It was always just a matter of time before we started seeing stories like this one. A group of homeowners have managed to get on the front page of the Toronto Star with their tale of woe about getting sideswiped by the measures taken by the Ontario government and the Bank of Canada last year to cool the housing market.
Briefly: these people already owned $1 million-plus homes and were mortgaged to the hilt. For a variety of reasons they decided to buy new but unbuilt homes off-plan in a new development. They were counting on being able to sell their existing homes at the then-current market price in order to make the transactions work. However, the Ontario government's calming measures, introduced last April, put the market sharply into reverse. Their existing homes are now worth much less than they were when they signed up for the new ones. Now that it's time to close on the deals, they find themselves scrambling for cash to make up the shortfall.
The homeowners are using the word "reckless" to describe the actions of the Ontario government, which sounds as though they may be considering lawyering up and taking the matter to court. Think about it for a second: you have a nice home already; everyone with a pulse and a brain* is warning that the housing market is way overvalued and headed for trouble; the Provincial government is musing aloud about following in the footsteps of the British Columbia government and taking steps to rein the market in.....and you see fit to make an unconditional deal to buy a new home that only exists on paper, which means that the transaction can't close for a very long time. And it's the government that's reckless?
What would have been reckless on the part of the Ontario government would have been to allow things to continue they way they were a year ago. I don't give Kathleen Wynne credit for much, but she got this exactly right. Absent the steps announced last April, we might now be looking at a market in which the price bubble had collapsed very messily. In that case we would be looking at a whole lot more people in a whole lot more distress than the folks in today's paper.
Do I sound heartless here? Well, I've been in the same position as these folks. Many years ago I bought a new house only to find I couldn't unload the existing one at the price I'd been counting on. For a couple of months I was carrying a lot of mortgage debt. In the end we had to swallow our pride, cut our losses and sell up for whatever we could get. It was a painful lesson, but we got through it, and so, I'm sure, will the people in today's headlines.
And if you still think I'm heartless, well, it's not just me. Check the online poll embedded in the linked article. Seems as though more than 80 percent of respondents think that if you choose to buy a home in a hot market, the risk is yours and yours alone.
* Obviously this excludes realtors, who only have one of those things.
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