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December 4, 2016 | Think Different

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.


It now costs the better part of $1 million more to buy a detached house in that paradise known as the GTA than it does to get a condo. That’s $1,345,000 for some dirt, and $471,000 without it. Both prices are extreme. Limited supply has lofted detacheds by more than 30% in the past year. Meanwhile the condo I rent downtown sells for about $750 a foot.

Last month, which was as euphoric in Toronto as it was depressing in Vancouver, saw a 28% surge year/year in condo sales, while house deals were ahead less than half that – 13%. Sure, supply plays a role and listings are scant, but this is more about price than anything.

And Millennials.

The moisters now outnumber the Viagra-popping, Jaggeresque thirsty-underwear set for the first time. In Toronto alone the Mill population swelled by more than 40,000 every year between 2011 and 2014. Since the 1950s Boomers have dominated the demographic pyramid. No more. Fully 34% of the country’s inhabitants have reached adulthood (sort of) since Y2K. And while they may love facial hair, plaid, probiotics, left-wingers, work-life balance, emojis, social justice, organics, online commerce, vaping, fintech and selfies, they’ve sure embraced the property lust that defined their parents, once they got over bell bottoms and hash.

When realtors (who else?) asked a mess of moisters what kind of home they planned to purchase, 75% had the same answer – a detached, single-family house. A decade ago seven in ten new houses sold in the Toronto region were just that. Today only three in ten are singles. The number of available properties has decreased by 90%.

So, figure it out. The biggest cohort’s now entering its rutting and nesting years at the same time low interest rates, land use restrictions, runaway building costs and inert Boomers have sliced the number of properties on the market. The result, as mentioned, is a $1.3 million tag on detached resales and $1.2 million for new singles. No wonder more money is now being channeled into high-rise condo units, especially given the recent mortgage rule changes including the stress test.

The average Toronto-region condo costs roughly $440,000. The average monthly fee is about $650, and property taxes average a little less than $3,000 a year. So buying a one-bedder with 20% down means having almost $100,000 in cash to close, with a mortgage payment of $1,500. Add in fees and taxes and the monthly nut comes to $2,400. Consider the hundred grand you had to put down which, if invested to earn 6%, would yield $512 a month (inside your TFSAs), and the true monthly cost is now almost $3,000.

The average one-bedroom apartment in Toronto rents for $1,453 while a two-bagger averages $1,805 (according to the rent control board people). So, it’s fair to say  moisters taking the condo ownership plunge, as opposed to renting, fork out about twice as much per month. Not the greatest strategy for building wealth, especially with higher mortgage rates and Trump on the horizon.

But there’s more to consider: average monthly maintenance fees rise an average of 14.8% during the first three years that a new building is occupied. Ouch. And you’ve no control over that. Nor property taxes, which are under considerable upward pressure. Plus there are special assessments to worry about – replacing suspect glass panels in the curtain walls of new builds, or repairing aging boilers and crumbly, salt-infused parking garages of older places. And then, when you sell, there’s a 5% outlay to the realtor.

Given all this, and the certainty a mortgage taken out today will renew at a higher rate, why would anyone buy?

Over five years the average Toronto condo renter will save $90,000 over the average condo owner. If that were invested for modest growth inside a TFSA or RRSP (starting with $1,500 and adding that amount monthly) it would total $106,700. Of course, owners are able to convert some debt into equity as they make mortgage payments, plus employ leverage. But they also absorb all kinds of risk that renters never face – like market risk, rate risk, occupancy risk and a-dickhead-just-move-in-next-door risk.

Renters have flexibility, mobility, enhanced cash flow and the complete freedom to ignore mortgage rates, property tax increases and real estate corrections. And with 52% of all new condos in Toronto going to amateur landlords who will never move in themselves, the odds of being turfed from your rental unit are microscopic.

Of course, all of these rational arguments are no substitute for hormones. Millennials are flooding into their peak house lust years in droves. Those unable to cough up the $280,000 in cash for a detached downpayment, or the monthly financing cost of a $1.1 million mortgage ($5,000), will likely stagger into the wealth trap called the condo market.

Big mistake.

After all, if you can live without Starbucks and don’t mind a soul-sucking commute, there’s this for $429,900. And they’ll probably throw in the deer head!

Seriously, kids. Get some dirt.

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December 4th, 2016

Posted In: The Greater Fool

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