The reckoning

Property prices have dipped but rates hiked. It’s a standoff. Real estate’s no more affordable than when mortgages were basically free. Thus, the housing crisis which has gripped the public agenda continues.

Recall the stats. A house worth the national average ($756,000) now costs two grand more a month to carry since Tiff grew a set. In Van or the GTA, an extra three grand. Never, ever – even when mortgages were 19% – has Toronto real estate been this unaffordable. That’s because we all went nuts during Covid and doubled values in bidding wars, bully offers, blind auctions and shocking doses of vendor greed and buyer FOMO. Shame on us all.

In both Vancouver and 416 household income must be over $253,000 to afford the average home (roughly $1.5 million). “The Canadian housing market remains overvalued by many metrics and the increase in interest rates over the past year has only made matters worse,” says the chief economist at Alberta Central. He figures a 40% haircut is needed to get us back to affordability levels of a decade ago.

Is that even possible?

Well, the Bank of Canada rate will rise twice more (at least), then pause. No drop in 2023. If a cut happens in 2024, economists think it will be weensy. Fixed-rate mortgages may get a 4-handle again. Nothing less. If inflation persists, more.

This reality will exert downward pressure on prices. If the 2023 rutting season market stalls, sputters and chokes, expect more listings and fading values. Also remember that 2023 brings in a bevy of new anti-real estate fees, levies and taxes. Toronto’s empty-house penalty starts while the one in Vancouver explodes higher. Nova Scotia’s anti-everybody tax will bite Halifax. The foreign buyer surcharge in BC and all of Ontario is extreme. But it’s also academic since Ottawa is bringing in a total ban on non-citizen purchases in a couple of weeks. Too bad, PEI. And did I mention the new ‘flip’ tax whacking anyone who has to sell within a year of buying? Or the hit squad the CRA’s put together to go after specuvestors, assignment sellers and renovators? It all adds up.

Investors are getting crushed. They’re taking the nation’s biggest condo market along for the ride.

In the third quarter of this year a record 189 new condo developments in the GTA reported zero sales. Nada. Not a one. And this represented almost 70% of total projects in the region with inventory to sell. Overall, sales were down 80% year/year – the worst number since the credit crisis of 2009 briefly turned the lights off.

The assignment market is in crisis. There are thousands of buyers who never, ever, ever intended to close on their deals. They bought pre-con years ago and now as projects finish find there are few buyers willing to bail them out. Many will not be able to close. They’ll be sued. Bodily fluids everywhere. Meanwhile projects with a total of 10,000 units have been put on hold indefinitely.

Rates to swell more. Listings to increase. Taxes to burgeon. A condo closing crisis. And add to the list the fact we may soon have too many dwellings.

Condo construction in the GTA mushroomed 40% year/year in the last few months, says Urbanation. Thus there are now 96,510 units under construction with a third of those coming onstream in 2023.

As for construction of new homes across the country, take a gander at this chart from the smarties at BMO Economics.

Yes, we are hitting record levels right now – even before any of Ottawa’s billions flood into the sector. Starts have hit almost 275,000 annually. Says BMO, “We’re on pace for the biggest two-year wave of housing starts on record, even topping the mid-1970s building boom. On a per-capita basis, we’re going into 2023 with more housing under construction than ever before.”

There’s more. Every level of government, everywhere, has jumped on the bandwagon. Last week Toronto approved rooming house (“multi-tenant”) development in all areas of the megalopolis. Ontario just blew up exclusionary zoning, so people can turn one dwelling into three. Heritage designations are to be swept away. Thousands of acres of protected green space are being opened up to single-family-home sprawl. Millions of new units – that is the political solution to cries for affordable housing.

Well, add it all up. Are we not headed for a wall?

About the picture: “This is Zoey who we adopted from the humane society 9 years ago,” writes Maureen, “when she was 1. We were her fifth home. We almost lost her just after we got her when we were visiting Ottawa. With great effort over two weeks and with the help of hundreds of kind people in very cold weather, we were able to find her (rescued again!) . Every year on the anniversary of finding her we post updates on her Facebook page for her “fans”. We were told she was a husky mix when we adopted her but we sometimes see photos and videos of hybrid wolf dogs who look and act eerily similar to Zoey. She’s a treasure and lives a very good life exploring the beaches of PEI…. which, in all of the years of reading your blog, I have never seen you mention our province. Although we are the size of a Toronto suburb population wise, we have seen the same house frenzy and unaffordability in the last few years despite PEI being the least expensive place to live in Canada when I moved there 26 years ago. Thanks for all of your advice over the years.”