All Heck Breaks Loose in Toronto’s House Price Bubble

“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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  123 comments for “All Heck Breaks Loose in Toronto’s House Price Bubble

  1. Laker says:

    When is this movie coming to New York City ???

    • sid says:

      There is no comparison from U.S (a world power) and especially N.Y to Canada (Toronto and the likes). And this is coming from a Canadian. (sad)

      P.S: The salaries and disposable income in U.S is much higher than us.

      • Fuzzy says:

        I agree, looking at jobs in Manhattan, VBA/C++ programmer with a bank or hedge fund pays $150k+ US, similar job in Toronto is $75k CAD. No comparison, Toronto has no economy, Bay St is a joke compared to New York. Prices in the GTA are being pumped up by greedy immigrants looking to make a quick buck in real estate and have access to sketchy financing via Home Capital type outfits.

        • sid says:

          Canada is puny in every sense except the housing prices. This housing gasbag is almost ready to burst. I can related to the greedy immigrants for sure. Lots of my relatives/friends are in this category. I am an immigrant (20 yrs ago) too but not greedy. I see people barely making $40k a year and living in $600k + houses which is considered average. How they pay their mortgage is beyond me…!??! unless they are eating card boards or refinancing every year. They cannot even deduct their housing as tax expense like in U.S.

    • Jon says:

      It’s a matter of time… not if but when

      • Patz says:

        Jingle it’s already happening. A market can’t survive without organic demand.

  2. bkennedy says:

    There is a mismatch between the political “middle class” to garner votes, aspirational middle class, and the real middle class who increasingly no longer can afford to buy their own homes.
    Historically there have been big drops in the value housing. And people walking away leaving the key in the mail box. However the difference was the scrutiny of credit worthiness. As well as huge absentee homeowner purchases due to globalization

    • TJ Martin says:

      Hell even as a firmly entrenched member of the ‘ upper middle class ‘ what ever the hell that means these days though we can definitely ‘ afford ‘ to purchase a home since moving back to Denver .. with prices like $550k for a 980 sq ft ‘ cosmetic flip ‘ in a mildly questionable neighborhood we sure as heck aint willing to !

      Oh but whats that I see as we keep our eye on the situation ? Sure there’s still the occasional ‘ feeding frenzy ‘ especially when it come to the current ‘ flavor of the month ‘ [ MCM’s * ] but theres a whole lot of price decrease re-lsitings as well . Hmm .. could Toronto’s current housing virus be .. spreading ? Here’s hoping … every major metropolitan area in the US is in dire need of a healthy dose of correction and reality before no one but investors can afford to buy/live in them

      * MCM’s [ Mid Century Moderns ] across the nation have become the new ‘ collectable .. with buyers purchasing and hoarding them like classic cars

      • alex in san jose says:

        I saw this magazine on the rack by the checkout at my local Sprouts market:

        It’s like collectible cars for …. people with lots of money?

        • Bee says:

          I’ll be looking into this. It’s hard finding info on a ranch house online and no builders sell this style nearby. Thanks.

      • Dan Romig says:

        My folks hired Carl Graffunder to design our house in 1969, and it was built in 1970. Mr. Graffunder was the quintessential mid-century modernist architect, and the home was designed for our family in a Scandinavian style for taller people (no bending over a low standard height sink in the kitchen or bathrooms).

        When I think of MCM homes, I see the cookie-cutter post WWII inner ring suburban ramblers built with 4′ by 8′ Warehouser plywood. These homes have no soul and have eight foot tall ceilings, but in the Twin Cities, they can be bought for under $200 per square foot.

        In January in Minnesota, it is preferable to have a roof over your head, even if it has little style. Funny thing is that I own a 1919 Sears Craftsman bungalow that has nine foot tall ceilings, and an old-fashioned classic interior – just the opposite of the Graffunder home I grew up in.

        • Bee says:

          Sears homes are awesome. I grew up in one with 12′ ceilings. They were built like a rock.

    • kam says:

      There’s the Public Sector middle class living large with huge pensions. Then there is the private sector middle class, taxed to death to pay for these unfunded pensions. The private sector middle class that gets no equivalent pension.

      • Kent says:

        Believe it or not, they used to. Then they rejected unions, because they hated their pensions I guess. Public sector still has unions.

        • T.J., not TJ says:

          I don’t think we hated unions as much as we hated the poor quality vehicles they were building before the Asians manufacturers came over here and showed us what quality really looked like.

        • Bee says:

          @ T.J. “before the Asians manufacturers came over here and showed us what quality really looked like”
          Oh, puh-lease. A combination of several factors helped to cement the fall of the American auto industry—it wasn’t because we never had quality.

        • chip javert says:


          Based on many of the auto quality surveys of the period, you’re one of the 5-6 people on the planet who didn’t see Detroit car quality as a material issue

        • Bee says:

          Chip–“quality surveys of the time”. You’re talking about one point in time. American autos weren’t always lacking in quality as they were in the 70s & 80s, which I assume is the period to which you’re referring. Again, a host of issues caused the downfall. It would be pages long if I were to type a dissertation here.
          P.S. Sure there were some clunkers, but my family has always bought mid- to higher-end models which have been of stellar quality. As they say in the auto world, “YMMV”.

      • Duke De Guise says:

        Then maybe we should tax the Overclass, so that teachers, police officers and fire fighters can get the deferred compensation – which is what public sector pensions in fact are – they’ve been contractually promised.

        Or are contracts no longer “sacred” in the land of the “free market?”

        • nick kelly says:

          In my city a twenty- something with no post high school ed hits 95 K after five years, or 250% of the average Canadian salary.

          Deferred compensation?

        • nick kelly says:

          Re: above is fire fighter.
          It should be well paid but in anything resembling a market equally good personnel could be hired for 70% of these salaries.

        • chip javert says:

          Duke De Guise

          All depends on how much blood you can squeeze out of a stone.

          I (and thousands of others) left CA because I don’t want to pay the taxes to support those “promises”. I realize that won’t stop all of the abuse, but I won’t be paying for it.

  3. Suzie Alcatrez says:

    The Chinese must now be putting all their money into bitcoins instead of Canadian real estate. ?

    • Shawn says:

      No he two go hand in hand, the Chinese use crypto-currencies to get launder their money out of the country while dumping it into US and Canadian RE

      • Kenny Loggins says:

        What exchange in Canada is doing btc to cad swaps for $1,000,000 or so?

        Is that into bank account? Anyone asking where it came from?

        Or cash? Even more questions?

        Or estate agents doing it?

        Either way is this really laundered money? Laundered suggests it’s now clean.

        Sounds more like illegal money that’s traceable and will go ‘poof’ once the bubble pops and gov goes looking for assets to seize to pay the bills?

        There is lots of wilful ignorance while the times are good for all involved.

  4. akiddy111 says:

    I am considering selling a rental property i own that is located just 10 miles south of downtown Seattle. I spoke to a realtor a moment ago and told him that the Zestimate on it keeps climbing relentlessly.

    He told me he may be able to list it for more for more than the Zestimate.

    I told him that i was in no immediate hurry. His reply was that he does not think this hot market will last much longer because of coming rate hikes. That kind of spooked me. why ? Because they are usually wrong. If he had said that the market would continue to be hot, I would have felt better as i view their opinion as a contrarian indicator.

    Bottom line… i have no clue if the top is in YET or not for home prices here in Seattle.

    • Frederick says:

      Pigs get slaughtered kiddy The dollar is faltering at this very moment by the way

    • marco says:

      It is technically possible that a realtor would tell you the truth, but only in a situation where it would be to his (or her) benefit.

      It truly could be the top, and he of course wants any possible listing he can obtain, so a realtor might hypothetically actually be telling you the truth, to both of your benefit. This time.

      • akiddy111 says:

        Thanks Marco. I agree. He wants the listing ASAP. The impending rate hikes may be his way of creating urgency. Who is to know if he is truthful or not.

        • TJ Martin says:

          When it comes to realtors .. all realtors … hold on to the TV character ” House ” axiom ;

          ” Everybody Lies ”

          .. or at the very least are so misinformed themselves that they wind up spreading lies . FYI ; From my perspective and recent experiences [Denver Colorado ] creating a false sense of urgency ( verging on desperation ) has become part and parcel of the script when it comes to realtors regardless .

        • Lee says:

          Talking about RE agents……………….

          I remember when I first was in the market to buy a place in Hawaii and wanted to buy in a certain area.

          The RE agent indicated that it wasn’t ‘ a good area’ to buy in.

          Little did I know until later that the same RE was agent buying up lots of property in that area…….

          Anyway, forget about the USA. You can buy in Melbourne, “The world’s most liveable city” and enjoy things like the following almost everyday which is from this morning’s traffic report:

          “Inbound traffic is at a standstill for about 10 kilometres after a multi-car smash on the West Gate Bridge this morning.”

        • Raymond C. Rogers says:

          Or it could be a matter of an opportunity and a good conscience at the same time. He goes to bed, and us able to sleep because he told you the truth. In the morning, he may be able to squeeze in a dale before it colapses. It’s really a win-win for him.

    • Thor's Hammer says:

      Why not play it like the big boys? Sell it to a Panamanian corporation you set up. No need to disclose the ownership, and you can use the proceeds of the sale to pay yourself through the dummy corp. Then bankrupt the Panamanian corporation with no personal liability when the Seattle market crashes.

      ps Having your money in a Panamanian trust or corporation can also pay dividends in divorce because its hard to get blood out of a turnip.
      (As Melinia no doubt understands!)

    • tony says:

      Do not get greedy

    • Char says:

      Sell while you can, don’t get greedy. No one can be exact about the market but have a general idea. Take the money and run!

    • Don’t sell, interest rates will fall in America and a lot of the money will flow out of the Toronto area into Seattle real estate. Look at the bitcoin (hint 100 driven by Chinese money). Seattle real estate could easily double in price in the next two years.

    • Jon says:

      Realtor would look for their profit..
      To the prospective seller they’d say.. it’s the peak and can’t go above this
      To the prospective buyer they say buy before you are priced out

    • Laurent says:

      The top might not be in yet for some cities. IN 2004-2006 rates went up considerably to prick the bubble. It’s still 1% fed rates. Maybe next year if rates get to 2-3% then could be the top.

    • Yukon says:

      I own a rental home in Everett and am not planning on selling for quite awhile. I don’t think the realtor has your best interests at heart. I don’t think the market will downturn. It may level off but with the location of your rental home i think you should hang onto it as a retirement option if possible.

  5. Maximus Minimus says:

    Bubble meets babble.
    There is a stream of warnings coming from the top honcho at the central bank, but it’s all smoke and no fire. Must be that he thinks many of those who are in it know about him, i.e. have a basic financial literacy. Why bother when the lottery just keeps giving.
    The major banks have been downgraded before, and quite recently, but it did not stop anything. Other companies can go bankrupt, but the banks will always be saved by the political establishment.

  6. mick says:

    Vancouver’s faux recovery has now rolled over too. Media hyped it as a recovery but even they admitted it was only in condos. Real data from Zolo shows that a mere few percent rise in prices of condos YoY is what they were calling a recovery.

    Meanwhile, detached houses continue to fall and are down in sales volume at least 25% YoY depending what neighbourhood. That was the dip buyer money, and it’s now used up.

    In Toronto, there is no dip buyer money, due to the madness going so far as multiple people going in on a house because neither can afford it, then renting it out, all as an investment.

    At least Vancouver had Asians to support the market, much less so in Toronto. The game finally nears its ultimate end.

    • Bill says:

      ABSOLUTELY faux…all nonsense. And, any “uptick” some claim to have witnessed in Metro Vancouver is merely a dead cat bounce/bull trap.

      BTW, price volumes are down 49% YoY in April…

  7. Raymond C. Rogers says:

    Thank for this website wolf. We knew the metrics and assurances presented by the MSM were fake news, but they have been going on for awhile. But now I see, in the words of Mark Levin, more and more “jonny-come-latelys” entertain the thought that feeding the hype train may not been wisest course.

    That is what some insinuate at least. I’m of the opinion that they knew all along, and pushed the hype to make more than a few dollars.

  8. rob from london says:

    Five weeks ago and 200 kilometers west of the big smoke the London and St. Thomas realtors were holding their annual convention and it was big smiles and high fives all round. Some houses (these would be the few half million plus ones) were going for thirty to fifty thousand over asking. Pretty much everyone polled was flush with commissions and absolutely gushing about a market that no one could ever remember seeing before. The only voice of caution was a guy from Re-max who is in their top ten agents worldwide for commercial sales. He said he was telling his (well-heeled) clients to sell and lease or rent for a few years…that, I believe, was the final climax of the insane house horniness that has gripped this city for far too long.

    For the record I’m a renter.

  9. OutLookingIn says:

    A recent survey conducted by Manulife Financial is just out, that shows 72% of Canadian mortgage holders would be hard pressed to meet payment obligations, if their monthly mortgage payments were to rise just 10%.

    As anecdotal evidence of the Toronto housing exuberance quickly cooling, real estate open house events attendance has crashed. One agent has stated that as recent as two weeks ago, these events drew in 50 – 60 people on a Saturday. And that just this past Saturday, only 4 or 5 people showed up!

  10. Sinick says:

    If Home Capital = Bear Sterns then ? = Lehman Brothers?

  11. walter map says:

    You’d think these guys had never heard of a financial bubble before and would know enough to stay clear.

    Verily, a fool and his money are soon parted, but really, sometimes you have to wonder how they got together in the first place.

  12. Boo Randy says:

    Pretty soon Home Capital is going to be burning the furniture.

  13. mynamett says:

    I come back from the grocery store. A year ago 6 boxes of Kleenex store brand was 3.00$ in special. Now 6 boxes of Kleenex store brand in special is 4.00 $. This happen I would stay within a year. So 33% price increases within a year. Four donuts was 1.00$ now it is 1.25$. So 25% price increases.

    I now pay 1.26$/liter for gasoline. That would be 1.26$/liter * 3.78liter/US gallon= 4.77 $/US gallon.

    There is just so much inflation Canadians can absorbed before they have to choose between mortgage, food, electricity.

    I like how to lie to use year after year about inflation.

    • sid says:

      I invite you to come to Canada and compare the prices with U.S. You will most likely faint with a shock. They are sky high here.

      • mynamett says:

        I live in the province of Québec, Montreal area these are the prices I say today. Wha,t it is worst where you live.

        • sid says:

          A pack of asprin 500 tabs in U.S is about $3 or so. In Canada it is $17+. Just compare and prices and you will see what I mean. I rent and make upwards of $100k, I could not afford to buy even a shack in T.O. The bubble has finally burst and it will be ugly. Very ugly.

      • CV5 says:

        The first thing I noticed (shocked actually) when moving back to Canada after working in the US for many years was the food prices.
        They were almost double in most cases. The second thing was lack of selection. Same with clothing. It was too obvious. I am used to it now I no longer have this perception.

        • Re: The second thing was lack of selection. Same with clothing.

          The direct result of Pierre Trudeau and French and English on everything. That drove the costs through the roof. End result lack of selection for everything.

        • sid says:

          Comparing U.S to Canad is like comparing an elephant to a mouse.

        • mynamett says:

          Canada lack selection for everything. This spring was looking for a cheap oscilloscope to trouble should sensor, ignition system on my car. Not much choices locally. seems expesenvies.

          I went to aliexpress and was amazed at the variety of oscilloscope I could get from China. Everything from the cheapest low quality to hight quality stuff. I was surprised at the vitality of electronics sector in China.

          Canada is a backward country were nothing happen were most citizen walk with this dead look their face. Canadians look dead inside with no desire to achieve anything and seem content to be poor and not achieving anything worthy with their life.

          James Camerom had to leave Canada to get its career moving. Elon Musk immigrated to Canada and moves to the US to get a more prosperous and worth life.

  14. Bill says:

    What do you mean house prices have never gone down in Canada?

    Absolute rubbish…the reason our market didn’t correct in any “meaningful way” back in 2008-2009 is because our federal government goosed the market with mortgage guarantees to the banks, the BoC lowered interest rates and our prime minister and finance minister allowed further reckless lending via 40 year (amortized) mortgages and )% down payments.

    Our RE downturn in 1981-82 and again in the late 80’s were also “significant”, try to get your “facts” straight.

    • Wolf Richter says:

      That was utter sarcasm – to make fun of the media hype that you cannot lose money in RE.

      Maybe I should have been clearer that it was sarcasm.

    • Wolf Richter says:

      I re-read the passage and I agree, the sarcasm could be unclear, especially for someone not all that familiar with these pages and my style. So I have now rephrased it to make it clear. Thanks.

      • Bill says:

        Thanks for clarifying that!

        BTW, this correction in Canada will be a doozy. The Feds intervened in the 2008-2009 correction by allowing 0% down payments. 40 year mortgage amortizations, looser lending requirements by the banks and raising CMHC limits, among a few other “measures”…to ward of any contagion from the US housing collapse and fallout from the GFC

        Essentially, thy kicked the can down the road to where we are today. It’s a real mess, alright.

        • sid says:

          They cant do the same again. Too much gas in this bag now. kicking the can will be a suicide for canada.

        • Patz says:

          They already committed suicide. The resurrection of the economy won’t occur until after the cleansing process of a correction. Yes it will be painful for a few but the entire economy and population benefits.

    • Resale condos and townhouses in Edmonton, Alberta Canada that once fetched $280,00 in the summer of 2007 now sell for half that amount or $140,000 ten years later… the exact same townhouses and condo apartments.

      • SPOCK says:

        David Rosenberg says RE in Toronto and the GTA are up to 40% over valued.
        He is one economist with a lot of cred.

        I think 10 years from now, those million dollar homes will be severely reduced.
        Time has a way to bring us back to our senses.

        Thanks for the info. I remember those times when the East coast residents were moving lock, stock and barrel to Alberta which had “beyond full” employment.

        • Patz says:

          40% is understated. The resultant price would still be far in excess of long term price trend. A 75% decline puts the price at long term historical trend.

      • sid says:

        Show the proof of this $140 k statement.

    • Raging Ranter says:

      Small correction Bill, 40 year mortgages were brought in in 2006, before the GFC. They were eliminated in February 2009, at the depth of the GFC.

    • steve says:

      Sounds exactly like the UK, house prices maintained artificially high when a recession should have sorted things out, its almost like we have the same person in char….oh wait…..

      So which country gets the joy of Carney next?

  15. SimplyPut7 says:

    I would say people are concerned but not as scared as they should be.

    The worry comes from the fact that the media, real estate brokers, regulators and different levels of government are lying about how great everything is in the Toronto real estate market, or staying too quiet and not assuring people that everything will be okay. Most media outlets did not report Bloomberg’s findings and rarely mention the slowdown in the housing market, that everyone can clearly see, such as the for sale signs on the lawns of homes that used to sell in days now still for sale 5 weeks later. People are starting to wonder how long has everyone been hiding the truth from them.

    In terms of their own finances, most people have not realized they are in serious trouble.

    In Toronto, if you already own a home or have a mortgage less than the home value, you have access to cheap home line of credit at rates of 3% or less, for hundreds of thousands of dollars depending on how much equity is in the home (because your home is supposedly worth at least $1 million), without needing to show you have a lot of savings to qualify; and the banks don’t ask enough questions about what do you do with the money you spend on the credit line. Many people used the credit line to pay for down payments on condos or homes in new subdivisions in hopes to flip the properties later at a profit. Speculators, flippers, real estate brokers and people behind on mortgage payments and other bills can pay for carrying costs of flips/vacant homes that did not sell, and other monthly expenses with money from the credit line.

    However, with home values likely to start falling, the equity they were using to qualify for the line of credit may disappear, causing the line of credit to also be reduced or removed by the banks/lenders. It may take some time for people to notice how much trouble they are in, as those who were not actively flipping homes and have not fallen behind too badly in their monthly expenses, should still have ample room to put more bills that have not been paid on the credit line.

    The real problem (besides everyone pretending interest rates will never go up) is the flippers and new home developers who needed the frenzy to continue to make their real estate projects profitable. There is a lot of inventory, flipped vacant homes and new vacant homes bought by people with little down payment with the hope of flipping for a profit when the home was completed. Not much is selling: 1) the market for the last few years was controlled by speculators who are not interested in buying homes that have been flipped already 2) the flippers can’t buy more property until they sell the inventory they have on hand. These people are running out of time before, their lenders realize they have no money and can’t repay their loans.

    We also have a problem with private retail investors lending money via syndicated mortgages. More projects are starting to fall behind in their obligations to investors.

    And then there’s Home Capital Group who is on their last $350 million of the $2 billion lifeline they got from a health care pension. And only have $12.30 billion in GICs, as $7.05 billion in GICs, are scheduled to mature in the next 12 months. High Interest Savings Accounts are only $113 million and $145 million at Home Trust and Oaken. But our business media outlets wants you to believe everything is fine.

    The Canadian guest perspective of Home Capital:

    The American guest perspective of Home Capital:

    • SPOCK says:

      Very well said “Simplyput7”.

      Please allow me to add one example to complement your line “In terms of their own finances, most people have not realized they are in serious trouble”.

      I provide some information that was disclosed yesterday.

      A “friend” parents are 67 and 63 years old and retired.
      They own a nice home in Ajax, worth 622k.
      2 newish Hondas, a 2014 CRV and a 2015 Accord.
      They take regular vacations south in the winter.
      All looks great, except…….

      Unfortunately they are now in divorce proceedings. Let me explain the true finances.

      Home sold last June for 622k.
      Mortgage owed was 488k. Taxes owed over 20k.
      Revolving credit of 90k (TD Visa, RBC, Home depot etc).
      Car loans – 38k remaining on CRV, 28K on the Accord.

      They are broke! The Ontario and Federal gov’t, meaning the tax payers, will have to take care of them until they die.

      I know of many people who are in similar positions. Friends who have helped their kids with down payments from their line of credit or even signed as a guarantor on the mortgages.

      This IS a pervasive problem. It will strangle the economy for years to come.
      I am in a position where I hear and see a lot of the financial issues, obviously I cannot disclose my sources.

      Folks in the Toronto and GTA are STRETCHED financially beyond the point of no return. Regardless of the interest rates, once you have accumulated so much debt – especially the revolving kind – you are $100 away from disaster as quoted in a recent article.

      I fear that once this RE bust picks up steam, it will be worst than the 1990s. This will be a good cleaning for the irresponsible behaviour.

      • Simplyput7 says:

        I’m from the Toronto area, I know your story is true. No one in the last 3 years bought a home thinking they would have to pay back all that money. People don’t even have 100k in savings, but they are going to pay back $800,000 – $2,000,000 in 1st, 2nd or 3rd mortgages + interest? No, they were hoping to make a few mortgage payments and then pass it onto the greater fool and move up the property ladder. Except there are no more fools left – well, maybe a few who think they can become a profitable condo landlord or flipper.

        In my area, a home wanted $850,000 a few months ago, now similar homes are asking $699,000 with no offers – they are still on the market.

        I am more concerned about the condo market and syndicated mortgages market. I had no idea there were so many empty detached house and townhouse, I thought the condo market was the bigger problem. Retail investors are very leveraged in these markets and not even the government have good stats on how big that market really is: how many condos in the last 7 years were bought by people who have no intentions of living there or renting them out? Were they bought with cash, credit lines or from a private lender? How much money will be lost in the private lending or syndicated mortgage market from investors who thought their money was in a safe investment similar to a GIC?

        We won’t hear any real horror stories until the credit lines start to disappear.

        • SPOCK says:

          Oh that is even better news, 850k down to 699k.

          I live in the east (of the GTA). I travel the areas of Pickering to Oshawa regularly.
          I am seeing listings multiply in some areas.

          I have been monitoring 14 homes up for sale within the last 4 weeks. Only 1 of the 14 was sold recently. Interestingly, the sold sign DID NOT have the realtors love words “Sold over asking”.

        • Simplyput7 says:

          I also hate the smug ‘Sold Over Asking’ sign. Especially when the listing price is reduced by thousands of dollars just for the realtor to say it sold over asking by thousands of dollars.

          I can’t wait until the house of cards blows down so we can finally have a site like Zillow come to Canada and show the previous listing prices, actual sold price and comparable sold prices for free, without the need of a realtor or paying for the information.

          The Competition Tribunal in Ontario is dragging its feet to release it’s final decision from the appeal from TREB to allow people to see actual sale price of a home.

      • Petunia says:

        Over a year ago we had to move out of Florida over a rent increase of just over $100 a month. Our corporate landlord only did one year leases and we could expect our rent to increase yearly. Like many other people our income was not rising and had actually dropped. Nobody takes into account the falling wages of most workers. We were already paying too much and had no choice but to explore other locations.

  16. I remember that last time real estate cratered in Georgetown a city just west of Mississauga. Half the city was immigrants and the other half was white. After real estate tanked the city was pure 100 percent all white. That’s right all the Punjabs and Pakistani’s went back home to India and Pakistan. Let me tell you there’s one heck of a lot more this time around some 25 to 30 years later. The possibility of ghost towns such as Mississauga, Brampton and Georgetown is high.

    • sid says:

      >>Half the city was immigrants and the other half was white. <<

      LOL – Hilarious. Stop watching Donald Trump. Do you think all immigrants are non white? What do you call people immigration from east and west europe and russia?

    • nick kelly says:

      So if it was only half- white back then and now there are one heck of a lot more, is the place only 25 % white now?

  17. Sam says:

    As an upper middle class millennial renter, the issue I think about a lot is “will a correction ever be allowed to occur?”

    I’m fortunate to have a good job, solid income, 800+ FICO, no debt, but still am renting at 32 because homes are so expensive in the region I live. A downpayment on a SFH where I live which is comparable to my current rental would be in the $150,000 area. But, I refuse to put down less than 20% and waste tens of thousands of dollars paying PMI. The downside risk of a housing market correction in the next few years that brings house prices back in line with incomes is also a concern.

    I’m content to rent and wait for the correction, but I can’t get over the thought that a correction will never be allowed to occur. If the S&P500 and home prices dropped 30-40%, the Fed would step in – ZIRP, QE4, outright asset purchases, etc. – to prop up these assets as the consequences would be too dire for pension funds, boomers’ 401k’s, Federal & state tax revenues, and so forth…just buy now and just learn to love the insanity?

    • Nick says:

      I’m in the same boat as you, Sam. And thinking the same thing every day — will they allow it? I usually just go read some Buffett quotes and then sleep like a baby.

    • Raymond Rogers says:

      I feel for you responsible guys and gals over there in CA if you are tied to a job there.

      Only option really is to move if you can. I hear similar stories from family members back East. Expensive homes and draconian taxes. Its as the people exist for the state, not the other way around.

      I know people who have moved from AZ to CA just to get closer to family or for reasons like weather. They go from being homeowners to renting studio apartments or living with mom and dad.

      • California Bob says:

        In other words, these people made a choice, otherwise known as ‘free will.’

    • Maximus Minimus says:

      Those are very good questions, and I think you are right. However, this show cannot go forever. One day there will be a reckoning, and it will be epic.

    • jon says:

      Prices would fall for sure not a matter of if but when…
      Your patience would be handsomely rewarded….
      This show can’t go on forever but no one knows when and how would it stop

    • harvey says:

      Same here, I am in the same age as you, probably not doing as well as you, but according to personal income percentages, I am doing better than 70% of my peers, and even though I have to pay out of my pocket for some medical treatments every month, I still have some disposable income left over for savings. No debts, car paid for and all that, yet I can’t afford a house, not even a 2 bedroom apartment/condo in the nearby city that still requires a one hour drive to where I work now. The thing about living in CA is that there are plenty of good jobs, but the cost of living is what keeps the the bottom 70% out of here. I don’t envy the red states for now, since CA do have many good state benefits just by working, taxes is high everywhere, if you count them all, like property taxes in red states are much due to my medical reasons, I like the single payer option sooner than later, and my family already have a house in the city of angels. The funny thing is, instead of spending my money in RE, which stimulates good paying jobs around the community, I am spending it on a monthly binge in my local casino getting spa treatments and crab leg buffets, which create jobs pays $15 a hour max, and you wonder why it is harder for the bottom to catch up to those of us who are doing relatively well…..and this is in Cali where $45k a year won’t get you a place that you can live.

      • Net service says:

        I have so much money left after paying my rent I don’t know what to do with it anymore.

        Mortgage slaves will never have that problem.

  18. John says:

    Can you imagine if they only had a PPT for the real estate market just like they do for the stock market? Oh wait……
    And some still think what a great smart guy that ronny raygun was.

    • Kasadour says:

      They have a PPT for the housing market, a PPT for the bond market, a PPT for the stock market, a PPT for commodities (oil, shale), a PPT for the MIC/WIC, one for housing, one for subprime-auto, retail investment, et cetera — and really it’s all the same PPT. Eventually something is going to be missed. Something small, regional. Housing prices will drop precipitously once whatever the PPT misses whatever is misses. It may have the FED’s printing press behind it, but it’s not all mighty God.

      • nick kelly says:

        A lot of people aren’t too happy about this PPT efforts re: oil. or iron ore or potash, etc.

        • nick kelly says:

          We don’t talk about iron ore as much as they do in OZ but it’s a REAL crash. Down from 160 a ton to 45- 50. The majors (Rio, Billiton, etc.) are still ramping up production in the apparent hope of driving mid- size outfits out of business.
          A lot of the Oz public and politicians are screaming for a production cut by the majors, to save the mid guys.
          But so far the majors say; If we can make 5 bucks a ton and you can’t… that’s the market.

  19. Fuzzy Camel says:

    It’s looking like they are trying to cool real estate markets, and start juicing crypto currencies. I expect BitCoin and the likes to go to extreme levels for some time, then going to zero.

    So much money sloshing around from the US printing non stop, looking for a return, anywhere.

    Real estate here in Canada has hit a turning point, it will still keep going on but less frothy and greed.

    Prices should come down a bit, but not much.

  20. John J says:

    The sky is falling has been the refrain for years. However, Toronto imports 80K bank customers per year and 90% are greedy self-involved and simple-minded, motivated to “succeed”. This means family, a home and a job. Prices will not “crash”. They may level off but compared to areas of New York city our prices are relatively cheap.

    • Alistair McLaughlin says:

      You’re making the classic “It’s different here/It’s different this time” argument. It’s always different, yet it always ends the same.

    • R2D2 says:

      Telling yourself the prices will not crash won’t save you from having to pay back all that mortgage when you wake up suddenly and see yourself underwater by say $500,000 because previously you had decided that buying that old, smelly shack for 1.2 million at the peak of the market was such a good investment.

    • Simplyput7 says:

      Canada needs an intervention, we’re very delusional. Only when you start talking to people outside of Canada, can you see how far gone we really are. I’m glad to hear from you Fuzzy Camel, I commented on an article posted earlier in April and many people thought I was making up stories about our addiction to debt.

      Thank you for proving my point.

      We’re not the new London or New York, our citizens do not make a lot of money to afford million dollar homes. The policies from the various levels of government to cool the housing market are not causing the increase in listings. And foreign investors are not flocking to Canada because there are many investment opportunities around the world with better returns compared to the amount of risk they would be taking on in a foreign housing market, with many unknowns like Canada.

      Canadians, caused this problem and there’s no easy way to fix it.

      • sid says:

        >>We’re not the new London or New York, our citizens do not make a lot of money to afford million dollar homes. <<

        BANG ON!!

    • Gershon says:

      “It’s different here” he says. Until it’s not.

    • sid says:

      John J,

      You work for the remax?

    • Patz says:

      “our prices are relatively cheap”

      And about to get a whole lot cheaper.

  21. michael Engel says:

    Canadian RE investment made a lot of sense, if you had access
    to $USD and the Canadian RE market.
    Since 2014 the $USD moved up 20%.
    Since 2014, 3 years ago, the Canadian $CAD fell 20%.
    The gap 40%. In Jan 2017, the gap was 47%.
    If you are a foreign investor, looking to put your money in a safer
    place, – like a Chinese investor, – you convert RMB to $USD and go
    into the heavily discounted market, like Canada.
    Canada was cheap.

  22. rob from london says:

    I’ve been around long enough to have experienced real estate prices absolutely dead in the water for what would be unimaginable stretches of time for a lot of today’s permanent plateau punters. So yeah, I have difficulty blithely accepting that some ill-defined ‘they’ (usually central bank Phd. mandarins/wonks or clueless government bureaucrats) will some how manage to keep all the fine china elevated and spinning at Everest levels, happily ever.

    When a critical mass of people finally realises it’s all about confidence and that confidence is shaken, no amount of QE or any other monetary policy legerdemain is going to put Humpty back together again for a very long time.

    Should make for a nice bull market in schadenfreude though.

  23. hiho says:

    I recall that few days ago some canadian guy came to this blog saying that RE prices could never go down, and I think that he said he had just bought a new property. Don’t know why but I suddenly remembered his post.

    I guess he was the famous proverbial fool (s*cker).

    • Maximus Minimus says:

      So far, the suckers are all those who did not pay the central banking lottery. I fear, it will be roadside robbery after that – you know, to save the children.

  24. PrototypeGirl1 says:

    I’ve been working in a nice neighborhood in Tulsa the last three days I keep coming in from different ways just to look at houses for sale. There’s a bunch of them for sale right now some streets have 5-6 sale signs on each block.

    • Wolf Richter says:

      Thanks for the update. Do you see the for-sale signs in more modest neighborhoods as well?

      • PrototypeGirl1 says:

        No not like this. This neighborhood is 41-51st between yale & Harvard. I would say majority 2500sf+ 250-400k range. I think this has been a real solid family neighborhood now the kids are graduating and taking care of 11 rooms takes a lot of effort. Lots of upgrades going on here too.

  25. michael Engel says:

    Akkidi, sell. Fast. If you take some loss, don’t matter !
    RE & stock markets high have nothing to do with a good economy,
    or the Fed, or a weak $USD.
    – The Fed stopped QE in 2014.
    – $USD is very strong, everything else is supposed to collapse.
    – The US or the global economy : big bs !
    – Trump : <<>>>
    It’s about where to park your money, where the money flow !!
    If the stock markets have peaked today, it’s a historic week that you
    should remember.
    A normal recession is 50-62% down will take well into the old
    trading range from 2000 (H) to 2002(L).
    If in the next 15 years we are going to experience, not 1 recession,
    but 2-3. Things will not look so good.
    The Austrian school says : recessions are good, they cleanse bad stuff.
    Correct. If you get sick, the body cleanse infection. Your body is a Dr.
    A teenager will recover well & fast.
    A 80 person might not die, but never be the same. That’s the US.
    Weather the $NDX, $SPX & DOW have peaked today or not, don’t
    Just get out of RE. Don’t enter for a long time.

  26. SimplyPut7 says:

    Sales may have fallen as much as 61% in some areas surrounding Toronto, from April 20 to May 20. Toronto itself is down 26% during this period for detached houses, semi-detached houses and townhouses.

    Prices are still very high, nothing is within reach for a first-time home buyer.

    I think the realtors are starting to whisper to media outlets (the ones who care) as a cry for help, because they live on commission and most can’t afford to have any type of slowdown in the frenzy.

    Home Capital Group is still losing money. I noticed in the news release they stopped mentioning what they think the approximate balance of liquidity and credit capacity will be at the end of today, they only mention yesterday’s data now.

    From May 24 to May 25 (in Canadian dollars):
    * they lost $22,800,000 in GICs
    * they lost $800,000 in High Interest Savings from Home Trust
    * gained $1,100,000 in saving deposits at Oaken
    *Available liquidity and credit capacity stood at $1.07 billion down from $1.11 billion the day before

    Since depositors are the ones footing the bill for these sub-prime mortgages, it would be interesting to know the total value of the mortgages still sitting on their books. Some mortgages were promised as collateral to the loan shark, health care pension plan; some were supposed to be sold and they were also looking to divest in certain types of loans such as the consumer loans. The regulators should encourage them to provide an update on the progress of trying reducing their balance sheet,.

  27. Simplyput7 says:

    We finally have appraisers in Toronto wondering if they should take a better look at home values again!

    Best part of linked article:

    ‘By his estimates, prices in the Greater Toronto Area have dropped anywhere from five per cent to 15 per cent over the last 30 days. The next set of statistics from the Toronto Real Estate Board are due out Monday and will mark the first full month of data since provincial changes to cool the market that included a tax on foreign buyers.

    “Lenders I deal with they want to know if your property is still worth $1 million if they are loaning you say $650,000,” said Polito. “They don’t base it on anything else. We have to be precise because it’s not a bank, (smaller lenders) can’t afford to lose a dollar.”

    It wouldn’t be the first time, appraisals have lagged purchases prices — a phenomenon that previously caught some Vancouver buyers by surprise when it was time to close.’

    So Vancouver and Toronto property values are not as high as their bidding wars would make them appear to be, and who are these private lenders, giving borrowers hundreds of thousands of dollars to people who could not get a loan at a bank?

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