Last post, I told you about Roberta and Johnny. They have an investment house which is anything but. The value’s plunged by a third in the last three years, and since languishing on the market for a few months, it’s attracted one offer. Lots of hair – major conditions, long closing and weensy deposit. But like my mama always said, an offer in the bush is better than two hands. Or something like that.
Anyway, R&J made a counter-offer yesterday, getting tough. They did this after learning why the deposit was skinny – that’s all the buyer could get on her credit card. Meanwhile the couple’s taking some heat from neighbours for considering an offer a hundred grand less than they think their (identical) units are worth, while down the street new towns are being flogged in a receivership sale.
This is a small vignette of what happens when a market turns. Vultching buyers. Squeezed sellers. Delusional owners. It’s the prelude to an area turning into a frosty little northern version of Phoenix.
So where is this?
A lot of visitors made a guess in the last few hours, but only four got it right. The location is in (formerly) bubblicious BC, a mere 70 km from downtown Vancouver. And if you think what’s happening here ain’t on its way down the Sea to Sky highway as my half-naked Amazonian EA types this, your last name must be ReMax.
The place is Squamish. The posters who got it right were T.N., Q, Bailing in BC and Fred (the last one is obviously a pseudonym). I promised you a lovingly-autographed book, and it’s on the way as soon as you send me an email with your postal address (email@example.com).
Now, let’s do Assad. But we’ll be gentle. He’s an immigrant in Toronto.
I am newcomer to Canada , have a job that pays around 80K, no additional income, family of four ( two kids), saved almost 20-25k (in one year), no RRSP, no RESP. I want to buy a house, however , cannot make 20-25 % down (so consider CHMC), some people say housing market will see a correction by 20% by the end of next year . However some people speculate that even though the housing market sees correction the mortgage rates will go up and one way or the other you will end up paying the same amount over a period of 30 yrs.
I needed advice as to what should be the modus operandi for a buying a house in such a volatile market. Should I wait? I will really appreciate your advice and response, will help me ease my dilemma and focus my mind.
First, Assad deserves a special place on the GreaterFool wall of fame for supporting four people and saving $20,000 in a year on a salary of eighty grand. You would not believe the number of couples I talk to in a week who make twice that, save nothing, and have no clue where it went. They think you go to a financial advisor to get some finances.
But, as smart as this dude is, he’s seriously flirting with disaster.
Hell, even the Toronto Star, which never met a Royal LePage cheque it didn’t like, ran a story this week headlined, “Alarm bells sound over our house prices.”And buried in it was this little gem from my old economist buddy Benny Tal:
“I think the (Canadian) housing boom is over,” says Benjamin Tal, deputy chief economist at CIBC World Markets Inc. who agrees that Canada’s housing sector is “overshooting.” “The only question now is how do we correct? I think the most likely scenario is that the housing market will stagnate over the next three to four years until prices fall back in line.”
Of course, this comes on the heels of The Economist magazine’s prediction Canadian real estate is 25% too pricey, and the fools who live here now have more housing debt than those dumb pre-crash subprimate Americans. Also this week the Royal Bank said it takes over 50% of pre-tax income to afford a house in the GTA even if you have 25% to put down – which means Assad would end up buried in borrowing and feeding his family shrubs.
All this, plus a lousy jobs picture and stagnant household income, suggests whatever’s in the water in Squamish will probably end up in Lake Ontario. House prices are too high for first-time buyers. There are way too many speckers and flippers. And despite the explosive rally on stock markets on Wednesday (I told you not to bet against America) we’re into several years of tepid growth and structural unemployment.
That means, Assad, real estate values will be falling even if interest rates are not rising. It will not take one to get the other, a simple fact lost on too many people who come to this pathetic blog. Of course, when the economy improves and rates do rise, that increase will be enough to stall out any real estate recovery from the weak years at hand. Hence, a lost decade for anyone dumb enough to buy a condo now at pre-construction prices for delivery in 2013.
In fact, the best of both worlds is likely ahead for buyers. Desperate sellers dropping prices, plus cheap money. This, by the way, is exactly the situation in the US at the moment. Mortgage rates are at historic lows (get 4% locked in for 30 years), yet prices are falling monthly. In fact, Vegas, Atlanta and Phoenix have just hit new all-time lows – a full five years after housing started to burst. All three were real estate superstars in 2005. Like Toronto is now. And Vancouver.
Assad, baby. Have you considered Squamish?