Macleans Cover – “Inside The Great Real Estate Crash Of 2013”

macleans 14 jan 2013
– cover of Macleans, 14 Jan 2013 [hat-tip Brian and posters at VCI].

Consider the effects of this boldly unambiguous image on sentiment, particularly that of local sellers. – vreaa


Excerpts from the article, ‘Crash and Burn’, Chris Sorensen, Macleans, 14 Jan 2013:

“A housing correction—or, possibly, a crash—is no longer coming. It’s here. And you don’t have to own a tiny $500,000 condo in downtown Toronto or a $1.3-million bungalow in Vancouver to get hurt. With few exceptions, the impact will be indiscriminate as the euphoria of rising house prices is replaced by fear. The only question now is how bad things will get. If the decline picks up speed, as many believe it will, there could be a nasty snowball effect. Construction jobs will be lost. Homeowners will end up underwater. Consumers may stop spending.”

“The sudden cooling in Canada’s housing sector seemingly struck without warning. As recently as last spring, bidding wars were common in many Canadian cities as were the “over asking!” stickers agents slapped on “for sale” signs.”

“Lederer recently sent secret shoppers to several condo sales presentation offices. They made some disturbing discoveries: sales staff who didn’t ask for mortgage pre-approvals and who grossly misrepresented the demographic trends—namely the number of expected new immigrants to Toronto—that are supposed to keep units in high demand. But Lederer says he is most disturbed by the sector’s “shoddy mathematics.” By his calculations, many condo owners who rent their properties are realizing returns of less than four per cent. If rental rates fall as more units come on the market—Lederer estimates there are at least 5,000 too many condo units being built in downtown Toronto—those same investors will soon be losing money, prompting them to sell. “Being a landlord is already a negative cash proposition at today’s prices,” he says, adding that a bust in the condo sector will likely have a “trickle up” effect by reducing demand for starter homes.”

“But a mere collapse in home sales—and prices—would be bad enough. Ben Rabidoux, an analyst at M Hanson Advisers, estimates that 1.3 million people, or seven per cent of Canadian workers, are employed in the construction industry, with housing being the main driver. He argued in a recent report that a U.S.-sized housing slowdown could result in the loss of 370,000 jobs and push the unemployment rate well over nine per cent, compared to 7.2 per cent now. And that doesn’t include job losses in related industries.”

“It all amounts to a dramatic reversal of fortune for Canadians, albeit one we brought on ourselves. Back in 2009, our hot housing market acted as a life preserver in a sea of economic uncertainty. Now it feels more like a cinder block tied around our necks.”

55 responses to “Macleans Cover – “Inside The Great Real Estate Crash Of 2013”

  1. look at that comet honey, oh wow!

    • Look at the comet, indeed.

      Maclean’s has a presence that few other national publications enjoy. Even if readers don’t buy a copy they cannot avoid seeing the cover image which is usually prominent at checkouts across the country.

      The magazine has a paid circulation of 320,000 copies a month but is one of the most recirculated of magazines we have in this country. It’s worn well-thumbed copies are seen in thousands of medical, dental and professional offices across the country each month.

      Just try avoiding it for a week and you will see what I mean.

      The audits suggest the magazine reaches more than 7 readers per copy meaning that a typical issue is seen by over 2 million Canadians. How is that for having the power to impact sentiment when your cover story blazes “…the Crash of 2013”.

      Anyone still thinking the media is all tilted to the R/E bull camp needs to stop and consider the real impact that Maclean’s can have on sentiment readings in this country. This is all the more significant when we consider the demographics, income levels and typical education of its readers.

      Without sounding like I work for that outfit (I don’t) I just thought it was worth pointing out that the magazine does have broad reach and some of you out there may even conclude this type of “chilling” article is a very deliberate message to affluent Canadians to start thinking of investing elsewhere.

      The real estate cash-cow has been skewered and barbequed.

  2. It appears to be official now. Once the downturn becomes established in the minds of the mainstream it will increase momentum. All of a sudden everyone will be saying they saw this coming. It is a tragedy for the average folks who were conned into this Ponzi scheme. Many were just seeking some shelter and a little security. Those who profited will not lose any sleep over the catastrophic effect this will have on a lot of individuals. At least the next generation may eventually aspire to become homeowners when this all plays out.

  3. I think we just got droned babe….and Mr. Muir said it would never happen.

  4. Aldus Huxtable

    I assure you that family is renting and wondering how long it will take the landlord to fix the problem in his roof.

  5. The best thing about this cover?….

    The ‘homeless’ IkeaMonkey gets TopBilling…

    • Naked Official #9000

      Mrs Black stumping for the trade in exotic animals as playthings for the nouveaux riche..

      That idiot is a real estate lawyer, btw

      I can’t believe people don’t understand that “Darwin’s” real mother was probably killed to catch him.

  6. I remember the last Mcleans issue they did on being burned by real estate. I sent it to a friend, he ended up buying a condo.

    Some people just can’t read the signs even when they are plainly presented to them.

  7. Consider me bearish but this article seems a tad over the top. I do agree its effect on sentiment is likely significant.

  8. Does anyone have the actual link to this article, if so would you post it.

    • It’s not in the online edition yet. Macleans, bless their souls, actually respect their paying subscriber base (of which I am one) by ensuring the major stories are delivered to our mailboxes one or two days before being offered up for free online.

  9. The cover should have read, “2013 – 2020”

  10. I thought that magazine covers are contrarian indicators.

    • Sometimes they are and sometimes they aren’t.
      (Sometimes a cigar is just a cigar).
      Makes it difficult.

      • Magazine covers usually reflect the prevailing “wisdom”. That’s why they are often too late in the cycle.
        Maclean’s probably employs some real estate bears, or they are trying to be prophetic.
        There is a lot of subconscious anxiety among bulls that is starting to come to the surface.

      • Dollars to donuts either a senior government minister or a senior bank executive or both had drinks with the editor over the holidays and laid out the cold hard truth.

  11. theboywhocriedbubble

    Re : that last Mcleans cover story on real estate from last spring. That was a major turning point in the mainstream medias perception of the forming problem , all the areas of concern were laid out in a logical manner. I then started to discuss it ad nauseum with friends about the risks of buying in a market and a country as a whole that appeared to be maxed out. One friend fully agreed with the positions and I felt like I had got through to at least one of them. Victory ? He ended up buying a newly constructed townhome in an obscure area of the LM three weeks ago based on the advice and pressure of relatives who had benefited from RE in the ‘good times’ including a set of baby boomer parents who had made out like bandits. Nice of them to beat on him to buy as they cashed out. This to me is an example of the manic behavior exasperated by peer pressures from other maniacs , close relatives no less. I’m at a loss for words with this person now , last time I brought up the crash I got the watery eyed angry look and a irrational response. I’m glad this crazy market is about to come to an end. This cover story should be the nail in the mainstream sentiments coffin. I can only hope

    • Yes, same. The friend of mine who bought in 2012, his parents sold for a whopper of a price just after him.

      A case of do as I say, not as I do.

    • No argument could stop people from buying during the bubble. I haven’t had any discussion or tried to persuade anyone since the fall, but even in the fall when stats clearly showed something had changed in the market a couple people I talked to disputed everything I said with the Vancouver gets a premium and in the long run its a good, safe investment argument.

      One ended up buying in December (A townhouse at the same price the previous owners bought in 2008 with $30,000 in renovations), the other tried low-balling an offer and didn’t get it and are still looking to buy.

      Maybe this cover can persuade them not to buy, I don’t know. I kind of think no amount of MSM coverage or rational arguments will change their belief system. Its like arguing religion. Over the duration of the bubble I have become mostly convinced that nobody will learn until the market fully crashes and they suffer the repercussions. Or maybe I am just not that persuasive of an arguer!

      • Or maybe we’re all wrong and RE will not crash. Even if that occurs, financially I am far more secure today then had I bought in 2007 or anytime afterwards when I first could have entered the market.

      • No, you are good Groundhog. The problem is that most people are running on a program and do not know themselves or their own minds. They prove it again and again. Every single day we see them make foolish decisions that are contrary to all common sense.

        I think it a bit like the nature versus nurture debate. In this case there is a nearly biological omponent to how the acquisition program runs in spite of logic. Either that or most people are just a pack of morons.

        Yeah….that’s probably it…..

  12. #WeekEndZen: #1 – DejaVuMuch?

    [UK Independent] – They’re fighting on the beaches in Walberswick (aka ‘Notting Hill on Sea’)

    …”Properties in the village with a price tag below £350,000 are rare, effectively pricing young locals out of the market. One four-bedroom home bought for £175,000 in the mid-1990s sold recently for nearly £1m while a modest three-bedroom semi worth £250,000 in 2003 is currently on the market with a price tag of nearly £700,000. The consultation period closed last week for a development of five new houses, each costing up to £700,000, on a plot of land previously occupied by a single property. One resident said: “There is a lot of money to be made out of building property in this village. The risk is that it is allowed at any cost to the environment and landscape.”

    http://tinyurl.com/bkue2g6

    #WeekEndZen: #2 – GoldManOfPimpri Vows That, ThisTime!, He Will Not Fail To Impress His SouthSurrey Relatives [while simultaneously dumbfounding YVR’s CBSA ‘Barneys’ fixated on BankNotes]…

    [PuneMirror] – Pimpri man dons bespoke gold shirt

    ….”Datta Phuge, a chit fund businessman from Pimpri and whose wife Seema Phuge is an NCP corporator, took the delivery of his custom-made 3.25 kg 22 karat gold shirt on Thursday; he had jewellery weighing 5 kg loaded around his neck and wrists as accessories.”…

    http://tinyurl.com/aor98d8

    [NoteToEd: Mr. T is, like, so galled at having his schtick usurped….]

  13. Pingback: Macleans Cover – “Inside The Great Real Estate Crash Of 2013″ | Vancouver Real Estate Anecdote Archive « The Affluent Boomer™

  14. I will go out to buy this MacLeans issue as a show of support.

  15. VREAA, I’m not sure how you categorize content or how onerous it is, but reading some commentary over the last few days, it might be interesting to have a category for something like: “I can’t believe the Bank/Credit Union approved me/them for a mortgage/loan of size X. Compared to an annual salary of Y.”

    • Confusions -> Thanks for the interest expressed.
      There have been many, many anecdotes pertinent to that scenario over the years on this blog… with, unfortunately, no unique category. Most of them would be in the ‘overextended buyers’ category, but they are by no means alone there!
      Creative search techniques may net quite a few.

  16. I wonder if one of the “99 stupid things the government did with your money last year” was underwriting mortgage insurance. Probably not, because it’s not written off yet.

  17. It’s only jan 5 and lots of new listings here in Vancouver

    • Real Estate Tsunami

      Yeah, over 400 new listings in just a few days.
      My estimates have always been very aggressive .
      About 4,000 new listings for January, and it will get even hotter during spring. Prediction: 28,000 listings as of May 31.
      Also, another barometer: open houses.
      They are already going up exponentially.

  18. if market died, does that now make necros of the thrillseekers? … pfffft! … http://tinyurl.com/a97l38p

  19. Sentiment. Lit a fire under the virtuous circle, and will drive the vicious circle down. But we don’t seem to be there yet. Sure, the media is now negative but we’re not seeing rocketing foreclosures. Looking back at the US experience (through Dr Housing Bubble) that seems to have been the key that swung sentiment negative and created the Housing Minsky Moment.
    http://drhousingbubble.blogspot.ca/2007/07/housing-minsky-moment-3-factors-prime.html

    Dr. Housing Bubble’s three pillars of a real estate collapse:
    1. Negative media.
    2. Foreclosures rocketing upward
    3. Prime borrowers getting into trouble.
    It turns vicious when all those guys swinging hammers on construction sites get laid off.

    • Agree with that 604. The reality is that prices are going to be discovered to be somewhat meaningless as they are not really representative of value. As sentiment turns negative (this bubble was driven almost purely by sentiment and the energy of low rates and easy credit) we will see a swift reversal in mood. There is the potential for dramatic price declines. It is all going to be relative to how dramatically prices rose in the first place, of course.

      In other words, we are screwed….technically speaking.

    • The other thing that’s going to make it vicious is when all the retail and other industries that depend on real estate sales directly or indirectly get hit with the ugly stick. Furniture stores, home repair/Home Depot, mortgage brokers, property services like repairs and landscaping, not to mention car and truck dealerships who’ve been busy selling shiny trucks to Joe Construction Worker in Abbotsford based on his HELOC.

      Anyone else noticed the number of furniture stores closing on United Boulevard recently?

      • This is all part of the ‘virtuous’ cycle turning vicious.
        All sorts of self-perpetuating factors multiply themselves on the way down.
        Add to that unmeasurable factors such as sentiment, and one can see how a market can turn far uglier than the vast majority of participants had ever anticipated.

  20. http://www.realtor.ca/propertyDetails.aspx?propertyId=12529520&PidKey=734213837

    A couple of weeks ago I posted about this house on the street where I live in Calgary that had been thru a couple of realtors over the last few months, initially starting out priced at $1.05MM then $999K…….$969K…….$949K…..well, today, it is now suddenly down to $929K…….but it has the “carriage house” (that’s cowboy speak for a garage attic with a bed and bath) that supposedly can be rented for $930 a month. I wonder how they’ll get that kind of rent, when you can get a full sized one bedroom high rise downtown for less.

    I love watching the greater fools get creamed.

  21. What caused the crash of 2008 is what is still causing a form of a hangover now. The biggest challenge is educating everyone to read the signs differently ie dramatic growth is a sign of unstable economic practices whereas steady small increases bodes stability. I’ve lost count the number of times I have seen growth of 1.5 to 2 percent being reported as a decline when in reality the only decline is a negative number and growth whether it is small or big is growth. That’s the problem with articles such as these, they are largely based on growth rate and the game has changed along with the rules meaning not all the signs are still predicting the same things. What was in play in 2008 is no longer in play despite what some may wish – even the regular slow of the US economy can’t be predicted because things are not the same, so predicting a crash in the market is a bit premature especially if the changes to amortization period last summer didn’t destabilize it, just slowed it slightly.

    • Somehow, I don’t think predicting a Vancouver RE crash after the fact is of much value nor does it demonstrate much intelligence. With all due respect, I hope Trish is a realtor and not somebody’s portfolio manager or financial advisor.

  22. Trish, it is not an overstatement to use the word “crash” in the case of Vancouver. Sales drops in the double digits are already the name of the game there and they presage similar sized price drops as sentiment turns ugly. Just ask yourself a few simple questions…..Why are buyers stepping away from the plate at this time? Why have sales declined by up to 30% in some regions of the city? What might be the motivation to encourage buyers to enter the market when virtually everyone now knows prices are falling (instead of rising). The stage is now set for a reversal of the same conditions that drove up prices in the first place and every fact that now emerges is just reinforcing the idea that Vancouver no longer offers real value (or safety) at its nose-bleed levels. This is the just the other side of the collective market emotion we refer to as “sentiment” that determines the fate of all participants in the market whether they like it or not. Vancouver is now literally on the very edge of a price crash. There is no longer any doubt in my mind as credit conditions tighten along with regulatory changes being enacted in an environment of anxiety over the steep declines in sales numbers and at a time when the city still counts itself amongst the most over-priced of markets on the planet relative to incomes. There is simply no rationalizations that can counter the growing negative mood of buyers at this time while a flood of new listings will only drown the few remaining hopes of redemption for an overpriced and overhyped home selling environment. Vancouver is about to meet its Waterloo.

  23. sorry, just for clarification. has this macleans cover yet to officially released since it’s dated for jan 14th?

  24. Here is the full Mclean’s article: http://tinyurl.com/b6gmytu
    My family and I will be watching the market from the sidelines, hoping that some sense gets knocked into the local real estate market. We want a long-term home, but not at these unsustainable prices.

  25. Pingback: Peak Real Estate? |

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