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“Crusty” and “shoebox” probably aren’t to go-to buzzwords realtors are using to push condo living on the mature millennial set, but that’s how BNN commentator Kevin O’Leary sums up the units he says young people are buying on the assumption prices will continue to push higher.
He says the 17-year crawl to the lowest interest rates in a generation have made borrowing too easy and millennials too eager to take on debt at an early age.
New data from consumer credit rating agency Equifax bears out his concerns. A report released Wednesday shows debt across all age groups up 7.4 percent from a year earlier totaling $1.5 trillion.
“I’m looking at the people who work for me in my companies in the mid-20s all buying condos and I beg them to rent them,” said the chairman of O’Leary Financial.
He says servicing debt at a floating interest rate is sure to get more expensive in the next five years. That’s a tough sell for those under 30 who have grown up with low rates and booming real estate, along with comments from those claiming rates have nowhere to go but up and housing is in bubble territory.
Markets and mortgages aside, O’Leary says the condos themselves are disposable and shouldn’t be considered a viable investment.
“All of these condos are what I call ‘shoebox condos’ . . . 440 square feet, two tiny bathrooms, no parking, pure commodity, square box of cement. There is no value to me as an investor. To me, it’s a depreciating asset. The building in 10 years is an old shoebox condo. I think it’s worth less,” he said.
Those drawn to the convenient car-less condo lifestyle in hip urban centers are playing into the hands of developers according to O’Leary and would be better served by renting.
“To me a condo is just a piece of cement that gets old and crusty. The bathtub is old and crusty. The sink is old and crusty. Why don’t you just rent and get a new un-crusty condo in five years,” he said.
Kevin O'Leary on Shoe Box condos: a piece of cement that gets old and crusty? & what to do with falling oil prices http://t.co/I41ex7FK82— Catherine Murray (@catherinebnn) December 4, 2014