Ron Butler Profile picture
Sep 13, 2020 8 tweets 2 min read Read on X
Canadian RE Bears: Just Wrong?

To paraphrase Kermit: its not easy being a RE Bear

Particularly in some big Canadian cities

Prediction is a crap business at the best of times

Economists build careers on being wrong alot or at least not right alot

The RE Bear thesis:

2/
Residential property prices in key cities: Vancouver, Toronto and their surrounding areas are over inflated and will fall dramatically

Its not hard to find general agreement home prices are too high, most folks outside the RE industry and quite a few insiders will say it

3/
"Prices are crazy!" "Who would pay that?" "Wow, that little dump got that much!"

That's common

People inside the RE industry will say: "World Class!" "No Supply!" "Immigration blah, blah"

And there are elements of truth in those comments

Canada is a great country

4/
Immigration paused but not stopped, there are some Supply issues

But prices are ridiculous

History is useful: after a hard RE crash in 1990 home prices started going up in 1996 and with a couple of blips have gone up for 24 years

If you were 24 in 1996 you are 48 now

5/
For that 48 year old's entire adult life "real estate only goes up" is factual

The 2008 Crisis did drop RE values but for less than 12 months then back up

In March 2017 RE values peaked after a run up and dropped but 18 months later had largely recovered

6/
If you HAD to sell during the dips it hurt but that was a very limited number of people

Which brings us to a worldwide pandemic and economic disaster

And RE prices in the GTA are up about 20% from 2019

So....... its tough to be an RE Bear

You're wrong almost always

7/
Ridiculously wrong

And some of us wrong for very LONG, I have been wrong about sustained RE price reversal for 12 years, that's a crap record even for an economist

I got out of the prediction business

Still believe prices are ridiculous

Still worried about RE values

8/
Because a bunch of people may get hurt

Because the next generation is in a debt trap

Because life in general would be better for so many people if RE prices were lower

And the next 12 months will be very interesting

But no predictions

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More from @ronmortgageguy

Sep 17
What Does The Government's Decision To Make $1.5M A Starter Home In Canada Mean?

Because that's what this is: a $1.5M price falls under Canada's government sponsored Housing Plan in the USA it's $766K

Most dangerous point: Canada will do what it takes to prop up Real Estate

2/
This is the message to Developers, the RE Industry, the Banks, the Provinces & Municipalities: WE HAVE YOUR BACK

We will always act as a backstop for Real Estate in Canada

If you get in trouble we will bail you out

Quick summary of changes:

25 Yr Amortization to 30

3/
A Cap of $1M on CMHC mortgages goes to $1.5M

These are DEMAND stimulus measures, pure & simple meant to stimulate Construction & Real Estate

Because both those industries are in trouble

This "We have your backs" let's these groups know if more help is needed it's coming

4/
Read 6 tweets
Sep 12
Premier Ford Needs To Step Up & REVERSE Insane Increases In New Home Construction Development Costs In Ontario

Since 2010 The City of Toronto has increased their charges to Developers to build New Homes by 1000% (no that's not a typo)

Other Cities & Municipalities similar

2/
Municipal Governments in Canada fall under Provincial control & although Premier Ford likes to be a people pleaser & avoid fights we have fallen into an unmanageable problem

That Cities & Towns add $150K to $350K to the price of every new home in the Province is unacceptable

3/
It's the nail in the coffin for young people hopes to buy a home & it pushes Rents up to the sickening heights we see today

The Cities & Municipalities have proven they are hopelessly addicted to these massive Development Costs because they can't control their spending

4/
Read 6 tweets
Sep 6
Recession On It's Way? Sure As Hell Looks Like It: Maybe It's Already Here

Crappy Jobs Numbers today & they will get worse

The highest level of legal Immigration on Earth increasing Canada's Population by 10% in 3 years will make stats look better

Reality is pretty bad

2/
The only job growth in Canada is in Government

Think about that: without taxpayers shelling out more for salaries, Unemployment numbers would be much worse

We may not see real contraction in GDP until next year as Foreign Students & International Temp Workers head home

3/
But On GDP Per Capita basis, Canada had been in a Recession for over 2 years

Unemployment, particularly in Ontario, will continue to escalate

Construction is going into a severe slump in Canada's most populous Province & Construction was the most meaningful employer we had

4/
Read 6 tweets
Sep 4
Bank of Canada Lowers Rate: And Will Cut In October And Again In December

It will become barely a news item soon

Let's face it: once everyone knows what's coming, there's no more tension & less attention

But how fast do ordinary people absorb this trend?

It takes time

2/
If you're seeing this post, either you follow me or have an interest in Financial / Housing / Mortgage matters

But many people don't take much interest, even homeowners with mortgages

They mainly do research on mortgages when renewal time comes or HELOC rates change

3/
By the 4th rate cut in October public opinion will hit a realization interest rates are definitely coming down, some people who paused their interest in buying a first home when rates went wild will start to reconsider

Some people who want a bigger house may start looking

4/
Read 5 tweets
Sep 3
Tomorrow The Bank Of Canada Will Lower Rates 25 BPS: NOT A Prediction Just A Statement Of Fact

Like Gravity or the Sun coming up

Bank Governor Tiff Macklem actually had a damn boring job at some points in the rate cycle

His only job now is deciding when to stop cutting

2/
The Canadian Economy is well & truly humped, Ontario is circling the drain, BC is getting nervous, Alberta is experiencing a slow down in house sales & I am surprised at that, but Alberta is still fine so far

In the other big Province Quebec, not as exposed to Real Estate

3/
There will be another rate cut on Oct 23rd & Dec 11th

How can I be so sure?

Easy, Jerome Powell at.the US Fed announced the US cutting cycle will begin this month

With the currency concern off the table Governor Macklem & Just proceed as planned & cut away steadily

4/
Read 6 tweets
Aug 29
The Fastest Growing Trend In Ontario Real Estate: Purchase Failures

People buy a house but can't CLOSE

I have posted about this before but speaking to a lawyer who's company is working on 350+ RE deals a month confirms

500% increase in Closing Failures versus Pre-Covid

2/
Some context: prior to Covid the failure rate of house purchases was less than 1%, today he estimates 5% of all purchase transactions don't close

Not the end of the world but a 500% increase just the same

What's a Purchase Failure: Buyer doesn't have the money to close

3/
To break it down: a huge portion of these failures are New Construction Purchases, he estimated 20% of all of them or 1 out of 5 don't close

"Hell, 2 didn't close this morning" he said sounding resigned

It's the usual reasons, the home was bought 2 years or more ago

4/
Read 6 tweets

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