He built two houses, a year apart. Same street, same size, similar, side-by-side. The first sold in one day for $700,000, last year. The second just sold after four months of showings, for $640,000. The city: Victoria.
Meanwhile blog dog Carlyle chronicled what happened to his house this week. One day, nine showings, two offers, sold to house-horny 20-something newlyweds. Setting a new price record for a dreary suburban slap-build. The city: Milton.
In Vancouver, multiple offers in Richmond, while new listings surge everywhere and suddenly it’s a lot harder to rent your moldy basement suite. In Edmonton and Calgary the market’s so cold realtors have their hands in their own pockets. In Toronto, sales stutter while 35 new condo buildings with 17,000 units are soon to be unleashed.
What does all this mean? Beats me. But I’ll take a stab.
In all of the country there is one constant: sales of existing homes have declined now on an annual basis for seven months. During this time variable-rate mortgage costs have stayed low and stable, while five-year money has sunk into the 3% range. Also over the last half-year, Canadian household debt has risen and unemployment has remained about the same. So it’s fair to assume incomes have also flatlined.
Is this a healthy picture? Does it set the scene for a robust balanced market once the thaw sets in?
Hardly. Sales momentum is weak, despite ideal borrowing conditions. Families have less disposable income and the economy is barely moving. And a mess of new listings is likely to wash over the market in the next eight weeks. This is a formula for unhappy sellers.
Meanwhile, the peer-to-peer evidence contained in this pathetic blog’s perverted comment section is worth noting. Sales evaporate in the bucolic curvaceousness south of Kelowna. Chalets in ritzy ski country north of Toronto go begging for buyers. Cottages and retreats outside Vancouver drop in value by half. Powers of sale surge in suburban Brampton.
But how can we have so much droop while this blog is regaled with news of an offering orgy in Milton? As expected, blame F.
That announcement which killed off 35-year mortgages is having the anticipated effect. Egged on by lenders and mortgage brokers, it seems a new squad of property virgins has rushed in to be sacrificed on the altar of stupidity. They’re madly pre-approving, shopping, offering and financing, trying to deep throat the greatest amount of debt possible before the March 18th deadline. Poor kids. Buying in haste at high prices with financing destined to cost more on assets sure to swoon. Doesn’t anyone tweet about this?
Of course there’s a precedent for this kinda thing – when government affects real estate buyer behaviour through an arbitrary deadline. When the Obama $8,000 homebuyer grant expired last summer, the housing market withered and died. It became apparent that all Washington had done was pull forward some dregs of future demand, instead of providing a much-needed spark of ignition. Besides costing billions and being unfair to existing homeowners, it actually hurt everybody. Even those who took the freebie money, and purchased, saw their equity start to decline within weeks.
Could F’s bomb have a similar effect? Could it trick enough comatose young couples into advancing their buying decisions so that April becomes the cruelest month? Combined with the spring listings gush, crappy sales momentum and debt overload, is this a game changer?
Maybe. But it’s a new game already.
Somebody should tell the kids.
Two years ago the landlord offered to sell them the house they were renting in Toronto. A steal. Four fifty. But it needed work.
So they bit. With three kids, it was easier to buy than move, even without much money. They went to Scotiabank and asked for enough to finance the deal plus the reno. The bank gave them a 125% mortgage, and they walked out for $550,000 at 4.7% for five years, on a 35-year amortization.
As usual, the renos cost too much. So they went to RBC and established a line of credit, and borrowed and spent $50,000 more. Then they sold a small property back in Cuba,, where they came from half a dozen years ago, and put that money into the house.
By the time they landed in my office, they’d spent $640,000, owed $600,000 and had a home assessed at $620,000. Realistically, it would fetch six, which means after commission a sale would leave them owing $30,000 and with a loss of $70,000.
And did I mention they earn about a hundred between them, and she’s about to lose her job? And they have nothing else but a paltry RESP and (inexplicably) three ounces of gold? And that I told them they are utterly screwed?
“But this is my home,” she protested, “and I need to feel secure, for my family.” He looked at her with loving disgust. She then said she put the odds of them getting into financial trouble, “at one per cent.” I asked him the same question. “Ninety,” he said quietly.
One of the great myths of our time is that Canadian banks are cautious, conservative, different, carrot-up-the rump, buttoned-down prudes. In reality, they’re in the business of shoveling money out the door with the same gay abandon as the First National Slots Bank in Vegas. They bribe first-time buyers with cash-back offers. They give out no-documentation mortgages, commonly known as liar loans. They’ll hand you more than 100% of the purchase price of your real estate. They target inexperienced property virgins. They fund ethically-challenged mortgage brokers who specialize in no-money-down real deals. And until the middle of March, they’ll continue to offer 35-year-long mortgages even though the government is wisely banning them (as CMHC-insurable).
In fact, Canada’s developed the same irresponsible, greed-drenched lending industry which brought down the American middle class. That should be self-evident from the numbers. We’ve never owed as much. Credit oozes everywhere. Cheap money, rapacious realtors and voracious lenders have created an entitlement society in which we get what we want decades before we earn it. If ever.
And it just kicked up a notch.
We whisk you now to Oshawa, a blue-collar burb of the godless GTA. In that town six months ago a woman named Dana joined a real estate company owned by Jason. “Bringing her outgoing and enthusiastic personality to our team she is excited to begin her hew venture in the real estate world,” said Jason’s Facebook page. “On her time off she enjoys the cottage life, socializing with friends and relaxing at home with her spouse.” But Dana also likes to get people juiced. She just fired off this email blast:
Subject: Huge Changes to Mortgages Rules That Will Certainly Effect You!
Hello,
I just wanted to let you know that there have been some major changes announced by the National Bank of Canada about new rules in regards to mortgages, these changes will surely effect you.
After March 18th, there will no longer be any mortgages available for a 35 year amortization, 30 years will be the maximum allowed. This may not seem like significant news, however, it will actually change what the average family can afford by $200 to $400 dollars per month. For example, a person who before March 18th would be approved for $200,000 dollars, after March 18th would be only afforded $178,000.
The average pre approval is only valid for 3 months so it may be a good idea to get it re done if you were originally approved several months ago, and if you have not been pre approved yet it is very important you do so soon. Also, if you are looking to purchase a home this year you may want to seriously think of taking advantage of 35 year amortization while it is still available.
This little note tells us quite a bit. Like, Dana thinks F runs a bank or something. And she assumes that “the average family” would naturally take a 35-year amortization, which makes this change “huge news.” She’s pushing first-time buyers to renew mortgage preapprovals, which would give them access to 35-year loans months after they are supposed to end. And she’s using this reform – aimed at preventing people from debticide – as a lever to push them into maximum borrowing.
I’m sure her dog loves her, but Dana needs ethics. So does Jason, her boss. Plus the mortgage brokers who support Jason’s real estate brokerage. And the major Canadian banks who provide the capital which finances the brokers’ loans.
But sadly, it’s too late to moan.
Just too many Jasons and Danas and Scotias and RBCs out there, feeding too many people with house lust but no money, to stop now. It’ll all roll along, frenzied, until it suddenly collapses.
For the 40-something couple with the big house and the big debt, I think it probably ended somewhere on the subway ride home from my office.
He reasons. She bristles. He insists. She defends. He argues. She digs in. He projects. She protects. He angers. She withdraws. He is Mars. She’s Venus. They go silent. Rendered. Done.
And it’s only a damn house.
On the market: $1,125,000
West 6th Avenue, Vancouver. MLS V841546. Hurry.
