July 8, 2015

The Story Of The Speculative Boom And Bust

Mortgage Broker News reports from Canada. “Brokers are wary about the high level of HELOCs in Canada, and the long-term effect they could have on household debt. ‘I think HELOCs are detrimental to the housing market; people are running themselves up in debt and at least with a mortgage you pay it down,’ Gary Green of Mortgage Plus told MortgageBrokerNews.ca. ‘With a HELOC, though, you can just keep running the credit up.’”

“Canadian outstanding debt currently sits at $266 billion, according to RBC, a chunk of that in home equity lines of credit. According to CAAMP’s most recent figures, 22 per cent of Canadians have a home equity line of credit. ‘It’s like turning your house into an ATM,’ chartered accountant and personal finance author David Trahair told the CBC. ‘If you’ve got a house, especially in Toronto with these insane values, you can borrow an incredible amount of money against the house.’”

The Financial Post. “The Greek debt crisis washed up in Alberta Monday, as a flight away from risky assets knocked US$4.40 off oil prices, putting additional pressure on the province’s already-battered oil industry and on oil-dependent provincial government finances. Another oil price retreat would be dire for the Alberta-based industry, which has been on a strict spending diet for the past seven months, resulting in widespread layoffs, project cancellations and investment cuts. ‘We’re getting our summer correction and I don’t know where it will stop,’ said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Mass. ‘We could soon be looking at $50-a-barrel ceiling for WTI.’”

The Canadian Press. “With oil prices drifting closer to US$50, energy executives in downtown Calgary are trying to stay positive. When crude was above US$100, the Fort McMurray, Alta., region saw enormous cost inflation. Nowadays, overtime costs are down ‘quite significantly’ as Syncrude has shifted around schedules. Companies that provide drilling and other services to oil and gas producers have been hit particularly hard in the downturn. Dale Dusterhoft, CEO of Trican Well Service said the sector can look forward to an oil price of US$75 or US$80 a few years from now. ‘So running a low cost operation’s going to be paramount to being successful there because there isn’t going to be that much extra money floating around.’”

From MetroNews. “A string of houses on the Cambie corridor targeted by squatters, vandalism and theft after being left empty by developers waiting for redevelopment has prompted one city councillor to call for action. Green Party Coun. Adriane Carr will ask council this week to immediately address the problem of unoccupied and vacant houses. In her motion, Carr states that neighbours’ security, safety and quality of life has been threatened by the unkempt properties that attract everything from critters to crime.”

“She also questioned whether the city can force developers to either rent out their properties or provide additional security if they intend to sit on empty houses for a long time while waiting for the right opportunity to start construction. The idea of renting out vacant homes has gained traction recently as affordable housing advocates search for ways to find people decent homes in a city where vacancy rates hover around 0.5 per cent.”

From Global News. “Fariba Hatami was among the first customers to buy a pre-construction, low-rise Mississauga condominium in 2012. For $473,000 she says she was promised an unobstructed view. Now, Hatami faces a giant jumble of natural gas pipes and valves a few metres from her windows and balcony door. The school teacher and yoga instructor says she was charged a ‘premium’ by the sales representative for the corner unit, which is just under 1,000 square feet in size.”

“Customers who buy pre-construction condominium units can’t be sure if they’ll have utility services nearby, or in full view, until the project nears completion. Purchase agreements give developers the right to make changes to the project as they see fit, often without advance warning to consumers. VANDYK refuses to give Hatami the option to cancel her purchase agreement because of the unexpected arrival of the natural gas pipe structure. The builder also declined to offer another unsold unit in the development, or to reduce the price of Hatami’s unit in any way.”

“She also says real estate agents have told her the resale value of the unit will be diminished because of the natural gas pipe structure. Domenic Zita, president of VANDYK Commercial, disagrees. He says his company is ‘working with Hatami’ and will create landscaping around the structure to improve her view. But Hatami doesn’t believe it will make any difference. ‘If this is a good thing, why don’t they take it back and sell it for more?’”

The Globe and Mail. “The story of the speculative boom and bust in Canada’s vacation real estate industry reads much like that of the housing bubble south of the border. In the early and mid-2000s, easy credit, a seemingly insatiable demand for real estate investments and Canada’s growing renown as a vacation destination inspired developers and investors to flock to resort communities with dreams of building vacation paradises, many of them offering thousands of homes built around expensive golf courses, ski hills and marinas.”

“With its reputation for million-dollar cottages owned by Hollywood celebrities and the Toronto business elite, Muskoka was a prime target. ‘Before the market turned, we didn’t have to do any work,’ says Muskoka-area realtor Heather Scott. ‘We were more order takers than we were helping people buy and sell properties. We were just writing deals.’”

“Peter Freed purchased 850 acres of wilderness near Gravenhurst from five different owners to create Muskoka Bay, a community of up to 1,000 luxury cabins along an 18-hole golf course. ‘If I knew what I knew today and I was starting from scratch, I wouldn’t do it,’ he says. ‘So when you look at a market with something that has never worked, I guess you have to ask yourself why you did it in the first place.’”

Bits Bucket for July 8, 2015

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