'The prices went up $50,000 last night...' ...and here's why we all should care.
Does Garth Turner hate Toronto? Or just realtors? was the intriguing title of an article by a realtor (who else?) which a blog dog sent me yesterday. The reference was to the Saturday posting here on a condo called River City and its park-under-a-soggy-expressway-ramp concept. Oh yeah, and the 349-square-foot unit sans bedroom or closet, selling for $180K. Oh yeah, and the fact itâ€™ll sit on toxic industrial land in a part of Toronto that is uninhabited for a reason. In any case, you can read here why I don`t know from nothing.
The sad truth of all this is that I hate neither T.O. nor realtors. But I sure don`t like what I`m seeing.
Young buyers tumbling into a mortgage to live in a broom closet beside a highway ramp with zero resale value shows me people are truly confused. The kids who would do such a thing, instead of maintaining their freedom and renting an actual liveable space. The realtors who defend this as some kind of worthy investment. The developers who would, in a country mostly devoid of people, design homes reminiscent of a Tokyo subway car.
But that`s just the start. I`m troubled by more. By this:
- This morning the government unveiled numbers showing the recession is over. But it isn`t.
Third-quarter economic growth was tiny â€“ less than one half of one per cent – but that will be welcomed as evidence the worst is behind us after almost a year of negative growth. Trouble is, the one bright spot the feds point to as the engine of that growth is housing. The only reason real estate is hot â€“ a bubble, actually â€“ is due to the emergency interest rates still in effect. If mortgage rates were at market levels, thereâ€™d be no housing boom, no GDP growth and no charade.
In fact, taking any solace from what`s happening in the housing market is a game-changing mistake. The toxic condos above are one example. Here`s another…
- People camped out in downtown Vancouver over the weekend to be the first into the sales centre for â€˜The Markâ€™ condominiums. This 40-storey building will not be erected for three years, and probably never.
But the worrisome aspect is not that 460-square-foot units were being snapped up for $324,000 â€“ a staggering $704 a foot in a regional Canadian city of 600,000 people â€“ or even that some prices were increased by $50,000 the night before units went on sale. The biggest worry is not that idiot buyers were slapping money down for what was basically a futures contract with a bizarre 40-month delivery date.
Instead it was that the frenzy over The Mark, like the lottery for River City and the elbow-throwing condofest in Toronto last week, all show weâ€™re now in the final stages of a boom which will not survive thanks to one thing: speculation. Read these few lines from the Vancouver Provinceâ€™s report:
“I’m here because they are selling Yaletown at today’s prices, but the speculation is [that] prices will go up after the Olympics,” (one buyer) said.
Steve Dhana was amazed by speculator interest as he watched investors rushing to place bids on units. “The prices went up $50,000 last night,” Dhana said. He hoped to buy a unit in the $500,000 price-range, and also expected prices to surge in February 2010.
First we had greed over a rising asset. Then delusion it would rise forever. Then fear non-buyers will be priced out for good. Then herd panic. Now rank speculation. I have seen this movie before â€“ Nortel, Bre-X, dot-coms and real estate. I know the ending.
- Lastly, I hope many of you read the Globeâ€™s piece on debt over the weekend.
As Iâ€™ve been harping here for months, thereâ€™s nothing that will affect your future more than what governments are doing now. Thereâ€™s a tax storm coming, which is why Iâ€™m devoting a hunk of my new book to aggressive tax avoidance. Thereâ€™s now zero chance we will be growing our way out of this mess. Look at the debt levels below, then realize the Boomers havenâ€™t even started blowing their pensions-and-health-care hole in public finances yet.
There are effective strategies to weather this storm.
Buying a concrete box ainâ€™t one of them.