No Market For Sober Thinkers

Market pricing is driven by irrational impulses when math and risk-assessment have no place in the allocation decisions being made. The present financial climate is a textbook episode where sober thinking is decried as out of step and worse.

With the masses wielding record amounts of government-backed-debt while eschewing traditional risk-checks like home inspections and historically-prudent price-to-income ratios, mania is rampant.

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For some COVID-friendly-entertainment yesterday morning, we played ‘guess the price’ driving in a radius around where we live north of Toronto.

For a base-line glimpse: in Barrie, thirty-year-old entry-level townhomes are on offer for $629k. The property shown on the left last sold in August 2016 for 260K–some 140% below the current ask. Maybe they’re pushing their luck with this price. A neighboring property sold yesterday for 585K, up 113% from its last sale at $274k in May 2016.

Not to pick on townhomes. Detached subdivision houses in the 700k to 1m range are run-of-the-mill. Twenty minutes into the countryside in any direction, sales in the 1 to 2m range are typical, often within days of listing.

According to the CREA, the national average home price in February was a record $678,091, up 25 percent from a year earlier. CREA forecasts the average price to rise a further 16.5 percent to just over $665,000 in 2021 and $679,341 in 2022–no pull-backs in sight.

In the meantime, the average annual salary for full-time employees has risen 4% since January 2019 to just over $54,630 in 2020.

The average detached home sale in the 905 area code immediately surrounding Toronto jumped 28% year over year in February to $1.3-million.

In these conditions, a $450,000 down payment and household income of 200% of the national median are no assurance of winning the abode lottery. See: A well-qualified millennial home-seeker throws up his hands after losing multiple bidding wars.

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