Satinder and her BF got seriously jazzed about a house one month ago. “We sat down with a mortgage broker and found a great realtor in our desired area and felt really good about finding our dream home within weeks,” she says. “We saw 6 houses within the first 24 hours of meeting our RE, but 4 weeks, 12 house viewings, and a bag of mixed feelings later, we are no further ahead, just more confused! Reading your blog almost leads me to think renting is the way forward, while waiting out this tumultuous time of high house prices, low (and unsustainable) mortgage rates, bidding wars, and broken hearts.”
Almost, but not quite.
The two of them make $130,000 combined, one working in Toronto and the other in Mississauga. Enough, says their bank, for a mortgage of $750,000. Add in their savings and RSPs of (together) $150,000, and they ‘qualify’ to purchase a $1 million house. Not married. Not common law. Not old. But qualified.
And what did they do? Immediately got into a bidding war.
Kiddies with fat pre-approved bank mortgages have played a big role in pumping the country’s housing market, making it more dangerous by the month. Changes in lending regs touted by F have had little impact, and are even fueling a growing subprime mortgage industry in Canada. It’s now estimated that $85 billion worth of lending is done to people less creditworthy than Satinder and her man – with companies like Home Capital and Counsel catering to those who can’t prove their income, just immigrated, or murdered their credit rating.
The results are easy to see. In Vancouver, for example, house prices were pushed to the extreme. The trip back down has already begun. Last month the average price dropped 3% in four weeks, and when adjusted for seasonal fluctuations, values have plopped 11% – or about a hundred grand. Sales are off a withering 29%. But this is nothing when compared to what’s happening on Vancouver Island, where 2012 is going from bad to oh-my-gawd.
In fact, horny young things in the GTA would do well to look west for a little lesson in what comes next. From hip condos in Yaletown to the wrinkle ranches of the Okanagan, real estate is losing altitude fast. As one of the pointy-head smart guys at TD Securities wrote to clients this week: “There is a sense that the housing market is gradually slowing.” Referring to new CREA numbers showing a decline in the national average he said, “The dynamics of this report show a maturation of the housing market cycle in Vancouver which is likely to be repeated in Toronto over the coming year.”
You betcha. And what does a “maturation of the housing cycle” mean? Just what you think – a peak in prices, sales and hormones, resulting in the accumulation of massive piles of debt and buyer fatigue. Throw in a soupcon of economic slowdown, $1.50 gas and a gentle bump in rates, and what’s happening in Van starts sprouting in, say, Brampton.
But we’re not there yet. GTA prices continue to get squeezed higher in bidding wars and by a tsunami of cheap bank-sourced money. Last night a mid-town Toronto pied-a-terre bung which the listing agent warned was only “suitable for single person, adult couple or single parent with an older child” because of its dwarfiness sold for $1.3 million. At only fifty grand over asking, it was notable as a sweet deal.
As I said some weeks ago, this ain’t over. A low level of listings and elevated estrogen in the GTA promises more risk within the market, especially as these bidding wars thrub up masculine competition. It’s a perfect storm – scant inventory, cheap money, pliant bankers, unethical realtors, greedy vendors and idiots in sufficient quantity.
But back to Satinder and hulk. The good news is they laughed off the $750,000 their bank thrust upon them, and started looking in the $500,000 range (where houses come with training wheels). Then they came across just what every horny young couple looking for a small starter home dreams about: an HGTV Special.
“I mean, everything was immaculate from the fancy (and expensive) built-ins, a pie-shaped lot with pool, custom deck and built-in hot tub, beautifully landscaping, upgraded cabinets, marble counter tops, high-end window coverings, model home furnishings and newly renovated bathrooms. So, our desire for perfection got the better of us and we put an offer on this $498,000 detached single-family home. The most expensive house in the area sold for $535,00 last September and was our only “real” comparable. So, what did we do? We put in an offer of $535,000. We were 1 of 12 and didn’t even come in the top 3. The house sold for $575,000 to buyers who overpaid…big time! They can take the prize for having bought the most expensive house on the block. Oh wait, that would be in the entire neighbourhood!”
See what cheap, plentiful money does? Everybody on the street just grew $40,000 in equity. I sure hope they spend it.