Vancouver Condo Info

This weekend the Vancouver Sun ran a story about the top 15 real estate myths and realities which generated a lot of reader feedback.  As of last night their website had many comments, the majority of which disagreed with some of the points in that article or the way that it was presented.

Today the comment section looks different.  This morning all but two comments had disappeared, with many readers here claiming to have re-submitted comments that have not showed up.  I’ve personally submitted a comment that has not yet appeared on their site.  Since this morning one additional comment has been posted (congratulations ‘crabman!’).

I’m going to give them the benefit of the doubt and assume that this is a temporary technical problem rather than a concerted effort to censor public feedback and appease real estate advertisers.  If they are experiencing technical difficulties I’m sure they would want to keep the conversation going, so please feel free to post your comments here while we wait for them to solve the problem and re-post reader comments on their website.

Thanks to Condohype for sending in the link to this story in todays Vancouver Sun: mortgages move into uncharted waters.  This is a similar article to the one linked to last week about over-stretched buyers fueling the real estate boom, but refers to a Scotiabank report released yesterday focusing on the risks created by relatively new 40 year mortgage terms.  According to the report, longer term mortgages now account for a full two-thirds of all mortgage applications.

In the near term, their introduction — which began in 2006 when Ottawa “unshackled” the Canada Mortgage and Housing Corporation from the traditional 25-year mortgage — will help stabilize a softening Canadian housing market as it draws in a new group of buyers.

Longer term, however, nobody knows what the effect will be, Holt said.

If, for instance, buyers as a group tend to pay back the debt at an accelerated pace, it will increase the risk for the originators of the mortgages and buyers of mortgage-backed securities into which they are folded.

On the other hand, the report says, “future shock risk is being intensified,” in the event that a large portion of new buyers move into such leveraged products and suddenly face a shock to interest rates or wage growth.

Now, if faced with sudden difficulties, the holder of a 25-year mortgage can move into a 40-year, but it’s unclear what would happen if the 40 becomes the norm and economic difficulties arise.

I’m not sure why it’s so ‘unclear’ what would happen if the majority of buyers have no adjustment room in their mortgages, pay a majority of their income to cover loan interest and ‘economic difficulties’ arise. I don’t need a crystal ball to foresee that such a situation would be ‘problematic’. Unfortunately as we’ve seen in the USA, ‘economic difficulties’ can simply be a drop-off of buyers at over-inflated prices.  Prices in the US started dropping long before problems with sub-prime mortgages and recession fears started looming.

I also find it strange that all these new products were introduced in the midst of a boom rather than when the housing market needed ‘saving’ from a collapse.  Seems a bit like using up your nitrous on the drive to the racetrack.  This article also touches on the way these new mortgage products encourage speculation:

Equally significant is the impact changes to the mortgage industry may have on the condo market, Holt said.

Starting last year, Ottawa changed the rules on insured-investor mortgages, allowing buyers to acquire an insured mortgage on a property other than a principal residence.

Holt said he estimates one in four condo buyers is a speculator looking to profit from property price gains and, he forecasts, “This is going to intensify influences of investor sentiment, particularly the condo market over the next few years.

“You’ll see more speculative activity in the market at a time when there’s already a fair amount.”

This can sharpen market downturns, as appears to be the case in Calgary, when prices drop and speculators rush to unload properties.

I thought the topic on what people pay for rent in Vancouver generated some interesting and informative discussion, so I’d like to do something similar on the topic of income and savings. As the majority of visitors here are… let’s say ‘sceptical’ about the Vancouver real estate market and likely financially cautious I don’t expect the results here to reflect the city at large, but I’m curious to see how much people are saving.

One argument for home ownership is that it acts as a forced savings plan, because the average person doesn’t have the willpower to save on their own. If you’re sitting out of the market waiting for a correction and renting for less than a mortgage would cost are you saving the difference? If loans disappeared and real estate in Vancouver was suddenly only available for cash would you be ready to swoop in?

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It’s Friday and you know what that means… It’s open topic time! Here’s a few stories I’ve noticed this week:

-Top 15 real estate myths
-Bequeathing mortgage debt to your kids
-Want a house bargain? Try Kitimat
-Century Point New West in receivership?
-Sometimes hard work is not enough
-New condos for open air drug & sex market
-The Abbotsford earthquake zone
-Offer $2 for the one dollar Toronto house
-New US home sales slowest since 1991
-Global financial crisis is getting worse

What are you all seeing out there these days? Post your news, links, ideas, and anecdotes here and have a great weekend!

note: any conversation on real estate or economics is allowed, please keep it civilized. when posting articles please only quote pertinent points and link to the original instead of pasting the entire article here. Thanks!

I’m not sure why this article is located on ‘globe sports’ in the hockey section, but this article about mortgage trends in Canada has some shocking statistics based on a recent RE/Max report and some interesting quotes from a few of the big Canadian banks:

Nearly two-thirds of buyers in major centres now favour extended amortization periods of up to 40 years, while putting little or no money down was prevalent in 38 per cent of regional markets surveyed across Canada.

The country’s real estate industry has played down any similarities to the U.S. when it comes to subprime borrowers. But as new segments of the Canadian population enter the market, the findings raise questions about what’s been driving soaring house prices in recent years.

“The reason we think the market has been staying hotter much longer than anyone anticipated was because of these newer amortization mortgages,” said Craig Alexander at Toronto-Dominion Bank.

“Because it really does change the affordability equation,” Mr. Alexander said.

Canada’s housing market has for years defied predictions of a slowdown. From 2002 to 2007, average home prices rose at about 10 per cent a year nationally, Mr. Alexander figures. A willingness to buy now and pay later explains much of the recent heat. Longer amortization mortgages “have had a very profound impact on the Canadian housing market since they were introduced” in 2006, he added.

Buying a house has become increasingly accessible. The flip side, though, is that more home buyers are now susceptible should the housing or labour markets weaken, or if interest rates change direction.

“We’re more vulnerable than we were in the past, and I think that’s just a factor of financial and mortgage innovation,” said Adrienne Warren at Bank of Nova Scotia. “At the same time, it’s a trade-off – more people are getting into home ownership earlier.”

In their report RE/Max attributes the boom to these new mortgage products:

“Innovative financing has become key to home ownership in today’s environment,” yesterday’s report said. “Entry-level purchasers are adjusting their expectations by sacrificing size, location, and even long-term financial freedom to overcome challenges such as rising prices and serious supply issues.”

Policy changes help explain why so many people have been entering the market. Ottawa extended the maximum amortization period to up to 40 years from 25 years in 2006. In the same year, Canada Mortgage and Housing Corp. began providing insurance to lenders for interest-only mortgages.

Mr. Alexander figures that as many as 70 per cent of first-time buyers are opting for longer amortizations. “It’s a double-edged sword. It brings down your monthly payments. But it will actually double the amount of interest you pay over the lifetime of the loan.”

From the Globe and Mail:

Canadian banks cut interest rates dramatically yesterday after the Bank of Canada slashed its main rate by half a percentage point and warned that a serious economic slowdown was only just beginning.

All major banks cut their prime lending rate by 50 basis points, amid a central bank warning that Canada faces a tough two years. A troubled U.S. economy has hit exports hard, and undermined business and consumer confidence, the bank said.

Marking the most serious cuts since the post-9/11 downturn, the bank has now cut rates twice in six weeks. Its key rate now stands at 3 per cent, 150 basis points lower than where it stood last fall. (A basis point is one one-hundredth of a percentage point.)

“The bank is now projecting a deeper and more protracted slowdown in the U.S. economy,” it said in a release. “This has direct consequences for the Canadian economic outlook, with declining exports projected to exert a significant drag on growth in 2008.”

Will these recent rate cuts boost our market further or prevent a downturn?  Certainly dropping rates is a way to discourage saving and encourage taking on more debt, but is the central bank in danger of kicking up inflation?  So far rate cuts and fiscal stimulus plans in the US have done little to stem dropping house prices and a sputtering economy.

The Vancouver Sun ran an editorial this weekend about the ‘firm foundation’ of the local real estate market.  The gist of the piece is that people should not panic over last weeks declaration that the Canadian housing boom is ‘officially over‘.

Compare Canada’s situation with the horror show south of the border and beyond. American homeowners from Blaine to Maine have witnessed the value of their property go down almost as quickly as it went up. The median price of a single-family resale home fell 8.7 per cent in February from a year earlier, the most in four decades of record keeping, according to the Chicago-based National Association of Realtors. Some cities, including Miami and Las Vegas, have reported declines approaching 20 per cent, which is widely expected to be the U.S. national average price drop in 2009.

Let’s not compare too closely to the American market though, because if we did we might worry about the recent increase in listings.  In the US prices continued to increase as listings grew, unfortunately as soon as the trend changed and appreciation stopped people were less interested in buying and the bottom fell out of the market.

I do appreciate the assertion that the ‘firm foundation of the local market lets it weather boom-bust cycles’.  What else is the local market supposed to do, disappear?  We’ve weathered many boom-bust cycles and we’ll weather many more, the only problem is that ‘firm foundation’ can turn out to be a lot further down than some people expect.  We survived 50% drops in the early eighties and lesser drops in the nineties but that doesn’t mean that buying at those peaks was a great investment.

I guess the point of the editorial is this: Don’t panic, because the local market won’t crash for at least a year:

The bad news, according to the IMF, is that real house price movements tend to lag cyclical peaks and troughs — generally by one or two quarters, but in Canada’s case as many as six quarters. In other words, the collapse here may be a year to 18 months away. According to the Canadian Real Estate Association, sales dropped 13 per cent in the first quarter of 2008 from a year earlier and the ratio of new listings to sales stands at a nine-year high.

Spring thaw edition! It’s Friday so lets do our standard open-topic post for the weekend, here’s some stories I’ve noticed recently:

-Canadian housing boom ‘over’
-Vacant land sales soar in Fraser Valley
-Victoria prices 23% above ‘fair value’
-Calgary sales plunge by 35.9%
-The cash-back mortgage hustle
-EcoDensity and 18,000 empty condos
-Merrill Lynch cuts 4,000 jobs on mortgage loss

So what are you seeing out there? Are we set to copy the housing boom hang-over the US is going through or does everyone want to live here? Post your thoughts, news, links, and anecdotes here and have a great weekend!

According to this article in the Globe and Mail the Canadian housing boom is now ‘officially over‘.

It’s time for Canadians to bid the housing boom farewell as data for the first quarter of the year, released Thursday by the Canadian Real Estate Association (CREA), showed a 13 per cent tumble in existing home sales year-to-date.

“Canada’s six-year housing market boom is officially over. Aside from a few choice Prairie locales, sales are melting faster than this year’s snow pack,” Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc., said in a research note.

Double-digit declines in sales activity in “more markets than you can shake a stick at,” suggest the weakness has spread across Canada rather than being centred in any specific market, Mr. Porter said in an interview.

Home sales waned and new listings surged in the first quarter of 2008 as activity in Toronto cooled and a glut of sellers hit the markets in Western Canada, according to CREA’s data.

So we’re not the only city in Canada showing this trend change. Spring is traditionally a strong selling season but it hasn’t kicked in yet this year in Vancouver, it’ll be interesting to watch the growing number of listing into the start of the summer to see how strong this trend is.

I received a press release from Deryk Norton of the Vancouver Island Strata Owners Association (VISOA) claiming that BC lags behind the rest of Canada when it comes to legal protections for strata owners – below is the text of that release:

STRATA OWNERSHIP NEEDS BETTER LEGISLATION

According to strata owners on Vancouver Island there are major deficiencies in BC’s strata legislation. Over 458,000 condominiums and other strata properties, or one in four taxable properties in BC are affected by strata legislation. 67,000 of these properties are located on Vancouver Island.

A series of public meetings hosted by the Vancouver Island Strata Owners Association (VISOA) was completed on March 30. At these meetings, participants reacted to a discussion paper based on numerous complaints VISOA had received about inadequate legal protection for strata owners. Based on the public meetings, written submissions from owners and consultation with homeowner associations on the mainland, VISOA is now developing a report on issues and alternatives for improving BC’s strata legislation. The report will be available later this spring.

Most concerns expressed by strata owners focused on transparency and accountability deficiencies, including:

• Lack of an accessible and authoritative source of legislation interpretation to support the operation of strata corporations according to law,
• Lack of a requirement for a depreciation report or reserve fund study to inform owners and purchasers of the financial implications of the condition of common property,
• Lack of a requirement for an audit of strata finances even where the strata corporation has hundreds of thousands of dollars in a reserve fund, and
• Lack of prosecution of developers operating contrary to strata legislation.

“Furthermore, VISOA research has found that BC lags behind other jurisdictions in requiring transparency and accountability for key areas of strata or condominium operations”, said Felicia Oliver, VISOA President.

 

VISOA is a non-profit organization that has provided information and education services to strata owners and strata councils on Vancouver Island since 1973.

BC’s strata legislation includes the Strata Property Act, the Real Estate Development Marketing Act and the Real Estate Services Act.

The VISOA website can be found at http://visoa.bc.ca/whatsnew