Friday Free for All!
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!
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April 25th, 2008 at 6:40 am
How does that effect the mortgage and line of credit
Some previous buyers are almost saving $400 per month over $300,000 mortgage since last year and some are going to save $120 per month on $300,000 mortgage.
http://www.cbc.ca/mrl3/8752/news/featur … 080423.wmv
April 25th, 2008 at 7:15 am
I was born and raised in Kitimat. I would not recommend it as a place to wait out a housing boom. Other than the natural beauty of the place, there are very few redeeming qualities. There is no retail to speak of, not a single place to get a decent cup of coffee, and the town has a very planned feel to it. Industry dominates the waterfront, and you can smell Alcan and Eurocan even when you are hiking in the local mountains. Many of the pristine khiking trails have been mutilated by ATV’s (Clague Mountain for one). Furthermore, Kitimat is a town that has experienced severe boom/bust cyles in Real Estate. They lost one of their major employers when Methanex closed (theyare a terminal now and went froim 200+ employees to maybe 20), and the planned Alcan upgrade will employee ~1000 less people From 1700 to 700) when it completes. You may get a bounce in local property prices with the influx of construction workers. They have had their own little property boom over the last year or so. Actually, I know a fellow that is selling his home as we speak. It’s a renovated duplex in one of the oldest neighbourhoods and he is asking 162k; he paid 32k for it 5 years ago.
Finally, if you like rain, and being socked in for literally weeks at a time, buy a home in Kitimat.
April 25th, 2008 at 7:48 am
not all of the rate cuts are pased on by lenders, not here, not in the UK, not in the US. and the only ones to benefit are on floating rates (unless they luckily time their renewals), and floating rate borrowers are sailing risky seas as is…
April 25th, 2008 at 7:57 am
forum/viewtopic.php?t=48
April 25th, 2008 at 8:32 am
April 25th, 2008 at 9:41 am
As Jay said, the problem with Kitimat is that it has been losing jobs and population. I think the population is down over 10% from the peak and around 10% of the dwellings are vacant. It’s really a rustbelt town transported way up BC’s coast.
I really can’t see what kind of economic activity is likely to boost things in the future, as Alcan can only make so much aluminum there with the power capacity that they have. Maybe if Prince Rupert runs out of room they may get a port, but that’s the best I can think of.
April 25th, 2008 at 10:22 am
The only recent development was the building of Ocelot (Methanex) in the early 80’s. That place was in so much debt upon completion, that the banks slapped a lock on the Nat Gas feeder to the plant. They were bailed out by the BC governemnt, but ran in the red for much of it’s operating life until Methanex shuttered the place in ‘06.
I have little faith in that community to shed its ne’er do well status. Housing prices are insane by historical standards. Actually, I think it may be hard to find a decent home that cash flows, since the rental market is so depressed you can rent a bungalow for 5-600 a month.
April 25th, 2008 at 11:08 am
http://www.canada.com/vancouversun/news … 848d42175c
April 25th, 2008 at 11:18 am
Don’t worry, I am sure they will soon have 50 and 60 year ammortizations to help offset the rate rise for those first time condo buyers in Vancouver.
Then again, maybe the game is up.
April 25th, 2008 at 11:27 am
there are not much reduced signs when i drive around north vancouver. lower prices may be occuring further east like surrey?
April 25th, 2008 at 11:31 am
These rich immigrants that are coming here are simply rich and don’t work (nor will their offspring) so it’s only a matter of time before they’re are no office towers downtown.
Just like in New York, Toronto,London,Tokyo,Sydney, Sochi,Turin, Salt Lake City and all the other world class metropolises.
April 25th, 2008 at 11:38 am
April 25th, 2008 at 11:39 am
This is no surprise. Ive said it before: The enconomy in Vancouver is based on construction and residential real estate speculation. Look at the ratio of residential to office towers downtown. It is at least 5-1. The tallest buildings in the city are condo towers not office towers like in any other normal city.
When the boom ends, the economy will be decimated. On the other hand, for that very reason, the government and media will do everything possible to keep the boom going. Like every other government and media in the world (USA, UK, Australia, Spain), they will fail.
April 25th, 2008 at 11:49 am
When the condo market crashes wouldn’t it be cheaper to convert downtown condos into offices than to build new towers? There’s a building on Georgia near Alberni that would make good offices, I think its called Qube or something
April 25th, 2008 at 12:17 pm
My thought was more along the lines of purchasing 2-3 units and converting them into one ‘life sized’ space rather than the current ’scale model’ trend. I think it would probably be more work to convert them to office space (however in my case with a single digit work force one 500 sq ft unit might work).
April 25th, 2008 at 12:31 pm
Century Point New West canceled.
Doesn’t sound good.
April 25th, 2008 at 1:19 pm
April 25th, 2008 at 2:07 pm
I would LOVE to hear a cogent argument for the continued appreciation of residential real estate in Vancouver. Even an argument that it won’t fall over 20% would be interesting.
One thing I’ve found interesting in the whole time I’ve been a regular on this blog and VHB I have never once actually seen someone propose any kind of rational argument against a total collapse in value in the local Real Estate market. On the other hand I’ve seen probably a half dozen cogent arguments FOR a total collapse.
Anti Pesto said a few days ago that he likes to come here and post counter arguments every now and then but I haven’t seen anything that I’d describe as an ‘argument’ from him yet. Dosh? You too pal this is an open invitation. Anybody?
April 25th, 2008 at 3:40 pm
The only bull posts you will get are the krrish type.
April 25th, 2008 at 3:50 pm
Skyrocketing housing prices do not seem to impact the CPI so the Bank of Canada probably would be quite happy if housing prices move up another 20%, provided other commodity prices level off.
Of course, the risk is that hot money from rate cuts does go into commodities instead of real estate. That would push up the CPI eventually. Then, even Carney would have to raise rates. Then of course, all those who borrow short to invest in condos are caught. But so far, central banks are doing everything they can to avoid this situation.
April 25th, 2008 at 4:20 pm
Once that psychology takes buyers to the financial wall, they will be assissted by financial innovation. 40 year ammortizations are just the first step in home financing innovation. We saw much more innovation in the USA and Japan and we will see much more innovation in Canada.
The stakes are too huge. The only thing the local enconomy has is real estate construction and spectulation. The powers that profit from it will not let it die. They know people are sheep and they will finanically innovate and the people will keep buying, buying, buying and pushing prices higher and higher.
The breaking point will come one day but there is still 5 years or so of profits to be made.
Sorry bears but most people do not think as deeply as you do. Nor do they do the research that you do. They will just buy at higher and higher prices, helped along by financial innovation. The last 7 years demonstrates this. This will continue until there is no more finanical innovation left (but that is years away).
BTW, the market has had a strong recovery over the past week. Check out Paul b’s numbers! The buyers are back baby!
April 25th, 2008 at 4:22 pm
You always say that the buyers are so irrational. You are right! That is why prices will keep going up. You’ve had the answer all along.
If you are waiting for people to all of sudden become elightened, you will be waiting a long time.
YOu guy’s seem to like Garth Turner’s book, “Greater Fool” but you seriously underestimate how many of them there are and how much help they get from the financial institutions and government and how much encouragement and validation they get form the media.
What counter forces are there? Not many. Prices will go higher from here.
April 25th, 2008 at 4:24 pm
I’d be more than happy to bet my 6 figure downpayment against your prediction…. in fact, i already am, but not buying. The banks are already removing many of the innovative products that have led us to where we are - just try to get a zero down loan today - much ahrder than last summer - and this will continue to tighten as we have seen in the US and especially in the UK.
April 25th, 2008 at 4:39 pm
Is there any reference or data to back up this statement or is it conjecture?
April 25th, 2008 at 5:18 pm
Are the Chinese finally saying “enough is enough”?
Note that because Canada is a commodity exporter, no country has any incentive to prop up our bond and currency markets as they have been doing for the US. Any sign that the BoC is pursuing inflationary policies would lead to a bear market in Canadian bonds, pronto.
Skyrocketing housing prices do not seem to impact the CPI
They are not supposed to. CPI measures the cost of consumption, and buying RE is an investment, not consumption. Renting (cash or imputed) is consumption.
I do not think broad monetary policy should be used to target asset prices. There are many more specific tools, such as restrictions on lenders and tax policies, that can be used to control (or promote) asset inflation. The US of course has been promoting asset inflation for a decade now and we can all see where that has got them.
Neither the federal nor provincial governments (of any party), nor the BoC, seem to view RE asset inflation as a problem. I think we are lucky that the jig is up and the bubble will collapse of its own weight very soon, with only BC having adopted an RE bubble economy on the US model. But rest assured, this province will be devastated.
April 25th, 2008 at 5:47 pm
It seems that you continue to be frustrated by a dearth of cogent arguments on the part of bulls, if bullcase is any example.
April 25th, 2008 at 6:05 pm
in other words it can only go up because it has been going up….
the same argument as increased supply will lead to increased demand…..
not much of a case mr. bull
April 25th, 2008 at 6:16 pm
I think i need to present a simplified version of my case for you:
We are creating more buyers every day with easy mortgages and financial innovaton.
You can’t deny any premise of my argument, namely that:
(1) Mortgages are easy to get and financial innovation makes them even easier to afford.
(3) the easier mortgages are to get and the more affordable they become, the more buyers there will be.
(4) More buyers = more demand = higher prices.
It will go up not because it has been gong up but because we are essentially making new buyers, who as we have seen from the article on the last thread are rabid about buying, even at these prices.
Of course one day the boom will end. But there are many more people to lure into buying with easy money and innovation.
April 25th, 2008 at 6:19 pm
Instead of attacking a straw man that is not my argument, try to squarely attack one of my three premises, which I have now laid out for your convenience.
April 25th, 2008 at 6:35 pm
If I understand it correctly, you are basically saying that people have been ignorant for the past 5 years and they will keep being ignorant for the next 5, right? Additionally, their ignorance will be encouraged by newer innovative mortgage products.
I can see that as a possibility, though, I do think that the credit crunch is slowly creeping into the Canadian financial system leading to an increased tightening of available credit.
Regarding people’s ignorance, I guess anything is possible. If people have been so gullible for the last 5 years, they could be equally gullible for the next 5.
Noname
April 25th, 2008 at 6:43 pm
Also, bull case, your “three” arguments are built upon the first case (that mortgages are easy to get) - is this really still true?
i’ve just had a couple pints, so my own arguments will not be very cogent for a bit. apologies in advance.
April 25th, 2008 at 6:51 pm
Yes, I believe that there is no limit to poor analyisis and stupidity. And as long as there is no limit to the availability of financing the two will add up to higher real estat prices.
April 25th, 2008 at 6:51 pm
Well sorry there isn’t. Dumb money is being vapourized by the hundreds of billions as we speak.
April 25th, 2008 at 6:59 pm
April 25th, 2008 at 7:00 pm
That’s a very good try. One of the best I’ve seen. The problem is that it’s all conjecture. Is there any kind of a similar scenario that you can point to elsewhere in the world or in history?
You mention the US, their ‘innovation’ is sinking them pretty hard and deep and yet, despite all of their bag of tricks being played out (in a looser regulation system than we have here) they didn’t exceed current Vancouver price/income price/rent or price/historic trend.
“Obviously, the buyers are driven by a mania like psychology to buy”
Obviously you have a study or two to back up that point? I’ll concede that people are buying beyond their means, but there has to be some price point where most people will not buy.
“They will just buy at higher and higher prices, helped along by financial innovation. The last 7 years demonstrates this.”
This is just another way of saying, “It won’t stop going up because in the past 7 years it’s always gone up.” Which to use an analogy is like saying, “I’m not going to die because it hasn’t happened yet.” This is why the perspective of history is so important. You can’t judge where a given graph will go by only looking at that one feature, you have to look at similar historic features.
April 25th, 2008 at 7:04 pm
We need to establish a minimum bar - and than argue about how much of this minimum bar of idiots is left.
April 25th, 2008 at 7:07 pm
does not answer the lack of affordabilty that Vancouverites are facing…
April 25th, 2008 at 7:09 pm
(1) Mortgages are easy to get and financial innovation makes them even easier to afford.
(3) the easier mortgages are to get and the more affordable they become, the more buyers there will be.
(4) More buyers = more demand = higher prices.”
1) Still relatively true, though I understand the banks are tightening things up.
3) (where’s 2?) True but the limit of both ease and affordability appears to have been reached (do you have any proof to the contrary?). Until the banks start paying people to borrow money I suppose…
4) You completely ignore the supply side of the equation. Also there have been a lot of people who have purchased earlier in their lives than they ordinarily would have, so called ‘borrowing demand from the future’ as I understand it the supply of buyers in the city is nearly exhausted and no amount of mortgages is likely to change that. The system as it stands needs not only ‘more’ buyers but an ever increasing supply of buyers. A steady stream or a dwindling supply of buyers will result in a crash and I don’t think you’ve made the case that the numbers of buyers will continue to go up (especially since the numbers show otherwise).
April 25th, 2008 at 7:15 pm
.
Bullcase (aka Anti Pesto)
Even if people are as dumb as you think they are, smart money (aka lenders) are not.
What makes you think Vancouver has more fools to keep the market going than other places that have already started to tank all around us?
Don’t so hasty to judge others by your own shortcomings.
April 25th, 2008 at 7:40 pm
My opinion is:
a) it won’t (basically what blueskies said) and
b) I don’t think innovation means what you think it does, despite how often you use it.
Are you a mortgage broker by any chance?
April 25th, 2008 at 7:52 pm
Current events in the USA, Framce, the UK, Germany, to name but a few prove that the banks are also dumb money. Perhaps, dumber than most.
There will be more buyers when we start offering interest only mortgages, 50 year amortization and mortgages that you pass down to your kids.
Lets face it, $1M dollars thirty years from now will be worth a mere fraction because of inflation. YOur kids will be happy to have what in thirty years will be a relatively small debt compared to what they will have to borrow at that time to buy a house.
It is the consensus view that we have not seen the kind of mortgage fraud, no document mortgange, stated income mortgages like they had in the USA. Untill we see these kinds of conditions in Vancouver, the market will go higher. It’s just not crazy in Vancouver yet.
We are following the path of the USA but we are moving very slowly and we are still years away from the bust.
Don’t get me wrong, the bust will come but it is 5 years away. Until then, there will be higher prices.
The supply of dumb money is not endless but there is a lot of it left, creative financing will generate more dumb money. Not to mention the fraudulent money.
April 25th, 2008 at 7:56 pm
April 25th, 2008 at 8:15 pm
Have a close look at this graph of Vancouver prices vs prices in the US and then tell me that you seriously think the bull market will continue for another five years:
http://tinyurl.com/6kkhju
Booya
April 25th, 2008 at 8:15 pm
the psychology that spawned it along with the easy money era is over….
all asset bubbles always collapse and the credit bubble is toast…
even Mark Carney tells us that Canada is being impacted now…
hard to ignore that kind of sentiment right from the top
April 25th, 2008 at 8:24 pm
April 25th, 2008 at 8:27 pm
Well OK, then I would think that would apply equally to Alberta. So why have prices already fallen there, even though affordability never got as bad there as it is here?
Why is Toronto now showing signs of a market turn, again with affordability much better than Vancouver?
Idiocy and hubris can only take a market so far. There is always a breaking point.
April 25th, 2008 at 8:30 pm
The big players are racing against the clock, and have enlisted the local media.
We will be inundated with all kinds of “studies” from banks, developers, mortgage insurers, “independent and unbiased think tank reports” all insinuating that all is well, and that we better jump in.
I suspect some of the local media celebrities may each have a 2 to 5 million dollars invested in unfinished condo buildings.
It will be interesting to see which “experts” the Vancouver Sun will be quoting on the 15 myth busting feature they will run this weekend.
April 25th, 2008 at 8:53 pm
Much has been written about the U.S. situation but the role of subprime loans in their collapse makes it an imperfect comparison to Vancouver. A better one is Japan.
In 2005, well before the American RE meltdown, the New York Times published an article about the total implosion of the Japanese housing market. Interviewed is Yukio Noguchi, a finance professor at Waseda University in Tokyo whom the Times describes as “the leading authority on the Japanese bubble.”
Check out what the prof had to say. Again, this is from 2005:
In Vancouver, ask any first-time buyer why they are buying now and they all give the same answer: “Real estate is only going to go up.”
Ladies and gentlemen, Tokyo’s pain is coming to Vancouver.
April 25th, 2008 at 9:06 pm
Bullcase is an idiot!
April 25th, 2008 at 9:08 pm
is people buying on false expectations about future prices, and buying with the hope of selling in the future.”
need i say more?