Spot The Speculators #90 – And So Ad Infinitum – “Three transactions were all stuck in limbo because no one was willing to budge on their price in order to sell their place and let the dominoes fall.”

“Here’s an interesting game of chicken that illustrates what’s happening in the market right now:
I was talking with a colleague who just sold their home. They had an offer made on it a couple months ago which was subject to the sale of the buyer’s townhouse. The owners of the townhouse received an offer, you guessed it, subject to the sale of the potential buyers condo. These 3 transactions were all stuck in limbo because no one was willing to budge on their price in order to sell their place and let the dominos fall.
In the end what ended up happening was the couple at the bottom (owners of the condo) decided to take on two mortgages. They used that as leverage on the person who owned the townhouse to lower their price (use the difference to carry the second mortgage for a few more months). The person with the townhouse agreed and used that as leverage on the homeowners. So everyone dropped their price to move their properties and the condo owners are now left with two mortgages… hope their strata allows for rentals.”

Anonymous at VCI, November 16th, 2012 at 8:12 am.

And the speculators here are… 1. the guys who end up with two properties, and 2. the move-uppers from the townhome to the (I presume) SFH.
The buyers create apparent wealth from nowhere by borrowing and promising pay-back over 25 years, the only seller who is actually cashing out runs with the money.
If home prices go up, those who have increased their RE exposure do well to okay… if prices drop, they are BBQed.
Anybody who doesn’t see how this is all directly related to musical chairs and Ponzi schemes really isn’t paying attention.
– vreaa

29 responses to “Spot The Speculators #90 – And So Ad Infinitum – “Three transactions were all stuck in limbo because no one was willing to budge on their price in order to sell their place and let the dominoes fall.”

  1. A superb illustration of how restrictions on first time buyer financing affects the entire market.

    As an aside, these “daisy chains” have apparently been quite common in the UK property market where, apparently, deals are generally done orally and not committed to paper until just before closing. This has allowed the addition of two beautiful new words to the language, gazumping (showing up as a last minute buyer with a higher offer that causes the seller to renege on a prior agreement with another buyer) and gazundering (lowering your previously agreed to offer because you feel the seller is in a tight spot and can’t say no).

    • Naked Official #9000

      Sounds like chav speak to me; this is what happens when chavs become realtors.

      • Ralph Cramdown

        I thought all realtors eventually became chavs? You got me curious. One theory is that the word came from Yiddish. Regardless, its cited in the Telegraph’s A-Z guide to property, shows up in the Hansard from ten years back, and is now also in use in Australia. Damn chavs.

        Interestingly, one source talked about being gazumped by a nonexistent party and having to bid higher to counter. In Toronto, this gambit is known as a ‘phantom offer.’

      • That’s damn insulting to chavs.

  2. Speaking of falling dominoes [and no, this is not a revisionist history lesson in American strategic follies of the 20thC.]… What better time for a special Readers’Treat than a cold, dark and wet MondayMorning…

    “They usually paid in cash, often with bags filled with dollars. They bought condominiums and entire apartments blocks, typically as investment properties and mostly from $400,000 up to $1m and $2m.” – Bernard Ochieng, of Crystal Valuers Realty, Nairobi – reflecting on a vanished clientele of whom, he estimates, 20 per cent were Pirates SomaliBusinessmen.

    [FT] – The world’s most improbable property booms

    …”With the number of pirate attacks down by two-thirds this year, purchases by Somali pirates have decreased by almost 50 per cent since 2010, according to Ochieng. Either way, the Nairobi investments are emblematic of an emerging trend towards property purchases in highly unusual and unexpected locations around the world.

    The motivations behind this trend are as wide-ranging as the buyers themselves. Some are turning illicit gains into tangible assets, some are nationals wanting to invest in safer regions than their own, while others buy to support specialist interests, such as fly fishing and conservation.”…

    [NoteToEd: Funny OldWorld – I’ll bet that right up to the last moment, NairobiRealtors were pointing to YellowHelicopters emblazoned with the JollyRoger to justify their optimism… As for DominoTheory – I’ll bet you didn’t know that HoChiMinh once worked as a dishwasher in the Drayton Arms Pub in London’s West Ealing. Who knows, if English cooking hadn’t been so notoriously appalling – he might have put down roots and changed the course O’History…]

  3. None of these transactions directly contribute to GDP.

    • Do you mean technically? (in which case: aren’t some of the transaction fees/commissions seen as economic activity and thus registered as GDP?).
      Or do you mean ‘in substance’? (in which case, you’re arguably correct. Although the top of the pile homeowner who cashes out may turn around and blow some of the gains on yoga pants and concert tickets).

      • Only the value-add services — commissions etc. — are considered in GDP when it comes to an asset sale. A transfer of title does not add to the nation’s “product”. Just like when I buy or sell Nortel stock, or transfer money from my RBC cash account to BMO, it doesn’t add to GDP either.

        Or am I wrong…?

    • Funny old thing about GDP… apparently, divorce tourism counts.

      “I have no shame in saying to the injured spouses of the world’s billionaires: if you want to take him to the cleaners, take him to the cleaners in London, because London cleaners will be grateful for your business.” – Boris Johnson, Mayor of London

      [BloomBerg] – London Mayor Urges Oligarchs to Sue and Divorce in U.K.

      …”Johnson argued today that such cases, with the associated legal fees, are welcome. The money, he said, would go “into the pockets of chefs and waiters and doormen and janitors and nannies and tutors and actors and aromatherapists — and keep the wheels of the economy turning, and put bread on the tables of some of the poorest and hardest-working families in the city.”….

      [NoteToEd: At least we now know why LondonTrophyWives so vehemently insisted that their foreign partners invest/reside in BlightyProperty. Perhaps, following recent developments in American social legislation… UncleGregor could pitch YVR as the GayDivorceCapitol O’NorthAmerica? What’s good for AromaTherapists is so clearly good for YVR.]

      • “Ooops”… Now we know why Boris was promoting TortTourism… evidently, “if you build it”… ‘they’ will not always come. Just in, DearReaders… London’s newest ‘landmark’ has yet to secure so much as a solitary tenant …

        [UK Indepedent] – Will we ever reach the Pinnacle? Skyscraper boom crashes to earth

        …”When Boris Johnson inaugurated The Shard, the Mayor hailed Britain’s tallest skyscraper as “a symbol of how London is powering its way out of the global recession”.

        But The Shard has yet to secure its first tenant whilst six other landmark additions to London’s skyline may now never be built, developers have warned, as a mania for ever-taller buildings comes crashing to earth.

        A sluggish property investment market has brought plans to build six ambitious new testaments to the capital’s supposed economic self-confidence juddering to a halt.”…

        [NoteToEd: ‘SlumClearance’ developments funded by QatariEmir’s ought not to tempt fate by staging inaugural LaserLightShows accompanied by live performances of Aaron Copeland’s “Fanfare for the CommonMan”.]

  4. UBCghettodweller

    Please correct me if I’m wrong about this, but isn’t this type of Daisy-Chained speculation exactly what did the Hong Kong banking and finance system in in the late 1990s?

    • long history of this, ‘kiting’ cheques… is all. Our eCONomy is a joke. Years of media brainwashing and our values are in the toilet …. FLUSH>>>>>>

    • “It turns out that one-fourth of the mortgages supposedly sold to investors were actually held by the bankers. Those bankers often used the mortgages as collateral to get overnight loans from each other and from other financial institutions.
      This kind of borrowing has a name. It’s called repurchase (or “repo”) borrowing, because technically the borrower sells the collateral to the lender and promises to buy it back, to “repurchase” it, the next day – although usually the lender agrees to renew the loan for another day.”

  5. Bok Bok Bok to the slaughter house.

  6. Good ol’ bridge financing. Get a mortgage on a second place before selling the first. I wonder how much longer the banks (and CMHC) are going to be willing to play that game.

      • Having fully digested the contents of a print out from a notoriously irrevent YVR RE blog that had, perchance, found its way onto the bottom of his abode…  Captain Flint realized… suddenly… and with a TerribleVengeance…  that CageOwnership was not the BeAll and EndAll his Master [a Realtor™] had led him to believe.

        Disillusioned and embittered by the revelation that Macaws, IndianRingnecks and AfricanGreys were living it up debt free in lavish surroundings for considerably fewer pecans than he had been persuaded to ShellOut, Captain Flint resolutely determined to settle the score.

        Initially pleased with bombarding leased BMWs and Lexii with his SignatureDroppings… Captain Flint soon wearied of vandalism and quickly escalated to bolder criminal enterprises… Culminating with a brilliantly executed InterNetScam he had acquired from a NigerianGrey…

        “He was living in a bedsit on benefits in Burgess Hill. He spends his life on the internet conning people and he struck lucky.” – Detective Superintendent Mick Richards, Avian Crime Unit, Sussex Police

        [UK Independent] – Penniless parrot spun tale of being rich to seduce Realtor™ out of £600,000

        …”Captain Flint, 53, claimed to be a fund manager running his own finance company in Switzerland and the owner of a jet, yacht and helicopter. His victim, Nina Siegenthaler, an estate agent in the Turks and Caicos Islands, fell in love with him and believed he would help invest her savings.”…

        [NoteToEd: Not coincidentally, Captain Flint was prone to uncontrollably violent rages whenever he heard someone parroting “House prices only go up!”…]

    • Real Estate Tsunami

      According to this report by CAAMP, there are 9.7 million homeowners in Canada.
      About 5.95 million have a mortgage, and get this…2.1 million have a HELOC.
      So, about 8 million homeowners have debt secured by RE.
      If you assume 3 persons per home, there are potentially 24 million Canadians who would be adversely affected if RE market would substantially correct.

      • CAAMP – Canadian Association of Accredited Mortgage Pimps?

      • Most, if not all of the HELOCs are in conjunction with a mortgage, so the total number is substantially less than 8 million.
        However, this is NOT a good thing, as it means the debt is more concentrated, hence the indebted households are much closer to the edge than the average would indicate. Back out the responsible debt-free or almost debt-free households, and suddenly the numbers are much scarier.

  7. 4SlicesofCheese

    An acquaintance is becoming an accidental landlord, again!
    They bought their Richmond condo I think 2010 or 11. Even has a relative to get “insider pricing”,

    Tried to flip assignment, that of course came and pass.

    Rented it out to students, they moved out and bought a unit in the same building not sure what happened afterwards.
    A few months ago, actually moved into the unit, first time out of the parents house, new job.

    Boomeranged back to parents house, advertising the unit is available for rent again.

  8. Pingback: Real Estate: “Menage’ a trois” of interlocked-gridlocked deals |

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