Shortly after noon on Wednesday, if John Camara gets his way, he’ll sit down to a nice little pile of paper at his Toronto Century21 desk. He worked his contacts and prospects hard over the past few days, doing all he could to create a frenzy of greed.
“Are you interested in Buying a Home to Renovate or Flip this year?,” his email blast asked. “I have the perfect home for Investment or for a Flip. This attractive 3 bedroom semi is located in the Heart of Leslieville and is Priced to Sell!! This home is in need of extensive renovations and is a must see!! This is the perfect home for a Flip!!”
Camara isn’t selling a house, or a home. This is a commodity to toss, a pure speculative play. An ungainly pile of ancient lumber on a butt-ugly street which nobody has cared much about for half century, now suddenly a rock star listing because it smells like not only mold, but money.
Take it from John. He knows.
“This is an ideal home to make $80k in a few months. Trust me, I just did 55 Hiltz (down the street) and that was a 2 bedroom that I bought for $410K and sold for $587k with $70k in renos. That’s what’s attractive. Similar homes have been selling at an average of $585,000 renovated and one neighbor recently sold for over $700,000. There is so much potential here I had to offer this home to my network. Happy bidding!!”
Here it is, 115 Hiltz Avenue. Half a house on a lot twenty feet across, with a mutual driveway and an interior befitting its recent history as welfare accommodation. Kitchen from hell. Holes in walls. Backyard full of rubble. And god-knows-what living on the other side of the common wall. All for $415,000 which, of course, is the asking price – “significantly lower than what has been recently offered for sale.”
This is how real estate turns from shelter into a financial play, then an economic time bomb. Pity the poor Millennials or Gen Xers who will pay up to half a million (with closing costs) to own an uninhabitable structure needing fifty or a hundred more, with ninety per cent of the money borrowed. It will still be half a little house, still have a mutual driveway, still with an unusable backyard, on a street Detroit would feel comfortable moving onto.
Here’s why real estate costs more than it did a year ago, and the year before that. Cheap money and inexperienced buyers have proven to be a toxic mix. Junk housing in dodgy areas of a big city, like Leslieville, is routinely tarted up and sold to greater fools. With each value-add, debt is expanded and shelter costs swell. Suddenly a place like 115 Hiltz, built in another era as a modest home that modest people could afford is ‘worth’ $600,000. As long as the fools keep buying, the numbers keep rising. As does the risk.
It’s worth remembering there was time, not long ago, people to the south of us also believed real estate would rise without end. In 2004, a record 69.5% of Americans owned houses. Today it’s 65%, and declining. Meanwhile household debt is going down and the savings rate up – the mirror opposite of what’s happening in Canada.
Also notable is that home ownership in some of the most prosperous countries runs far below that of Canada. Just a third of the Swiss own a home, and barely more than 50% of Germans. Meanwhile Mexico and Russia are at 80%.
As American economist Robert Shiller warned this week: “We’ve learned that the risks matter. We’ve seen the consequences of encouraging people to put all their life savings in one investment. “
And that brings us to Saskatoon.
Those who waste their lives reading this pathetic blog’s comment section will know how delusional people in Saskatchewan are. A belief that a commodity-fired economic miracle will make that flat, boring, cold and buggy place the New Eden have driven house prices to unsustainable levels. In Saskatoon (population 245,000), for example, the average house is $348,000. Says real estate board boss Jason Yochim: “Year to date sales activity continues to be strongest over $450,000 with a 28% increase in sales between $500,000 and $750,000 and a 45% increase above $750,000.”
These numbers prove there are as many idiots in ‘Toon as currently roam Leslieville. And the last 24 hours prove it.
The global price-fixing cartel which controls potash prices fell apart this week when the Russians pulled out so they can sell cheap fertilizer to the Chinese. As a result, prices are in the process of cratering, which shaved 20% off the value of Saskatchewan’s Potash Corporation in one day. Job losses and a lot of gnashing to follow.
Worse, it looks like this is the end of a $15 billion mega-mine planned for south of Saskatoon by Australian giant BHP Billiton, since it’s no longer viable at lower prices. Meanwhile the potash plop has the potential to shave $300 million from Saskatchewan’s budget and cut the province’s economic growth by 50%.
Now, imagine you just bought an $800,000 house in a small, regional city in the distant flatlands whose economy is fused at the hip with potash, and was counting on fifteen billion in new spending which just poofed. Oops.
By the way, this fertilizer thing may affect even the metrosexual, Vespa-straddling, trendoid speckers and flippers of Termite City. CIBC’s economists figure it’ll have “a meaningful, if not massive impact” on Canadian growth numbers, since potash forms a big part of the country’s exports.
Oh yeah, and 23% of Potash shareholders live in Toronto. Good thing it’s different there.