Tuesday, August 4, 2020

Record Low Interest Rates

Record low interest rates for mortgages are keeping Toronto's real estate market at record highs. Torontonians are buying houses for incredible prices (often in bidding wars) despite the fact that we still have a pandemic going on.

Honestly I wonder if we had a war - possibly even a major war - if we might still be seeing this trend so long as the interest rates are super low and people feel safer in "a new house in the suburbs".

Meanwhile the CERB, CESB and various other measures like a moratorium on evictions have kept the Canadian economy alive, but in the next few months CERB and CESB are being phased out and evictions will resume. Those measures kept the Canadian economy going and Canadians spending money.

It could be that we shall see the true effects on the economy during the next 9 months if we see more companies declaring bankruptcy. There has already been dozens of large scale bankruptcies during the past 5 months of the pandemic, effecting tens of thousands of employees.

Similarly low oil prices means that various parts of Canada have shut down oil production, and yet gasoline prices remain high - proof that gas companies are continuing to unfairly gouge Canadians.

Thus I cannot help but feel that even though Canadian home buyers are benefiting currently from record low interest rates that we are standing on a precipice of what could be the biggest recession or depression in decades. I don't think the current situation is sustainable. Housing prices will have to crash eventually when a recession finally hits, and hits hard.

Canada managed to avoid the housing bubble bursting in 2008. Instead prices have continued to balloon, largely due to low interest rates.

But even record low interest rates must have a limit for how much they can stave off a recession or depression.

Friday, July 24, 2020

Home Buyers Insurance

There are many different kinds of insurance out there.

Eg. Mortgage Life Insurance and Homeowners Insurance

Home Buyers Insurance is literally another term for Mortgage Life Insurance. It is insurance aimed usually at married couples who are worried one of them might die and then they could lose their home due to the loss of income within the family.

It makes sense, especially for couples where one of them doesn't work or is unable to work due to disability. If the breadwinner dies and they were responsible for paying off the mortgage, the Mortgage Life Insurance (aka Home Buyers Insurance) kicks in and pays off the mortgage. Due to the variable value of the home the insurance typically starts off more expensive and then as the value of the mortgage is paid off the insurance gets cheaper over time*.

* This and the exact amount may vary on the insurance provider.

However I think there is room in the market for a different kind of Home Buyers Insurance. Namely a new type of insurance which is specifically about buying a new home which might have something wrong with it and the previous owners or their real estate broker/lawyer did not reveal anything wrong with the property.

  1. There could be a leaky sub-basement they failed to mention.
  2. There could be something wrong with the plumbing or wiring.
  3. There could be a lien on the property that wasn't disclosed.
  4. The property could have some legal matter that is unresolved involving neighbours or the city and that was the reason the previous owners were eager to sell.
  5. Other unknown factors. Eg. Fraud, misrepresentation, stolen identity, etc.
Basically the idea is that you buy the insurance at the time of the purchase of your new home in the event the previous owners tried to pull a fast one on you. The property would still need to be inspected and assessed, but in the event they missed something that the previous owners failed to mention and the issue turns out to be expensive the insurance would kick in and cover the costs (including any legal costs).

As far as I can tell nobody has invented such insurance yet, and it certainly should not be confused with "Home Buyers Insurance" because although the name certainly sounds apt for the type of insurance I am describing, it doesn't cover the same thing.

See Also

Homeowners Insurance Scams

Average Homeowners Insurance Losses

Monday, July 20, 2020

Why did China ban skyscrapers?

China recently passed a ban on the building of new skyscrapers that are over 500 meters tall, leading to new buildings being cut short at 499 meters to make sure they fall within regulations.

But why?

Is it because the Chinese government is worried about earthquakes?

Is it because they are worried about shoddy construction?

Or is it because they are worried about Ponzi schemes in which real estate developers build new structures for investors, and then pay off older investors by attracting new investors for other buildings that haven't yet been built... and they still manage to make a profit because they are cutting corners on construction costs, which in turn contributes to shoddy construction and increases the risk of more damages if a big earthquake ever hits the region?

Honestly... probably "All of the above."

And even those buildings that are below 500 meters are now being reviewed for earthquake safety and energy efficiency.

Lastly the Chinese government also wants to make certain that the architects "better represent Chinese culture"... which is code for 'the architect has to be Chinese'. No hiring American or Japanese architects for example.

So clearly something is up.

China has been building up a huge real estate bubble for decades now and it is doomed to burst sometime.

It is quite possible that the Chinese government is now working to prevent such a bursting bubble by toning down the construction with more red tape and regulations.

Thursday, July 16, 2020

Rental Fraud

I think it is disgusting despicable that people will take advantage of the poor and/or mentally ill in these rental fraud schemes.

It also shows that local governments are not doing their jobs properly to both police such situations, and to provide housing for the mentally ill so they don't end up in abusive situations like this.

If you are not familiar with this crime, here is what happens:

1. The criminal rents a house, often providing fake documents for their identity to make it difficult for police to later track who they are.

2. The criminal then rents out the home by pretending to be the homeowner to multiple people all at once, taking their first and last month cheques and cashing them. So for example if they rent out the home for $2000 per month, that is $4000 per each person duped. If they rent it out to 20 people all at once they could make $4000 x 20 = $80,000 for one giant fraud. They might even insist on being paid in cash, making it even easier for them to run off with the cash.

3. The people who thought they were renting the house all show up on moving day and discover that they are not the only people who was trying to rent the house, and furthermore discover that the person they were renting from was not the true owner.

The alternative to this fraud is even more heinous, it is when people rent out individual rooms in the house, for a comparatively cheap price, and then collects the pension cheques of the elderly or welfare payments for mentally ill people, effectively robbing them blind and take advantage of the fact that they are senile or ill equipped to defend themselves.

Unfortunately it is also very difficult to even find the criminal involved as they continually do these frauds, often moving from neighbourhood to neighbourhood. Some might not even live in Canada, but rented the place remotely and then rented it out remotely to any people foolish enough to send cheques or cash in the mail.

Saturday, July 11, 2020

Do Skyscrapers Predict Recessions, or is it a Coincidence?

I quite enjoyed this video. It certainly convinced me that the perception that skyscrapers are a warning sign of a recession to come is really just a coincidence of a boom period.

After all, it isn't like developers are lining up to build skyscrapers during an economic downturn. Large scale construction projects are very expensive after all, so building such structures during a recession or a depression doesn't make much sense.

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