Only human

Humans are strange. And emotional.

We’re massively influenced by what others are doing and what they may think of us. So when ‘everybody’ is clamouring for something, jacking up prices, we’re desperate to buy and will pay a premium to do so. It’s called FOMO – fear of missing out. This sent real estate into the heavens three years ago.

But when assets are being shunned by others, and prices are falling, we can’t run away fast enough. This is fear of loss, the evil brother of FOMO. It turns buyers into sellers, crashes property sales and Hoovers off equity.

This is why most people buy high and sell low. They can’t help it. We’re human.

Canadian urban real estate is entering a profound new phase. As this pathetic (but prescient) blog has been telling you, sales this year suck. The spring rutting-season sputtered and sank. Listings have been swelling. It’s a buyer’s market but with scant buyers. Government incentives, like that crazy tax-cheating new FHSA, have accomplished nothing. The Bank of Canada’s cut did diddly. Price reductions have not brought offers. And the listings keep piling up.

For example, look at the MOI (months of inventory) in the bellweather Toronto market. The situation with condos is acute. Never before have so many units been on the resale market – and at the same time over 20,000 new-builds languish, without buyers. It is unprecedented.

Available listings are stacking up fast in Toronto

Source: Scott Ingram

Days ago we told you about active listings. Up year/year in Toronto by 67% (sales down 16%); in Vancouver by 42% (sales 19% lower); and in Victoria by 48% (with 6% fewer sold). Watch the inventory total jump daily on realtor.ca. In every province, city and town there are properties sitting with few showings and a growing days-on-market total.

People are scared to buy, and many others worried about owning as mortgage renewals loom and rates stay elevated. Well over $200 billion in home loans come up for refinancing in the next few months, and the CB rate will not be falling fast enough to spare them from a doubling in monthly costs. For investors who bought rental units, this is an unmitigated disaster. Many are already in negative cash flow (since renters in Canada are largely subsidized by landlords) and others will not be able to close on pre-con apartments.

But wait. It gets worse. Or, at least, more confused.

The buyers’ strike has crashed the new-home industry. Recently we brought you some of the numbers. In the mighty GTA, the latest homebuilder report is, well, shocking:

Condominium apartments, including units in low, medium and high-rise buildings, stacked townhouses and loft units, accounted for 539 units sold in May, down 75 per cent from May 2023 and 75 per cent below the 10-year average.
There were 397 single-family home sales in May, down 65 per cent from May 2023 and 61 per cent below the 10-year average. Single-family homes include detached, linked and semi-detached houses and townhouses (excluding stacked townhouses).

Total new home remaining inventory increased compared to the previous month, to 20,427 units. This includes 16,845 condominium apartment units and 3,582 single-family dwellings. This represents a combined inventory level of 14.5 months, based on average sales for the last 12 months. This remains an exceedingly high inventory level, maintaining the trend seen since the fall of remaining inventory levels hovering consistently near the 20,000 mark.

Lost sales. Lost jobs. Idle builders. Scared buyers. Massive unsold inventory. Houses people are as unable to purchase as they are reluctant to finance. Quelle mess.

And it’s national.

CMHC stats were out yesterday. Housing starts in Vancouver have collapsed 55%. In Toronto, down 60%. Nationally starts are off 9% – during a year in which they were supposed to spiral higher, fuelled by tens of billions in federal incentives. In Toronto, for example, just 34% of the annual target for new homes has been hit.

“How much worse will new home starts get?” asks badass mortgage broker and Ron Butler. “Much WORSE. Government’s 9-year-old promise of 3.5M new starts turns to dust. CMHC confirmed yesterday what folks like me have been saying for over a year. How BAD could new home starts get? We will be lucky to hit 210K this year. Next year AWFUL. 170K? 150K? Remember the 3.5M promise needed over DOUBLE 250K starts. Hey Housing Accelerator Fund!! How are things working out!!”

Well, what can reverse this looming disaster? After all, when housing construction dries up, yet the population continues to grow, demand will overwhelm supply once the emotional tide swings back to ‘buy’.

A fast whack of rate reductions might help. But that’s not going to happen. A dramatic drop in prices could do the trick, but there’s no indication of that, even as inventory jumps. An economic downturn – recession with higher unemployment – would just make folks less confident. And laying ahead of us are months of political uncertainty, confusing headlines and perceived risk.

Sellers, not yielding, are in trouble. Buyers, not buying, hold all the cards. And human nature endures.

About the picture: “Here’s a picture of my pooch, Bentley,” writes Ian. “He’s 8 years old, a King Charles spaniel, all trimmed up for the summer. Thanks for all you do Garth been following now close to 10 years don’t miss a day.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.