Desire

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Aren’t you glad you didn’t buy a condo in the Big Smoke earlier this year when your parents told you to ‘invest in the future”?

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Matt sure is. “I have to thank you,” he says (always a winning way to start a letter to me). “It’s not hyperbolic to say that this ‘pathetic’ blog played a role in altering the course of our financial life.”

Matt will be even happier four paragraphs from now.

“Less than a year ago my soon-to-be wife and I started to get house horny.  We were serious about starting a life together, and so naturally expected we should “invest” in a place together.  Her parents and family encouraged us, it would be retirement savings after all and they would help with the down-payment, and by buying in ever-desirable Toronto where house prices always go up, how much risk could there possibly be?

That’s when I found your blog – the literary equivalent of a cold shower.  Your insights gave me the confidence (and the ammunition) to insist we continue our modest renting lifestyle.  Thank goodness for that. Four months ago we were surprised with twins.  Yup, two unplanned babies on way.  A blessing, but a potential financial disaster if we had proceeded and stretched ourselves as thin as a Toronto mortgage would have required.

Now, we’re moving back into my folks’ empty nest (I know…. wish me luck) in happy Hamilton, to spend a year absorbing free child care services and to save every penny we can, which, we’ll be applying to a balanced portfolio.

We could have been sunk…. And despite all the dreary prognostications within, I feel more empowered and hopeful about the future than I know would have without it.  And for that… I can’t thank you enough.”

You’re welcome, Matt. Enjoy the baby drool, and spread the word among the other desirous Young Hornies, that there but for the Grace of Garth, goeth I.

Seriously, the real estate situation in the GTA grows only darker. Sure, there are still bidding wars for ‘affordable’ junk in Leslieville or quasi-Danforth (less than $800,000), but the real canary in the coalmine is the new housing and condo market, where developers have been adding in everything but free DNA to make sales. And still they keep sliding.

The bad news this week comes from RealNet Canada. Here are the lowlights:

  • Total September new home sales (condos and low rise) the 2nd lowest on record
  • Total third-quarter sales the lowest ever.
  • Total sales, year-to-date 13% below long-term average.
  • Condo inventory at second-highest level on record.

In other words, sales continue to crumble, even as 53,000 new units are marketed, built and delivered. Meanwhile the first crack in pricing is starting to show, with a -1.2% year-over-year decline in condo prices.

“Decline?!” cry the former virgins from their concrete cliffs. “How the hell did that happen? Mom told me real estate always goes up!” Indeed she did, little one, and she was wrong. Housing’s just like every other asset, and anyone who bought with 5% down in the last couple of years is about to regret it. Hell, even a 1.2% decline combined with realtor commission, CMHC premium and closing costs means (if you sold) a loss in one year of $23,450 on a $400,000 condo. That’s a haircut of 7.8%, and it might look good compared to what 2013 has in store. The real threat, however, is illiquidity.

So, what could be worse than being a recent condo owner in Toronto? Being a real estate appraiser in Vancouver, of course. Yesterday Steve sent me this:

Ten years ago as a single man wanting a change of career, I looked into Vancouver real estate and the choices it had to offer. I decided on becoming a real estate appraiser, the idea of giving an honest opinion, protecting my client’s (lawyers, mortgage lenders, investors, etc.) interests, and not having to flog used mouldy houses that I would never buy myself appealed to me immensely.

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After thousands of dollars, numerous courses, and on the job experience, I became a designated residential appraiser with the Appraisal Institute of Canada and began working for myself. These were good times, before the crash of 2008/2009, the workflow was solid, the money was good, and everyone was getting good news on paper when my appraisal reports came back. I am an honest appraiser (we do exist) and I base all my work on market evidence, no lies and no stretching values that are not there. You were treated like a rock star back then…

Flash forward five years, and my how things have changed, and I am clearly beginning to wish I had opted for some other profession. Things bounced back after the economic crisis, but were never the same as the prior good times. I could see things changing dramatically in Vancouver and its many soulless burbs last winter and spring. All of a sudden the supply increasing, sales slowing and the warnings of mortgage rule changes. I knew what was coming, I had been reading you for years…plus I could see the market for what it was: blatantly overpriced, irrational, and in need of strong medication.

The work has slowly dried up. An increase in foreclosure and divorce work has been nice, but it is a downright depressing experience witnessing this, even from my impartial perch. The financing work is still there, but now it seems to mostly be desperate homeowners refinancing than anything else, and a good portion of the time it appears that it does not work out for them. Angry phone calls are a daily experience, either pissed homeowners shocked at the truth, or bitter lenders and mortgage brokers, livid that the deal is probably not going to happen, and no commission will be coming their way. This job is just demoralizing now, like kicking people when they are defenceless on the ground. I find no satisfaction is delivering the truth, and no one wants to hear it.

I have a strong feeling stability will be in very short supply in the Vancouver real estate market for some time. It was fun and somewhat rewarding while it lasted. I am sure I am not alone…soon to be joined in my conclusions by many realtors, mortgage brokers, appraisers, bank lenders, etc. who thought they could make a go of it in this dysfunctional market.

Thanks for everything you do, any suggestions for a new career?

Will Toronto be the new Vancouver? I will have more to say on this tonight, at our event at the DoubleTree hotel. Bring your mom.

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avatarGarth Turner - The Greater Fool posted Monday, October 22nd, 2012.

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