The tilt

A fine house 95 km from the Big Smoke, listed at more than two mill sold for almost $400,000 below asking two days ago. After two months on the market, only one offer came along. “Take it,” the listing agent wisely said. The vendor did.

In Kelowna, where real estate went completely insane (whereas Vancouver was only demented) the market’s trending down. Considerably. Inventory’s been a mess everywhere. Owners don’t want to sell since they fear becoming buyers. With mortgages still at sub-2% and pandemic job losses now fully erased, we are in an odd time. Especially with what’s about to happen.

This weekend, Toronto real estate agent/media columnist Brynn Lackie said this to the masses:

In the months ahead as immigration opens back up, office towers continue to fill with people returning to work, and life starts to look like old normal once more, the structural aspects of our real estate market will only tighten. We have long been saying that this upward trajectory will slow when prices eventually hurtle out of reach, but so far the prices have continued to rise and yet the buyers remain. As long as we have people willing to participate, these market conditions will continue to drive prices.

The average property in both the GTA and Van is over $1 million now. First time that’s happened. In fact, Toronto is overtaking YVR. Also a first. Incomes in both cities are flat, so what’s behind the reality of $1.8 million detached homes?

Brynn’s right. It’s post-Covid. The Big Tilt in real estate over the next year will be towards urban properties. The losers will be the suburban and commutershed ones. It’s already happening, and a vax rate of 80% (and climbing) will guarantee it continues.

There’s no doubt urban downtowns will see a renaissance. For the first time in more than 300 days there are live concerts and full arenas for basketball and hockey games. Vaccine passports have restored 100% attendance limits to large venues, and that will soon be the case for every restaurant, bar and gym. Museums and galleries are open. Universities are back. Condo sales have been leading the market and an acute labour shortage have brought hiring incentives, higher hourlies and a return of tenants.

The big shuffle to the core will happen after Christmas. Toronto, for example, should be at a 90% vaccinate level by then. The banks will be calling back their employees. The subways and commuter trains will be busy places again. Two full years – incredibly – after the slimy little pathogen wafted onto our shores, it’ll be over. The WFH phenom will fizzle for most people, and many will wonder what they were thinking when they moved beyond the horizon.

This blog told you months ago to expect an urban resurgence along with a boonies bust. And we’re sticking with it. The bleeding-out of GTA and YVR property values to the hinterland will prove to be immensely unfortunate. Locals got priced out. The urban refugees were deluded. Only the bankers ended up smiling. Oh yeah, and the Bunnypatch realtors. Never, ever had they ever expected this.

The thesis here hasn’t changed: this will turn out badly for a nation whose GDP is increasingly reliant upon people selling each other houses they can’t actually afford. But before that becomes evident everywhere, 2022’s shaping up to be a complete gong show.

First, this will be the year we realize mortgage rates can swell. The Fed will start tapering in a few weeks and the BoC will increase its benchmark rate in the second half of the new year. In advance, the bond market will push up yields, and long-term home loan rates. The increases will, as always, spur house-lusty fence-sitters into action so they can borrow heroic amounts of money and think they’re clever.

Second, the feds. Oy. In two demand-goosing moves, Ottawa will raise the CMHC insured loan ceiling from $1 million to $1.25 million, allowing the kiddos to borrow another quarter mill with 20x leverage, jacking up prices. It will also create the FHSA, so eighty grand per couple can be leveraged up with tax refunds then used as a taxpayer-subsidized down payment on property. Factor in withdrawals under the RSP Home Buyer’s Plan, and a couple can access $150,000 in subsidized funds to buy real estate.

Now add the return of live uni classes, a restoration in the flow of newcomers, the ultimate erosion in WFH arrangements and the economic boost that a 90% vax rate will bring (at least for 90% of us) in the cities, and this should create still more demand. But will there be more supply? A torrent of new listings? Lots of choice for all these newbie buyers with the hot FHSA cash and mega-loans?

Doubtful. If owners don’t want to sell now because they can’t afford to buy again, why expect change when demand pops more? Thus, the bubble wobbles higher, bigger, more gaseous and extreme.

And to think… we just fought an election over this. Silly us.

About the picture: “I came for the advice and stayed for the dogs.,” writes Calvin in Calgary. “Here is a picture Kula (the golden) and Daisy (the sheltie).  Kula is a puppy and just has not figured out the stairs yet.  Kula has also helped us realize what a well behaved dog Daisy is.  Keep the dog photos coming, if there happens to be some advice (not from the steerage section) I might take a look at that too.”