The World’s Worst Market-Timer

Today’s post is about the recent Canadian government measures to cool the scorching Toronto housing bubble, but the lesson about government ineptitude will be universal, and I am confident, shared by everyone.
By now, most non-Canadians have heard of Toronto’s out of control housing market, but probably won’t know too much about the specifics. I tried to think up a good way to show the magnitude of the rise, so I made up a chart comparing Toronto’s house index to another housing market widely known to be insane. Fueled by the latest tech boom, San Francisco has experienced a breathtakingly stupid price rise over the past few years.
Well, here are the two cities side by side:
Yup, Toronto housing price appreciation has even outpaced San Francisco! It’s a gong show here in Toronto, no doubt about it.
Last year when Vancouver was facing the same sort of runaway price rise, their government instituted a 15% foreign buyers tax. Like true bureaucrats, they did not think about grandfathering in existing sales that had not yet settled, and instead slapped an out of the blue tax on foreign capital. Not surprisingly, foreigners decided there might be better places to invest than Vancouver.
Many of them came to Toronto.
I am not claiming foreigners are the culprit for Toronto’s out of control rising housing market. I actually think absurdly low interest rates, combined with unscrupulous dealings from companies like Home Capital Group, are more to blame. But Vancouver’s decision definitely sent more money scuttling to Toronto, at a time when supply was already tight. This extra demand sent prices soaring.
Yet this price increase happened in a vacuum. There was so little supply in the winter season that bidders took prices to absurd levels. It’s like when a stock bursts out to new highs and all the stops run in a sickening whoosh.

This post was published at Zero Hedge on Apr 21, 2017.