Relief That Reason Has Reasserted Itself
A report from Macleans in Canada. “When Toronto-area home prices began their slide, the market served up painful lessons for buyers and sellers alike — and revealed shady behaviour that helped inflate prices in the first place. John, who asked that his name not be used for reasons that will become obvious, knew he had to make an offer. He figured he could rent it out, and if the payments didn’t cover the mortgage costs, no matter. Back in early 2017, home prices in Toronto were on an unstoppable tear, surging double-digits every month. The house would surely be worth more in no time. The home was on the market for only a few days when John’s offer was accepted. He bid nearly $1.9 million, about $360,000 more than the list price. Then everything fell apart.”
“During the closing period, the Ontario government introduced the Fair Housing Plan, which included a 15 per cent tax on non-resident buyers. The plan released the air from the housing market, and prices took a nosedive. John’s investment property sat on the market for 27 agonizing days before a buyer could be found. The home sold for 25 per cent less than what John had paid just five months earlier, leading to hundreds of thousands of dollars in losses. ‘I was so greedy,’ he says now. ‘I will not play the game like that again.’”
“John’s tale of misfortune isn’t exactly unique. Hundreds of Greater Toronto Area residents were caught when the housing market took an abrupt dive last year after a long run of booming activity. For the first time in a generation, it was possible to lose money in the Toronto real estate market. A detached house in Richmond Hill, Ont., was purchased by a real estate agent and a business partner for $2.1 million in February as an investment property. They sold it again in November for $1.7 million—a 19 per cent loss. Similarly, a would-be real estate investor spent $1 million on another home in Richmond Hill, intending to renovate, according to the agent involved. The purchaser hit financial trouble in a matter of months and had to offload the property. The home eventually sold for 15 per cent less than the previous purchase price.”
“Another house east of the city sold for $75,000 over the asking price at the end of March. The purchasers, who lived in the home, couldn’t find a cheaper mortgage. ‘The monthly payments were just insane, so the only option was to lose a hundred grand and sell the property,’ says Paul Jaypour, the real estate agent who sold the house the second time. The original purchasers took an 18 per cent loss. ‘The worst is still to come,’ he predicts.”
“All Lisa Mastrangelo wanted to do was sell her house. ‘It turned into the biggest nightmare of my life,’ she says. Mastrangelo was going through a divorce, and decided to sell her home in Oshawa, Ont., where she lived with her two teenage daughters, and move to a smaller place. At this point, Mastrangelo was carrying two properties and a bridge loan, and facing a lawsuit and escalating legal fees. ‘I couldn’t even talk about the situation without bawling my eyes out,’ she says. ‘Financially, I’m not ahead,” she says. “We’re only just starting to get back to normal and have a life again.’ Mastrangelo filed a lawsuit against the first buyers and hopes to recover the difference in purchase prices.”
“A falling real estate market can also reveal shady behaviour that helped inflate prices in the first place. Monica Peters, a lawyer in Toronto, cites cases where transactions involve straw buyers or fake names in order to conceal the ultimate purchaser. The real buyer can then speculate on the market with little fear of consequences if the transaction fails. Similarly, pursuing a non-resident buyer in court can be both pricey and onerous. ‘I’ve had cases where this person exists, but they’ve gone back to China,’ Peters says. ‘I can sometimes spend five to 10 thousand dollars trying to track that person down.’”
From Toronto Life. “According to TREB, the number of home sales recorded throughout the Greater Toronto Area this April was 7,792. That’s down from 11,468 sales in April 2017, a 32.1 per cent year-over-year decline. The average price of a home in the GTA was down 12.4 per cent year-over-year, to $804,584. The last time the GTA sold fewer than 8,000 homes in April was 15 years ago, in 2003. And the last time there was a year-over-year decline in April’s average sale price was in 2009, during the recession.”
“Recent buyers caught up in the sudden price swing have begun telling their stories to the press in the hopes of gaining some financial relief while they wait for the market to recover. They may need to keep waiting.”
From MoneySense. “MoneySense caught up with Mustafa Abbasi recently, shortly after putting together its 2018 edition of Where to Buy Now. Abbasi is president of Zolo, a brokerage and real estate data specialist. MS: When a frenzied market retreats, you get a stark look at a lot of the aggressive lending, buying, flipping strategies that were in place. What are some of the things you’ve seen in the past year that show the impact of a market going through a correction, such as buyers having to tap alternative lenders.”
“Abbasi: You may be surprised, but the real estate industry is a pretty traditional business. We like balanced, tested and reliable processes. So, the rise in the use of alternative mortgage lenders has been a big surprise for us. Some clients have a ‘get in the market at all costs mentality’. While we may discuss the pros and cons of this approach, in the end it’s their decision. Plus, we are often left with that proverbial fumbled ball. Any agent may spend a month or more looking at houses, help a client make a successful offer only to get a panicked call that the client was refused by their bank and they need to find an alternative lender.”
“MS: And yet, there are a lot of people feeling relief, that reason has reasserted itself. In a very real way we are in a new normal that looks a lot like the pre-mania normal. But the mania was so strong and long-lived that many people don’t remember what normal is. Describe this new normal.”
“Abbasi: The new normal. Yes. We’ve heard a lot about that in the last few years. Normal used to be interest rates close to double digits with prime at 5% or 6%. The new normal will probably see prime a little lower with higher mortgage rates above 5-6%.”
From Prince Albert Now. “Prince Albert’s residential housing scene remains in the doldrums, making it very much a buyer’s market. According to the Saskatoon Region Association of Realtors, which oversees the Prince Albert market, every indicator is showing significant declines compared to last year. The latest statistics for P.A. don’t make for pleasant reading, unless you’re a buyer. The total sales dollar volume for April, compared to April 2017, was down 49 per cent. Year-to-date the decline was 23 per cent. The median home sale price for April was $211,500, which represents a 12 per cent decrease compared to $239,900 a year ago.”
“Asked if the P.A. property market had hit bottom, CEO Jason Yochim said it’s getting close. ‘I think we’re looking at probably a year to 18 months and we’re getting close to the bottom, but it’ll take that long to see a recovery,’ Yochim said.”
From CBC News. “Vancouver saw its weakest April for single-family home sales in nearly 30 years last month, data shows. The numbers are in line with the downward trend in detached home sales the city has seen all year — which experts say doesn’t bode well for the rest of the calendar year, given the fact that the spring months are usually the busiest time for sellers. Steve Saretsky, a real estate agent and industry blogger, said the slowdown has been a long time coming. Saretsky said the shift is due to a combination of factors: the market has seen a significant drop in foreign investment, speculation tax and tighter mortgage rules.”
“‘The writing’s been on the wall for a number of months now,’ he said. The agent stopped short of saying the the bubble is about to burst. ‘You don’t necessarily really want to call it, but there are a lot of things in place right now that are working against the market. We’ve had this huge run-up and nothing goes up forever, and I certainly think we’re turning a corner here. For those maybe holding out on the detached homes, I think they’re going to have to get a little bit more realistic.’”
The Vancouver Sun. “The Royal Bank of Canada quietly reported this month that housing costs in Metro Vancouver have reached ‘the worst affordability levels ever recorded anywhere in Canada.’ In this city of relatively tepid wages, the RBC says owning a home requires an ‘astounding 85 per cent of a typical household’s income.’ That compares to 75 per cent in Toronto and roughly 42 per cent in Montreal, Calgary and Ottawa.”
“Royal Bank CEO David McKay last month became the latest bank head to point to how foreign wealth is contributing to unaffordabilty by ‘distorting’ the country’s housing markets, by adding ‘gasoline’ to them. ‘We do not need foreign capital using Canadian real estate as a piggy bank.’”
“While numerous factors are behind the housing crisis, vested interests have attempted to craft a narrative that counters McKay and other realists. They act as if it’s xenophobic to suggest foreign capital has anything substantial to do with unaffordability in Vancouver and other gateway cities. Their diversionary methods are not unique to Vancouver, where UBC geographer David Ley, author of Millionaire Migrants, said developers first began playing the ‘racist’ card against affordability activists in the 1990s. Fear of the xenophobia label is why many have not publicly opposed foreign capital flowing into housing in Toronto, London and Sydney. The smokescreen has not proved so effective in Singapore and Hong Kong.”
“It is hard for anyone from the political right or left to ignore the declarations of, for instance, The National Bank of Canada, which said ‘almost $13 billion was spent by Chinese investors in Vancouver’ in one recent year alone. Significantly, the ‘gasoline’ metaphor adopted by the Royal Bank’s McKay is much like the one Vancouver activist Justin Fung, of HALT (Housing Action for Local Taxpayers), has been trying to get out for years.”
“‘I have always made the analogy that local speculators are the firewood and the foreign investors, money launderers and fraudsters are the fire starter. The fire would have burned either way, but with the fire starter added, it creates a fireball,’ Fung said.”
From Global News. “UBC is standing up for one of its professors against calls from owners of expensive homes to silence him because they don’t like what he’s saying. The professor is Thomas Davidoff, who’s been outspoken in the debate over taxation and density in Vancouver. Angry over the proposed school tax, Vancouver homeowners staged a rally in Trimble Park on Tuesday — one that was originally scheduled before a town hall meeting being held by area MLA and Attorney General David Eby. That meeting was cancelled over safety concerns.”
“However, protesters didn’t just set their sights on Eby: they also called for UBC to take action against Davidoff, an associate professor at the Sauder School of Business. ‘I suspect that every donor to UBC in any significant amount lives in a home [worth] over $3 million,’ area resident Matt Wood told protesters. ‘We need to send them a message that we can’t have professors like Davidoff teaching his ideology of entitlement and hate.’”
“That feeling was echoed in emails about Davidoff that were sent to UBC’s president. In one email, Shaughnessy resident Andrew Webb said, ‘How this American socialist transplant is crafting predatory tax policies for the government, and robbing homeowners of unrealized gains, is beyond me and beyond words.’”
