Gen F

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The cheapest house for sale in Vancouver ($599,000 on half a lot in a crappy location) just sold for $40,000 over asking. To a kid, of course.

In Toronto, agents swear the moribund condo market is resuscitating, even as a gush of new units hits. Realtor David Fleming is described in the Globe: ‘He adds that he’s never had this many active condo buyers before. He also notices that twentysomethings are finishing school, working for a year and diligently saving their for a downpayment. “They’re saying: ‘I’ve got my 5 per cent – I’m ready. My condo buyers are getting younger and younger.”’

Back in Van, a one-bedroom apartment went to market Monday and by Tuesday at noon had three offers, all above asking. All from Millennials. The ‘winner’ added ten grand to get the prize, no conditions.

This kind of activity has led the mainstream media to slather over a real estate boom in which big demand meets thin supply for overwhelming price appreciation. Sellers in Toronto and Calgary “hold all the cards,” reads one daily’s headline this week.

Sexy story. If it were only true.

The real estate market today is all about hormonal young buyers and segmentation. The houses that Millennials and GenXers, hipsters and yuppies think are affordable, are being devoured – but only in the cities, and particular hoods. These are most often in the $600 to $900K range where mortgage insurance is available and kids need but 5% down.

Above $1 million, crickets. Price reductions. Long days-on-market. And this is not an insignificant segment. In the GTA there are about 2,700 properties currently listed above a million (of 16,000 for sale). In Vancouver, the number is an astonishing 4,500 (of 14,400 listings).

Now that we’ve had more than a year to assess things, it’s obvious that cutting seven-figure houses off from mortgage insurance has had a dramatic impact on the market. While somebody buying a $995,000 semi full of bugs need only cough up a down payment of $50,000, the purchaser of a house down the street going for $1,050,000 must have at least $210,000 in cash to close the deal. This sure separates the wheat from the chaff. And it could mean a mess of trouble down the road as rates rise and markets moderate. But you know that.

And here’s some interesting data mining and manipulation from a blog dog who calls himself Aggregator. Because he apparently has no life, he catalogued every house sold thus far in April in Toronto, and then graphed the selling price relative to the ask.

The summary table he posted yesterday in the comments section shows how many houses actually fetched far less than vendors originally wanted recently or in the past, and how this was utterly masked by realtors bringing out new listings at renewed pricing.

Below is his graphing of April sale prices relative to the ask. Note that fewer than one in three houses actually changed hands for more than the list price, and of those a number were total reno jobs requiring further big bucks.

Meanwhile, as I’ve shown in the past, sales volumes for SFHs are running substantially below levels of two and three years ago.

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So what?

So you should worry about the kids. The real estate market in the hot zones is running on hormones, not experience. Older, wealthier buyers are not storming the gates. There is no across-the-board price momentum. The average prices and Frankenumbers that real estate boards trot out are being skewed higher by a paucity of sales at the top end and a small riot in the middle, where values are being shoved up against the CMHC insurable limit.

Yesterday’s post was meant as a cautionary tale against buying without an expert inspection. I could make the same warning against jumping into a bidding war with 5% down, 95% leverage and no conditions.

But you can’t fix stupid. You just grow out of it. Sometimes.

The heartbroken

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Ruben admits he was surprised to read about heartbroken hipsters littering the housing landscape, when I referenced them a few days ago. Then he and his wife went to some open houses on the weekend.

“Of the 3 houses we went to, all of the other potential buyers were hipsters! Each had that neatly shaven ‘beard’, short sides, and hair combed neatly to the side, or with a baby in one of those baby carriers,” he says.

“I was wondering, how did you know that hipsters were driving a good part of the market, and many were heart-broken? I completely believe it after this weekend.”

Well, RBC knows it too. And BeeMo. Plus all the other lenders that are slavishly targeting the Millennials, that innumerate, over-educated, under-experienced clot of people whose life goal is to become helplessly mortgaged.

These are the ones turning trash listings into almost-million-dollar homes. The net effect of Ottawa cutting off seven-figure houses from CHMC insurance, in a market short of listings, has been to morph $750,000 properties into $900,000 ones. And why not? When you’re only plopping down 5% of the purchase price, and extra $150,000 amounts to a lousy seventy-five hundred bucks. Mom’s good for that. As for a bigger mortgage, who cares? Millennials never expect to pay it off. Houses always go up, so you just roll it over until you die, then it’s the bank’s problemo.

And you wondered how the average SFH price in Toronto just passed $900,000. Silly you. Hipsters.

Well, this crotchety old blog has only two things to say, as it sits rocking on the front porch in a cardigan, cradling a Remington. First, more evidence we have reached a peak in real estate values. The Teranet-National Bank price index has stalled. For the first time in 15 years it failed to register an increase between February and March. If I were buying with 95% financing, that would toss my cookies.

Second, do these kids actually know what they are purchasing? Especially when it comes to decades-old semis in ‘emerging’ neighbourhoods when former owners were too busy surviving to maintain their dumps?

Roger thinks not. He’s a home inspector who would like his Ontario company kept out of this blog because, “I can’t afford to slap the hand that feeds.” I think you might want to hold down a hipster, and read her this:

I get a ring side seat to the house horny in all of their glory.

First question I ask my clients is this: “Do you have any concerns regarding this home that you wish to address today?”  With younger clients, the answer is, “Yes – we want to be sure that there is nothing here that will cost us money to fix.  We won’t have a lot of cash kicking around after we purchase this home.”  At this point my radar goes up.  Why?  Because these nice people, try as they may, have scrimped and saved but they just don’t have a lot of money – but what they can afford with their modest down payment is what I’d call a sock burner. They’re often older, dirty and unkempt houses, so after I’ve been in them I don’t bother washing my socks – you’re better off just to burn them.  Sure, they have some fresh paint over the cracked plaster and maybe someone slapped in a Home Depot special kitchen, but at their heart they are disasters. Rotten structure, failing masonry work, asbestos, knob and tube wiring, galvanized plumbing, mould and water leakage, old HVAC components and roof coverings as well as a host of other items that are expensive to correct and insure and may make the home difficult to resell in the future.

Once I’m done with my assessment, this is where the realtor’s really need to turn it up to 11.  We’ve now determined that this “cozy, move in ready” home will likely require between $40-50,000 in work.  This is due to the fact that prior owners have not looked after or updated the home.  The realtor takes the clients aside and tells them that my estimates are for worst case scenario, I’m embellishing a bit, I’m ultra conservative and the realtor really thinks that they can do this – they know their clients! Plus, they know “a guy” who can help them with the renos – for cash!  They (the agent) have the paperwork right here (waiver) and they need to get this baby firmed up so the clients can become proud, new home owners. Remember too, the vendor’s going to continue showing the home and the next person might swoop in with a clean offer  And if all that was not reason enough to just rush in and sign, if they don’t take this home, it’ll mean another 3 weeknights traveling around and looking at houses.  That’s a crazy waste of time!!!  Just sign here…

Everyone is horny now – agent, buyers, sellers.  Everyone.

Then I get a phone call a couple months down the road.  Same couple. They now have some concerns.  They were firming up the terms of the insurance and their insurer has insisted that within 90 days of close, the galvanized plumbing and all knob and tube wiring need be replaced, or the policy will be deemed void.  They are facing the potential of having no insurance, which means no mortgage.  They’d like to know how I missed this.  I subsequently direct them to pages 46 and 63 of their lengthy report (which I take enormous efforts to write and no one ever reads), where it indicates that such materials are present and they are advised to seek the services of a qualified plumbing/electrical contractor to further investigate to determine the extent of such materials and systems installed, evaluate their condition and correct and/or replace as required, based on the contractor’s further evaluation.  I suggested they budget for significant cost associated with the replacement of such systems as required and also indicate that their presence may inhibit their ability to insure the home.  Other end of the phone – silence.  Once the nice couple can begin to form words again, they tell me that their agent said I was being “very conservative in my assessment” of the home and they figured they’d be able to spread the costs out over the next 10 years.  They never expected this.  Now they are facing $10,000 in repairs in the first 3 months.  The couple is no longer horny.

If they did their due diligence and really thought it out they probably would have concluded this wasn’t the place for them and kept looking or sat on the sidelines for a bit and continued to rent.  Instead, they are going to need to get second jobs to pay for electrical and plumbing systems that really won’t add any value to their home.  No saving for retirement.  The idea of starting a family, the reason they wanted bigger digs, is pushed out indefinitely for the time being.

Agent’s happy though.  They have their cash in hand and like Teflon, nothing will stick to them. Rinse, wash and repeat.  See the same thing over and over.  Agents rushing clients into quick sales and wiping their hands clean after the fact.  Lives destroyed or at least significantly interrupted.

I’d be the first one to tell you that very, very, very few realtors actually have their client’s best interest at heart.  So many are in it for the quick money, the “prestige”, their face on the back of buses. Especially the younger ones.  They show up in their $75,000 car, dressed in fine clothes and looking every bit the successful realtor.  A rock star really.  Fact is they’ve never sold a home before and couldn’t tell the difference between their ass and a hole in the ground.  The industry as a whole needs to be cleaned up and some oversight with teeth put in place.  Until that happens, I’ll continue to watch nice people struggle through significant hardship because they were deceived by the one person they thought they could trust.