Toronto real estate numbers are a disaster. But, relax, this is not just about The Big Smoke where reality’s now setting in with a vengeance. It’s about desire, daring and consequences.

First the numbers. On Thursday realtors confirmed what this pathetically prescient blog reported last week. A detached house in the Kingdom of 416 which fetched $1.578 million in April is now going for $1.3 million. More than a 17% decline in 90 days. The biggest monthly decline since the Bronze Age. Historic. And sales are foretelling more pain to come. The number of detached deals collapsed in July (from last July) by 48%. Overall in the GTA, home to six million lost souls, sales faded 40%. In the 905 region, land of suburban despair, accepted offers fell by half. There is not enough lipstick in the land to make this porker pucker.

What does it mean?

Clearly that the market’s cascading towards a bottom not yet in sight. As the real estate boss said when releasing the sour stats, it ain’t the result of a foreign buyer’s tax, but rather because the locals – who thought houses could never falter – are freaking out.

“A recent release from the Ontario government confirmed TREB’s own research which found that foreign buyers represented a small proportion of overall home buying activity in the GTA. Clearly, the year-over-year decline we experienced in July had more to do with psychology, with would-be home buyers on the sidelines waiting to see how market conditions evolve.”

Psychology made the market go up – FOMO, the fear of missing out. Now psychology’s created a collapse – the fear of not getting out. It’s human nature on display. We buy high. We sell low. Most people lose because they act like lemmings. Cute but moronic.

Source: Bloomberg

Rest assured, this will spread to other markets, from Halifax to Ottawa, Hamilton, London, the flat places, Victoria and YVR. There is only one direction for residential real estate over the next couple of years. It’s also likely events will become disorderly before that bottom is in sight. In fact, it’s started.

“Sold in April but made the mistake of allowing a long closing for the middle of August,” a blog dog posted yesterday. “We still have 12 more days to go and haven’t heard anything from the buyer even though lawyers from both sides are talking. Will she walk? Counting down now……..”

Deals are collapsing everywhere across southern Ontario and now in BC. The saga of Derek that’s been reported here for the last two months is a harbinger. As another poster, a paralegal in Barrie, stated: “I can tell you that closing defaults are epidemic, the domino effect is starting to show up, I would estimate that 20% of cases have already seen the respondent file bankruptcy. The courts are being overwhelmed with cases related to failed real-estate deals. It will likely take years 4-6 to complete a superior court statement of claim currently in Ontario…”

Meanwhile the BC Supreme Court has ordered a buyer who walked out on a deal to cough up $360,000 in damages – the difference between what he offered and what the property subsequently sold for after he failed to close. The original contract was for over $1.2 million but five months later the property had a market value of only $900,000. The sellers sued for the difference plus carrying costs, and won. How could it be otherwise? Defaulting on a no-conditions real estate offer is a clear breach of contract, and simply walking away from your deposit doesn’t even come close to compensating.

Given that the Lower Mainland and the Golden Horseshoe have both gone through speculative frenzies – now entering what could be a long decline – conditions are ideal for defaults, suits, damages, confrontation, tears and happy litigators. Most people buying properties worth $1 million or more are moving up from existing real estate – which they sold to someone else. All it takes is for one person in this chain to panic at having paid an excessive amount, refuse to close, and all hell breaks loose.

Equally threatening are skinny appraisals. With rapidly changing market conditions, lenders are being excessively cautious as they evaluate the amount of financing they’re willing to put on a house that lost 17% of its value in the last three months, and may lose 20% more by Thanksgiving. Many buyers are coming up short by tens (or hundreds) of thousands – unable to close deals they entered into with no financing condition.

This disorderly collapse of transactions the realtors already counted and included in their stats will shock many people in the months ahead. It is the ugly underbelly of the greed, speculation and house lust that created 30% monthly price gains. If you are a defaulting buyer or a jilted seller, understand there’s no good outcome.

This week’s market report sends a clear signal to purchasers yet to close. You’re reaching for a falling knife.