Entries from March 2015 ↓

Remember Junior, the Italian mama’s boy with the hots for an eight-hundred-thousand bung? As I told you yesterday, the $649,000 Toronto beater house turned into an $810,000 sale after 13 competing bids were tabled. (Junior lost.)

Or were there?

Bidding wars are back, at least in the GTA and YVR (while markets like Calgary and Halifax spiral into despair), and buyers absolutely loath them. No wonder. Unlike in Australia, where blokes stand around and make verbal offers to buy a property – transparent and thrilling to everyone present – multiple offers in Canada are one of realtors’ dirty little secrets.

If you compete for a property, you’re blind to the process with no recourse but to believe what an agent tells you. The guy with the listing might say nine registered offers are coming and they’re all for more than the sellers are asking, prompting you to offer a massive premium. But you never know. There could be three low-ballers. There could be none. And you’ll never see what those offers contained in terms of price or conditions. All that’s revealed is the winning amount.

In one famous case a woman was informed a listing would be hotly contested. So, she upped the offer by tens of thousands. It later turned out hers was the only one (accepted, of course). She sued.

Phantom offers undoubtedly happen. It’s just one of the sleazier tactics used to inflate prices and commissions at a time when inventory may be low, and mortgage rates lower. Another slimy strategy is to list a property vastly below market value, prompting hysteria and dyspepsia among the virgins, and purposefully creating a feeding frenzy of offers.

Remember the North Toronto unrenovated pile that went for 195% of the listing price last April, after 72 offers hit the kitchen table? Sure ya do. And the buyer who ‘won’ was a client of the listing agent – the dude who orchestrated the whole thing. Hey, that seemed fair.

Well, something may be about to happen to curtail these orchestrated slugfests. The real estate regulator in Ontario, known as RECO, is hot to slap down cheaty realtors who manufacture phantom offers. Soon agents will have to keep records of all the bids on a property (for at least a year), and be prevented from claiming there are competing offers unless they actually exist and have been registered. Failure to do so will bring deregistration – which means you have to give the Audi back.

Unclear is whether a jilted bidder can petition to see the other, competing offers. But don’t hold your breath. This is still a process stacked in favour of the seller and their omnipotent agent. And RECO (like real estate regulators across the country) is an under-staffed and complaints-driven outfit. They have no roving realtor cops to police the 108,706 people flogging houses.

The best advice? Don’t go into a multiple-offer situation. Establish what you can offer and still have a financial life. Make your first offer the best (if competition looms). Always get pre-approved for a mortgage. In writing. Engage a realtor to represent you instead of dealing only with the listing agent. Don’t sign a BRA. If you’re forced into it, make the BRA specific only for the property being sought. On the day you offer, wear your special underwear backwards or whatever it is you do to find private joy. This is a not a fun process.

It’s also a process destined to get more bizarre and stressful before we’re done and this gasbag of a housing market pizzles. For that you can thank mortgage rates and our dithering central bank. Head guy Stephen Poloz ‘s latest media encounter actually opened the door to no rate drop on April 15th.

He downplayed the oil collapse, put more faith in a manufacturing rebound and suggested the poodles may wait until the middle of the year to reassess rates. Observed Capital Economics’ David Madani: “The speech earlier today by Bank of Canada Governor Stephen Poloz and his remarks during the press release shortly afterwards suggest that the Bank isn’t in any hurry to cut rates further. Accordingly, the odds of another rate cut coming in April are lower than we previously thought, though we still wouldn’t rule it out completely.”

In response, the Canadian dollar rallied a little, even as poor Alberta was bringing in a budget drenched in red ink (a $5 billion deficit). Thus, the Bank of Canada has done it again. It surprised markets in January with an unexpected and unannounced rate plop, killing the dollar. And it looks like the stage is being set for another surprise. Maybe April 15th. Perhaps May 17th. Or it could be July 15th. Or never.

You know what that means, kids. Buy now, or buy never. Hurry.

Finally remember that little tussle I reported having a couple of weeks back with Condo King and Omnivore Brad Lamb, plus mortgage-broker economist and former bank star Sherry Cooper? The media event has now been published, and you can read a version here. I had a quick read and came to the conclusion Mr. Lamb stole the audio tapes, secretly altered them, and had an irresistible, creamy, raven-haired realtress drop them in the editor’s worn briefcase during a tryst they engineered. But that’s just a working theory. Or, they don’t type well.

“We can’t live with my parents. They’re still living with their parents!”

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“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.