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!

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freako
freako
12 years ago

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.

blueskies
blueskies
12 years ago

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

jesse
jesse
12 years ago

"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.

Drachen
Drachen
12 years ago

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.

Mike
Mike
12 years ago

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?

Drachen
Drachen
12 years ago

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?

jesse
jesse
12 years ago

"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… Read more »

jesse
jesse
12 years ago

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.

Lynchfan
Lynchfan
12 years ago

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.

Tony Danza
Tony Danza
12 years ago

what will be left to keep our market from crashing hard?

Our cafes where the action is at?

Drachen
Drachen
12 years ago

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.

Former Vancouverite
Former Vancouverite
12 years ago

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.

Drachen
Drachen
12 years ago

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.

RJ
RJ
12 years ago

In Stockton California houses that sold for $500k two years ago sell today for $200k. Of course Stockton is the foreclosure capital of the US right now, with 3 out of 4 house either in or on the path to foreclosure:

http://www.msnbc.msn.com/id/24883012/

This shows the danger of using up your market boosting tricks during a boom and absorbing future demand leaving little or nothing left to help cushion the bust. Nothing yet has helped stop the carnage in many US markets, not lower interest rates and not government bailouts. In Vancouver we've seen the advent of zero down 40 year mortgages and interest only loans, what will be left to keep our market from crashing hard?

Drachen
Drachen
12 years ago

Jun

"Com on, face it. It’s stupid, not going to happen."

Yeah. Well that's such a great contribution to the discussion. Would you actually care to provide a REASON why you might be right and we might be wrong or are you going to just let your arguments stand at the intellectual level of a four year old?

Drachen
Drachen
12 years ago

Former Vancouverite "My prediction: Real house prices will be 1/3 of what they are today by the end of 2011. Are you serious?" Of course I'm serious. If you knew anything about Real Estate you wouldn't be surprised. There are 3 ways to measure the "healthy market" cost of real estate. 1) Housing costs 3-4x annual income (some people will go up to 5). Median Household income is 62k. Median home price is 558k. So prices are 2.25-3x what they should be. 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). 3) Look at a graph (preferably one adjusted to inflation) map the curve ignoring any big features. Interpolate the curve into any current big features and that… Read more »

Tony Danza
Tony Danza
12 years ago

It’s funny you guys just hope all day long for the price of real estate price in Vancouver to drop or bubble.

Actually you're the one that's funny jun. No one is hoping for the price of RE to crash, we're just waiting for it to happen just like everywhere else in the world. jun you need to spin harder, find someone with more brains than you to help you post here, may I suggest SATV?

Anonymous
Anonymous
12 years ago

"Was that a joke? They have the olympics in 2012, FYI."

Prices are up in LONDON=OLYMPICS12

patriotz
patriotz
12 years ago

believe it or not, the fundamentals here are stronger than the u.k. currently.

Wrongo. Vancouver and Kelowna have a higher price/income multiple than almost every market in the UK, including London.

http://www.fcpp.org/images/publications/50LeastAf

stagnate
stagnate
12 years ago

the credit crunch has hit the u.k. quite hard, more similar to u.s. than here. re-assessment of mortgage risk has had a significant impact on r.e. demand. r.e. has tripled in u.k. as opposed to doubling here. believe it or not, the fundamentals here are stronger than the u.k. currently.

olympics-never have a positive or negative effect on a real estate market. non factor.

1/3 by 2011: would need to see the macroeconomic carnage trigger first before that would be a legitimate prediction. infusing personal pyschological issues into a prediction wastes the time of anyone reading this blog.

jun
jun
12 years ago

It's funny you guys just hope all day long for the price of real estate price in Vancouver to drop or bubble. Com on, face it. It's stupid, not going to happen. It's almost waste of time hoping… I know people are going to argue. But that's not going to help.

freako
freako
12 years ago

Why I find this interesting is that UK has … yet the bubble is bursting.

They don’t have the Olympics in 2010.

Nope. 2012 isn't 2010.

Anonymous
Anonymous
12 years ago

former Vancouverite has no clue

holgs
holgs
12 years ago

Why I find this interesting is that UK has … yet the bubble is bursting.

They don’t have the Olympics in 2010.

Was that a joke? They have the olympics in 2012, FYI.

former Vancouverite
former Vancouverite
12 years ago

My prediction: Real house prices will be 1/3 of what they are today by the end of 2011.

Are you serious?