The victims

Hours ago this pathetic blog related stories of hungry, houseless, vultcheristic buyers gobbling up houses at what they feel are bargain prices. Clearly these folks believe a correction of 20-30% is all she wrote. It closely matches the largest price reductions in North American history (27.6% in Canada, 32% in the US). So, in they go.

But wait.

As the snarly pack of Blog Dogs pointed out here recently, these buyers do not represent the reality most people are experiencing. Surely the buying blip is just that – a diversion from the steady erosion Canadian real estate must go through if sanity is to revisit the nation.

This brings us to Oakville. Far to the north of its quaint downtown and historic houses (which cost a fortune) unfold large swaths of subdivision homes (which also cost a boodle). In the 1970s, fewer than 70,000 people lived there. Now the population pushes a quarter million. Like Milton up the road, this is the epitome of suburban sprawl as McMansions sprout where the cows once grazed. It gives Premier Doug Ford goose bumps.

However, there’s big trouble where Canada’s mega-builder, Mattamy Homes, is once again selling pre-cons now that Covid’s gone.

Maybe you saw the media. Folks signed up with Mattamy a year ago and paid huge amounts for the privilege of living on a postage stamp in a big house made of OSB, face brick, aluminum and (of course) granite, engineered hardwood and copious toilets. The market was roiling. FOMO was bubbling. Mortgages were 2%. And purchasers thought that they must buy now or buy never. After all, real estate only goes up. Re/Max said so.

Then the pandemic was over. And the storm hit. For a while Mattamy shut down its sales offices. Nobody was coming. Now the company is back flogging homes to be delivered in a year or so, and at market prices – which are 20% less.

So, life-altering problems now abound for all those late 2021 and early 2022 buyers.

First, the houses that will close in the next few months are worth less. A lot less. For example, Nik Juneja paid $2.3 million and his (unfinished) place, valued now at $1.8 million. Ivalina Petrov agreed to a sale price of $1.9 million and now her new home is worth $400,000 less than others being sold on the same street. Lawyer Ajit Soroha (pictured here) put $800,000 down to secure two new builds with a contract price of $2.46 million each. He says he cannot close.

   What happened? The correction, of course.

These people don’t have millions of dollars in savings. They need financing to cover the gap between contract price and deposit. With market values lower, bank appraisals have plunged along with the amount lenders are willing to pony up on the properties. In order to close, that shortfall – averaging about half a million in this hood – must come from the buyers. They say it’s impossible.

Worse, 2% mortgages have turned into 5% borrowings. So a $1.5 million home loan now carries a monthly nut of $9,400 – up from the payments of just over $6,000 that were anticipated.

And there’s more. To buy the shiny big, new Mattamy piles, these purchasers must sell existing homes. And they can’t. Buyers are scarce. Sales volumes have crashed. And so have prices. The math that made them believe the move was a reality a year ago – high selling price and low mortgage rates – is currently a dream. The only option is to seek out a subprime lender who might be happy to finance the entire original price – but with a mortgage rate of 10% or more. Monthly payment = $13,420.

Mattamy says tough noogies. You signed a contract to buy it. We’re building it. House values always fluctuate over such a long period of time and if they’d gone up, you wouldn’t be squawking. The pendulum swings both ways, baby.

Well, the buyers are calling for assistance. From Mattamy (not happening). From the government (let’s hope not). They blame the Bank of Canada, and the federal government. Plus Mattamy, of course. It’s all so unfair. The argument is that if prices fall after a contract is signed, or interest rates rise, buyers should be able to walk. Of course, if prices rise or rates fall, the builder should be the one left holding the bag and obligated to build the home.

The buyers were greater fools. They’re reaping the results of FOMO. Besides, paying $2 million for a tract home in a treeless, store-devoid, suburban former pasture seems hard to justify in the light of day. Here we have examples of the absurd lengths Canadians will go to in order to chase an asset higher. Mortgages of well over a million. Closing costs and land transfer tax of sixty grand. Home loan rates which reset at least every 60 months. And property values completed screwed over by a pandemic, cheap money and societal insanity.

None of these people will get out of this unscathed. They are victims of themselves. And yet they blame everyone else. Sounds familiar.

About the picture: “Wayne enjoying a hike through the Black Mountain Golf Course in the Kelowna off season,” writes Elizabeth. “We foster ‘failed’ when we volunteered to foster this mixed Rottie/Pittie in March 2020. He was so calm and loving. We couldn’t let him go! He was out saviour in the crazy pandemic times. Much like Garth is our saviour in the crazy financial world!!”