Squeezed

The latest Mill moanfest from Generation Squeeze – the folks who want to slap an arbitrary wealth tax on everyone with a house worth $1 million+ – made some headlines this past weekend. The usual whine. Millennials (av. Income $55k) need 20 years to save for a downpayment of 20% on the average $900k property. But by then, they’ll be eligible for early CPP. It’s, like, genocide (add sad emoji).

Of course, 5% down is all that’s required to get a mortgage, and most of that can be raided from an RRSP. Or soon through the weird FHSA. But the key point is that anybody making $55,000 should not be buying real estate. Especially some worth almost a million. They’d drown in ownership costs. Better to rent and invest.

But, how about high-octane Millennials? Seems to be a bunch of them around these days. Like Aaron. He & squeeze make $250,000, have an equal amount n RRSPs and TFSAs and he owns a business with promise. Alas, all would be good if it were not for those pesky hormones.

We currently pay around $2200/mo for a new 1,400-foot, two-bed, two-bath apartment with two balconies and concrete between us and the neighbors (the nicest place this born poor entrepreneur has ever lived). The same goes for around $3500 – 4000 in rent in Victoria BC, where we’d like to relocate in order to start a family. Note that even in the $3500 – $4000 range, the chances of finding a place that won’t discriminate against dogs and children is low. We want both.

A two-bed two-bath has come up for sale in Victoria that checks all our boxes. Parking. Downtown. Dogs, children, storage, concrete, windows, check. Initially listed for 950K, dropped to 875K and still sitting. This unit sold for 620K in 2011. Realtor seems game to test how low we can go: 800K, maybe 750K. Condo fees around $500/mo, taxes around $311/mo. We’d put down 20%. Do we try to guess where this market is going to be in a year and make an offer based on that? Or do we hold to see precisely how low its going to go before jumping in. If we say peak for this apartment is 950K, what sort of percentage decrease should we be happy with? Where is this market going and should we gamble on it? When do these mills jump into the market?

The question’s easy to answer: offer whatever you want. The vendors will sign it bac anyway, giving you time to reflect and decide what a counter should be. Asking prices are often pulled out of a realtor’s butt. As a listing ages, it becomes stale (unlike me) and fails to sell for one reason – price. The agent got it wrong. Or the sellers were greedy. Usually both.

Speaking of agents, you need a person to represent you. The cost is zero. You’ll have access to a raft of comparables to ensure fair pricing, and a rep who can help negotiate, advise and look after some closing details. Double-ending has been illegal for a while in BC, for good reason.

Make the offer as clean as possible – get pre-approved for financing, research the building and dispense with a inspection (however you need to visit and view the unit yourself, carefully). But you need a status certificate on the strata, to ensure good finances and decent reserve fund. Plus bylaws you can live with. Also worry about the effect of Comrade Premier Eby’s changes to the very nature of condo living. Buildings can no longer restrict rentals, as before, meaning more transient populations and an increased number of units open to investors and speculation. Typical brainless socialist diddling.

The local realtors are worried. They raise valid points:

“It remains to be seen what effect this may have on the strata market. It is an open question whether these changes will bring any additional rental stock to the market – with BC’s complex Residential Tenancy Act not all homeowners of vacant strata homes have a desire to become landlords and current interest rates are less attractive to investors who may want to purchase strata rental properties. It is also possible that these measures will contribute further to eroding housing affordability as older stratas with rental restrictions were generally valued lower than their rentable counterparts.”

And what about the market? Condo sales in Victoria last month cratered by more than 42%. A mere 136 changed hands. Meanwhile listings have grown weed-like over the past year, up 138%. Condo prices are shead year/year but have fallen month/month. Victoria could be on the brink of a valuation melt, since it’s become one of the nation’s most expensive towns.

Finally, is this really a good financial move? Does it make sense to buy a condo apartment in a market with too many of them already, when you want a kid (or two) and a pooch? Maybe a house is better? And is it wise to buy now at all, given your savings?

The numbers are simple: 20% down is $160,000 and a $640,000 mortgage at 5.59% (3-year, fixed) costs $3,940 a month. Add in condo fees, taxes and insurance, and the monthly becomes $4,850. Add in the lost growth on the downpayment (at 6%) and the ownership cost becomes $5,650. That is a 60% premium over renting. And after three years of mortgage payments ($142,000) you’ll have paid off only $38,000 and still owe $601,200, while the bulk of your savings is gone.

So, Aaron, why would you Hoover your RRSPs and TFSAs, take on over six hundred thousand in debt and increase your living costs by 60% to buy an apartment in an inflated market where condo units are sitting unsold and in over supply? Huh?

There are better choices. Stop listening to your pants.

   About the picture: “Hi Garth! Impressive blog and content!” writes John. “One of our family members is a feisty and loving Maltese named Ivy. She enjoys walks and chasing colourful balls in the yard, and has helped our boys learn how to care and love. I’ve enclosed two pics. One is real. The other is generated by an AI with the prompt: “An impressionist oil painting of a smiling Maltese dog wearing clothing from 2022 fall fashion and holding a Birkin bag.”