Juggling Dynamite

In 2021, the median Canadian home price was $531,000 and some 161% of the median Canadian household net worth ($329,000 per the latest available StatsCan data 2019). In February 2022, the average Canadian home price at $816,720 was some 145% of the average Canadian household net worth ($562,000 in 2021). Other studies estimate that real estate makes up 65% of Canadian household net worth.

A slightly higher 70% of household wealth in China is estimated to ride on real estate.

In recent years, families in both countries have been pooling resources to ‘help’ each other enter otherwise unaffordable home markets. This activity can seem reasonable when prices rise. But, it’s hard-hitting when they fall, magnified because the overall economy became co-dependent with the real estate boom now turning to bust.

Canada saw a record influx of capital from Chinese property buyers over the last decade. As commodity demand slumps with property prices, what happens in China won’t stay in China. Disgruntled masses are on the rise in many countries for similar reasons. See, Xi faces surprise revolt from Chinese homebuyers on Mortgage Boycott:

“[President Xi Jinping] now faces a surprise challenge from middle-class homeowners who are watching their family wealth slip away with a sustained slide in the property market, which makes up a fifth of China’s economic activity. Some 70% of household wealth in China is tied up in property, far more than in the US, making it one of the most sensitive political issues for the Communist Party.

For months Xi has stood firm in reining in over-leveraged Chinese developers, spurring a record wave of defaults that spooked global investors and brought at least 24 leading property companies to the brink of collapse. In the process, more than $80 billion has been wiped from its offshore bond market.

But now ordinary Chinese people are publicly revolting, with rapidly escalating boycotts on mortgage payments spread across at least 301 projects in about 91 cities. These homeowners accuse developers of failing to deliver apartments they’ve already paid for: the value of mortgages that could be affected has swelled to an estimated 2 trillion yuan ($297 billion).

“Chinese homebuyers usually pool the whole family’s resources to buy a home,” said Alfred Wu, an associate professor at the National University of Singapore’s Lee Kuan Yew School of Public Policy. “It is a life-and-death matter for them if their homes become negative assets.”

Also watch:

China may allow homeowners a grace period of mortgage payments for stalled property projects without incurring penalties. Here is a direct video link.

The story behind the OxyContin epidemic is dramatized in the Hulu mini-series Dopesick now available on Disney+. The usual suspects of greed, regulatory capture and wilful blindness all play leading roles in this ongoing tragedy. Obvious parallels with other industries and behaviour patterns make it an illuminating watch. Very well done.

From Executive Producer Danny Strong and starring and executive produced by Michael Keaton, “Dopesick” examines how one company triggered the worst drug epidemic in American history. The series takes viewers to the epicenter of America’s struggle with opioid addiction, from the boardrooms of Big Pharma, to a distressed Virginia mining community, to the hallways of the DEA.  Here is a direct video link to the trailer.

Canada’s housing market continued to weaken for the third month in June, with an average selling price of $665,850, down 18.5% from a record $816,720 in February 2022.

Sharply higher interest rates and some of the world’s most unaffordable home prices have shrunk the pool of able and willing buyers even as Canadian unemployment remains near cycle lows. The volume of home sales nationally was down 5.6% in June and nearly 25% year over year (CREA). The supply of new listings increased 4.1% from May to June. See Canadian home prices spiral down in June:

Home prices tumbled across the country, especially in the B.C. Interior and throughout Ontario, including cottage country and smaller cities, where property values had almost doubled over the first two years of the pandemic. In Ontario, the home price index for the Kawartha Lakes region fell almost 11 percent from May to June, while Woodstock-Ingersoll, Simcoe and London each lost more than 5 per cent over the same period.

The seasonally adjusted home price change nationally and in the largest cities appears in the table below. Even so, after freakish gains from June 2021 to February 2022, the average selling price last month was just -1.8% from a year ago #barelystarted. See Pace of real estate slump quickens, with sales and average prices down from last year.