Mortgage slaves in Toronto
There’s an interesting ’slice of life’ article in Toronto Life that profiles buyers who have overextended to purchase a home. Looking at the numbers in that story you can tell Vancouver is just as bad if not worse:
Their budget inched up, first to $550,000, then 100 grand more. When they saw a detached house in Hillcrest, with its spacious bedrooms, modern kitchen and large yard, it felt like home. It was listed at $589,000, and there were two other interested buyers. Their agent encouraged them to make an aggressive offer of $647,000, a price that was just manageable because the house had a basement apartment they could rent out to help cover the higher mortgage payments. On the night of the offers, Daniel and Louise sat in their car in front of the house, with their competition parked nearby. When the owners rejected the two top bids, the couple had to decide whether to go up or let it go. “Daniel asked me if I thought the house was worth $650,000,” Louise says. “I said that I didn’t think it was worth $250,000, but that’s not what houses are going for in Toronto right now.” They bid $650,000 and the house was theirs.
When they picked up their keys last November, they had few regrets, not even about the cost of the house. “Now we’re in the game,” Daniel says.
But they hadn’t moved in yet. They haven’t had their furnace die during a February freeze, or a tenant’s rent cheque bounce, or a slow leak from the dishwasher rot the floor joists. When you’re overextended by an irrational market and barely making mortgage payments, the smallest house repair can push you over the edge.
I imagine that many first-time buyers in Toronto and Vancouver are getting by on a fairly thin margin, recent stats put the BC provincial savings rate at a negative 7.9% (yes, we owe more than we earn).
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Anonymous Says:
March 26th, 2008 at 11:20 am
No problem…..40 yr amort…..take extra job and extra boarders into the house.
Not for me though.
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Anonymous Says:
March 26th, 2008 at 11:40 am
When will you people learn? Real estate only goes up! Just buy and let appreciation bail you out…just ask any realtard, they’ll tell you.
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Anonymous Says:
March 26th, 2008 at 11:55 am
“They bid $650,000 and the house was theirs:
Congratulations to them!
In Vancouver, $650,000 would not buy much of a house. They’re lucky to live in Toronto.
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visio Says:
March 26th, 2008 at 11:59 am
Damn,
this went to far, from what i am seeing around (friends who barely managed to pay 800 rent bought a 400K house, shoe boxes for 300K which falls on you) my prediction is that a lot of people will suffer soon, but unfortunatelly not the RE big sharks that can stay probably years hibernating after the last years grand feast.
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Tony Danza Says:
March 26th, 2008 at 12:03 pm
“We thought, OK, we’re going to have to live in a shit hole. There’s something wrong when two people with good, stable incomes, with a tremendous amount of help from their families, and with very little debt can’t afford a reasonably nice house in the city. What are people without those things doing?”
What those people are doing is called fraud and speculation. What you have done by competing with them is called financial suicide.
These clowns just about figured it out. It astonishes me that someone who realizes how detached from reality the market is would promptly put themselves into a lifetime of debt to join the party.
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Drachen Says:
March 26th, 2008 at 12:06 pm
$650,000 doesn’t even buy a half a duplex in the nicer parts of Vancouver.
I just got a mailer from some agents selling a small house with a mediocre location in kits for 1,269,000 (in general it sounded quite similar to the one in the story except no modern kitchen or spacious yard). So if Toronto prices are due to fall by 30-40% or so what does that say about Vancouver RE?
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woodenhorse Says:
March 26th, 2008 at 1:21 pm
Is it wrong that I feel zero pity for anyone in that article? Especially the first couple…they said as much as “this is dumb” and then they procede??? WTF?
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Warren Says:
March 26th, 2008 at 1:43 pm
Can somebody remind me how the official savings rate is determined? There are a lot of people out there who are blowing their money, but a -8% rate I find a little hard to believe. If I contribute to an RRSP, or pay off a line of credit, is that “spending”?
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dingus Says:
March 26th, 2008 at 2:11 pm
Two twenty something teachers shouldn’t expect to live at Yonge and Davisville.
Anyway, add about 75% to the prices, and that’s been Vancouver for the past 5 years. Sh*tty houses at life-annihalating prices, and buyers getting in WAY over their heads.
Nice to see a critical eye cast on the frenzy, and a view with the rose coloured glasses taken off.
Also liked the part about the professor acknowledging that rent isn’t just money thrown away, and that no one really knows what the market will do. Nice to see a knowledgeable commentator unaffiliated with the industry acknowledge that there is some unpredictability to all of this, rather than spout some “returning to balance, 5-10% increases” bullsh*t.
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mathamatical Says:
March 26th, 2008 at 2:21 pm
To the couple who bought the house: ignorance is bliss because if you don’t know something, it can’t hurt you.
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The Pope Says:
March 26th, 2008 at 2:55 pm
Warren – I found this PDF that refers to 2006 from BC stats that might start to answer your question –
http://www.bcstats.gov.bc.ca/p.....bi0704.pdf
In your examples I assume the RRSP would be counted as savings, whereas paying off a line of credit would not (as its paying debt, not saving).
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Vansanity Says:
March 26th, 2008 at 2:58 pm
Nauseating.
I was looking around on mls.com last night at places in Vegas, Miami and San Diego. It was insane! I saw one place that had an “L” shaped pool on the second level (covered) gorgeous house selling for $279,000. Yes, it’s all relative and I don’t know exactly where in Vegas that place was but… seriously, some of us could buy that out right.
Anecdotes for the day, two people I know are leaving Vancouver. One is moving to New Mex and the other to LA. Both love the sunshine and the prices up here made their decisions much easier.
I have a two year clock ticking down and if things don’t change here, I’ll be moving too. Any others considering moving away? I can see an exodus of young professionals away from this city over the next couple years. What a waste of talent.
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Anonymous Says:
March 26th, 2008 at 3:06 pm
With 600K it makes much more sense now to get into the stock market than the real estate market, it just has less risk this way and much better potential return.
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scullboy Says:
March 26th, 2008 at 3:40 pm
Vansanity:
We must be working on the same clock.
I have the same deadline for the same reason. Look… Van’s nice and all but it ain’t Miami. 6 months of rain vs 12 months of sunshine = no contest. 
Most young professional non Kool Aid drinkers are in the same schedule. At this point, you either bought into Vancouver or you didn’t. SHort of the 100 year mortgage (and don’t think it’s impossible) I don’t think financing can possibly get any more creative. Most of the fools should be packed in quite nicely right about now.
Either the system is going to fail, or it isn’t. If it doesn’t correct this summer then I officially give up. I’ll take my savings and head somewhere warm and sunny.
I really think that eventually the smart and talented types will leave Vancouver. All that will remain are krrsh like ‘tards, drug dealers, movie people and possible massage parlour owners. They’ll be the only ones who can possible afford a condo here.
I wonder if Van will still be voted “world’s most liveable city” then.
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Clarke Says:
March 26th, 2008 at 3:44 pm
The couple in the article sound like a good example of the psychological phenomenon of irrational escalation. They knew it was crazy towards the end, and still went forward. I suspect the decision to buy is one they will end up regretting only once, but it will be continuous……
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crabman Says:
March 26th, 2008 at 3:45 pm
Any others considering moving away?
If it takes too long for prices to correct, I might go. Especially if the US cities I track get cheap. I can always come back after the crash. Maybe even with a little equity from the other city!
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gregg Says:
March 26th, 2008 at 3:46 pm
Gotta have the TV bolted to the wall. Love those plastic hardwood floors. Time for a enema I think.
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mathamatical Says:
March 26th, 2008 at 3:46 pm
Vansanity,
I thought about moving a few times. I made $70,000 last year and felt good about it. Then I compared it to a salary I would need to buy a house out here and I felt bad.
I would work in the US and Australia but the issue is if you don’t find a sponsor after a year you have to leave. Going to live and work in another country for more then a year is very hard unless you have family there or have a work sponsor connection. I don’t have family abroad nor a foreign work sponsor connection.
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jesse Says:
March 26th, 2008 at 4:01 pm
“Two twenty something teachers shouldn’t expect to live at Yonge and Davisville.”
You can figure out they each make about $60-65K per year, for total pre-tax income of $120-130K per year. Since they’re teachers there will be pension and union dues. Banks will still probably lend them $500K, or about $3K per month payments. Looks doable? Actually this is affordable but requires them both to work. They won’t be taking many trips to Jamaica however and the dining/entertainment budget will be pretty small. And no kids for the next while for sure. Sacrifices sacrifices…
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Vansanity Says:
March 26th, 2008 at 4:03 pm
Mathamatical: I hear you, I’m in a similar boat. Making more than I ever have but I can’t afford a real home to raise a family here. It comes down to priorities for me. I just can’t pay top dollar to live in a f$@%ing strata and try to raise kids in a shoebox. Hell, I can’t justify paying any amount for that, personally.
Similar to scullboy, I like it here, but its not the be all and end all for me. I agree with scullboy too, wherein, at this point in time, if you’re in you’re in and if you’re not than you won’t until things change.
I just can’t imagine having some of these mortgages, I’ve heard about, weighing me down. I’m talking about young professionals carrying $5,000/month or more, plus, plus, plus all the little extras that homeowners have to worry about. Stressed out!
It’s weird for me to see some close friends packup and leave for sunnier pastures, but I guess that’s where we are today.
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Dude Says:
March 26th, 2008 at 4:04 pm
Skullboy & Vansanity
I have the same timeline. Pretty much I am saving about $1,200 per month renting. I will not consider buying unless the market drops by at least 30%. Otherwise I’ll be heading to the US and buying the property outright. I could make half as much and still be better off because I don’t have a freaking mortgage.
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sheeplessinvancouver Says:
March 26th, 2008 at 4:45 pm
The personal savings rate is a ratio of savings to disposable income (income minus taxes).
Not included in savings
real estate
employer-sponsored pension plans
CPP or EI deductions
other deductions or benefits
I’m not sure how credit card and personal line of credit debt is counted, nor am I sure if mortgage debt is included. Does anyone out there know?
An example from the only reliable data I have. My personal savings rate has gone down from 3.4 to 2.5 since 2001. Bad. But why? Because my salary went up, but I kept putting the same amount of money away.
The increase in my EPP isn’t counted. Neither is the mortgage principal I’ve paid off. If I include that, not taking into account ANY increase in property value, my savings average out to about 20% a year. Good, but what a discrepancy. If I want my personal savings rate to go up, maybe I should get a 40 year amortization on the mortgage and put the “savings” into GICs.
While I’m sure the personal savings rate is a useful measure of some things – say the ability to come up with a large down payment – people are using it to explain everything from how we won’t have enough to retire on to house price increases.
Another BC personal savings tidbit to think aobut. Apparently, BC has had a lower personal savings rate than the Canadian one since 1961. Hmmm. Maybe there is something in the water.
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Krrish2 Says:
March 26th, 2008 at 5:13 pm
Vansanity,Dude,Sonika,Crabman,
“30,000 people moved to the Vancouver most recently and 60,000 to B.C”.-Zenna
So if you guys have time deadline that is too common because people who miss the wagon most likely move to the corners with hard hit hammer of inflation.
“Projected increase in prices for 2008 is 8%, in 2009 it is 5% in Metro Vancouver. Properties are selling at 98% of List Price. 2010 will add a 1% growth in prices per year til 2020″.-Victoria Beckham
either you guys can move to east side and find a decent one bedroom appartment or you can book your tickets now,
choice is yours.
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Markoz Says:
March 26th, 2008 at 5:34 pm
This article underscores one of the many reasons why property will never seem “reasonably priced” for many of us. That reason is, the market is competitive and all four of these couples are examples of just how far the average person is prepared to extend themselves to own property. Want to buy a house? You have to compete with this lot. If they live on tuna sandwiches so they can buy an old beater, we will have to as well if we want to compete. I personally know lawyers who commute 4 hours a day so they can own. I know other people who live in a tiny one bedroom and have to pay to store their possessions off site. I know another woman whose condo living room is too small for anything OTHER than a flat panel television. Wanna house? Sure, if you are willing to endure that level of privation. I think they are all nuts but as long as these people keep buying developers aren’t going to lower prices. This is compounded by the fact that the government does everything it can to maintain the price of real estate. Fed bail-outs for Bear Stearns, English banks looking for more help from the BoE etc.etc. Remember that when prices couldn’t be sustained because 25% down was needed they dropped it to 10%. When that wasn’t enough to keep prices up they decided to let you raid your RRSP for a down-payment. When that wasn’t enough to keep the market moving the down-payment was dropped to 5% and now we have 0% and 40 year amortizations. It may all collapse anyway. The point I’m making is that people like us who think prices are crazy keep waiting for a crash while the government enforces the desires of the real estate/development/banking lobby by doing everything in their power to make sure that prices continue up so that their pockets get lined and we all end perpetual debt slaves for badly built tiny condos. Existing home debtors don’t want to see price declines either because they see their home as a future nest egg, not just a place to live. This makes we bears very much in the minority. To reiterate: we may win in the end but there is a LOT of money and influence pushing the other way.
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Anonymous Says:
March 26th, 2008 at 5:34 pm
Vansanity,Dude,Sonika,Crabman,
Who is Sonika???
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Drachen Says:
March 26th, 2008 at 5:57 pm
I think Sonika is scullboy, ever since Krrish figured out that he’s gay he’s been using vaguely feminine nicknames for him.
I have to say it’s about as effective and valid as any of his arguments ever are.
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-A- Says:
March 26th, 2008 at 6:11 pm
krrish aka Rob:
I find it comforting to know the usual pumpers you quote have never been accurate with their forecasts, and they have never predicted the previous crashes.
In fact here are some excerpts posted recently by a regular poster to this blog:
DaMann said…
Here are sume nuggest to mull over. In short yes, they all said the exact same things back then too. Almost to a T.
A flash from the past :
1. “Price stability, rather than decline, would be expected for most of the housing stock . . . since underlying home ownership demand remains strong due to continued high immigration.” (Frank Clayton, January 18th 1981 in the Sun. link The market crashed by about 50% over the following year. )
2. Renaud said he thinks that the trend to prices for houses has been broken by a temporary lull and that by [next year] or so prices will be equal to or greater than peak prices. (Claude Renaud, VP of Mortgage Insurance Canada on April 14, 1982. link The market took 26 quarters (over 6 years) to regain its peak in real terms.)
3. “To those who are waiting for Vancouver house prices to collapse, I can only advise them not to hold their breath . . . Unless there is a major recession or significant depopulation, house prices are unlikely to drop significantly.” (Jerry Jackman, VP Royal Lepage, November 18, 1988 in the Vancouver Sun. link In 1989, prices started to drop – with an eventual 30% or so drop. Real prices did not attain these heights again for 58 quarters, or around 15 years.)
4. “We are definitely in a transition market in areas such as the West Side, Vancouver East, and Burnaby . . . it is too early to tell if the market will stall.” (Jerry Jackman, April 20th 1989 in the Province. link Prices did not recover in real terms until 15 years later.)
5. “It is unlikely that prices will decline significantly.” (JJ again, July 18th 1989 in the Sun. link)
6. “The whole world wants Vancouver because everybody is moving here now and everything points up, up, up.” (Realtor David Goodman, December, 1989 in the Sun. link The market did not reach these heights again for 15 years.)
7. ” . . .no one is panicking over the west side housing market and he insists that it has simply ‘normalized’.” (Jerry Jackman, January 27th 1990 quoted in the Sun. link West-side prices fell by 40% in the next 2 years.)
8. “I can’t see prices reversing themselves there [in the west side] because it is still a very desirable place to live.” (Same as above.)
9. “The market is entering a more ‘normal’ phase.” (REBGV president Brian Calder, Feb 2, 1990 in the Sun. link If normal means that it takes 15 years to recover, then ‘normal’ it was.)
10. “A BC Central Credit Union newsletter released Tuesday said BC’s housing market is currently experiencing a contractionary phase but the worst of that phase should be over by late summer or early fall.” (BC Credit Union economist Richard Allen quoted in the Sun, July 5th 1995. link The decline in the late 90s was slow, but it took 28 quarters to bottom out and 33 quarters to recover to the previous peak. Some ‘phase’, eh?)
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blueskies Says:
March 26th, 2008 at 6:16 pm
Sonika is gay?!
well there goes all my fantasies… damn!
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Clarke Says:
March 26th, 2008 at 6:57 pm
“This article underscores one of the many reasons why property will never seem “reasonably priced” for many of us. That reason is, the market is competitive and all four of these couples are examples of just how far the average person is prepared to extend themselves to own property. Want to buy a house? You have to compete with this lot.”
Well, you do until the cycle turns, and all those intrepid buyers find themselves sitting on negative equity. If that one couple thought they had a love hate relationship with their house before, well, they ain’t seen nuthin yet…..
Stupidity is infinite, but cash usually isn’t. There are a couple of things to consider. All the couples profiled are in for a thirty year haul of privatation, and while anyone can tough something out for a couple of years, there will be a fair number that will be utterly desperate to bail out. I have seen quite a few “house rich, cash poor” households in my day, and few last the distance.
The current lending environment is likely to change too, as the current aggressive lending practices are not in most financial institutions long term interests, and should be seen as an aberration to historical practice. It seems more conservative loan and credit practices are coming.
Especially here in Vancouver, the prices have led to lots and lots of supply being constructed, with the demand curve tapering off due to buyer exhaustion.
Given the way things usually work out, being priced out of the market is not a permanent situation…..
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BDK Says:
March 26th, 2008 at 7:07 pm
Krissh, I live in Coal Harbour.
The next move I make will be to Kerrisdale, so I can live closer to the rest of my family unless I can convince them to start downsizing….
Why the hell would I want to move to the east side?
Is it because you want me and my pretty wife to live next door to you and your Mum?
What makes you think that you’re the only person who’s parents bought them a condo?
If someone as stupid as you can do it then it’s pretty obvious any retard wearing a bib can do it.
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pricedoutfornow Says:
March 26th, 2008 at 7:37 pm
The current investment in real estate is just a fad, like anything else (anyone remember the dotcom bubble?). It can’t go on forever, this unrelenting interest in the RE market. Without a doubt, one day houses will just be houses again, not a retirement plan. Everything’s just out of whack due to loose lending practices and irrational optimism. I’m not worried, I’m sure one day we’ll laugh as we remember the time people were buying crack shacks in Surrey for half a million.
Clarke-Good point, households are perfectly willing to fork over 75% of their household income on mortgage payments in an increasing market, however this incentive is gone in a declining market. Few decide to stick it out, especially when the kids need piano lessons, the roof is leaking etc etc. Here’s to waiting it out!
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Anonymous Says:
March 26th, 2008 at 7:49 pm
Most real estate watchers say there’s nothing on the horizon to suggest the current market will hit a slump like it did back in the early 1990s.
Really? Typical of the MSM to say something like this. I assume “most real estate watchers” they are referring to include objective sources such as agents, flippers, and recent first time buyers? And I guess the opinions of experts like Robert Schiller don’t count? The really funny thing is that anyone who simply looks at a chart of long-term price cycless can see that it is impossible for the current market not to hit a slump.
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jesse Says:
March 26th, 2008 at 7:49 pm
“That reason is, the market is competitive and all four of these couples are examples of just how far the average person is prepared to extend themselves to own property.”
In doing so they are paying a significant ownership premium. And, as has been said before by others, an owner’s premium is a renter’s discount.
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jesse Says:
March 26th, 2008 at 7:53 pm
“it is impossible for the current market not to hit a slump.”
The best graph on this point I’ve seen is the one from the Seattle Bubble Blog showing YOY % change vs time for various US cities. All cities form a parabolic curve though some cities are shifted in time. Vancouver and FV are on the same trend line. But maybe it’s different this time.
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cheapskate Says:
March 26th, 2008 at 8:19 pm
Either the cracks show this year or we go. We made more $ than ever this year, but cheapskate jr is getting bigger and I’m not ready to put down $500k on a shoebox in the sky or $700k and spend every weekend plastering and scratching for basement tenants in an east van mold-trap. So on we rent, at a discount, but not exactly what I want.
Whole of the Case-Shiller is now down YoY (Charlotte doesn’t count – if you’ve been there, you will understand). Including Seattle and Portland. Lots of the US is warmer, drier, cheaper, lower tax.
Remind me, why I am I still here?
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patriotz Says:
March 26th, 2008 at 8:20 pm
In your examples I assume the RRSP would be counted as savings, whereas paying off a line of credit would not (as its paying debt, not saving).
Paying off debt most definitely is, repeat is, saving. But interest payments are consumption, because they are payments for the service of renting money.
You can do one of two things with your disposable income – spend it on consumption (includes interest payments), or save it (includes capital transactions such as debt repayment).
Note that the principal part of mortgage payments is saving. A shift toward longer mortgage amortizations reduces the savings rate in itself, which is bearish (not bullish) for RE prices long term.
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Krrish2 Says:
March 26th, 2008 at 9:55 pm
A,
I appericiate your hard work to collect those piece of past artical this post was answered to DaMann and to you the one and only ANECDOTAL EVIDENCE that is HPI GRAPH.
BDK,
You can live where ever you want that was just an opinion for those who wanted to waste their time looking for crash better act now than late.
Stay there I will be next to you in tv tower2 then I can tied some of left over screw on your mathmatical head but I am not going to fix your fat tummy because you like to see bubble right? just stand infront of mirror and lift up your shirt tan tran bubbletom not in the market but in the mirror.
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ulsterman Says:
March 26th, 2008 at 11:11 pm
The sacrifices, though, have been significant. They don’t travel and rarely shop. They didn’t replace their car when it was wrecked in an accident and joined the car co-operative AutoShare instead. Before Pearl, they hung out at the Gladstone and regularly dropped $150 for dinner on Queen West. These days, takeout Swiss Chalet is a luxury.
That’s just a sad way to live. Not only can they not afford to do anything, but all their spare time is spent fixing up their junker house, visiting revy, and watching those hellish HGTV shows.
Assuming that they took out a 40 year mortgage, at least when they are 70 or so it will all be worthwhile. Then THEY’LL be laughing at a fool like me who fritters my life away on vacations and eating out. I wish i were a little more sensible like them.
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blueskies Says:
March 27th, 2008 at 6:20 am
The sacrifices, though, have been significant. They don’t travel and rarely shop. They didn’t replace their car when it was wrecked in an accident
=homoaner…..
krssh2/s/?
you are sounding rather strident lately. why is that?
are there cracks appearing in your
happy happy RE scenario?
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vanguy Says:
March 27th, 2008 at 6:31 am
sidenote;
heard through a friend that is renting at TV towers, that the place has a lot of prostitutes coming in/out, drug dealing, and just generally downbeaten. she found condom wrappers on the hallway floor…
secondly; i was visiting a friend’s condo that he completed on in Richmond a month ago, and there were six cars in the underground parking lot. this was a large scale, high profile development completed over 6 weeks ago with the highest floors closing two weeks ago, and on a Tuesday night there were 6 cars in the parking lot.
who is buying these places? investors (who must be getting a little scared), and cash-rich drug world types.
anybody else been to tv towers? i’ve heard it’s bad…
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hughz Says:
March 27th, 2008 at 8:15 am
Vanguy, I don’t think the TV Towers have completed. Maybe Spectrum?
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betamax Says:
March 27th, 2008 at 8:25 am
I’m sure one day we’ll laugh as we remember the time people were buying crack shacks in Surrey for half a million.
Yes, just like the dot.com fiasco, it’ll be oh-so-obvious in retrospect that it was ludicrous and couldn’t last.
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dingus Says:
March 27th, 2008 at 8:41 am
“Paying off debt most definitely is, repeat is, saving. But interest payments are consumption, because they are payments for the service of renting money.”
How would the principal be treated when the debt is incurred? Didn’t the principal go towards consumption? Is it income then?
I have a hard time thinking that by paying off my credit card debt is “saving” unless incurring the debt in the first place counts somehow as “anti-saving”.
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King Leaky Says:
March 27th, 2008 at 8:58 am
I’m sure one day we’ll laugh as we remember the time people were buying crack shacks in Surrey for half a million.
No doubt! Was anyone here around Vancouver during previous housing crashes? How did the general attitude towards house prices change in 1982 or in the 90’s? I remember general negativity towards the condo market when the whole leaky condo mess started getting lots of news coverage, I also remember late 90’s headlines about local ‘underwater’ mortgages (people who owed more on their houses than they could sell them for).
Look for these headlines in the next couple of years again here.
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bdk Says:
March 27th, 2008 at 9:20 am
Krissh. how did you know I had a big gut and had screws loose in my head?
Too Funny. Someone must’ve told you….
TV Towers is a far better location than Spectrum(s), We’d be in false creek north or yaletown if we had to do it again because it just takes too long to get to Coal Harbour during rush hour (Georgia,Melville, Pender all back right up with commuters heading to North Shore not to mention Hornby, Seymour, Dunsmir and hastings).
Regardless of renter, owners, speculators etc. it seems to me that anyone who’s been in Spectrum 1-4’s opinion is that the building has a higher percentage of trouble makers than the others and I’ll go one step further and say it is destined to be a slum, having no parking really screws things up too because no one will want to park their cars in that area when they visit. They’re still trying to rent units out in there which have been vacant for six months!
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jesse Says:
March 27th, 2008 at 9:22 am
“How would the principal be treated when the debt is incurred?”
In accounting terms, the principal increases the difference between an asset and the debt on the asset. Debt is a liability. Savings in this definition is equity so either increase your assets (bank account) or decrease your liabilities (pay down debt).
And it is possible to have negative equity and not be bankrupt; many US homeowners are finding this out.
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DaMann Says:
March 27th, 2008 at 9:32 am
King Leaky
Funny you should ask. My Mom was an agent back in the early 80’s. I was just talking to her about it all yesterday on MSN ( she has since moved back to Germany). I was telling her that me and my wife are thinking of selling our townhouse in Steveston cause I know a crash is coming and I would rather take the money and run now. She told me if you want to sell, sell it fast. She said the market in 1981 turned so fast that she herself didn’t even have time to unload her properties. It was a carbon copy of what is happening now. She had 4 condos and three houses, and litterally a month later they were all worth half the money. Bankrupt! Just goes to show agents don’t know shit. She said EVERYONE was treating it like easy money, can’t lose and it could never possibly go down or crash cause too many people would lose their shirts. Well we all know what happened.
It was interesting that when the winds of change came through that by the time she listed her properties she was ONLY getting offers for 50% off list price!!!! 3 months before she was getting offers to buy her properties even though they were not listed. Here is what struck me the most. She said the biggest catalyst to the collapse was flippers. Like herself, everyone in her RE office were buying up as many condos as they could, who cared if you could afford them, just unload them down the road for huge gains. This was the golden comment ” In hindsight there was no real demand at all to live here and buy housing, the condos and houses were being traded as stocks and bonds, people had no interest in living in them”
My Mom was an awsome agent, would fight tooth and nail to get you a good deal, but she had no clue about economics and fundamentals. I think a huge protion of agents fall into this category. They don’t know shit.
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blueskies Says:
March 27th, 2008 at 9:46 am
They don’t know shit.
so true! and they drink the Koolaid ….lethal combination
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franko Says:
March 27th, 2008 at 10:14 am
Thanks for sharing that story DaMann.
Unfortunately, most of the young bulls here have never experienced a housing crash or a recession, and all those crazy graphs of prices does not seem to phase them.
One of the first signs trouble in 81 was that spec builders on tight margins could’nt unload new houses without taking lossses.
Sound familiar?
Reecently completed upscale houses that were built at the peak of high material prices and high labour costs ARE NOT MOVING.
Just like 81, lumber prices are now dropping dramatically and other materials will soon follow as the recession nears. But that will be too late for spec builders, as many of them will be wiped out by then…just like 1982.
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Drachen Says:
March 27th, 2008 at 10:14 am
DaMann
“I think a huge protion of agents fall into this category. They don’t know shit.”
That’s the funny thing. People think that agents have their hand on the pulse of the industry but in reality they have every reason to avoid this sort of knowledge.
Sincerity is key to salespeople, if you KNOW that your client is making a huge mistake you won’t be half as good at selling or acting as a buyer’s agent.
Beyond that there’s the guilt, most people lie to themselves on a regular basis to avoid guilty feelings. How would you feel if you KNEW that you’d been at least partially responsible for the financial downfall of dozens or hundreds of families?
So start with a culture of denial THEN add in a pinch of only getting info from OTHER people who are in the same boat and what do you have?
Vancouver.
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BDK Says:
March 27th, 2008 at 10:21 am
Good story DaMann,
I remember when that happened too.
There are still people who never recovered from that emotionally and it caused more than a few divorces!
Did your Mum ever try to flip property or be a landlord again after the crash?
There were people who’d just built nice cabins in Alpine Meadows in Whistler who had to walk away from them, it would have been really sad…
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dingus Says:
March 27th, 2008 at 10:37 am
I wonder if I’m getting it.
Incur the debt, obtain principal — like “pre-saving” and hold it or waste it as you see fit, much as you would unexpended income that has gone into savings. The spending would be on interest to obtain the principal — this is the anti-saving part.
I guess we are just talking about unexpended income with this measure — once the unexpended income is “saved” it goes into another bucket as an asset? As you say jesse — that asset value can decrease to negative, or increase, without any impact on “saving” *as a rate*.
Though I guess some increases and losses, when they are realized, would count as income / negative income ie interest or a capital loss. But if you are underwater on your condo, for example, and have to pay to get out — no impact on “saving” though a real whack to your net worth. And potentially interest paid on debt to pay it down would count against income.
So, if I rack up a LOC for 10k — I created an asset of 10k, while increasing my future spending on interest by 60ish bucks a month.
I could put the 10k in a savings account — and have it earn income of 35 bucks a month (offsetting the spending on interest). Or put a downpayment on a condo assignment, which if I flip it for 50k more than the price I paid will net me 40 k in income, which will boost my savings rate. Or buy a skookum HDTV. Which has no impact, other than adding a very rapidly depreciating asset to my portfolio.
Accountants must lead very boring lives, I think.
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Regular Joe Says:
March 27th, 2008 at 10:48 am
Stumbled upon this site a few days ago … its nice to see there are actually some sane people in Vancouver. I thought some of you might want to hear from a regular guy with a wife and two kids and how we see the market and how it’s affecting our lives.
We moved here from Manitoba a couple of years ago and bought a townhome in Langley in the mid-300s. The prices have moved up a bit – but not much. We have a 25-year variable rate mortgage with about $50,000 in equity. Anyways, we’re selling because we want to keep what little equity we have.
Listings are going up, sales are decreasing, and we think prices are likely to decrease as more homes become available. Any decrease in price is going to screw my family’s financial security.
And if we’re selling – what do think families with 40-year, 0-5% down payment mortgages are thinking? I just hope we’re selling earlier than the rest of the sheep and the Vancouver Sun/Province continues to print their hyped-up advertiser-backed real estate industry stories to keep the stampede at bay.
54 X Leaving Vancouver For Different Reasons « Vancouver Real Estate Anecdote Archive Says:
March 27th, 2008 at 10:58 am
[...] And morefrom the same poster 2008-03-26 14:58:20 – [...]
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DaMann Says:
March 27th, 2008 at 11:07 am
BDK
No she didn’t continue to buy RE. Her credit was history! She continued as an agent, moving to Calgary then Toronto, essentially following where the market was hot. She gave it up around 1990. She never did recover. A lot of people did but my Mom was a bit of a gambler and horrible with money. She always had a hard time budgeting making $30k in one month then making nothing for 5 months, never saved for a rainy day. I learned a lot from watching her mistakes. I may have been young but I remembered it all well, and I to this day, have benefited from her mistakes and vowed never to do the same.
That’s why I laugh at people in this market, it’s like pre 2001 never ever existed in this city. It’s happening all over again.
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scullboy Says:
March 27th, 2008 at 11:09 am
Hey Regular Joe,
You might want to talk to KRRSH. He’s a dumb as a rick and apparently has as much money as Trump. He firmly believes real estate will never drop. Selling to him should be as easy as stealing candy from a window licker.
Oh and Blueskies, sorry to burst your bubble. I think Krrsh has been using vagely feminine nicknames that are also the names of real estate developments. I don’t mind, since I told him I’d buy his kids’ organs to keep his DNA out of the gene pool. I also implies his mom is providing “happy ending” massages out of Spectrum. I’m probably fair game.
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Burden of Proof Says:
March 27th, 2008 at 11:16 am
Franko,
You said:
“Reecently completed upscale houses that were built at the peak of high material prices and high labour costs ARE NOT MOVING.”
I’m always look for indicators. Do you have a source for this information?
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Warren Says:
March 27th, 2008 at 11:24 am
Pope, Freako, thanks for the clarification on savings rate. I still find it amazing that we run -5% or worse for multiple years in a row. People are living off of credit cards, previous(?) savings, and its only getting worse.
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franko Says:
March 27th, 2008 at 12:19 pm
Burden of Proof,
Except for what I see in several neighbourhoods and from what I hear from my builder buddies (I used to be in the business), hard evidence of “recently completed houses not moving” is a little hard to come by.
Before the condo craze, the percentage of SFH units was much greater in 81, and many of the current new houses are either marketed exlusively, or don’t seem to hit the MLS sheets….so you have to trust your own observation.
Believe me, spec builders of new unsold houses are scared s**tless, and will soon have to drop prices to limit potential losses, not unlike those presale condo flippers on craigslist.
BTW, current futures for framing lumber are now $230/M, as compared to $430 in 2005. No wonder BC sawmills are shutting down at a record pace.
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Bankerman Says:
March 27th, 2008 at 12:56 pm
The BC boom is not a commodity boom but rather a credit boom where hundreds of billions of mortgage debt has been added to the balance sheets. British Columbia will likely be ground zero for a massive banking system crisis to hit Canadian banks. There is a reason why the bank act originally required 25% down payments in order to protect the buyer. Now with zero down and 40 year ammortizations, this will be truly really ugly. With little industry, wealth creation to support the price level, when the high paying construction jobs cease, this province will see tens and tens of billions of non performing debt. Canadian banks, CMHC are in big trouble. Taxpayer bailout?
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BDK Says:
March 27th, 2008 at 1:17 pm
Vancouver Condo, Un real estate, real estate talks etc. are all mentioned in this months Vancouver Magazine!
http://www.vancouvermagazine.c.....gout.shtml
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BDK Says:
March 27th, 2008 at 1:18 pm
FROM VANCOUVER MAGAZINE.
2. Be Condo-Wary
This category of real estate attracts a large proportion of the wrath dispensed by the bad-news bears, who regard it as the domain of flippers and “specuvestors,” a group they disdain or, at least, envy and resent. On the upside, it’s led to blogs like Condohype.wordpress.com, which wittily dissects the marketing efforts behind our city of glass (admittedly an easy target). On the downside, it’s contributed to global warming due to the number of bears driving around counting darkened windows—a sign, they believe, that an apartment is empty, which means it is owned by a speculator who will be forced to abandon it to foreclosure when the market turns, a crucial stage in the process leading to real-estate armageddon.
All this said, many sane and sober prognosticators regard downtown condos, and apartments in general, as vulnerable, and recent market statistics provide some evidence to support the view. One of the culprits is a flood of assignments—units that were presold and are now nearing completion, at which time the original buyers (those specuvestors) will have to pay in full, something they had no intention of doing. Due to taxes and fees, assigners will have to sell for as much as 10 percent more than the original presale price just to break even, which in a slowing market will be difficult. Assuming Vancouver’s population continues to grow toward a seemingly inevitable three or four million, the long-term future of apartment living is bright—but in the short term there could be blood.
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jesse Says:
March 27th, 2008 at 1:20 pm
“Incur the debt, obtain principal — like “pre-saving” and hold it or waste it as you see fit, much as you would unexpended income that has gone into savings.”
A good way of thinking about your line of questions is understanding the difference between balance sheet and income/cash flow statements. People make careers out of this stuff I hear.
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jesse Says:
March 27th, 2008 at 1:43 pm
re: Vancouver Magazine article
In terms of MSM articles this one isn’t bad. Looks like a few reporters are perusing the blogs and the comments! Maybe they saw the post on MSM bias a few weeks’ back? I’ll remember the name Jim Sutherland for future reference.
He missed mohican’s blog though albeit the FPPS blog is not 100% RE focused.
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jesse Says:
March 27th, 2008 at 1:54 pm
From the article: “B.C. and its trade-dependent resource industries will soon follow the U.S. into recession, with obvious implications for real estate. “
That’s actually not the only economic concern. Almost all the reduction in unemployment in the past 5 years has been due to construction/RE jobs (yes). Supply will start waning if buyers do not materialise this year and the vicious cycle will begin.
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jesse Says:
March 27th, 2008 at 2:07 pm
“Believe me, spec builders of new unsold houses are scared s**tless”
I agree 100% here. The problem is exacerbated because margins are now very thin due to rising labour costs. One spec builder I talked to said they made their profits on land appreciation and lost on the structure. It is not going to be pretty if prices start dropping.
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elli davis Says:
March 28th, 2008 at 6:58 am
I agree that the prices now are incredible high but it should be change in a couple of month I believe. I think that buying a house in the US is not a solution for that problem because you may have problems with the selling if you decide like that. What concerns the Toronto houses that`s true that the first-home buyers are in real trouble but renting can be one of the possible options until the situation improves which will soon.
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Toronto realtor Says:
March 30th, 2008 at 8:15 am
Yeah, this is exactly the case. It happens again and again, still the same mistake. I have dealt with couple of cases like this every year during my career. People should be more cautious in this but on the other hand I can understand them. Imagine yourself in a position that you have found a house that fit your dreams and you are under time pressure it could easily happen that you acting bit irrationally. I can just recommend to all potential buyers to read one of my guides in order to avoid problems. You can find them on my webpage Toronto realtor.