The Housing Bubble

A report from Global News on Canada. “When we visited Ellisa Atherton’s living room in Ajax, Ont., in early March, it was crammed – wall to wall to wall to wall – with boxes. In the middle of the room, walled in by boxes, was the family’s Christmas tree – Atherton had put it up so it could be a ‘real Christmas’ for her youngest child, despite everything that was going on. But the room was too tightly packed for her to take it down again, so as winter turned into spring outside, there it stood. Faced with losing the house that she had only moved into in the fall, she didn’t feel she could open the boxes and really move in.”

“Atherton bought the house for $655,000 with a $55,000 down payment. Monthly payments of $6,000 with a mortgage rate of 11.99 per cent weren’t sustainable, but she was hoping to cut that sharply by refinancing after she moved in. But it didn’t work out that way, and her dream of homeownership is mired in a lawsuit and a series of what she calls inflated and unexpected fees that she can’t afford. Without a lower rate, she says, she’ll lose the house to foreclosure.”

“She calls the situation. ‘ … Hell, hell, hell. Depression, tears – it’s an ordeal that no one should have to go through.’”

“The census revealed that just under half a million Canadian households with mortgages spend over 50 per cent of their household incomes on shelter costs – taxes and utilities, but also mortgage payments. If households are that stressed, how will they cope when interest rates push their mortgage payments higher? It’s not surprising where homeowners are spending more than 50 per cent of their pre-tax income on shelter costs. Stressed households are concentrated in cities where real estate is most expensive – Toronto and Vancouver, but also noticeably in Barrie, Hamilton and Victoria.”

“‘The old guideline was about 30 per cent. Even if you make that 35 or 40, you’re seeing people with 10 or 20 per cent more than that,’ Toronto-based insolvency administrator Scott Terrio says of his clients. ‘It’s pretty scary.’”

“In Toronto, mortgage broker Ron Alphonso thinks the trouble could come from homeowners who invested heavily in their properties – often tearing down modest houses to build big ones – because they counted on values continuing to rise. ‘When house prices are flat, knocking down a little house and putting up a mansion is not a good idea. They primarily did it to invest and make more money – no longer a good idea.’”

From Macleans. “Not everybody is going to have sympathy for the group of homebuyers in Oakville, Ont., who say they are facing financial ruin on new homes thanks to attempts by the Ontario government to cool the housing market. These weren’t housing speculators trying to score quick bucks, according to the Toronto Star story published in early April. The cost of their new homes, which ranged between $1 million and $1.6 million, were entirely in line with average market prices. The buyers talk of scrimping and saving; of living with extended family to make ends meet.”

“Claudia and Darren Evans, for example, purchased their home for roughly $800,000 in 2013, according to Mattamy; in that time, the property’s value appeared to make extraordinary gains, prompting the couple to purchase a comparable home with a better floor plan for their young child—now valued at close to $1.6 million. After agreeing to buy the new home, the Evans’ put their old home on the market, but received only low ball offers.”

“‘We haven’t put our house on the market again and we need to close in seven weeks. There is no point. We are watching the market so closely with our realtor and we can’t afford to take the amount of money that we will get offered right now. If we got a delay in closing then it would be fine. I’m sure the market will recover in time,’ Darren Evans told the Star.”

“Buyers of this generation have been told that it’s impossible to lose money on real estate; that this is the safest investment on the books. So ingrained is this idea that generating real estate wealth has become an industry in and of itself, with entire cable channels devoted to flipping and equity building, and get-rich-quick experts offering classes, workshops and conferences.”

“Brad Carr, Canadian president of Mattamy Homes, said that housing is still a good long-term investment in the GTA—but agrees that prices are down and the days of massive housing profits were ‘unsustainable’ and probably over. Of course, beyond asking for a pre-approval and the deposit, the homebuilder doesn’t do much to double-check the state of a buyer’s finances. If he or she can afford to drop a few hundred thousand dollars, ‘We deem you to be a sophisticated buyer,’ Carr said.”

“Carr added, the market swings both ways. ‘When prices are going up dramatically, I very seldom—in fact, I have never seen—someone who has said ‘we are making substantial money by closing. I would like to give you more money,’ he said. ‘When the market is going in the other direction, we also don’t expect to be responsible for those potential price downturns.’”

From Better Dwelling. “Canadian real estate prices are acting a little skittish. The Teranet–National Bank House Price Index, shows real estate prices stalled across the country. In addition, the index is making moves we haven’t seen outside of a recession. Funny thing to note is experts, including some bank executives, are saying the correction is over. Technically speaking, a correction hasn’t even begun according to this index. A correction is when prices fall more than 10% from peak, in less than a year, which we haven’t seen yet. If I didn’t know any better, it would appear that (mortgage sellers) bank executives are misinformed. How strange.”
“Mattamy, and homebuilders like it, assume that the sort of people dropping $1.6 million on a home are ’sophisticated buyers.’ An alarming consideration: What if they aren’t?”

From CBC News. “Some investors are questioning whether the tallest building in Winnipeg will ever get off the ground after the RCMP raided the headquarters of the company behind SkyCity Centre last week. RCMP executed a search warrant at six properties in the Greater Toronto Area, including Fortress Real Developments’ headquarters in Richmond Hill, Ont., last Friday as part of an ongoing investigation into syndicated mortgage fraud.”

“Fortress is the developer of the SkyCity Centre 45-storey mixed-use condo project on Graham Avenue in Winnipeg. Winnipegger Debbie Stone bought a suite in the SkyCity development the minute it hit the market in 2015, but now she’s questioning whether it will even be built. ‘I’m actually not surprised from all the things I’ve read over the last couple of years,’ said Stone. ‘I’m just wondering how it affects the SkyCity building and whether they will be cancelling the project and refunding everybody’s deposit. I’d like to just get my money back.’”

From Stockhouse. “Media revisionists are now saying that the Toronto housing bubble burst in the spring of 2017. However, when Stockhouse wrote on June 30, 2017 ‘Toronto Housing Bubble Teetering Dangerously,’ we were one of the very first media outlets to take an unequivocal stand on this subject.”

“Even on into the summer, as Stockhouse published follow-up articles on this subject, this was still no consensus in the mainstream media. By 2018, however, apologists for Toronto’s housing bubble have had to throw in the towel. Recent media reports highlight the carnage from this burst bubble – in its very early stages. Yet the same article shows the pathetically delusional nature of media pundits and ‘market experts.’ The clear message is that the worst is over.”

“‘The future looks far less volatile for buyers and sellers in the GTA, with the condo market being the final meaningful pocket of risk, according to Pasalis. In the near term, he’s calling for neither a continued correction, nor a return to the break-neck price increases that defined so much of 2017. ‘We’ve kind of pricked this bubble,’ Pasalis told CTVNews.ca. ‘For this year, it looks like things are going to be pretty stable. It’s possible you might see price declines going forward in the future, but something else has to happen.’”

“‘The final meaningful pocket of risk’? Such messages are infantile and reflect profound ignorance concerning economics in general, and housing bubbles in particular. Why is the Toronto real estate market – and the Vancouver real estate market – an obvious asset bubble, along with hundreds of other cities across the Western world?”

“As has been explained to readers in previous articles on this subject, the real estate equation is a simple one. Over the long term, housing prices must remain parallel to income levels. Period. No exceptions, ever.”

“Wages have been flat. House prices (especially in recent years) have gone straight up in Toronto and Vancouver. Balance must be restored. Wages will never go up. This means real estate prices will go lower – and lower and lower. Housing bubbles built up over decades don’t evaporate in months. They implode over a span of years, and the real carnage has not even begun in Toronto’s housing market.”

“Stockhouse readers need to be wary of the media Revisionism to which we are now constantly exposed: 1. Pretend that no Toronto housing bubble existed, even when nothing could be more obvious. 2. Pretend that the bubble hadn’t started to collapse, even when the evidence of such a collapse was undeniable. 3. Pretend that these same market cheerleaders had acknowledged the bubble and the collapse all along, when nothing could be further from the truth. 4. Pretend that the collapse is over when it has barely even begun.”

“Some would have an even uglier term for such media Revisionism: propaganda machine.”

“The Toronto housing bubble and the Vancouver housing bubble and all the other housing bubbles across the Western world will implode because they must implode. Media cheerleading and the forecasts of intellectually bankrupt ‘experts’ cannot alter the simple arithmetic that is involved here – and undo the monetary crimes of Western central banks.”