REAL ESTATE: The New Normal ( From Garth Tuners GREATER FOOL BLOG )
As we stagger into the final weekend before the 30-year mortgage bites the dust there’s little doubt remaining of what comes next. Hey, remember what fun we all had a year ago ridiculing places like Richmond, BC? Savvy foreign buyers. World-class bungalows. Planes full of horny Asians stacked up over YVR. Realtor-experts telling Global TV this was the new normal. Marketer Cam Good saying it was just silly of local residents to think they could ever afford to live there again. HAM everywhere.
Recall moments like this?
“Just another example of the feeding frenzy here in Richmond – a good friend of mine was willing to accept $950,000 about three months ago for his 45 year old house on a 60 x 120 lot. That deal fell through, luckily for him, as he just sold for 1.4 million. That’s a $450,000 increase in three months. The 21 yr old kid never left his car that was parked in the driveway as the deal was negotiated with help from the realtor. He was on the phone the whole time with his parents in China.”
Yeah, right. I wonder how the old snorts feel about Richmond today. Last month all of 76 houses changed hands, a stunning 52% drop from a year ago. The average price, meanwhile, has faded by 7%, a number which could quadruple by the end of the year. The realtor.ca site showing active MLS listings has so many red dots that the area looks like a herpes convention. Sellers who need to sell are desperate. Buyers ambivalent to buy are waiting for the inevitable. They both know where this is going.
It’s a pattern other parts of the country need to get used to. Sales drop slowly, then uncontrollably. Prices dip, then cascade. And as it happens the myths are exploded. You see, there never was a torrent of Asian money lifting the entire real estate market. Instead, the very threat of it was used by a voracious real estate community to instill panic buying and bidding wars. It worked, of course. Ditto for the ‘buy now or buy never’ mentality which washed over this saintly blog in months past. It just reminded us there actually are people who think anything changes, when nothing does. Demand swamps supply, rising prices. Then supply swamps demand, collapsing them.
What’s happening in Richmond and Vancouver will be repeated in varying degrees in Calgary, Skatch, the Peg, the GTA and Montreal. Big sales drops will result in price cuts large enough to shrink the national average by 15%. That could mean 25% in Edmonton, 30% in Winnipeg and Saskatoon, and 10% in 416. The magnitude and timing will depend on how big an impact F’s changes have on the virgins, how soon banks adopt the tighter OSFI regs, how flummoxed the MSM gets (CBC’s National had a cow last night) and how big grows the tide of new listings.
After all, we’re dealing with humans here. When markets rise, listings fall, and buyers get horny. When markets fall, sellers mushroom, and buyers flee. Once again we’re treated to the reality that people want things that are in demand, and shun the same things when they’re unpopular and cheap. This can only be explained by a fundamental misunderstanding of risk. As Richmond and the kid in the car demonstrate, the greatest risk possible is buying anything when everybody’s crazy to get it.
Now, some musical evidence of what real estate can do to a healthy male. If you think a vasectomy is serious, or have ever dreamt you were a stallion that ended up a gelding, just think what having a VanCity babe who expects you to buy a house can do. Snip, snip.
Finally, here’s Susan. She has a problem. It should put yours in perspective.
I read your blog often. Check it pretty much daily. You confirm beliefs I’ve held for most of my life. So for the most part, I’ve stayed out of trouble. I’m 29, female. Never ran up any credit card debt that I didn’t pay off that same month. And since 2004, I’ve been a solid renter, watching as almost every one of my friends have bought a condo or town home. I thought, if nothing else I’m pretty care free.
Now, I know my husband is a really intelligent person. Downright wonderful in every way–perhaps too wonderful of course.
See, he’s really REALLY dedicated to his family. A year before I met him, he was convinced to buy a house with his mother and her then-boyfriend. Its hard getting details out of my husband and I can barely talk to my mother in law but I know for sure that she’s the primary, her husband is out of the picture, my husband is co-signer, he’s also a partial owner and there’s roughly $350,000 left of the mortgage to pay. We have moved out and renters have moved in to share the house with my husband’s mother.
I worry because of what’s going to happen in real estate. I also worry because this woman talks about ‘just walking away’ from the house. My husband says she wouldn’t do that–only she has–years ago. And she JUST went into bankruptcy about a year ago.
I would just like to know from someone I trust (you of course) what danger may lie ahead for us. I talk to my husband about it, but I don’t know if he’s right when he says there’s nothing for us to worry about. How much can this potentially affect us down the road?
Did you really marry this guy, Sue? If you did, his liability might easily become yours. So if mom splits, the bank will turn to your husband to service the mortgage. Failure to do so will end up in legal action, fat legal bills and a judgment. So when Mr. Wonderful withholds this information from you he’s demonstrating where his true loyalties lie. Maybe he and hubby-eating mama deserve each other.
Find out now. We’re waiting.
As Garth notes….in a few days… that “30-year mortgage bites the dust” .
Many of us are assuming the SHTF after this last extended bubble gasp. Lending policies will be tightened, and next week we will likely see the bubble REALLY start to collapse.
FYI: When he says “F” he refers to Finance Minister Jim Flaherty….of whom Garth often criticizes and why Garth left Gov’t… he knew what we now see unfolding was inevitable, an unsustainable bubble, then a major collapse.
People will be required larger down payments, which is somewhat a bit too late. Those that are able to qualify will be few and far between. If they are smart, they will simply wait….as a deluge of sellers will soon appear…buy from the most desperate with the best available. Cash will be King. Some can ride out the market, but the majority simply cannot.
We have a debt culture out there…. As noted in previous posts, students graduate with large student loans, so already behind the 8 ball.The old system still allowed these types to by $500,000 + condos? The new rules would stop this…hence these students would have to pay off (IMHO outrageous)student loans THEN acquire save towards a downpayment.(all assuming they have a job)
So what was the reason, why allow this to happen? IMHO, Gov’t and Banks have always been in bed…its just more obvious now.
Before current events peaked,….we actually had a REAL Economy that was diverse, good wages, and created REAL things with Consumer Demand, so the backroom dealings were more low key and had less impact.
However, if one reviews economic policies such as how Gold was de-coupled from currency..we had the a disaster in the making..rampant inflation. Slow and insidious…ever creeping..till it is too late..and believe me ,these people are patient re: their plans and ultimate goals…if it takes years…even decades.
If you watched “INSIDE JOB”…it explains it very well. Real Jobs were gutted and outsourced, and the financial markets grew and took over to take over the economy( I simply call it paper shuffling). Now the economy was based on either money that doesn’t exist or money created out of thin air. A global game of musical chairs…which works as long as the music keeps playing.
We had the market crash in 1987….the S & L scandal in late 1980’s….Dot.Com Bomb in the 1990’s(all of the aforementioned of which many seem to forget)….and Global Collapse Part 1 in 2008.
One of the KEY lessons to learn is to ask what is the MAIN AGENDA.
Answer : Install a World Gov’t and create Slavery. The Banksters knew that the collapse would happen…made it happen and then held a gun to the Gov’ts head. One of the KEYS was Bankers lent out money than didn’t exist aka DEBT….and demanded REAL MONEY from the Gov’ts. It is no different than I lend out a tool that doesn’t exist to my neighbour(ie here is my imaginary hammer) and then demand a real tool back. Becuase of the way the banking system is structured, this “Alice in Wonderland” logic applies.
So in the massive Ponzi Scheme , everybody bought in because they felt everything was real. Everybody felt rich with Real Estate if you owned it, (ie the house I bought in 2000 has tripled in price …..and buyers felt they could make handsome profits flipping.) Jobs were plentiful….. and the appearance of success was everywhere aka SOLD signs and lots of construction.
Now Judgement Day is approaching.
In Canada, where the citizens are delusional in thinking “we are different here in Canada”…we are are NOT, we just simply started the cycle later. Many blogs note parties who know people in the US who ask Canadians why they did NOT learn from what happened in the US?
What will happen is what happened in the US. Massive foreclosures….Banks seeking HUGE bailouts,(again with sheer chutzpah..lobbying for this corrupt system…then claiming victim?!?) , high unemployment, austerity measures and a wiping out of the middle class.
Given the LIBOR scandal amongst all the other scandals, what appears to be happening is the GLOBAL COLLAPSE Part 2: The Finale. Having been bailed out once….and starting crisis in other countries..the FINAL MILKING is occurring. Too many felt the problem was solved,via not understanding what is REALLY happening, while behind the scenes they were still looting, and covering up how bad it was the first go around in 2008 with their corrupt financial “Alice In Wonderland” wizardry.
All these pigs are either cashing out ,or fired and still getting Billions in payouts, and in full collusion with Gov’ts who cannot plead ignorance. This also gives them the perfect excuse to create martial law, knowing full well how the masses will respond, and thus a soon- to- be Global Police State. Get the picture ?
This sets the seeds for civil unrest, the media inundated with tragic stories, etc. etc. and the unravelling of a society that our predecessors built for us and expected us to be good stewards of , to pass onto future generations.
IMHO…..We have failed miserably