Real Estate: This Won’t End Well

 

Real Estate: This Won’t End Well

From Garth Turner’s Blog

“Fantastic Value! Estimated annual taxes, $189.33. Monthly maintenance fees only $47.” And wait until you hear the price – just $25,000. So, who says all property in tony Toronto is downright unaffordable?

No need to worry about decorating or landscaping with this baby, either, because it’s a gorgeous… parking space. Here’s the listing, and I’m sending out one of my books to agent Angelo Sol in recognition of the sheer size of his male organ. It takes a certain kinda guy to get excited about a patch of asphalt that comes with its own municipal tax bill and monthly fees. By the way, fees for what?

Also interesting, this Fantastic Value! is attached to a condo building where about $350,000 buys a 586-square-foot one-bedroom unit where you can conveniently sit in the living room and, if you lose the remote, adjust the TV on the far wall with your foot. What thoughtful design. Taxes are $2,200 a year and condo fees $340 a month. So, overhead is $523 a month, and with 10% down ($35,000) plus closing costs ($6,950 for double land tax, plus legals, plus $6,300 for CMHC) the monthly nut with a 3.2% variable mortgage is $2,122. Or, you could rent the same place for $1,350.

Here it is:

How severely will the condo market eventually be hit by what F & the peckerettes have wrought? Well, imagine a direct asteroid strike. A black hole where 2,000-a-month sales once were. Mangled, smoking Vespa debris everywhere. Ikea trucks, circling pathetically. Speculators, barefoot and mute, staring at twisted I-beams in unseeing trauma. Among them, the occasional limp body of an expired barista.

Already condo listings in most Canadian cities are snapping higher in anticipation. Speckers and flippers are overrunning Kijiji and Craigslist, desperate to assign offers on unbuilt units or dump existing ones below cost. Developers are scrambling to unwind projects they know can no longer be sold. And this is but foreplay. You see, about half the country (the half that doesn’t come here) have no idea the rules of real estate just changed.

A banksurvey this week found only 45% of people realize that (as of today) the longest insured mortgage is 25 years, instead of thirty. And I’d wager ever fewer know cash-back mortgages are about to be murdered and borrowing requirements made stiffer. Hard to believe, eh? That people would actually go on vacation, flirt with babes, play with their children, visit cottages, flirt with hunks, run with their dogs or quietly lead productive, useful, obedient lives instead of reading this blog?

Amazing, but true. Which suggests the real impact of these changes might be felt when the property market swells like a gland again in September. In fact, the research suggests what happens when people do understand the new reality:

“The BMO survey also showed that 14 per cent of potential home buyers see it less likely that they’ll buy a new house in the next five years, while 41 per cent of those who still expect to purchase a property in that time period say it’s now more likely that they’ll spend less. And 45 per cent say it’s now more likely that they’ll opt for a smaller mortgage.”

This is exactly what F & the Ps were hoping for – to quell demand and deflate the bloated gasbag they’ve spent the last three years denying existed. A 14% reduction in buyers, four-tenths of whom decide to spend less and almost half who will borrow less, is an anathema to realtors and mortgage brokers. And the inevitable outcome is clear – sharply lower sales, a tsunami of new listings and collapsing prices.

There will come a time (maybe it’s now) when historians will wonder why anyone would buy something they could rent for less, spending big money to do so, while taking on massive personal risk in the form of variable-rate debt. Especially when it’s destined to decline in capital value, and costs $47 a month in maintenance fees. Fees for what, exactly?

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COMMENT: 

Yes, $25,000…..they were advertising a parking space.

Now , read carefully the remaining details of the article…VERY Important.

Recall “F” refers to Jim Flaherty the Finance Minister, who, with the Federal Gov’t  left it as long as possible but ultimately had to intervene on the bubble.

As noted…GOOGLE “Kijiji “and “Craigslist” and see whats available….It an be amusing reading ads from desperate sellers,re-assigning the offer papers,  amateurish landlords  seeking tenants for cash flow etc.. In other words naive speculators and rookies who got caught and will be badly burned.

Re condos, the 30 year mortgage is kaput, as are added requirements……the entire game has changed….

QUOTE:

And the inevitable outcome is clear – sharply lower sales, a tsunami of new listings and collapsing prices.

When the boom was still occurring, many of us amused at these small condos as noted above…we called them shoeboxes or coffins. Bachelor or One Bedroom Condos  are the least popular for resale. Allowing such construction only benefitted the developers and the City. The City claims it is helping affordability,but all they really do is create excuses , allow  that quick- fix “cheaper option” so more expensive units can be built.  As prices rise , people had no choice but to buy these shoebox coffins, still at inflated prices. When the market tanks…these small units will have the least appeal.

Amazing that the survey noted above stated almost half those surveyed were clueless of the changes.

Regardless, the rules ARE changed and the imminent start of the collapse is commencing.

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