Good bones

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Well, that was a bitch.

Remember what this pathetic blog’s been saying now for the past year about yuppies and geriatric semis? Because money’s cheap, most buyers are naive and detached houses costing over a million don’t come with mortgage insurance and 5% down payments, young morons have been madly escalating the price of half-houses on dodgy streets that realtors call ‘emerging.’

As Toronto agents Josie Stern and Valerie Benchitrit told their clients this week: “The real estate market is setting stratospheric records.  Today we recorded the highest sale price ever on the Multiple Listing Service for a semi-detached property on Ellsworth Avenue. 95 Ellsworth was listed for $799,000 and it sold for $946,000 with seven bidders.”

With land transfer tax and routine closing costs, that half-a-house actually ends up being one used Kia less than a million. And here it is:

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So Matt and Krysten Christie probably thought they got a pretty fair deal with they scooped 290 Roxton Road, in Little Italy, a few months ago. The saggy but soaring 120-year-old Victorian semi was bought from an estate which had listed it for $989,000 for many months – passed over because of its condition. The Christies got it for $925,000.

Here’s how realtor Harry Gliddon described it in his listing:

A Grand & Spacious Victorian Semi, 3,290 Sq Feet Of Living Area. Built In 1895. Soaring 10′ Ceilings On Main. Located In One Of TO’s Coolest & Most Desirable Neighbourhoods. Parking From Lane For 2 Cars. Legal Right-of-Way From Street. An Estate Sale, Requires Your Personal Touch To Return To Its Previous Grandeur. Could Be Configured As A Single Family Or Multi-Unit Property. Good Bones. Carson Dunlop Inspection Report Held.

The Christies began their renos a few weeks ago, which included getting a crew downstairs to dig out the medieval basement. Then one night last week Mireille Albornoz, who owns the other half of the house, started hearing shearing and groaning noises. Somebody called 911. The cops came. Ten minutes later an entire wall of 290 Roxton collapsed, spewing bricks and timbers everywhere.

Then the firemen arrived. Houses up and down the street were evacuated. The gas and hydro guys showed up, and severed the Christie house from its services. Then the City sent inspectors, who ruled both halves of the structure uninhabitable.

Finally the TV reporters and trucks came because, as you know, everybody loves real estate. And here is the report:

By the way, if you want to see some before pictures of the property – as it sat when Matt and Christie coughed up their nine hundred grand – here they are.

After the collapse, realtor Harry called the place “a fixer-upper, priced to appeal to renovators. It was considered to have good bones and a lot of potential.” And that’s exactly what the young Christies are all about – specuvestors who buy up properties, gentrify them, and flip ‘em to hipsters.

But don’t blame them. If the banks weren’t plying the kids with cheap mortgages and the government wasn’t backing them, or if people actually had to have money to buy seven-figure decrepit heirlooms, or we’d taught our offspring to value freedom over indenture, Matt and Krysten might be doing something productive.

Now, take another look at the TV footage above. See what a million buys. We are so screwed.

Spring fever

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As Toronto motorists joyously celebrated the advent of Easter by jamming highways and playfully gesturing to each other with their fingers, the local real estate cartel was publishing some astonishing numbers.

Sales in the first two weeks of April, “started off on a strong note,” said the board, “with a 10.8% year-over-year sales increase.”

Wow. Maybe I was wrong. Said Reatress princess Dianne Usher: “The robust increase in sales speaks to the fact that home ownership remains affordable in the GTA.  The majority of home buyers purchase a home using a mortgage.  A household earning the average income in the GTA can comfortably afford a mortgage on an average priced home.”

Hmm. Let’s parse this a little.

First, it’s impossible to know the truth. TREB has secretly fudged its numbers yet again. Sales this month are actually only 6.6% higher than those reported one year ago. But last April’s sales were 6.5% lower than the previous year – which means no growth in two years, while the population has increased dramatically. Not good. In fact, with the exception of last year this was the worst April (so far) for GTA detached house sales since the financial crisis back in 2009.

See how much fun numbers are? Of course, besides quietly revising its stats the real estate board never supplies context for its reports, because… it’s always a great time to buy!

Now, how about the average family affording the average home, currently $583,697? Well, the average GTA family earns $96,040, which means houses cost six times income. According to Demographia, that falls into the ‘severely unaffordable’ category. It also means to buy the average home a family would need at least $45,000 for a downpayment and double land transfer tax and a mortgage (including CMHC premium) of $570,000. The monthly (with property tax and insurance) would be $3,400, or 42.5% of gross (before-tax) income.

Now let’s refer to CMHC’s rule:

Affordability Rule 1
The first rule is that your monthly housing costs shouldn’t be more than 32% of your gross monthly income. Housing costs include your monthly mortgage payments (principal and interest), property taxes and heating expenses. This is known as PITH for short — Principal, Interest, Taxes and Heating.

See what I mean? Fail.

But the average resale price in the GTA also includes a lot of one-bedroom and loft condos which clearly do not attract families, and aren’t suitable for them. So maybe we should look at detached houses only. But when that happens, a whole new level of risk emerges.

Here is the scorecard for detached houses in 416. Sales of 628 for the last two weeks came in 11% higher than last April, which was 10.8% lower than in 2012, which was 3.9% less than in 2011. So, this April fewer detached homes were sold than in 2010, 2011 or 2012.

Of course this year we have 2.99% five-year fixed mortgages, which means you can’t blame higher interest rates for poor sales. But you can blame a lack of listings, and exceptionally unhealthy public attitudes, for a massive and dangerous escalation in prices.

The average detached 416 house is now changing hands for $1,012,172 – an increase of 19.2% over last Spring. Yikes. This surpassed the 14.2% price pop in 2011 when sales crested and F freaked at the prospect of a bloated gasbag that could rupture at any time, blowing up the economy. He tightened mortgage rules – which brought year/year increases down to 3.2% (2012) and 6.22% (2013).

Quick summary: sales are back below 2010 levels for detached 416 homes, and prices have risen since then by 50.1%. Nice news if you own one (but only if you sell and crystallize the capital gain), but it all boils down to a single word: risk.

Feel free to ignore me, of course. Most people are.

But not Carmen and Ricky. Yesterday I ripped the immigrant couple a bit for wanting to buy an inflated house at the wrong time, with no money, so they could get a washer and dryer.

Says she: “We saw what you posted. Thank you so much. It made us clear of how to proceed and my husband was celebrating that he listened to you. Thanks for that washer idea as well…lol..

“Your advice made us think what is important and we are considering saving more and putting up in some investments, although that’s our next research of where to put the money and using some of our monthly dollars to invest for my sons sports or some extra music classes.

“Thanks again for your time and will be holding on the idea of buying home until we see your GO on your blog.”

My Easter just improved.