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September 7, 2017 | The Blip

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.

Caitlin’s confused. “I am a renter,” she admits, “but being an irrational as most humans, I do feel FOMO especially with my couch potato portfolio not delivering in the past 2 years. If possible, could you touch in one of your future posts on the phenomenon that despite the current RE situation, condos keep going up in price?”

You bet. And even though Caitilin forgot to suck up mercilessly in her note to me, I shall deign to answer. This situation’s worth a few words, being fairly weird and leading more than a few horny moisters to the edge of the looming abyss.

Yes, the condo market is at odds with the detached one. Seriously. Toronto houses with dirt attached have plunged 28% in the past hundred days, shedding about $100,000 a month. Ouch. In Vancouver, sales of detached homes are down 20% to 50%, depending on the region, and prices have flatlined. Hell, even on the tony Westside, it’s mounting misery for sellers.

Detached home sales in this luxury ghetto fell 18% in August, and of the 51 that found buyers, 37 of them went for below asking. Meanwhile inventory is stacking up, and the Westside now has a bloated 15 months’ supply – 60% more than last year. That spells a buyer’s market, of course, so the 3% price decline of last month is obviously just the start.

In fact, look at YVR as a whole. Average sold prices fell 1.1% in August and are off 17% for the quarter. And those softening numbers are despite a surge in condo sales and prices – showing just how schizo this market’s become. Last August a detached in YVR was surging 35.6% higher in price in just a year. This time around prices have barely moved – which means most of last spring’s gains have been erased.

Condos, in contrast, are smoking. Sales are 20% ahead of last year, and the kids have cranked values up 19.4%, to an average of $626,800. And here’s the most telling stat: last month the sales-to-active listings ratio for detached houses was just 16%. Pathetic. For condos, it was 76%. Extreme. That means multiple bids, over-asks and intense competition.

Ditto for the GTA. Sorta. Sales are crashing everywhere, and condos are no exception, with deals off 24% in 416 and 36% in 905. But while the price of a once-precious detached house in the city has now gone negative (down 1.2% year/year), condo prices have romped higher across the region by 21%.

So, why?

Don’t these kids (the vast majority of condo-snatchers are newbie buyers) know what’s going on? After all, market sentiment has turned negative as governments dropped the hammer on rent controls, foreign buyers and speculators. Interest rates have popped twice in two months, with more to come. The stress test is on the way, widely expected to chop available buyer credit. And it still costs way less to be a renter than to own exactly the same unit in the same glassy slab.

Has none of this made its way to Twitter yet? Snapchat? Instagram? WhatsApp? FB Messenger?

Apparently not. Besides, they just wouldn’t believe it. The Mill generation (slighter largely in size than the massive pile of wrinklie, Stones-loving boomers), at an average age of 26, has never experienced 6% mortgage rates or a world in which real estate actually declines. They believe any little dip in housing prices is a technical error the Help Desk will fix by lunch, and Justin would never let interest rates go up too much because, like, it would hurt. And everyone that everyone knows is totally maxed. So how could it happen?

So here’s Caitlin, young & single, renting for a fraction of the cost of owning, with freedom and flexibility, plus no debt, in the midst of a housing market that’s seriously stressed and in freefall – and the poor thing has FOMO. She’s not alone.  Enough others are fighting over the latest Brad Lamb box with cool damp concrete ceilings (seriously) to gross up prices by 20%.

This is the irrationality of real estate. It is the most emotional of assets. Cravings for it are often illogical, primordial, primitive and nestive. Given current economic, supply and monetary conditions, there’s no reason to expect capital appreciation on a condo in Toronto or Vancouver – and yet there’s no other logical justification for buying something you can have for half the cost as a renter.

But this is not about logic.

Were that the case, kids would be running screaming from mortgages, condo fees, property taxes, closing costs and realtor fees, given what lies ahead over the next couple of years. But the trouble is, once you hit 25 you know everything.

By the way, Caitlin, the potato guy sucks. Another revelation.

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September 7th, 2017

Posted In: The Greater Fool

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