Vancouver Condo Info

Oh those hippies over at the wall street journal, always focusing on the negative.. According to this article the discomfort caused by bad loans in the US looks like its starting to spread into the area between ‘prime’ and ’subprime’ loans.

Borrowers who take out Alt-A mortgages are considered less risky than subprime borrowers because of their higher credit scores. But as the housing market cooled and loan volume declined, some lenders lowered their standards for Alt-As. Now a rising number of borrowers who took out these loans are running into trouble.

Data from UBS AG show that the default rate for Alt-A mortgages has doubled in the past 14 months. “The credit deterioration has been almost parallel to what’s been happening in the subprime market,” says UBS mortgage analyst David Liu.

There’s an additional bit at the end of that article hinting at the possibility that at least some of the current US housing market woes may be attributed to fraud: “investor concerns about Alt-A loans are rising, according to Walter N. Schmidt, a mortgage investment strategist at FTN Financial Capital Markets in Chicago. A report from mortgage analysts at Barclays Capital in New York this week pointed to fraud as one reason for early defaults on Alt-A loans. The mortgage industry is battling a rash of cases in which borrowers, loan officers and appraisers collude in providing false information to induce lenders to advance more money than homes are worth.”

Before I post this link I’d just like to give the following disclaimer: most realtors are honest professionals that will give you good advice on buying and selling and not take advantage of you, but I guess there’s always an exception to the rule.

Vancouver realtors Dian Dai-Qing Gao and her husband Norman Chan of Sutton-Killarney Realty have been ordered by the BC supreme court to hand over profits from a flipped condo to the original owners.

The couple had purchased a new home in West Vancouver and listed their condo for sale at $529,900 with Gao*(see note below). They had accepted an offer for $517,500 but the day the offer was to go through it collapsed, the court was told.

At this point Gao and Chan decided to purchase it themselves. The couple testified that they were assured by Gao that the apartment wouldn’t be flipped but would be kept by the realtors as an investment. Six days after Gao took possession of the condo it was listed for sale at over $100,000 more than she had paid for it.

Justice Janet Sinclair Prowse found that Gao had breached a fiduciary duty she had with the couple and ordered her to repay them the profit of about $70,000 she made in flipping the property.

So if a realtor offers to buy the property you’re selling, should you be suspicious?

____

*Joel Korn of Sutton Group Killarney writes in to point out that the linked article is incorrect on this point. Gao was not the listing agent, the property was listed through Ralph F. Oakes according to the property info sheet.

According to this article at the Globe and Mail, the International travel budget deficit for Canada hit a record high in 2006. This is the difference between money spent by Canadians outside of Canada vs. money spent by others visiting Canada.

The deficit — the difference between spending by Canadians abroad and spending by foreigners in Canada — jumped $1.4-billion to an estimated $7.2-billion in 2006. The travel deficit has increased every year since 2002, more than quadrupling in the process.

The burgeoning deficit was the result of record spending abroad: Canadian residents spent an estimated $23.6-billion outside the country in 2006, up 6.2 per cent from the previous high in 2005. Foreigners in Canada spent about $16.4-billion in 2006, a slight decline from the previous year.

So although foreign tourism dollars have declined slightly, most of the difference is accounted for by increased spending by Canadians traveling.

It looks like the economic growth juggernaut just had a bit of a set-back. The Shanghai composite index hit a record yesterday and then proceeded to drop 8.8 percent on Tuesday. If this turns out to be a one day stumble then no problem, but if it worsens in the days ahead it could hurt Chinas economy. If we see spill over into lower resource demand that would of course be bad news for Canada.

Emerging markets in Asia also fell, along with European stocks, as the plunge shook investor confidence. Canada’s S&P/TSX composite index fell 196.60 points to 13,207.86, led by gold, energy and information technology stocks. It was the biggest drop since early January.

The move in China also may cause investors to have a second look at other investments that are perceived as risky, Mr. Guatieri said. “It tends to shake confidence. If one market comes unglued, the market will look at other markets that are a bit frothy.”

Update: Markets are down all over, US, Europe and Asia while treasury bonds rally. This is currently the lead story at CNN.

Well this news is all over so its hard to ignore; after a recent comment about the worst of the US housing slump hopefully being over, Alan Greenspan commented today on the likelihood of a US recession hitting before the end of 2007.

“When you get this far away from a recession, invariably forces build up for the next recession, and indeed we are beginning to see that sign,” Mr. Greenspan said via satellite link to a business conference in Hong Kong. “For example in the U.S., profit margins . . . have begun to stabilize, which is an early sign we are in the later stages of a cycle.”

“While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008 . . . with some slowdown,” he said.

Mr. Greenspan said that while it would be “very precarious” to try to forecast that far into the future, he could not rule out the possibility of a recession late this year.

If a recession did strike the US later this year, I would be very surprised if the worst was over for the housing slump there, but If they can have a housing market slump during a boom, maybe they could have a real estate boom during a recession.

A monday question for ya’ll, courtesy of a reader, Its a bit more of a manifesto than a question: If you believe Vancouver Real estate is due for a correction, Should you try to talk friends and family out of buying right now?

“It seems to me that most people that believe that real estate prices in Vancouver will correct (as I do) want to warn others away from buying right now - but why? I personally would prefer that any correction is met with less competing cash to bid against. Some people seem to believe that NOT warning people about the evidence of a coming crash is the same as selling people overpriced leaky condo’s. I do not. I think people are responsible for their own financial decisions, and even though prices are very high right now, it may make sense for some people to buy anyways. Not everyone cares to shop around for the best deal on everything, and for some people the ‘having it now’ may be worth the premium. I say let them buy.”

So how about it? Do you feel responsible for warning people about market cycles and sharing data pointing towards a correction or crash? Do you fill people in on the minutiae of whats happening in the US market and how it relates to ours? Or do you let people make their own decisions and if that means they end up with an upside down mortgage then tough?

For Sale: 3 lightly used magic beans. Will steadily increase in value as long as you ‘believe’. Motivated seller. Hurry!

$387,900

Here’s an open topic for Friday Feb 23rd. What are you seeing out there? Feel free to post anectdotes, questions and links to news regarding the local and global real estate market.

Here’s what I’m seeing:

-Anectdotal buzz about the Vancouver market heating up again this month after a four month lull. Will house prices stop dropping now?

-It’s getting more expensive to park in Vancouver. Heck its getting more expensive for everything here, are we seeing wage increases to match?

-Our neighbors down south continue to experience one of the worst housing slumps in their history. The NAR says the worst is hopefully over, but the builders don’t see a recovery yet.

So what are you seeing?

Oh those silly bears at the TD bank. They’re claiming that price gains in Vancouver and Calgary are unsustainable. Somebody needs to tell them the good news - it’s the new economy!

This time its different!

The NDP has done what political parties do and issued a press release accusing the liberal and conservative parties of inaction in the leaky condo crisis. The BC leaky condo crisis is the largest and costliest construction crisis in Canadian history. Beyond the health hazards of living with mold in your walls, these repair costs have added to the ‘affordability crisis’ here.

The average per unit repair cost for co-op owners rose from $38,000 to $62,000 between 2000 and 2006, while per unit repair costs for condos went from $20,000 to $54,000 in the last six years.

The key recommendations coming out of the Barrett Commission included: forgiving the GST on repair and restoration costs; income tax deduction of repair costs; fair and flexible Canada Mortgage and Housing Corporation grants to leaky housing cooperatives; and penalty free access to RRSPs to fund repairs. The Commission also suggested that CMHC has failed to be an advocate for homebuyers in the coastal climate of British Columbia.

“The Barrett Commission, a BC provincial inquiry, could only go so far in determining what role CMHC played in the delivery of substandard constructed homes. That’s why the Federal government must hold an inquiry to get to the bottom of this matter and to prevent other Canadians from falling victim to defective homes,” said Maretic.