The pumpers

With 17 days left until the big vote, the elephant in the room is hungry again.

This week realtors in the GTA and LM reported August stats. They’re awful. Scary. Precipitous. No, the market’s not crashing. But it’s sick. We should pay attention since nobody running for office right now understands the beast.

In case you missed it, here’s a summary: buyers are disgusted. Owners fear selling. Vendors are greedy. Supply is crashing. Prices are stuck. Mortgage rates are insane. The economy’s reopening. But few can afford to purchase. Unhealthy. Unbalanced. Sick.

Last month in the mighty GTA, for example, sales of detached homes crashed by almost a third year/year. With a 43% plunge in listings and prices stuck at peak house levels, buyers are walking away. The average price is stuck at just over $1 million and has been there for months. The only real signs of life are in the cheaper condo segment.

In Vancouver, ditto. Sales down month/month and year/year. Total listings have fallen 30% from last August and almost 9% in a month. Detached sales off 13% and, as in the GTA, prices are immobilized – far beyond the reach of average families. “When assessing the market,” says the real estate board, with refreshing candor, “it’s important to understand that while year-over-year price increases have reached double digits, most of the increases happened three or more months ago.”

So a detached house in YVR is $1.8 million and in Toronto just slightly less. Average incomes don’t support that. Foreign buyers are gone, gone, gone. Sales are down because of affordabililty. Listings have collapsed since anyone selling can’t buy again. In reality, most homeowners in Canada couldn’t afford their own places at current values. We‘re in a giant, frozen, turgid clot of leveraged fragility. Meanwhile politicians diddle on the edges – suggesting a non-resident buyers ban (when they are virtually none) or giving newbie buyers more finances (amid scant supply and extreme prices) are the answers.

Well, the industry gets it.

“Working with provincial and municipal levels of government on solving supply-related issues is much more important to affordability than interfering with consumer choice during the home buying and selling offer process or revisiting demand-side policies that will at best have a short-term impact on market conditions,” says the Toronto real estate board, still smarting from the no-blind-auctions Liberal platform. “Housing affordability has been a key issue in the federal election,” says Van realtors. “We encourage the political parties to focus on policy solutions that will help streamline the creation of more diverse housing options for hopeful home buyers today and into the future.”

Libs and Cons say they’d oversee the building of a million houses over three years. Few believe that. And in three years God knows what the market will smell like. Encouraging more demand now through tax breaks, new savings vehicles, longer mortgages and a gutted stress test will only make real estate richer. Meanwhile we’re fundamentally endangering the entire economy with housing-related debt as the market grows unstable.

Blog dog Walter worries his daughter will never be able to get her own place. Most parents feel the same lately. But he also fears a regulatory regime unable to cope with the present. “The system reminds me more of the American housing/credit crisis in 2007-2012 every day in the sense of unidentified risk,” he says.

That risk comes through a growing dependence of the entire GDP on real estate (now exceeding oil & gas plus manufacturing combined), which itself is built on a mountain of debt. Over a trillion in mortgages. Lenders give lower rates to buyers with the least to put down – thanks to taxpayer-funded insurance. Among uninsured borrowers, those with debts equal to five times their incomes (the danger zone) have erupted in number.

Over half all new buyers are using Bank of Mom money – usually borrowed against parental real estate. And yet the payments the old folks make as a result are never correlated to the loans of the children. Debt taken to facilitate more debt. An invisible, unregulated infection of obligation running through an entire family. And what of the hundreds of billions now in secured HELOC borrowings? Much of this is not being reduced – interest-only payments. This is demand debt at variable rates, tied to housing equity.

The basic question: can a people grow wealthier by borrowing more? How long can we push asset values higher to keep the Ponzi going? Is enabling more to join this scheme the best role for leaders?

Well, these are useless questions. The die is cast. Most Canadians have a one-asset strategy, and every young couple wants a house. Whatever the cost. No matter the debt.

Only listings and less greed can sure Mr. Market. More supply, not more demand. Those looking to government will be misled.

About the picture: “I wake up and treat myself to your blog here in Australia each morning,” writes George. “Your words have helped my wife and I position ourselves financially to be able to enjoy the finer things in life. I hope to pass these teachings down to my toddler twins in good time. As a thank-you, I’ve sent you a happy pic of our Kevin “Kevie” for your doggo collection. He is a two year old English Cream Retriever.”