Desperation

Imagine you could buy a spanking-new two-bedder unit in urban Van for a lousy 3% down. In other words a $1.3 million condo in a garden setting could be yours for delivering a cheque of just $39,000.

This weirdness is scheduled to happen between West 33rd and West 37th Avenue, just west of Queen Elizabeth Park as a joint project of the province, the city and three First Nations. Over 2,500 units will be built on lands with a 99-year strata lease, with BC spending $670 million in taxpayer funds to give 40% subsidies to buyers.

So purchasers can move in with only a 5% down on the remaining 60% of the market price. Says the NDP premier (now in an election): “For too long, the idea of home ownership has been out of reach for way too many people — people who earn a decent income, who are priced out of the market and do not see any path to home ownership.”

Here’s the proposed price list:

And here’s the catch: the 40% being kicked in by the province ain’t gratis. It’s an interest-free loan that must be repaid when the unit is sold or after 25 years. So the owner of that two-bedroom unit who sells after five years will need to bring a cheque for $520,000 on the day of closing to pay back Mr. Eby. In the meantime, a buyer with 5% down will have faced mortgage and condo payments of about $5,000 a month, plus property tax, and still owe at closing $659,000. Add in the money owed to BC, and that’s a cash requirement of $1.18 million to sell. Factor in realtor selling costs, plus the $300,000 in ownership overhead (when renting would have been cheaper), and it’s still daunting.

This is how screwed up Canadian real estate is. Even with the dubious and dangerously lefty idea of using public money to massively subsidize private ownership, the math barely makes sense.

This may be a ‘path to home ownership’ but unless you’re aching to stay in a small condo for 25 years, it’s no path to financial security.

And if you’re feeling houseless and morose, we have more news for you.

Construction is grinding down. The number of starts in the largest urban areas has plunged by a fifth lately. There is now no way Canada will build four million new units in the next seven years. Starts are moving towards 220,000 a year. Figure it out. We may make it to half the goal.

And that vaunted foreign buyer ban that was extended earlier this year to five years by Chrystia – so there would be more houses available for we little beavers at lower prices? Forget it. Not working. A Royal LePage survey finds that kicking out non-residents has made zero difference to availability or price. In fact surveys are showing the ask for luxury homes (what the offshore crowd likes best) is going up, especially in Toronto, Halifax and Winipeg.

Then there is the disaster unfolding in the new-build industry in the GTA. Yikes. History is in the making as buyers vanish, projects fold and unsold inventory continues to pile up.

Look at the latest from the homebuilders. Pray for them.

• A new historic low for sales in August. After an all-time low in July.
• Transactions were 46% below year-ago levels and 73% under the 10-year average.
• Condo sales are down 61% from 2023 and a riveting 81% below the long-term trend.
• There are now 17,233 new and unsold high-rise units and 4,063 ownerless houses.
• This constitutes a 14.5-month supply of inventory. Yes, another record.

Says the industry: “August’s new home sales data paints a stark picture of a housing market that is struggling with deep structural issues that have made the cost to build too high. This is an unhealthy situation, because as interest rates decrease, sales will return but it will take longer for new building to recover, setting up a future supply/demand imbalance.”

The builders are pleading with governments to step in and reduce the charges levied for infrastructure. Meanwhile BC is showing us what direct government subsidies look like. And the feds are crashing costs and trying to spike demand with a new $1.5 million insurance cap plus 30-year mortgage amortizations. The Bank of Canada is weighing in with serious interest rate cuts while the lenders are crashing mortgage costs.

Is anything working the way it should? What happened to the laws of economics?

“I say the worst is over,” says broker Robert Ede, “and we will re-build our realty sales volume steadily between now and next spring (it’s been 25-40% OFF the Long-term averages for most of two years). This cannot last forever.”

No?

About the picture: “Long time reader/lurker, first time emailing,” writes Conor. “I want to thank you for your insight and advice to the masses. I appreciate your candor and humour intertwined. Having served in the military for 19 years, I was very upset hearing about your desecrated flag. I appreciate the importance of the peace tower flag and know that it takes a tremendous amount of time dedicated to this country to earn one. Thank you. I’m one of the lucky ones. I recently turned 40 and have been grinding myself with two full time jobs. I live in a duplexed house that generates income and have another duplexed property. I practice gratitude daily. You mentioned your picture selection was needing some canine injection. Here is my lovely girl Ivy who passed away in April 2018. She loved Tim Horton’s coffee cups and did her part for the environment by picking them up in the various parks I walked her. She was my taco night partner too. She would devour her sour cream, cheese, taco shell and unseasoned beef.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2024/09/22/desperation-2/