Toronto Housing Bubble Pops. “Genuine Fear” of Price Collapse

Sales volume crashes, prices plunge from April peak.

In the Greater Toronto Area, sales of homes of all types in July plunged 40.4% compared to July last year to 5,921 transactions. By type:

  • Detached houses -47.4%
  • Semi-detached houses -38.6%
  • Townhouses -36.5%:
  • Condos -30.5%.

At the same time, as sales volume was plunging and potential buyers were staying away in droves, the number of new listings rose 5.1%, according to the Toronto Real Estate Board. This left total active listings 65% above the level a year ago.

“Clearly, the year-over-year decline we experienced in July had more to do with psychology, with would-be home buyers on the sidelines waiting to see how market conditions evolve,” said TREB President Tim Syrianos. Alas “psychology” is precisely what causes house price bubbles – not fundamentals, such as 2.3% annual wage increases. And when that “psychology” turns, it pricks those bubbles.

And prices reacted. The TREB refuses to publish median prices though it has the data. It publishes its own proprietary Home Price Index based on “benchmark” prices – a theoretical price based on an algorithm that creates theoretical homes in various neighborhoods. And it publishes the average price.

Home prices had surged through April. The market was going nuts, with year-over-year price increases of over 30%! In April, the average selling price in the Greater Toronto Area (GTA) soared to C$920,761. But that home-price peak in April is now a distant memory.

April 20 was the day the government of the Province of Ontario announced its “Fair Housing Plan” – a laundry list of measures, including a 15% levy on foreign speculators – to prick the house price bubble in Greater Toronto and surrounding areas. The Bank of Canada has been warning home buyers about risks and losses too.

After which all heck has broken lose. By July, in just three months, the average selling price plunged 19% to C$746,218.

“Summer market statistics are often not the best indicators of housing market conditions,” said TREB CEO John DiMichele. The whole industry appears to be stunned.

“We generally see an uptick in sales following Labor Day, as a greater cross-section of would-be buyers and sellers start to consider listing and/or purchasing a home,” he said. “As we move through the fall, we should start to get a better sense of the impacts of the Fair Housing Plan and higher borrowing costs.”

Given the crazy price surge through April, the average price was still up 5% from July last year. And the composite “benchmark” price, which too has plunged since April and declined another 5% since June, is still up 18% year-over-year.

“The market is stalled despite what TREB is saying,” boots-on-the-ground observer in Toronto told me. “Hardly anything is moving. Houses are taken off the market. Some of the desperate ones are placed back on the market at a reduced price.”

“I’ve been speaking with bankers, mortgage brokers, and real estate agents,” he said. “There is a genuine fear that a collapse in prices is at hand if buyers don’t show up in the fall. This is what I heard from them:

  • Many Johnny-come-lately speculators bought new homes within the last year which have not been built yet. They were hoping to flip them before moving in. I suspect this will be a drag in 2017 and 2018 as it will add to the supply.
  • Mortgage rates for second and third mortgages have jumped by several points. I am told by brokers that rates for second mortgages are in the 6% to 8% range, and that rates for third mortgages exceed 10% (of course, it depends on individual cases).
  • HELOCs have been all the rage the last 12 months, mainly used for paying off credit card debts. But now it’s already getting difficult to get HELOCs.

Housing bubbles cannot go on forever, despite what participants may think. Toronto’s house price bubble has been one of the most magnificent in the world, barely even dipping during the Financial Crisis. These sky-high prices create all kinds of problems, from the debt load becoming an albatross around the neck of households to millennials not being able to move out from their parents’ homes.

The risks associated with the debts that this bubble has been funded with have become immense. Now the government and the Bank of Canada are hoping for some sort of slow and orderly wind-down of the bubble that doesn’t cause too much disruption in the overall economy and too much damage among the banks. And that would be a great thing to hope for.

Home Capital Group, Canada’s largest “alternative” mortgage lender, collapsed earlier this year and was subsequently bailed out by Warren Buffett. Now the Canadian finance minister boasts about the until then hidden crony-capitalist aspects of the bailout. But his assumptions might be wrong. Read…  “Probably Not a Coincidence that the Prime Minister and I Were in Seattle meeting with Warren Buffett”

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  140 comments for “Toronto Housing Bubble Pops. “Genuine Fear” of Price Collapse

  1. Sound of the Suburbs says:

    Markets have two modes of operation:

    1) Price discovery
    2) Bigger fool mode when everyone rides the bubble for capital gains

    It’s that time again; time to find out who are the biggest fools.

    There are risks, but gambling for capital gains is so much easier than working for a living.

    This is why it’s always been so popular since Tulip Mania.

    • memento mori says:

      Those dont apply anymore to Canadian RE, we have a new paradigm.
      We heard the imminet collapse when Vancouver imposed 15% foreign buyer tax , sales went down 40% then some months later we are at all time high again. It will be the same in Toronto. Buy the dip!

      • Oh My says:

        You go ahead, and buy on the dip. We’d rather watch who is the greater fool games rather than be a player in it.

        • Erik M says:

          I’ve got my pop-corn and a cold drink. I’m standing on the sitting comfortably on the sidelines- watching.
          Watching the population numbers flatten, the birth rate decline, the population age and thus need fewer housing units.

          Who’s the most nervous? lol

      • Some Guy says:

        I had the same thought. One difference this year vs. last is rising interest rates. Time will tell.

      • c_heale says:

        I hope this is sarcasm. There will be price inflation at some point in the future and this will cause a housing crash by itself. I don’t think this is far away (I am expecting basic staples to increase in price in many parts of the world, this fall, due to the current heatwave in many food growing regions).

      • c_heale says:

        I hope this is sarcasm. There will be price inflation at some point in the future and this will cause a housing crash by itself. I don’t think this is far away (I am expecting basic staples to increase in price in many parts of the world, this fall, due to the current heatwave in many food growing regions).

  2. greg says:

    100K people move into the GTA annually.
    Where will they live if they don’t buy or rent? in their cars or tents?
    Toronto isn’t Chicago where 10Ks flee each move!
    The vast majority do not have to sell their property and unless there is a recession and they lose their ability to pay their mortgage they do not have to sell.
    When a deep recession hits or people start fleeing the city due to high taxes, the there will be a collapse!
    Just Wolf’s histrionics as Toronto’s housing market is stabilizing under the new rules and some uncertainty!

    • greg says:

      And guess what there is virtually no more land to build new homes in the GTA, all the while 100K folks annually moving into Toronto.
      Yup, they are building condos–which have many less qualities than homes –but virtually no new homes!

    • Jeremy says:

      Think about what it means to have a $1 million mortgage.

      At current rates, that’s nearly $5k CAD per month.

      Okay, most buyers aren’t new to the market, so there’s trade-in value. But still, you’d need to be making more than $150k/yr just to qualify for the mortgage – and there aren’t that many people (especially new immigrants) making that salary (family average for GTA is about 90k).

      That means a big chunk of those 100k new Torontonians are going to be renting, not buying.

      I can tell you that in my neighbourhood, there’s a large number of houses for sale (far more than last few years), and they’re all sitting on the market. The only house that sold on my street so far this year went for $300k less than the next lowest ask (around 900k).

      • greg says:

        Many people have family members living in their homes.
        I live in million plus neighbourhood and 99% of the homes in the pat 4 years have been bought by Chinese and there are many family members, grandparents included, living in most of these homes. Many others rent basements and bedrooms to cover the mortgage. Many new immigrants are very rich and qualify for accelerated entry.

        • greg says:

          I also know of immigrants of 2 to 4 friends who pool their $$$ and purchase property.
          Many many homes have many revenue streams paying the mortgage not just a traditional 1 or 2 payers on the mortgage!

        • HB Guy says:

          Shades of 1989-1990, in case you don’t remember it, Greg. Prices dropped like a stone for years, but of course, many of the same arguments were made why that time was “different”.

          What IS different this time is that:

          1. Chinese buyers may be shut out at any time, depending upon Beijing’s whim and currency controls.
          2. Interest rates are at rock bottom and on the way up – how many people can sustain a 1.5-2.0% increase in mortgage rates when their maximum 5-year term ends?
          3. Personal indebtedness as a percentage of income is at all time highs and well above IOUSA’s during the 2005-2007 bubble.
          4. The Province of Ontario’s fiscal situation is dire: over $300 billion in accumulated debt and the Premier has no interest in curbing her additiction.
          5. A recession is looming, just as it was in 1990, and all of the industries Ontario depends upon – car manufacturing, finance, etc. – are destined to incur large layoffs.

          Think it’s NOT different this time – good luck, and I hope you’re not one of the bag holders.

        • Oh My says:

          Are you for real? Most immigrants coming to Canada can’t even speak English and require 2-3 years just to be able to communicate. On top of that they are generally from economically depressed areas where they came with $500 in their pockets. Yeah, all billionaires and millionaires of the world are lining up to come to Canada.

        • Alistair McLaughlin says:

          Go ahead and drink the Kool-Aid son (in your case obviously spiked), but we aren’t buying it. The market has turned, violently. And 99% Chinese buyers in some neighbourhoods? Really? Even the most shameless realtor propaganda would never suggest that HAM is responsible for 99% of home sales in certain neighbourhoods.

    • golden state says:

      Less than 1.25% population growth.

    • interesting says:

      “100K people move into the GTA annually”

      normalcy bias much? Taking the past trend and projecting it forever into the future works until it doesn’t

    • intosh says:

      So basically, you are saying this is a pyramid scheme that relies on a steady stream of new participants.

      “unless there is a recession and they lose their ability to pay their mortgage they do not have to sell.”

      These are enough reasons, don’t you think? Plus, the Toronto market is at the mercy of foreign money. I have friends on the ground who have seen with their own eyes and heard with their own hears Chinese go in a sales office and say they’ll buying all of the units available. Basically buying in bulk. Companies buy condos in bulk to then rent them out on AirBnB. Basically running a hotel business without paying taxes, fees, permits and without (officially) employees. When they buy in bulk, they sell in bulk too.

    • robt says:

      A fairly high percentage of the 100,000 are refugees and family reunification for spouses and the 6 kids left behind in 3rd world countries, also grandma and grandpa because there’s no pension or healthcare in the homeland – they work for 60 years in the fields and then come here and get a ‘free’ health card and maybe a free electric wheelchair, apparently now a local status symbol. A great many ‘sponsored’ immigrants quickly become unsponsored.
      What anybody does here to earn money instead of collecting welfare is beyond me; in the last 20 years in the GTA there is virtually no manufacturing left, no branch plants even because they’ve been driven out by high taxes and extortionate hydro costs, and the general high cost to do business here even if subsidized, and any productive capacity that did exist has been torn down to make way for speculator-rental/Airbnb shoebox condos, or has been converted into lofts.

      • Jim says:

        Toronto is basically government, firms that service government, a bit of tourism, and legions of immigrants selling each other food and Chinese made goods. Plus welfare. There are few private sector jobs of notem walk downtown and look at who owns the big buikdings.

    • kam says:

      “100,000 people move into the Greater Toronto Area annually”
      All highly skilled immigrants with high paying jobs?
      No. Most are low skilled immigrants with no pricing power in real estate.
      Under “multiculturalism” Canada is becoming Europe. An upper tier of the chattering classes that control the votes of the dirt poor immigrant class, all for political power.
      The elite and their serfs, all funded by the dying middle (producing) class.
      Real estate prices don’t increase because of higher value. Real estate increases because of cheap (central bank conjured) debt.
      And all the bullshit about foreigners paying cash neglects to ask where that cash came from. China has been printing debt faster than the West.

    • Dave says:

      100,000 a year into the GTA? No way. I’ve heard this for a couple of years to justify this ridiculous housing bubble, but it’s just not true and the government’s own numbers now show it.

      Info from Canada’s 2016 Census:

      “The population of the actual city of Toronto was 2,731,571, up from from 2,615,060 in 2011.”

      So in 5 years Toronto’s population increased by 116,000. Hardly enough to drive the growth in these prices, especially when you consider that thousands of them are poor immigrants or refugees who need subsidized housing or live ten people per a 2 bedroom apartment in the cities northern suburbs.

      This bubble was expanded by greed and speculation and now the fear of being the last in has been replaced by the fear of being the last out.

      • nick kelly says:

        Obviously, but thanks. These nut bars thinking that refugees are buying million dollar houses are delusional.
        When a tulip bulb mania begins there is no need to blame Fu Manchu
        The biggest participants are locals.

    • Dave says:

      The vast majority don’t set prices. The vast majority of owners are watching from the sidelines. Prices are set by the tiny percentage who buy and sell.

    • Jon says:

      I wonder who would want to move in a place like gta…
      I’d never move on my own unless I have some awesome opportunity
      I guess most of the people moving in are refugees and not loaded immigrants..

  3. mick says:

    3 million Canadians have a HELOC. The average balance on those is $70,000.
    Yes, that’s right, not a type-o.
    I guess these people thot they didn’t have to pay the money back, instead their payment just tripled.

    • Rates says:

      Wait it out till the lenders collapse and perhaps you really don’t have to pay.

      • polecat says:

        That’riiight ! Cuz there will ALWAYS be another kind/benign looking, and beneficient- $eeming Warren-type creature ready to help those in a row !

        • fajensen says:

          Well, I will be buying some of their debt for pennies on the dollar. I am sure that helps, if only a little :)

      • nick kelly says:

        A Canadian bank collapse?
        No one lost a dime in a Canadian bank during the Depression, when thousands of US banks went under, taking deposits with them.

        The US is grossly over- banked. Clinton’s old buddy McDougal bought a bank in Arkansas for less than a million dollars, just a bit more than a McDonalds. The bank soon acquired a big new client, McDougal’s real estate schemes.
        I think White Water was one.

        A BIG real estate pull back would hurt them of course, but unless the buyer has 25 % down, the mortgage has to be insured by CMHC, i.e. the government.

        • The credit unions in British Columbia will be the first to seize assets better known as bail-ins. It’s just a matter of time and this will cause a chain reaction and much tighter credit in Canada. Of course we can thank the Chinese for this.

        • c_heale says:

          Past performance is no guide to future performance. Just because no one went bankrupt in the 1920-30’s depression in Canada, doesn’t mean they won’t now.

    • Maximus Minimus says:

      In the new Canadian gold rush, you don’t pay attention to such trifles. You just throw your money into housing, and wait until the central banking lottery makes you rich. That worked out so nicely for so many that not doing so makes you look like a fool.

      • Maximus Minimus says:

        I should have mentioned open-gate immigration. So foolish of me.

        • TJ Martin says:

          Yup . Trudeau the Younger’s been actively recruiting us ( US citizens ) to come up to the Great White North … and its working .. with Canadian immigration seeing a 34-56% increase in US citizen immigration to Canada from such vaunted places as .. Silicon Valley .. the NJ Pharmaceutical Valley(s) Wall Street etc

          Why in light of the pay in CDN being somewhat lower ? Cause the cost of living is significantly lower .. especially when you factor in such items as health care , education etc . Well that and the fact that we’re dealing with … well … you know

          And now with housing sales and prices falling into the abyss ? Hmm … Trudeau’s offer becomes more tempting by the news flash

        • Wolf Richter says:

          Yes, but all kinds of Canadians are heading south too. There are a bunch of them here in Silicon Valley. We love Canadians.

        • Abc says:

          I’m not sure about official numbers at a Canada level, but as far as I know, 50% of new grads from all the leading universities, McGill, UofT, Waterloo, York, McMaster all are finding better paying jobs in the US.

        • TJ Martin says:

          @ Wolf – Actually according to current US and Canadian immigration statistics …

          .. a whole lot more of us ( US ) are going there as of 2017 … than them ( CDN ) coming here . By a long shot !

          Also the McGill UofT etc statistics claimed by Abc do not take into account the fact that the majority of graduates from those fine institutions of higher learning accepting jobs in the US .. were US citizens to begin with studying in Canada .

          Fact is between the sledge hammer * approach currently in effect with H1B abuses etc – et al – ad nauseam … the US is in the midsts of a serious Brain Drain … from foreign students to workers/scientists /engineers .. one that if continued will cost this country dearly

          * Though there is no doubt there is and has been a serious amount of H1B abuse … especially over the last 16 years by the tech/IT/pharmaceutical/health care industries everyone outside of the Whitehouse including USCIS etc agrees it is a problem requiring finely sharpened scalpels and surgical tools rather than sledge hammer approach currently in action . Which is to say … tis about time Silicon Valley starts putting its money where its mouth is before its too late .

        • Wolf Richter says:

          Yes, that would make sense overall since the US population is about 10x the Canadian population. Canada and California have about the same size population. So it would be good look at immigration flows between those two entities.

      • HB Guy says:

        Just like it worked out for the Mexican gardener who got a $720k mortgage in San Diego in 2007, and whose income was less than $20k per year. No worries, the banksters told him, the anticipated house price appreciation would take care of everything.

        • John says:

          LOL and that gardener most likely isn’t any worse for wear, right?

          Why is it that its ok for the fat cats to dabble in real estate and just dandy when they make their millions in capital gain, but by god ain’t it a crime when someone without wealth tries it?

        • Alistair McLaughlin says:

          If you seriously think a gardener who bought a McMansion with 95% leverage in California in 2007 is no worse for wear today, you haven’t been paying attention…. for a decade.

          It’s not a crime when someone without wealth tries it, it’s just way riskier, and in aggregate, way more damaging to the economy as a whole. If a person with $10 million net worth loses half of it, that’s no tragedy. If tens of thousands of low income people face foreclosure and financial ruin, well, that has an impact on the economy for years afterward.

  4. robt says:

    Here is a useful set of data from Zolo in Canada, including median prices on the last chart.

    To see results from different cities, if available, substitute the city name for ‘toronto’ in the URL. I haven’t been able to reach this page from the home page of Zolo, but I haven’t looked lately. The page appears to be buried.

    • Wolf Richter says:


      Zolo uses “average” selling price, not median. Timing appears to be slightly different, so the numbers are slightly different. But otherwise it’s the same as TREB.

      • robt says:

        Scrolling down, the last chart claims to show median price for all properties, as well as ‘house’, ‘townhouse’, and ‘condo’.
        The category ‘House’ shows a peak median of 1285K on May 2nd, dropping to 1010K July 25th.
        Am I misinterpreting it?

        • Wolf Richter says:

          Oops. Thanks. I didn’t scroll that far :-]

          Interestingly, for the GTA the drop in median price for all types of homes since the peak of April 20 (!!) is 18.8% — same as the drop in average price via the TREB. At least something matches, finally.

          I like that site.

      • d says:

        London Vancouver Toronto Sydney Melbourne.

        One of them will have the first BIG condo price implosion then the rest will follow.

        Which one???????

        • Condos always lose value, only stupid people buy them and in the end all of them lose money. Sydney and Melbourne will have the biggest condo price implosion since both cities are basically land locked with smaller sizes than Toronto and Vancouver.

        • PI says:

          Houses depreciate as quickly as condos.

  5. rainclouds says:

    Always a concern when the inmates run the asylum. They (real esatate industry)have their own proprietary data collection methodology . Nice. If we had Zillow in Canada it would enable the consumer to have a bit of unbiased statistics.

    Pathetic really……governed by morons

    • TJ Martin says:

      Zillow ? Unbiased ? Errr .. not really … more like more often than not either uniformed , misinformed or out of date . Suffice it to say Zillow is the Wikipedia of Real Estate . Good for some basic entry level information to get you started … but you’d better do the research before basing any decisions on the information they have on offer

      • Alistair McLaughlin says:

        I don’t have much faith in Zillow’s current estimated valuations, but I like the fact that you can see the price history for a home every time it sold. That information, at least, should be accurate, and it’s pure gold.

        • Jim says:

          Yes, the past history of listings, sale prices and asking prices is awesome. Prevents the crap you see in Canada where agents delist homes and relist at a lower price. Canada doesn’t have a housing market because there is no price transparency.

    • Guido says:

      Zestimate for rental market is totally bogus. They’ve a proprietary algorithm that lists rents. Then they tell users not to take those numbers seriously. I know property owners who use that number and this is the rent they ask. Zillow then goes and updates the rent and viola! they have an accurate number. Self reinforcing phenomenon is what it is. If otoh the numbers don’t match, the owner always gets to update it with a number of his choosing.

      To see how ludicrous this whole big data in rental market has become, consider this: a 3 bed, 2.5 bath condo is estimated by zillow to be worth 4K pm. A full blown house that is 3 times the size was estimated at 3.5k. What happened was that the condo was rented out a couple of times in the last 3 years and the number was used. The house was listed at 5.9k pm and it had found no takers in the last 2 years. Because there’s no data available, the algorithms decided the property was worth only 3.5k on the rental market.

      In addition to this, there’s also the bogus number phenomenon — kinda like people being honest when they tell you their income. I know condos that were rented out at 2.9k but are reported on zillow, by the owner, at 3.6k. I guess it is shameful to admit that the owner could not get the numbers the other owners claimed.

      If zillow cannot get the zestimate right in rental market that is much more fast moving than homes, how can one trust their numbers?

  6. interesting says:

    “too much damage among the banks”

    Trust and believe me, the fucking banks aren’t worried one bit. Just like the USA, they will be bailed out yet again by people that couldn’t even participate in this charade.

    heads they win, tails you (taxpayer) lose.

    This seems to be the common occurrence in all things I deal with, it’s all just different levels of suck. Every one else seems to be flying high.

    I recently meet a guy that is selling pages out of books……no shit. He buys old books and rips the pages out and then sells them on eBay for $10 a page……it makes no sense but he is cashing in….he sold 20 while we were chatting.

  7. Kent says:

    What’s the old expression? “If you’re going to panic, panic first”. Gigantic bubbles don’t slowly deflate. There’s too much money to lose.

  8. Manuel Barradas says:

    Fight Club

    I see all this potential, and I see squandering. Goddammit, an entire generation pumping gas, waiting tables—slaves with white collars. Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need. We’re the middle children of history, man: No purpose or place. We have no Great War. No Great Depression. Our Great War’s a spiritual war; our Great Depression is our lives. We’ve all been raised on television to believe that one day we’d all be millionaires, and movie gods, and rock stars. But we won’t. And we’re slowly learning that fact. And we’re very, very pissed off.I see all this potential, and I see squandering. Goddammit, an entire generation pumping gas, waiting tables—slaves with white collars. Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need. We’re the middle children of history, man: No purpose or place. We have no Great War. No Great Depression. Our Great War’s a spiritual war; our Great Depression is our lives. We’ve all been raised on television to believe that one day we’d all be millionaires, and movie gods, and rock stars. But we won’t. And we’re slowly learning that fact. And we’re very, very pissed off.

    The things you own end up owning you.

  9. greg says:

    Any severe financial disruption and the feds will flood Canada with helicopter QEing $$$$!
    Pumping up housing!
    Remember it is -30F in many parts of Canada, so people can’t live in tents and their vehicles like many did in America.

    • interesting says:


      I hope you stick around and keep crowing when reality sets in BUT you might be right and that is the scary part…….

      so what do you predict, 5 years from now with current trends, the GTA average price $3,000,000?

      If I was you I would be buying RE non stop based on your comments.

      • greg says:

        If you reread my comments you will see that a recession(depending on the severity will a corresponding affect on home prices) will lower house prices; a continual negative outflow of people, like taxes did to Chicago or Detroit, will crater house prices. However, if you leave Toronto, unlike Detroit with all its suburbs there is really no place to hide from the taxes.
        The plan is to triple the GTA population mostly by immigration, and the vast majority will be in highrise and low rise condos and apartments. Homes with yards will be desired, and will have the most appreciation.
        Most homes in New York or London’s prime locations would fetch 50 xs to 100 xs more $$$ than similar homes in Toronto. Hey, guess what people are buying those properties that cost many multiples of Toronto RE.
        The growth plan is in place and rich immigrants, not just Chinese, are fleeing their unstable countries for the safety and prosperity of Canada by 10ks each year.The vast majority of Torontonians love living in Toronto!
        Like America and Britain and the EU, if Canadian housing takes a hard hit, helicopter QEing will pump it back-up!

        • Plunging says:

          There’s a whole lotta empty houses in Toronto not to mention Montreal, Vancouver, San Fran, Seattle, LA, Dallas, Miami, Denver and NY.

        • CanuckCraig says:

          Issue is, CAD$ will tank. It is NOT the US.

          Can’t just print away. Canadians need to import a lot of food. BoC would have to defend the dollar at some point. Too much debt would explode.

          It could get very bad. As other poster stated Govt has too much debt. Not in fiscal position to bail out banks. Real estate and transactions also raise a lot of revenues for them nap if this goes south it will be bad on many fronts.

        • SPOCK says:

          Hello greg,

          You have 6 of 37 comments. You are trying too hard my friend.

          You must know that “The horse has left the barn”

          The last 2 RE busts were approximately in the late 70’s, late 90s and 20 years later, history repeats itself.

          Please allow me to re-state HB Guy’s comments of “What IS different this time” as it is a very good summary.
          (Thanks in advance HB Guy)

          What IS different this time is that:

          1. Chinese buyers may be shut out at any time, depending upon Beijing’s whim and currency controls.
          2. Interest rates are at rock bottom and on the way up – how many people can sustain a 1.5-2.0% increase in mortgage rates when their maximum 5-year term ends?
          3. Personal indebtedness as a percentage of income is at all time highs and well above IOUSA’s during the 2005-2007 bubble.
          4. The Province of Ontario’s fiscal situation is dire: over $300 billion in accumulated debt and the Premier has no interest in curbing her additiction.
          5. A recession is looming, just as it was in 1990, and all of the industries Ontario depends upon – car manufacturing, finance, etc. – are destined to incur large layoffs.

        • R2D2 says:

          Greg, mind providing some reliable sources for all the statistics that you are feeding readers here? London or New York prices 50 or 100 times New York prices? According to what source? A shack in Toronto is $1 Million; according to you, a home in New York or London must be $50-$100 million. Wow, my dad must be multi-millionaire.

        • Alistair McLaughlin says:

          Whose plan? Nobody is planning to triple Toronto’s population. And the Bank of Canada, unlike the US Fed, cannot engage in QE. The CAD is not a global reserve currency, therefore Canada cannot simply export inflation to developing countries like the US did for the past decade. The loony would tank at any hint of QE, and the resulting inflation would roost right here at home. You’ve been posting nothing but fantasy here, and it’s getting tiresome.

        • Toronto is a hellhole of a city that no one wants to live in. The Canadian government has the Chinese in the crosshairs and is going to pull the trigger and steamroll all of them. As we speak the Green party and the NDP are amalgamating and bringing in new legislation to tax the Chinese to the hilt. With all those measures in place the same measures will be put in place in Ontario as it will be province wide in both British Columbia and Ontario.

    • Oh My says:

      I have a recommendation for you Greg. Borrow as much as you can, if necessary borrow from the mob, and promise them 100% profit. Just borrow, borrow, and borrow, and buy real estate on the dip.

      Oh, I see, you don’t want to do it; you just want other to borrow, not you. Interesting.

  10. CanadianCrush says:

    The boom or inflation of the housing bubble, with its lax lending standards and poor enforcement (liar loans) always brings forward future sales. This results in fewer sales in coming years.

    Fewer sales also result from the psychological effect of falling prices (the herd backs away from buying), tighter lending standards and if rates rise (that will happen in Canada’s case).

    Fewer sales (less demand) brings lower prices.

    Falling prices removes the boost to the economy that the boom (with rising prices) had created and prices sink as a result of a weakening economy. The wealth effect reverses, consumer spending falls and that hits the economy hard.

    A housing bust always follows a housing boom. Each city has its own start date, but all cities will participate.

    Toronto house prices had quadrupled since 2000 while gains in incomes had added up to only a fraction of that amount over the same period. The same can be said of Vancouver. House prices tripled in Victoria and more than doubled in almost all other major Canadian markets.

    In contrast, house prices in San Francisco more than doubled (only) during the American bubble years, making the bubbles in several Canadian cities look like Hindenburgs. Prices in San Francisco fell 45% in 3 years (Case-Shiller).

    • lady day says:

      Where in San Francisco the prices fell that much????? 20% would be more accurate, but now it is doubled in price since then. Here is the prices in our neighborhood for an average house in San Fran:

      2003: 400-500K
      2006: 900K
      2007: fell to about 700-800K
      2017: 1.2-1.6M 1.2 buys you either very small or a fixer

      • Plunging says:

        2010 all of SF fell 40%. Imagine how far it wall fall with the next correction on the horizon. 65%? 85%?

      • CanadianCrush says:

        I referenced Case-Shiller as the source. Indeed house prices in SF fell 45% in approximately 3 years, beginning in early 2006.

      • Smingles says:

        I don’t know about your neighborhood, but your numbers are way off the general San Francisco housing index.

        May 2006 (peak): 219.29
        May 2009 (trough) 119.87
        May 2017: 235.59

        CanadianCrush is right… that’s almost exactly 45% between 2006 and 2009, peak to trough. And your 2017 numbers are too high relative to 2006. If a house cost $900k in 2006, according to the index it would now be worth about $970k, not $1.6m.

        So someone who bought in 2006 would have just been getting back to even this year.

  11. IdahoPotato says:

    If you want to rent in Toronto, you can’t see the property. It’s gone as soon as it is listed. You need to advertise your credentials as a renter and hope that the dig you rent is decent.

  12. IdahoPotato says:

    “rent in Toronto”

    Wolf, please consider adding an edit button for careless folks like myself.

  13. Gershon says:

    Oh, the humanity!

  14. Bobber says:

    The Chinese investors that bought in Toronto last year are probably thinking about selling. They might be early and aggressive sellers to avoid large losses. They are investors after all.

    • robt says:

      With 10 or 15 people to a house, paying rent, and locals to manage things the investors are doing OK. This is long-term stuff, and why half the city seems to be from East Asia.

    • Mike says:

      If you’re laundering funny money from mainland China … you aren’t going to be too sad if you lose 50% of your CAD’s in a housing crash, because keeping 50% of your CAD is better than holding worthless RMB’s. So I’m not sure if there will be this mass abandonment of overseas homes by those mainlanders at the first hint of trouble – the Chinese have this weird love about owning real estate, and some of these overseas homes are seen as life boats.

      Also…. most Chinese are not investors, they are frugal and savers, but also emotional speculators and gamblers; I am Chinese, so I think I can diss my own people over this.

      • fajensen says:

        …. Aaand … the occasional loss can be a big gain when the time comes to explain why some of that funny money went missing.

      • interesting says:


        “keeping 50% of your CAD is better than”

        you freaking nailed it right there…….$250K of clean cash is worth what %???? The numbers have gotten so insane who knows.

        that depends on ones situations.

      • rj says:

        I wonder if all this trade war rumbling isn’t some sort of agreed to political cover for future capital controls. That might be a scenario beneficial to both the US and Chinese governments.

    • SimplyPut7 says:

      A lot of investors (domestic and foreign) have stopped trying to sell their new investment condos and houses before the closing date. The Canada Revenue Agency is watching all of the real estate listing sites including Kijiji (the Canadian version of Craigslist). They are looking for flippers and making them pay the proper tax for these short-term transactions.

      Many developers have also removed the assignment clause preventing speculators from selling the property before they take ownership. Condos and new housing developments take several years to build, it will be a few years to see how many people bought at the top of the market and don’t want to keep or can’t afford their property and try to bail.

      For older homes, yes, some people have tried to sell, but not much is moving, what have sold are homes from in demand areas. More homes are expected to be listed in the fall, as real estate agents, who told sellers to wait, will list their properties.

  15. walter map says:

    Still to come:

    – An article explaining the collapse in house prices, followed by

    – An article describing how thousands of homeowners are underwater and turning in their keys, followed by

    – An article describing how banksters are keeping houses off the market in an effort to support prices, followed by . . .

    But fear not, for those Free Markets will take care of everything, as they always do. No regulation of the Financial Industrial Complex needed.


    • Raymond C. Rogers says:

      You do realize that this scenario was brought to you by governments that shovel liquidity into the markets and bail out banks?

      Why would banks act responsible when they know they are “too big to fail”?

      • walter map says:

        ‘Why would banks act responsible when they know they are “too big to fail”?’

        Being TBTF is an incentive to act irresponsibly. They can be expected to do so because it is in their interest.

        Instead of preventing criminality the policy enables it.

      • polecat says:

        “shovel liquidity into the markets and bail out banks ?”

        To use a popular term of another blog site : it’s what one would call a ‘self-licking icecream cone’..

    • robt says:

      Banks have no interest in keeping houses off the market. Power of Sale can be effected after only a few months; then the properties hit the market, advertised as ‘Power of Sale’ which gives hope to buyers that a house will sell at a bargain price. Often the property will need restoration due to the condition it was left in whether through lack of care or just mischief.
      Power of Sale is the preferred mechanism rather than foreclosure which can take much longer; also any surplus funds, (if any) after costs of selling and settlement of charges on the property go to the party who defaulted, i.e. the mortgagor. The few months that it takes allows the mortgagor to redeem the property by negotiation or settlement of the arrears – the preferred outcome.

      • interesting says:

        “Banks have no interest in keeping houses off the market”

        way f’ing wrong. I personally know someone who didn’t make a house payment for 48 months while the taxes were paid every year……apparently by the bank.

        the market after 2008 was the most manipulated market I’ve ever seen…….they even had a name for those that squatted making no payments…….boomerang buyers, when they took all those saved mortgage payments and re-bought,

        • robt says:

          Sorry, should have said we’re talking Canada. Things happen quicker and different. I don’t think Power of Sale is used in the States.

  16. Wilbur58 says:

    Um, isn’t summer the peak season for buying/selling because of families / schools for the kids?

  17. Mark says:

    It has been long time since my last post.
    Yes, prices are going down but on my street houses re still selling and average days on market is 25. No more biding wars.
    People are scared.
    I live in lovely house, no mortgage and I don’t care even if prices go to zero.
    Why? Simply need roof on top of my head and house cost is still lot cheaper than rent, not to mention space I have and beautiful backyard for entertaining. So cry all you want I don’t care, for me house was never investment and I sleep peaceful at night. I will pass it to my kids and they will have shelter too. My investments are doing wonderfully and I’m OK.
    Chinese will be in deep s***t and I couldn’t care less for that. Same thing happened to Japanese . I might by more properties if prices go down like 40% from those yellow bastards who ruined life for many young families who are not able to buy anything.

    • I saw the very first city the Chinese decimated outside of their own country way back in the early 1980’s. They destroyed Agincourt a small city in Scarborough, Ontario Canada. Then they did the same thing to the entire area situated in the McCowan and Finch corridor in the late 1980’s. Richmond Hill was next then Unionville then Markham then Stouffville. The government just sat back and let them launder money thinking it would help everyone.

    • PI says:

      Why buy it when you can rent it for half the monthly cost? Buy later while prices crater in the meantime. It seems everyone knows this which is why nothing is selling.

  18. Truth Always says:

    What drives the economy in Toronto?

    As a comparison in the south bay of the bay area and the close east bay of Fremont houses are still going over the top – $50k – $100K above asking prices and selling within 1-2 weeks. Though here the economy is still firing on all cylinders (tech driven) with 2 income households earning $200K+ to afford these houses.

    Yes, there are overseas Chinese easily distinguished (by their accent and paying $100 bills) from Chinese Americans or other Asians.

  19. R2D2 says:

    Here’s some facts regarding Toronto:

    Median Family Income: $68,110
    The ratio of debt to disposable income : 166.9

    Now, tell me how does a family which makes $68,110 is going to pay for a 1 million dollar house.

    • Alistiar McLaughlin says:

      Correction: Ratio of debt to disposable income is 1.669 ($1.669 in debt for every $1 in disposable income) You need to move your decimal over twice. Still, it’s a frightening stat, and we will pay a heavy price for it.

  20. Moon Base says:

    Reality check- the forces that drove Toronto’s market up are still very much in place.

    1) inflows of suitcases of cash from Chinese

    2) interest rates low, and I can’t imagine much more of an increase there from the Canadian central bank. If housing plummets then the rates will be lowered.

    3) massive influx of legal and illegal immigrants -are there any actual anglos in Toronto anymore?

    4) massive purchases by various Wall Street trusts and funds.

    5) population stats for Canada very strong

    I know there is a wee bit tendency here toward gloom and doom, but those betting against housing should look a little closer at the underlying facts.

    • Wolf Richter says:

      We’re just going to watch the numbers. That’s all.

      Oh, and the numbers don’t look very good right now.

    • Plunging says:

      That’s bogus. Everyone of these sales are 3% downpayment mortgages. There are no “suitcases full of cash”. Low interest rates didn’t prevent housing from plunging 40% the last time nor will they prevent prices from plunging 70% this time.

      • Mark says:

        Go and buy $1000000 with 3%down. banks will laugh at you.
        You don’t know what are you talking about, or you are one of those tent folks waiting for as you said 70% plunge to buy, and even than you will wait for another 30% yada yada.

        • Wolf Richter says:

          There are a lot of ways to buy with little or no money down, including second-lien loans from third-party lenders. Some non-bank lenders specialize in that. It’s a big profitable business (profitable until prices begin to drop). If you ask your banker, they will probably give you some suggestions where you can borrow the down payment.

        • SimplyPut7 says:

          Plunging is correct.

          Up to a few years ago, you could buy a home for over a million dollars with 0% 40 year mortgage, then the government made the 40 year mortgage, 35 years, then they took away the 0% and made it 5%, then they said all mortgages have to be under one million and more than 5% down if over $500,000, the banks found ways around all the new rules. And the more the government took those work around away, the more private lenders started to make up the difference.

          When sales started to fall and prices stopped increasing, nobody wanted to lend a million dollars; even the private lenders are turning people away. That’s why there is a fear about rising rates; many of the people who have million dollar mortgages do not have the income to support the home if rates rise 0.5% – 1%.

          Canada also does not have long mortgages terms to shield homeowners against rising interest rates. Rates adjust every 1 to 5 years for fixed mortgages, sooner if the mortgage is variable.

        • R2D2 says:

          No; actually it is documented that mortgage companies work with buyers who don’t have the 5% down payment, and arrange for a separate loan so that the buyer would have the 5% down payment. Then the buyer goes and uses that down payment to get the whole mortgage. Hell government of the BC is giving new home buyers that 5% down payment themselves; the buyer doesn’t even need to go to a mortgage company. The prices will plunge and no amount of wishful thinking or advertisement will stop this bubble from blowing up.

      • The amount of Chinese paying all cash is probably less than most people think. What no one seems to talk about is how the local Chinese buy up all the new home developments the instant the doors open with “sold out” signs all put up two minutes later on every new home development sales site. Much of this is foreign money funneled through one or a couple of local Chinese and a few “sitters” are paid to camp out at all the sales offices before the doors open for the initial sales.

    • Smingles says:

      Low interest rates can’t propel a bubble higher forever, and they can’t stall a bubble once it has popped.

      People act as if central banks never existed before 2008. Wow, gee, low interest rates are a magic bullet, this time it’s different… said nobody with an inkling or understanding of history, markets, and psychology.

      • Guido says:

        I am genuinely interested in historical precedents of the kind of environment we are in. People keep citing Japan as an example. I am looking for other examples. Do you have any in mind?

    • Long term, housing in Canada will end up just Japan or worst. Everything is a negative going forward in time. Interest rates will finally turn negative in Canada but alas everyone will stop buying just like what happened in Germany. I’d like to see some positives in the future yet not a single person can even list one as even with negative interest rates residential real estate will be in a long bear market.

  21. Citizen AllenM says:


    Reminds me of 2006 on Calculated Risk.

    Bubble folks kept on believing, even as the bottom started to fall out, and then the slide started.

    And kept going, and spreading to other parts of the overleveraged economy.

    Just keep the mantra up, it can’t happen here, why Uncle Warren has already started picking up guaranteed chips, so you know it will be just fine, in five to seven years.


    So, wait for the fallout from this mess. The really funny part is the Chinese are the ultimate bagholders- who will they sell too when they panic en masse?

    This is going to be epic.

    And of course, it ain’t no bubble, just like healthcare in America is not in a bubble- of course it is on an unsustainable trajectory, and the crash will also be epic- and our esteemed prezzie has already said Bring it ON!

    Everybody expects inflation, and then we get some more savage asset deflation to shell shock the rubes.

    Someday this war’s gonna end…but the same song is playing on the innertubes…

  22. TheDreamer says:

    Finally a housing piece! So, been trying to start a blog (while trying to find a new job – prospects seem good) on my own without great success due to fighting with web hosts and getting it going and taking up kayaking. So I shall share here due to liking the crowd.

    A few days ago – I wondered what housing prices looked like in China, as they are the source of all the dislocation in the global economy. Everybody, check out what over $5 million USD gets you in Bejing, it’s quite the fixer upper –

    My favorite feature is the inability to see outside the window due to constant smog. Also, the just total potential about the place, lacking fixtures and all. Just scan that website, it’s enlightening.

    According to this ZeroHedge piece, “a typical two-bedroom new home in Beijing now costs around 6 million yuan ($870,000), about 69 times the average per capita disposable income in the city, much higher than the ratio of less than 25 times for New York City.” Given that the apartment shown above is maybe worth $100,000 USD (I’m factoring in the fact no one in their right mind moves to the most polluted places on the planet and assuming it’s in the literal nicest part of town), we would need to see a 98% drop in Chinese Real Estate, for this to become close to “normal” in value in terms of USD to me.

    Yuan value, no idea, don’t care, as far as I’m concerned that stuff is worth less than monopoly money. This, of course, could be offset by currency devaluation (it will likely be both). Even if it were to drop to NYC’s still stupid high prices, we are looking at the edge of a very serious cliff. Those units aren’t even finished! Are you kidding me? And these people’s housing bubble has destroyed all the other markets. $5 million dollars and you get a 2,000 sq ft pollution bubble. Do these people think dollars grow on trees??? Just scan that website.

    As I was once told when I was a kid, you don’t really understand the value of the dollar till you have to earn one. Not borrow. I am also reminded in my travels how there a kind of person that assumes all Americans are totally rich (which they are in one sense, but definitely not in the other). Foreigners tend to assume we have infinite dollars. Well, Chinese money printing and wild loaning has created so much Yuan at such a stupid exchange rate, that they have broken the whole damn global economy. It’s not even a joke when you look at the Bejing listings, these people have totally disassociated from reality and it’s literally ruining the planet. I have no doubt now, the next issue will be a dollar liquidity crisis due to a global margin call, and it’s taking down the BRICS, as well as Canada and Australia hard. EU gets whacked due to fragility. The US hurts but is clearly one eyed in the land of the blind this time around.

  23. Matt says:

    Back in April I ticked off a couple in Nassau from Toronto . I had told them about the Mortgage problem with Home builders brewing. they blew me off. I told them that the 3 homes they own where going to be worthless by the end of the year. The market was way over heated. No way can a country like yours sustain prices like that this long. no wage growth. debt is to high. They got ticked off and walked away from me. Wonder what they are saying to themselves now. Thank YOU Wolf for keeping me and everyone else informed

    • Wolf Richter says:

      Please, Matt, don’t tell people their homes are going to be “worthless.” I know what you mean, and if they have a big mortgage on it, their equity in the home may become “worthless.” But it’s not a nice thing to say in polite casual conversation.

      • Mark says:

        For starters, it is not nice to delete reply to guys like Matt.
        I do have respect for people who did not buy property in last 20 years because of their own reasons, but they should have respect to people who decided to purchase and raise family in that house, or for what ever reason and created some wealth along the way. What is wrong in being wealthy “house wealthy”? I don’t see it that way, my house was never my investment except “roof on top of my head”. I always invested in real investment vehicles and by coincidence it worked both ways very well. But I know people who got filthy rich by flipping houses, do I feel angry and wish them bad luck just because I did not do same thing, NO. I had other ideas and other ways to make this “once in the life opportunity work for me”. And it did. I am happy and also happy for all other who did it their own way.

    • Frederick says:

      If instead of being in denial they had listened to your reasoning they could have sold at the peak and thanked you later Matt

  24. Lee says:

    Funny thing about real estate statistics is that they measure prices for individual items that are not uniform across the asset class. A house in Toorak, Victoria is not the same as one in Hallam, Victoria whereas a share of IBM owned by Mr Smith is the same as one owned by Mr Jones.

    For example, overseas pundits scream about how the average price of RE in Australia is xx times income or that debt is xx times income.

    This is then used as the basis that all RE in Australia is hugely over valued and is going to crash. The median in Toroak, is around A$4.3 million, the one in Hallam is 1/8th of that or around A$555,000.

    (Sorry, folks in Hallam, but I wouldn’t live there regardless of the price of the house!!!)

    And Toorak, well we went out for dinner there last week and the traffic was terrible. No thanks – if I had A$4 million I sure wouldn’t be putting it into a house in Toorak.

    And as they measure individual items in the asset class, the statistics only measure the individual characteristics of that one item at that point in time.

    So if a huge number of really expensive houses come up for sale in Toorak compared to to other previous periods – a miracle happens and the median price soars…..repeat for any other area as well.

    On the other hand if the opposite happens and a whole bunch of relatively cheap houses hit the market after a period of expensive ones have sold another miracle happens and the median falls like a rock.

    So I guess that based on the recent sales of houses in my little area the statistics are going to show that houses prices here went up some 20% in the last quarter. I can hardly wait to see what happens when the sales for the houses listed in the $A1.2 to A$5 million start being fed into the figures…………..

    And finally, not one comment about how the idiots in government in Ontario have destroyed the wealth of every home or condo owner by their actions.

    • Altandmain says:

      As am Ontario resident it had to happen.

      There is a lot of problems with the government of Ontario, but this is one the smarter moves they made. These real estate bubbles were in no way sustainable.

      The only thing is, they should have takem actions to pop this bubble early. The more painful the fall the bigger the bubble gets.

      This is going to be a painful recovery because it went into giant bubble inflating mode for so long.

  25. Trmist says:

    I’m a home owner in Toronto. Been watching my neighborhood for a few years. First there is a lot of reinvestment, renovations and in filling go on. The demand for houses is strong. When prices dropped houses were pulled off the market. I expect prices to rebound over the next 9-12 mo just like they doing In Vancouver. People like Toronto and it is growing, this and the CB’s easy money will continue to puch prices higher.

    • Smingles says:

      “People like Toronto and it is growing, this and the CB’s easy money will continue to puch prices higher.”

      How much higher? Sure it’s great that demand is increasing, but you still have to PAY for these things. People who make $50,000 a year have NO BUSINESS leveraging up their balance sheet for million dollar homes, period. Assuming real world conditions, the math will never make sense. It will end in tears.

      Rates could be 0%, but there is still a limit to how much one can afford… and the second trouble hits– and it will hit– low rates won’t stop a darn thing.

      When you look at someone who invested over the course of their lives, through multiple cycles, bull and bears, one lesson always sticks out: if you are not a short-term speculator and you missed the early part of an upcycle, in the long run you are better off sitting out until the cycle resets. Money is made at the beginning and end of cycles.

      Now, I get it… housing is a little different than stocks and bonds. People with families often need more space and have a strong desire to settle down, and I feel for them, but buying at these valuations for most people will simply not end well.

  26. SimplyPut7 says:

    It looks like the Toronto real estate agents who are about to be unemployed have finally found this site. Some of the comments on this articles sound similar to the characters I have been dealing with in Canada for the past 5 years.

    First, there’s no wide spread panic or else prices would have fallen even more from people who desperately need to get out of their house. The people who are panicking are homeowners who bought a home without the sale of the home conditional on financing, and real estate agents and mortgage brokers who both rely heavily on commissions to provide a salary income.

    Let’s start with the mortgage brokers and real estate agents because they are the most annoying out of the two groups. All of them have started to sound like this guy in the link below (listen from 4:40 min to 11:40 min). They all start off nice as soon as you talk about falling prices and slowing sales they turn into rambling idiots.

    The real estate agents or mortgage brokers of the past two years remind me of the US at the very end of the boom just before the bust. Highly educated people who quit their well paying day jobs to become full-time mortgage brokers or real estate agents with no savings or a backup plan if things do not work out like they planned. Even a seasoned real estate agent or mortgage broker, if their sales have decreased by 40%, their salary has also dropped by the same amount. That’s not such a big problem in Canada as we have a lot of social services to soften the blow. However, as an independent contractor, these people probably opted out of unemployment insurance (we call it Employment Insurance in Canada) as well as the Canadian Pension Plan, to increase the amount of net income they get to keep.

    So if the salary dropped 40% and they lost their job, they would not qualify for unemployment insurance and have no retirement income from the government. They could dip into their little savings, however, most people have less than $10,000 saved and many people in the industry were not great savers. They do still have those lofty credit lines, however, those are variable demand loans given at the leisure of the lender. And many people have empty investment property sitting on those credit lines so there is not much credit left available to these people. As soon as banks realize that the income of the individuals is starting to decrease, they are going to reduce the amount that can be outstanding on those credit lines. I have not heard of any banks asking for the credit lines to be paid back yet, but that’s the real fear the real estate agents and mortgage brokers have: they have been living on credit and borrowed time for so long, they don’t know what it’s like to rely on their own cash to pay their monthly expenses.

    Now the other group, the naive homeowners. Many people at the end of our bubble were buying first, trying to win bidding wars by waiving the financing conditions and home inspection clauses; then they would sell their home once they found their new home. That plan worked until mid-April of this year. People in Toronto are not rich, they have access to lines of credit and cheap mortgages, but most of their wealth is based on the value of one asset, whose value is based on what banks/credit unions and private lenders are willing to lend to other people to buy that asset. Very few people have savings, the ones who did emptied their savings to buy homes and investment properties using a lot of debt. Because many of these people bought with no conditions and made a lot of assumptions about what their bank would give them to buy the home they purchased, they are finding out the hard way that banks don’t have to give them anything other than the cash they have saved in their accounts, and that lesson is having a major ripple effect in the housing market.

    Some of the homeowners who bought earlier in the year are trying to walk away from their contractual obligation. And if you have your assets and salary income in Canada, that’s not going to work.

    To avoid a lawsuit similar to the link above, people who bought homes falling in value without financing conditions, will have to sell their current home, buy the home they are obligated to take possession of and pay for the difference in the selling price of their home and the purchase price of the new home, with a second mortgage from a private lender at mortgage rates of 8% – 10%. Until the sales of these homes have been closed, and homeowners add the sale is conditional on financing back into their contracts, the current spiral won’t stop.

    Mortgage brokers and real estate agents not making enough money to make a living wage in Toronto, or homeowners caught in a spiral of needing a second mortgage are not the biggest problems in the housing market in Toronto. The biggest problem we have are the speculators who had no plans of living or renting out the homes they purchased, and have no way to pay for those homes by selling a house or making enough rental income to pay off the debt. The developer can sue these people but they will just declare bankruptcy if the developer hasn’t declared bankruptcy first, as the developers will also not have enough money to pay back their creditors the debt they owe them. And that debt was initially funded by syndicated mortgage investors, many who also used debt from lines of credit to invest and have no money to pay off their debt.

    When that panic starts to happen, along with the continued increase of the Bank of Canada rates, because the US increasing rates causes the Bank of Canada to hike rates, as our economies are highly correlated and it’s too hard to persuade foreign investors to buy our fixed income products at interest rates lower than the US, to fund our expensive social system in Canada, the 30% of mortgages that are variable mortgages, and the $211 billion (Canadian) outstanding on the lines of credits which are also variable loans and can be revoked by the bank whenever they feel like, will have a serious problem as it becomes apparent these people do not have the salary income and/or rental income needed to pay off this debt within a reasonable time period.

    When that happens I think I will go hibernate for the rest of winter, because the people heavily leveraged in the housing market will go crazy and I will need a safe place to hide from all of them.

  27. Ambrose Bierce says:

    Toronto RE is a sidebar to the global economy, like the bricks and mortar problem, which Stockman went off on today. He still thinks the LBO crowd ruined the buggy whip trade. CA banks are probably a bit more open to Chinese capital, than say US Fed Reserve Charter banks. and the CAL RE market is bigger can absorb more hot money. The Japanese bought up downtown LA in the 80s. The Chinese seem to want to follow their plan, (government buying up the stock market) and China being a communist prison gulag, there are some differences. Also China has a Muslim problem. And a Christian problem and a Buddhist problem, I just don’t see this ending well, since everything in my house is stamped China.

  28. Kay says:

    Professor Steve Keen has already predicted that Canada, China, South Korea and Australia are headed for zombie debt status. I watched his lecture on YouTube regarding this subject. I am going to buy his books and become a patron to support his research.

    • JZ says:

      Kay, just be careful on anyone who predicts. If you read their arguments alone, by itself, it is all very convincing. But the world is always in a conflict of opposing forces. Just analyzing one aspect suck as debt accumulation or demographics and draw conclusions can make predictions very unreliable. People remembered what other predicted correctly but forgot all the wrong predictions they made.
      So donnie count on predictions. take their predictions and transfer it into a possible outcome and figure out what to do when that happens.
      All economic or investing decisions rely some form of analysis on future. But you have to anaylize multiple outcomes and make plans as opposed to focus on predictions of one outcome. This makes the work a lot harder, but it is the nature of it.

    • Lee says:

      In regards to Australia, yes we have become a nation with a huge federal debt.

      I keep reminding people that when John Howard left as Prime Minister the federal government here was virtually debt free and people were speculating that the government bond market would no longer exist.

      Fast forward to the end of last labor government and IIRC we had something like A$300 billion in debt. With the last couple of years of the current government this has ballooned out to over A$500 billion as a result of the structural spending implemented by the former labor government and weak resources prices affecting tax revenues.

      When they former PM actually tried to reduce spending he became so unpopular they booted him out of office.

      So now the current Australia has become just like every other western country: a huge debt on the books, increasing debt every year, no way in world that debt will ever be paid off, and a bunch of middle class welfare that must be paid every year or the government in office will be dumped, and more importantly a continued reduction in the living standards of the lower end of the social and economic classes so that the middle class welfare is maintained.

      Just as the USA that I knew no longer exists, the Australia that I moved to no longer exists either.

      Both countries have been ruined over the past 40 and 25 years respectively.

  29. Seattle Cranes says:

    Some Seattle observations:
    1. People are cautious to sell, causing lack of inventory & bidding wars. Where are they going to move to in the same area.
    2. Seeing a lot more private construction in some of the suburbs using vacant land or tear downs. Mostly, very expensive houses/mini mansions.
    3. Massive apartment construction in the City.
    4. No one seems concerned about the potential of rising interest rates. If we get a good bump in rates, maybe we would see some more panic buying “FOMO” before a correction….

    • Just buy up all the corner lots closest to the elementary schools. Ideally next to the school. The Chinese will pay a king’s ransom for them. At least 50 percent higher than the exact same house a mere two hundred feet further away. It can be on the same side as the school or across the street they’ll pay the same amount for either.

      • R2D2 says:

        Are you out of your mind? A home next to an elementary school for higher price? If you have a home within 500 yards of any school, you’ll end up in a mental hospital. If I buy a house, I’ll make sure I’m a mile from any such noisy places as schools.

      • Guido says:

        A few years ago Fremont school district in Bay Area did some rezoning. As a result , homes that were right across the street from the school were assigned a school in another district that did not have good scores. The result was that homes across the street were worthless even though the school was a stone’s throw away.

        What was funny was the way the rezoning was done. Apparently, the district wanted kids to cross no more than 2 lights on their way to school. The new school required taking freeway and the exit had one light on the route to new school. So the kids never crossed a light on foot ever.

  30. R2D2 says:

    Here’s a video about recent price drops in Toronto:

  31. Aussie commentator says:

    What Lee fails to mention is that the Howard Government squandered a windfall from the resources boom. They won an election by sending handouts (cash) to everyone. They also bought the grey vote by giving the elderly outrageous tax concessions.
    The Howard Government widened the gap between rich and poor to unprecedented levels, they have stolen the wealth of future generations for the satisfaction of their present greed.

  32. Gershon says:

    “Fear has very large eyes.” — Russian proverb

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