Pity all the poor people in Canada who make $17 an hour (the average hourly wage is $23).
“There is an outcry by people making between $22,000 to $55,000 a year who do not qualify to buy a lot out there, but they want a piece of the action. They want their own home, rather than renting all their life,” says a Surrey, BC developer who wants everyone to enjoy mortgage debt, condo fees, property taxes and private space. But not much of it. Development company Tier Sher plans to build Canada’s weensiest little condos – 56 ‘micro suites’ starting at 290 square feet.
By comparison, the standard two-car garage is 624 square feet. The average garden shed is 144 square feet. A shipping container is 160 square feet. A school bus is 240 square feet. But to the delusionals running the Greater Vancouver Homebuilders Association, this is a great idea. Micro suites will appeal to “first-time homebuyers, investors and even some empty-nesters.” Not to mention the empty-headed.
Prices start at $110,000. Downpayments are $6,000. Monthly payments will be $650, plus fees and taxes. And the development is a trek away from a train that’s almost at the terminus of a long line to downtown. This is Surrey, after all. As Brampton is to Toronto.
Fool ideas like this, in a country which is largely empty, along with the fools who will buy these units, just because they’re cheap, show we’re at the end. Middle-income people were trapped into real estate entitlement long ago, made to feel that renting is shameful, transient and second-class. Now legions of them in cities like Vancouver risk seeing their equity dribble away, their homes grow unsalable and their freedom nipped.
So with home ownership at an astonishing 70%, it’s only natural developers would turn to Wal-Mart greeters, grocery store shopping-cart jockeys, parking lot attendants and financial advisors as the next victim class. They, too, should buy places with 95% leverage at interest rates which will only rise in the future, and monthly costs they can’t really control. All for the equivalent of two garden sheds which contain one room and no tub.
Speaking of Vancouver, it looks like sales in October will be the second-lowest since the mid-1990s. Values are falling on the Westside and in Richmond, while sellers in North and West Van try clinging to prices no buyers are willing to pay. Blood’s seeping into the water now, and the sharks know it. The year will close out with the greatest number of homes sitting unsold since 2008. Next year could start a feeding frenzy.
“We are in the middle of it now and there is no turning this thing around for a while,” says a man who should know. “It was interesting to report the change in direction downward that actually occurred starting 12 months ago and then really accelerated in the Spring - what we have to watch now is to see if the feds change course given the big slowdown in volumes and clearly the fact that the industry is heavily lobbying.”
But F and the peckerettes aren’t backing down, unless we well and truly fall off a cliff in the spring of 2013. The odds of that happening are diminishing daily, as the US economy does exactly what this pathetic blog forecast a year ago – slowly, painfully, resurrects. Of the last 48 S&P companies to report earnings, 35 exceeded analysts’ expectations. Central banks have succeeded in stabilizing Europe. US employment numbers have shown gains for 41 months. Bidding wars in Phoenix have pretty much soaked up those thousands of bargain properties I suggested you sniff out last year, and the vultures have just descended on Atlanta.
Now US new housing starts, while still running 60% below the 2006 peak, have blown past estimates. New construction shot ahead 15% last month and houses are being built at the fastest pace since 2008. Building permits are ahead 12%. Overall, the American economy has picked up noticeably on the back of better jobs reports, stronger consumer spending and a surge in car sales.
There are years left in the recovery, of course, but anyone who tries telling you America will flop into depression or burn off its currency in hyper-inflation is flat wrong. If you have $110,000 to spend, then why would you put it into a rabbit warren in Surrey, instead of an always-rentable bungalow in Naples? (This one was worth $384,000 in 2006.)
The message here from 2010 remains. Buy America, sell Canada. There’s substantial risk in most of the Canadian real estate market, with some notable exceptions I will address in future posts. Meanwhile the US market has bounced off bottom, and is now in the earliest stages of a protracted recovery.
Personally, I think the Surrey building would make an excellent kennel.