Pete and Joyce are near-50ish, and fairly easy to hate. They make $200,000 a year, have $800,000 in retirement savings and live in a suburban Toronto house they figure is worth $1.2 million with a dinky mortgage.
“You’ve convinced us we should consider selling to take advantage of the market top. Lucky for us, our situation is not dire,” says Pete, modestly. “Tonight someone will be viewing our house who has family living on our block and so might make an offer above the already frothy market value. Woo-hoo for us!”
“But … we’ve been looking at our options in the Toronto rental market and are very disappointed both by the quantity and quality of what’s available. We thought we’d go as high as $3500 for rent but the pickings are slim especially since we have pets (2 cats). At $5000+/month, the choices get better but paying 30%+ of our salaries just doesn’t seem prudent. Also, we’re worried we many need to move frequently if our landlords keep flipping the house we’re in. Any thoughts on the rental market? In hopes this topic is suitable blog fodder, I’ll reading faithfully as always for a response.”
Well, Pete, I guess you’re not a math teacher or a quant. Let’s figure it out. Sell the house in a private deal and walk with just over a million. Invest it wisely (you know the drill – balanced diversified, liquid) and expect an annual yield of about $75,000, which you can take as return of capital. That’s $6,200 a month, just from the house proceeds – plus you no longer have to worry about property tax, insurance or maintenance costs. And, meanwhile, you get to bank most of your salaries.
That’s enough to rent this place, or a mess of other properties in Toronto which are probably sexier than the house you live in. And you’ll be spending 0% of your salaries, while having $1.8 million in liquid assets and adding to them monthly. More reasons to dislike you.
Could you be forced to move in the future? Sure, if you’re not astute enough to negotiate a good, long-term lease. But people move frequently anyway, especially when they’re winding up careers and getting ready for retirement. Staying put is highly overrated and usually kills you faster. But I may be prejudiced.
Mostly, Pete, you’re a smart guy to get out at the top, or damn close to it.
As May pops, real estate boards across the country are rolling out stats for what’s traditionally the hottest sales-and-price period of the year. The tale the numbers currently tell (and we do not yet have data from Toronto) is (a) listings are going up, (b) prices are flat or declining in several major cities, and (c) there is no ‘real estate market’ in Canada, but rather a plethora of micro-markets where some people are depressed (Halifax) and others delusional (Calgary).
For example, consider this:
Ottawa: While everyone living there considers it bulletproof and oh-so-special, things are not going too well. April sales crashed 9.5% from the same month a year ago, with realtors blaming (what else?) the weather. Meanwhile prices have gone nowhere in the past 12 months, showing less appreciation than I get (just 0.8%), with condo values actually falling 3%. Once you factor in closing costs like land transfer tax and commission on selling, there are a lot of civil servant newbies firmly under water.
Vancouver: Sales are up 16% from last April, but that month sucked. The number of deals is running more than 5% below the 10-year average, and listings have just erupted – almost 6,000 more of them last month alone, up about 13% from March. The average property has climbed 3.5% in value over the last year, and closer to 5% for detached. If the surge in listings continues, all bets are off for more price gains.
Regina: Yikes. This was the first time all year that monthly sales crept past levels seen during a dismal 2013, and still prices are falling. The composite residential price (whatever the hell that is) dropped 1.5% from year-ago levels and straight-talkin’ prairie realtors put it this way: “This indicates that residential property values have actually declined in Regina over the past year – the decrease is evident in all housing types.” In all of the last year, the average Regina home has made less than an RBC daily chequing account.
Victoria: Listings also shooting higher – 9% over March levels. “People waiting for a large price change are going to be disappointed, because we see a steady market,” says board boss Tim Ayres. “Pricing is stable, inventory is at a good level, and we’re in balanced market territory which is good for both buyers and sellers.” But people looking for incrementally lower prices will be happy. Prices are down about 1%.
Edmonton: Even though 13 fools bought houses worth over $1 million last month, the average price of a single-family home in Edmonton fell in April. Imagine that. The cheapest mortgage rates since money was invented. The fecund Spring market. And this from head realtor Greg Steele: “The Edmonton CMA is experiencing the highest job and population growth in Canada and that should continue for the foreseeable future.” Sure. We believe you.
Calgary: Yup, listings popping here, too. Up 8% over April of last year, with sales ahead about 7%. Too bad if you can’t afford anything over $400,000, though, since the bottom end of the market is pretty much evaporating in a fog of higher prices. The ‘unadjusted single-family benchmark price’ was 9.6% higher than last Spring, and just leapt 1.2% from the previous month. Vancouver, circa 2011. With hats.
Is this the portrait of a healthy market with lots of potential for future price growth?
Don’t be coy tonight, Pete. Do it.