Recent market data from the expensive housing markets suggest a dangerously inflated, wobbly, top heavy bubble has formed in certain markets. Mainly Toronto and Vancouver, but it is inflating almost everywhere. The expectation that past performance equals future performance is perhaps one of the greatest follies of investor mindset. Market irrational exuberance is blamed on capitalism on the twitter debates, however, it is the government meddling in the cost of money that inflates the bubble. If the market set rates, then the bubble could not inflate (lenders would apply a risk premium to protect from a downturn). House prices would find a happier medium where local home prices reflect local homeowner income, not some crazy multiple that we see today. Instead we see house prices in the bubble markets as a form of class warfare where the boomers are screwing the millenials out of a chance at home ownership, the holy grail of the Canadian Debt Dream. House sales in those cities does now appear to be a massive upward shift of wealth toward the fortunate sellers, while saddling the ‘winning bidder’ home buyer with the crushing debt load.
Expect more government meddling to attempt to sort this out. Meddling has unfortunate consequences and is hard to predict, but the likelihood of Alberta being screwed by the Liberal government is strong. Collateral damage is inevitable when the Ontario dog wags the Alberta tail.
Here we see a strange and bizarrely over-priced home. This property must be 90% land value and 10% construction value. Is it worth it? Someone thought so, or many multiples of someones thought so. I view the seller of this home as a genius. The seller can cash out of Toronto and move somewhere else, and buy a cheap million dollar shack. That’d leave the seller with about two million to fund a retirement lifestyle anywhere in the world. That is a really good deal, but for the buyer, I fear for their mental health and credit score when the bubble pops.
This home increased in value by $2.234M over a period of exactly 17 years, that equates to $131k per year, or $360 each day. Basically a perpetual increase of $15/hour, that is like a 24/7/365 minimum wage job, tax free, earned passively. Less property tax, repairs, renovations, and mortgage interest I guess. Did the eager buyer save a huge sum, trade up from a similarly overpriced lesser home, or is this just debt financed? What were the buyers costs for land titles and fees to the City of Toronto and Province? Ouch!