Garry Marr – Finan­cial Post

Orga­nized real estate is unable, it seems, to admit the glory days may be behind it.

Sales plum­met in major mar­kets and the indus­try comes up with a new expla­na­tion for the decline, drap­ing its com­ments with a sense that every­thing is just fine. The excuses are pil­ing up.

This month’s gem comes from the Toronto Real Estate Board: It com­plained Sep­tem­ber didn’t have enough work­ing days — too many weekends.

I always thought peo­ple bought homes on week­ends, but it seems the trans­ac­tions are reg­is­tered dur­ing the week.

“The num­ber of trans­ac­tions was down 21% in com­par­i­son to Sep­tem­ber 2011,” said TREB in a release. “How­ever, it is impor­tant to note that there were two fewer work­ing days in Sep­tem­ber 2012.”

This logic has pro­duced a new mea­sure from TREB: Sales were down only 12.5% — not the actual 21% — from a year ago on a “working-day basis.”

Com­ment: And yet they also pointed out that Octo­ber sales were down 7.1% or 15.6% on a work­ing day basis. Make sure to include both the good and the bad, thank you. The main point is, though, that sales dropped 12.5% in Sep­tem­ber and only 7.1% in Octo­ber. The slow­down is slow­ing down – which you also fail to men­tion. Surprise.

This will only make the con­spir­a­to­ri­ally minded angrier — most of them con­vinced that the so-called bench­mark indices pro­duced by orga­nized real estate are cov­er­ing up a major decline.

Com­ment: Then go to http://​www​.toron​to​re​alestate​board​.com/​m​a​r​k​e​t​_​n​e​w​s​/​r​e​l​e​a​s​e​_​m​a​r​k​e​t​_​u​p​d​a​t​e​s​/​n​e​w​s​.​htm and read all the stats for your­self and make up your own mind. I sug­gest that if you do you will won­der what the press has been say­ing, as the stats don’t sup­port the doom and gloom we have been hear­ing for so long.

Vancouver’s real estate board likes to tout what it calls the MLS HPI (home price index) com­pos­ite bench­mark price for all res­i­den­tial prop­er­ties. It was down 0.8% to $606,100 in Sep­tem­ber from a year ago and off 2.3% over the past three months.

Doesn’t sound too bad. But when you pull out actual sales data, you find year-over-year prices in August in Canada’s most expen­sive hous­ing mar­ket were off 6.9%. For the first two-thirds of the year, prices fell 7.3%. The decline is hap­pen­ing; it’s the sever­ity that seems to be under dispute.

Com­ment: So what, that is Van­cou­ver. What does that have to with real estate in Toronto?

The indus­try will tell you the bench­mark is a more real­is­tic mea­sure because it is not skewed by, say, a sud­den swing in sales in one seg­ment of the market.

Com­ment: Which is true. One big house in a neigh­bour­hood can mess with the num­bers, every­one knows that.

“The HPI takes into con­sid­er­a­tion what aver­ages and medi­ans do not — items such as lot size, age, num­ber of rooms, etc. These fea­tures become the com­pos­ite of the ‘typ­i­cal house’ in a given area,” says Vancouver’s board on its website.

Com­ment: And again, leav­ing out the info that does not help sup­port the pre-conceived notion. We use the HPI here in Toronto as well. Yet it shows a price increase of 5.1% com­pared to the actual sales data that shows 6.2%. But we don’t want to men­tion that, do we?

David Madani, an econ­o­mist at Cap­i­tal Eco­nom­ics, chuck­les at some of the lan­guage used in real estate circles.

“It’s a bit lame,” says the noto­ri­ous bear on the hous­ing mar­ket. “The answer is to ignore what they are say­ing. Sales are plum­met­ing in Toronto and Van­cou­ver. I say get used to this because this is going to go on for a cou­ple of years. Our view is a 25% price decline.”

Com­ment: Funny, they have been call­ing for this 25% decline for a year now – but price are up 6.2% in Octo­ber. So we need a 31% turn­around in the last 2 months of the year? Right…

The nor­mal course in any cycle is for sales to cor­rect first and then for prices to fol­low, he adds. “There is a time lag, that’s what hap­pened in the United States. There’s a time lag as sell­ers hold on, refus­ing to drop their ask­ing price, even­tu­ally they acknowl­edge the mar­ket has shifted under them.”

Com­ment: But the sales lag is a direct result of the new mort­gage rules. And since they came out in July prices have risen from $479,095 in August to $503,479 in Octo­ber. Yeah, those prices sure are falling!

Real estate’s other com­plaint these days is that Ottawa’s mort­gage rules, intro­duced July 9, sav­aged the mar­ket. One of the main changes was the drop­ping of amor­ti­za­tion lengths from 30 years to 25 years, which has the impact of hand­ing the con­sumer a larger monthly payment.

Vince Gae­tano, a prin­ci­pal at mon​ster​mort​gage​.ca says a tight­en­ing of lend­ing require­ments which affected the self-employed might be the big­ger fac­tor. But still, he won­ders whether the hous­ing mar­ket just needs a break.

“I think the mar­ket is tired,” says Mr. Gae­tano, adding the impact of amor­ti­za­tion changes is prob­a­bly cumu­la­tive. The max­i­mum amor­ti­za­tion length for a government-backed insured mort­gage has declined from 40 years in 2008.

“Every five-year drop rep­re­sented a 1% inter­est rate hike in cash flow,” says Mr. Gae­tano. “All of [the rule changes] have lay­ered on top of each other. It’s a cash flow crunch. I think the real­ity is real estate is slow­ing down.”

Com­ment: We will see. August was the 1^st month with the new mort­gage rules and sales were down 12.5%, Sep­tem­ber sales were also down 12.5% but Octo­ber sales were only down 7.1%. I am curi­ous to see what November’s num­bers are. My point is, sales are ris­ing again as peo­ple get used to the new mort­gage rules.

Even Phil Soper, chief exec­u­tive of Royal LeP­age Real Estate Ser­vices Inc., is feel­ing the heat to pro­mote real estate after his company’s release yes­ter­day sug­gested a decline is to be expected after a long expan­sion. “I got a hate email from some­one in the indus­try say­ing ‘how could you talk about neg­a­tive things in the hous­ing indus­try.’ Well it’s a cycli­cal indus­try,” says Mr. Soper.

It’s not like his release didn’t have any pos­i­tive spin: “The dream of home own­er­ship is very much alive among young Cana­di­ans,” the CEO said in his release.

Maybe that’s not good enough. Per­haps no U.S. style hous­ing night­mare is com­ing but the dream of home own­er­ship is fad­ing for some Canadians.

Com­ment: And who are they? What a hor­rid line to end with…

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Con­tact the Jef­frey Team for more infor­ma­tion – 416−388−1960

Lau­rin & Natalie Jef­frey are Toronto Real­tors with Cen­tury 21 Regal Realty.
They did not write these arti­cles, they just repro­duce them here for peo­ple
who are inter­ested in Toronto real estate. They do not work for any builders.
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jef­frey scrambles

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