Annually, the editors of Post City Magazines invite me into a room full of realtors and economists for a debate over the local housing market. After a few hours of evisceration, you can normally collect me with a spoon.
In spring 2011, I warned that the market was living on borrowed time. Economist Sherry Cooper said, “Well, a stopped clock is right twice a day.” See how convincing I’ve become? A year ago, condo king Brad Lamb was categorical. “If you really want to be safe,” he said, “I would buy a house because, frankly, you can’t replace it. We’re not adding any volume, so what’s that going to do for house prices? It’s going to drive them higher.”
Days ago, we received word that we would soon gather again. In preparation, I secured new body armour and put a lead liner in my squirrel hat. But Mr. Market also strengthened my position, since what I previously told the bevy of experts to expect has come to pass.
In Toronto, of course, sales were down 19.5 per cent in December from the same month a year earlier, while 2012, as a whole, saw just a four per cent drop from 2011. But worrisome was the fact sales declined on a year-over-year basis every month since about May. Meanwhile in the last quarter, condo sales crashed by 23 per cent.
Prices are up on the year, but declining consistently after last spring’s bidding-war frenzy. The average detached home in the 416 topped out at $831,000 in April yet finished the year at $722,393. Prices fluctuate seasonally, but a 13 per cent drop in eight months is more worthy of Cleveland than the Republic of Lamb.
Interestingly, this is consistent with what’s been happening in that other hotbed of housing horniness, Vancouver. Coincidence? Maybe. But sales have also dropped in Montreal and Edmonton, and everywhere else local real estate boards say, “It’s different here!”
It isn’t, of course. The factors that led to this inevitable and foreseeable correction should have been evident to even realtors and economists. My big question: How did we not see this coming?
It was inevitable that the U.S. economy would stabilize and start growing again, that interest rates wouldn’t stay at three per cent, that household debt would hit the wall and stupid house prices would quash demand. There is no Canadian market that is different. Only individual neighbourhoods — small micromarkets where demand is consistent and supply limited — can claim that status.
A year ago, Post editors asked: “If your kids wanted to get into the market, would you advise them to wait and see what happens or jump in?” Said Brad Lamb: “I think we’re safe at these prices. I don’t think there’s any sort of risk with the prices we’re at, so if you ask me today, I’d say, Buy.” Said Sherry Cooper: “What we will see in the housing price range and condo price range is a continued excess demand and prices rising. It’s just that they probably won’t rise as much.”
By the way, both of them sold their homes.
Post City Magazines’ real estate columnist, Garth Turner, is an author, investment advisor and former MP.