House flippers and the pre-construction buyers

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Some recent news of house flippers and pre-construction buyers reflects how things have changed

I read a lot of real estate news and opinion.  Sometimes the different articles and viewpoints blend together and form a clear picture, a 10,000 foot view of what’s going on and how we got here.   

It used to be really really uncomplicated to buy a house. The agreement was one or two pages long. There wasn’t any home inspections or home warranties. Mortgages were simple, basic. Real estate agents in the early days were more like employees of the brokerages not commissioned salespeople. There weren’t any TV shows about real estate (except Green Acres). 

It used to take three or four months to build a house. Now it often takes more than a year.

Real estate in it’s infancy was simple. A house was a place you lived, a place the bank said you could afford. It was not a ego-inducing showpiece of wealth and good taste, not for most people anyway. 

And it was not a straight investment. Nearly no-one speculated in residential real estate

The perils of flipping pre-construction homes

A recent article in REM – the perils of flipping new houses – started with “All over Southwestern Ontario in cities like London, Woodstock, Brantford, Paris, Kitchener and Cambridge, out of town buyers – mostly from areas like Toronto, Mississauga and Brampton – are purchasing new houses and townhouses on spec with the sole intentions of doing flips.”

As a local real estate agent specializing in relocation and in helping first and second time homebuyers, not investors buy homes, I’ve never worked with a new house flipper – someone buying with the intention of never moving into a house not yet built. It’s mind boggling. 

But the fact is that there is a lot of money floating around in the economy, some of it in the form of low interests loans, some in the form of built up equity in places near the GTA where homeowners are on paper, millionaires. 

I’m not here to judge or facilitate house flipping where no value is added. When people ask “how we got here”, I say “it’s complicated”. Such a high percentage of our economy is tied now either directly or indirectly to real estate, my mind is boggled one more time again.

You cannot time the market

The other article that many of us are thinking about is about a bunch of folks who bought pre-construction last year in Oakville when the market was at its peak. It seems from the article that most of these folks were in the “move-up market” but I suspect, that like dolphins caught in a tuna net, there was a significant number of investor-flippers. The houses that they purchased from the builder pre-construction last year went for $1 million to $1.6 million and the defaulting buyers are standing to lose their $200,000 deposits and more if the builder sues. The music stopped and there were not enough chairs for everyone.

It was pretty crazy last year. I’ve never seen the market run so hot. And it seems crazy looking back, to buy a house that would not be ready for a year or more, but there was no real inventory of resale homes either. 

Luckily here in Waterloo Region, we have an unparalleled resilience to bad news and although admittedly there was some concern last year when we levelled out, it was thankfully brief. We had or are having a soft landing.

One of my 365 Rules about Real Estate is that you cannot time the market. Clearly there is a lot at risk, maybe not financial ruin, but financial worry for sure. It would be nice to go back to the olden days when a house was somewhere you lived.

 

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