Oz Buzz #98: The Crash

August 12, 2024

“The paradox of tolerance states that if a society‘s practice of tolerance is inclusive of the intolerant, intolerance will ultimately dominate, eliminating the tolerant and the practice of tolerance with them.  The paradox is arising from the fact that, in order to maintain a tolerant society, the society must retain the right to be intolerant of intolerance.“ –Karl Popper, Austrian Philosopher

Remember: You are reading Ozzie’s opinion, not advice. Use only your personal professional lawyer/realtor/accountant to make
your personal investment and life decisions.

FREE SPEECH IS UNDER ATTACK – THERE IS AN OUTRAGE INDUSTRY!

A prime example in ENGLAND, where people are thrown into jail for calling a horse gay!

I love Rowan Atkinson video on free speech:

(Interestingly, I had a different Youtube.com address. Now it says: “This video has been removed”. I hope you can view this witty treatise on Britain’s FREE SPEECH laws. Watch asap)

Listen to Ozzie’s Podcast on OZCAST at www.ozbuzz.ca
Also on Apple cast, Amazon video, Spotify. 

• NO, IT IS A CRASH! NOTHING NICE … A MASSIVE CRASH
• CALL A POLICE HORSE GAY, LANDS YOU IN JAIL IN BRITAIN
• TROUBLE IN DEVELOPMENT PARADISE … FORECLOSED
• PRESALE LM MARKET
• CANADA/US INTEREST RATES OUTLOOK FOR PRICES.
• BC GOVT BACKS DOWN (A TAD) ON LANDLORD AND TENANT ACT
• WE REPEAT ANNUAL NUMBERS SUMMARY 2020-2024. NOW WITH PRICES
• CURRENT CANADA NUMBERS
• TROUBLE IN (DEVELOPER) PARADISE
• RECESSION – A CERTAINTY
• ECONOMY – OUTLOOK
• INTEREST RATES – US AND CANADA
• QUESTIONS, QUESTIONS
• DEI – TOLERANCE – AGAIN

THE CRASH

So, in one day (last Monday) the Japan stock market crashed 12% for a total of 20% in only 3 trading days! The worst stock market crash in Japan since October 1987. Taiwan’s stocks crashed 8% on the same day (worst day ever there). The rest of Asia followed with -3 to – 6% drops. Wall Street followed with over a 1000-point drop on the DOW and between 2 – 4% in the days following.

We are told it was a minor event essentially due to Japanese YEN ‘Carry Trade’ and one or more UNNAMED trader reportedly lost a fortune. It’s all ok now.

HORSESHIT! This is a classic Black Swan. It’s only after the Black Swan event is over, everyone says they expected it. 

Surprisingly the week earlier, the “esteemed” or ‘prewarned?’ Warren Buffet sold $37 billion of Apple stock, slashed his holdings in Bank of America and others a further $40 billion in the quarter and now sits on a remarkable $277 billion cash! Clearly, Buffett-led Berkshire is “actively reducing risk” in a still-expensive and increasingly uncertain market. He got out of these darling stocks in full view demonstrating his fears.

The 10-year rates crashed from 4.2% to 3.79% in a day. The VIX soared to an unheard high 65! Intel’s worst day in 20 years was down 23 percent!
I’m not a stock market guy. I hold no stocks, but if I were, I’d be out. This was not a minor happening. IT WAS A MAJOR CRASH AND THAT’S NOT OVER YET.(This is written August 11. The coming week has a plethora of news, all could have an up or down effect on markets. You must make YOUR decision. Do it
carefully!)

Major Point: For the reasonably well-heeled, in a crash the US dollar is the place to be, at least thru 2025. Not gold, not crypto, not real estate (see below).
“Cash is not trash”, short term. Sidelines look downright safe and sound even cozy.

… Last big Wall Street crash was in 2008. The US dollar soared. Money will be looking for safety first and that’s still the US dollar.

“Wall Street never changed. The pockets change, the suckers change. The stocks change. But wall street never changes, because human nature never changes…” –Jesse Livermore

THE ECONOMY

Call it the week of a ‘perfect storm’ … where everyone has an opinion but no one knows the outcome. In fact we seem to look for solace in stock traders. We jump from one stock trader video to another. The new thing is ‘watch Nvidia’ … if it underperforms at next week’s announcement – more crash. If it overperforms in a blockbuster kind of way … we will rise to the moon.

Really? One stock? Serious and senior forecasters now look for a ‘risk off’ stocks world with recession on amid a scary bond market.

To Note: A leger poll found more than 50% (!) of Canadians between 18 and 54 are living paycheque to paycheque. A whopping 37% are borrowing money to  pay for daily expenses – like food!

CEO of Canadian Tire: “…indebted consumers are not spending money”…followed by other CEOs. Watch the jobless claims both in US and Canada and watch the consumer … for short term gyrations.

Understand this: Major Point: 
Layoffs are mounting (unreported layoffs). Most new permanent jobs generated are jobs in government! Of 51,000 new jobs, 40,000 are in government jobs! Unemployment now at 6.4%.

Mortgage Ace Dustin Woodhouse reports that: “Year over year, 42% of the Loan Officers licensed in the USA are gone from the business.”

Major, Major Point: 
I am a positive guy. And yes, there will be brighter days ahead on the real estate mountain, but first we will go thru a darker valley.

No matter what you hear or read. THIS IS A DARK(ISH) TIME – triggered by a BLACK SWAN in Japan, but the Swan is flying everywhere. Don’t buy ANYTHING w/o serious, serious evaluation. When in doubt, stay put! Buffet is in cash and waiting on the sidelines to jump in when other massive crashes happen in his world … and they WILL happen.

INTEREST RATES

Central markets in a somewhat organized way hiked interest rates worldwide, leaving the ‘0’ percent world behind (some were even in negative rates … arrgh!). They went up, up and away. But … now Central Banks are cutting everywhere, almost in unison.

The consensus in the US? There is none. Some see 1% by year end 2024. There is a group that sees 8 cuts (2%) by June 2025.

Some want Powell to cut 50% in an emergency cut. THAT IS – in my opinion – THE WORST that he could do. All markets are spooked, there is a war pending. An emergency cut would be admitting that and scare markets more.

He will cut in September … but it will NOT stimulate US RE markets. Psychology is heading down.

Outlier: The Fed is said not to want to cut rates before the election and skips September!

In CANADA, all our bankers are stepping up with their forecasts. Currently, our overnight rate stands at 4.5%, (US at about 5.33%) TD Bank and others see 2.25% at the end of 2025. BOM sees 3%. Consensus ranges from 2.50 – 3.25%. TD bank had forecast 8 cuts for a 2% cut by June 2025 – 2 months ago (Ozbuzz reported).

Major Point: We will get a .25% cut in September. In Canada we will stay (slightly) ahead of US cuts,

MAJOR, MAJOR POINT: If you expect mortgages rates to follow, it may (may) behoove you to get a short-term variable rate. Or rent till the smoke clears.

REAL ESTATE MARKETS IN US AND CANADA

July Major Point stated: Downturn is starting. Some investors are stampeding out pre-sales, all STRs, Airbnb, all rentals. New rental laws favour tenants and outright punish owners and there is totally negative cash flow in all rental markets. (See Globe headline)

Economic numbers are really poor. Mortgage defaults are pending, real estate market sales are crashing (see below). Psychology is increasingly negative.

Major Point August: We stick with psychology. Lower rates could actually have buyers wait longer. If our banks (look at interest section) expect overnight rates to head to 2.25% … many a buyer will wait for that! Till next year?

MLA’S LATEST PRESALE REPORT

One of Vancouver’s leaders in pre-sale marketing puts out fine reports on the state of the presale industry. Find link below. The August report highlights: Uncertain market conditions and summer heat has had a cooling effect on the presale market … with the balance of power gradually shifting towards buyers. Typically, this seasonal downturn persists into September, lasting 2-3 weeks after the first day of school, at which point the market picks up in October.  

Despite the launched inventory in July being less than half of June’s (836 vs. 1,810), sales saw a relative increase, with same-month absorptions rising from 16% to 25%. This increase was primarily driven by Elijah by Whitetail Homes in Langley, which sold 45 (25%) of its 180 homes, and Level by Jayen Properties in West Coquitlam, which sold approximately 100 (56%) of its 178 homes.  

Recent statistics from July show active supply continuing to outpace demand within the market. This trend is mirrored in actively selling presale projects, where moderate sales and rising competition indicate a shrinking pool of buyers.  The situation is expected to intensify as unlaunched presale projects, planning for Fall releases, begin to advertise and list prices, adding to the already growing supply of active inventory. 

The report features units launched in June (1,810, July (836) and August (872) with 25% sold.

Major Point: Competition intensifies, buyers have more power and the hype is that 2 interest cuts will materialize and make a difference this year. We don’t necessarily agree. Look at our take on rates. It’s a  detailed good read – click here.

TROUBLE IN PARADISE?

Globe and Mail headlines Jul 25: “Just over 80% of new condo investors in Toronto are losing money on their rentals.” 

August 11: “Real estate insolvencies in Canada set to surpass levels of global financial crisis” The later Globe and Mail story states: “From January to May this year, there was an average of 20 real estate, rental or leasing insolvencies in Canada every month. Companies either sought bankruptcy protection or filed creditor proposals to make it easier for them to manage their debts under the Bankruptcy and Insolvency Act. At this pace, Canada is on track to reach about 240 real estate insolvencies this year, which would be 57-per-cent higher than 2023 and 13-per-cent higher than 2009, when a wide swath of businesses ran into problems owing to the financial crisis and global recession.

There is also a featured interview in the “Storeys” publication resulting in the interesting article “The Uptick In Court-Ordered Sales.” Read the very interesting interview on foreclosures and see a list of 14 foreclosure developer sales as of May this year.

Major Point: It remains my view that the only way to build certain wealth into old age is through owning real estate. In my 1998 book “Forget About Location, Location, Location” I told readers to look for INFLATION first and then in 2^ndposition TIMING! Timing means that the time to buy real estate is when markets are lower, owners more receptable to reduce prices and the word “stink-bid” is not a dirty word for developers. Buffet got into cash, waiting for (goodness knows what), but as in 2008/2009 he will pounce into discounted deals. Maybe a little Buffet thinking is a good bet.

NEW LANDLORD AND TENANT ACT CHANGES – ALREADY CHANGED

1. The tenant must be given all details of a buyer (The contract), when given notice. What about privacy rights of the buyer and owner?
2. The tenant must have 3 months (was 4)notice plus 21days to dispute. How do I write the offer? Must be 4 months from now. What if the tenant leaves after 2 weeks? Now the place is empty waiting for the buyer who has a contract 4 months from now.

COMMENTS, QUESTIONS, QUESTIONS

Q: Hypocrisy in governments. All premiers went to Trudeau in July and said bidding the Feds to stop meddling in provincial affairs. Then they went back home and now they are meddling in Municipal affairs. You MUST allow 4plexes on a SF lot.  S.T.
A: Haha, yes indeed. A good catch.

Q: Do you see the biggest crash in real estate ending up in the USA?
A: Commercial and multi family real estate has been under great pressure, but with falling rates (perhaps faster falling rates) there will be recovery of rental income. As far as the US indebtedness goes (Interest cost surpass the cost of the military) there are huge dangers ahead. Not only the US, but as far as residential real estate goes, US prices are downright cheap (average prices lower than even Calgary) compared to Canada/Australia and a dozen other countries. The average SF home under $450,000, condos under $250,000 etc. Compare that to Canada!

Q: Loved the Mick Jagger quote. Went to FB and there you were with him. Ozzie, We got so much in common but never met.
A: I attended the Stones last concert here. Yes, in style. Yes. Always love them. Yes, come as my guest at our September Action Group meeting!

WEALTH TAX QUESTIONS AND COMMENTS DOMINATE
HOME EQUITY TAX, CAPITAL GAINS TAX INCREASE AND RESIDENCE GAINS TAXED
Here are some of 32 emails. I also urge you to read The FRASER INSTITUTE EXCELLENT TAX ISSUES… THE FACTS AND NOTHING BUT THE FACTS.

Q: To Ozzie. Is it a tax on the actual equity in your property or the value of your property? If it is the former, how do they know how much equity I have vs debt/mortgage? Not sure how they could tax someone on a $1.2M property with 5% equity. Cannot squeeze water out of a rock. R.A.
A: No, you cannot get it out of a rock. But they can squeeze it out of taxpayers. Read below.

Q: Hi Ozzie, I am a homeowner for the past 22 years and am planning on moving to the Okanagan in a few years once I retire. With talk of the capital gain tax coming, I would be paying tax on gains over 1.2 million. How do you think the government will implement this tax. What is you advice? Would it be better to sell now to avoid the tax and buy something in the interim? I look forward to hearing from you. Thanks for your time. E.M.
A: The million-dollar question. Trudeau stated that the Liberals will not take away the Capital gains tax exemption. He also said, he has (thru CMHC) not commissioned studies on wealth taxes in general and elimination of all free or low capital gains taxes. Alas, the facts are:

In 2016 Trudeau brought in the registration of the sale of all private residences. Why? It is tax free gain, right? So, why?

Last year he brought in a capital gains tax on private residences that are sold in a year after purchase. A 100 per cent gains tax (66% – 100%). Ask yourself, how easy that would be to make it 2,3,4,10 years after purchase. And there you have the prime residence capital gains taxes exemption – eliminated. 

Now, your question is how far back will they go? Well, at least back to 2016 when properties started to be registered at CRA. Since most capital gains (50% or so) for many homeowners came after that date…hmmm?

Can they do it further retroactive? BC Liberals did it with the foreign buyers tax, against all common sense. I called it dastardly at the time. We are taxed a lot worse now.

Yes, they could. Go to Land registry – get purchase price on every property in Canada, measure total amount of gain based on median prices. All boards have them. Not Benchmark prices – don’t go far enough back. Give an annual allowance for insurance, taxes and other costs, some repairs…and grab the balance. Not saying they will. But could they? Again – read Generation Squeeze website.

Solution?

I don’t have any. Just ask yourself how long it would it take to save 1.2 million tax free? Ideally your neighbour has the same house…you buy his and he buys yours. Trigger the gains. Live happy ever after.

Q: Hi Ozzie, I’m 6x. I don’t plan to retire in the immediate future and I still want to invest in Real Estate. I currently have my primary home, a duplex in xxx , a 3-year-old Office space in xxx and 2 small warehouses in xxxx and xxx. I don’t want another residential property in BC due to the ridiculous tenancy laws. I’ve been looking in Alberta for either another duplex / multiplex or another light industrial in Alberta. Alberta is taking off fast now.  My head is spinning and I don’t know which way to turn.  I would respectfully appreciate your thoughts on this. What would your suggestion be to invest? Industrial properties are a great investment with the triple net and some of the products are declining in price. A. H.
A: You look well set up. Your thoughts are clear and logical. Alberta? Yes, but Edmonton and Calgary only.  (Note sales are down and listings also rising). Industrial? Yes. No rent control. Review feature on Alta’s taxes versus BC. Issue #96

BUT (you knew there would be a ‘but’): It is my view that if you are over 65 you should be 35% in cash. Over 75 it should be 50%. I have written in previous issues on the fact that we live 2 investment lives based on:

• The state of the markets and
• Your age and standing (retired, employed or self)
• Add to that that central banks around the world are signalling massive trouble ahead. (Can you spell Deutsche Bank, Flagstar Bank and Zion Bancorporation, Lau…?) Actually, sit down! 186 Banks are in Danger of Failing? A report posted on the Social Science Research Network found that 186 banks in the United States are at risk of failure or collapse due to rising interest rates and a high proportion of uninsured deposits. July 31, 2024.
• Major wars are pending.
• $350 trillion is owed to the world (never will be repaid).
  Buffet sold 50% of Apple and now sits on 277 billion in cash. The most cash he was in …EVER!
• So, cash is not trash.
• Note: Part of that must be easily accessible as well. Watch my video ‘cash is not trash’. Even Mr. “Cash is Trash” Ray Dalio changed his tune!

Q: Hi Ozzie,  Maybe you have already seen this petition? Perhaps next time you write the Ozbuzz, you could offer this link to your subscribers to stand up and say something about equity taxes.
https://www.taxpayer.com/petitions/no-home-equity-tax  Cheers B.

Q: Every time either with the provincial or federal governments introduce a way to increase housing it backfires. I saw this and I am in complete disbelief. Toronto down 60% compared to 2023 and Vancouver down 55%. B.R.
A: Indeed…the numbers don’t lie…

GENERAL TOPICS

Q: Every real estate company and every organization now has a new AI assistant. They offer it. I don’t want it but have no chance to delete it. There is no cancel button.
A: Agreed. I download a PDF and instead of the adobe version, my woke AI assistant wants to do it, but first I must sign in…

Q: Thanks for explaining ESG. What is DEI in companies?

A: You don’t say what it is that “you must embrace”. But talking to a friend recently, who is involved in a lawsuit, where the defendant must get to all the witnesses, the judge, the typists … everyone and get the proper pronoun (she/her/hers, he/him/his, and they/them/theirs.) that they want to be addressed by/at/. If he does not do it, the case gets thrown out of court. Understand what Jordan Peterson was fighting  for: Against a law making you do it. Only country in the western world. Well, he lost and now we have another National law we must obey.

REAL ESTATE MARKETS CHANGING

LISTINGS UP EVERYWHERE – SALES LOWER

TORONTO

Sales ARE STILL well below the 10-year average across the country.

Active listings (all things unsold at month end) are RISING THROUGHOUT Canada.

Prices marginally lower.         

Calgary: 

BIG CHANGE – sales down 16% and Active listings all up by 9%. 34 per cent higher than long-term trends for the month.

Active listings rose to 4,158 units, not a  record but the first time above 4,000 units in nearly two years.

Sales are down 10% – SF down 8 %, condos sales down 15%.

Prices still higher SF + 12% ! ($767,000), Apartments + 17% ( 344,700)

BRITISH COLUMBIA 

NOTE: TONS OF QUESTIONS ON THE MARKET … PLEASE REVIEW QUESTION SECTION

REPEAT WITH PRICES: SNAPSHOT JUNE  2024 VANCOUVER AND FRASER VALLEY
Let’s take a longer view by analyzing sales over a longer period and a “rolling total”.
We use the 12 months July 1 – July 30 the following year. Eye popper!

Major Point: Dramatic 4-year snapshot on crashing sales. HOWEVER NOTE! Prices are stable to higher thru much fewer sales…That speaks to strength of market.

Let’s keep looking at our monthly comparison to the ALL-TIME HIGHS ACHIEVED:

Vancouver and Fraser Valley JULY 2024

VANCOUVER
SF sales are ABOUT EVEN with last July but down sharply from June. Still well below the 10-year average. Here is a 4-year JULY 2024 over JULY 2023/2022/2021/ comparison. 

VANCOUVER – Single Family

FRASER VALLEY – Single Family

Major Point: Fraser Valley – SF Sales were down by 3% y-o-y, but 13% lower than June.  Condo sales down 20%! 
Note: New listings are now up 30% in condos. Active SF listings ARE up a whopping 44%! NOTE: Normal as there were fewer sales.

MAJOR, MAJOR POINT: 
The story in JULY was continued sales SLOW DOWN – and a continued INCREASE IN PRODUCT. This will continue into September.

(You’ll get Oz Buzz 2 weeks before it’s posted online)