The tide is turning in Toronto. Looks like Vancouver may be the last place to get it. And it’ll probably get it good.

Housing affordability is now shot to hell. People buying in this environment might as well join the Libyan army. They’re fried. Any doubt of that within the largest housing market in the country was erased this week as the latest stats emerged.

In the first half of April, sales were down again (albeit by a small slide) for the tenth straight month. But prices have erupted – ahead an unsustainable 12% in a year, while new listings tumble by a withering 21%. The result: the average detached house in 416 now sells for $772,721, an increase of 15%, while the average shoebox-in-the-sky is up 10% at $356,500.

So why do I say the tide’s turning when prices are ripping?

Fewer buyers are chasing even fewer sellers. No matter how you spin this, it’s not a healthy or robust market.

The average SFH in Toronto is now valued at 8 times the average household income of $93,040. The US market collapsed at 4.6 times.

Interest rates will be rising soon – May 31st likely, July 19th for sure. This will mark the beginning of the end of emergency interest rates – the only reason housing’s alive.

It’s finally dawning on even the media that there’s no more money to be made buying a house. Real men now rent. Patiently.

Incomes are stalled and job creation sucks. Higher house prices don’t mean more money floating around, just more debt.

Tactics like the ‘bully offer’ are now common – a buyer making an instant offer for far above the listing price, good only for two or three hours. Designed for shock and awe.

A YoY price hike of 12-15% on lower YoY sales should remind us how irrational and horny houses can make people.

And what of that plunge in listings? Typical of a market top – when owners balk at selling for fear they’ll be priced out. Irrational. But so was selling your stocks and mutual funds in crisis in March of 2009 – and most people did just that.

Factoring in closing fees on the average home, and even with still-cheap loan rates, the occupancy cost of ownership is now double that of renting similar digs. And that holds true not just for Toronto, also for those oily Alberta cities and the nutbars in Vancouver.

On a day when the debt of the USA, our benefactor and the reason we’ve all had a nice life, was downgraded, the Toronto Real Estate Board said, “Positive economic news has kept households confident in their ability to purchase and pay for a home over the long term.”

See what I mean? Totally screwed.

What positive news would that be? We lost jobs last month. The dollar’s rendered us uncompetitive. Gas prices are sucking off twelve billion a year from consumers. Household debt now surpasses that of the Yanks. The stimulus money will end soon after May 2nd. Supermarket chicken costs more than steak used to. And has a factory opened in your town lately?

Add in even slightly higher mortgage rates, and the people who bought houses in April could look like the greatest fools of a generation. They may well have a future of capital losses ahead of them, which brings me to Jimmy, from Markham.

Yeah, I know. It may seem like an extreme case. But only in retrospect. Jimmy writes:

I’m just down in Florida now visiting my daughter. We were discussing her financial situation last night and I told her I would run the numbers by you and see if you had any insight. My daughter and her husband are thirtyish with two kids. Combined they make about 95k per year.

They bought their first house here in 2000 for around 90k. The boom started and they drank the Kool aid in 2006. They found there dream house and found a lender to front them the money for a down payment. Now they own two houses, one a rental property.

The rental property now has a market value of around 50k. It needs some renovation soon. There is a first mortgage on it owing 86k at 7% with 21 years left on it. There is a second debt on it a HELOC actually in the amount of 71K which was used to buy the present dream home.

The home they now live in and purchased for around $275,000 has a market value of about $100,000. The first mortgage is about $240,000. It’s 30 years with 26 years left. Interest rate is 6%. Most of their friends and relatives that also drank the Kool aid have declared bankruptcy and are in recovery mode I guess.

The husband is emotional and isn’t keen on defaulting on their debts. Daughter is looking out for Number 1. Garth, any comments or recommendations would be appreciated.

Jingle mail, Jimmy. Tell them to walk.

Now come home, and tell us it can’t happen here.