The harbinger of Canadian Real Estate

When a university student from China offered $1.1 million for a dinky Toronto house listed at $759,000 this week, the predictable happened. It was news. The media was all over it. “Is this the harbinger of a frantic Spring market?” the Globe asked. Smiling, if amazed, realtors said yes. Buy now, or buy never.

At about the same time, a second major bank quietly told the industry it’s getting out of the high-risk mortgage business. TD will shutter its non-prime lending operation, TD Financing Services, at the end of the month. This comes as CIBC formally announced it’s selling FirstLine mortgages, which for years has been shoveling out billions to finance mostly high-ratio loans made through mortgage brokers across the country.

TD says, “To remain competitive, it would have required us to increase (that) risk profile, something we’re not prepared to do.” Of course not. More risk is more risk, especially at a time when housing has hit an unsustainable orgiastic $1.1 million-for-an-old-bung crescendo. And unlike the people banks loan money to, they ain’t stupid.

Only in retrospect will these days find context. Like when Nortel was $120 a share and pension funds could not gobble enough of it. Or when investors sunk $82 million into the IPO of Pets.com, a company which had $619,000 in revenues, spent $11.8 million on advertising and lost money on every bag of dog food. Or Bre-X. Or (soon) FB. (more)