Soggy

Real estate values in some of the pricier hoods in the nation may start taking on water. Look at poor Abby. When the slimy little pathogen slithered into our lives the average detached home in Abbotsford cost less than $800,000. Today the same place tops $1.2 million. At least it did, before The Storm.

Suddenly living in the Best Place on Earth doesn’t seem so bucolic. The climate has been angry – drought, fires, bugs, floods. The local ag industry is a mess. Five hundred dairy cattle gave up their lives in the last week. Tens of thousands of chickens. Farming is a big part of the local economy, along with commuting to YVR, which the deluge made impossible for many. Anyway, no gas. Now, a looming drywall shortage.

Will climate change impact house prices? Even in one of the most desirable hunks of the nation?

Of course it will. And reflect on what residential real estate insurance premiums could be in the future. It’s tough enough paying a huge, inflated amount for a house that cost vastly less two years ago, but a nightmare to contemplate the damage water can do, the immense hassle involved in repairing it, the impact on the local economy and the elevated ongoing costs of living in the path of an atmospheric river.

It’s just one more threat the housing market faces. Along with rising interest rates. Historic levels of debt. And a central bank which this week set off the alarm over “the higher chance of a correction.”

Did you catch the latest?

First Teranet said the largest segment of the entire real estate market is now investors. These people (who already own houses) account for a staggering 25% of all new deals. For the first time that eclipses newbie buyers (at 22%). In fact, in a “normal” market (where people don’t wear masks, never work in their jammies and can afford houses) half of all real estate transactions are first-time buyers.

But no more. There’s nothing normal about what’s going on. And when the Bank of Canada squawks like it did this week, something significant may be coming.

The bank’s deputy governor says the rise of small-time investors, speculators, flippers and amateur landlords is bad news. The housing supply is shrinking. Competition is squeezing out the kiddos. Prices are escalating. Family-investors are draining puffed-up equity in existing homes to buy more of them. The CB reports the number of mortgages taken out by investors in the last year doubled. Loans to repeat buyers are up 60%. New buyers, in contrast, accounting for a 40% gain.

The CB talks about “extrapolative” demand. It’s not the good kind. It doesn’t come from population growth, economic expansion or the simple fact families are being formed and accommodation needed. Instead extrapolative demand flows from the expectation prices will keep rising. Period. It’s speculation. FOMO. Like buying a stock just because you know it will rise. It leads to the financialization of real estate. And we’re doing it to ourselves.

“A sudden influx of investors in the housing market likely contributed to the rapid price increases we saw earlier this year,” says the CB. “That can expose the market to a higher chance of a correction… extrapolative expectations risk creating a disconnect between actual home prices and their more fundamental levels.”

Layer on this an explosive overall growth in household mortgage debt, and the vulnerabilities real estate poses to the overall economy are on the rise again. Plus, immigration is about to rekindle. And the post-virus reopening trade is in full swing. Additionally, the federal Libs are out of control, about to (a) enhance the shared-equity mortgage plan, (b) double the first-time homebuyers’ credit, (c) hike the ceiling for CMHC-insured mortgages to $1.25 million, (d) create a new-rent-to-own program and (e) launch that weird, crazy FHSA which will make Bank of Mom down payment loans tax-deductible.

So, it appears the planet and the Bank of Canada are on one side, hormones and Liberals on the other. Who will prevail?

Will the CB walk the talk and accelerate its slate of interest rate increases? Or will it roll over and allow housing to turn into an investment commodity while placating the delusional policies of our elected overlords?

Meh. We’ll see.

Meanwhile consider an investment in something safe. Like hip waders.

But not at the Abby Canadian Tire. They’re sold out.

About the picture: “This is Nala, our 9 year old golden “shaking it off” after a dip in the lake,” writes Tim. “Been following your blog for a few years now and it has definitely helped improve my financial literacy.  Thanks for sharing, and keep up the great work!”