BY MICHAEL SASGES, CANWEST NEWS SERVICEJUNE 9, 2009

Right now the topic of real estate is right up there with religion and politics: just don’t go there with extended family and co-workers.

- A comment on the Greater Fool website

The elevation of real estate to another faith-based topic best not discussed in good company was probably inevitable, if an American scholar of investor behaviour is right.

The scholar’s name is Robert Shiller. A couple of years ago he circulated a paper that says property buyers and sellers in the first years of this decade shared a certainty about the inevitability of price appreciation supported by neither evidence nor experience and, further, they shared that certainty in unprecedented numbers.

“While home-price booms have been known for centuries, the recent boom is unique in its pervasiveness,” the Yale University professor of economics and finance wrote.

“Dramatic home-price booms have been in evidence since the late 1990s in Australia, Canada, China, France, India, Ireland, Italy, Korea, Russia, Spain, the United Kingdom and the United States, among other countries.

“There appears to be no prior example of such dramatic booms occurring in so many places at the same time.”

Shiller is the developer, with Karl Case, of a widely circulated index of American real estate values.

The “Case Shiller” index’s inaugural value was 100, established for January 2000. Its highest value was 206.5, reached in July, 2006. Its lowest value, 140, is also its current value.

The index, among many, many matters, records 78 months of increasing American prices followed by 32 months of decreasing prices. On the way up the average monthly change in the index was almost 1.4 per cent; on the way down, almost 1.9 per cent.

No “fundamentals” – monetary policy, for example – drove international real estate prices up, Shiller says.

Instead, “extravagant expectations for future price increases” lifted them, an extravagance he attributes to an apprehension that “a new era of capitalism . . . is producing phenomenal economic growth, and . . . both extreme winners and unfortunate losers.”

Further, “fundamentals” will not reverse, by themselves, “large real-price declines extending over many years in major cities that have seen large increases.”

Shiller doesn’t say a change in certainties is required, but it clearly is, from faith based to experience informed.

A germane Canadian experience might be our immigrant experience: we are a nation of immigrants, arriving and settling in the millions over the 400 years since the founding of Canada’s first permanent settlement, Quebec City.

A document on the Canada Mortgage and Housing Corporation website, Pro-Home: A Progressive, Planned Approach to Affordable Home Ownership, is the inspiration for the possibility that in our immigrant past is a home-ownership experience of valuable currency.

“In the first half of the 1900s lower-income, immigrant families developed large portions of older Canadian cities using their own, and in some cases their neighbours’, labour and capital.

“Subdivided park and farm lots were developed unevenly, without any overall plan, but this approach provided affordable homes for many working-class families.

“According to some estimates, as much as 25 per cent of housing built in Toronto between 1900 and 1913 was self-built.”

Not the particulars, the owner-built house, attract in this immigrant achievement.

The ethic attracts, the identification by ordinary people of a need and of a means of acquiring it. These homes were “incremental . . . affordable . . . and flexible,” to appropriate the language the study uses in championing “incremental housing” as a possible solution to the affordability challenges endured today by low-income families.

The homes were incremental because their owners expanded or altered them as household circumstances changed. They were flexible because they could be built by property owner or contractor and could be built to include “an accessory unit . . . as a source of income.” And they were affordable, to start and expand and alter.

The last quality is their most important today. They were affordable because their owners considered them “as a process rather than a product” or as a means rather than end, a means of mastering household circumstances over the years and the decades, good and bad, additions and subtractions.

This mastery was, and is, an achievement of profound value, with dividends that will speak to us today if we would only listen, and learn.

Vancouver Sun

Lots of people have been stopping me in the hallways of the Globe to talk about the Ontario government budget and the impact that the new harmonized sales tax will have on buying and selling houses.

The budget confirms the plan by Dalton McGuinty’s government to harmonize the 8-per-cent provincial sales tax with the 5-per-cent federal goods and services tax.

The new blended sales tax will add a tax burden to many household goods that are currently not subject to provincial sales tax, including the purchase of new homes above $400,000 and the closing costs on the sale of existing houses.

Just yesterday my colleague Clare Jordan was thinking about putting her smallish house on the market and looking around for something bigger now that she’s found out how much ground two-year-old boys can cover.

Today she’s not so sure.

In any already struggling market, will her house be that much harder to sell with more taxes piled on? And will anything she buys become less affordable?

Because Jordan would be selling an existing house, the tax hit would apply only to the closing costs, including the realtor fees that she and the purchaser pay. Then there are the legal services, title insurance and home inspections that the purchaser typically forks out for. These costs are not currently subject to provincial sales taxes.

Taking the example of a $360,000 house, the Toronto Real Estate Board estimates that will add $2,037 to the purchase.

When she buys another property, she would pay the tax on the closing costs as well.

The equation changes dramatically, however, if she purchases a new house that costs more than $400,000 because in that case the purchase price will be subject to the harmonized tax.

Not surprisingly, TREB is unhappy with the change.

“Obviously it’s not good,” was the first reaction of TREB spokesman Von Palmer.

“We’re shocked because we’re still reeling from the land transfer tax,” he says.

Von Palmer points out that home buyers in Toronto are often already paying $4,000 to Toronto and another $4,000 to the province for the land transfer tax.

The harmonized tax does not affect new houses under $400,000: Under that ceiling, the status quo remains, Von Palmer says.

While the issue affects real estate across the province, Toronto’s housing market will feel it more because house prices are higher, on average, he points out.

He says realtors were finally seeing some signs of hope in the city’s property trade after months of sliding sales and price declines.

In the budget, newly built homes that cost more than $400,000 will be hit with higher taxes – ranging from $12,000 to $46,676 in Toronto, according to one study – while the federal government has agreed to drop the GST for those under that threshold.

There’s a sliding scale upwards from there, with houses above $500,000 subject to the full 13 per cent combined tax.

TREB is working with the Ontario Real Estate Association to voice the displeasure of their constituency – real estate agents – to the province.

What about homeowners and prospective buyers? Does anyone care to weigh in?

Will this discourage you from buying or selling real estate or alter your budget?

Please post a comment or send an e-mail to cireland@globeandmail.com and I’ll pass on the results.