“We can’t live with my parents. They’re still living with their parents!”
“I’m a blog dog,” she said, “but I’m Italian.”
So, I replied?
“So real estate is kind of inbred with us. But still, I need you to tell me what’s going on this is completely nutso. How long can this last?”
Seems Junior went to offer on a house last night in a Toronto burb near the family home. There were 13 bidders and the scene was chaotic. Cars idling everywhere. Thick with realtors. Tense.
“The asking price for this place – just a plain bungalow – was $649,000,” she said, “and my son was ready for that because the agent told him there would be competition. So he had a good offer – $785,000 with a closing in just two weeks. No conditions. Not even an inspection. And that still wasn’t good enough.”
The property sold for $810,000. She was enraged. “How can this be allowed to happen? Who the hell is doing this to us, so we get thirteen offers on a single house? I want to know who’s responsible for creating this mess.”
You are, I said. At least your child is. And twelve other idiots.
Turns out her son is 25 years old, lives in the basement and is single. What does he need an $800,000 house for, I asked? Why would he want to do that, no matter how much he’s saved?
“Well, where else is he going to invest? Condos are too scary with all of them being built and the window problems. Plus he thought about a duplex or a triplex, but that might not be so good later on when he moves out. So, what else is there?”
Then I asked her why she’d want Junior buried in a mortgage for the juiciest part of his life, instead of being mobile, debt-free, flexible, young and quixotic. “What?” she hissed. “You mean, have him…. rent?” I felt so dirty.
Well there you have it. When 25-year-old studs think they need a bung, an epic mortgage and a horny mom to prove their manhood, we’re all in a little trouble. (I’m not sure that sentence came out quite right.) But these are the days in which we live. This is what 2.6% mortgages, a cultural obsession and rampant financial illiteracy have done. Every day the house lust and borrowing continues, at least in the two remaining property bubbles, we drift closer to a hard landing. When people think the whole range of their investment options is limited to three flavours of real estate (condo, multi-family or detached), wise people run in the opposite direction.
We’re in a mess now, with a severely weakened economy and disintegrating household finances. More and more middle class net worth is being stuffed into a single, over-inflated asset, puffed up with extreme leverage. So just imagine what’s gonna happen three weeks from today when the goofs in Ottawa drop interest rates again. Thirteen hormonal bidders could turn into thirty.
The ‘buy now or buy never’ drums are beating as big lenders drive rates to insane new lows, seeking to suck in as many clients as possible before everything changes in the months ahead. And change it will. US rates will start their ascent in 2015. Our dollar will be clobbered further. The shock waves of oil will spread. And already we have the worst job creation record in 40 years, double-digit youth unemployment, a declining savings rate, record family debt and 25-year-olds turned on by bungalows.
Instead of using history’s cheapest interest rates to trash debt, Canadians are embracing them to borrow more. It’s not how big the mortgage is that matters any more, but the size of the monthly. Scarier, a whole generation of moist millennials and genuinely numbed GenXers has now matured (sort of) in a time of runaway house prices. These little tweets think it’s normal.
So, shame on those who feed the myth. Like Vancity, the Vancouver-based mortgage sausage factory which has refined the art of giving loans to people who don’t deserve them. The latest technique is a ’report’ – which gained massive media attention on Wednesday – claiming the average YVR house will cost $2.1 million by 2030, and take 100% of household income to carry.
The title: “Downsizing the Canadian Dream: Homeownership Realities for Millennials and Beyond.” Now, do you have any doubt who it’s aimed at?
And what does the Vancity report suggest in order to ensure people in our most delusional city can continue to indenture themselves for an entire lifetime to mortgage lenders like, oh, Vancity? Financial institutions should give out mortgages which allow borrowers to add as income the money they can get from renting out bedroms, and to provide 100% financing by making loans for down payments as well as the mortgage, it says. (Vancity will already give you half the down payment, provide a mortgage for someone living in your garage or garden shed and offer financing if you and your swingles club decide to buy a property together.)
The main message here is simple. If you don’t buy now, you’re screwed.
They sure got that backwards.