Today, the ever-changing urban demographics and hot real estate markets occasionally lend people the opportunity to invest in a condominium with the intention of selling it for profit. This practice is also known as condo speculating.
Back in the mid-1960s, when condominiums were born, condos were meant to be an affordable alternative to traditional homes. Many renters aspired for better living arrangements and bought a condo.
Over time, particularly from 2000 onward, the construction and sale of condos increased exponentially, fueled by low-interest rates. The industry, composed of too many condo units, caused two major economic crashes in recent history, one in 1989/90, which affected the U.S. and Canada, and the other in 2006/08, which affected mainly the U.S.
The prices of real estate in major selected urban centers are still going up. But job growth and wages cannot keep up the pace, in fact, they lag behind very badly. The minimum salary needed to afford the rent in many major cities is way too low, even for the rapidly eroding middle class.
The real estate bubble may be brewing in Miami due to depletion of foreign investors especially from bankrupt countries such as Brazil and Argentina. This article should be a fair notice to steer off condos as they will be the first to fall by the wayside. The same can be said for the rest of the country if Chinese investors, whose economy is in deep trouble, start losing financial wherewithal to purchase the condos in US.
The rise in inequality is widening at an alarming rate. Top 1 percent controlling 95 percent of the overall wealth is causing the rest of Americans to head to the poor house. America’s financial elite has put a stranglehold on American citizens to the point of determining the quality of their life (or lack of it). They are effectively controlling the country’s economic and political agenda through their powerful lobbies and monetary contributions to politicians and decision makers of their choice.
Before elections, the federal Liberal Party promised to “undertake a review of escalating home prices in high-priced markets — like Vancouver and Toronto — to determine whether speculation is driving up the cost of housing, and survey the policy tools that could keep home ownership within reach for more Canadians.”
Dan Barnabic is the author of The Condo Bible for Canadians.
Before the recent federal election, the Liberal Party promised to “undertake a reviewof escalating home prices in high-priced markets – such as Vancouver and Toronto – to determine whether speculation is driving up the cost of housing and survey the policy tools that could keep home ownership within reach for more Canadians.”
Given that some selected urban areas in the US and Canada are seeing double digit housing appreciation – mostly due to foreign buyers and local speculators – I suggest, while the interest rates are still at historically low levels, try to buy in less expensive suburban or rural areas and lock your mortgage on a fixed interest rate for as long as you can, but remember to make sure your mortgage carrying costs do not exceed one third of your household income.
When it comes to buying a condo, it is a different kind of animal altogether, so proceed with caution. I suggest you read some of my articles on condos in this blog.
The following article was written by Globe and Mail’s Rob Carrick. I find it to be very useful as it contains interactive tool that anyone can use in order to roughly determine the total monthly carrying liability or rental payment.
Bank of Canada Governor Stephen S. Poloz stated on Oct. 9, 2015, that rising high household debt represents a key vulnerability of Canada’s financial system. Not surprising at all, given that Canada’s ratio of household debt to disposable income hit a record 164.6 per cent in the second quarter.
In the wake of market recovery from the last real estate crash of 2007/08, developers have been once again trying to lure low-earning Americans into buying homes and condos facilitated by very small (in some cases 3%) down payments, with the idea to increase domestic demand.