All Hell Breaks Loose In Toronto's House Price Bubble

Tyler Durden's picture

Authored by Wolf Richter via WolfStreet.com,

“It’s fear.”

During the first two weeks in May, according to preliminary data from Toronto Real Estate Board, home listings surged 47% from the same period last year even as sales plunged 16%. The average selling price dropped 3.3% from April – and this, after a 33% year-over-year spike in home prices in March and a 25% surge in April. Something is happening to Toronto’s blistering house price bubble.

Canada’s largest alternative mortgage lender, Home Capital Group, which focuses on new immigrants and subprime borrowers turned down by the banks, is melting down after a run on its deposits that crushed its funding sources. The industry is worried about contagion.

At the same time, the provincial government of Ontario announced a slew of drastic measures, including a 15% tax on purchases by non-resident foreign investors to tamp down on the housing market insanity that left many locals unable to buy even a modest home.

It comes after Bank of Canada Governor Stephen Poloz warned in April that home prices are in “an unsustainable zone,” that the market “has divorced itself from any fundamentals that we can identify,” that there was “no fundamental story that we could tell to justify that kind of inflation rate in housing prices,” and that “It’s time we remind folks that prices of houses can go down as well as up. People need to ask themselves very carefully, ‘Why am I buying this house?”’

A few days ago, Moody’s Investors Service downgraded Canada’s six largest banks on concerns over their exposure to the housing bubble and household indebtedness that ranks among the highest in the world.

Now even the relentlessly optimistic industry begins to fret:

“We are seeing people who paid those crazy prices over the last few months walking away from their deposits,” Carissa Turnbull, a Royal LePage broker in the Toronto suburb of Oakville, told Bloomberg. She said they didn’t get a single visitor to an open house over the weekend. “They don’t want to close anymore.”

 

“Definitely a perception change occurred from Home Capital,” Shubha Dasgupta, owner of Toronto-based mortgage brokerage Capital Lending Centre, told Bloomberg.

 

“In less than one week we went from having 40 or 50 people coming to an open house to now, when you are lucky to get five people,” Case Feenstra, an agent at Royal LePage Real Estate Services Loretta Phinney in Mississauga, Ontario, told Bloomberg. “Everyone went into hibernation.”

 

“I’ve had situations where buyers are trying to find another buyer to take over their deal,” Toronto real estate lawyer Mark Weisleder told Bloomberg. Some clients want out of transactions, he said. “They are nervous whether they bought right at the top and prices may come down.” Home Capital had “a bigger impact on the market” than Ontario’s announcement of the new rules, he said.

 

“Home Capital is affecting things because people who can’t get mortgages from the banks rely on them and other b-lenders,” Lorand Sebestyen, an agent with iPro Realty in Toronto, told Bloomberg. “If you can’t get the mortgage then you obviously can’t buy anything and it’s going to affect the market, especially for the higher-priced properties.”

 

“It’s fear,” said Joanne Evans, owner of Century 21 Millennium, about the impact of Home Capital on housing. “It’s another contributing factor to the fear of ‘what’s going to happen?”’

And it’s ever so slowly sinking in more broadly.

In Canada, the theory has spread that real estate values can never-ever go down in any significant way – on the theory that they always go up – because they didn’t take a big hit during the Financial Crisis, and because the prior declines have been forgotten. So optimism about rising home prices had been huge. Now weekly polling data by Nanos Research for Bloomberg is showing the first signs of second thoughts. Two weeks ago, the share of people saying home prices would rise in the next six months was a record 50.1%. The following week, it dropped to 47.7%. In the most recent poll, it dropped to 46%.

But those who are able to sell at what appears to be the very tippy-top of the market are not complaining. Bloomberg cites business school professor Michael Hartmann who put his north Toronto home up for sale on May 17 sold it on May 22 for C$1.65 million, C$10,000 above asking price. He and his wife are planning to rent and see.

What are homes & mortgages worth when push comes to shove? Read…  Chilling Thing Insiders Said about Canada’s House Price Bubble

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karenm's picture

They'll see real fear when the rate shock hits, month or so from now. How will Canadians deal with a 25% increase in mortgage costs? Even fixed terms end and have to be renewed, at higher costs.

 

Good bye Canada.

Raffie's picture

It's Canada..... nuf said.

JRobby's picture

Walk away

Haven't heard that nasty one since 2008.

Croesus's picture

Sum Ting Wong's going to lose his ass on that "Luxury abandoned shed" he bought for $6.4M...

Pinto Currency's picture

The Bank of Canada has fueled a real estate bubble over decades with declining interest rates to ~0% now. HCG is the first to fail as this unsustainable bubble fails.

House prices up 5x in constant 2016 dollars now:
http://www.torontohomes-for-sale.com/4a_custpage_2578.html?

Nice Try Lao Che's picture

Seems like fonestar has been 'expertly' trying to parlay (unpaid taxes on) bitcoin profits into real estate speculation.

 

Just a few more bitcoins & you're outta mom's basement!

Delving Eye's picture

I've said it before -- who in their right mind would live in Toronto?

AltRight Girl's picture

They are not a real country anyway.

And they don't have a real leader, but a puppet

How MSM is Propping a Globalist Puppet with Staged PR Stunts


krispkritter's picture

 "I didn't see this coming, ay?"

jusman's picture

People are either very young or have short memories.  I bought an 1100 sq.ft. condo at 30 Wellington St E in the desirable St Lawrence Market area of Toronto in 1989 for $285k, and sold it AFTER the meltdown in 1997 for $225k.  But the house I bought ALSO dropped.  So if at least you have some equity in the game, then it is not too much of a problem.  I currently live (again) in Montreal where the wild swings of Toronto and Vancouver have not happened (and will not courtesy of the French fact).  

winged's picture

"people... walking away from their deposits,”

Same thing happened in 08 in the US.

AVmaster's picture

Now the problem is: Are we in the states gonna get splattered by the shit coming down that hit the fan?

 

Yes.

 

Bring a raincoat....

Tugg McFancy's picture

Yeah, like I've said here before. Some of these people would have made monstrous amounts of money on their homes. Why they fuck would you hang out in that shithole?? You could retire get a decent house in Nova Scotia 100k, live there in the mild months and disappear south for the rest. 

I bet like most idiots the whole allure of staying is being able to talk about how much their house is worth and those conversations are about to go the way of the dodo.

 

general ambivalent's picture

No, it's awful here. And even worse with all the Ontario and Americuck immigrants. Tear down your own glass house.

aPocketofResistance's picture

We're not sending our best, sorry brah.

Endgame Napoleon's picture

Funny thing, back in the era when most households were sustained by one male earner, we Americans and the Canadians had a much bigger middle class. That is because the wealth and stability from good jobs was spread out over more households. Paying a mortgage over time requires stability. The divorced and never-married households of today are not stable. Now, we have about 20% of two high-earner, salaried or wage-earning couples who can afford semi-mansions, whereas in earlier eras the professional wage earners lived better than the middle class, but only a few, top businesspeople could live lavishly. And they were generating a lot of jobs for others, not in the Third World, but in the USA and Canada. We also were not inundated by 1) mass, taxpayer-subsidized immigration and 2) automation-based underemployment, with an elite determined to maximize the number of humans chasing jobs and driving down wages. Because, many of those humans have womb-based income from spouses, ex spouses or welfare/taxfare that enables them to work for less.

Women who never worked outside of the home mostly retired into paid-for homes in that era, but most of the working women of this era will not. That is because when you add twice as many workers to the pool of those chasing jobs, wages stagnate or decrease, including for all of the single, childless people who have to work, as they have no additional sources of income, like a spousal income or welfare/taxfare for producing children out of wedlock. In the era of the Great middle class, these women always worked: single, childless women; widows; young women before they married and had kids; and a few, exceptional, truly brilliant women at the very top who actually advanced their fields. Women were not accommodated with tons of mommy-absenteeism privileges and flextime management jobs, enabling them to make no sacrifices when holding those high level jobs. We did not have a welfare/taxfare system that incentivized single-parent households, forcing mommas to work 20 hours per week to get an "independent" household, including free rent, free food and $6,269 Child Tax Credits without marrying their children's father, thus driving down wages at the bottom by providing employers with a workforce that has an incentive to work for low pay. And the West had a much more widespread middle class, capable of sustaining mortgages over time.

Peter Royce Clayon da Turd's picture

One of the more intelligent comments on here in months, thank you.

Peanut Butter Engineer's picture

You surely sounded women obsessed why don't you become a woman too? We have the technology to make you one so that you can live the life style that you are preaching for women.

Dave Whiteman's picture

dodo to be replaced by Doh! Doh!

armageddon addahere's picture

I didn't even like it when it was full of white people, and I'm from Toronto.

logicalman's picture

If you are going to live in a big city, Toronto is one of the better options.

 

Offthebeach's picture

Were are people not in their right mind suppose to live?  They got to live somewhere.  They are more comfortable living with  like minded, un-right minded people like themselves.  Think of Toronto as a place for people that couldn't handle the pressure and pace of big city life in St. Paul, or Minneapolis. 

UrbanMiner's picture

I think fonestar might be on a yacht about now. Dude got abuse, but was right as fuck.

pitz's picture

0% rates aren't the problem.  The problem is that most of the credit went into housing speculation, spurred on by the government incentivizing it through CMHC subprime mortgage insurance.  Rather than into investment in industry.

JRobby's picture

Trillions in mis directed capital has a way of fucking things up. This happens when the markets no longer function. The skimmers also get thinned out as the biggest players take all.

pitz's picture

The nice thing about the misdirected capital is that its left other asset classes cheap.  Producing Canadian Gold miners, for example, can easily be bought at less than book value.  The whole TSX is pretty significantly undervalued at this point. 

Never One Roach's picture

On th ebright side, Toronto realtors are NOT blaming Trump OR the Russians!

The BigPram's picture

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JRobby's picture

Web cam boy, fully waxed and oiled

krispkritter's picture

I was just trying to order a pizza? 

Fester's picture

Somebody go get Linda Green, we have some papers that need signing.

Raffie's picture

Well they are taking in refugees like they are a rare commodity (they trying to corner the market on refugees?)and building mosque like no tomorrow and this has added an effect to the markets with the Asian purchasing thing that is out of control.

 

Burltron's picture

What does this even mean Rashie I've seen you trash my country multiple times now? What Utopia do you live in bruh?

Raffie's picture

I trash Germany as well for allowing their country falling to Islam, where was you on that?

general ambivalent's picture

I bet mos of dem ammagrants spoke batter anglish dan u.

yogibear's picture

Bernanke and Greenspan created this mess by pushing low rates worldwide.

Tall Tom's picture

And this collapse will not be contained to Canada.

 

The Europeans and the rest of the World know about "containment" in the aftermath of 2008.

 

And the sad truth is that there is not one thing that the US Government can do to enact legislation in Canada to stop the oncoming meltdown.

 

This time it may be enough to bring about Credit Freeze II that will destroy the Global Economy.

 

Get ready for the Domino Effect of cascading Financial Institution failures as it seems that we are entering into a reprise of 2008....the Twilight Zone...once again.

slimycorporatedickhead's picture

Stephen Poloz in Macleans March 31, 2017:

 

Q: Does the Bank of Canada shoulder responsibility for the speculation we’re seeing in the market?

A: No. When you’re borrowing money to buy a house and you think you’re going to make 20 per cent over the next year, I don’t think it’s going to make a difference if the interest rate you’re paying is 2 per cent, 4 per cent or 6 per cent. It’s still an important capital gain. I would pretty well reject that. It’s not low interest rates that are fuelling speculation.

 

 

The Real Tony's picture

To try and save his ass after the two interest rates cuts he perpetrated in 2015 which largely in part fueled the mass speculation in both Vancouver and Toronto by letting more average wage earners into real estate ever since.

U4 eee aaa's picture

He knows very well that, due to the speculation, people were rushing to get in in the fear of being left behind. That is classic bubble psychology and he was fueling it. Unless he instead wants to say that people like me are smarter than him. I'll also take that as an acceptable answer

Burltron's picture

Not really that scary to be honest. Mortgages are capped at five years here. I would love a real estate bubble popping I've wanted a cottage for years.

Raffie's picture

Well once it truly pops it may not stop crashing for a while and as it goes down will pull other things with it.

Will not be pretty at all.

You may be wanting to eat more then buying that cottage.

Tall Tom's picture

 

 

 

People did not get your satire in your initial post.

 

Count me in as one of the slooooooow on that one...Duh.

 

Good post here. (Yer initial post was good too. Just not outrageous enough.)

Justin Case's picture

Will not be pretty at all. For some, real nice for others.

GatorMcClusky's picture

Mr. Tony Robbins, please pick up the white courtesy phone.