Housing bubbles are a harsh reality
The Toronto housing bubble resembles a drug epidemic in that it’s dangerous, addictive and will destroy your health, bank account and family. The pills dangle before your eyes. Yes, you get a wonderful floating high when you score a big profit based on nothing but the passing of time and a welltimed flip. But sooner or later you’ll encounter a sudden drop in the market and it will do you in.
“This impacts your health. Financially, it breaks families,” one trapped homebuyer told the Star’s real estate reporter, Tess Kalinowski. He is in a pickle. He offers lessons for the fortunately not-yet-pickled.
Kalinowski writes expertly on the consequences of an unreliably hot market. (There is no such thing as a reliable one. That’s the nature of the beast.) Kalinowski’s job is to take the long view. The buyers took the short one. Readers are aghast. No, we would never do that. But we might.
In a remarkable Thursday story, Kalinowski talked to wretched buyers at a new high-priced Oakville subdivision development, Mattamy’s Preserve homes, who think their plan had only one flaw, the 2017 price drop. But the faults lay in their confidence.
They already owned homes whose prices were rising stratospherically, so they were able to make downpayments on the new pre-construction homes in February 2017. But lenders began mandatory stress tests, seeing if buyers could survive an interest rate rise, and the province imposed a foreign buyers tax.
Real estate is like musical chairs. The music stopped, prices returned to a saner level, and buyers either sat kerplunk or were left chairless. The buyers’ current homes were suddenly worth less and they could now only get a new mortgage from alternative lenders charging high rates. The downpayments on houses worth $1 million-$1.6 million had been hefty. They are stuck.
The sad thing is that the buyers had no pressing need to move in the first place. Their error was in seeing their homes not as nests but as units to gamble in the Toronto housing casino. Everyone has to live somewhere. They should have stayed put.
The builder, Mattamy, behaved honestly and fairly, having contracted to build the homes these buyers wanted at a price they could pay. The buyers need to honour the contract so that Mattamy can honour its own contracts. Their website, Community for Fairness, has an air of panic, with the buyers blaming everyone but themselves.
Mattamy should not have “lured” them into buying. “Nobody” could have foreseen the province’s cooling measures. They were hit mid-transaction but there will always be buyers hit mid-transaction. (Always sell before you buy.)
Mattamy should give up its profit out of kindness, or wait for the market to recover. (It may drop further.) Their basic message: the housing market is right to go up but was wrong to go down.
It’s stories like this that make me not want to move. I had a seller-agent and a buyer-agent in. I liked them both. The first agent did the ethical thing, lowering my expectations. It has a nice garden, I offered. Not everyone likes the work, he said. It’s near transit, I said. Not everyone takes the bus, he said.
The buying agent told me the house I wanted downtown did not exist. I’d have to renovate. My earnest plan, after this Ikea kitchen reno that will have us camping in the basement for a month, is to buy a house that will never again be touched by a builder’s hand.
So my house sucks, moving costs — land transfer tax, realtor fees, staging, transport — would be crushing, and my quest for a perfect home in a livelier neighbourhood will end in ignominy. Renting a flat over a nightclub, that could work.
“Lower your expectations” is good advice for real estate and also life. “Cultivate equanimity,” I tell myself about my various mistakes. “Adopt stoicism” is the best advice I can offer the frozen homebuyers of Oakville.
But there is a wild card that no one seems to mention. The world is in a state of chaos not seen for decades. This is no time to gamble. In idle moments, I try to calculate what having an idiot with a filthy temper in the White House, madly threatening war whether trade or military, has done to the notion of economic stability.
My savings have dropped, built up again, and dropped further on his random remarks. Remember the look on Donald Trump’s face when he sat in the driver’s seat of a great big truck making vrrrmmmvrrrmmm noises? This man will have a war before he leaves, we know that.
The Toronto housing market is not stable. Nothing is. I would enter into no contracts for the next two years at least. I would not move. I scarcely travel now. I lurk at home, storing canned goods.
All bets are off.
The wild card that no one seems to mention is that the world is in a state of chaos not seen for decades