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March 29, 2019 | The Stretch

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.

“Thought you might get a kick out of this Garth,” says Tom, in Toronto. “Condo pre-con at University/Dundas asking for over $1,750/sq.ft.  280 square foot studio closet for $500k. Ha!”

It’s true, believe it or not. You, too, can live in a garden shed-sized concrete box in downtown Toronto for $489,900 plus closing costs, property taxes and monthly condo fees. With 20% down (about $100,000) that little one-soul coffin would carry for roughly $2,800. Add in the opportunity cost of the downpayment, and it comes to $3,300. To afford that, you should earn about $120,000. And be braindead.

Pre-build Toronto condo sells for $1,755/ft


No wonder RBC says condo ownership is a b-a-d idea, at least compared to renting. Thanks to the stress test (plus mortgage rate hikes) the bank echoes what this blog’s been saying for ages – government policies have shoved demand down into ‘cheaper’ real estate, creating a frenzy and jacking prices. “An increasing number of buyers have been shut out of the higher-priced single-family home categories and turned their focus toward lower-priced options—mainly condos. Trouble is, this stronger demand for condos resulted in sharper price gains and affordability erosion.” And, thus, renters are winning.

Real estate in general, the bank’s latest report affirms, is pooched. Yes, the stress test and Dipper taxes in BC have crashed sales and dropped prices, helping make a house slightly more affordable but, sheesh, it’s mostly bad news. In Toronto: “Owning a home – especially a single-family home – is still a huge stretch for many buyers. So don’t expect the market to reverse its two-year, 31% sales decline anytime soon. If the early months of 2019 are any indication, there’s even further downside risk.”

What about Vancouver? “The market is in full-blown correction mode. Home resales have plummeted 58% since the peak in early 2016 with no sign of a turnaround so far in 2019. While various policy measures triggered and sustained the correction, Vancouver’s ongoing affordability crisis explains most its magnitude. The demand-supply balance now favours buyers and prices are falling.”

So, here’s the damage. Below is a city-by-city comparison of the median pre-tax income a family needs to devote to owning a home (mortgages, taxes & utilities) – and that’s after they’ve found enough cash to make a 25% downpayment. You can see the income requirement is 51% for the nation as a whole, and insane for YVR. (By the way, the acceptable GDS ratio in Canada – housing costs as a percentage of income – is just 40%. How is this not a disaster?)

% of pre-tax income needed to carry a house in…


Source: RBC, Pathetic Blog

Note that this is pre-tax. So, obviously, nobody can afford to live in Vancouver unless they’ve been climbing the property ladder with tons of equity, or are Bill-Morneau-style rich. No wonder the BC savings rate is negative.

As for that rent-vs-own question moisters are always posing, the bank says there’s no longer any contest. The premium for owning a condo in Toronto over the past three years has surged 140%. In Vancouver it’s 119% and in sleepy Victoria, 102%. Sure, rents are higher, but there’s no valid financial argument for purchasing. “This means that buying a condo is a bigger step up from renting than it’s ever been in these and other cities,” the bank concludes.

What next?

Mortgage rates will decline a little as conditions cool and central banks recoil. That should bring the stress test limbo bar down at least a quarter point – but still stuck around 5%. Not much help. Meanwhile the economic slowdown is poor news if you’re looking for a raise, a better job or to buy a house with real dirt. So, competition should remain stiff for condos, regardless of what stats the bank or anyone else trots out. Real estate reigns as our national mania, the creator and then destroyer of wealth.

Just pity the kid who walks into outsized debt to buy a 279-foot tiny home in a Toronto tower.

The good news? It makes sense, the banks says, to own in Regina! And Halifax is “hot”. So there ya go. Death by debt in 416. Or boredom in the flatlands and boonies.

Easy choice.

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March 29th, 2019

Posted In: The Greater Fool

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