The descent into media hell continues. Not long ago the nation’s biggest paper, the Toronto Star, announced a 65% plunge in profits. Ad revenues for the paper are down 11%, one good reason that copyeditors – at the very heart of editorial accuracy – are being outsourced. It’s enough to make you wonder how newspapers will survive./
But now we know.
You take a strong brand, a history of crusading for the little guy’s issues, plus 121 years of independent journalism, and sell it out to advertisers. Like the Royal Bank.
This week The Star published the page below on how buying a condo earns you $420,000 while renting one costs $480,000. Seriously. It’s right there in the paper. Must be true.
It’s hard to know how to respond. If this were an ad for RBC Mortgages, well, we’d just snicker and ignore it. But instead it was clearly written by RBC, then run as editorial. Despite a line saying ‘sponsored section’ (aren’t they all?) the expectation of readers is that ads are different from stories. Or, in this case, fact-filled graphics. But that’s the point. This is why RBC whored the Star. It gets an ad that looks like it isn’t.
But you know all that. There are few touchstones of truth left. Everybody has a price. Especially when your profits just fell by two-thirds.
Well, in case your impressionable 27-year-old, basement-dwelling, failed-to-launch kid read this and already has a tryst planned with the irresistible RBC loans lady, you might want to clarify a few things. Like, why would we compare buying one-bedroom condo in the burbs (selling for $240,000) with renting a downtown pad (for $1,600) that’s probably worth $400,000?
Of course! It makes renting look worse. In fact a one-bedroom condo in a hood where condos sell in that price range would rent for $1,000. But what’s a 37% discrepancy when you have loans to sell?
As for the carrying cost of the condo bought for $240,000 with 20% down, the piece fails to factor in the lost earning power of the almost-$60,000 pumped into the deal at closing. Once that is added (about $4,000 a year, at 7%), the true carrying cost of owning is almost double that of renting. Ouch.
But wait! Look at ‘The Payoff’ – the owner gets $420,000 in estimated equity after 25 years while the renter gets zero, and has paid $480,000 in rent. How could this be a more open-and-shut case for home ownership?
First, nobody lives in a one-bedroom condo in suburbia for a quarter century. It is medically impossible. Second, this example is based on 25 years of five-year closed mortgage rates of 3.5%, which is absurd. In 2018 this will look quaint. Like we now think of pet rocks, or Mike Duffy. (BTW, notice how no mention is made of mortgage rates changes while there’s a warning about ‘rent increases.’ Classy.)
As for eternal appreciation in the value of a condo, this is a joke when high-rise markets in Toronto, Montreal and Vancouver are showing negative sales and wobbling prices. An excess of supply over demand, shoddy construction and mortgage changes that weed out moneyless buyers suggests condos could be in for a long, painful slide. And then there are the massive transaction costs of selling real estate to consider, potential illiquidity during downturns and the unexpected ‘special assessments’ that can come when living in an aging structure you don’t control.
Who’s this crap aimed at? Right. Impressionable, unsophisticated financial illiterates.
In the pages of The Star, they are at home.