Re/Max: Speculation driving condo sales.
Re/Max just released a survey stating that ’speculation’ is now the main driving force behind the condo market in Canada.
“The impact of speculation, especially in Canada’s largest condominium markets, has yet to be determined but concerns for the future are relevant,” said Elton Ash, regional executive vice-president of Re/Max of Western Canada. “This is a major factor that could influence prices in the years to come.”
Full story in the Financial Post.
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November 14th, 2007 at 8:35 am
November 14th, 2007 at 9:17 am
would a speculator buy knowing that half the market is pure speculation?
balls of brass indeed!
November 14th, 2007 at 9:18 am
November 14th, 2007 at 9:44 am
November 14th, 2007 at 10:02 am
“This is a major factor that could influence prices in the years to come.”
There’s an awesome generic statement if I ever saw one. So they’re basically saying, condo speculation may or may not cause prices to go up or down in the years to come. Thanks for that insightful tidbit of information.
November 14th, 2007 at 12:20 pm
I’m not certain there’s a direct cause and effect of rising condo prices fueling rising SFH. The two are interdependent.
At today’s prices, rental yields are still several % points above treasury. It either tells you that previous prices were too low and a ~200bps spread is enough to account for the risk, or that risk associated with owning property is now severely understated. FWIW most people I know who have bought a property have been surprised at how high the carrying costs are compared to what they budgeted.
November 14th, 2007 at 12:47 pm
Metro Vancouver condo sales slump
PwC said developers in Metro Vancouver began marketing 3,765 new apartment and townhouse condos during the third quarter, an increase of 29 per cent from the previous three months. However, “demand slumped” with preliminary figures showing condo sales dipped by 33 per cent from the previous quarter, Neil Atchison, a real estate specialist with PwC, said in a release.
Their logic escapes me though…
The real estate company [Re/Max] says 50 per cent of all sales activity in downtown Vancouver can be linked to investors, suggesting that demand and prices in Metro’s heartland will remain strong.
November 14th, 2007 at 1:03 pm
Right.
As some of the folks over on HBB are fond of saying, I think it’s time for popcorn.
November 14th, 2007 at 1:10 pm
November 14th, 2007 at 1:21 pm
Um Jesse, if two things are interdependent, then there is by definition a mutual and direct cause and effect in their attributes.
And since when are rental yields 200 bips above the BoC rate? Rental yields are well below inflation, are you by any chance also known as Rob Chipman?
November 14th, 2007 at 1:22 pm
Not really. If 2-bedroom condos were selling for $300k, and 2-bedroom townhouses were selling for $300k in the same area, many people would start selling their condos to buy townhouses because they generally are a better investment, are bigger, have garages, etc.. Now let’s say townhouses go up to $400k as a result, and SFH are selling for $400k. People would start buying SFH instead (more privacy, no strata, better investment) and the price of SFH goes up. Now, retirees with SFH’s cash in, and start selling their SFH to downsize into a condo (and with the difference, buy another “investment” condo), further propping up the condo market, which pushes TH and SFH prices up further. Vicious cycle continues.
November 14th, 2007 at 5:09 pm
Picked at random:
MLS# V628589
479 sq. ft. 1BDR, 1Bath downtown on Howe Street. 90 sq. ft. balcony. Your basic shoe box.
$270k. With $67.5k down (25%):
mortgage+taxes+strata = $1,600.
You might be able to rent the place out for that, but you’re more likely to get ~$3/sq. ft. or ~$1,500, but let’s say you do get the $1,600/month. That’s a yield of 0% ex price appreciation.
And that doesn’t leave anything over for repairs, special levies, etc.
Yields are several points above Treasury? You’re full of sh*t.
November 14th, 2007 at 8:25 pm
November 14th, 2007 at 8:45 pm
The place I currently rent for $1600/month, worth well over $400K in today’s market, would cost a new buyer well in excess of $3000/month (i.e mortgage+strata fees+ taxes) - trust me - I’ve done the calculation many times - that ain’t no positive rental yield my friend, instead it negative cash flow of over $1400/month.
Message to speculators: “thanks for subsidizing my rent by 50%, but me thinks you’ve made a real shi%ty investment.
Fundamentals will catch up this fact soon enough.
November 15th, 2007 at 12:56 am
Generally you do not include debt payments when doing yield calculations.
e.g. buy $300K place in cash and rent for $2K. Minus taxes and maintenance this is around 5-6%. If you want to leverage that’s fine but it muddles comparisons to other investments.
As I said, a yield just above treasury for a pretty risky asset is dangerous. Typical cap rates are much higher historically.
November 15th, 2007 at 8:38 am
http://www.missoulian.com/arti.....news02.txt
November 15th, 2007 at 8:40 am
November 15th, 2007 at 9:18 am
Vancouver city, you’re probably right that returns are worse than my example, which is the claim of the Remax paper. Mohican had an example from FV that is closer to my example.
I agree that yields suck and my example was simplistic. Adding other expenses puts yield below treasury in Vancouver. It tells us how much real estate yields need to be above treasury for it to be more fairly priced.
And please don’t strawman me by claiming I’m Rob or whoever; just debate the issues.
November 15th, 2007 at 9:38 am
Where ever there is no strata there is more property tax.lets say 3000 maintainance fee per anum for condo will convert into 3600 property tax for house.Parking and garage are more secured in the condo’s than the house.
*Show me a place that I can buy in Vancouver for 300k and rent for $2000.
The mls above is slated for 270k and for 30k more you can buy more sqf area, and full furnished suite can be rented for 2000-2500.
Important, people who own units that side are making almost 10,000 k per month from appreciation,who cares about the yield when there is money dazling without rents.
So any body who can afford monthly payments they are already there,almost 5000 people join the band wagon every month in west side and van west,downtown.TONYDANZA
November 15th, 2007 at 10:18 am
November 15th, 2007 at 10:37 am
househunting.ca
SOUTH GRANVILLE DREAM Dec.1, Huge 1 bdr. 2 bath, Hrdw, Prkg, Amenities, NS, Pets OK. $2200/mth. 604-738-7753
November 15th, 2007 at 10:41 am
November 15th, 2007 at 10:59 am
anyway you got phone number on that add why don’t you find out from the owner.
If you ask some one to show you the moon right now how is that possible?Damn, it feel good to be Idiot than smart.
November 15th, 2007 at 11:56 am
The whole province isn’t in the same kind of bubble as greater vancouver but it certainly has spread to some of the outlying areas.
The Price to Earnings ratio for real estate in Prince George is roughly 10:1. In the Fraser Valley it is roughly 20:1 and in some parts of Vancouver it is 40:1. Price growth of these properties better be freakin’ phenomnal in the future to justify those valuations.
November 15th, 2007 at 12:01 pm
FALSE CRK 1 BR+ den, 1000 SF, $1600 incl h/wtr, w/d, pool, gym,
WEST END BACH character building, reno’d, $925 incls utils
And I don’t think the examples given match the description of YOUR find “HUGE 1 bedr, 2 bath”
I think anything that can be described as huge will have to be a LITTLE over the 479 square feet listed in the previous example.
But I have to give you all credit, anecdotal cherry picked evidence is as close to a logical argument as you’ve ever come. Hell with logic like that you could convince people to go to war in Iraq!
November 15th, 2007 at 12:05 pm
I bet it does, let me know how that works out for you.
November 15th, 2007 at 12:06 pm
http://tinyurl.com/3arfbn
November 15th, 2007 at 12:11 pm
November 15th, 2007 at 12:17 pm
E = (annual rent)- (strata fees+ taxes) = (1600 x 12) - 4500 = $14,700
(low estimate) P/E = 450000/14700 = 31x.
It would be interesting to know the average P/E of Vancouver real estate over the last number of years - anyone know where one finds such info?
Note: the TSE is considered expensive at >16x
November 15th, 2007 at 12:21 pm
November 15th, 2007 at 12:25 pm
A simpler method for use with housing is to simply divide price by monthly rent. In your case it’s 281, this doesn’t factor in strata, upkeep etc, it’s meant to be a rough measure.
However studies have shown that price/rent ratios over 200 are absolutely unsustainable, in all the years that this method has been used (since the ’70s) in all the cities NO city has EVER maintained a ratio over 200.
Normal ratios are around 100-150 depending on local conditions.
November 15th, 2007 at 12:26 pm
I know people in PG and visit a couple times per year. A $250k house can rent the upper 3 bdr for $1400-1500 and the lower 2 bdr for $500-600. There are situations that are even more attractive than that but there are also risks that go along with it.
November 15th, 2007 at 12:50 pm
The strata may choose to raise the maintenance fee at any time, and condos and townhouses also have to pay property taxes. So that $3000/yr maintenance fee could easily jump to $4000/yr. And the strata limits what you can do to your home, whether you want to own a pet, remodel your kitchen or put up a satellite dish, you have to request approval from the strata.
And show me any kind of proof that a car is safer in a condo parking lot than in a SFH garage. I know people who would rather park on the street rather than their “secured” parkade because of constant break-ins. Not to mention the fact that most condo buildings will charge you thousands of dollars for an extra parking spot.
November 15th, 2007 at 1:00 pm
November 15th, 2007 at 2:43 pm
That’s great to know. I’ll pack my bags tomorrow
300K for 2K rent in Vancouver city is a pipe dream.
November 15th, 2007 at 4:02 pm
Are we talking bong, or crack pipe?
November 15th, 2007 at 4:28 pm
Have a look at it for yourself, see anything odd?
http://www.bcstats.gov.bc.ca/d.....comp06.pdf
Sorry I’m running out and don’t have time to tinyurl.
*hint, look at the 04/05 numbers vs the 05/06 numbers. Looks like someone did a very bad job of cooking the books or “extrapolating”
How much can we trust this information if they’re just going to make stuff up?
November 15th, 2007 at 5:09 pm
This Province article by Paul Luke, mentions the Remax report, and contrasts it with a pricewaterhouseCoopers Report.
For some reason the links don’t work with blogger, but this is the complete story in today’s Province:
“The unsold inventory of highrise condos in Burnaby and New Westminster rose to 825 units at the end of September from 315 units in early July”
URL
http://www.canada.com/theprovi.....4fa817d6ba
November 15th, 2007 at 5:42 pm
That link is already up by “bcubbins” and that is a bussiness spin from realtors to turn the table.
Actually last project for this side has been sold two weeks ago, you will hear those story too often now.
definitely when there is no project to sell unit sales will slump downwards.what you need to see is what was available and what is being sold.
November 15th, 2007 at 5:49 pm
kind of agree with you little bit,but in occupied buildings maintainance fee can’t be raised without voting system in the annual genral meeting for annual budget.
Minute required 2/3 majority to pass the budget(similar to parliament procedure)So if most of owners say no then maintance fee can’t go up.
November 15th, 2007 at 6:04 pm
November 15th, 2007 at 7:25 pm
LINK
It is sad. Here’s all anyone needs to know about real estate….at least for now.
Real Estate: Buy, Sell, or Hold?
But once the fervor fades, prices must fall to restore their normal, long-term relationship with rents. Rents exercise a kind of inevitable gravitational pull on prices. The ratio of prices to rents “behaves much like price/earnings ratios for stocks,” says Yale economist Robert Shiller. “Like P/Es, price-to-rent ratios are mean-reverting.” In other words, while prices soar from time to time, sending the ratio to exceptional heights, sooner or later the relationship is bound to return to its historical average.
So what are rents saying about home values today? To answer that question, Fortune worked with Moody’s Economy.com to estimate adjustments needed to get prices and rents back in balance. We’ll go into detail below, but the headline is gloomy: According to our calculations, prices in most markets will fall by double digits over the next five years.
November 15th, 2007 at 7:55 pm
Thanks for your 12:25 reply – interesting. Do you know where I can find more info on the statistics relating to lack of sustainability beyond 200?
November 15th, 2007 at 8:13 pm
I was paying $850 until this Sept where I now pay $1000.
The owner recently bought an identical unit on the 18th for around $280-$300k. I think the rent for this unit is slightly more, maybe $1110 a month.
I moved here from Atlantic Canada in 2004, I would not pay much more than I pay now, before I would decide to pack up and move back. I would not buy anything in Vancouver until there is value in the purchases, if that never materializes, I will move back eventually, but in the meantime I can invest my increased cash flow in other opportunties that I consider have value.
November 15th, 2007 at 8:38 pm
Er, the P/E is just the reciprocal of the net yield. That’s like saying the CAD/USD exchange rate is more significant than the USD/CAD exchange rate.
Likewise the price/rent is just another way of expressing the same thing.
With the caveat that you always have to compare gross to gross and net to net.
November 15th, 2007 at 10:13 pm
I need to find someone with access to academic papers, I found some abstracts a while back but without the whole paper it’s not much use. The Motley Fool is where I originally found references to the studies.
November 15th, 2007 at 10:27 pm
your back up comment can be found here.
drachen said….
November 28th, 2007 at 2:17 pm
I was paying $850 until this Sept where I now pay $1000.
Can you go into some detail? There are laws against such massive rent increases.