The quandary

On Friday this dubious blog told you Canadian real estate sales in July would be 15% lower. On Monday the realtors announced sales were down by… 15%. Ta-da.

Now, whazzit mean?

Sales have fallen in four consecutive months. March was peak house. We told you that then. But not everyone agrees. Like Re/Max. Ignore the GreaterFool fearmongering nimrods, it says.  Things are great (so buy now):

“Halfway into 2021 and the GTA’s housing market continues to fire on all cylinders,” said Christopher Alexander, senior vice president of Re/Max Canada (in a report)… “Without a serious influx of new listings to ease the upward pressure on pricing in the coming months, the market will likely continue on this upward trajectory.”

Okay, Chris, but this is what the stats show us:

• Two-thirds of all national markets suffered sales declines in July.
• Provincial sales were down in Ontario, Quebec, NS, Alberta. BC, Saskatchewan and PEI.
• The average price has dropped from $716,828 (March, of course) to $662,000. If you waited you saved $55,000, or 7.6%.
• Not only are buyers giving up, but so are sellers. Listings have plunged, down almost 9% in July. For example, recently there have been about 11,000 houses for sale in the GTA, the lowest in a decade and 35% under the 10-year average of 17,000.

Fewer houses to choose from means higher prices. Always. In demand areas of Toronto or Vancouver that continues to happen. And nationally, houses cost 22% more than a year ago. This has been abetted by crazy-cheap interest rates. After all, any bank will give you a VRM for scarcely more than 1.5%. Given that the official inflation rates is 3.1% it’s free money. No wonder mortgage debt recently grew by the most ever in a single month ($18 billion).

Okay, so why are sales falling, sellers recoiling, buyers retreating and national prices stalling despite a house shortage and bankers handing out free cash? After all, most people are vaxed, the economy’s reopening and for the first time in 18 months we have stuff to look forward to, like travel. (But not to Afghanistan. Or China. Haiti. Lebanon. Or Florida.)

This is not hard. It’s price. We hit the wall. Nine of ten people without houses can no longer finance one. Most people who own homes cannot afford to sell, pay the commission and tax, then buy again and pay closing costs without ending up with a lesser house. So they don’t list. And, besides, there’s precious little to choose from. Thus we have a vicious circle of disappearing vendors and purchasers.

Here’s the point the Re/Max dude was making. Conditions have never been better for a real estate eruption. Rampant economic expansion. Robust job creation. Mortgages under 2%. Population growth resuming. Government stimulus money flowing. Plus the aggressive nesting caused by WFH and the quest for sweatpants.

But when the average slanty Toronto semi is a million (unrenovated) and Covid caused hinterland values to rise by 40% in the GTA, the LM and even Atlantic Canada, the market stalls. It may stay that way until incomes rise (unlikely any time soon), inventories swell (not happening) or asking prices tumble (the most reasonable outcome).

By the way, housing starts are down, too. New house construction dropped in July. And we all know the current election campaign will deliver more of that same – promises to erect “affordable housing units” that never get built and are not intended for middle-class families.

So if you live in Saskatoon or Moncton it might still make some economic sense to buy, since owning is comparable to rental costs in those places. Don’t expect real estate to appreciate – just provide accommodation at a competitive rate. But in Toronto, Victoria, Vancouver, Squamish, Kelowna, Niagara, Caledon, Barrie, Halifax and even Montreal now, to buy is to toss the dice. Owning costs a big premium over renting. It’s only through rising capital values that redemption is possible. And if The People can’t afford homes at $1.7 million, how shall they buy at three mill?

It might be a good time to put that to Mr. Trudeau.

About the picture: “I’ve been a loyal reader of your blog for about eight years,” writes David. “Please keep going for many more.  Here is a pic of our new Golden Doodle puppy Ollie whom we’re training to be a support animal for my autistic son, Henry. This pic was taken this morning on a boardwalk in Nanaimo where we vacationed for a few days. She’s with my wife Sarah. I thought you might want to post it on your blog.”