COVID and the housing market

[Priller]

High-rise maintenance is much more expensive. Heights drive up costs, plus they inevitably have underground parking which is expensive to maintain. Neither is inherently better than the other, but all things being equal, I'd personally prefer a townhouse with no underground parking for lowest risk. Of course, those usually have horrible parking options and permanently full visitor spots, so if you have people over a lot can be a real pain. No perfect solution...

 

[GreyGhost]

Fml

BoC did 1% increase, stress test is now going to be at 6-7%!?!?!?!

Renting for the foreseeable future

They are going to revise the stress test rules. Iirc, it is currently higher of 5.25 or rate plus 2%. I think they will change the plus 2 (and maybe even eliminate it). Stress test is more a political game than something to protect buyers imo.

 

[GreyGhost]

High-rise maintenance is much more expensive. Heights drive up costs, plus they inevitably have underground parking which is expensive to maintain. Neither is inherently better than the other, but all things being equal, I'd personally prefer a townhouse with no underground parking for lowest risk. Of course, those usually have horrible parking options and permanently full visitor spots, so if you have people over a lot can be a real pain. No perfect solution...

He can lend them e-scooters to commute from the closest parking lot .

 

[mimico_polak]

Fml

BoC did 1% increase, stress test is now going to be at 6-7%!?!?!?!

Renting for the foreseeable future

See this was always my argument. People are yelling / hoping for a crash in order for them to afford a property...

If you can't afford a $1M property at 2%...you're not going to be able to afford an 800-900k property for 4-5%.

Sure your requirement for the down payment is lower...but the stress test still screws you. Once rates 'normalize' and the requirement for the stress test changes to a lower threshold that is more realistic...then maybe.

Until then...no.

 

[mimico_polak]

So should I just get a condo inside a apartment tower?

Or will these attached condo townhouses appreciate faster?

There is no standard answer...it's very much depends on you and your situation.

My friends lived in stacked townhouses and couldn't sell them for the life of them years ago. Basically condos...but low rise (3 story). But they were nice and large, and effectively the fees were fairly small.

High maintenance fees usually are found in buildings with: 24h security, pools, gyms, and elevators as they're very high ticket items.

My friend lived in a freehold condo town...fees were low (80-100/month), but you're now responsible for the roof, exterior, and the board only dealt with the driveway / landscaping, and snow removal. The rest was on you.

Have fun changing your roof if you're the only one that wants it. @crankcall recently had a roof replacement where it included multiple property owners in a row.

 

[Mad Mike]

If you're handing out free hot tubs I may just be able to convince my wife!

I offered my sister our above ground 14ft pool for free...but she shockingly refused! Least I could do after a free trampoline and playground!

You missed that memo. I put the chainsaw to 2 perfectly good hot tubs 2 years ago, mine and my neighbors. Mine got used by the kids, then went empty for 3 years. Had a Kijiji -FREE- ad, a few came by, but nobody wanted to move the thing.

I did get one ahole offer to take it. He arrived in a small car expecting to take the 100' of 6AWG wiring and GFI breaker first, then return later with a truck to take the tub.

 

[GreyGhost]

You missed that memo. I put the chainsaw to 2 perfectly good hot tubs 2 years ago, mine and my neighbors. Mine got used by the kids, then went empty for 3 years. Had a Kijiji -FREE- ad, a few came by, but nobody wanted to move the thing.

I did get one ahole offer to take it. He arrived in a small car expecting to take the 100' of 6AWG wiring and GFI breaker first, then return later with a truck to take the tub.

In similar ahole behaviour, I ordered a Siemens breaker from Amazon (I know, not the best idea for a lot of reasons but it was easier than driving) and they shipped me an Eaton. That's not how breakers work. Maybe with some documentation that it was listed for use in the panel but it was not provided and 99% sure it doesn't exist. In any case, that's a question that needs to be ask before you start shipping out parts that can cause a fire.

 

[Priller]

Once rates 'normalize' and the requirement for the stress test changes to a lower threshold that is more realistic...then maybe.

What is normal, though? It's like we have collective amnesia about the '80s.

Good luck picking a 'normal' off this chart. Aside from the nuttiness of the '80s, 1990 saw 13.5% and 2007 was 4.5%. We're barely over 2019 rates now. It's hardly impossible things get up to 6%+ in the relatively near future, and not planning for it is crazy.



The BoC isn't raising rates to lower housing prices. They've historically been terrified, and with good reason, about collapsing what may be a house of cards. But between inflation and keeping things in line with the US to ensure stable currency exchange (critical for export trade to the US in particular), they don't have much choice now. Global events have finally forced their hand.

I think the much bigger error was dumping fuel on the fire by leaving the rates so low for so long during the pandemic. Once it became clear in mid-2020 that the super low rates were only overheating the housing market, rates should have come back up fast. Instead, they let them sit for a year and a half, during which Canadians bought massively overinflated houses and racked up HELOCs, digging the hole so much deeper. Hindsight is 20/20, I know...

The other factor that few talk about in the inflation panic is that while it looks awful year-on-year, it doesn't account for the year of very low inflation in 2020. Averaged over two years, the inflation numbers don't look so horrific. Also, looking at historical trend lines, GTA house prices dropping 30-40% would only put us back on pace to match where they would have been had things not gotten so overheated over the past decade...

 

[GreyGhost]

I think the much bigger error was dumping fuel on the fire by leaving the rates so low for so long during the pandemic. Once it became clear in mid-2020 that the super low rates were only overheating the housing market, rates should have come back up fast. Instead, they let them sit for a year and a half, during which Canadians bought massively overinflated houses and racked up HELOCs, digging the hole so much deeper. Hindsight is 20/20, I know...

You don't need hindsight for this. Anyone with a brain has been screaming that for years. BOC arguing that they are independent and not politically influenced was clearly a lie and they should all be fired (without golden parachutes). Honestly, if they only do the bidding of their political overlords, why are we paying them? Just cut out that level of wasted money and let Freeland throw darts to pick the overnight rate. The budget will balance itself.

 

[Priller]

You don't need hindsight for this. Anyone with a brain has been screaming that for years. BOC arguing that they are independent and not politically influenced was clearly a lie and they should all be fired (without golden parachutes). Honestly, if they only do the bidding of their political overlords, why are we paying them? Just cut out that level of wasted money and let Freeland throw darts to pick the overnight rate. The budget will balance itself.

To be fair, the outlook was pretty uncertain through much of 2020, and things could easily have nose-dived. But by early 2021, with vaccine availability and normalisation of Covid controls in place, it was pretty obvious. I think they're trying to balance the need for rates to come up fast now to address inflation without creating economic meltdown by coming up faster than people can manage on their debt. Having some people default at each phase is more manageable than a mass default all at once...

 

[GreyGhost]

To be fair, the outlook was pretty uncertain through much of 2020, and things could easily have nose-dived. But by early 2021, with vaccine availability and normalisation of Covid controls in place, it was pretty obvious. I think they're trying to balance the need for rates to come up fast now to address inflation without creating economic meltdown by coming up faster than people can manage on their debt. Having some people default at each phase is more manageable than a mass default all at once...

I just wanted them to do a 0.5 bump more than a year ago. Not enough to price people out but enough to put ice on the craziness and let people know the end was near. That would have made a significant difference imo and would allow a lower peak rate which will put less pressure on those with big loans.

 

[Mad Mike]

There's a three-unit rental house in our neighbourhood where the listing proudly trumpets $59,000 per year in rental income. Sounds great until you do the math on the asking price of ~$1.2M. Unless you're putting down a huge amount up front (and why would you?), break-even is the best proposition, with zero left over for maintenance or rental management costs. Talk about a mediocre investment. Needless to say, it's been on the market for over a month, no bites.



Be very cautious of low maintenance fees unless it's a short-term hold. There's actually serious concern about widespread problems across Canada with way too many condos being run with a way too small reserve fund and skimped maintenance, totally unprepared for when maintenance costs start to skyrocket at roughly the 20-year-old mark. Borderline criminally incompetent management companies and sketchy engineering firms telling people what they want to hear in reserve fund studies make the problem exponentially worse.

In my previous job, I managed concrete repair and waterproofing projects on larger buildings (among many other things), and dealing with most condos was a terrifying prospect. The loudest owners' voices in the room were *always* arguing against spending money, convinced every option was a total rip-off. They were also the ones squealing loudest when a special assessment was issued due to some entirely avoidable crisis due to lack of preventative maintenance. And if by some miracle a sensible group got in and started planning good work, more often than not there was some sort of revolt and the board was replaced and all work halted. We actually stopped doing that work because it was too difficult to make money in that market without being a litigious corner-cutter, as low-bid stupidity is rampant.

If you're a Globe and Mail subscriber, here's a good article:

Ontario condo reserve funds ‘a train wreck’

Fortunately, I know my way around condo boards and finances. I've only met one that kept me happy -- a multi-bay industrial condo complex in Scarborough. Low fees, a good maintenance regimen, a massive reserve surplus, and a board that spent and maintained like it was their own home and cash.

I've also been one of those loud owners in the room. I have screamed loudly when the PM and roofing contractor are pitching a 60 roof complex at 2x the going rate when a garage door company that has been replacing the odd worn-out door for $600 a piece is not allowed to quote against the PMs contractors quoting $1200/unit for all 120 doors.

In a loosely regulated industry with tons of flowing cash, there will always be some corruption in condo management. Whether it be secret commissions, work at their private homes, or just outright fraud -- it's impossible to stamp out all the bad stuff. You can never be 100% certain, but a good look at the statements and certs with your lawyer will give you better chance with your investment.

 

[Mad Mike]

Normally done to bypass some municipal stupidity. You can install a smaller road for instance which makes more room for houses/yards. Sometimes they have underground parking as well which is a nice amenity. You need the condo corp to own and maintain those common elements (could maybe create a Co-op but getting a mortgage on a coop is a nightmare and expensive). There are some upsides to condo towns. Normally monthly rate is cheap and you don't need to own/maintain/store lawncutting/snow clearing machinery. Given the postage stamp lawns in many, storing the lawnmower wastes 10% of your yard.

Sometimes it's about lifestyle. We have a condo-house, and most owners in the complex don't want to look after their own maintenance and don't want the hodgepodge look of freehold after 10 years. Costs about $6k/year and covers the upkeep of the exterior of the house including doors, porch, deck, & steps, windows, driveway pavers, and roof. Also covers all the common area upkeep landscaping, lawn care, irrigation, private laneway, and snow removal. The big-building heavies like elevators, fire protection, underground parking garages, pools, and balconies don't exist.
The single-family home I live in would cost about the same in annual maintenance if I had someone do all that stuff for me.

 

[GreyGhost]

Fortunately, I know my way around condo boards and finances. I've only met one that kept me happy -- a multi-bay industrial condo complex in Scarborough. Low fees, a good maintenance regimen, a massive reserve surplus, and a board that spent and maintained like it was their own home and cash.

I've also been one of those loud owners in the room. I have screamed loudly when the PM and roofing contractor are pitching a 60 roof complex at 2x the going rate when a garage door company that has been replacing the odd worn-out door for $600 a piece is not allowed to quote against the PMs contractors quoting $1200/unit for all 120 doors.

In a loosely regulated industry with tons of flowing cash, there will always be some corruption in condo management. Whether it be secret commissions, work at their private homes, or just outright fraud -- it's impossible to stamp out all the bad stuff. You can never be 100% certain, but a good look at the statements and certs with your lawyer will give you better chance with your investment.

Yelling against wasting money when the work can be done more affordably is far different than trying to prevent the work from being done at all to keep fees low. If boards almost universally continue to favor the existing owners to the detriment of future owners (eg not paying your share of the depreciation) I suspect gov't may step in and mandate minimum fees. Either a simple blanket like 1% of assessed value per year into reserves or a more complicated but smarter approach where building construction is considered (eg. for each of the following items, each condo must contribute 0.5% of their assessed value per year [elevator, underground parking, curtain/window wall]). The smarter approach ensures that more complicated buildings collect more money as there will be more expensive repairs required. Once the amount being collected can't be argued anymore (to some extent, some boards may try to collect more and get a fight), the money might as well be spent on preventative maintenance as it is sitting in the account.

 

[Priller]

Yelling against wasting money when the work can be done more affordably is far different than trying to prevent the work from being done at all to keep fees low. If boards almost universally continue to favor the existing owners to the detriment of future owners (eg not paying your share of the depreciation) I suspect gov't may step in and mandate minimum fees. Either a simple blanket like 1% of assessed value per year into reserves or a more complicated but smarter approach where building construction is considered (eg. for each of the following items, each condo must contribute 0.5% of their assessed value per year [elevator, underground parking, curtain/window wall]). The smarter approach ensures that more complicated buildings collect more money as there will be more expensive repairs required. Once the amount being collected can't be argued anymore (to some extent, some boards may try to collect more and get a fight), the money might as well be spent on preventative maintenance as it is sitting in the account.

Agree with one addition: a contractor being cheap up front doesn't mean you necessarily get good value. Most people's understanding of building restoration work is limited to working on their own house, which doesn't scale to a high-rise with multi-level underground parking. Townhouse work has more in common if you're just talking about roofing or basic envelope repair, but anything involving structural concrete, podium deck and below-grade waterproofing, or balcony repair needs a different skill set.

The most critical piece in that kind of work is an experienced and reputable consulting engineer, who will draw up the spec, tender the job, and manage the contract, including conducting QA/QC and deficiency and warranty claims. But this is an expense that some boards think they can skimp on, and they either end up with someone inexperienced, someone who makes up for the low fee by barely putting time in (letting the crappy low-bid contractor get away with bad work), or worst, someone who makes up for their low fee by collecting kick-backs from shady contractors. And because that world is so low-bid obsessed, shady contractors are in ready supply...

 

[Mad Mike]

In similar ahole behaviour, I ordered a Siemens breaker from Amazon (I know, not the best idea for a lot of reasons but it was easier than driving) and they shipped me an Eaton. That's not how breakers work. Maybe with some documentation that it was listed for use in the panel but it was not provided and 99% sure it doesn't exist. In any case, that's a question that needs to be ask before you start shipping out parts that can cause a fire.

What is normal, though? It's like we have collective amnesia about the '80s.

Good luck picking a 'normal' off this chart. Aside from the nuttiness of the '80s, 1990 saw 13.5% and 2007 was 4.5%. We're barely over 2019 rates now. It's hardly impossible things get up to 6%+ in the relatively near future, and not planning for it is crazy.

View attachment 56441

The BoC isn't raising rates to lower housing prices. They've historically been terrified, and with good reason, about collapsing what may be a house of cards. But between inflation and keeping things in line with the US to ensure stable currency exchange (critical for export trade to the US in particular), they don't have much choice now. Global events have finally forced their hand.

I think the much bigger error was dumping fuel on the fire by leaving the rates so low for so long during the pandemic. Once it became clear in mid-2020 that the super low rates were only overheating the housing market, rates should have come back up fast. Instead, they let them sit for a year and a half, during which Canadians bought massively overinflated houses and racked up HELOCs, digging the hole so much deeper. Hindsight is 20/20, I know...

The other factor that few talk about in the inflation panic is that while it looks awful year-on-year, it doesn't account for the year of very low inflation in 2020. Averaged over two years, the inflation numbers don't look so horrific. Also, looking at historical trend lines, GTA house prices dropping 30-40% would only put us back on pace to match where they would have been had things not gotten so overheated over the past decade...

It's really hard to say how much BOC can tame inflation by controlling the cost of borrowing. I don't think the error was making money cheap to borrow, it was running the Mint's printing presses at redline to flood the market with cash that ended up chasing things to buy... like houses.

To a great extent, we're going to ride the same inflationary wave as our friends south of the border. We're not the same closed economy we were 30 years ago, we trade across borders with limited tariffs and duties, and our natural resources are priced off world markets.

On a side note, how about gov't driving food price inflation? 11% farmgate increase in milk prices means close to 15% at retail. Done at a time when farmers are dumping milk because supply now exceeds demand. Normally this would cause prices for milk fall until supply and demand stabilize -- but no... dump milk to cheat supply and create a need to raise prices. Milk prices should be falling (so farmers get their new Denali's after 3 years instead of 2). Same at Ontario Chicken Board which raised farmgate prices to cover increased costs and then handed out a generous 6% raise to farmers guaranteed operating margin!

 

[Mad Mike]

Yelling against wasting money when the work can be done more affordably is far different than trying to prevent the work from being done at all to keep fees low. If boards almost universally continue to favor the existing owners to the detriment of future owners (eg not paying your share of the depreciation) I suspect gov't may step in and mandate minimum fees. Either a simple blanket like 1% of assessed value per year into reserves or a more complicated but smarter approach where building construction is considered (eg. for each of the following items, each condo must contribute 0.5% of their assessed value per year [elevator, underground parking, curtain/window wall]). The smarter approach ensures that more complicated buildings collect more money as there will be more expensive repairs required. Once the amount being collected can't be argued anymore (to some extent, some boards may try to collect more and get a fight), the money might as well be spent on preventative maintenance as it is sitting in the account.

I'm not so sure the demand for low fees is always to blame, I can give you an example of a meeting where I got vocal.

Our complex was 20 years old at the time (2015), a small number of windows were being repaired annually, mostly winding mechanisms and the odd seal, nothing catastrophic or leading to critical damage. Less than $4K/year from the main't budget and not getting worse. Condo Pres was pushing hard for new windows all around, PM onside too. The reserve had a surplus, but not enough to cover the proposed $320K replacement, a 1-time assessment of $8K/owner was needed to replenish the reserve. We shot it down, on to 2022 (7 years later) and those original windows are still performing -- ZERO repairs in the last 12 mos.

That's one instance where personal motivations from the PM and Pres got in the way of fiduciary duty and could have cost a group of owners an unnecessary $16K each.

 

[Mad Mike]

Yelling against wasting money when the work can be done more affordably is far different than trying to prevent the work from being done at all to keep fees low. If boards almost universally continue to favor the existing owners to the detriment of future owners (eg not paying your share of the depreciation) I suspect gov't may step in and mandate minimum fees. Either a simple blanket like 1% of assessed value per year into reserves or a more complicated but smarter approach where building construction is considered (eg. for each of the following items, each condo must contribute 0.5% of their assessed value per year [elevator, underground parking, curtain/window wall]). The smarter approach ensures that more complicated buildings collect more money as there will be more expensive repairs required. Once the amount being collected can't be argued anymore (to some extent, some boards may try to collect more and get a fight), the money might as well be spent on preventative maintenance as it is sitting in the account.

If I were in charge, I'd set a fixed % monthly contribution to a reserve for all condo corps. Then I'd create an insurance market for maintenance shortfalls and allow condo boards to insure themselves against unexpected losses. Insurers would have a hand in making sure maintenance was done as a condition of insurance and there could be some stability.

 

[Priller]

It's really hard to say how much BOC can tame inflation by controlling the cost of borrowing. I don't think the error was making money cheap to borrow, it was running the Mint's printing presses at redline to flood the market with cash that ended up chasing things to buy... like houses.

To a great extent, we're going to ride the same inflationary wave as our friends south of the border. We're not the same closed economy we were 30 years ago, we trade across borders with limited tariffs and duties, and our natural resources are priced off world markets.

I think the rates were a much bigger factor in the housing bubble (along with money not being spent on travel), but overall inflation is harder to pin down. We're simply following the rest of the world in that regard, and so far seem to be better off than the US and UK. The UK actually cut spending (except for shady Covid deals for friends of their Conservative party, but that money disappeared to offshore tax havens). Granted, the UK is also saddled with a government that has performed so poorly on every front that it almost seems like they're creating chaos intentionally, so it's hard to use them as a metric.

Overall, we're along for the ride, as you say, but the overnight rate has to be set to match the US in some ways to make sure the Canadian dollar stays in that magic $0.75 to $0.85 bracket for exports without going too low and killing purchasing power.

 

[GreyGhost]

It's hard to argue that sanity has returned at this point. 756 Hortop in Oshawa just sold for 703K. "8 days on market, 19 showings, 1 successful open house and 3 offers resulted into $78,100 over asking and a record sale price for a 1 bedroom detached home in Oshawa.
In a cooling market, we're thrilled for our awesome seller!"

I wondered if price was driven by lot size. Nope. 53x65'. That may be the smallest lot I have seen.

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