Entries from April 2015 ↓

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Well, it’s prediction time here on Greater Fool. But because forecasting is hard when it involves the future, this blog’s loaded up on E & O insurance, which was conveniently added onto the Harley’s coverage. So we’re good.  Full collision.

Canadian rates will be higher by Thanksgiving.

Every indication from the Bank of Canada, including testimony before Parliament on Tuesday, is that central bankers think they overreacted in January. Of course they won’t admit it. But it’s out there. All that winter rate cut did was pour gas on the real estate fires in the GTA and YVR, increase consumer debt and borrow from the future.

Now banker boss Stephen Poloz is taking every chance he can get – like in New York last week and Ottawa this week – to claim the same thing: the oil crisis was front-end loaded into the first few months of 2015, and it all gets better from here. Economic growth will improve, along with the labour market, consumer spending and exports – he says.

So what? So no more rate cuts. It’s over. In fact, after the US Fed raises its benchmark level in a few months, our central bank will follow suit, restoring January’s decrease and embarking on a slow path to higher money costs. No, rates won’t spike. Yes, you have time to lock in. Six months. Govern yourself accordingly.

There is no real estate relief coming.

If you thought CMHC might tighten the rules again, that big lenders would be spanked for teaser mortgage rates or the feds would move to corral our burgeoning subprime mortgage business or the bank of Mom, forget it. We’re on our own. That means $1.1 million detached houses in 416 and 12-foot-wide houses in Van selling for $1.35 million are here for a while, until the days of reckoning.

Joe Owe did not even mention runaway property prices in the budget last week, and this week Poloz went further. “It would be very unusual to come through all of that and not have a degree of overvaluation,” he told MPs, referring to the sweet mess that emergency interest rates have made of housing affordability. So despite its own report saying real estate could be too expensive by 30%, the bank is retreating. Meanwhile Poloz’s deputy governor insists we’re headed for that “soft landing.”

What does this mean?

Just what I said above. They know mortgage rates have bottomed this spring, that the cost of money has only one direction in which to go, and the effect on real estate values will be palpable. They just can’t say it. At least not until October 20th.

Oil’s messing with your head. Lower prices soon.

While the price of crude has risen about 20% in the past month, moderating despair in the Calgary real estate market and raising hope it was all a big, temporary joke, don’t get too excited. Oil at $57 or so won’t last. There are a bunch of valid reasons for this. For example, the OPECers have not stopped pumping and continue to flood the market with black stuff. Second, oil storage facilities in the US are brimming. There hasn’t been this much of the stuff for at least 80 years. Third, there are literally thousands of wells drilled in major US fracking areas, ready to produce but  temporarily capped. American production of the stuff has doubled in the past five years, and is ready to explode again.

Don’t believe me? Check futures prices. Traders are actually forcing prices lower. The bet now is for $60 oil in 2019. Yup, if you’re waiting for happy days again before selling that Cowtown McMansion, good luck. BTW, the dollar’s going to be whacked again, too.

Here’s what this tells us: whether you believe it or not, mortgage rates are as low as they’ll ever be. Conversely, real estate values – at least in the hot zones – are likely at their zenith. And the economy will stay stalled. It’s hard to imagine a worse time to buy. Three reasons for that:

(a) Rates can only go higher.
(b) Prices will only go lower
(c) Competition is extreme, because
(d) Nobody believes (a) or (b).

When it comes to houses, heed to best advice stock traders ever heard. Sell in May, and go away.

Postscript:

Yesterday I told you how blog dog Mike reacted when he saw Tarek & Christina’s flip-in-Van-for-profit seminars advertised on Facebook. Today he was banned by T&C for his post below. “Thanks for posting my screen shot. I’ve been banned from posting on their Facebook after my comment: (I don’t blame them, I guess! First rule of scamming stupid: keep the smart people away!)”

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Save us

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Today, as I sat to write this pathetic post about the sea of stupidity we sail upon, Randolph emailed me. “I am ready to overhaul my finances,” he says, “and I’m not sure where to start. Can you help me?”

Randy’s 30, has an unemployed, job-seeking wife with a Masters degree, makes $155,000 and has $20,000 in student debt, a $350,000 mortgage on a 5%-down house and a grand total of $11,800 in liquid assets. In other words, his net worth is about zero.

“I would like to thank you for starting your blog,” he sucks up. “It has been immensely helpful in re-orienting how I view my finances.”

Obviously not helpful enough. Why this couple would want to begin their lives together with almost four hundred thousand in debt, no mobility, property taxes and financial stress is beyond me. But, actually, I do understand – it’s a disease. And here are two more examples of why I am seriously considering dumping this blog and joining the priesthood. Except for celibacy. And the religious part.

“Oh, sweet Jesus,” (just to continue this theme) Mike texted me today. “This just popped up on my Facebook.”

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Flip houses in Vancouver for a profit? Without using your own money? What are these people smoking?

Actually Tarek and Christina are reality TV stars, which gives them demi-god status and instant creds with the people who move their lips as they watch Closed Captioning. They appear on an HGTV series called ‘Flip or Flop’ (I will resist). They’re also realtors, but not from the Lower Mainland – where they’re hosting a series of special, limited-seating, flipology seminars this week – but Orange County, in California.

According to their web-approved bio, Tarek and Christina are “the top choice when looking to sell a home in Orange County at a price sellers will truly profit from. With California real estate, design, and construction backgrounds, Tarek and Christina are able to inspect every aspect of your home and advise you on minor changes that may be needed to ensure your luxury North Orange County home stands out above the competition.”

In reality the El Moussas, both 31, crashed and burned in the California real estate bust, crushed by a business failure, a $6,000-per-month mortgage and fat payments on their flash cars. They ended up walking away from their real estate, renting a $700-a-month apartment, then started flipping houses for a living. The first one cost $115,000. In Vancouver that buys time share in a bus shelter.

So there you go. Perfectly appropriate advice-givers for a market where the average detached house now costs $1.4 million, where real estate is peaking, not crashing, and crapola, unrenovated 1970s-era Vancouver Specials are going for seven figures. “Tarek and Christina built their successful house flipping business by building upon a few simple real estate strategies,” their promo says. “Now, Tarek and Christina have turned these strategies into an educational program that has helped people, just like you, start their own real estate business. The Success Path team is coming to present a live training (free to the first 100 to signup). Reserve your free seats now before they are gone.”

Real estate profits flipping houses in North America’s most expensive market, without requiring any money. When you see this, you know it’s over.

But wait, there’s more. Another come-to-Jesus moment, this time just south of Eglinton Avenue in mid-town Toronto. Local realtor Fraser Beach is taking the distasteful strategy of creating a blind auction for a house, and going big – turning it into a spectator sport and competition.

This is his mass email:

One of the most popular games in town these days is watching the real estate market and predicting what a particular piece of real estate might sell for. I’ve heard there are even office pools devoted to such predictions. So we’re joining in. I’ve just listed a desirable home in a demand Toronto neighbourhood. The Seller is receiving offers next Saturday. So our challenge for you is to predict what this property will sell for in the comment area here. We will announce the selling price and the winner of this pseudo contest when the sale of the property is firm.

Seriously. And boatloads of people are piling on, making their predictions for the auction price of this old two-bedroom bungalow on a 30-foot lot. The consensus seems to be well over $1 million which, of course, is why he priced is at $925,000. You can almost smell the coming breathless Toronto Star story, “Bidders boost beauty bung to $1.3 million. Buy now or Perish.”

Well, here is Mr. Beach’s fetching portrayal of his cute little house.

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Meanwhile people actually going to see it will encounter a different reality – a property running along the side of a hulking, low-rent apartment building, one street south of one of Toronto’s busier arterial roads. That’s the house on the far right of the street view below:

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Of course, it has granite counters, a marble backsplash, heated floors and a steam shower. Soon it will have a greater fool. Now, let us pray.