens of thousands of owners are trying to exit at the top, while scores of speculators, leveraged to their pits, panic and list.

Then there are the buyers. The sales decline was 16% in the first two weeks of May, and odds are it will increase. Why would people stop looking for a house just when there are more to choose from, with less pressure and the potential for a better deal? Because we move in herds. People are desperate to buy things that others desperately covet. We back off in hesitation when something becomes unwanted, smelling risk.

It suddenly became clear to many that this market was a total gasbag. And how could a sane person believe otherwise?

Not only did prices travel from the unaffordable to the delusional and into the criminal, but the news for real estate has been all bad. Home Capital, the biggest non-bank lender, laid an egg. Ontario started taxing foreign dudes. Universal rent controls were slapped on all condos. The major banks were downgraded. The media’s been filled with stories of a population shouldering record debt, one missed paycheque away from oblivion, with 70% unable to afford any mortgage rate hike – when higher rates are a certainty.

So, the next few weeks and months will be pivotal in the financial lives of millions of people with the bulk of their worth in residential real estate. Many who bought in March or April will find they paid far too much, may never recoup, and are courting years of agony and expenses if they try to walk away from their deals before closing.

Greed is morphing into fear. Maybe it wasn’t different here after all.