Garry Marr: Even the real estate industry is losing faith in housing

I’ve covered Canadian housing for more than 25 years, and I can’t remember a time when sentiment toward the sector was more negative — and some of it is coming from the real estate industry itself.

A panel discussion on housing at a real estate conference hosted by independent equity research firm Veritas this past week made it clear how low expectations are today.

Even looking out a decade, there seems to be little hope.

Steve Saretsky, who founded the Vancouver-based real estate group Saretsky Group, summed up the negativity when asked what the market would look like 10 years from now.

“I’m not going to put a percentage on it,” he said, but indicated he believes “nominal prices” will be slightly higher a decade from now. You won’t beat inflation, and in that scenario, I’m not sure anyone can think of housing as an investment.

The true believers may be losing faith. In its latest numbers this month, the Canadian Real Estate Association said it now represents more than 155,000 realtors. A year ago, the number was 160,000. Here’s betting that number will go down even further.

You can’t blame some people for losing faith. CREA said there were 450,000 annualized sales in the third quarter across the country; that’s barely more than half the annualized sales of 775,000 in the first quarter of 2021, at the market’s peak. That takes a big cut out commission pie.

The motivation to buy doesn’t seem to exist in a market where prices keep falling. The non-seasonally adjusted national average home price was $666,538 in September, down 1.6 per cent from the same month last year. The average selling price for an existing home at the peak was $824,192 in February 2022.

“The home price index today is lower than it was in January of 2016. So 10 years later, the best dirt in Vancouver is lower today,” said Saretsky. “You bought a pre-sale condo in Surrey in 2022. You’re probably going to be waiting a long time to get back to your cost basis.”

If anything, the industry seems to be bracing for the possibility that our relationship with homeownership may be on the rocks for good.

Daniel Foch, chief information officer at valery.ca, said all this negativity might permanently affect homeownership.

“The one thing I’ll say is that Canada’s homeownership rate is going to be significantly lower, because I don’t see a way out of this where more people can afford houses,” said Foch. “Prices will be very slightly higher.”

Part of the problem may be that people think they can get a better deal and keep waiting.

“I think the question is, are we at the bottom?” said Saretsky. “We are not there yet. But on the optimistic side, it’s a great time to go in and make low-ball offers. You may just not hit the exact bottom, but the sentiment is so bad.”

It takes an industry veteran like Ron Butler of Butler Mortgage to give real context. Most people at the conference weren’t in real estate during the last major lull in the 1990s, so it’s hard to fathom a long downturn.

“The market just dropped for five years and flattened out for numbers of years and then started to increase, and it wasn’t until about 2012 before you got back to the original price, adding in inflation,” said Butler, recalling a bear market that few, including myself, can remember clearly. “If there are a bunch of people optimistic about the Canadian housing market, they’ve got to be high.”

It’s not all negative. Research firm Urbanation said this month condominium apartment sales in the Greater Toronto and Hamilton Area doubled from a year ago to 760 units in the third quarter.

A temporary break from the harmonized sales tax and government financial support for bulk condo purchases are helping the market, but sales were still 78 per cent below the 10-year long-term average.

But there is only so much government can do to help a market where prices overshot household income and speculative investor buying is completely untethered from rents, turning housing into a negative-cash-flow investments.

Now the hope is that the ban on foreign buyers, which will expire in January, will provide a lift.

John Pasalis, president and broker at Move Smartley Realty Inc., said the idea that immigration is a “silver bullet” to solve the market didn’t hold up in the 1990s, when population returned to one per cent annual growth.

“It wasn’t this rally that a lot of people are expecting or hoping for,” said Pasalis

Foch added that the issue is not how many people move to Canada because the market is measured in house prices, not how many immigrants come to Canada.

“It doesn’t matter how people move to Canada unless they have money to buy houses or Canadians have money to buy houses,” he said.

Every bit of negativity about the housing market seems justified. But I think back to when I first covered real estate in 2000, as the market was recovering, and to a piece of advice from the Financial Post’s editor at the time.

He said this to the much younger version of me. “When housing is on the front page and everybody tells you there is never been a better time to buy, is when to get out.”

Today, front-page housing stories read like a horror movie script, and everyone says there has never been a worse time to get in.

The negativity is probably justified, but will it last a decade?