Condoland Overdue For A Market Correction . . . It’s Not A Question Of If . . . . It’s A Question of When

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I’ve been publishing for years now that I anticipate a market correction but I’ve been relatively on my own with this theory.

It seems that other, more highly accredited academics, have the view that prices can go up forever, but I simply just can’t get my head around that illogic.

The Canadian Real Estate Association (“CREA“) recently announced that “sales had flatlined in March and April“!

That’s not quite in line with all the pendents and so-called media specialists, but the reality is that prices of anything cannot simply go up forever.

I got in the industry in 1979 and saw a decade of booming sales!

Then in 1989, just a decade later I saw the biggest real estate crash in Canadian history.

It took Condoland about a decade to get back on its feet and in 1999 we saw the makings of another boom market forming.

This is what they mean when they say that “real estate is cyclical“. Apparently it’s a decade cycle.

And boom it did for a good ten years seeing prices escalate from just over $300 per square foot in 2000 to upwards of $1,000 today (and this isn’t even for the high end stuff).

And now, the Organization for Economic Co-operation and Development (OECD) has come out calling for a clamp down the condo market in Toronto and Vancouver, where they say a correction “is the country’s main domestic downside risk“.

In its economic outlook issued last Wednesday, OECD announced that these artificially low (offset by Canada’s excuse for “Quantitative Easing” (despite it not being called such) “have sparked more borrowing leading to higher housing prices“.

Last year Canada’s Finance Minister announced that the government was bumping up down payments to ten (10%) percent on any portion of a home’s price over $500,000 up to $1,000,000.

I see this as more window dressing due to today’s prices being so out of whack that allowing speculators to continue to play the risky game of condos to get in with ten cents on the dollar just seems ludicrous to me.

Back in 1989 when the market literally crashed around us in Condoland, one of the main culprits of the industry demise was minimal down payments.

Speculators had little or nothing to walk away from (so they did) leaving developers, who also had little skin in the game due to registering each condo project as a stand alone corporation, to go broke.

But what happens to the banks holding the mortgages? And what about Canada Mortgage and Housing (“CMHC“) the insure high ratio mortgages (anything under 20% downpayment)?

We haven’t seen any impact of these most recent “for show” moves of the government as mortgages are usually secured for 90 days and that time period expires in July in this instance.

AND OECD hasn’t been the only one sending out these types of warnings.

Scotiabank has announced that it is curbing mortgage lending in Condoland citing concerns about Canadian debt levels.

With so many foreign buyers dominating Condoland these days buying with “all cash deals” I have difficulty seeing what potential impact curbing deposit structures as they have, but hey, it makes for good press and leads the uninformed to believe that they are really being looked out for.

Of course not all foreign investors pay with all cash, and its not hard for foreigners to get mortgage here even if they don’t have a social insurance number (they need only put down a larger deposit).

So, to me the big question is what will the Bank of Canada do now to “stimulate the economy“?

To keep Condoland going (without Condoland the fact that our economy “flatlined” years ago would become evident), our government has jumped into the Quantitative Easing game (something that I am rigidly opposed to).

Quantitative Easing simply means that our government is taking our tax dollars to buy down interest rates. It’s like the rest of us subsidize speculators to give the appearance that all is well in Condoland when it is not.

Building a market of speculators is a flawed strategy.

The banks are already giving away money as low a 0.25%!

Speculators today can lock in a rate of around 2% resting on the government’s announcement that it “does not intend to raise rates for at least a year“!

Talk about an inducement to speculate.

All of these educated minds might be right, but I for one do not buy it.

We’ve overbuilt Condoland with overpriced condo units that people are buying “because of low cost financing“.

I’ve been telling you for a few years now that all this manipulation of interest rates has led us to a “Deja Vu moment” reminiscent of 1989.

This is but one area of concern in Condoland as the product that is being delivered is so deficient that I’ve given up recommending buying/investing in Condoland (unless you are truly looking for a home and are pouring money down the drain in rent – and even then you must be very, very careful as there is just so much crap out there that only a fool would jump in without extensive knowledge of the market and what they are doing).

I understand that our government has pumped in over $30 Billion (yes that’s a “B“) buying up various securities from private institutions in the last 6 months alone “in an attempt to relieve credit worries!

In my world, Quatitative Easing is simply another way of saying “print money” which is a flawed philosophy being perpetuated by governments around the globe leading to what I see as global bankruptcy.

America with its $19 Trillion in “DEBT“, set the standard for this lunacy and today you see “a debtor nation” on the edge!

Their Federal Government carries this $19 Tillion and every State sits in a position that in any other circles would result in bankruptcy (if they can’t get the Fed to print more money), and pretty well every city in America is in deficit spending beyond their means.

I don’t believe that Canada should follow its dysfunctional neighbour to the south.

I don’t believe that our governments should play the slight of hand games known as Quantitative Easing.

I guess I’m “old world“, where you pay for what you get!

I’m Charles

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