Entries from December 2013 ↓

Hard to believe I’m writing a blog post on NYE. This is more pathetic than even I imagined.

In any case, there are some Real Estate 101 rules I wanted to make sure you remember as we start into a new year, living in this mama of a housing gasbag that is clearly on borrowed time. Strikes me it’s never been so important to ensure you’re selling, and buying, in the right ways.

No BRA: It doesn’t matter how seductive the realtor ends up being, do not sign one of those Buyer Representation Agreements when you are shopping for property. The most pervasive argument is that all realtors work for the person paying the commission (which is the seller), so by signing a BRA you ensure the agent helping you buy is on your side. That’s crap, of course. If you sign you’re opening yourself up to potential legal action in the future, since you’re accepting responsibility for possibly paying the dude. So don’t.

No FSBO: It’s the refuge of the cheap and the greedy. For-sale-by-owner listings invariably attract sellers who don’t think professionally marketing their homes is worth paying for, and yet expect to pocket not only a fat price for the real estate, but also all the commission. It’s easy to see why people want to sell this way, but why on earth would you want to buy from from a DIYer? They probably home-school and change their own oil, too. Gross.

Negotiate. Everything. When you decide to list your home and avoid the real estate tsunami aimed at your town, remember that real estate commissions are totally negotiable. If you don’t ask, the listing agent will likely slap on the standard 5% (which ends up being split between agents and brokers on both sides of the deal). But it shouldn’t take much of a conversation to get it reduced to 4% – which is a sizable wad on a $700,000 house (plus HST in many provinces). Also make sure you ask for a marketing plan. And comparables to confirm the pricing. List too high in 2014, and you’ll still be for sale in 2015.

Stage it. Selling houses will get a lot more competitive as listings swell in many markets. Meanwhile most buyers are hormonal and emotional basket cases, ruled by first impressions who often decide to deal based on one 13-minute viewing (as opposed to spending four hours looking for great yoga pants). The best investment you can make is in staging – pimping the place to its maximum potential with lots of eye candy furniture and nice decorator touches giving the impression you’re actually erudite and cultured. If you’re a buyer, imagine the place naked.

Insure it. Most insurance products (and insurance salesguys) are designed to Hoover your money using guilt. It works astonishingly well, especially on new fathers. But while most insurance is questionable, title insurance is now a necessity. Never buy a house without spending a few hundred bucks to get a policy that will protect you against unpaid property taxes, liens or other things your lawyer was too balled or cheap to catch, such as an encroachment or wives of the former owner buried out back. This also makes a survey somewhat redundant, but you should still ask for one prior to closing.

Inspect it. Never close a deal without doing a home inspection. If you’re moronic enough to be in a bidding war, then have the inspection done prior to submitting the offer so the condition can be eliminated. Otherwise, it’s non-negotiable. A good report will give you some peace of mind. A bad report lets you walk away from the deal or go back and demand a lower price. And the inspector is obviously key. Choose very carefully, asking for referrals and credentials. On the day of inspection spend every second with the guy, getting a running commentary on the property as well as the final written report. And take your time. Typically a home inspection clause will give you a number of days during which your due diligence can happen. Go back with your buddy the electrician or your plumber brother, as well as the reno contractor. Make the sellers nervous. It’s fun.

Reconsider it. This is arguably the worst time in years to buy a house, unless you do it a place (like New Brunswick) where houses are priced below their replacement cost, plus the moose are free. In most urban centres sellers are still greedy, refusing to believe prices can ever fall, and the 2013 pop in values has just made them worse. If we’re not at the pinnacle, we’re close. Real estate is basically unaffordable in Toronto, Calgary or Vancouver, while household debt is ridiculous. Once markets fade, events happen quickly. If you can get by another year or two without your spouse vivisecting you, then wait.

Rent. Without consistent, relentless annual increases in real estate values, there is no financial argument for buying a house. Renting is always cheaper. In fact, landlords today heavily subsidize their tenants, usually without even understanding the folly of their actions. Renters don’t waste their money any more than homeowners piss it away cash on mortgage interest, property tax, insurance, maintenance, snowblowers, land transfer taxes or commissions. Renters can take the difference and invest it. Homeowners are often broke, with scant savings and fat debt. In the absence of inflation or income growth, a real estate buy is 100% emotional. Remember that rich people’s houses are a small percentage of their net worth. That’s not a coincidence.

Well, there are many more rules. Like never hire a lawn Asian. Or, only make an offer on a stat holiday. Or, buy the worst house on the best street. Or, never lowball. Or, replace your mortgage with a revolving LOC. Or, don’t leave the pit bull unattended during showings. Or your mom.

So, fear not. Any blog that stayed home on New Year ’s Eve and wrote about title insurance certainly won’t disappoint you. This is rock bottom.

Would ya like to buy a $1-million property in some of the most gorgeous scenery in Canada, for just $625,000? O.b.o?  Here it is. And by the way, welcome to 2014.

Distress Sale – Mayne Island Waterfront Home with nearly $1,000,000 invested. Must Sell. As is condition. 3,957 interior square footage. 841 square foot garage. 955 square feet of decks.

As a new year starts, all shiny and empty, spilling over into it will be tens of thousands of listings without buyers. Like that failed dream on Mayne Island, in the unfrozen waters off the BC coast. It’s not something you’ll read about in the MSM, but the real estate market in Canada is far more wobbly than most people know. Except the sellers.

So what happens now? What will the next twelve months bring? Time for the housing stupids to be replaced by the little voice saying, ‘did I actually just pay $750,000 for a buggy piece of unrenovated crap in Leslieville?’ Or half a million for a ‘laneway house’ in Vancouver that anyone in Moncton would call a ‘garage’?

2014 will be a confusing time for anyone trying to categorize the real estate market. The trends of the past two years will accelerate. Condos are marked for death. Million-dollar homes will sell in the six figures. Regions will see sales slump and houses grow illiquid. Drywallers and crane operators will have lots more time for yoga and therapy. But the frenzy-in-the-middle will continue, even grow more intense, as hipsters compete for urban detached. Here’s why…

The writing’s on the wall for mortgage rates. No, not variable ones (the kind most people no long have, silly them) – since central banks won’t dare goose the cost of money for at least twelve more months – but rather the fixed-rate stuff. As you know, five-year mortgages are funded in the bond market and have zero to do with the interest central banks charge. In 2013 bond yields pumped and long-term mortgage costs jumped almost a full point. In 2014, I can see the same happening again in stages, taking the posted rate for the fiver to beyond 6%. Once the hipsters figure that out, you’ll see some truly moronic things happen.

So what’s with the bond market? Tapering, that’s what. It started earlier this month and will continue on right through next year. Relentlessly, the US Fed will pare back on its massive and historic monthly bond-buying program, dropping it from $75 billion to, eventually, zero. Stock markets will barely take notice, since that tapering thing is so 2013. But the bond market will naturally react as demand for debt falls and with it the price. As bond prices decline, yields rise. It won’t be anything financial investors don’t expect. But it will sure shock your mom, who pleaded with you to buy that condo.

Why tapering? Because the American economy could be the biggest story of the year, with unemployment dropping into the 6% range, the deficit melting away (it’s already down 51% since 2009) and a new surge in corporate profitability as consumers rev up. So far, house values are rising by more than 1% a month, while 50,000 new jobs have been appearing weekly. Why wouldn’t folks be anxious to leave that austerity-recession funk behind them?

And this probably means stock markets will end 2014 higher than they start it. Big news for all those who look at the headline number for the Dow or the S&P 500 and declare them overvalued. Truth is, while the Dow’s up 28% this year, it’s as much a reflection of corporate profits and an improved economy as it is all that government stimulus. After all, what did stocks do once tapering actually started? Exactly. They went up.

But higher markets next December don’t mean a straight line from here to there. After a joyous romp in 2013 with only a modest correction (less than 10%), investors could be persuaded to dump equities and collect profits at the drop of a hat. That sombrero is likely to land sometime in the first few months of the year, for a variety of reasons. If we’re really lucky, the Easter Bear will bring a nice plunge of up to 15%. Order some new cheques now.

Of course, not all will be sunshine this year. Lots of people in Canada will lose their jobs, and the Bank of Canada’s warning about deflation will seem prescient. Many souls who once believed real estate was the solution to all financial problems will end up like the Mayne Island guy – bailing for pennies on the dollar, desperately seeking a greater fool.

And it might be you.