REAL ESTATE: When Markets are in NEUTRAL…prior to the C-O-L-L-A-P-S-E From Greater Fool blog
“You know, I hate times like this.” John spat out the words, each one coated in disgust. “That’s three people today who have walked. Never happened before.” We’re hanging out in the back office of his real estate brokerage, looking at the harbour, yakking about the market. Things are not going well. Listings are growing mold. Buyers are balking. The three deals were lost for the same reason – sellers signed back higher than buyers thought reasonable. They got up and left.
Turns out John’s been in this gig for 25 years. Long enough to see markets turn on a dime, and leave change. Like now. “There’s always a period between a seller’s market and a buyer’s market when nobody’s happy. And not a damn thing I can do about it. The sellers are still deluded, thinking everybody’s crazy to get what they’ve got. The buyers know what’s coming, and smell blood. I hate times like this.”
How long does the hate go on? “Two years,” John says. “Maybe more.” The good news, at least in this market (I spent yesterday in Nova Scotia), is that the change is already on. Months have passed with the same story – every day there are twice as many price reductions and new listings across the entire province as there are solds.
Seasoned realtors like John will probably survive. Newbies like Mary Cleaver in Vancouver could be crushed. (You may recall I wrote about her on the weekend, and posted her infuriating video. She called me yesterday to ask for advice. This is progress.)
In fact, look at this killer graphic from the MSM yesterday. Could there be a clearer snapshot of what John’s saying? Listings surge. Sales crash. Prices are doomed.
Just hours after RBC economists made headlines claiming the only bubble in Toronto lives in Mayor Ford’s pants, another batch of experts said phooey. Capital Economics is sticking with its prediction of a withering 25% dump for Canadian real estate values over the next two years – not a whole lot off the 32% correction which ate the US middle class.
Says Capital’s David Madani: “There is always a stand-off period at the end of a housing bubble, when prospective buyers refuse to meet the price of sellers, who refuse to drop the asking price. Eventually it begins to dawn on sellers that the market has shifted and, as they become more desperate, they eventually agree to lower their asking price. But until that happens, any stagnation in prices can be misinterpreted as a successful soft landing.”
That could have been Realtor John talking, of course, as a few houseflies pollinated the listings brochures racked on the wall behind him. The spitting match between vendors and purchasers in a weakening market always looks inconclusive. But there’s always one outcome. The buyers win.
Adds Madani: “The willingness of buyers to pay these historically high house prices now looks to be proving fragile against the increasingly disappointing macroeconomic backdrop. The housing bubble in Vancouver already appears to be deflating, with only Toronto defying the inevitable. Accordingly, we expect substantial declines in house prices over the next year or two.”
Just as this pathetic blog has been saying. Hell even RBC is expecting a price decline of up to 7% in the condo market, plus the cancellation or delay of projects. TD is calling for a 15% housing drop. And the rest of the world thinks it’s just so damn amusing when people in Saskatoon nod and tell each other, “it’s different here.”
Finally, as if any more evidence of excess is needed, here’s MPAC, the quasi-government body in charge of assessing five million properties in Ontario. As you may know, municipalities look to these guys to tell them how much the serfs have in real estate, so property taxes can be adjusted accordingly.
The latest report says Toronto prices increased on average 23% in the last three years, which is three times the inflation rate and five times income growth. This is for a region of six million people, which is twice the population of Alberta and equal to six Saskatchewans or Nova Scotias. Within that, some areas doubled.
Said an MPAC official: “The continuing strength is very positive, particularly when you look to the border. You always expect that the trend that occurs there occurs in Canada, but we’ve reversed that situation through prudent financing and not overbuilding.”
Why does ‘strength’ mean higher prices? How is it ‘very positive’ when the average family can no longer afford the average home and has terminally indebted itself trying? How does ‘prudent financing’ include 30-year mortgages, cash-back downpayments, zero-down financing and teaser rates?
Every single day the real estate industry lies to consumers, and media reports it. Sellers are lulled into believing the bull market’s eternal. Prices stay sticky even as demand wanes, until the point of surrender arrives. It always does. Then the pendulum swings wildly in the other direction. Where once everyone believed values would rise endlessly, suddenly they fear there’s no floor.
The veterans have seen it all before. The HGTV crowd hasn’t. One group will survive.
Several years ago a local real estate commentator stated most deals that fail are because the seller and the buyer are ” $2 apart “. What he meant was the seller wants a dollar MORE and the buyer want to offer a dollar LESS, thus the deal fails.
While this is figurative in terms of stubborness, it could actually get that bizarre.
It is quite a phenomenon when people get sucked into a fantasy vortex, which is based on Greater Fools. Eventually the Greater Fools run out, stuck paying the most and then the market stops. Greater Fools either think they can make thousands flipping , or have to buy or be priced out forever when most others have cashed out or have woken up .
People do not think rationally and get caught up in what effectively is greed. However, there is always a point the bubble doesn’t just stop increasing, it literally bursts. It can turn so fast, people’s heads spin.
In this neutral mode….the SELLER should wake up ASAP and think strategically. Look at the facts. It has been MY experience that when almost anything is offered for sale….the first offer may be your best offer OR only offer.
Some sort of weird universal karma. The ship may then sail.
In the scenarios noted above, Sellers made a move that was too emotional and will probably regret it.
The potential buyers may think Wheeeeeeew…dodged a bullet actually glad they didn’t buy, again emotionally because rational analysis will show a flood of listings and increasingly motivated sellers.
The graph above shows as we speak that the greatest number of listings and the fewest sales in 10 years.
The sad thing is, there will be a HUGE toll on many people who may never recover.