August 15th, 2014 — Book Updates — E-mail this blog post to a friend
Kate and Glen and Austyn and Neil bought a house. Wait. They only put an offer in on a house in North Van. Outcome unknown.
What we do know, however, is that the fixer-upper (a.k.a. dump) costs $798,000 and between the two GenX couples, the best they could do was 5% down. That’s forty grand, or ten thousand per person in their thirties. And that’s pathetic.
The young fools were the focus of a feature in the Vancouver daily this week on how nobody can find an affordable house there anymore. So they decided to buy a house together through a tenancy-in-common agreement – with Kate and Glen getting the main floor while Austyn and Neil get the moldy part.
And welcome to Misery Week, la fin.
It’s a sweet illustration of what property horniness does to young brains, and how the cult of real estate has so distorted social norms. Of course, we’ll start by reminding you of a GreaterFool rule: never buy a house with anyone you’re not sleeping with. There are just too many risks and potential negative outcomes.
For example, in this case KGA&N will all have to provide personal guarantees to Vancity for the mortgage of at least $750,000, and then fight over who borrows to finance the renos. What happens if there’s a marriage breakup (we have a 40% divorce rate), and one of the four has to leave? Or babies, and not enough space? Or a job relocation? Unemployment? What if one couple wants to move and the other can’t buy them out? Or if Kate and Glen sell their share upstairs to bikers? Or Conservatives?
Do they know that in a tenancy in common arrangement any of the owners can sell or remortgage their interest in the property without the consent of the other tenants? Or that one owner could go to court for a ‘partitioning’ of the property to force the sale of the entire asset, if the others tried to block a deal?
Misery awaits. There’s probably no good outcome to an arrangement like this. But it’s the kind of insanity you can expect when real estate becomes an entitlement. When the media tells you we have a ‘problem’ because people without savings can’t afford $800,000 houses, and there have to be solutions, then we’re kinda screwed. So, best to just take cover.
On Friday the latest numbers showed we’re still living a dream. CREA said sales of existing houses popped in July to a level not seen for four years – ahead 7% from last summer, with prices swollen 5%. The average is $401,585. The median US price is $223,400.
We also got that big revision in the jobs numbers, which proved not only that StatsCan can’t count, but that we still have a weak economy. Although a net gain of 200 was bumped to 42,000, last month we lost 18,000 full-time jobs, and created 60,000 positions for part-timers. How can anyone feel happy about that? It was telling that our dollar barely moved on the news.
There’s no doubt in my mind where all this will be taking us. Inflated houses and deflated job prospects – when mixed with higher bond yields and fixed mortgage rate hikes in the months ahead – will clash with expectations. Maybe that’s already being previewed in smaller markets.
Writing in the Halifax paper the other day Michael Lalonde, who can’t sell his house, had this to say:
“It is interesting how this market is not following basic economics. which dictate that an oversupply will result in lower prices, creating increased demand until supply meets demand. Statistics show average prices for homes have remained steady and, at the same time, the number of price reductions have not created more buyers to take advantage of those deals.
“Perhaps in the coming weeks, sellers will choose to stop listing homes because they cannot get the price they want. I forecast that if prices trend lower over the coming months, many people will have to take their houses off the market, not because they do not want to sell, but because they cannot afford to buy the next house due to lack of equity.”
By the way, in Halifax currently there are 16 houses on the market for every one buyer. And yet prices aren’t tumbling lower, as Mike observes. Why? Because the locals believe this is an aberration, not a trend, since the bozos at CREA make everyone think ever-rising prices are the norm. When the moment of capitulation comes, it will be more extreme.
This week we looked at the indebted future of the thirtysomethings and why they’re worse off than their parents were at the same age. We reviewed the fallacy of rising net worth. Most families have saved or invested little and embraced debt, while wealth is concentrating in the hands of the few. We moved on to poke the myth of investment property, lying at the heart of condomania, and finally reviewed how towers of glass could tank entire markets.
At the core of this misery is the reckless real estate lust embodied by four naïve people and a $798,000 piece of junk.
Misery Week is done. Now, where did I put the scotch?
August 14th, 2014 — Book Updates — E-mail this blog post to a friend
When a 53-year-old guy walking by, minding his own business, was speared by a falling shard of glass, well, you’d think enough was enough. After all, it was the fifth time in two years that sort of thing had happened with the same, soaring 65-storey building. But it took a pane of patio door glass exploding and falling on to morning commuter traffic three weeks ago for officials to react.
So now the City of Toronto has ordered protective scaffolding erected around the base of the condo-hotel edifice known as Shangri-La, so pedestrians are spared a hideous death. Meanwhile the building’s developer has been told to wrap all those tempered-glass balconies in protective netting, while condo owners have been banned from stepping out onto their own terraces.
Welcome to Misery Week, part 4.
And imagine how miserable you’d be had you just purchased unit 2105, a two-bed, two-bath condo listed for $1 million, or $925 per foot, with monthly strata fees of $635 and annual taxes just shy of $4,000. Suddenly your balcony would feel like the wrong side of a lobster trap. Not exactly the elegance you expected from a building names after a mythical Himalayan utopia full of happy, geriatric nymphs.
The Shangri-La killer balcony issue is a nice reminder of the misery that probably lies in the future of tens of thousands of people who have lately moved into soaring glass towers in Toronto, Calgary, Vancouver, Edmonton and Montreal. This could also be a pivotal factor in the troubled future of residential real estate, even if mortgage rates never increased or Boomers failed to ossify and bail out of their homes.
Virtually all new condo towers thrown up in the past decade have used the window wall system of construction to separate the inside (where you live) from the outside. It’s cheap (as opposed to a masonry exterior), easy to install and quick. The downsides, however, are immense. Walls made out of windows suck at energy efficiency. They’re less durable and the seals always become permeable. Moisture inevitably finds its way in or around. Compared to punched windows (where openings in a brick or block wall are made), these exteriors are flimsy and over time prone to air and water leakage.
And this could be the silent killer of the housing market. No, not just condos. All housing.
I know this because of Ted Kesik. He’s a professor of building science at the John H. Daniels Faculty of Architecture at the University of Toronto. Developers hate him. Condo salesguys would happily drive their Panameras and A7s over his toes. And all those horny little hipsters gobbling 500-square-foot units with great views of the next building from their floor-to-ceiling windows should first devour his work.
This week I was in touch with the prof.
“Most of these buildings are going to have serious problems in the next ten years,” he says. “First owners will get special assessments for $15,000 or $25,000 delivered to them, which they have to pay by law, to fix these air and water problems. But that’s only a bandaid solution for five or ten years. Then it all comes back.”
Eventually, says Kesik, all these glass condo buildings will have to be reskinned, which not only costs w-a-y more than the recaulking and sealing process, but requires they have to be evacuated. Even if done on a floor-by-floor basis, condo owners will have to move themselves and their stuff out for at least a month.
And this is the easy part. Worse is the financial hit.
“The best case scenario for these owners is that they would, over time, maybe get their money back,” the professor says. “But more likely, values will spiral lower since nobody wants to buy leaky units. So when people can’t sell, they’ll start to rent them out, and that’s when the spiral really begins. I tell my students these are the places their grandkids will be going to buy crack.”
And what will the impact be on society? How could something as ubiquitous as glass walls come to impact everybody?
“We’ve taken the prime portions of our cities and filled them with this typology, which will certainly lead us into this kind of spiral. This is where things start to get really ugly. I keep trying to tell people this, but the way euphoria works, they forget that somewhere in the future there’s a reef.”
And, of course, it’s not just about condos, but rather the property ladder.
“My Baby Boomer colleagues with houses think this doesn’t affect them,” Kesik told me. “But the simple fact is these young people in condos won’t be able to move up, because there’ll be no appreciation in their units as values fall. So, you know what I tell my friends? I tell them, if you’re ever gonna sell, then sell now. There won’t be a generation coming along to buy them out, and prices will collapse. In fact, this is something that is going to seriously affect two generations.”
Did I mention this was Misery Week?
Professor Kesik has written something to give your horny children. Seriously. Here it is.
And from now on, if you walk downtown, wear a hat.