On November 24th CTV Toronto broadcasted news on 49-storey condo near downtown. The story was about failed elevators and residents being unhappy about having to climb stairs all the way up to their shoeboxes in the sky,
The news is not really a news because piss-poor quality of high rise condos had been legendary for many years. Developers took full advantage of speculative mania, cheap credits and stupidity of masses and kept building massive condos in record time. Cheap materials, sloppy subcontractors, cut corners, etc… All this led to massive number of high rises that become throw-away buildings, where crumbling walls, falling windows make building completely inhabitable before residents pay off mortgages. Therefore failed elevators would be sort of expected thing in new condo and this should not be even near the news column in any media.
What is new here is sheer amount of whining coming from upset residents. Those interviewed on TV complained about the developer, building, elevators, stairs, etc… Adult people behaving like spoiled kids that got different ice cream flavor than expected. Did they forgot they own the condo they live in? All complains and cry should be taken to condo board that will decide on how to fix problem. If building is new elevators will be fixed on warranty, otherwise new reassessment will come to cover costs of fixing out-of warranty equipment. The reassessment will certainly lead to higher condo fees or one time lump payment. Condo problems is a reality that every condo resident will have to deal with sooner or later. Shoebox in glassy tower does not come only with nice view from the window but it also brings condo fees, reassessments, noisy neighbors, broken elevators, cracks in floor, conflicts in management board, annoying dog owners and smell of curry passing through kitchen vents.
So, you signed purchase agreement for unit in a glassy spiral. Now deal with all the issues. You may want to take HELOC to pay reassessment, but this will not be easy after December…..
This November CBC Market Place bothered to publish long column about car loans. Mob of reporters suddenly discovered that 7-8 year long loans become norm in industry and this can be a good excuse to throw some punches at dealerships. CBC champs drilled through J.D Power stats and interviewed some sad looking gentleman in Ontario Motor Vehicle Industry Council (OMVIC). The sadness of that gentleman was a result of his recent discovery that “Consumers who aren’t able to either understand or manage that situation and they find themselves in a transaction that’s going to come back to haunt them”
The fact that standard (5- year long) car loans become distant memories is not directly caused by sneaky ways dealer sells cars but it is a consequence of financial illiteracy of masses. Since credit has been cheap (0% car loans were part of the dealership landscape) average Joe Blow learned to think in categories of monthly installments rather than looking at the final price of the car. Car loans ballooned to proportions that can be compared only to the real estate bubble. These days SUVs sell at $40K a pop (after tax) not because consumers won lottery but because 40 grand is spread over many years like a butter on warm toast.
Hardly anyone would pay $40K cold cash for a shiny new metal but $300-400 a month seems to be neglected expense in the land of polar bears and overpriced cellphone plans.
The average Joe Blow has never had in his hand amount of cash larger then cost of tickets to Senators game, so the amount equal to car price is certainly unimaginable. Abundance of cheap credit blurred perspective of the debt and consumer attention is now focused only on monthly installments. When monthly payments for new shinny Merc or Bimer are still too high consumers switch to bi-weekly or weekly payments.
Don’t blame car dealerships for using every opportunity to make a buck. Blame Joe Blow for his ignorance and lack of basic math skills. Consumer inability to foresee consequences of long term debt is just another way the sales dude can up-sell a car. All additional costs extra features and services can be burred into final price and then watered down in 72 month payment plan. The sales dude also needs to make a buck to pay his mortgage, daycare for rug rats, hydro bills, buy shiny things for his wife or mistress, etc… Profit margin had been shifted long time ago from just selling cars to selling all extra services: financing, extended warranty, window etching, etc…
It is a game, where dealer is up-selling stuff and consumers need to be enough educated to validate the offer. If math does not add up then just walk away rather then sign a bottom line that will bring regret and bitterness for next 6-7 years.
So Brits voted to jump out of the EU train. Universe, as we know it, did not end, fish&chips did not disappear from pubs, Queen still wears her fuzzy hats, banks did not run to the other side of the Channel, England did not turn into wasteland and streets are not full of riots (other than regular soccer hooligans). Simply speaking the doomsday did not happen. Life goes on and Brits will eventually sort out their relations with the continent, perhaps without centralized bureaucracy that regulates how curvy bananas and how straight cucumbers should be. Old fossils and boomers were very disciplined and voted for exit while youngsters voted to stay in EU. Twenty something lemmings will have bad aftertaste of the lost referendum since most of them were too busy playing Xbox in mama’s basement to care about referendum outcome.
Farage and Cameron left the boat and May sat behind the steering wheel. This may introduce some changes in the way how foreign investments are involved in the British industry. Take for example British car manufacturers. Out of over 500 car manufacturers only 35 survived until today and most of those survivals are not anymore British. Mini and Rolls Royce are owned by BMW, Bentley is run by VW, Jaguar and Land Rover have been bought by TATA, TVR is owned by Russian millionaire, and Vauxhall is a GM subsidiary. The rest such as Caterham, Ascali, Radical or Noble are small number producers mostly for local market. British have great input in development of motorization. When they were not on strike they managed to design wonderful machines such as Noble M12, Lagonda, Discovery, Mini, Jaguar R-series. It is worth to remember that British cars were not designed by committees, like GM products, but by passionate engineers who did their best to avoid compromises. Jaguar XK had great chassis and it handled very well but as most British cars it was poorly built and it leaked rainwater into the cabin, XJ R-series had oil leaks so common that owners worried when car did not leave any stain in garage floor: “it must be something wrong with the car, it did not leak oil today!”
During last 10 years Brits took great effort to improve quality of their cars so they do not brake as often as Fiat or Alfa Romeo. New generation of Jaguars are well designed vehicles that compete head to head with BMWs, Mini become fashionable transportation for celery and granola bar eaters, Range Rover is a weapon of choice for gangsters, Aston is driven by movie stars and Lotus become a pretty good alternative to small Porsches.
Let’s hope Brexit does not brake down what’s left out of the British car industry, so maybe one day I can get myself an Aston….
This year primaries in US unveiled that large number of voters wait until last minute to decide who to vote for. This lack of decisiveness may result in 300 million nation being led by a fellow elected by champs who took decision over big mac and fries 10 minutes before closing polling stations. This only means that consumers will be choosing their president in the same way they choose ketchup or corn flakes in Walmart. This becomes scary when you consider that random guy will lead country with total outstanding student loan debt $1.2 trillion and total outstanding mortgage debt $8 trillion.
When I observe crowd that is unable make firm choice of who to vote for I can’t stop thinking of a new breed of cars that do not know what they are. According to marketing ads this new breed supposed to be fashionable like front page of Vouge, handle well on corners, drive well off-road, have trunk big enough to accommodate 200 kg of cheese, be comfortable like Victorian couch and circle Nürburgring in 30 sec. Unfortunately most attempts to build a car that does everything well end up with car that does nothing well.
BMW, for example, built a monstrosity called X6 GT that supposed to be comfortable like 5-series, spacious like X5 and fast like M3. The final result is quite disappointing: the car is is too tall for fast cornering, too stiff to be comfortable, skinny tires makes it useless off road and its trunk is smaller than regular X5. To add insult to injury, it costs more than regular X5. So you pay more to get less! X6 could be a perfect car for Russian mafia or blokes who can not decide if morning pancake should be served with maple syrup or honey.
You would think that such car is pointless like Hilary’s rhetoric and it should not have place in automotive industry, but you would be wrong! There is one application where such car would serve a purpose: US elections. If people who can not decide who to vote for drive X6 (or some other I-do-not-know-what-I-am car) then we would not need to spend time and money on polls or statistical analysis.
Just walk around parking lots at Republican and Democratic caucuses and count ugly cars….
Watching last results of Iowa caucuses made me think of track record of each candidate’s campaign. When I compare Hilary’s and Bernie’s campaigns I can’t stop thinking that establishment class still believes in old fashion targeting where existence of the Internet and online archives can be totally neglected. The establishment seems to be living in a bubble where cable TV and newspaper are considered the only media to choose.
Somehow Wall St. funded crowd is convinced that is it perfectly OK to ignore millennial crowd as it was going to disappear in a thin air like oil price. Hilary seems to be following this pattern: she keeps repeating the same gutless slogans and hopes for different results, she counts on polls done through cable TV that only handful of boomers would care about, and she dodges questions with grace of elephant in China pottery store. Ignoring new media and hoping no one pays attention to her moral flexibility on economical issues has already diluted her supporters like coffee substitute served in Tim Horton. The political damage Hilary done to herself can not be reverted even by the biased media reports and debates full of meaningless mumbling.
On the other hand Bernie broadcasts his campaign through Internet media, he avoids issuing attack ads, and he speaks simple language. This made him closer to younger voters to the extend that Hillary can only dream about. In addition, being a son of Polish immigrants made him cool in the same way as close ties with banking system made Hilary totally uncool.
The way how establishment candidates roll their campaigns is somewhat similar to the way how car sales are attempting to reach potential clients. Once in a while I get in a mail box flyer full of curb dealers who tell me that Dakota, RAM or C300 are certainly cars of my dreams. Ads printed with stinky ink seem to be the weapon of choice for marketing champs at Chrysler dealerships and this makes their tactics outdated like Hilary’s rhetoric. Why would anyone possibly think that sending random junk mail full of price tags that does not differ from other dealership will move inventory out of the lot in a blink of an eye. Interestingly I did not see such flyers with other brands, especially the Toyota-Hyundai-Honda triplet. There must be something in the water served in Chrysler dealerships that makes crowd working there delusional like hairdresser who takes on million dollar mortgage for molded shack in Vancouver. Such attitude could be possibly explained in Toronto, where cloud of pot smoke is inevitable like potholes in early Spring. But how to explain it in Ottawa, where 80% of cars are sold by four families and sidewalks are rolled up at 11 PM.
What if car sales business turns slowly into establishment that is too big and too fat to see its own toes?
So the 2015 has ended. The end come with bitter taste of fallen CAD, higher food cost, T2 gender-perfect mob attacking TFSA, tighter mortgage rules, eroded manufacturing business, and Toronto Stock Exchange hovering just above basement. Although the bitterness of the year-end was sugar-coated with low gas prices, it left me with mental hangover. Housing bubble and consumer debt grown to the epic dimensions and multiple attempts to slow it down were futile like lecturing first year Freedom Arts student about taxes. Higher down payment rule is attached only to $500K+ houses, tighter lending requirements were overrun by brokers, iProduct addicts still believe prices can only go up, 7-year-long car loans infested dealership ads, and average Canuck has less than five grand in savings.
Rates have already started to go up in the US and like bad pop music it can not be prevented from spilling across the border. Cheap money will end soon in land of maple, and house-rich cash-poor crowd will discover (again) its inability to learn from own mistakes. When bubble gets busted and house becomes liability rather than “investment” everyone will ask “how did that happen?”.
Kijiji is full of ads with lease take overs posted by desperados who discovered after 6 months thy can not afford anymore the four-digit monthly payments for the shiny BMW. What could possibly prevent from posting similar adds about houses? Are posts such as “$2000/month mortgage take-over” unthinkable or is it just a matter of time when they show up? How about having Facebook pages ornamented with ads about mortgage takeover right next to “Magic Diet” and “$50 Rolex”?
I supposed to write about cars, but I got distracted….a little bit….
If you happen to watch recent news you may know that US decided to rise interest rates. It is not a huge raise. It is a tiny little hike just to give a cool shower. This small raise together with a proposal of lifting embargo on oil export made the USD stronger than Viagra. Since Canadian Central Bank historically always followed US rates, you may expect to see similar action in the land of timbits and maple syrup. But this time our central bank will have much tougher time to decide what to do (the deadline is January 20th, 2016). If it cuts rates CAD will slide down further and then you can as well use Canadian Tire money to buy your favorite Kraft dinner. If the Central Bank jumps on US bandwagon and hikes rates it will certainly hurt cash-poor owners of million dollar macmamsions. If it keeps rates unchanged it will most likely sustain Status Quo of the real estate bubble in Canada, since new down payment rules, pushed by Prince Justin, will have little effect on house horny buyers. The down payment hike applies only to the price difference between $500K and the next threshold, not the entire price as people would think. The new rule adds only about $20 to monthly mortgage payments on $600K house.
Rate hike, depending on its scale, may start a slow meltdown of the Canadian housing bubble or ignite a tectonic shift that will immediately wipe out inflated values of million-dollar shacks in Toronto and Vancity. This will cause massive defaults on mortgages and HELOCs as soon as next mortgage reset pops in a calendar. Indebted lemmings that pay 80% of their income for housing costs will certainly be crushed even by small rise of 1%-2% in mortgage rates. On top of this the previous federal government had capped CMHC’s insurance at $600 billion and this limit will be exhausted very soon since it reached $543 billion in 2014. Such event will make Trudeau 2.0 government so unpopular that he wished the Nannygate was the only problem.
The Central bank has three choices: sacrifice CAD in the name of inflated housing market and the T2.0 popularity, deflate housing bubble in the name of strong CAD, or do nothing: let the CAD slide down and the bubble grow. Regardless of the Central bank decision the magic threshold of $500K may turn many neighborhoods into very unpopular place to live in.
Toronto burbs are full of $500K+ cookie-cutter houses built on post-stamp size lots. Those neighborhoods are sad place to live: no trees, you have to drive everywhere, the only community center is developer-built gym and the only pub in the neighborhood is full of 60+ year old crowd: the only people who have some spare cash for a beer. If you happen to work in Toronto the commute on 401 takes about one hour in a good day. Sometimes you do not get to work at all because your 15- year old Kia breaks down before you reach Scarborough. You wish you had a batter car but you are already maxed out with the mortgage payments and property taxes. You can not take you squeeze out for a dinner because all you can afford are frozen onion rings in a corner store. Although life of house-rich cash-poor Canuck is already a pretty dim experience, it will only get worse if Central Bank jumps on a rate-hike bandwagon.
Although introducing new down payment rules is rather a symbolic gesture of the feral government it has already sent a chill wind across real estate business because it shows what may come next. Cheap money do not last forever as well as house prices do not go up forever.
If you plan to upgrade to bigger and more expensive house, hold on, wait for the bubble to pop. When rates goes up and lemmings can not reset their mortgages anymore then you will buy a nice place for a half price.
Until then… get yourself a nice ride so you can take your squeeze in comfort for a dinner.