Friday Free for All!
Every friday we do a weekly news link round up and have an open topic discussion. Here’s a few stories I’ve noticed this week:
- Man charged for craigslist rent scams
- BC only province to see increase in EI claims
- Robert Zoost the Super-Realtor
- Tips for first-time house sellers
- Bad week for Canada’s banks
- Do recessions cause a birth-dearth?
- UK follows US into housing bust
So what are you seeing out there? Post your news, links, thoughts and anecdotes here and have an excellent weekend!
June 2nd, 2008 at 7:36 pm
from patriotz’s link, here is the full PDF report from Demographia.
As I have stated many times before, Demographia botches Vancouver numbers. The price is way too low. I checked San Francisco numbers, and the it was dead on. Vancouver is likely at the VERY TOP of the list, and has been for some time.
June 2nd, 2008 at 7:20 pm
from the "we are different here" category
http://tinyurl.com/6jvufv
the joys of commuting from a bedroom community with
expensive gas…. hello Port Moody et al
June 2nd, 2008 at 4:34 pm
"Imagine a new condo. Now imagine a condo of the same size and general amenities but it’s 50 years old. Which one is worth more?"
Yup, basic maintenance alone increases over time. Rent also decreases over time relative to new stock, even with decent upgrades. Maintenance up + rent down = depreciated asset.
"Does anybody know how many months of inventory it should take before the bubble should statically burst?"
The rough crossing point is around 5-6 months of inventory for at least 3 months before you can observe definite negative price movements. Vancouver is diverse enough of a market with no major supply/demand shocks that it should follow this general rule.
June 2nd, 2008 at 3:11 pm
Mike
There are too many factors involved to try to make that sort of a calculation. The speed at which inventory increases will have an effect, the percentage of "motivated" sellers, foreclosures, employment statistics etc…
However I think one can reasonably say that if inventory continues to rise the way it has been since January we should begin to see some price movement by the end of the summer and YOY price drops by next spring.
I think nearly everyone here wants things to go faster even if it's just their own morbid curiosity to see how it all turns out. The fact is that we're in for a long downhill ride, if it's a quick and decisive crash it could be over by the end of 2011 but I doubt it's possible things could bottom out much earlier.
June 2nd, 2008 at 2:50 pm
Does anybody know how many months of inventory it should take before the bubble should statically burst? Like in Miami or San Diego or Phoenix or etc, how many months of inventory does it take before you get significant price reductions? Somes sites quote, "there are 11.2 months of supply of existing homes on the market", however if we are only at 18,000 listings locally and we are selling about 3000 a month, shouldn't that mean we have six months of inventory? Does that mean our bubble won't burst yet?
June 2nd, 2008 at 1:51 pm
Jesse
Thanks for covering that, I'm a little too involved and I sometimes forget that not everyone knows what I'm talking about
Also, an addendum to your clarification.
Condos are a depreciating asset in a normal market, this further drags down the P/E ratio.
For those who don't believe that condos should depreciate in a normal market here's a thought exercise:
Imagine a new condo. Now imagine a condo of the same size and general amenities but it's 50 years old. Which one is worth more?
June 2nd, 2008 at 1:20 pm
"if you could explain the rent to cost ratio you mentioned. Please provide an example of this 100 to 150 rent to cost ratio."
The ratio compares monthly rent to price. The analogy used is to a bond that produces a return (yield) every month just like a rental property. Example: condo is $200K and rent is $1300 to produce ratio of 150. This means you get 7.8% gross annual return. After expenses this is reduced further to say 6.5% at best. This yield is reasonable as it is a few % above the risk free yield you would get from a treasury bond. In some cases the risks are higher so the ratio could go lower to 100. You need a higher yield to compensate for the risk just as you would demand a higher yield from a junk bond.
For comparison a ratio of 300 is a gross yield of 4%, and a best-case net yield around 3.2%.
Note the 100-150 ratio is for condos. For properties with a chance to subdivide, the ratio would be a bit higher.
With yields low (price to rent ratio high) in Vancouver you are relying on future price gains or rent increases to compensate for the crappy yield.
June 2nd, 2008 at 12:47 pm
from patriotz's link, here is the full PDF report from Demographia.
Vancouver saw 9% increase in median price-income ratio from the report a year ago. Victoria's saw 10.6% increase. Data was from Q3 (September 2007). In the past 6 months the US markets have eroded significantly. It is likely Vancouver is now closer to the top of the list and could soon be in the top 4 if US prices continue to fall fast. Unless Vancouver median price starts falling too.
June 2nd, 2008 at 12:00 pm
Drachen Says:
2) Rent to cost ratio should be between 100 and 150 in a healthy market. In 2007 it was 326 (and rents are likely to come down in a crash here).
Drachen, I would really appreciate it if you could explain the rent to cost ratio you mentioned. Please provide an example of this 100 to 150 rent to cost ratio.
Excuse me if this seems like a silly thing to not know. I visit this blog daily to learn more and more about real estate, rent, ect…
I am trying to learn more and your insight and other posters insight have provided a wealth of information for me.
Thanks.
June 2nd, 2008 at 11:55 am
what will be left to keep our market from crashing hard?
Our cafes where the action is at?
June 2nd, 2008 at 10:55 am
Former Vancouverite
"or instead of giving “thumbs up” to most of your posts, I’ll just ignore you."
Oh gosh, not that. Anything but that! Your approval is absolutely critical to my sense of self worth!
And don't boy me, kid. Especially when you're pretending that you're taking the high moral road.
June 2nd, 2008 at 10:42 am
So, what’s your method for determining proper real estate pricing that tells you otherwise? Or are you just another one of those people who claims that their “feelings” are more valuable than scientific measurements.
Touchy, touchy, boy. I don't have anything to tell me otherwise. I was surprised by the magnitude of the drop you anticipated. My question "are you serious" reflected my sincere surprise and was not meant to be sarcastic.
You on the other hand, well I think you need to chill a bit and give people the benefit of the doubt before you automate your "I don't tolerate fools gladly" phraseology. So step back, take a deep breath, or instead of giving "thumbs up" to most of your posts, I'll just ignore you.
June 2nd, 2008 at 9:18 am
RJ
"what will be left to keep our market from crashing hard?"
Nothing, and that is a good thing. Hard crashes are over in a few years, soft crashes just draw out the pain. Let's have a clean break, 25% bankruptcy rate for Vancouverites and get on with our business once real estate rates have returned to normal. Maybe Vancouver can even start to attract businesses to locate here again and start working on building a real economy rather than one that's based on a bubble.