Steve was driving through one of the GTA’s soulless northern burbs on the weekend after visiting his in-laws when he came across a sales office and a long line of people snaking towards it.
“I actually pulled a u-turn to go back and see,” he said. Steve snapped a picture and emailed it to me. It shows people shuffling into a Paradise Homes trailer, lining up to buy semis on 28-foot lots, on a sunny October afternoon.
One day later the Toronto Real Estate Board announced that sales of existing homes in the first two weeks of the month – traditionally one of the best of the year – plunged 17% from the same period in 2009. If the pattern holds, this will be the fifth consecutive month of substantial declines – a highly unusual occurrence. So, what’s wrong with this picture?
Meanwhile a dismayed reader of this blog, Riki, sent me these words after trying to buy a new Mattamy home in distant Milton.
“People started lining up on Wednesday afternoon. At this point they did not even know the pricing and were ready to buy. By Friday there was about 200 to 300 people in line. Due to the large amount of people they opened early on Friday. When I arrived on Saturday the line was numbering in the 600′s with a Police escort on site.
“At this point I was out of luck for my First home purchase, and since I could not leave my work to line up I was shout out of the market. There were real estate agents on site handing out new hone prices which were lower and compared to current resale value which was 40000 to 50000 more. All me any spouse got from this event was a free hot dog.
“I then learned the line by Monday was numbering 800 and Mattamy sold the whole subdivision of 400 to 500 homes in 4 days. This never used to happen in the past, what is going on. All I can do is rent for now and wait for not my dream house, but dream of owning a small roof over my head.”
Hey, wait a minute. How can we have month after month of crashing resales, while desperate first-timers form a mob so big the cops come out? And how can official sales levels fall at the same time prices go up?
Welcome to the HGTV generation, where everyone’s entitled to granite and stainless. Where 95% to 100% financing is still freely available. Where wildly successful developers target the young, especially those with ethnic backgrounds in which real estate is worshipped. And where there’s a significant and growing divide – a chasm almost – moving the overall market in a disturbing direction.
First, sales. They are dropping and this will likely continue. The reasons are obvious since most informed people understand housing is too expensive, jobs are hard to find, everybody’s in debt and this could be a suicidal moment to buy a house that could be cheaper next year, with a wad of borrowed money.
Second, prices. So why is the average price holding or even (as in Toronto over the last two weeks) going up? Well, that’s the bitch with average prices. When buyers on the lower end of the price range back off (as they are), then a smaller number of sales in the middle and the top end skew the numbers. This even happens if prices of houses over $500,000 or $800,000 are 20% cheaper than they were last year – the average price still rises.
Moreover (as I say about once a day on this pathetic blog) prices are hugely sticky on the way down. It takes delusional, greedy, Global TV-watching sellers months to understand nobody wants their houses at bubble levels. So, both price reductions and a whole lot of listings will be greeting us with the new year.
Third, the lineups. Every fire needs fuel. In a world where Tweets replace news there are enough clueless, hormonal young couples to be manipulated into competing for an unbuilt house, developers can hardly be blamed for having their way with the virgins. So, blissfully unaware they may soon drown on negative equity, the kids plunge. Almost as if they never heard of the US housing crash, weren’t warned about taking on 95% leverage at rates bound to reset higher, or failed to learn real estate can falter but the debt lives on.
Finally, danger. The more kiddies who buy, the more potential over the next five years for market mayhem. A large number will be wiped out in the first weeks of price corrections. We have yet to know how they’ll respond – keep beavering away making payments on mortgages worth more than their houses, or capitulate? And how many suburban houses will it take under power of sale/foreclosure to bring down the values of all the identical homes on a block? Ten, or perhaps just one?
Maybe somebody should think about going to Markham or Milton (or Surrey or Airdrie) and telling the kids this: The buy/rent ratio in Canada is now 1.85x. It means it costs twice as much to live as an owner as it does as a renter. Factor in property taxes and maintenance costs, and it makes even less sense to own if you happen to be, say, a young couple without any money.
But, they ain’t listening. And I’m tired of telling.
Let slip the hounds.
