The plop

She’s been a realtor for years. There have been booms. There’ve been lulls. But never, in her experience, a bust. In that regard, she mirrors the experience of most of the 68,000 agents plying the streets of a single metropolitan area – Canada’s largest market.

The last time people lost confidence, stopped buying and plunged prices was more than 30 years ago. She was a teenager then. In fact thousands of the realtors on duty now weren’t born in 1989. What’s about to happen will be one of life’s teaching moments.

She sits on a committee of the real estate board dealing with membership. A new year means agents must fork over annual dues – about fifteen hundred bucks. “You’d be surprised how many don’t have the cash,” she told me. Her estimate is that more than 25,000 people are going to leave the biz this year after selling practically nothing in ’22. In one city state. Such an exodus has never happened before.

Here’s why. The volume of sales in the GTA just crashed through the disastrous pandemic level of 2020. The pendulum has well and truly swung from euphoria to fear. (Official numbers come in two days.)

December sales collapse below Pandemic level

Source: TRREB

The body count will not include just realtors. “So frigging slow,” says veteran mortgage guy Ron Butler. “Told my staff this feels like the slowest December in multiple decades. Some folks may hang in till May on pure hopium but the mortgage industry is gonna lose a lot of folks.”

What to expect now?

It gets worse. At least for a while.

First, rates are going up again at least once. The best-case scenario: the CB bwnchmark hits 4.25% (this month) and the chartered bank prime becomes 6.6%. Then it holds. No pivot. No declines or backtracking by the Bank of Canada. Thus, the impact of higher mortgage rates has only just started. As borrowers can leverage less, prices must decline – or nothing sells.

Second, recession. Yeah, it won’t be a killer, but the damage is already done. As we reported days ago, 80% of people think the economy will show. Therefore, it will slow – since over 60% of GDP depends on robust consumer spending. Unemployment will swell a little and, if we’re lucky, inflation will trickle lower. But the B0C target of 2% ain’t happening in 2023. Did I mention no pivot?

Third, taxes, regs and bans  make things worse. Van’s crazy 3% empty house tax. Toronto’s new copycat. The surtaxes in Ontario and BC. Ottawa’s flip tax, now in effect. The anti-fellow-Canadians buyer’s tax in NS. And the federal ban on non-resident purchasers, in effect yesterday. It’s making headlines around the world because this is not what confident, developed nations do.

Canada’s buying ban makes global headlines

The message from all of this is clear: real estate needs to be bashed lower. The impact of monetary (interest rates) and fiscal (taxes) actions will be inescapable. Affordability levels at the moment, says RBC, are the worst in history, even though mortgage rates at 5% are still cheap by historic standards. Prices were allowed to bloat so much that the market is now freezing over. The only thaw comes with a 30% or so price plop.

Some people say increased immigration will stimulate demand. But they have probably not looked at the stats. As blog dog and realtor Ron points out: “Ontario had a net loss of 11,500 people. I checked around and found that 227,000 new Canadians settled in Ontario in 2021. A ton of new Canadians are moving here each year, and yet the population is declining. What gives? Is it a thing?”

His theory about out-migration: “Those who are particularly mobile are the renters. They have no hope of gaining a foothold in Canada, and are largely treated as a commodity by Landlords. They can live so much cheaper elsewhere. A $2,600 1 bedroom apt in Toronto can be had for $500 Canadian in Athens. Spain and Portugal are cheaper, Asia and Latin America cheaper still. I realize that their new life may seem bohemian by traditional Canadian standards, but when a territory no longer sustains life, all species migrate. Can WFH become WFA (Work from Anywhere)?”

You can see the point. Tens of thousands of realtors and mortgage dudes out of work this year. The housing market icing over. Young citizens giving up. Politicians treating real estate like a tax-spewing ATM. Economic torpor and higher rates. How can anyone rationally expect the price of a house not to drop, especially in those markets where it went Covid-insane?

A watershed year is upon us. Day two.

About the picture: “I’ve been reading your excellent blog for quite a few years now,” writes Meagan. “It’s nice to read a down to earth blog with humour, good pet photos and yet still somehow imparts practical financial advice to plebs like myself. Here is one of my rescue cats (we have 4 but don’t worry we love dogs too). Rogue likes to pretend that she’s a proper lady but I think her true nature shines through when I find her sprawled out or tucked into the most unexpected places, like this laundry basket. Feel free to use her on your blog.”

Do you have a beast to share with the pack? Send me a picture and some words. The address: [email protected]. – Garth