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February 11, 2021 | The Wild West

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.

In October a skinny detached, face-brick house in Brampton with a garage stuck on its snout was listed for $699,000 The neighbours were a tad started when it sold for $795,000. The sale price, in other words, was 114% of asking for the 31-by-100 property.

This month 10 Eastview Gate came back to market, about 100 days after that last deal. The asking price this time was $899,000. The hood chattered. And then it sold for $1,065,000. So in four months the street value of this place rose $366,000, or 52%. That’s an annualized gain of 157%.

Here it is…

Is this place, deep in the northern reaches of the outer GTA, worth seven figures? After all, the regional real estate board has just forecast that sometime in 2021 the average property – detacheds, semis and condos included – will jump that hurdle in the entire metropolis of six  million souls.

Well, maybe. But the point of this example (like a few others presented here lately) is that we’re in the grips of perhaps the greatest wave of residential real estate speculation in Canadian history – at least here, in the nation’s biggest market. You know why. Covid has turned people into nesting maniacs thinking that the virus will never penetrate a detached house. The WFH thing makes folks believe they can buy in the outer burbs, securing more space, because they’ll never have to trundle downtown again. Mortgages at an historic low of 1.5% allow families to pile on far more debt for the same monthly payment. And FOMO is rampant. The more prices escalate, the greater the emotion swells. Houseless couples in their thirties are convinced if they don’t grab real estate now – no matter the cost – they’ll have it never.

This is how a $699,000 house on a featureless, distant street turns into a $1 million object of desire. And as it happens, housing affordability erodes further. The divide grows between the haves and the havenots. Family indebtedness balloons. Liquid assets and savings – in RRSPs, TFSAs, bank accounts and non-registered investments – shrink. As a society we become more indebted, less diversified, assume greater risk and watch the growing gamification of real estate.

Brampton, by the way, is torrid. The average property is worth $102,355 more, or 12%, in the last two months. Detacheds now sell for an average of $1.168 million. Sales are up a stunning 50% year/year. It’s a zoo. Check this out…

How is government dealing with this speculation?

Not well. Most short-term sellers will claim the PR exemption to escape capital gains tax on the windfall. Some will be caught by the CRA and the profit declared business revenue, added to the seller’s annual income and taxed at that marginal rate (ouch). Others will get away with it. So far this has been an uneven approach. The bottom line is governments have been completely impotent to corral home flipping, even when politicians pay lip service to housing as a human right.

Meanwhile governments help make real estate even more costly. Look at the land transfer tax in Toronto – a prime example. A so-so $1.5 million property in 416 attracts $52,950 in tax on closing day. Money for nothing. And already it takes a couple with a combined income of $180,000 twenty-four years to save enough to buy a $1 million property. Now Toronto is about to jack the tax on so-called ‘luxury’ homes selling for $2 million or more. The LTT tax on a two mill hovel (now absolutely common in places like North Toronto) would be $96,475, combined with the provincial tax.

Ridiculous, say the critics. Nobody ever made houses more accessible by taxing them more. This will stem up-sizing by the elite WFH readers of this blog, thereby reducing overall inventory and squeezing prices higher. Real estate liquidity in the city could be affected, resulting in fewer homes coming available in lower price ranges.

In a word, dumb. But it goes to the meme that real estate is real wealth, and the rich are evil. Added to this is the vacancy tax, now in effect in Vancouver (at a whithering 3%) and set for Toronto next year. If you don’t rack up 180 sleeps in your home in any given year, it’ll be deemed empty and you’ll be taxed. The average Toronto condo bill will be about $7,000 a year, and $15,000 for detacheds or semis. Yup, more costs. More overhead.

The taxers say levies raised will be used for affordable housing. And while we need that, none of it will be made available to working, middle-class folk. They must continue to cope with higher valuations, squeezed inventories and the impact of unbridled cowboy speculation of the kind being played out in the wild west of Brampton. Ultimately the inability to buy leads more families to rent. That’s a valid (and less expensive) choice, but it also means more demand and increased lease rates.

Meanwhile, as this blog has been yakking about, mortgages are not going to stay at 1.5%. As the vaccines eventually defeat the virus, growth and inflation will goose bond yields and boost the cost of fixed-rate home loans. This may stall price escalation and nip the flippers, but it won’t crash valuations.

The conclusion? If affordable real estate is good and speculation is evil, why are we not taxing it? How does sucking off tens of thousands in transfer taxes and vacancy charges do anything but make houses cost more? The absurdity may have hit its zenith with BC’s ‘speculation tax’ that allows people to buy and flip properties (no tax) within a year but then whacks non-resident families who have owned and used places for decades.

Sheesh. We need new leaders.

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February 11th, 2021

Posted In: The Greater Fool

One Comment

  • Steve says:

    “. As the vaccines eventually defeat the virus”

    The covid vaccines are not vaccines as defined by law or science. They are gene altering drugs. In this racket, you will need to have a new injection weekly just to go down the street. And you still must wear 3 or 4 masks!

    If pcr tests work, why all the false positives?
    If 6 feet works, why the masks?
    If masks work, why the 6 feet?
    If masks and 6ft work, why the lockdown?
    If 99.5% of people with covid recover why the shutdowns, restrictions?
    If the restrictions and shutdowns work, why vaccines?
    If the vaccine works, why more than one? Why the masks and the 6 feet distance after vaccine?

    If you haven’t noticed, Canada now has less liberty than the 20th century communist countries had. Pathetic modernity.

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