Telling Tales

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dude

Was it only a year ago that 255 Connaught Drive sold for $769,000? A benign winter was mellowing along, with flocks of dewy-eyed, tufted hornies drawn irresistibly to the season’s first crop of tasty listings.

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Yes, the Connaught house was ugly, dated and tired, but the Willowdale area of Toronto was kinda hot, and this relic was settled on a fifty by 132 lot. So, the hornies descended. Besides, the listing agent created an auction environment, cancelling an open house and accepting offers only by fax (with proof of certified cheque) by precisely 4 pm on Wednesday, February 15th.

connaught  There were many. And the $669,900 house ended up selling for exactly $100,000 over asking. By the time closing day came the buyer would have paid $791,960, including Toronto’s double-double land transfer tax.

Paul was watching all this from his neighbourhood window.  “Today, my agent forwarded the link below to me that really seems to drive home your point about the value blow-off in Toronto,” he wrote me. “This same house just sold again, with what appears to be no substantial changes, almost exactly one year later, for only $720K. This is a $50,000 haircut, in just one year.”

Actually it’s a $71,000 haircut, and after the vendor forks over the 5% commission, it’ll be a scalping of $107,000. This is a one-year loss of 14% – in one of the GTA’s hot spots where houses are still ‘affordable.’ Of course, one year later, lots more affordable

“I know that one sale does not make the market,” says Paul, “but it is a telling tale. My guess would be that a speculator bailed on the deal, so the house came back on the market.” Worse, the first deal simply fell apart.

On the South Shore of Nova Scotia, long a fav of the monied, yachty set from Boston and wealthy European investors, the correction has already happened. Last Friday realtors revealed that sales across the province have collapsed by 21% over the last year, after a ship-building-induced speculative frenzy fizzled in the Halifax area.

portrait  Prices on the South Shore are now running about 18% below levels of eighteen months ago. For example, a spectacular, restored century-old Queen Anne revival sat on the market for almost three years, starting at well over $500,000 before selling for $385,000. “We’re doing a lot of deals where there’s pain on both sides,” says local broker Tim Harris. “It’s a buyer’s market, so if they don’t do well on the sale of their home, they pass the pain along again.”

On the opposite coast, at the corner of Steveston Highway and Shell Road in Richmond, Larson has been driving past the same fluttering banner and weathering sign for the last four months. This past weekend he snapped a picture and sent it along.

“Thought you might be interested,” he says. “The ‘Free Car and 11 sold, 14 left’ sign has been there since late November. If memory serves me correctly, the building was completed over a year ago.”

ironwood gate  Actually the 25-unit townhouse development has been on the market for over two years. Now poor agent Mukhtiar Sian is left with 11 Hondas, which are last year’s models. (At least they’re not KIAs.) In fact, this is just one example of a slew of new developments in the Greater Van area which hit the market at the worst possible moment – as the great reset was just beginning.

These are but three glimpses of markets in the midst of a correction which will run long and deep. Of course at the same time there are multiple offers and above-asking bids in other places where people are not paying attention. Real estate’s emotional tug is relentless and intoxicating, and will continue to ensnare. And while there’s nothing wrong with wanting and securing your own home, committing the bulk of your net worth there, or expecting a house to gain in value in the future as it did in the past, is folly.

Yesterday I wrote about the inexorable shift from real assets to financial ones. It’s a long-term trend most people will deny, or be wilfully blinded to. Those obsessed with bricks of clay or ounces of silver will deny this without end. But for most families the safest path forward is to ensure they worship the three deities: Balance, Diversification and Liquidity.

Tomorrow: why the scariest is yet to come.

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avatarGarth Turner - The Greater Fool posted Monday, February 18th, 2013.

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