Three years and eight months ago I started this blog to coincide with writing a book on the troubled future of real estate. Months later the housing market tanked. A year on, emergency interest rates in effect, it roared back. Today both prices and debt (they rose together) are middle class time bombs. I’m still at it.
While real estate’s clearly peaked and become unsalable in many areas, in others leveraged homebuyers have made out like bandits. I’ve written 887 posts, and in response to every one have been called an idiot. Or worse. So far in 2011, I have a file with 183 pages full of censored comments I dare not publish. And, of course, this blog was digitally bombed so often in the past year that it’s now hosted on another planet. I also find it necessary to travel in a convoy of plated Suburbans with lesbian Amazon guards. All of them former realtresses.
This personal trauma has left my views unchanged. There’s more danger in Canadian real estate now ever before. It no longer matters if interest rates stay artificially suppressed or not. The masses have gorged themselves on borrowed money, bid up the value of properties, and turned shelter into a speculative commodity akin to a futures contract.
As I said days ago, this will continue. Until it ends. Three years ago it could have wound down in an orderly way, like slippery Greek debt. Now, real estate-related borrowing is so overwhelming, and housing such a huge piece of the economy, there’ll be no soft landing.
So, once more: the people most at risk are (a) those with the bulk of their net worth in a single asset, their home, (b) house-rich, illiquid and pre-retirement Boomers, plus (c) infatuated property virgins suckered into real estate by dumb peers, idiot parents, cash-back mortgages, the RRSP home buyer’s plan and their own incubating hormones.
Which brings us to Katie. And then Sean.
I am ending this tumultuous week with the purposeful juxtaposition of notes I received today. One’s from a first-timer buyer anxious to know when to get in; the other from a first-time seller counting the days until he can get out.
Comment if you wish. I’m going to join the Amazons. Friday nights we clean our weapons, and sponge bath.
From Katie in the GTA:
I’ve been following your blog for a few months now, and I have been trying to apply your opinions to my personal situation. Since I’m a little fuzzy on what you would think, I thought I would just ask!
Here is my info: Late 20s, married for one year, living in parents basement, saving to buy a house,
We refuse to carry more than a 300k mortgage, and a 20% minimum downpayment is a must. In the areas we are looking (Vaughan/Aurora/Richmond Hill), this means that we would need a downpayment of about $60-$80k for a starter home. We are within range now, but the last thing we want to do is to buy something at the top of the market. We can manage another year in the basement before we will want to move into something larger and closer to work (could be another rental).
So, what to do?? Wait? For how long? We are not comfortable with the idea of renting for life, although I know that from an investment standpoint this may be the best option. We are not looking at buying a home as a brilliant investment, but we also don’t want to buy at the top. Also, if rates rise and prices go down, I feel that the money out of our pocket will not be much different anyhow.
Any advice would be appriciated, although I realize that this might be the type of thing you (rightfully) charge for. Thanks, Katie
From Sean in Vancouver:
I ran by the bank to get my closing costs for cleaning up the mortgage. The payout is 415ish with the 5k penalty. So over 7 years we have paid approx $250K in payments and took a whopping $80K of the principle. LOL.. now to be honest I did know how it works and I knew at the outset how the math works but to actually be reminded of it really made this whole process hit home, and in a good way.
It makes me think that much like cigarettes, mortgages should be packaged with images of massively indebted families and some visual representation of the balance between borrowing costs and principle. You see a box of cigs with a rotting lung or yellow teeth, and it makes you think.. do I want to do that to myself?
The existing warnings the words Credit and Cigarettes are interchangeable.
Cigarettes are addictive – Credit is addictive
Cigarettes can harm your children – Credit can harm your children
Cigarettes can harm those around you – Credit can harm those around you
They all work lol.. And in both cases the government is reliant enough on the income or economic output of both product to mostly look the other way.
Closing day cannot come fast enough.