Dereck and Christine thought this mid-century modern property could be their forever home.
But, let’s be clear. It wasn’t their dream home.
Even with a healthy budget of CAN$1 million, the house Jonathan and Drew Scott had found for them was farther away from the city of Toronto than they had wanted…and it needed renovations too.
Jonathan and Drew are identical twins from Vancouver. They are also the hosts of Property Brothers, a Canadian TV show which helps people find fixer uppers…to make buying property more affordable.
The two brothers complement each other. While Drew finds properties and negotiates with sellers, Jonathan does the renovations.
Dereck and Christine’s story is featured in the episode titled The High Cost of Cool, which aired in August 2018. A very apt title if you ask me. As you will read below, the buyers got a little more than they had bargained for.
The couple were keen on living downtown. They had even moved in with Dereck’s parents to save more money. But Toronto’s soaring property market meant that they kept looking farther away from their ideal location.
By the time they met up with Jonathan and Drew they had looked at 90 houses and had four offers declined.
Even though the mid-century modern house was 15 minutes from the centre, they liked the house. And the price was good. It had listed the day before at CAN$685,000.
But, as Drew told the couple, it wouldn’t be easy.
‘That’s good but you are not going to get the house for that price, I can tell you that right now.
‘Because they want everyone to get into a frenzy put in a bunch of offers and drive the price up. My target for this home would be 780,000…at least.’
With CAN$1 million and renovations estimated at CAN$200,000 that didn’t leave the couple much wiggle room.
And Drew was right.
The owners turned down the couple’s first offer of CAN$750,000…and their second one at CAN$780,000.
They did accept their third offer of CAN$800,000 but what probably put them at the top of the bidding frenzy was that — against Drew’s advice — they would take the house with ‘no conditions’.
And boy did they pay for this decision.
As Jonathan went to start demolitions he noticed that the place was full of asbestos…
…and then they found out the house also had structural problems that needed to be fixed.
It was a worst-case scenario.
As the new owners took in bad news after bad news, Dereck says: ‘This seems a little bit like a rabbit hole.’
Jonathan’s answer was: ‘It is’.
Dereck and Christine did finally get their home…and they were happy with it, even though it came in over budget.
Canada’s property market is cooling
But the episode shows how tough Canada’s property market has been in the last few years.
In fact, a couple of years ago the Scott brothers warned us about it. As Drew told The Globe and Mail in 2016:
‘“The big thing is we’re seeing a lot of these houses that are selling for a million over list,” said Drew[…]
‘Across Canada, the national average sale price for housing increased 12 per cent last December compared with December, 2014, according to the Canadian Real Estate Association. […]
‘“Some people get into a big frenzy and they bid up, bid up, bid up, and they don’t realize they’re paying way more than the house is worth. You don’t want to be in that situation”.’
But things could be changing. Canada’s property market is cooling.
As Bloomberg recently reported:
‘Canada’s priciest housing markets suffered their worst year for sales in at least a decade as higher borrowing costs, fewer foreign buyers and stricter mortgage rules hit home.
‘Sales in metropolitan Toronto – Canada’s biggest city with about 7 million residents – fell 16 per cent to 77,426 transactions in 2018 while the average price fell 4.3 per cent to $C787,300 ($827,000), the Toronto Real Estate Board said on Friday. That’s the worst year for sales in the capital of Ontario since 2008.
‘In Vancouver, full-year sales fell 32 per cent to 24,619, the lowest since 2000 and 25 per cent below the 10-year average.’
Falling property prices will slow the global economy
The Australian property market is often compared to the Canadian market. Getting into Australia’s property market has been tough in the last years.
We hear it all the time, friends moving in with family or overseas to save for the deposit.
But both markets are now falling.
In Australia, property prices continue to drop with Sydney leading the way. According to Corelogic, in the last 12 months, Sydney has dropped 8.1% and the combined capitals 5.3%.
But, it’s not only Canada and Australia who are seeing property prices dropping. Other cities around the world are seeing property price drops.
Like New York.
According to agency Douglas Elliman Real Estate, median sales prices in Manhattan have fallen under US$1 million for the last quarter in 2018, this is a first since 2015. Prices have fallen almost 6% since the same period last year.
We are also seeing falls in other major cities like London…and Hong Kong.
‘After an almost 15-year bull run that made Hong Kong’s property market the world’s least affordable, home prices have fallen for 13 straight weeks since August, the longest losing streak since 2008, figures from Centaline Property Agency Ltd. show. Concerns about higher borrowing costs and a looming vacancy tax have contributed to the slide.’
Low interest rates and easy credit have pushed asset prices higher in the last years. But now the tide is changing.
Now higher interest rates and tightening credit are pushing assets like property and the stock market lower.
And this will have a slowing effect in the global economy.
Editor, Markets & Money