It has a million people, an average temperature of 82 F, mountain ranges on three sides, a rapid growth rate, and a median house price of $150,000. In fact, the cost of houses has actually eroded in the past year. Last winter (normal February temp, 64 F) the average home was changing hands for $177,500 – 15% more than today. Indeed, prices have crashed $15,000 in the last two months.

And unlike Vancouver or Toronto where a shortage of listings means higher real estate values, in this city the number of houses for sale is on the decline – off 10.5% in a year – while prices crumble. Moreover, mortgage delinquencies have recently doubled, while the number of properties taken over by lenders for non-payment of loans is up 75%.

This city’s moribund housing market is also at odds with the economy, which is supported by a massive university, a famous military base on the edge of town, and companies such as Raytheon, Texas Instruments, IBM, Intuit, Universal Avionics, and Bombardier Aerospace. There are so many optoelectronics companies that the area’s called ‘Optics Valley.’

So, why is Tucson so cheap?

I mean, they have bargain mortgage rates. It ain’t a one-horse town, like Detroit. It’s in a desirable sun belt state. The unemployment rate, at 8.2%, is two points less than the US average, and the same as here.

Paradise, it’s not. Actually, it’s a desert. But why does a house in Toronto cost $450,000; in Vancouver $750,000; and in Tucson $150,000?

The best explanation is probably investor psychology, since Tucson (like Phoenix, Vegas, Stockton or Dade County) is a place where people don’t believe in real estate any more. Sure, there are still multi-million dollar palaces with soaring mountain backdrops, but the average family doesn’t look at a house the way a Canadian does.

Here, we see real estate as (a) a social statement about our inherent worth, (b) a retirement plan, (c) something to lord over your relatives, (d) a ready pool of accessible capital, (e) a perpetual money machine and (f) a place to put the kids at night. In the majority of American cities, houses are in the same category as cars – useful assets which may or may not appreciate in value, and therefore should not be slobbered over.

It’s valuable to bear this in mind. Our two countries share many things. So when the US middle class went delusional over real estate, created a bubble and now – five years later – still reels from the gasbag blast, maybe we should pay attention. Real estate is now judged by 72% of the American population as being a poor place to invest money, Meanwhile last week’s RBC survey showed 92% of Canadians swear to just the opposite.

Perhaps the emotional pendulum swung too far in the States after the bubble burst. Maybe people are just irrational and bitter after being bitten so hard and losing so much. But by the same token, there’s little doubt when 9 of 10 Canadians lust after a house at its highest recorded price, we’re equally nuts.

As I have said before, this basic disconnect between the two countries poses one hell of an arbitrage opportunity. Sell Canada, buy America. Markets here are vastly overvalued as they are vastly undervalued in US. Both have but one direction in which to go.

Dollar at parity? Our national bird should be the vulture.

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A virgin's lament: 'Looking at hell-holes'

Hi Garth,
I was just introduced to your blog after receiving a note from my landlord to check you out. I recently let him know that my wife and I are interested in buying a home over the next few months and that we’d likely be moving out before the end of the year. He quickly introduced me to your blog and explained how right now real-estate agents are regularly pressuring him to sell his home, promising ridiculous pots of gold at the end of the buyer’s rainbow.

After reading a few of your articles and reflecting on my experience in this market so far, I know that it’s not a great time to be a buyer. We’re in no financial rush to buy, other than sitting on a pretty big down payment and putting $22,000 towards rent on an annual basis (which is extremely frustrating). Since starting our search, we’ve looked at hell-holes asking for $440K and incredible properties listed the same and selling for 150K over. It’s like we don’t know what anything is actually worth any more.

I’m a commerce grad, and I have studied economics long enough to know that demand is far outweighing supply right now in Toronto, which is obviously affecting prices. I know the HST and interest rate conditions have caused an increase in the total number of buyers. So I guess after that long preamble I have three questions for you.

1. As a new buyer, how do you judge what a fair price to pay for a home in Toronto is any more?

2. What do you expect in the short term once interest rates rise and the HST goes into effect?

3. Is it just stupid to buy right now? And if so, how long do we need to suck it up and keep renting?

Any guidance would be much appreciated. I’m sure you get a ton of questions on a regular basis, so I understand if you don’t have time to get back to me. I look forward to more great posts now that I’ve discovered your blog. It’s going straight to my RSS reader. – Alex

Well, Alex, I have posted your note to me because we love new virgins here @ Greater Fool. Naiveté is so refreshing. And to find one with a principled landlord is even more unique. So, welcome. Addiction has its rewards.

You best point is, “we don’t know what anything is actually worth anymore.” This defines a market which has strayed from fundamentals into hormones. People want houses so badly that they pay almost anything for them, which imbues real estate with such value that it makes others want it even more.

This madness is fueled by dirt-cheap money, which many newbies totally fail to recognize. Because a mortgage is, oh, 2% today, that becomes the norm for first-time buyers, who base their entire budgeting process on a number which is extreme, and about to swell like a horny blowfish. These emergency rates, combined with 5% downpayments, 35-year amortizations and banks willing to lend to people with no money since the government is backing them, have created the situation you now face.

Half-million-dollar skanky dives. Greedy sellers who even don’t bother rinsing curlies out of the sink before a showing. Real estate agents who collect commission for showing up. And a disconnect from reality for a commerce grad like you.

But, Alex, there is hope. This will not last. So let me get to your questions:

(1) A fair price for a house is what people can afford. That seems to be somewhere around four times income today with these cheap rates. With normalized mortgage costs, fair value is probably a little less. The media income in T.O, is about $77K, so the average house should cost $308,000. The average now, however, is $431,500 – a $123,000 premium. Yes, Alex baby, this means the market is overvalued by 28%

(2) What comes next? Well, my view is that 2010 will be a tipping point. The combination of rising interest rates this summer with the HST, more job losses (check out Siemens), government cutbacks and buyer fatigue will start the process. Sales volumes will fall even as prices rise, then both will decline together – starting a process which will probably last for years.

(3) Stupid to buy now? Yeah, Rahim Jaffer stupid. Your LL may like cashing your rent cheques, but he’s actually saving you from your own self-destructive juices. Wait as long as you can. All of this year, for sure. And a good chunk of 2011, too. You may end up with a higher mortgage rate, but a far smaller loan. A smart boy like you would get that.

So, Alex, we welcome you to this oasis of contrarianism. Drink deeply, son.

And don’t mind the dogs. They always do that to a new leg.

Got your party hat on? It’s anniversary time.

Ten years ago today we were at the zenith of the dot-com age. Nortel ruled. Pimply-faced kids with no business plan and a cool domain name were making millions in IPOs. The Nasdaq crested at 5,048, profits were without limit, buyers could not get enough and it was ‘different this time’.

One year ago today we were on the cusp of depression, staring into a cauldron of fear. The Dow and the TSE had collapsed, losing half their values in just a matter of months. Wall Street banks were in crisis, TV newscasts were wall-to-wall with layoffs and investors were stampeding for the exits. Canadian investors dumped equity mutual funds in droves, leaving billions on the table.

So what do these two events have in common?

Everything, of course. They show without qualification that when the herd gets moving, it’s usually in the direction of a cliff.

Those who gulped tech stocks in 2000 went on to lose up to 70% of the value of their investments – in fact, 100% in some cases. And those dummies who dumpstered their stocks and funds last March took a giant paper loss and turned it into a real loss, only to miss a 58% upward trajectory.

Greed kills. Fear kills. But going with the crowd is the deadliest move of all. That’s roadkill.

This brings us to now.

As I keep telling people silly enough to come and listen to me, this is one unpredictable momma of a time. Volatility is always with us. A 20% market dive could be but a heartbeat away. Real estate has peaked with only one direction in which to travel. Ditto for interest rates and bond prices.

So how can we tell what lies ahead?

Easy. Look around you. Watch Global news. Read the daily paper. Wander through Best Buy. Spend an hour at mls.ca. Then do the opposite – because most people have absolutely no idea of the potential danger they’re walking into.

As I’ve tried to point out here, the economy is hopped up on government meth and will be coming down over the next few months. There can be no meaningful recovery without new jobs being created. Higher taxes, inflation and interest rates are 100% certainties. And families have been on a debt binge for months, sating themselves on houses, hi-def wallhangings and whatever it is Martha Stewart sells.

But that’s just the obvious danger. Governments are even more out of control than we are. For example, Washington last month spent almost $10 billion more – per day – than it collected in taxes, which is a record. The US deficit this year will be $1.6 trillion, and by the time Barack Obama finishes, more debt will have accumulated during his watch than under all previous presidents.

What this means: our biggest customer is imploding. How can that be good for us?

Meanwhile Ottawa and the numbies who run the provinces are also chalking up record deficits, which forecasts higher taxes and fewer services, just as inflation and gas prices are also rising. The end result of all this should be crystal: we hit a wall.

For much of the past year, since it looked like the world would end but didn’t, people have been consuming far beyond their means. Since salaries haven’t increased and jobs have been lost, the difference between income and consumption has been debt. By September it will be clear to everyone this movie ends badly.

So, be a seller, not a buyer. Trade your bonds for equities. Get your assets in a shelter. Lock in your rate. Trash your debt. Buy commodities.

And when you hear thundering hooves, run.

My pal Josh, 51, lives in a house he bought in 2005 for $515,000, has a two-year old Audi and a three-year old kid. He lost his job as an executive at a major media company exactly one year ago.

Next month, he tells me, he will have exhausted his savings and his severance, and start smoking through his meager RRSPs. The house, in an executive enclave north of Toronto, has been on the market since November. Three price reductions. No offers. If he sells now, after closing costs, he’ll clear about a hundred and fifty grand.

“Enough to retire on,” he confided to me, “for three years.”

Although I don’t have the heart to tell the guy (but he knows it already), there’s a good chance he won’t work again. Certainly not as a semi-important corporate dude making $160,000. In fact Josh smells that, after sending out over a thousand resumes and being told in a dozen job interviews that he’s ‘probably overqualified.’ That’s the way the chip-on-shoulder 35-year-old recruiters say, ‘you’re too old, Boomer.’

Economists now report we’re in a jobless recovery. Duh. The latest forecast is for the ranks of the unemployed to stay fat until sometime in 2011 or later. Of course, the big media companies – like Global, CTVglobemedia and Torstar – will probably never have another job for Josh, since that’s an industry whose day is done.

In fact, with 3,500 job cuts announced in the BC public sector, and thousands more expected in Ontario and Ottawa, along with serious long-term troubles in the auto sector, retailing and manufacturing, there’s reason to believe white-collar workers (the majority of whom are Boomers these days) will have lots of time on their hands.

So, what about Josh’s house? Three-car garage, hot tub, pool, media room, half-acre lot, paving stone driveway – on a nice street where four other homes are now also for sale. The odds of him selling this sucker without another price cut are slim. If he waits for mortgage rates to increase and the HST to add to a buyer’s closing costs, even with another slice, he’ll be in a desperate competition for potential buyers.

Meanwhile, this could not have happened at a worse time for a middle-aged father and husband. A tepid economy and a real estate bubble that passed him by mean his listing will generate no new excitement. At the end of the day, he’ll be handing his keys over to some vulture who gets the property for less than replacement value – and likely less than my buddy paid.

Worse, this economic slide and slow, painful road back means a lot of other Boomers will be doing the same – accelerating a demographic housing tsunami I started warning about years ago. The inevitability of this thing was always apparent. The events of the past year have just tweaked the timing.

Boomer properties like this – large and suburban, where it takes a litre of gas to go and get a litre of milk – are about to grow even more unsalable. Too damn bad. Because that’s where most guys like Josh have their net worth tied up. These properties are the SUVs of real estate – unloved now in a new age when buyers clamour in bidding wars for tight little urban spaces.

There are a couple of morals to this story.

First, no economic recovery takes place in the absence of job creation. That’s why this one is still faux. It’s also another reason why the current housing bubble is living off vapours.

Second, in retirement – chosen or forced – nobody needs a Boomer palace in the burbs. But we all need income. Liquidity is king. My friend’s financial descent is a reminder to us who know him that the trappings of wealth, in a heartbeat, can become just a trap.

Bubbletown. Stage Five.

Euphoria, leading to delusion.

“…the bubble now enters its most tragic stage. Some wise voices will stand up and say that the bubble can no longer continue. They put together convincing arguments based upon long run fundamentals and sound economic logic. However, these arguments evaporate in the heat of the one over-riding fact – the price is still rising. The wise are shouted down by charlatans, who justify insane prices by the euphoric claim that the world is different and this new world means higher prices.”

It’s one thing to read a definition of group insanity – which causes bubble behaviour. It’s another to see it playing out daily, with all the potential for destroying people’s lives. Even worse to witness irresponsible self-dealing corporate greed, fanning the flames.

First, to Leslieville, an oft-dodgy part of Toronto. Home to dead factories, 80-year-old houses meant to last 50 years, and hyperventilating realtors.

The semi pictured about went on the market days ago for $560,000. I think you can tell from the pic that it’s a mess. But even if it were stunning inside, it’s still half a house on an ugly street with a packrat neighbour, no parking and one skinny property away from an industrial building.

A blog dog wrote to let me know some friends were planning to make an offer. He even sent me an email they exchanged:

The price is right but we are going to have to go around 30-40k over to get it, and that might not even do it….but it needs LOTS of work to pretty it up to where we need it to be, but that will all be factored into the amount we offer.  The bones are great and it’s fine as is, just not as pretty and updated as what we are looking for.  Everything we see that we do like is upwards of 700k fully re-done and that is crazy.  The market is going insane so we aren’t too set on it but we will probably try…wish us luck!

“They decided to wilfully join the insanity,” the dog writes, “and offered $589k, but were laughed at.  The house sold for $720K ish.”

So, three-quarters of a million dollars for a fixer-upper in a part of Toronto that not so long ago was a refuge for the ‘working class.’ This junker – worth perhaps $250,000 five years ago – commanded $160,000 over the asking price in a bidding war made possible only by delusional behaviour, a greedy vendor, an irresponsible realtor and bubble-making mortgage rates.

Oh yeah, and the Royal Bank.

The country’s largest financial, with a mortgage portfolio to prove it, showed this week it’s capable of being just as incendiary as the house monkeys at Re/Max. In a survey done for no other reason than to pump more home loans, RBC told a breathless media that 92% of respondents “believe that buying a home is a good investment.”

In fact, 40% of those who are thinking of buying say they’ll do so soon.

My favourite part: “RBC says respondents cite good housing prices, favourable interest rates and the opportunity to buy a home as an investment or second home as the primary reasons behind their buying intentions. “

In case you think I diss the bank unfairly, and that it’s only holding a mirror to a crazed population, you’re right. The Royal Bank is a profit-making institution and its shareholders are only too happy to see its mortgage portfolio swell like Kirstie Alley’s behind. As with the property-pumpers at Re/Max or Royal LePage, more delirious young buyers mean more profits.

But is this not the same bank that taxpayer dollars streamed into after the Crash of 2008-9 as the feds bought up its riskiest mortgage loans? Isn’t this the cornerstone company of our vaunted world-beating banking system, the one that saved us a from a US-style subprime credit-drenched meltdown?

How much money does RBC need to earn? After all, profits in the latest three months were $1.5 billion – up 35% in the past year. Is there a point at which greed becomes responsibility? Why can’t our biggest and most respected bank, of which I am a customer, stop pushing more gas into the housing bubble, and warn consumers they’re buying at the top, with money that will only increase in carrying costs?

Ah well. Whadda I know.

Maybe they’re all right. It’s different this time. A geriatric semi in Leslieville will soon be a mil.

But I think if I ran a bank, believing ethics rewards more than greed, I’d be tempted to say: No bubble’s ever lasted. No boom has ended well. The rush of the moment removes the lessons of the past.

Be wise.

Abandoned house in Mississauga - Blog Dog photo

One afternoon last week, three hours apart, I met with two couples, both of whom read this blog. As it turned out, they both wanted financial help.

The young, urban couple – he’s in IT, she’s in HR – rent a one-bedroom condo and are shopping for a home. But not fast. When they do, I was told, it will be in the $700,000 range. They have $82,000 saved, and together make over $230,000.

The older, rural couple – he’s early retired and she has five years left with the province – live in a cabin in the woods, and for the first seven years scooped water from the lake. They still have an outhouse. But they also have $800,000 in a bag in a hole under the wood-splitting stump. Neither one has ever made over $40,000.

As you might imagine, they both came to see me for financial advice. You also might imagine what it was. The kids with the high-octane jobs, the iPhones and the house lust are on a trajectory to debt and divorce. The old snorts with the bag of cash need to remember what money is for, and get a damn flush toilet and a skid of Cottonelle.

If real estate is not at the absolute throbbing heart of most people’s finances, it’s never far away. For the young couple, it’s the one asset which will define them socially and signal their place in the financial hierarchy. For the hippyish Boomers, its shelter and freedom, along with inconvenience and want.

Interestingly, the young couple will use leverage to gain an asset and at the same time assume a massive debt. Risk. The older couple traded comfort for wealth, with their net worth all in cash. Also a risk. But in the world in which we’re entering there’s little doubt who the survivors are going to be, toilet or no toilet.

These snippets caught my attention on the weekend:

From Michigan: One Birmingham homeowner says he has made payments on his underwater mortgage despite a 40% pay cut. He has eliminated dining out and travel. He raided his 13-year-old son’s college fund to stay afloat. Because he works in financial services, he says he can’t default on his $470,000 mortgage on a house now worth $220,000.

From New Zealand: House prices are set to fall as the property market heads into what could be a winter of discontent for homeowners. A flood of properties being listed for sale in February has prompted warnings that it could swamp the market and bring an end to the resurgence in prices which occurred last year.

House prices were propped up last year by a lack of listings, meaning buyers often had to compete for properties. The market had also been helped by the extremely low mortgage interest rates, which he described as “`addictive” for property buyers, a situation that was likely to end around the middle of the year when the Reserve Bank is expected to start raising interest rates again. Currently floating mortgage rates are around 5.65%, while fixed rates range from 5.75% to 8.9% depending on their term.

From the Detroit Free Press: With more than 500,000 households in Michigan owing more on their mortgages than the homes are worth, thousands of Michigan residents are choosing to abandon their homes and walk away, even if they can afford to continue making payments. The number of people who have engaged in such strategic defaults more than tripled between 2005 and 2008 — from 5,100 to 17,250, according to a report by Experian-Oliver Wyman, a credit reporting and consulting firm.

From the Ottawa Citizen: With low mortgage rates, affordable prices and a healthy inventory, the housing market is bracing for a surge in new home sales this month. Act fast or risk missing the deals.

It’s March, when home buying fever strikes hard, and Ottawans are snapping up everything from hip urban condos to sedate retirement townhomes in the ‘burbs. Interest and mortgage rates are at a record low, making home ownership irresistible. Prices, meanwhile, are creeping steadily higher, a goad to buy now before they soar out of sight.

Real estate, as you know, is a local commodity. That’s why 39% of all families in Michigan can be in negative equity, while two hours away down the 401 houses sell for huge premiums in budding wars. Real estate values are the result of supply and demand – dictated by human emotion.

This also makes it a very dangerous asset, since emotions can turn quickly and sharply. If the popular belief is ‘buy now or buy never,’ prices rage. If rates jump or listings flood, the market can die in days.

The news reports above give you such extreme views – real estate as a trap and a destroyer; real estate as irresistible.

Like the two couples in my office, to everything there is a season.

And yet more Garth... here.

We’ve all done it. Drive by a house you owned a decade ago. For sale sign on the lawn. You slow, look at the realtor’s number, call it on your cell, ask the price, and guffaw. What idiot, you wonder, would pay that much for it? Then you wish you were selling it again.

Without a doubt, housing prices in cities like Toronto, Calgary and Vancouver have inflated excessively. In fact, to the point where homes are severely unaffordable according to international standards. As this blog tries to remind, asset values never rise without end. Prices always find their mean. All booms end badly. And this market’s overdue for correction.

But how about a longer comparison. Say, a generation or two?

How does an average family’s buying power today compare with that of a family six or seven decades ago? Are the same houses more or less affordable than they used to be? And, if not, how and why are prices continuing to rise?

A day ago I received a delightful note from a woman in Toronto who apparently hangs around here this viral hellhole. “Instead of wasting our precious time slamming our head against the wall, we’ve rented a fabulous big apartment which we got at a steal as it was a renters market and negotiated hard,” she reports. “We have trips planned this year to South America, Vegas, the UK and Iceland. I’m probably taking my Mom on a cruise as well to celebrate her retirement.  Better that we are off making memories with loved ones and doing what we love than lining a banker’s pocket. Seriously, your blog was exactly the wake-up call I needed. It freed me from the emotional and very real financial chains I would have put around myself.”

But she goes on to say something more profound, recounting one of those moments which should make us reflect on what we have done to modern life:

“I saw my grandparents old house on Gladstone Avenue in Toronto was for sale. It’s the house my Mom was born in.  I wasn’t considering buying it, but I did for one brief moment feel a bit of “what if …. ”   It was listed for $429,000 – 3 bedrooms and from the pics, very poky living in it. It sold for $531,000.

“My grandparents were people of modest means and this was their first house. My grandad worked for CP rail and my grandmother worked at home to raise their small family.

“Flash forward 60 years and their dual-income, well-paid, debt free grandchild can’t afford their poky west Toronto semi. Well, actually the bank would give me the money, but that is not affording it.”

It’s hard to see how anyone’s better off when homes are unattainable or debts stretched through an entire adult lifetime. In the last 12 months, Toronto prices have increased 19%. Wages have risen 0%. Household debt’s surged dramatically. Mortgages have crested.

You can walk down Gladstone and touch the same bricks, be shaded by the same trees, as families did a generation ago.

And if you listen closely, you might hear a distant echo of the middle class.

The most arresting thing about F’s budget?

F, of course. Check out that makeover. And just to think that under his new rules, Botox treatments are no longer tax-deductible. Where the hell did he get that idea?

On a more serious note, if that’s possible, is what this little federal exercise means. The budget is political, not economic. It sets the scene for an election this year (I told you 2010 would be a tipping point), in which F&H plan to get a majority. That will pave the way for the real budget, which is 12 months away – the one that could declare a debt emergency, ‘temporarily’ hike the GST, impose an income surtax and slash spending.

At that time, we’ll be well on the way to $600 billion in debt, be adding tens of billions more a year, have higher loan and mortgage rates, an army (still) of unemployed and a cascading real estate market. Ontario and BC will have had the HST for eight months, provincial taxes will be higher in most parts of the country, and we’ll all be chuckling about the summer day in 2010 that a SFH in Van hit a mil.

Just imagine how you’d feel if you were the greater fool who bought that.

All this is way more likely now that F spent less time on his fiscal plan than his hair. The country has gone from a healthy little surplus to a mastadonian deficit in the course of three years. According to the Parliamentary Budget Officer, a dude with a real set, given the aging population and the economic prospects, we could have a structural deficit now of $20 to $40 billion for as far as the eye can see.

So, budget 2010 was an early chance to do something about it. Turn off the spending tap, start working on a plan to deal with a world in which there are just two workies for every retired (a few years ago, there were seven people working for every person drawing a pension), and scale down government. Instead, federal spending increases by a billion, another $19 billion will be spent on stimulus stuff and there is absolutely no long term plan. Just rhetoric. Grecian Formula. That kinda stuff.

The implications should be obvious. The housing bulls who come here to take a dump are living on borrowed time. Those of our relatives and work colleagues who have mortgaged and borrowed their way to granite countertops and boy toys will regret it. Young 5/35ers will understand that leverage = risk. People with their money in the wrong place (like bond funds, for example), or with their net worth stuffed into one asset (like their house) will wish they’d heeded the Lessons from The Bunker. Those who think tax avoidance is unpatriotic will learn fast.

By delaying the inevitable, F makes it worse.

Kind of like fleeing your age.

Hang on. Could get interesting.

Bank profits surge. Economic growth numbers soar. And a federal budget that refuses to see the 800-pound deficit gorilla. No real spending cuts. No tax hikes. And a forecast of a bounding economy.

Hmm. Seems to me the feds have pretty much guaranteed higher interest rates in a few months, which is exactly why F moved to ‘tighten’ mortgage rules a couple of weeks ago. Following Thursday’s budget there’s every reason to believe the prime rate could be doubled by the end of the year.

So what?

So we flash you to two of the country’s real estate hotbeds, Victoria and Toronto, where local media were orgiastically celebrating the latest real estate board numbers in the last few hours. Sales in the BC capital were ahead 54% last month from a year ago, while in Toronto they surged by 77%.

Realtors, being genetically engineered, were saying basically the same thing in both places: Consumers are confident about themselves and the future, and so they buy. Of course they’re buying – which is why smart people aren’t. 2010, trust me, will be a great time to be a contrarian.

In Toronto, as my Post City Magazine article yesterday sought to show, housing mania is in full bloom. Usually snowy and lost February was instead a hotbed of bidding wars and curb cruising. Sales hit almost 7,300 and the average price rose 19% y/o/y to $431,509. At the same time, the number of homes for sale shot ahead of Feb ’09 by 24%.

In Victoria, as I mentioned, sales catapulted by over 50%. At the same time listings actually dropped from year-ago levels, to about 3,300 homes, from 3,800 in ’09. And the average price also took a hit, from $644,000 down to $620,000. That’s 3.7% in a month, or 45% on an annualized basis.

So, what gives? Both cities have been real estate honeypots. Both saw massive sales gains last month. But in one place listings and prices soared while in the other listings and prices dumped.

Of course, real estate is a local asset, and there can be lots of reasons – from weather to property tax changes – that affect prices. However, in house-crazy Victoria people have simply hit an affordability wall. Prices have been pumped so high so fast that the average family can no longer afford the average home.

Victoria is not an international destination, does not have a massive inflow of population and is, sadly, a government town in a new era of restraint. In other words, no flotilla of dripping-rich Chinese immigrants is going to rescue people from the housing trap they have set for themselves. Prices are coming down.

Toronto, in contrast, does have a strong inflow of people. But it also has a hinterland full of shuttered factories, depressed autoworkers and families looking at the end of EI benefits.

This means the advent of higher mortgage rates – now certain in light of Ottawa’s moves this week – will erode affordability, as runaway prices have done in the west. There is no alternative. F knows it. Carney knows it. The bankers know it.

As I said some time ago, 2010 will turn out to have been a tipping point. If you’ve been thinking about listing, get ‘er done. If you’ve been hunting for a house, quit.

If you just bought, c’mere. Hug.

Meanwhile in Van:

The latest stats show the extent of the bubble, as the price of a SFH is now within striking distance of $1 million. Look out below!

Loyal readers, antisocial voyeurs, shut-ins, pensive realtors, rudderless central bankers and others who read this blog may recall the Post City Magazine real estate roundtable from a year ago. Well, it’s happened again.

For those of you who don’t live in the GTA, and likely lack adequate sanitation, the Post magazines cater to those Toronto neighbourhoods where people think being downscale is buying an E300 as the dog car. Naturally these folks live in honking expensive houses, are extreme shoppers and constitute exactly the audience magazine advertisers love. Lots of those ads are for luxury homes, upscale condos and the objects d’art with which to fill them.

So, once a year, the mag editors bring together a select group to forecast the future of local housing. For comic relief, they include me.

The setting for the event was a club so perfect that beautiful women are paid just to walk around pretending to be employees. Granite and fresh flowers are everywhere; impeccable art lines the copious corridors; and the parking garage looks like a rare car showroom. I hurt only four or five vehicles nestling the Hummer into a space apparently reserved for small cars.

Around the table were the supernovas of Big Smoke realty. A woman who sells $8-million houses; the top producer from one of the toniest brokerages in the area; Toronto’s reigning condo king; a builder-to-the-rich and HGTV (real estate porn channel) star; the chief economist of the largest Canadian bank; a legendary developer of avant-garde projects; a financial editor and romper with the horsey set; and moi, in my squirrel hat.

Of course, I won’t scoop the article to be published shortly, but I will say that the hour I was able to stay was amazing. Among the points made by the luminaries:

> Canadian real estate is safe because we don’t take on as much debt as the Americans.
> Higher interest rates will encourage more house-buying. No worries.
> People paying $1.6 million for a suburban lot will be delighted in two years’ time.
> Investors are selling real estate in Dubai and Germany so they can move to Toronto.
> ‘Middle-range’ homes now sell for between $500K and $2.5 mil.
> Real estate prices will not regress, they will only progress.
> No crash, absolutely. But prices will rise modestly – about 4% per year.
> People are trading down from $2 million houses, to $2 million condos. After all, ‘that’s the price you pay for living someplace where you don’t get a gun in your face, or some neighbour shows up with a pie.’

Hmm. I could go on. But you get the drift of the conversation. The broad consensus, of course,  was ‘it’s different here.’ And when I jumped in to point out that people in Halifax, Ottawa, Calgary, Kelowna and Vancouver say exactly the same thing, they all came over and beat the crap out of me.

So, despite a 20% price increase in a year, the establishment claims there is no bubble. Despite the HST and higher mortgage rates, they think the demand for real estate is insatiable. In the face of record personal and household debt, and tighter mortgage rules, they see no reason young buyers won’t deliver. And regardless of a country, a province and a city sinking deeper and deeper into debt, promising higher taxes and less disposable income, they believe international buyers belching cash will keep the market vibrant.

So I played my final card. Resting my Remington on my knees (just in case), I reminded the high-rollers that the luxury housing scene in this or any other city will only survive if the real estate market in general is expanding, rife with move-up buyers and consumers happy to take on larger levels of debt. Those folks, I offered, are tapped out, over-borrowed and know far too many friends and relatives who are out of work. It won’t take much now – more listings, higher rates, a new sales tax – to whack demand.

An astonished silence crept across the table.

Finally the condo king said, “You cannot comprehend how much money has been made in real estate in this market. It’s staggering. Real estate is safe.” Many nods.

And with that, I quietly gathered my weapons and left, dreaming I’d just been part of a US National Association of Realtors convention, circa 2005.

There, but for the grace of God…