So the small row house below this sentence sits on a lot 12 feet wide, with no parking on a dodgy street in a poor part of urban Toronto, and made it into the pages of the Globe and Mail this week because some idiot couple paid $113,000 over asking.
Listed for $499,000 (Hey, virgins! We’re having an auction!), it ended up selling for $612,000, which is $51,000 for each twelve inches of frontage. More revealing, it’s $267,000 more than it was worth to the last buyer (now the seller), just two years ago. In fact in one decade this property’s jumped 400% in value – and it’s still a 1,086-square-foot attached row house with no potential for expansion, development or even a Vespa parking pad.
Says agent Cameron Weir: “There’s a huge pool of buyers in the $500,000 to $650,000s … so any homes in that price point are doing extremely well.”
It’s just what this pathetic blog has been bleating on about for some months. The real estate market – at least in Toronto, Montreal and Vancouver – is segmenting fast. New condo sales have crashed (more on that in a moment), listings over seven figures are languishing and getting cheaper, while first-time buyers in the middle are utterly wired. If you want to know why the average property value in a place like the GTA has been hanging in above the half-million mark, take a look at the termite kibble above. The kids are outta control.
Why? Many believe in the same ‘buy now or buy never’ meme that swept Vancouver three years ago. Largely inexperienced buyers, fuelled by cheap mortgage money, creating a short-term self-fulfilling prophecy of escalating prices. They pay huge numbers for housing that’s essentially junk, and in so doing bury 100% of their net worth in one address on one street – often in a part of town (like this one) where the neighbours are scary.
This is a really bad idea. Especially for those who have quite a bit less than 10% to put down. Mortgages taken now at 3% will probably renew in 2018 at 6% or above, with a deleterious effect on affordability and real estate values. Will this house appreciate at 5% a year to keep pace with liquid assets, like preferred shares or equity ETFs? I bet the new owners are counting on that, since they paid 77% more than it sold for 24 months earlier.
But a 5% growth rate means this place must fetch $782,000 by the time the mortgage renews, or $805,000 with closing costs (Toronto has double land transfer tax – $23,400 in this case). The odds of that happening in an environment of creeping mortgage rates? About the same as F sending me a birthday card.
Like I said. The kids have flipped. But their Boomer moms still call them on closing day to say congratulations and tell them they’re special. That’s certainly true.
Meanwhile what’s going on in the condo market, you ask? George works in a trendoid area of DT Toronto where towers full of hipsters grow like mushrooms in the mists of a magic rain forest. “After reading about Lamb being taken to slaughter in Ottawa,” he tells us, “I thought I’d finally take a pic of some of the desperation other builders are facing in what I call a ‘condo clearance centre’.”
Here it is:
Yep, $30,000 cash-back payments on two-bedroom condo buyers. The usual 20% down for amateur investors sliced in half. Discounts of ten grand on suites. And developers paying buyers guaranteed rent for two whole years – no doubt so they can declare this as income to help qualify for a mortgage (then have the CRA nail them). As previously detailed, others are waiving monthly fees for a year or two, or giving away BMWs.
This is a market the real estate board says is balanced and affordable. In reality it’s a wealth trap of generational proportion.
Don’t be shocked at what I tell you tomorrow.