Canada's Housing Bubble

Dec 02, 2010 Garth Turner GreaterFool.ca

On Sunday a hundred people showed up at an open house in Vancouver, on an unremarkable street, overflowing an unremarkable single-storey house.

On Tuesday offers were accepted. More than 20 materialized. The majority were from Asians, but the winning bidder was not. He bought it for one of his children. No conditions.

This story also would be unremarkable, save for the fact the home went for $150,000 more than the asking price, and was listed for over a million. The owners bought it a few years ago in the four hundred range. But, as F says, there is no bubble.

About the same time as the sale was being confirmed, the Calgary Real Estate Board was chomping on a spur and releasing its latest stats. Sales of SFHs dropped 19% in November from a year ago while condos crashed by 38% (despite MissyBunny’s fluffing). Feeling the need for irony, CREB president Diane Scott said, “The second half of 2010 has proven to be weaker than expected.”

In fact, even in Vancouver – where our little house sold for vastly more than a trophy mansion in Winnipeg – sales are sliding. The local cartel reports deals off about 19% from last year, while prices are ahead 4%.

As you know, a house is also a tough sell right now in Edmonton. And (as I detailed yesterday), in swaths of the GTA. When the numbers emerge from the Toronto Real Estate Board tomorrow, they’re expected to confirm what’s been seen now in virtually every market of the country – a six-month pattern of double-digit sales declines.

Despite a drop in five-year mortgage money and rising affordability (according to the banks), buyers have decreased in the same numbers as the greater fools left have lost their minds. The market appears to be moving in two directions at one – toward lower sales and higher prices. Which begs the question: which will prevail?

Hours ago I met with a guy in his late forties with a little home and $140,000 in liquid investments, half of it the result of a recent family gift. He has both a mortgage and a fat LOC against the house (the loan was taken ‘to buy stuff’), plus two kids about four years from university. No pension, of course. But he does have a wife who watches HGTV all day. She demands an upsize.

So, he asked me, would I be okay to buy a place for $500,000? That would mean a $400,000 mortgage and just enough cash left to school his kids. By the time he’s 55, he’d have a decade left to build a half-million retirement nestegg and a mortgage he’d never pay off on a house that would probably be worth less.

‘You might as well,’ I said helpfully. ‘You’re pretty much screwed now.’

Several times I have said real estate is the most emotional of assets. Even when we know we cannot afford it, it beckons. Try as we might, we can’t resist defining ourselves through it. The allure of the asset blinds us to the debt seething behind it. A harmless desire to own it escalates to lust when others compete. Despite what we rationally know, urges overcome. And these days, conquests are an entitlement.

So, in Vancouver today there is a smart vendor wondering if he did the right thing. Twenty offers can make a man doubt his action.

There are nineteen bidders spurned. Next time they’ll claw.

And one victor, mulling how many zeros there are in a million.