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Thursday, May 24, 2012

Moving into a New Home: 12 Hot Tips

The following is a list of 12 useful tips for when moving into a new home.

#1. Bribe your friends and family (and heck even co-workers if you have nothing to hide) with a BBQ, pizza, beer, etc.

#2. If you don't have any friends or family or co-workers you can trust then hire a professional moving company. Try to get a company that is local and trustworthy. ie. If you live in Montreal and looking for a "déménageur Montréal" then I recommend adtmoving.com just because I really like their video (shown below).



That video alone proves to me that Déménagement Montréal is a solid company. Yes, I may not speak the best French, but the video really impressed me.

#3. When carrying everything in put them all in the center of the rooms so you can paint the walls if you want to without having to move everything two extra times.

#4. If you're moving into the new home and planning to flip it later don't paint the walls willy nilly. Choose colours that everyone will like and will match your decor. This way when you later flip the house for a profit the new owners will like the paint colours and that may earn you some extra cash during the flipping process.

#5. Label all your boxes with what is in the boxes. Give each box a colour and a number. The colour is so you know which room it is going in and the number is so you can find that specific box later. The colours also help the moving men know which room everything goes in.

#6. Create a master list of the box numbers, colours and any important contents (ie. toilet paper).

#7. When in doubt move all the breakable things yourself if you don't trust anyone else to carry them. That way if you break them its YOUR fault.

#8. Always let larger / stronger people carry the big things like your grand piano. Why break your back when you don't need to?

#9. Always have a map and directions of how to get to BOTH places, your old place and the new one, and give copies to everyone. This will save time later and remove any confusion. The last thing you want is people getting lost on the way to the new place. The same rule applies for your cell phone number.

#10. Have a box of commonly used tools handy. Screwdrivers, etc in case anything needs to be disassembled before it can be carried down the stairs.

#11. If you do go the BBQ / pizza route with family and friends ask them in advance what kind of things they want to eat, what toppings they want on their pizza and what kind of beer they like.

#12. When carrying things for many hours have a 5 minute to 10 minute break every hour. It will give people a chance to catch their breath and get a drink, eat an energy bar, etc. People will be able to carry things better and be more sure-footed if they aren't exhausted or hungry.

BONUS TIP: Buy a box of energy bars for everyone.

Wednesday, May 16, 2012

Six-Storey Condo in Beaches gets Green Light

Beaches Community Council voted unanimously Tuesday in favour of a six-storey condo in the Beaches where a Lick’s hamburger restaurant currently stands. The proposed condo building (called the 'Intimate Boutique') received a chunk of negative attention from local residents who don't want condos in their quiet neighbourhood.

Dozens of Beach-dwellers showed up at the council meeting to voice their opposition to the Queen St. E. project, calling the mere six-storey building “an unbridled monstrosity” and even “an abortion”.

Now come on... seriously. Its only 6 stories tall. Its not a 30-storey building.

And apparently the Beaches Community Council thinks the same way, unanimously no less. Its not a huge building. Larger than a house, but still dramatically smaller than the condos by the Toronto harbourfront.

And really its the issue of having it so close to the beach. And silly when you consider Queen Street East is already dotted with 10 to 20+ storey condos, but none close to the beach.

I think it comes down to the concept of NIMBYs (NIMBY = Not In My Backyard). The same type of people who complain about their neighbours putting up windmills, solar panels or even hanging their laundry on a clothesline. Whiners and complainers who think that if they whine enough that the squeaky wheel will get the grease.

Although I would point out that NIMBYs are quick to flip-flop on the issue if you ask them if they would prefer a new coal burner down the road instead. Ontario has a shortage of electricity and we need to be building more windmills and other renewable energy sources. That or cheap coal and nobody wants coal in their backyard either. That or expensive nuclear, which means raising taxes.

So regardless of what energy source we choose there is always going to be people to complain about. Even hydro-electric dams get complaints because it disrupts local wildlife and fish spawning.

Back to condos what you have to realize is two things:

#1. The Beaches community has tens of thousands of people living there. Only dozens of people showed up to complain. Likely around 24 to 36 people. Not really a lot when you consider that 99.9% of Beaches-ites either stayed home or had something better to do or are in favour of the new condo.

#2. Toronto is becoming ever more crowded. With the growing scarcity of land there really is only one option: Build upwards. While it is true that Toronto is currently facing a condo bubble implosion in the next 3 years from too many condos being built, its also true that 10 years from now all those extra cheap condos after the bubble bursts will be a benefit when dealing with the GTA's soaring population.

So whether the NIMBYs like them or not there are going to be a lot more condos in the future. Some of them will be a lot taller and more "monstrous" than the 'Intimate Boutique' condo to be built in the Beaches.

GET USED TO THEM.

Tuesday, May 15, 2012

City Living Vs Living Off the Grid

I manage or am a member of over 70 different blogs. One of them is a pet project of mine entitled "Project Gridless".

The concept behind Project Gridless is to explore options for living off the grid. Typically "living off the grid" refers to the electricity grid, which means having a home which either:

A) has no electricity.

or

B) runs off your own solar, wind or hydro power sources.

However going off the grid can also have other meanings: Off the garbage grid, off the waste disposal grid, and so forth. No sewers and no garbage collection.

My parents' farm for example isn't attached to any sewer system. It has its own well for water and its own septic tank for sewage waste. As long as my parents' farm has electricity they can manage their own water supply and waste.

Garbage is a bit more difficult to deal with. There are after all so many different kinds of garbage a household produces:

A) Food waste, which in the case of my parents is usually fed to the cats on the porch or dumped in a compost bin.

B) Wood, which for my parents is usually burnt either in a wood furnace, burnt in a campfire while roasting marshmallows and hotdogs, or chopped down into little pieces with a wood chipper and then used for gardening.

C) Metals. Go on a junk pile and can be sold to metal collectors who pay $$$ for metals.

D) Plastics. This is the trickiest part because where my parents live there isn't a lot of recycling done. You have to PAY to dump plastics at the local garbage dump and in theory those plastics are then collected and recycled and the local municipality makes a chunk of cash off charging people to dump their plastics and also charging recycling companies to collect the plastics. I think it is an irresponsible and unfair practice to charge people just to dump their plastic garbage and it leads to people dumping their garbage illegally on public property (which means the municipality ends up having to clean it up anyway to prevent harm to local wildlife).

Some "off the gridders" prefer to recycle their garbage into making their house bigger and more insulated. This takes effort, but can certainly be an option for those people willing to try.

Electricity is the biggest challenge when going off the grid. Solar and wind power is becoming cheaper and it is possible to get enough energy that way to supply your household if you don't run the TV and AC all the time. Minimal lighting, small energy efficient appliances / computers and you can get by very easily. How you figure out your laundry is another matter all by itself. Washboard and clothesline maybe?

If you have water flowing through your property you could also get electricity via an undershot water wheel and a generator.

The real challenge of having your own electricity sources is not the electricity itself but the battery system. The battery system is what powers everything when its night, when the wind is calm, etc. The batteries aren't cheap so they take up a sizable chunk of your budget if you try to get off the electricity grid.

Then there is a matter of architecture...

It is possible to have a house specifically made for living off the grid. But expect to pay a bundle for it. There are quite a few architects interested in the topic of off-the-grid housing, but even so they don't work for cheap.

However there are some bonuses for being completely off the grid.

#1. You don't have to pay for a converter for trying to share electricity with the grid. Those things are hugely expensive and not worth the effort.

#2. You pay less land taxes for being off the grid.

#3. No more electricity bills! Huzzah! (With the rising costs of electricity in North America you might be surprised how quickly you get your investment back.)

#4. Government subsidies for buying solar and wind power for your home or business.

However there are a number of disadvantages of going off the grid...

#1. You couldn't really do it living in a city unless you made the choice to eat out constantly (or become a raw vegan) and you'd have to be really creative about solving your sewage and waste problems (to say nothing of laundry).

#2. You would be giving up the lifestyle of living in a big city. Not being able to explore downtown, go shopping whenever, go see a movie whenever you felt like it...

#3. Convenience and laziness. Going off the grid is not for lazy people. Its a lot of work to get everything up to spec. Eventually you will be able to relax again, but if you're the type of person who doesn't finish what you start then its recommended you don't try this. Try something small if you want to give yourself a Do-It-Yourself goal, like knitting a sweater or fixing a bicycle.

Living in a big city (especially downtown) is really about convenience. You can walk to places. Things that are moderately farther away can be reached via subway, bus or bicycle. You don't even need a car and when you do need a car for long trips you can just rent one.

Speaking for myself I could go either way. Getting off the grid and going back to nature has its appeal, but I am not certain I could give up city living. Pros and cons either way.

Monday, May 14, 2012

Who will lose their shirts when the condo bubble bursts?

If you are looking for MY QUEST FOR A CONDO, click here.

Some economists and self-proclaimed real estate experts (I'd argue that nobody is a 'real expert' on that topic) are asking: Who will lose their shirts when the Toronto condo bubble bursts?

Well, it actually really depends on WHEN and HOW MUCH the condo market bursts.

In theory you could make a mathematical equation showing what people will be most effected. It would look something like this:

Percentage of Value Lost = Number of People who purchased their condo within an allotted time before the loss based on how much their condo was worth when they purchased x the Perecentage who have "Unstable Employment" + the Percentage who "Paid Too Much" + Other mitigating factors...

Determining how to write such a complex equation and all the factors would be a serious puzzle even for a skilled mathematician, which I am not.

Here are some of the additional factors:

#1. The longer it is delayed the worst it will be when it does burst. More debts piled on to the problem will mean a deeper recession in the local economy in Toronto.

#2. How widespread the debt problems are within Toronto's middle-class (which will take the lion's share when it comes to people losing their proverbial shirts) and to what extent the lower and upper middle class will be effected.

#3. What percentage of people has an insecure job that might be cut if the economy goes sour? Also what percentage may end up having their hours cut and lose a percentage of their take-home salary?

Yada yada yada...

Earlier this week when the CMHC (Canada Mortgage and Housing Corporation) reported that construction of multiple units, such as condos, drove housing starts to an annual pace of 244,900 in April 2012, the strongest pace since September 2007 right before the real estate market in the USA collapsed.

Chief economist (and self proclaimed real estate expert) David Rosenberg recently weighed in on the topic of Toronto's condo bubble overheating.

"If you think [new] constructions are volatile on a month-to-month basis, the fact that new home starts have been rising for five months in a row (by 93% an annual rate over this time frame) may make you wonder whether the strong building momentum is sustainable or whether there is a Canadian housing bubble formation at play," said Rosenberg on May 10th.

Rosenberg, the chief economist at Gluskin Sheff + Associates, says that over the past five months construction starts for multiples such as condos have surged by 220%, at an annual pace, compared to a dip of 1% for single homes. Its highly unusual to see a huge jump in just condos and not have home construction go up at the same time unless there is some serious overheating happening.

Typically the ratio of condos to single unit houses is at its highest right before a bubble bursts.

Right now the multi-to-single ratio of starts is at its highest level since the last housing bubble popped in the early 1980s. Rosenberg says that lends weight to Toronto's bubble size as more than normal investment and speculative demand floods Toronto's condo market.

If the market was truly behaving normally then residential construction would also be high and behaving according to natural demographic demand. But the ratio is highly skewed towards condos being funded by investors hoping to flip them for a profit.

Thus it would seem only logical that it is the investors who are going to lose their shirts... except it isn't. Canadian banks and the CMHC are the ones holding the bag because many of the investors are actually foreigners using money from Canadian banks, which are ensured by the CMHC which means Canadian taxpayers will foot the bill when the condo market becomes flooded and it hurts everyone who recently bought a condo (and hurt house prices too when condos become really cheap).

"No doubt the Canadian economic backdrop is solid overall and mortgage rates are at low levels," says Rosenberg. That makes Canada an easy target for investment because its so easy to mortgage to buy a condo that isn't even built yet.

But if the condo market becomes flooded then who is going to buy all those condos when it comes time to flip them?

Rosenberg also notes that the Bank of Canada governor Mark Carney has been trying to warn people.

"But at some point, the Bank of Canada will no longer be playing the role as the boy who called wolf, and mortgage guidelines are already being tightened up," says Rosenberg in his report. "If you are in the market to buy a home, that is one thing. But the condo market - quite another. There is no timing to this except that the next [Bank of Canada] rate-hiking cycle will likely prove to be the sort of situation where the tide comes in and we see who is standing on the shore stark naked."

Or at very least who lost their shirt when the tide came in.

Depending on how badly the bubble bursts it could spell danger to anyone who bought a house too when all those cheap condos flood the market.

In which case Bank of Canada governor Mark Carney isn't really the boy who cried wolf. He's the boy who pointed out that the Emperor has No Clothes.

Saturday, May 12, 2012

Vancouver's Real Estate Woes

Toronto isn't the only city in Canada which is facing a market correction.

Vancouver has also seen real estate prices soaring in the stratosphere.

However I don't think Vancouver and Toronto will see market corrections at the same time. Their economies are separated by 4492 km and very different market modifiers.

Those modifiers are:

The amount of local demand for real estate. How many people are looking to buy?

The amount of real estate investors in Vancouver. How many are looking to flip for a profit?

The amount of available supply of houses and condos (and rental supply).

The amount of upcoming supply of houses and condos (and increasing rental supply).

The strength of the local economy (the employment rate + the median salary of the middle class).

Local consumer confidence.

Local household debt.

Ratio of average home sale prices to the middle class median income. (No point using lower class incomes because many of them can't afford to buy homes, diddo for wealthy people who have more stable incomes.)

Local demographics (ie. What age groups are buying condos? Elderly? Young professionals? Families?)

And lastly the ratio of housing starts vs condo starts.

ie. In Toronto housing starts has dropped, but condo starts are through the roof. Mostly due to the rising price of land and the air-space is comparatively cheap.

In Vancouver? Housing starts were steady in April 2012 (but up in the rest of British Columbia) and have been growing steadier since the huge market decline in 2009. But its the volume of condo starts in Vancouver which are worrying.

In Toronto (not the GTA) the average price of a house reached $568,436 in April 2012. The average price for a detached single-family home hit $831,214 (doubled in price since 2002), according to TREB.

In contrast the average single detached home in Vancouver runs over $1 million, but the market for homes is softening while the condo market is heating up.

So evidently the high prices of houses is fueling the demand for condos, which is causing prices to skyrocket.

Price growth in the GTA are up 10% compared to one year ago (and household debt is likewise up, but salaries are stable). Its a bidding war in Toronto due to lack of supply for homes and the high price of land even in Toronto's satellite cities.

Restrictive Greenbelt policies, strong immigration and low interest rates have kept demand in the GTA high.

Vancouver likewise has benefitted from strong immigration and low interest rates, and judging by the housing growth centres in Vancouver most of the demand is near the shoreline.

According to BMO Deputy chief economist Doug Porter the softening in Vancouver's housing market could see foreign investors, who fueled Vancouver prices, start looking to Toronto as a new place to invest.

The worry however is that the investors ditching of Vancouver (whenever it happens) would cause Vancouver's real estate market to go into a tailspin, and then if Toronto's market overheats a year later the investors will ditch Toronto amidst a similar collapse in prices.

So... here is my prediction. Vancouver's condo and housing bubble may burst first, Toronto's market will go into overdrive (creating an even bigger bubble) and then when Toronto's real estate bubble will burst too when it gets too hot for buyers.

In which case there are two possibilites in terms of a price correction for both Toronto and Vancouver:

Option 1: A minor price correction, going down slightly and then buyers jumping on the opportunity. (Which means a larger correction will be delayed, possibly for years.)

Option 2: A major price correction, with buyers waiting until prices bottom out before taking advantage of the super low prices.

Me? I would prefer a larger correction. The prices on both Vancouver and Toronto are outrageous.

Real estate TV shows emphasize greed and profits

If you are looking for MY QUEST FOR A CONDO, click here.
There are 2 real estate / renovation TV shows that I do NOT recommend:

Flip This House (produced by A&E)
Flip That House (produced by the Discovery Channel)

The problem I have with these shows is that they emphasize making a profit off flipping a house (as opposed to finding a nice home in a neighbourhood you like).

I am not saying people can't make a business out of renovating houses and flipping them for a profit, but I find it disturbing that TV shows are actively promoting this idea in the USA (a country with a recovering real estate market that so recently had a market collapse / price correction).

To me it just seems... irresponsible. Like trying to sell guns in a town that recently suffered a school shooting.

Its a moral issue to me. Yes, people should look to find a nice home (and yes they should hope to eventually sell that home for a profit years later). But overemphasizing the idea of flipping houses for profit = overemphasis on greed. (And call me a traditionalist but greed is the root of all evil.)

Thursday, May 10, 2012

New Video + Photo of the Retro Red Raleigh Mixte Bicycle for Trade

If you've been following My Quest for a Condo (a quest wherein I attempt to trade items again and again for something bigger and better until I eventually get a condo in Toronto) and wanting to see more photos and a video of the Retro Red Raleigh Mixte Bicycle from my 2nd trade then here you go!






Also at some point I should mention the bicycle is a 10-speed, in case any of you were wondering. Its from 1980s and retro bikes from the 1980s are highly desirable now.

I am looking to trade it for something in the $200 to $300+ range. So if anyone out there has guitar, scuba equipment, a chainsaw or something else interesting that is bigger and better then I am entertaining all offers. I am also entertaining offers of services. ie. When Kyle MacDonald did this one trade was a recording contract and another trade was one year's rent in Phoenix, Arizona. So offers of trades for lawyer services, recording contracts and similar things will be of interest to me.

Also no trade is TOO WEIRD. As long as its something that is highly valuable and tradeable I am interested. Signed hockey cards of Wayne Gretzky would probably go down quite well but I also like the idea of a guitar or chainsaw.

WEIRD OFFERS OF TRADES FOR THE BIKE

I have been receiving some interesting offers so far. Including:

#1. A collection of Magic the Gathering Cards (a collectible card game with a magical theme). Difficult to estimate their exact value. I am waiting for the owner to get back with an estimate.

#2. An offer of $250 worth of beadwork from a Toronto artist.

#3. 2 Metal Contraptions that I don't even know what they're for or what they're worth.

#4. A 3rd generation 8GB iPod. Only worth about $110, so that is a no go.

#5. An Antique Bulova Pocket Watch that is Pre-1940s, believed to be circa 1925. Value estimate $250 to $350, but the owner needs to do more research because I would like to pin down the manufacturing year and get a 2nd opinion on the value before I agree to the trade. (Where is the Antiques Roadshow when I need it?)

There are also several other possible trade offers I am not at liberty to discuss yet. I am holding off trading right away because of all the recent media attention from the National Post and CBC Radio.

When Kyle MacDonald did this there was gaps of roughly 1 month in between trades so I don't expect to be trading any more often that once every 2 to 5 weeks.

12 Reasons why you should NOT buy a New Condo

If you are looking for MY QUEST FOR A CONDO, click here.

#1. When buying a condo straight from the developer (or from someone who flipped the a new condo for a profit) you really have almost no legal recourse if there is anything wrong with your condo. Faulty wiring, bad plumbing, leaky insulation, noisy heating system, shoddy workmanship... unless you're a lawyer (or wealthy) the chances are extremely likely the developer will get away scot free.

When you purchase a new condo you're basically purchasing it "as is". If there is something wrong with it you are stuck with it. ie. When purchasing from someone who flipped the property its usually an investor (often from overseas) who will be difficult to contact later and get legal recourse for repairs if you find anything wrong with the condo that they didn't warn you about.

When purchasing a condo in an older building the previous owner is typically easier to contact and there will be lawyers/real estate agents/building assessments/etc to ensure that you know about any faults in the building.

#2. Many new condos end up with newly elected condo boards mostly made up of people who have never even owned property before. They are complete newbs (gaming term meaning naive person who is basically incompetent) when it comes to managing a large building. They're so green behind the ears incompetence is to be expected.

In contrast older condos have well-established condo boards and people who have been managing the building for years. They're more reliable and competent in comparison.

#3. Many new condos are made of glass and steel in an effort to save on construction time, material costs and also heating/cooling costs, but the problem is architecturally they're designed for a warmer climate like the southern United States. These glass condos are not made to withstand Canadian winters. What happens is the sealants around the glass crack in cold temperatures, the insulation (inert gas inbetween the glass panes) leaks out and the next thing you know its costing a fortune to heat and cool and building.

The condo board, which I've already established are incompetent newbs, will order repairs to the building and repairs will result in higher maintenance fees for all the residents to replace the glass and sealants.

In theory if they hire competent people to do the repairs it should be good for another 10 or 15 years, but in truth incompetent management often leads to incompetent repairs. Expect to need new repair every 5 to 8 years, depending on the cold winters.

#4. New condos often come with security guards and extra frills. Things like laundry / dry cleaning service, indoor pool, gym, sauna, movie theatre, babysitting / daycare services, valet parking, spa, hospitality services, room service, restaurants and so forth. All of these things need to be cleaned, repaired and managed which means extra staff and more money needed to pay their salaries. Quite a few of these things you may not even use, but you will still end up paying for them in your monthly maintenance fees.

In contrast many older condos may not have many extra frills, but at least you aren't paying extra for things you don't use.

#5. Many new condo units are purchased by investors hoping to flip for a profit... but they sometimes hold on to them hoping to sell when prices are higher so they rent out the condo.

Renters have a tendency to be hard on the structure of the building. They don't it so they don't care. Maintenance costs are higher in buildings with lots of renters. (Plus renters are typically a younger crowd and like to throw wild parties, so expect more noise in a newer building.)

Older condos are more likely to be lived in by the actual owners and they're not about to spill paint in the hallway willy nilly, jump in the elevators and run around like hooligans. Renters in comparison are slobs. (Not complete slobs, but certainly lower brow.)

#6. Unexpected Costs. Condo developers don't tell you everything. ie. Your parking space in the condo might cost you extra. When buying a new condo remember to ask what is and is not included in the price you are paying and MAKE CERTAIN ITS IN THE FINE PRINT. If you're buying your condo and its not even built yet and you've only seen a show room you may be in for a shock when you learn your condo doesn't come with all the shiny appliances you saw in the show room.

With older buildings you get a better idea of what you are purchasing because you can visualize and discuss with the previous owner what things are being left behind and included.

#7. New condo boards are more willing to raise maintenance fees without your consent. Don't expect a vote of all the condo owners. Only the people on the board get a vote. New condos are typically filled with young people and young people have a tendency to be greedy and ambitious. If you buy a brand new condo expect some rash decisions on the behalf of the condo board which results in higher fees. They will likely be drunk on power too and ram the changes through before residents get a chance to discuss their options.

Older boards are more reserved and understand that there is a balance of power and people don't want their maintenance fees going up.

#8. Older condo boards will have a well established set of rules for residents (ie. no BBQs on the balconies). A newer condo will be making up new rules on the fly and you may not like some of the idiotic rules they come up with. An older building means you will at least know what rules you are agreeing to.

#9. PRICE! Newer condos typically cost more per square foot. Pay attention to how much you are paying per square foot and keep track of how much of that square feet is actually usable space (ie. they might be including the balcony as part of the measurements.

Also developers and contractors have a tendency to make a "whoops" with the pencil when actually building the space. It may be 5 to 10% smaller than they originally claimed it would be because they wanted to save on building materials.

#10. Subject to change without notice. Buying a new condo before its been constructed means you will be agreeing to a contract wherein the developer has several lines in the contract containing the words "Subject to change without notice." This means you may have bought a condo that was supposed to have an indoor pool... but whoops! They changed it to a tennis court instead. They can pretty much change whatever they want due to that line.

Ie. Lets say you purchased a condo on the top floor, expecting to get a penthouse. But whoops, they decided to add 10 more floors to building and now you are somewhere in the middle.

#11. Lets say you've been given permission to move into your new condo on the 4th floor... but the 5th floor is still under construction and very noisy. As is the 6th floor all the way up to the 30th floor (which doesn't even have a roof yet). It might even be a year before the building is completed.

Its not just noise either. Its also DUST. And the building make shake sometimes during the constant construction.

#12. Incomplete common areas... So you've moved into your new condo... but the pool is just a hole in the ground, the hallway floors is just concrete with no carpets, the walls have been painted and there may be no mouldings or lights.

You may not even have a working toilet.

Drywall scattered about, garbage and old lunches left behind by workers, the lobby won’t be complete for 6 months, the "concierge" is a teenager with a hard hat. Don't even think about going to the sauna or the gym because it will be a year before those are completed and outfitted.

When you buy an older condo everything may be more worn down, but at least they are completed and you know what you are getting.

BONUS REASON: Clueless salespeople who don't care. The developers are the people who started the whole process in an effort to make money. The contractor and engineers just want to "get it done on budget" so they too make a profit. The clueless salesperson you purchased the condo from was on commission and doesn't really know or care if anything goes wrong with your condo. They're all just making a profit and taking their cut.

When buying an older condo the only people making a profit is the real estate agents, the lawyers and/or the previous owner (assuming that property values went up).

Is Household Debt the real estate market's Achilles Heel?

I have just returned from the studios in the CBC building in downtown Toronto where I was on CBC Radio discussing "My Quest for a Condo" and also Toronto's real estate bubble.

During the interview I asserted that household debt is the largest factor in Toronto's (and Canada's) real estate market.

So am I right? Is Household Debt the real estate market's Achilles Heel?

Yes, but its not the only factor.

The problem with having a radio interview is you can really only provide snippets of conversation within your allotted 6 minutes. There are many factors that go into the hows and whys the Toronto real estate market is going to have a US-style collapse within the next 3 years.

Exactly when I cannot predict, but I can pretty much guarantee it is going to happen when you consider ALL the factors.

#1. 60% of recent buys in Toronto's new condo market are from investors looking to flip the property for a profit. (Source: real estate research firm Urbanation) When Toronto's real estate market hits a serious bump they will sell the properties in a panic.

#2. Interest rates in Canada are currently super low, but if they go up too quickly it will hurt home and condo sales. If they don't go up or barely go up it will encourage an expansion of the current bubble by making credit too easily available.

#3. Foreign investors are taking advantage of Canada's banking and mortgage system wherein the banks put up the cash, the government takes the financial responsibility via the CMHC (Canada's version of Fannie Mae and Freddie Mac) as mortgage insurer and the foreign investors can cut and run if anything goes wrong. Real estate speculators are like sheep. They flee any market they can't make a profit in.

#4. Household debt in Canada is at an all time high. $1.61 TRILLION Canadian dollars.

#5. In 2012 banks started to refuse to give many Canadians more credit because they've recognized the threat of household debt (and financial losses from future bankruptcies). Too many bankruptcies will hurt bank profits so instead they're cutting back on credit availability.

#6. Less credit in Canada's current economic climate means a lowered consumer confidence level. People go out and spend less, tighten their belts and lack of spending = downward spiral into recession.

#7. Rising cost of living in Canada. Prices of food, gasoline and basic goods are all going up (partially due to high oil prices). Since food, gasoline and toilet paper are considered necessities it cuts into the household budget for other things (such as saving up for a house or condo).

#8. Toronto developers are currently building almost 3 times as many skyscrapers as New York City is currently building. Its a lot of skyscrapers. History has shown that developers start building skyscrapers en masse right before a major financial meltdown because land becomes too expensive but credit is too easily available so the only solution is to build vertically.

#9. Many investors rent out their condos and wait for a good time to sell. The rent income pays for the mortgage and its low risk. However if condo prices stagnate or prices drop it becomes high risk and they will be looking to sell in a hurry to prevent taking losses.

I could go on and on, but essentially the economy and housing market is a proverbial House of Cards and household debt/credit is the linchpin which holds it all together.

All it will take is a nudge to cause the collapse.

And here is the nudge that will do it:

Toronto currently has 148 high-rises and skyscrapers being built including 105 new condo buildings (and more scheduled for 2013 - 2015). Right now we are building 27,504 (a 14% increase), but there isn't the demand for it. When that extra 27,504 condos hits the market during the next 3 years it will cause condo prices to drop dramatically... which combined with household debt and people reneging on mortgages (or banks refusing to give them refinancing) will push a market correction.

So yes, household debt is the Achilles heel... but its too much condo supply during the next 3 years that is the ticking time bomb waiting to go off.

Wednesday, May 9, 2012

Quest for a Condo to be on CBC Radio Metro Morning

Hey folks!

My Quest for a Condo will be on CBC Radio Metro Morning sometime between 5:30 AM and 6 AM tomorrow (Thursday May 10th 2012) where I will be discussing my exploits and also Toronto's real estate market / bubble.

You can also tune in to CBC Radio via their website cbc.ca/radio to listen to the broadcast live. (I think you will also be able to download the broadcast within the first 24 hours after its been aired too, but don't quote me on that.)

Canada's housing starts indicate an ever expanding bubble

Back to the news... If you are looking for MY QUEST FOR A CONDO, click here.

Canada's housing starts have almost doubled since the start of 2009. In the last 3 years Canada's housing starts have gone from approx. 130,000 in January 2009 to almost 250,000 by April 2012.

HOWEVER AT THE SAME TIME Canada's household debts has skyrocketed from $1.3 trillion (it was $600 billion in January 2000) to $1.61 trillion in only 3 years. So either way you look at it ($300 billion in 3 years or $1.01 trillion in 12 years) we've really been piling on the household debt in the form of mortgages, credit cards, lines of credit...

NOTE: $300 billion is enough to buy 600,000 houses for the average price of $500,000. I would hazard a guess that Canada's housing bubble is being fueled by too much credit and household debt.

Bank of Canada governor Mark Carney says he regards Canada's household debt — which currently is at a near-record 151 per cent of disposable income —as the No. 1 domestic risk to the Canadian economy. Individual household debt was $39,597 in 2009, but has risen to approx. $48,735 by April 2012.

Remember that is an average debt per household. It may not seem like a lot, but when you consider the demographics of WHO is in debt you start to realize its a lot more than $48,000.

The following is from Statistics Canada:

32% of working Canadians are not saving anything (for retirement or anything else because they have too many debts to worry about right now).

For people making less than $35,000 a year, 49% surveyed reported that their debt levels rose in the last three years. 42% for people $35,000 to $75,000 a year. 38% for people making over $75,000.

So evidently its effecting lower income people more, but when you consider middle income and upper income people are also packing on the debts (and when you consider its middle and upper income people who buy houses and condos) it becomes self-evident that if a housing market collapse happens it will be the middle class people who have a huge mortgage they cannot afford which will end up losing their shirts.

Driving the housing starts is all the pressure on condos currently happening in Toronto and Vancouver, where the condo markets are so red hot you'd have to be a complete fool to be purchasing during a bubble. (Because when the bubble pops you won't be able to refinance...)

In theory Canadian banks should be more cautious about whom they give mortgages to, but the problem is that the banks don't insure their own mortgages. The CMHC (Canada Mortgage and Housing Corporation) insures them. Its basically the equivalent of Fannie Mae and Freddie Mac in the USA.

NOTE: When the US housing market collapsed in 2007-08 it ended up costing American taxpayers $700 billion in bank bailouts and hundreds of billions of dollars more in economic stimulus from the resulting economic fallout. Due to the CMHC's policies the same thing will likely happen here in Canada between now and 2015.

I say 2015 because that is when the condo market in Toronto and Vancouver will likely implode due to the sheer number of condos currently being built which will become available by 2015, despite the fact that people aren't buying that many condos... See my older article Toronto condo market might burst for complete details.

Toronto currently has 199,000 condo units, but another 27,504 are under construction right now and will be finished by 2015. That will boost supply by roughly 14%. The problem is that there is not enough demand for people to buy 27,500 extra condos in the next years. Prices will have to take a huge hit (by maybe 10 to 12% over the short term), but over the long term it will kickstart a collapse of housing prices in Toronto.

A lot of it is fueled by overseas investors who purchase the condo using a Canadian mortgage (via a Canadian bank, insured by the CMHC) and then flipping it for a profit when the property is built. However if they start taking losses all the investors will pull out of Canada in a hurry and the prices won't just fall, they will PLUMMET.

So yeah, doom and gloom.

But there is a sunny side of this for people like me who wants to get a condo (see My Quest for a Condo). It means that when people are desperate to sell they might be willing to trade...

NOTE: Household debt is leveling off, slowing to 4% annual accumulation in 2012 from a high of 10% in 2011. Why? Many Canadians have reached their credit limits and can't get more credit. The danger however is that this means many people might cut back on spending, which will hurt consumer confidence levels, cause more companies to go bankrupt, layoffs, economic downturn... and possibly a housing market collapse ahead of schedule.

I am still betting it will happen by 2015 to coincide with the condo market overflow of supply, but if it happens sooner than I expect then I won't be complaining. It will just make it easier to buy (or trade) for a condo when the prices drop to half.

National Post hands me a battleaxe for My Quest for a Condo

QUEST FOR A CONDO

Once upon a time a Canadian blogger embarked on an epic quest...

He wanted to trade his Hot Wheels 2008 Dodge Challenger for a condo in Toronto. A fool's errand you might say.

But lo he traded the Hot Wheels car for a Mastercraft Digital Multimeter Kit (from Brampton real estate agent Ryan Anderson on April 17th) and his quest got a boost.

And then on May 6th he made his 2nd Trade: A Retro Red Raleigh Mixte Bicycle (from feminist writer Suzanne MacNevin)...

And then on May 8th the wizard journalist Armina Ligaya from the National Post (one of Canada's largest circulation newspapers) handed him a metaphorical battleaxe in the form of an interview with the National Post about his Quest for a Condo.


The details of which you can read on the National Post website. (My only complaint is the wind messed up my hair in the photo and there is a few grammatical mistakes on the National Post website which I hope they edit.)

In the past 8 hours I've been getting a slew of trade requests, everything from beadwork, an iPod Touch, a collection of Magic the Gathering cards, and some kind of metal contraption that I don't even know what it is for... I am going to wait 72 hours and see what other requests come in before making a decision.

Let the quest continue!

IF YOU HAVE SOMETHING TO TRADE ME PLEASE CONTACT ME at charlesmoffat@charlesmoffat.com!

STAY TUNED, SUBSCRIBE TO THIS BLOG TO SEE FUTURE TRADES

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Monday, May 7, 2012

My Quest for a Condo: Second Trade Made!

DISCLAIMER: If you haven't read the other posts already please read all the posts in the label QUEST FOR A CONDO first, from the bottom to top.

Well, well, well...

My first trade was made on April 17th when I traded my Hot Wheels 2008 Dodge Challenger (a mere toy car) for a Mastercraft Digital Multimeter Kit... and now less than 3 weeks later I have my 2nd trade.

On Sunday May 6th 2012 I traded the Mastercraft Digital Multimeter Kit (which I got from Ryan Anderson, a real estate agent from Brampton) for a Retro Red Raleigh Mixte Bicycle. I got the bicycle from chemistry teacher / feminist writer Suzanne MacNevin (and a friend of mine).

So not bad! From a toy car to a bicycle in only 2 trades.

So far it is:

Hot Wheels 2008 Dodge Challenger
1st Trade - Mastercraft Digital Multimeter Kit (from Ryan Anderson on April 17th)
2nd Trade - Retro Red Raleigh Mixte Bicycle (from Suzanne MacNevin on May 6th)

The bicycle in question needed to be cleaned and a wee tune up, but otherwise it is in near perfect condition. Mixte bicycles are unisex bicycles (the term comes from France) with a frame that comes with two smaller top tubes instead of one larger top tube and lowered slightly so its easier to step over. Mixte bicycles are highly prized as road bikes and Raleigh is a well respected manufacturer. I am estimating this one is worth about $150.

I waited to make this post until today when I've had time to clean / tune up the bicycle and take it for a ride. It was REALLY DIRTY and rusty in spots when I first received it during the trade, but as you can see it cleans up really nicely.

(I will be posting a video of the bicycle in the near future.)

This is a pretty awesome trade and I feel my Quest for a Condo is picking up speed. Huzzah!

I wonder how many trades it will take me to get a condo?

Let the quest continue!

IF YOU HAVE SOMETHING TO TRADE ME PLEASE CONTACT ME at charlesmoffat@charlesmoffat.com!

STAY TUNED, SUBSCRIBE TO THIS BLOG TO SEE FUTURE TRADES

Follow My Quest for a Condo on Facebook

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