The escape

Some thoughts to start your week. Pay attention. There may be a test on Thursday.

Is the exodus for real?
This pathetic blog has whined for years about the bad housing choices people make. Many of those kids in their 600-square-foot highrise urban condo boxes will regret their purchases as new supply gushes onto the market, pushing values lower. And lofts? Fugedabbouit. What a loser fad that’s been. When selling time comes the owners of these tomb-like, exposed-pipe, conduit-encrusted crypts will find few  people who think they’re cool.

But maybe more people are learning that in an age when so much work is online, geography’s irrelevant. So why not live in a city you can actually afford?

That could be part of the reason for what’s happening down in the southern tip of Canada. Over the last two years the biggest price jumps in Ontario have been happening in Windsor, once a sleepy burg with a Detroit envy problem. That’s all changed, of course. D struggles while W blossoms. The average house price has jumped 25% in the last two years. Sales are robust, inventory is snapped up fast and DOM are short.

Having said that, it’s still affordable by GTA or YVR standards – the average property sells for less than $350,000. Down the 401 towards Toronto, London is also hot, with an average sale price of about $430,000. And there always seem to be jobs in the health care, university or insurance sectors. Plus trees. Tons of them. You remember trees, don’t you?

Luring them in with trinkets.
The lengths developers are going to in order to attract young buyers in Vancouver tells you all you need to know about that market. Sales have tanked in the last few months, and this will end up being the worst spring in living memory. The big declines are happening at the top end of the market (the media is now obsessed with mansions selling for half price), while detached homes have suffered double-digit erosion. You know why.

The guys who build and sell condos understand what’s coming, and are trying to move as much product as they can in the shortest period of time possible. First it was a year’s worth of free avocado toast (who the hell eats that stuff?), and now another developer is dangling a year of wine in the form of a $1,500 gift card.

Buyers are being offered low downpayments (10% instead of 20%) at one development, plus a $5,000 account at Urban Barn (to decorate your place with Mongolian Snowy Toss Ballet Pink accent pillows, $99 each). Another company is throwing in resort passes and skis for the family, free golf or free mountain bikes with each purchase. Common are decorating allowances worth a pile of dough, or a free parking space valued at up to fifty grand.

What does all this swag tell you?

Exactly. Run. Any moister walking into a steaming pile of mortgage debt with property taxes and strata fees to buy a condo in a saturated market just because the developer is offering wine or throw cushions is, yes, a fool.

It’s all about price. Not toast. Do not be diverted.

The law of Unintended Consequences.
Or maybe they were intended. The dudes running BC these days, determined to create a real estate crisis in which families lose equity but renters still can’t (or won’t) own homes are sure changing the landscape. Not for the better. Here’s Richard to explain…

Hi Garth: My wife and I have rented our whole life, but we were the people who bought the Vancouver detached in May. We’re pretty odd for Vancouver–we prioritized financial independence over bricks. For us, doing what we wanted from 9 to 5 seemed like a better deal than the indentured servitude of a Vancouver mortgage.

We achieved that first goal a few years back, then our new financial goal was to accumulate enough additional cash to get a house. The combination of the Trumped-up stock market, the shaky Canadian dollar, and the skidding housing market made that possible this spring. I still think Vancouver houses are overvalued. But we want the white-picket fence experience when our two kids are at an age that they still want to hang out with us.

So, right now I’m going through the odd transition from a being a two-bedroom renter to a five-bedroom detached owner, moving from caring about first-world renter problems to first-world owner problems. And now the problems with the NDP’s new taxes that you’ve described are staring me in the face.

We deliberately bought a lot that would allow us to build a laneway house. In a tight housing market like Vancouver, building a laneway seemed like a good thing for society. In fact, we were considering renting the laneway below market value if someone needed a bit of help. We’d get some income, the renter would get stable housing, and we’d do our tiny bit to expand the housing market. Win-win-win. The thing is, our house is already within spitting distance of being hit by the NDP’s wealth tax (oh, sorry, “school tax”). A laneway could push us over the threshold. A laneway plus some appreciation in the housing market, and that tax would really start to bite. And taxes go up–even simple inflation will effectively result in that tax increasing.  (Looked at the property transfer tax lately?)

We’ve had financial success by avoiding ongoing monthly cash drains. What if I discover that I hate being a landlord? I don’t want to get into the situation where I’m required to be a landlord because the taxes will eat us alive if we decide to leave the laneway vacant. Thus, the no-brainer decision to build a laneway suddenly looks fraught with risk. So instead of building right away, we’ll think about. Maybe for a year. Or a decade.

It also makes me wonder how many others are thinking the same way.

(Of course, this is completely a first-world problem. I wouldn’t expect any sympathy from anyone, and certainly not people struggling to afford housing in Vancouver. But then again, we don’t really need the income from the laneway-that-won’t-get-built. So maybe it’s equally the problem of the renter who wants to stay in Vancouver, but can’t find an affordable place to live. Unintended consequences.)

Thought of the day. Or the decade.
Turns out the best-performing investment accounts being held at discount brokerages belong to dead people.

They don’t trade.