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Losing it

Here’s Tom, from Windsor.

It’s interesting, that city. Two hundred thousand people living in the southernmost place in Canada corded to Detroit by the busiest border crossing in North America. The trouble is, the border’s largely closed – essential travel only. Thanks to Covid. The local economy is decidedly blue-collar. Cars rule. Chrysler is the big deal, but there’s doubt about its future. And the GTA is long ways off – fours away down the 401 Highway of Death.

Despite that, delusion. FOMO. Read Tom’s report.

Thought I’d let you know what was happening in real estate here. We bought a 2200 sq ft townhouse here 5 years ago for $279,000. My wife did an HGTV Reno on the place so all said and done we had around $480,000 in it which I didn’t ever think we would see again, but it was our retirement place so I didn’t worry too much about it. Anyway, we have three kids all grown who work in the cruise line industry and two of whom were furloughed and moved back home with us. As a result we thought perhaps we should look at a detached home with a bit more space.

Started looking in July and every place we saw (about 30 homes) all sold within days of being listed and every one of them sold by auction. The average listing price of the homes we looked at was $699,000 and the average overbid was between $120,000 and $135,000…nuts! You couldn’t put any conditions on the offer and they did an offer day in every sale. Many if the houses had kitek plumbing that needed repairs and still they sold over auction and these were places that would never have sold without prior repairs being done not sold as is in an overbid auction.

About 3 weeks ago we were door knocked and offered $800,000 for our townhouse. We gave it a lot of thought but rents have gone up here as well and we can’t replace our unit for $800,000 in this market. It’s crazy that this is happening in a town that has a major industry revolving around vehicle manufacturing that currently has no new product line announced for its major employer. If that place goes under, like Oshawa and GM, it’s over here for many years yet people still throw this kind of money at places. We have decided to not get involved in this market but rather watch from the sidelines.  Anyway, I’m sure it’s the same story in many other places but I’d thought I’d give you an update.

Well, should T have sold for eight large in a once-in-a-century pandemic boom and pocketed the tax-free windfall? Probably. But we don’t know anything of his circumstances. Except for two clingy, spongy adult children who can’t make it on their own.

What’s this note really about? Risk, of course. People overbidding for homes in a tertiary market with an uncertain economy in a volatile time. Buyers competing for houses with structural issues and doing so without protections in place. No conditions. No inspections. All hormonal.

What would cause this behavior? (a) The fantasy belief that prices will go up forever, so it really doesn’t matter how much something costs. And (b) the cheap loans which make overpaying possible. For now.

Okay, let’s not diss Windsor too much. But the place is gritty. The main drag for years has been littered with empty store fronts and marginal tenants. US wit Stephen Colbert once called it (on air) ‘Canada’s rectum.’ It’s currently a Stage 3 hotspot for the virus. Unemployment during the summer hit 16.7% – the highest in Canada (it’s recently dropped to about 13%). But there’s a killer view of the gleaming Detroit skyscrapers across the river.

Real estate? Sales this month are running 32% above last year’s level. Prices have surged 31%. So far in 2020 – the year of virus, lockdowns, economic glut and record joblessness – prices in Windsor are up 18.67%. And therein we have a cautionary tale about what is happening these days to our nation. We’ve lost it.

Windsor is not like, oh, Hamilton, Oshawa or Mississauga. There’s no commuting to the Big Smoke. No big population inflow. No looming employment opportunities. The average age is above that of Toronto, the GTA or Ontario. And no quick trips across the water now to catch a Tigers or Red Wings game.

But this is not about one city. It’s just emblematic of outlandish behavior everywhere, whether in Kamloops or Bedford. Even the head house-humper at Royal LePage is sounding an alarm. ““Prices right now are rising at an uncomfortable rate,” says Phil Soper. “The economy and the social data in Canada right now is not boom time.”

You bet. The jobless rate everywhere is awful. Governments are going dry for funds. Cities are in financial crisis. Westjet just pulled out of Atlantic Canada. Ontario and Quebec cannot control Covid. Four million people are on government pogey. We’re heading into winter with hotel occupancy at disastrous levels, tourism moribund and six in ten restaurants expected to fail.

Moreover, the interest rate tough has been hit, and it seems to this pathetic blog like the real estate peak has been passed. Numbers emerging over the next two months will show increasing bond yields, for example. Massive government stimulus plus an end to the US election uncertainty will bring a rise in rates – according to a second major US bank report (Citibank first, now Bank of America). Rates could be 1% higher by the end of next year, which would – yes – more than double the current level.

Pandemics are temporary. They end. Always. Recovery will bring modest inflation, higher rates and a repopulation of the major cities. Decisions people are making today – buying in places that were cheap for a reason and taking on inflated debt to do so – could look dodgy at best, lethal at worst, two years hence.

Tom’s house may be worth $480,000 again. Bummer. But at least the kids will be gone.

Careful what you wish for

An hour into the disgraceful Trump-Biden brawl (and as the President incubated the virus) Google searches for ‘moving to Canada’ peaked. Of course once scared Americans started looking at real estate prices in this great, frozen, pooched nation, it fizzled a bit.

“My grandparents’ small house in southern Ontario was just resold for $775,000,” a Twitterite posted. “About 3 times what we sold it for 10 years ago. The average income in the town is $50k. How do Canadians afford to live there?”

We can’t. We just borrow heaps of money and pretend we own stuff.

But look at this. If just 1% of Americans moved here, that would soak up about two million houses. In all of 2019, right across all of Canada, only 458,500 property transactions took place – and prices still went up. Just imagine if the Yankee invasion were to materialize after a second Trump victory – with all those liberal, SJW, progressive, NYT-reading Karens flooding across the 49th.

‘Move to Canada’ trending. Are you sure?

Source: Google Trends

But is it already happening, sort of?

Covid has had material impacts on the housing market in 2020, as this pathetic blog has chronicled. And there are more to come. The virus crashed the market in March and April, then turned it blistering hot in July and August. Condos have fallen seriously out of favour as people worry about germy elevators and diseased neighbours. Meanwhile Airbnb crashed, rents were frozen, evictions halted and amateur landlords skewered.

As WFH turned into a thing, suburbia caught fire. Now silly people are paying seven figures for ugly houses with garages stuck on their noses perched on streets where nobody walks with sticks called trees, miles from the core. And recall that rental weirdness a couple of days ago in Huntsville? Oy.

As mentioned here recently, this blog has been stuck inside the Atlantic Bubble for a while which, apparently, has the best virus record in North America. A single new case in NS, for example, is a rare thing. They’re normally dumped at sea. But one guy escaped and is in hospital at the moment.

Anyway, here’s the skinny from a Halifax realtor:

Any way you slice it, summer had to have smashed some records in real estate this year, it truly has been an incredible market. Still, many await their turn to enter the Atlantic provinces, hoping someday soon the bubble will burst and they can plan their relocation. Until then, many people stand by to send another surge towards our housing market when it does happen, so tracing the impact of that event will prove interesting indeed.

Halifax has 600,000 people and – until last year – was incredibly cheap. Now the average selling price for a SFH has increased 28% – or almost double that of the GTA (to $415,000, which is still a bargain). Total listings have shrunk by about half as buyers overrun the place and days-on-market have dropped 53%.

And the little 2,000-soul touristy puddle where my baby bank-by-the-sea building is located? Listings are snapped in a couple of days. Prices in the ‘old town’ have risen 40% in a year. Unprecedented. Most buyers are online FaceTimers. The locals are being shut out. Again. First Americans and Airbnb were the scourge. Now it’s those damn Upper Canadian refugees.

Thus the virus has plumped values from here to Nanaimo. Niagara is a bidding war disaster. Valuations in London and Windsor are nuts. Urban Montreal has seen a 40% spike in sales and detached prices have risen 24%. Transactions in Quebec City were up 62% in August.

So here’s why this is all so strange, and Americans yearning for a simple safe and Trump-free life may need to consider Lithuania instead.

The chart below comes from mortgage rockstar blogger Rob McLister and debunks this myth: cheap mortgage rates make home ownership more affordable in Canada. No, actually, they don’t. You are still screwed if you try to buy without a pile of money.

Source: Ratespy.com

This portrays the minimum monthly cost a typical borrower would have to shoulder to buy the average new home in this land. Calculated in constant dollars (no inflation) it tracks routine financing, heat and taxes and is based on 5-year posted mortgage rates. So it gives a true answer to this question: are houses more affordable now? Answer: not a chance. As rates have dropped, prices have jacked. Buyers rushing in today are embracing more risk than ever. They just think they’re smart. Mortgage payments down. Mortgage debt up. Ownership costs historic.

Now, for the important stuff…

Source: Dogs for Biden