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This is absolutley nuts.
It looks like a giant puzzle to me; one that I might have figured out when I was 13-years-old, but don’t have the eyesight for, as an adult.
Below is a floor plan from a rather unique condo in New York City, with a very interesting back-story.
Let me tell you that story, as well as show you a couple of other videos and floor plans from luxury NYC units…
Have you ever wondered what the floor plan for a 9,000 square foot condo would look like?
And I’ll be honest – I wasn’t impressed by the one shown above.
There are just way, way too many walls!
I’m not going to suggest that a 9,000 square foot condo should be completely open concept, but my God look at all those different rooms!
This technically shows as only a 3-bedroom, but note that the den at the top has a dressing room. Why do you need a dressing room adjacent to a den?
But that”s not the only question to ask here.
Why is the kitchen only 5.7% of the square footage of the entire condo?
What is the difference between the “library” and the “study,” and why does one need two dens with BOTH a library and a study?
Why does the dressing room open to the kitchen?
Why is there a pantry off the bedroom?
What is a “dress corridor?” Am I that poor, that I have no idea what this is? Why is it 180 square feet?
Why does this floor plan provide measurements for the hallway?
It’s an odd one, I tell ya.
But you know what? It’s still $68,000,000. Or $7,556 per square foot.
I first read about the condo HERE.
A Chinese billionaire named Guo Wengui has been “hiding out” in the apartment (which is actually a co-op) and not a condominium, since he fled China in 2015.
He purchased the property for $70 Million, and tried to sell it in 2017 for $86 Million.
Now here he stands, looking at a $2 Million loss, plus costs. I guess there are worse things for exiled billionaires?
Here’s a video tour of the unit that’s worth watching:
Not bad, for $68,000,000.
But if you can afford $68 Million, you can afford $73,800,000, right?
There’s a 10,000 square foot, 5-bedroom penthouse for sale at 212 Fifth Avenue, with an additional 4,700 square foot terrace, and 950 square foot……um…..balcony?
Now this is a little more like what a 10,000 square foot condo floor plan should look like:
I’m not an expert in 10,000 square foot floor plans, but doesn’t this look a bit cleaner?
There’s a 1,500 square foot “great room.”
I counted some 15 rooms in the first floor plan, and only 9 here. This is less choppy, better flow, and well-organized.
Of course, I wonder why one needs a sitting room off the 400 square foot master bedroom, but I guess there’s just nowhere in that bedroom to sit.
I will say, I was somewhat unimpressed by the Sotheby’s listing, which you can see HERE. There were maybe 7-8 interior photos of the unit, but only the foyer, hallway, bathroom, atrium, etc.
But hey, the view isn’t bad…
My last comment on this world of real estate that I know nothing about, is this:
The listing reads, “This is the opportunity of a lifetime.”
It’s a $73,800,000 condo.
I find that statement to be both incredibly misplaced, and absolutley ironic.
It may be the opportunity of “a” lifetime, in the most literal sense. Because there may be “a” buyer out there, but probably not many more.
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Post-Victoria Day in the Toronto real estate market usually means a flurry of activity as both buyers and sellers scramble to transact before the end of June.
It’s been an interesting, albeit mostly positive first 4 1/2 months to the year for Toronto real estate.
But questions still remain about the Toronto market, so let’s get them asked, and hopefully answered…
What were you doing over the Victoria Day long weekend?
Relaxing at home?
Weekend trip out of the city?
Blowing off steam from a few busy weeks, or months, at work?
I can tell you from experience, there were a lot of Toronto home-owners that were doing nothing of the sort. “Time off” over the long weekend was a luxury they didn’t have.
Because we’re about to make the final push in the busy spring real estate market, and the Victoria Day long weekend always affords home-sellers those three days strung together that they really needed in order to get their homes ready for sale.
By association, there are also a lot of buyers out there that are hoping the day after Victoria Day is like the day after Labour Day, and the real estate market just explodes with new listings. Historically, that’s been the case. But the “final push” in the spring-market is short-lived; only six weeks before the calendar turns to July. So active buyers will need to be more aggressive, and recognize that patience is not a virtue.
Keep in mind, that I’m speaking more generally about the housing market, which is far more cyclical in nature than the condo market. The housing market is firmly tied to the school-year, and/or the family calendar. So when school is out, and summer begins, fewer people are looking to buy and sell freehold homes. The condo market, on the other hand, might slow down marginally once July hits, but the drop-off is not nearly as pronounced.
So where does this leave us?
For many, it leaves us asking questions about the market, both general and specific, as we prepare for this final push.
Let me post five questions which I think are the most likely to be asked:
1) What direction is the market headed?
2) Where is the Toronto average home price going?
3) Will we see more inventory?
4) What’s happening with interest rates?
5) Is the booming condo market sustainable?
So let me jump right into it…
1) What direction is the market headed?
Simple question to start, right?
But it’s what everybody wants to know, and it’s also tied to virtually every other question on the list.
So in order to understand where the market is going, first we need to look back at where it’s been.
Last year’s market was incredible. The first four months of the year were the hottest four months I had ever seen, and then things dropped off significantly in May. We had the coolest June I think I’ve ever seen, and then a very slow summer. The fall did what the fall always does – it put upward pressure on price again, and we saw those prices increase through to December, which is a month I never use to judge anything, on account of, well, it’s December.
So far in 2018, prices have moved, but ever-so-slowly. Unless you’re looking at the condo market, but that’s another story.
May and June are historically very busy months, and save for last year, I’d say that May is the busiest month of the calendar year. But 3/4 of the month are in the rear-view mirror, so really we’re asking ourselves: “What do we expect for the last six weeks of the spring market, and into the typically-slow summer?”
Then of course, you need to ask yourself, “Am I looking short, medium, or long-term?”
I’m bullish short, medium, and long-term. But I’m a real estate agent, right? So what do I know.
I think even the market bears would agree that in the long-term, unfortunately for many, prices are going to be on the upswing. Medium-term to.
So really the only question at hand refers to the short-term, and that’s somewhere between 6-18 months, depending on your definition. That question will be answered, in part, by the following…
2) Where is the Toronto average home price going?
This seems like it’s the same question a second time, but it’s not.
To measure a market, some people look at sales (which I don’t), and some people look at price. Others look at new or active listings, and some have their own ratios.
As for the average home price itself, as I explained last week, that’s still just one number. And within that one number, are many others that you might find more important.
But here how the average home price has fared from 2017 onwards, including the monthly change:
As I said in point #1, the average home price has been creeping ever-so-slowly this year.
To be fair, a 2.2% and 2.6% monthly increase are not “slow.” Tell that to a wealth manager, who is looking to add a low-risk 5-6% to his clients’ portfolio.
But in the context of the 2017-2018 real estate market, it’s a very gradual change in average home price, especially if you consider where this number fell in March/April of last year.
So let me ask two questions here:
i) Will the May average home price be higher than April?
ii) Will the June average home price be higher than May?
To the first question, I say, “Yes.” Without question, and this actually has less to do with that 2.2% – 2.6% pattern, and more to do with what I’ve seen through the first three weeks of the month.
As to the second question, I would say, “Maybe.” ordinarily, I’d say “Yes.” June is a very strong month. But I’m not sure if the demand we saw in the spring will carry through to June. I feel as though many, if not most spring buyers, have already bought. I have one set of buyers from January 1st that have yet to purchased, and everybody else has done so. Of course, I’ve collected new buyer-clients along the way, some of whom are still looking, but many of them have bought as well. Call it happenstance, or call it strategy, but most spring buyers have already bought.
So while I expect June to be a strong month, and I would likely say “yes” rather than “no” to the question above, I don’t think the average home price in June, being higher than May, is a shoe-in.
Moving into July and August, I would expect the average home price to level off, and actually drop from the peak in May/June. But you must keep in mind – the ratio of condos-to-houses increases dramatically as move through the summer, since fewer home-sellers are looking to hit the market. This always exacerbates the drop in average home price in these months.
3) Will we see more inventory?
Discussions about inventory are always interesting because no matter what the data shows, there are always people who believe it’s a buyers market, or that “there’s so much out there.”
Those folks often subscribe to what I call the “Crane Theory.” They simply point to all the cranes visible in the downtown Toronto skyline, and say, “There’s so much under construction! Everywhere you look, there’s a condo going up!” They’re not wrong, as you know. But they feel that because their old Tim Horton’s at Dundas & Jarvis is being turned into a condo, or where they used to park their car at Spadina & Front is being turned into a condo, that anecdotally, “Everything” is being built into residential real estate, and that there’s “so much for sale.”
But what if you told these folks that despite all the visible construction, it’s still not enough to satisfy the demand?
In every interview I’ve done for the last couple years, when the subject of demand comes up, I always bring up supply. And vice versa, depending on the line of questioning.
If somebody is asking about the government implementing a stress test to try to take buyers out of the market, and thus decrease demand, shouldn’t we then open a line of discussion about, alternatively, fixing the inefficiencies that exist at City Hall so that developers aren’t left waiting for years to start projects, thus increasing the supply?
The two go hand-and-hand, but I’ve always felt that any article about the market you’ll find will focus solely on one of supply or demand, giving no weight to the other.
Quite simply, if there’s more demand than supply, or more supply than demand, prices must go up or down accordingly.
Last April, we saw new listings surge. The story early in 2017 was the dearth of supply, and prices increased accordingly. Whether sellers were intentionally holding back for May or June, which are historically strong months, or whether more people made the decision to sell because the market was on edge, remains to be seen. But once inventory levels spiked, prices dropped.
Through the first four months of 2018, however, new listings have dried up:
January is a tough month to measure. Not nearly what December represents in real estate, but as the effective “door” to the spring market, I would have thought a 17.4% increase in new listings would be meaningful. Then again, with January of 2017 representing the lowest number of new listings in a decade, perhaps the 17.4% increase sends the wrong message.
Since then new listings have dropped dramatically over last year, and we’re feeling it.
The agents that lament, “There’s nothing out there” on a daily basis are right. Save for a few segments of the market, the effective choice for buyers just isn’t there. And dare I say that even compared to last year, it feels as though there’s less for sale.
With almost 26,000 new listings in May of 2017, I expect the 2017-2018 comparison to be in the red, once again.
But I do expect the summer to be a lot busier than it was last year.
4) What’s happening with interest rates?
Good question, and one that I explored on my blog in a post last Wednesday.
It’s a little confusing, and those who say that it makes perfect sense, and they understand it, are either in the extreme minority, or are just trying to sound smart.
Seriously, this isn’t even apples and oranges. This is like the supermarket increasing the price of Fuji apples, but dropping the price of Macintosh.
Then on May 30th, we have the next interest rate announcement from the Bank of Canada.
People’s predictions on whether the BOC will raise rates are usually tied to their predictions about the real estate market, so once again, can anybody really say they have a better idea than the person sitting next to them?
Say this, however: if the BOC does increase rates, I see more of an impact among those that already own than those that are looking to buy. At some point, successive rate increases might affect affordability to the point where we actually see the unthinkable: people selling their homes because they have to, not because they want to.
5) Is the booming condo market sustainable?
Ask my client who was in the city on the weekend, and he would smile as he says, “Yes.”
My client described the Toronto condo market as simply a “A joke.”
Not a funny one to those who can’t afford to buy in, or those who have witnessed the increase in prices and can’t make sense of it, but as the conversation so often goes, he compared Toronto to other cities around the world and said, “It’s a joke. It’s dirt cheap.”
He referenced a recent sale at 55 Front Street, aka “The Berczy,” for a 2-bed, 2-bath, close to 1,000 square feet for $929,000; one that he unfortunately couldn’t fly here in time to seel.
“You’re a banker or somebody who works in finance, and you walk six minutes to work, past a brand-new beautiful urban park, past the Hockey Hall of Fame, an iconic theatre, Toronto’s answer to Grand Central Station, and a host of top-notch restaurants, and you can get a 2-bedroom apartment for 900-grand? It’s a joke!”
In Manhattan, he explained, the price would be triple.
“And you’re not making triple the salary,” he explained. “If you are, then you’re out every single night trying to keep up with the life that’s attached to the work. Hundreds, thousands of dollars a week these young kids are shelling out to be part of the social scene.”
“The cost of living in Toronto for young professionals is a fraction of what it is in New York,” he said.
And this is after our insane run-up in condo prices too.
Now his opinion is only one opinion, but without getting too far into this case study, let’s just say he knows more about international real estate than most of us.
But take a look at where condo prices have gone in 2017-2018:
Those 2.3%, 2.1%, and 3.7% dips in May, June, and July of last year pale in comparison to the 6.2%, 8.1%, and 6.0% corresponding drop in the average overall home price.
And since the, the condo market has roared back, and is actually higher than the peak last April.
How is it possible that this pace continues?
That might be the best question from our list…
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Vancouver author and comedian Charles Demers talks about his new novel and how not to achieve housing affordability.
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Here’s something a little silly on a Fun Friday.
I get asked this question a lot by my clients – “What are you looking for in a house?”
I’m an open book, both on this blog, and in person. People know I live in a condo, and that one day, sooner or later, I’ll be buying a house.
People always want to know what I’m looking for, so I figured this would be a fun exercise…
Another question I’ve been asked lately: “What’s with this ‘Fun Friday’ thing you’re always referring to on your blog?”
I wouldn’t say “always,” but yes, I tend to think of Friday as a more relaxed day, and the topics on my blog are often more relaxed too.
Monday’s blog post is often something big and bold that I’ve pounded hours into over the weekend, as is Wednesday’s. Friday’s blog, since it’s only up for one weekday, is often a bit silly in nature. Not to take anything away from the folks who come to the blog for “MLS Musings” or “Photos of the Week,” not to mention a fun video, but that’s just the Friday theme, if you will.
When I went to Leaside High School in the early 1990’s, by the time you finished Grade 9, there were “enriched” courses available to students who, like me, enjoyed studying, had no friends, and didn’t party…
In Grade 10, they offered “Enriched Math,” which I thought would be really cool.
It’s too bad that in 2018, they’re doing away with enriched courses, in attempts to make everybody “equal,” but that’s a topic for another day…
My Grade 10 math teacher was a man named Mr. De Piezza, who offered us ways of thinking that we had never thought to explore. It simply changed the way I thought about math, and learning in general.
Most Fridays, instead of teaching from the text, or simply moving on to the next chapter or next lesson in line, he would look to do something different. And he referred to this as “Fun Friday.”
I remember one exercise where we were exploring probability, and while we know that the chances of flipping a coin and having it turn up heads, or tails, is 50%, he wanted us to see how we get to that 50%. How many sequences of ten flips come up with 9 heads and 1 tails? Or vice versa? Picture 30 kids in a classroom, with hundreds of pennies, flipping coins and scrawling down results.
For some students, “Fun Friday” was a day when you knew you wouldn’t have a test, or be stressed by the lesson, or really have to do much. But for nerds like me, it was a day you just knew you were going to learn something cool.
Anyways, that is the origin of my “Fun Friday” saying.
And when a couple of different clients recently asked me what I was looking for in a house, I figured it would be a Fun-Friday kind of blog post.
There are a lot of things I’d look for in a house, like just about every buyer. Some things I’d compromise on, some things I wouldn’t.
Some things are necessities, and some things are fantasies.
But explaining how many bedrooms I want, or whether I want a garage – that’s boring!
As a fun exercise, I thought I’d sway a little more toward the fantasy angle, especially because so many of my ideas are exactly that.
And while I could probably rattle off a dozen things I want in a house, if you know me by now, you know I’d rather spend an entire blog talking about just ONE feature.
One feature, eh?
Any guesses off the top?
A garage with power-tools?
A garden for my green thumb? Maybe some organic kale?
What about a kitchen island facing a Wolf range?
A steam shower? A sauna?
A backyard football field?
All good guesses, they would be.
But aside from the necessities, and if we’re just playing for fun today, one of the things I’ve always fantasized about is………
…………..a wood-paneled office.
I don’t quite know what draws me to this.
Maybe it’s the idea of having my own “lair” or “domain.” But I also want a man-cave (a close 2nd place), so it can’t be about having my own space.
Maybe it’s about efficiency? Being able to work from home, and feel like I’m still in the office? I think I might be on to something there.
I’ve been in my current condo now for seven years, and save for the first six months when I worked in the “home office” I had set up, I’ve always worked from my dining room table. As I type this right now, 12:31am on Wednesday night, I’m sitting in my half-broken, much-sat-upon chair that is also seven years old, and is probably the best $150 I’ve spent in a long time.
But having my own office, in my home? That would be awesome.
The kids can come knock on the door, quietly, respectfully, and in a 1920’s voice, perhaps even with a hint of a British accent, ask, “Father, may we speak with you, if only for a moment?”
I’ll remove my spectacles, put my pen back in my ink quill, and say, “Yes, children you may, but let’s do so post-haste as father has important work to be done.”
Then they’ll ask me if they can attend the sock-hop, or box social, or whatever gathering is afoot at the local broo-ha-ha, and I’ll tell them to ask their mother.
Then, it’s back to work for me.
Yes, that’ll be the day…
I’ve accumulated a few photos from MLS of wood-paneled offices I like.
Here’s my favourite thus far:
Great colour, two windows, and I like the built-in shelves.
I have a lot of art, which you may call “chachkies,” but I need somewhere to display it.
Every piece of art I own, has meaning. Think about that painting you bought from a street vendor on your trip to South America back in 2009, and had framed in the shop around the corner from your home. That piece is special to you because you remember where you were when you bought it, who you were with, and why it appealed to you.
I dream one day of having a wood-paneled office, just like the one above, and unpacking all the pieces of art I’ve accumulated over the years, and deciding on where each piece will go, is going to be like Christmas morning for an adult.
Behind the desk in that photo above has to be home for a very strong piece.
A defining piece.
I already have mine picked out…
One of my best friends was married in 2013, and for his bachelor party, we drove to Detroit to watch the Tigers play, then Chicago to see the Cubs, then Milwaukee to see the Brewers, and then flew home.
After we left Wrigley Field in Chicago, we were walking through town, back to the car, and we saw a shop that was sort of sports memorabilia, and also antiques.
We went inside, and it was fantastic.
I’m a huge collector, as some of you know.
My brother, father, and I collected sports cards in the late 1980’s when the boom was big, and although most of that stuff is now worthless, our 1930’s and 1950’s hockey cards remain a fantastic collection. In the past four years, my father and I have started going back to the semi-annual expo to see if we can add to our sets.
In this Chicago store, there was all kinds of sports memorabilia, but also newspapers galore.
The moon landing, the Kennedy assassination, D-Day; you name it, there was an authentic, mint-condition newspaper being displayed.
I walked through the store like a kid on Christmas. I’m a sucker for anything old; anything vintage.
The store owner looked like he had to be in his 90’s, although maybe the stress of the near-1oo-years between Cubs’ World Series wins just made him seem that way.
I asked him, “What’s the oldest newspaper you have in the store?” And he thought about it for a while.
He then said, “It’s not on display,” and I figured it had to be special.
He walked over toward another counter, reached underneath, and pulled out a very large, flat wooden box. He opened up the lid and blew off the dust like something out of a Scooby-Doo cartoon, and the hinges creaked.
He pulled out a newspaper that was in plastic, and turned it around with both hands in an understated, unintentional, television-like reveal.
It was awesome.
The newspaper was from 1863, right in the middle of the U.S. Civil War.
Depicted on the top-half of a horizontal side of newspaper was the Second Battle of Winchester, which took place in Virginia. It was a hand-drawn sketch of the battle that was so incredibly detailed, I could almost see the despair in the eyes of the Union soldiers (they were slaughtered, FYI).
The newspaper was in absolutely incredible shape for something 150 years old.
But it wasn’t until I saw the date that I was really enthralled: June 23rd, 1863.
And what day were we there, in this man’s shop, in Chicago? June 23rd, 2013.
What are the chances?
Exactly 150 years later, to the day!
I immediately decided I had to have this piece.
I asked the old-timer how much he wanted for it, and he took a long inhale. “I’ve had that for……let me think now…..probably close to fifty years,” he said. “Picked it up at a flea market down south in the 70’s if I recall.”
I had no idea what this was worth, but I had pretty much decided I was going to buy it.
To my amazement, he said, “I think I’d have to have…….proabably…….one-twenty for it.”
One-twenty? Dollars? Really?
I’m a collector by nature, but this isn’t my field. I know it’s “just” a newspaper, but it’s 150 years old, and I don’t imagine there are a lot of these kicking around. I suppose just like any asset, or any home out there, it’s worth what somebody is willing to pay for it.”
“I’d be honoured to buy this piece,” I told him.
And I handed over $120 USD with glee.
We left the store, and one of my buddies said, “Dude, you could have worked him down! He’d probably have taken sixty bucks, man! You know 100% he’d have taken a hundred.”
I told my friend that wasn’t the point. I negotiate for a living. I’m sure I could have got the piece for less.
But I respected the man who owned it, how long he’d had it, and the mere existence of his store – a throwback to days past, in a world where very few people care about old newspapers, collectibles, antiques, or vintage items.
I wouldn’t dare insult this man by haggling over twenty dollars.
In the end, I got a photo of he and myself, with the newspaper, and his shop in the background.
As soon as I got home from that trip, I went up to Bayview Avenue to see my “frame guy.”
“You have a ‘frame guy,’ seriously?” I’m often asked by those in my office. But yes, I have a frame guy. A necessary ally for an amateur art collector.
To frame a piece of art – cheap or otherwise, is a job unto itself. The right mat, the right border, the right frame. Colours, thicknesses, and what type of glass?
When the piece was finished, I looked at it for a few minutes, and then put it back in the brown paper wrapping.
It’s been in storage for five years. I haven’t seen it since.
But I knew that one day, when I bought a house, and if I had a wood-paneled office – this would be the perfect piece to display on the wall behind my desk. Feel free to read into the imagery however you want; perhaps I don’t even understand the reasoning myself.
So yeah, call me crazy, but one of the things I want in a house, more than anything, is a wood-paneled office like the one above.
Here are a few others that I’ve seen on MLS over the years.
I like this one here, but I really want the window to look out front, not to the sideyard:
This one below is beautiful, but a little too “much,” if you will:
There’s also no window in the room, which I think is a deal-breaker.
I mean, it’s not a deal-breaker, since this is a classic case of “beggars can’t be choosers,” but that might get a wee bit stuffy.
The desk is also way too small – it’s a glass table with a few items on it. This reeks of staging.
I love the double doors though, as well as the ceiling detail.
This one below is more my speed.
It’s a combination of the very first office, and the one we just saw:
Ignore the colour of the wood, because I think that’s the camera.
I love the window behind the desk. In a perfect world, I’d have two windows next to the desk, like the first photo. But I don’t want the desk facing the wall like in photo #2.
I love the shelving on the right hand side. I can’t tell you how many pieces of art (aka chachkies…) I could display on those fifteen shelves.
I would absolutely love a wood-burning fireplace! That would be unreal. I’m not a fan of that gas/electric unit on the left, so I’d get rid of it. And the wall-mounted TV would be a distraction from all the really important things I’d be doing, and world’s problems I’d be solving, sitting in that chair.
This one below just doesn’t “do it” for me, you know?
As in I can’t quite put my finger on it, although I do like the chairs.
There’s a desk in the middle of the room, but it’s across from a built-in desk in the shelving. It doesn’t feel well-planned.
And again, the desk is sideways to the window, which I don’t like.
I don’t even know what to make of this one here:
I showed it to a colleague of mine in the office, and he said, “Two desks? Eh? Eh???” and winked. “Business partners?”
I absolutely love the huge window though.
I think if the fireplace wasn’t there, you could move the desk in front of that space, ditch the second desk, and it would look just like the first one:
Except it would be twice as big…
So there you have it, folks.
What’s wrong with a little day-dreaming on a Friday?
Call me crazy, but hot-damn do I want a wood-paneled office in a house one day.
I know it’s the long weekend and many of you have already checked out, but if you feel like playing along – let me know what cool, different, or fun feature you would want in a house.
And if you have a wood-paneled den, send me a photo.
Have a great long weekend, everybody!
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A bit of a mortgage-theme here today on TRB, but I had two topics in mind and figured I’d group these together in one post.
First, we have significant competition among the Big-5 banks as they lower variable rates to try to gain more business.
Second, we have the odd listing coming out on MLS advertising vendor take-back mortgages.
This should give the market bears something to rest their hats on…
Who doesn’t love a good rate war, am I right?
My goodness, it’s been so long!
I went through my blog history just now, looking for a specific reference to rate war that I recall from the past, and I was surprised to see that it was actually over four years ago!
Here’s the blog: “Ready, Set, Rate War!”
That was back in March, 2014, when the 5-year, fixed-rate fell below 3.00%.
And within that post, I referenced a Globe & Mail article that couldn’t have possibly been more wrong: “Why Cut-Rate Mortgages Won’t Be Here For Long”
Who knew that rates would go even lower?
Many of you have benefitted from 5-year, fixed-rates as low as, what, 2.39%?
That’s just insane.
And both market bears, and/or the ‘older’ folk, will regale us with stories from yesteryear, when rates were sky-high.
Just to put the interest rate environment into context, let’s take a look at the Prime Rate history from 1960 to today:
Yes, we’ve been in a low interest rate environment for quite some time now. I don’t think that’s in dispute.
And the question that many of you are asking is – how high would rates have to go to really have an effect on the market?
Those 2.29% 5-year rates are long gone!
Rates were up over 3.5% last time I checked. But alas, it seems the banks have other plans!
Cue the 2018 rate war:
From Tuesday’s Financial Post:
TORONTO — TD Bank is joining a rival bank in offering a highly discounted variable mortgage rate as competition among Canada’s biggest lenders heats up.
The Toronto-based bank said Tuesday it’s lowering its five-year variable closed rate to 2.45 per cent, or 1.15 per cent lower than its TD Mortgage Prime rate, until May 31.
TD’s special rate follows last week’s move by the Bank of Montreal, which discounted its variable mortgage rate to 2.45 per cent until the end of May.
Canada’s lenders often offer special spring mortgage rates as home buying activity picks up, but Robert McLister — founder of rate comparison website RateSpy.com — said last week that BMO’s special discounted variable rate was the biggest widely advertised discount ever by a Big Six Canadian bank.
TD’s discounted rate on Tuesday brings its variable mortgage rate offer in line with BMO’s.
1.15% lower than the Prime rate.
Until May 31st, yes. But what if this promotion “works?”
Real estate sales are down across the country, and the GTA is no different, where we’re off 30-something percent so far this year. Banks are in the business of making loans, and suffice it to say, if they can’t make loans, they can’t make money.
Some will argue that sales are down because rates are up.
Others will argue that sales are down because prices are up.
Then, others will suggest that it’s more to do with new mortgage rules, and affordability.
Any which way, the banks need to make more loans, and thus lowering their rates and providing promotions is one way to do that.
This promotion runs until May 31st, but if the banks see their loan numbers increase, this could become a permanent promotion.
It’s not unlike car dealerships, who advertise a different promotion every month, which is essentially the same offering, just packaged under the “New Year” tag one month, the “Valentine’s Day” tag the next month, followed by the “Spring into Spring,” the following month, and so on.
Of course it’s no surprise that once one bank started offering the discount, the others followed.
Who doesn’t love an oligopoly, right?
Now ironically, as this “rate war” is happening with the 5-year closed variable, rates on the 5-year, fixed are increasing!
I’m thinking Robert Frost here…
“Two roads diverged in a narrow wood,” and so on.
From last Wednesday’s National Post:
TORONTO — Canada’s Big Six banks have all increased their benchmark fixed-rate mortgage rate, a move analysts say could trigger a rise in the Bank of Canada’s qualifying mortgage rate as early as Wednesday, making it more difficult for some to take on home loans.
The Bank of Nova Scotia on Tuesday became the last of Canada’s biggest lenders to raise its posted rate for a five-year fixed-rate mortgage — from 5.14 per cent to 5.34 per cent. They also increased the posted rates for other fixed-rate term lengths.
Such rates are different from the actual mortgage rates offered by banks to borrowers, which are not seeing the same increases. But the Bank of Canada uses the posted five-year fixed mortgage rates at Canada’s biggest banks to calculate the rate used in stress tests to determine whether borrowers can qualify for both uninsured and insured mortgages.
And with a rate announcement coming from the Bank of Canada on May 30th, your guess is as good as mine as to where the lending sphere ends up.
Some rates are being slashed, others are being increased.
And all the while, I hear from mortgage brokers that the banks are dying to loan money! They hate the new mortgage rules, they don’t like the restrictions, and that more “promotions” like the 5-year variable closed could be on the horizon.
It would be nice if the Bank of Canada and the Big Five banks worked in tandem, but as we know, they have different agendas.
Now switching gears, when was the last time you heard of a seller offering, or a buyer asking for, a vendor take-back mortgage?
It’s certainly been a while.
As many of the wiser folks know, these used to be common place! Think back to the 80’s – transactions hinged upon what terms the seller was offering!
Here’s a sample listing I dug up from the MLS archives:
That’s from a listing in 1989, where the vendor was offering a $300,000 mortgage at 11.5%, for 1-year, when banks were looking for 13.5%.
It sure made sense if you were a seller.
That property was listed at $739,000.
Let’s say the buyer took the seller up on that $300,000 VTB at 11.5%.
$300,000 at 11.5% is a $4,377.10 per month mortgage payment.
$300,000 at 13.5% is a $4,995.96 per month mortgage payment.
Are the margins for the buyers that thin?
Does that $618.86 per month make or break the transaction for the buyer?
If it does, then the seller is smart to offer this vendor take-back mortgage. The vendor’s opportunity cost is 2% of $300,000, or $6,000. But what if this helps the vendor sell the $739,000 house, versus not sell it at all? Perhaps the vendor can obtain $735,000 for the house, from this buyer, but only $700,000 from a buyer using cash, or bank financing?
Fun times, for those of you who lived through this market.
I’ve never worked in that environment, but I was very interested when I saw this listing the other day:
A nice way of saying “Free Vendor Take-Back Mortgage!”
Keep in mind, this is the first time I have seen this offered this year, or ever, really. At least in recent memory.
So what are the implications here? Both short-term, and medium-term for those of you who want to draw inferences?
I suppose an optimist would just say, “The seller is offering a discounted rate on part of the financing – which is undetermined, as an incentive, much like throwing in the flat-screen TV in the offer.”
A pessimist would say, “The builder can’t offload the house! The market is weak! He’s offering to finance the house for FREE to get out from under it!”
Given this is the first I’ve seen of this, I would probably lean toward the former.
At the very least, it falls a little bit left of centre.
Plus, as I said, we don’t know anything about the terms and conditions.
How much is the seller offering?
How long is the term?
What qualifications are needed?
Let’s say this is a $3,000,000 house, and the seller is willing to offer a $500,000, 1-year loan at 0%. How much of an incentive is this really?
With variable rates around 2.45%, we’re talking a paltry $12,250 in savings! On a $3 Million house!
But what if it’s a 3-year, fixed rate loan for the balance? What if the buyer could provide the minimum down (20% of the first $1M, and 50% of the balance, for a $1,200,000 down payment), and the seller would finance the rest?
A $1,800,000 loan at 0%, for 3-years.
Say we’re looking at a 3.2% comparable 3-year rate, that’s a $172,800 savings, or more if we’re compounding semi-annually.
All of a sudden, we’re talking meaningful numbers here. $180,000 is nothing to sneeze at, even in the context of a $3M house.
More to the point, what if the buyer wasn’t able to secure bank financing for the balance of $1,800,000, with the $1.2 Million down?
Now not only is the buyer getting a sweet deal in the form of a $180,000 interest savings, but he also gets to buy the house in the first place!
Some of you might be thinking, “Oh great, here we go. A guy who can’t get a bank loan is getting an interest-free loan from the seller, to buy a house he would otherwise not be able to afford? What could go wrong here?”
But if the buyer and seller want to make a deal, what’s stopping them?
And to be completely honest, I have a hard time believing a buyer with $1.2M down can’t secure financing for a $3M house. Unless that $1.2M is a gift from Mom & Dad, or a drug dealer’s money in cash, these people are probably gainfully employed at salaries that represent their down payments.
Until I see this sort of “promotion” offered in an active MLS listing again, I’m going to consider it a one-off.
But if any of you out there see something to this effect advertised, please email me!
For now, let me open the floodgates to the inevitable interest rate, debt, and risk conversation…
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