Macleans Cover – “Inside The Great Real Estate Crash Of 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

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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.”
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“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.”
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“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.”
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“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.”
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“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.”