Another long blog. One thing that makes me cringe every time I hear it, is that an increase in house prices is described as an improvement. Now, I understand the basic logic; someone has bought a house, and it is now worth more that it was when it was purchased. Dont forget that there are winners and losers every time the markets do anything. The housing boom of the 1980s was especially dramatic in the city of Toronto. Since the majority of citizens in that city are homeowners, it was hailed as a very good thing, and a lot of working people found themselves suddenly boosted from the middle class to millionaire status within a year or two if they happened to buy at the right time. It was just too bad that it locked young people out of the market. As time goes on though, people age, people die, and more people are born. At some point the number of people hurt by the housing boom will outnumber those who benefited from it. What some economist are now starting to realize, especially since the financial meltdown of 2008, is that high real estate prices in the face of high taxation, high unemployment, and high crime are a very bad thing. The city I live in, Oshawa, is almost a textbook example of this. Oshawa used to be a solid, middle class city, with General Motors providing thousands of high paying jobs to the working class. Not any more. For years there has been talk of closing the plants altogether, as the decline in the automotive industry mirrors the decline in the economy. Oshawa had developed a split personality, with Poshawa to the north, and Tard Town to the south. Poshawa is populated mainly by well-to-do professionals with practices in the city who were attracted here because the depressed housing prices meant that they could afford a much nicer house in Poshawa than they can a scant 10 miles closer to Toronto. Something the government seems to have forgotten with their pie-in-the-sky notions about becoming an information based society where we are all professionals is that there is only so much demand for professional services. They could never relocate their practices here to Oshawa because we dont have the demand for that many professionals. They are stuck with a 60+ minute commute, daily at 6am to avoid the traffic as everyone funnels in from suburbs in all directions. The fact that they do so daily is great evidence that lower real estate prices have a benefit to the community. Of the south end, I once heard a social worker remark that the reason that it is so slummy is because half the population collects ODSP (Ontario disability support payments -I think) for being slow. I am not sure if he was Oshawa bashing because he was from Whitby, or he was telling the straight truth because hes a social worker, and in a position to know. I do know that there are a great number of people in South Oshawa wholly defendant on Social Services for an income, and as callous as it sounds to say, they are miserable people to live next to. The only reason I live in the South end is because I found out the hard way that people with money and influence can do an awful lot more harm to me than those without. So where do the middle class people live? That is a very difficult question to answer because there are so few middle class people living in Oshawa. Those that live in the south end find it very difficult to move because it is next to impossible to find someone who wants to buy their houses. This is why I sometimes go out to real estate showings to put in low-ball offers, just in case something hits and I end up with a bargain by finding someone so fed-up with the miserable neighborhood hes living in that he just wants out. Real Estate is an investment, and the thing with investing is that no one likes losing. About the only thing keeping real estate prices high these days is that hope springs eternal and vendors are keeping their houses off the market hoping that the market will improve if they wait it out. Vendors have been known to wait out the market ubtil their houses get condemned for lack of maintenance. This is the worst kind of real estate crash imaginable because the condemned houses actually have a negative value, which is to say that they would cost more to repair than they will ever be worth. Now for the good news. This pattern can not continue. If vendors see enough condemned houses around town they will realize that it is better to take a loss than a complete loss. This is even more true when the only thing they are losing is an unrealized capital gain that only ever existed on paper, and they can still sell for more than they actually paid. That is part of the reason why I believe that 2015 will be a pivotal year.
Posted on: Sun, 14 Dec 2014 19:39:26 +0000
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