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When People Start Running Out Of Options, That’s When You’ve Got Trouble Coming

A report from the Globe and Mail. “Navin Seepaul is a 29-year-old single dad who makes $30,000 a year as a barber. He owns a $1-million house in Brampton, a sprawling suburb northwest of Toronto. Each month, the payments on his roughly $700,000 mortgage are $4,300. On top of that, he has $24,000 in credit card debt. ‘The more you work, the more you spend,’ says Mr. Seepaul. ‘What is $1,500? What is $2,000? Let me just run this credit card here.’ A lot of people do it.'”

“To help pay the bills – even just the monthly interest charges are staggering – he rents out his basement to three or four students, and two truck drivers rent bedrooms on his second floor. At any given time, the young father has six vehicles parked on his property.”

“Welcome to the Canadian suburbs, circa 2019, where the country’s debt problem is at its worst, and where the dream of owning a home on a leafy street with a garage and a lush yard for the kids is, for many, a long way from reality. As rising house prices in Toronto sent people rushing to the suburbs, prices jumped in Brampton. The average selling price for a detached house in the city has tripled over the past decade, from $312,918 to $908,354. In Toronto, meanwhile, the cost of a detached home rose from $522,200 to $1.36-million.”

“It’s making Brampton unaffordable, says Jas Takhar, a realtor whose work spans the Toronto region, including Brampton: ‘We have a saying in my office. It’s ‘Drive till you qualify.’ So you can’t buy in Toronto, you can’t buy in Brampton, you have to go to Hamilton, you have to go to Kitchener, you have to go to Durham.'”

“Across the country in Edmonton, Stacy Lee and her partner, Peter Halladay, are struggling with the income side of the debt-service equation. In 2015, they paid $415,000 for a 1,500-square-foot detached house. With credit card payments and car loans of $1,188 a month, along with the monthly mortgage of $2,225, the couple’s total debt payments will reach $40,956 this year. Of that, $14,000 is interest. Add in childcare, groceries, gas and other expenses, and Ms. Lee expects to spend more than $82,000 this year – far outstripping their expected after-tax pay of $74,760.”

“‘We are probably less than a paycheque away from being in trouble,’ says Ms. Lee, who is looking for a second job – any job – to bridge the gap. ‘I am $1,000 in the hole every month just to pay the bills, not to pay any debt.'”

“‘I can’t go to my bank now and shift my Visa balance onto my line of credit,’ says Scott Terrio, manager of consumer insolvency for Hoyes, Michalos Licensed Insolvency Trustees in Ontario. ‘That is a big deal. It doesn’t sound like much. But that’s what people were doing for the last five years. When people start running out of options, that’s when you’ve got trouble coming, according to Mr. Terrio, adding that insolvencies in Ontario are increasing at a pace not seen since 2009. ‘When those doors start to close,’ he says, ‘I think the next insolvency peak will blow 2009 away.'”

From Global News. “If you’re in the market for ‘prime vacant land’ in Regina’s downtown, the price of the former Capital Pointe site has plunged as the hole becomes increasingly shallow. An updated listing from Cushman & Wakefiled Regina, lists 1971 Albert Street’s value at $2 million. The original listing pegged the property at $8.5 million. No reason for the 76 per cent price drop is apparent in the property’s listing. Global News has reached out to the realtors handling the file, but neither was immediately available.”

From Castanet. “The South Okanagan real estate market continued its rebound in August, according to the South Okanagan Real Estate Board. In the first eight months of 2019, a total of 1,232 were sold — down 18 per cent from the same time last year. Penticton realtor Sergej Sinicin said it was a different story further south in the Kaleden and Okanagan Falls areas.”

“‘The average sale price dropped by $130,000 in that neighbourhood south of Penticton, so that’s really the only area that took a bit of a hit in 2019 [August],’ Sinicin said.”

“Residential listings have increased since August of last year, with a South Okanagan Real Estate Board report indicating 1,447 residential active listings at the end of August 2019, an increase of 15.7 per cent over the same time last year. That’s a four-year-high.”

From CTV Edmonton. “With the largest price drop in Canada, Edmonton seems like a good bet to buy a new home. In the last five years, new home prices have actually decreased in Edmonton, falling from $476,261 in 2013 to $458,320 in 2018, according to CMHC.”

“It pointed out lower demand coincided with Edmonton’s July unemployment rate of 7.5 per cent, which hasn’t been that high since October 2017. The government agency says ‘the oversupply of homes, combined with unfavourable market conditions, continued to lower new house prices’ in several Canadian cities including Edmonton. It said the price drop has local builders offering promotions and rebates to try to stimulate the market.”

The Daily Hive. “There’s been a recent trend of developers giving away incentives to buyers in Metro Vancouver, including offers for free wine, avocado toast, and even living expenses for a year — but one Vancouver area developer is pulling out all the stops. Century Group is upping their marketing efforts to clear out its remaining townhomes by offering each new buyer a Model 3 Tesla, which comes with a price tag of $55,000.”

“The executive townhomes, ranging from two to four bedrooms, started pre-sales nearly two years ago, in October 2017 — with pricing starting just over $1-million. There are 57 planned for the complex. Developers have increasingly been forced to increase efforts to market various housing developments during the Metro Vancouver housing slowdown, and this is truly the Tesla on top of the cake. As developers continue to ramp up their marketing efforts, and now that we’ve already somehow arrived at free Teslas — there’s no guessing what could be next. “

This Post Has 61 Comments
  1. ‘We are probably less than a paycheque away from being in trouble,’ says Ms. Lee, who is looking for a second job – any job – to bridge the gap. ‘I am $1,000 in the hole every month just to pay the bills, not to pay any debt.’

    Every time I have to listen to these blow-hard a$$holes on this blog say “oh, I made so much money” I think of this. So what? Somebody else is in the hole you dip-sh!t. And that’s what affects us all.

      1. “Run out of greater fools.” This will never happen.

        On the other hand, running out of greater fools who have access to money, well, that is another thing entirely.

    1. Why does anyone on a stretched budget have a car payment? The used car market is so bloated you can get a decent out of favor model used car for about 5k that will keep you going for ten years. I guess some people in certain professions need a nice car to drive people around in. But other that…

      1. There is opportunity cost in searching out a used car that was maintained well.

        Lots of people ignore basic maintenance.

        Last I needed to buy a car it was impossible to find anything near 5k$ that didn’t also have more than 200,000 miles on it.

        1. “Last I needed to buy a car it was impossible to find anything near 5k$ that didn’t also have more than 200,000 miles on it.”

          A decent 5-yr/old Honda or Toyota with a leather interior and 50k miles costs about $14k these days. This is right about when the service and warranty plans expire, so you can start with your own maintenance plan. With a garage to park in and regular care you’ll get another 150k miles!

    2. Every time I have to listen to these blow-hard a$$holes on this blog say “oh, I made so much money” I think of this. So what? Somebody else is in the hole you dip-sh!t. And that’s what affects us all.

      This same idea applies to a myriad of “multi-level marketing” companies (e.g. pyramid schemes) that are dressed up loosely as “owning your own business” or recruiting affiliates for your organization to sell some overpriced, over-hyped pill, oil, elixir, makeup, CBD oil, jeans, tupperware, protein shake, energy drink, etc.

      1. When Canadians talk about fixed rate mortgages they are talking about fixed for a maximum of five years. It is only mortgage rates of just over 2.5 percent that make it possible to engage in such speculation. At a 5 percent mortgage the interest alone would be $35000 a year more than his income from his job.

  2. Is this better or worse than the illegal immigrant strawberry picker who got a mortgage to buy a $700,000 in California during Housing Bubble v1.0?

    *+*+*+

    “29-year-old single dad who makes $30,000 a year as a barber. He owns a $1-million house in Brampton, a sprawling suburb northwest of Toronto. Each month, the payments on his roughly $700,000 mortgage are $4,300.”

        1. From the comments:

          ‘the title of the article is slightly misleading….The home was purchased with 4 people, each earning about $15k, who purchased a $700k home, not just 1 person earning $15k.’

          I found this story. It was in a website (Hollister Freelance IIRC) so cranky you couldn’t copy paste, I had to retype. It was actually written more as an “illegals get taken advantage of” sort of thing than a housing story. Then the Chronicle picked it up and it became famous.

          1. 8 hours ago
            Financial Times
            Higher education: is Britain’s student housing bubble set to burst? … “You’ve got some markets that do have a very high supply,” says Robert Duncan, a Numis …
            9 hours ago

          2. “As alleged, the defendants defrauded mortgage loan holders out of millions of dollars, with taxpayers saddled with much of the loss,” Richard P. Donoghue, United States attorney for the Eastern District of New York, announced.

            Wake up taxpayers, it’s time to buck up!

          3. Five guys…

            “homeowners said the investors got them to sign over the deeds to their homes before the sales went through, claiming it was a normal part of the short-sale process. That gave the investors leverage to pay less, because no one else could buy the house…”

            How can ownership be transferred at the courthouse without the mortgage being first satisfied?

          4. is Britain’s student housing bubble set to burst?

            ?

            Interesting. From what I have heard, in Europe unless you are attending an elite school like Oxford or Cambridge, that you would attend the local “Uni” and commute from home. It’s not like in the US where most students move into the dorm. Or so I have been told by the European relatives.

    1. “He owns a $1-million house in Brampton, a sprawling suburb northwest of Toronto.’

      Wrong, he doesn’t own diddly.

      1. He is a modern day indentured servant to Mr. Banker. However, he has to serve for a lot more than seven years.

    1. This story reminds me of farm workers vs. railroad tracks. Seems like there’s plenty of space on the planet where these critters can be safe; they’ll evolve, or go away.

      1. they’ll evolve, or go away

        It is unlikely that hawks and owls will suddenly develop faster flight and collectively alter their migration paths, so you’re left with the going away thing. Is there any aspect of the natural world that you would like to preserve for future generations?

        It doesn’t help that the windfarms are a fraudulent subsidy money grab which only serves to impoverish all but the pigs at the trough. Let them evolve or go away.

        1. It is unlikely that hawks and owls will suddenly develop faster flight and collectively alter their migration paths, so you’re left with the going away thing.

          Maybe these critters are drawn to the wind farms to frolic like poor people to easy credit for bling?

          1. these critters are drawn

            I rather think these critters by nature ride the rivers of wind to which the windmills are drawn.

          2. Maybe these critters are drawn to the wind farms to frolic like poor people to easy credit for bling?

            Actually, many of the blades are white and insects like to cling to them. So some birds searching for insects will go towards the blades because they are chasing insects for food.

          3. At over 100 mph?

            Wind Turbines Wrong Colour For Wildlife

            “The scientists were surprised by what they discovered. “Our major conclusion from this work is that turbine paint colour could be having a significant impact on the attraction of insect species to the structure, both during the day and at night,” Miss Long told the BBC. What is more, turbines painted pure white and light grey drew the most insects bar just one other colour; yellow.”

          4. The scientists were surprised

            You are really disconnected. Insects can’t land on a blade going over 100 mph, and hawks are not going in to nibble on them at that speed. If a sparrow wants bugs when the blades are stopped, he’s not going to get his back broken by the blade. You couldn’t possibly be this stupid without serious drug use.

          5. You are really disconnected. . . . You couldn’t possibly be this stupid without serious drug use.

            Behold the effectiveness of liberal propaganda.

          6. You couldn’t possibly be this stupid without serious drug use.

            More ad hominem attacks?

            Never used drugs in my life. Irritability, on the other hand, is a hallmark of drug use and you are sounding awfully cranky these days. Just saying.

            Phototaxis

            Phototaxis is a kind of taxis, or locomotory movement, that occurs when a whole organism moves towards or away from stimulus of light.[1]

            The bugs probably get sheered too. Then the birds come looking for dinner. This is also why bugs are more attracted to white cars (plenty of Reddit forums on this).

        2. “It doesn’t help that the windfarms are a fraudulent subsidy money grab which only serves to impoverish all but the pigs at the trough.”

          Totally agree!

          1. “I rather think these critters by nature ride the rivers of wind to which the windmills are drawn.”

            Okay, I’ll buy that. Since I’m out of my depth in these ecology issues I’d better quit right here.

  3. “Developers have increasingly been forced to increase efforts to market various housing developments during the Metro Vancouver housing slowdown, and this is truly the Tesla on top of the cake. As developers continue to ramp up their marketing efforts, and now that we’ve already somehow arrived at free Teslas — there’s no guessing what could be next. “

    Say, how about offering up a week-end or two with Harmony?

    https://www.youtube.com/watch?v=wSEjoYHxlOY

  4. Just saw this comment to a YouTube video from a real estate investor.

    “Just finished rehab in a property in PA can’t get any bids close to what I’m asking – two price reductions later and just hear crickets. Thinking of just renting it out and cash out refi, however since it’s my first refi, rate is high and getting 70% LTV. Interest only for first year until I have a tenant and credit score goes up then convert to 30 yr fixed at lower rate. Advise? Should I keep on market and hope for the best or move forward with the refi? FYI – I own clean and clear.”

    Are flippers starting to drop their pancakes on the floor?

    1. As far as flippers go, he owns the property free and clear so he’s not really in trouble, just trying to cash out. The ones who are fooked are levered to the teeth and paying huge monthly carrying costs while trying to sell the boat anchor. They’re the ones who are going to lose the properties to foreclosure.

  5. “To help pay the bills – even just the monthly interest charges are staggering – he rents out his basement to three or four students, and two truck drivers rent bedrooms on his second floor. At any given time, the young father has six vehicles parked on his property.”

    Is it legal in Canada to turn a private home into a boarding house? (Come to think of it, this is the Air BnB business model…)

    1. “…three or four students…”

      He lost count, apparently.

      This scenario isn’t quite as bad as the bubble 1.0 strawberry pickers scenario. But it’s getting close.

  6. It looks like higher interest rates are on the way, just ahead of the chilly holiday home sales season.

    Good luck to stranded flippers hoping to cash out before the next bust gains steam!

    1. Falling Treasurys = higher mortgage lending rates

      fastFT US equities
      Treasuries notch biggest weekly drop since 2016 as rotation hits
      Small-caps rise the most since 2016, while defensives fall out of favour
      Peter Wells in New York September 13, 2019

      Treasuries chalked up their worst week — and small-caps their best — since 2016 as investors extended a sweeping rotation away from the momentum plays and bonds that had been favoured over summer.

      The yield on the benchmark 10-year note surged 34 basis points since last Friday to a six-week high of 1.90 per cent, the largest weekly rise since mid-November 2016.

      An iShares exchange traded fund tracking US Treasuries fell 2.1 per cent over the past five sessions, putting it its worst weekly performance also since that same November week nearly three years ago.

      The yield on the 10-year Treasury rose for an eighth consecutive session, the longest streak since March 2017. (Yields went without a decline for eight straight days in April 2018, but one of these sessions saw yields finish flat.)

    1. I just bought a “used” minivan with 3,108 miles on it. Paid $21K instead of $34K.

      The 2 sets of wireless headphones are unopened in the original plastic.

    2. The average interest rate for a new-car loan was just over 6 percent in the second quarter, compared with more than 10 percent for a used car, Experian said. (Borrowers with very good credit typically pay lower rates.)

      Auto loan interest rates have been increasing while mortgage rates fell slightly, IIRC. Where’s high risk Sam?

    3. Used-car companies are also trying to change the shopping experience to make buying less of a chore. Carvana, for instance, lets online buyers choose from two options: They can have their vehicles delivered to them or can pick them up at multistory glass towers that the company calls “vending machines.”

      Buying a used car sight unseen is not a good idea. You should have a mechanic check out the car before signing on the dotted line. For all you know the car has been in a wreck (not totaled). Your mechanic can use a scanner to find out what could be wrong with the car. And with the added complexity in newer cars, things can and do go wrong.

    4. From the article:

      “The average transaction price for a new car was about $37,000, compared with about $23,000 for a used car.”

      I chalk this up to US auto manufacturers largely exiting the car game for the past several years and moving into the SUV/truck game which is way more expensive (and profitable) for them. Entry level cars are now dominated by Kia, Hyundai, Toyota, Honda, and VW.

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