On one side of a glossy white sheet is the headline, “Is the condo market headed for a correction?” On the other, the pitch, “Get expert advice and protect your investment. Call Craig Emond.”
That mailer was mass-delivered to thousands of condos in central Toronto by a guy many believe is a marketing genius when it comes to getting virgins to buy concrete boxes. In fact, Egmond boasts that he’s flogged over 1,000 condos over the past decade which, when you figure it out, is two deals a week. This is to condominiums what Justin Bieber is to puberty.
Craig’s done TV, too. Five years ago he blazed in an episode of Brad Lamb’s star-crossed HGTV epic series “Big City Broker,” when flogging for the condo king. (“Story line: Meanwhile, sales rep Craig Emond is finally about to move out of the shoebox condo he’s been sharing with his wife Susan and into a 2500-square-foot, one-of-a-kind apartment.’)
His specialty? Finding “value properties that have consistently made phenomenal profits for his clients.” In other words, Mr. Emond likes speculation and sees real estate not so much as shelter as a tradable commodity. Which is fine, and makes more sense than filling your garage with silver bars. But it’s telling that the master of marketing – now vp of Model Suites Realty – has now decided that fear sells. It can sure get his phone ringing with potential listings, from former virgins now freaked that their gossamer threads of equity are about to be snapped.
Fear’s in, actually.
After three long years of insatiable greed – fed by cheap mortgage rates, shameless bankers and herd instinct – people are scared again. Of course most Canadians were always terrified by the stock market (unless tasty little bits of it were sold off, disguised as mutual funds) but this is deeper. Real estate has been the forever fall-back position, so when news gathers than a correction might occur, it’s life-altering. Especially if that’s where all your money is.
Nobody is more exposed to this than young, recent buyers of downtown condos in any major city. Overwhelmingly they are first-timers who used extreme leverage and have average equity of less than 5%. None of them bought with the slightest thought the value of their units would do anything but increase. This is because everybody misled them. The real estate brokers and agents, the developer and salesperson, the mortgage lady at the bank and their parents.
Thousands are about to have a horrible experience, and many are waking to that fact. And while selling into a falling market when you have no virtually no equity guarantees big losses, this is what humans do. They get blinded and buy things at their most expensive, then panic and dump them when they fall. Mr. Emond doubtlessly knows that. Fear sells.
Meanwhile in the troubled West, some of my recent words have not gone down well. A media column this week referenced my belief Vancouver prices could fall by 40% before they hit bottom a year or three from now, then spelled out the consequences. Local developer, consultant, newspaper columnist and builder Michael Geller, who thinks 40% is impossible, said, “if we had a 20% drop in home prices, a lot of people would suddenly be under water. In other words, they would owe more on their house or condo than it’s worth.”
Geller also lays on the fear, saying a house price plunge of even half my recommended dosage would trounce consumer spending, cutting sales of cars and clothing and killing off the home reno business. And how about those poor retirees in their million-dollar houses?
“Then there is the real issue of people planning on using the equity in their home to help them in their retirement years. A one million dollar home on Vancouver’s eastside that suddenly plummets to $600 or $800K would have a huge impact on the future income of retirees. This would likely delay the retirement plans of thousands of Vancouverites whilst reducing the number of job openings and promotion opportunities for younger workers.”
Yes, those same young people who have been goaded into $400,000 condos with nothing down or are permanently shut out of the housing market. And here’s some even worse logic: “As we’ve seen in many American cities, housing may have suddenly become affordable, but that has been accompanied by a declining economy. Regardless of whom you believe, one thing is abundantly clear. If Turner’s predictions are correct, there will be plenty of negative fallout for both homeowners and prospective purchasers alike. We should therefore be careful what we wish for!”
Of course, it is possible to have a healthy city where houses don’t cost seven figures. Where families are not required to spend 70% of their income on shelter. Where debt’s actually paid off, so people have money to buy cars and save for retirement. Where you don’t need others living in your basement. Where kids aren’t taught that being adult means being mortgaged. And where rock star realtors don’t traffic in doubt.
I think we have lost our way.