You know the market’s in trouble when houses get the same treatment as flat screen TVs. But this is exactly what desperate realtors are reduced to these days. The so-called Buyer Protection Plan is sweeping through the Vancouver real estate biz, with about a hundred agents so far signed up.
You buy a sexed-up, web-smart TV at Best Buy and then find it cheaper at Costco? No probs, says BB. We’ll refund the difference.
You’re scared to buy a million-dollar fixer-upper in a Van hood because houses are falling? No worries, say the realtors. We’ll protect you. Sort of.
The bold idea: if the house you buy today is worth less in a year (almost a 100% certainty in most of the Lower Mainland) then up to 5% of the purchase price is refunded. For this to happen you need (a) a realtor offering the plan, (b) a seller willing to put 5% of the purchase price into a trust account for a full year and pay a lawyer to do so, (d) a premium payment of $299 and (c) statistical evidence of a price drop – not in the value of that house, but in average prices as determined by the real estate board.
So, it’s useless. Every house is unique. A buyer might only benefit if the home were appraised independently in a year, but that could easily (and legally) be challenged by the seller before funds were handed over. And a limit of five per cent? Pshaw. If I were buying in Van these days I’d want something closer to 20% – and no buyer alive is going to put $300,000 into a non-performing trust account upon unloading a $1.5 million house.
But the Buyer Protection Plan does serve one useful purpose. It screams loud and clear: Buyers beware! This market blows!
Despite assertions to the contrary, Canadian real estate is on exactly the path I anticipated. Sales have dropped 15% nationally and the traditional April rebound has been limp. In Toronto new condo sales have collapsed 55% and construction has fallen 73%. Now we have the latest numbers on how homebuilders are doing across the country. Not good.
Housing starts were 25% lower last month than the same time a year ago, even though mortgage rates are a tad lower. No surprise that condos led the decline, or that Ontario and BC are wobbling the most. The massive overbuilding which has gone on for the past decade, paving over all that useless farmland around major cities, is coming to an abrupt end. So now we have to worry about jobs.
In a few days we’ll get the latest employment numbers. The last ones were, as economist Doug Porter put it, “about as ugly as it gets.” But there’s more ugly to come. Our house horniness has allowed a huge whack of the economy to become dependent on real estate – sales, construction and financing. The Canadian unemployment rate, at 7.2%, is now just hair under that of the US, which has been falling steadily. As the Yanks found out four years ago, people worried about their jobs don’t buy houses.
The mortgage brokers’ association economist (Will Dunning) has already gone on record as forecasting 190,000 jobs will be lost in that business alone, thanks to the F-induced housing meltdown. Add to that all those guys who spent the last decade drawing overtime pay erecting towers full of little concrete boxes.
In the condo epicentre, the godless GTA, construction crumbled 8% just from March to April. Last spring there were 4,716 new starts, and last month only 1,259. How can you call a 70% erosion anything other than a crash?
Says Dunning: “We’re going to see a significant impact as housing starts continue to move downward.”
Says BMO economist Sal Guatieri: “Housing has been a tailwind for the Canadian economy for most of the past decade, now it’s becoming a headwind.”
None of this should surprise you, yet try getting your mother-in-law to understand why you rent, or explaining to the boys at work why you’re selling your house. Most people remain in a fog. When it lifts, too late.
I spoke today with an air force officer being redeployed to Ottawa. It took him and his wife a full year to sell their house close to the last posting in southern Ontario. They dropped a bundle. “Never again,” he said (even though the government picks up the tab for any real estate losses). “When guys ask me now where in the city we bought, I just tell ‘em the area. I’m not going to argue about leasing.” Real soldiers don’t rent. Or admit it.
You want a buyer protection plan? Keep reading this pathetic blog. Woof.