Friday Free For All!
It’s time for our end of the week news round up and open topic discussion! Here are a few stories I’ve noticed, feel free to comment on these or add your own links in the comment section:
- Canada in a recession?
- Brace for inflation
- The stink of corruption?
- Job Market better than it appears
- Dropping house prices increase inflation?
- Vancouver homeless rights complaint
- You’re richer than you think.
- BC: Number 1 in property crime
- Flaherty: No housing bubble in Canada
- Bay Area prices drop 27% in one year
- Pitfalls of a cheaper US market
- US Rate hike debated
- Merrill Lynch: 1 year, $19.2 billion lost
So what are you seeing out there? Post your news, links and anecdotes here and have an excellent 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. Pasting a link will automatically create a clickable hot-link. Thanks!
RSS 2.0 comments feed. Both comments and pings are currently closed.
July 17th, 2008 at 10:11 pm
The formula used for Owner Occupied Housing (OOH) is as follows:
Which is wrong. The cost of shelter for an owner-occupier is exactly the same as for someone renting the same house. By living in the house you are foregoing the money you could have gotten by renting it out.
The difference between rental costs and ownership costs (either positive or negative) is an investment return on the house net of financing. A house is an investment that yields shelter, a marketable service whose value is the market rent.
Nobody would claim that my returns in the stock market had anyone to do with my cost of living, even if my returns were used to buy food or rent accommodation.
July 18th, 2008 at 12:42 am
It seems that the formula is trying to do more then it should. It is taking into account total opertunity cost aggrigated over the whole ownership. If you apply this to the whole economy at once the price could double and the change would not be registered. Consider the following example
Year:Price
1:100
2:100
3:100
4:100
5:100
6:100
7:100
8:100
9:100
10:200
Due to previous owners holding houses in year 1-9 the price is not reflected on the CPI calculations for 10. Thinking about this at first it seems correct because the economy is treated as an aggrigate so at one point in time you get the average change in cost of living however this is problematic because inflation will not show up until *years* after the orriginal increases occurred. Also if I am correct prices could be going down but this formula will indicate inflation is going up.
Am i getting this all correct?
July 18th, 2008 at 7:29 am
WOW…San Francisco Bay area down 27% in ONE YEAR…is Vancouver next??
July 18th, 2008 at 7:31 am
Sorry, here is article…
Bay Area home prices plunge 27% in last year
Carolyn Said, Chronicle Staff Writer
Friday, July 18, 2008
(07-17) 12:20 PDT SAN FRANCISCO — Double-digit drops in median home prices hit every Bay Area county in June, even the ones that had seemed Teflon-coated.
Across the nine counties, the median price paid for resale homes, new homes and condos in June plunged 27.1 percent from a year ago to $485,000, dipping below the half-million-dollar mark for the first time in four years, DataQuick Information Systems of La Jolla (San Diego County) reported Thursday.
Among resold homes, bank-repossessed foreclosures – which usually are discounted – accounted for 28.7 percent of all existing-home sales, up from just 3.5 percent in June 2007. Solano County, with foreclosures at 57.7 percent of all resales, had the highest percentage; San Francisco, at 3 percent, had the lowest.
Affluent areas such as Marin County and San Francisco, which until now had resisted most price erosion, saw existing single-family home median prices fall by about 11 percent. Including new homes and condos, the Marin County and San Francisco medians fell about 12 percent to $846,000 and $726,750, respectively.
“This is pretty grim; double digits across the board,” said Christopher Thornberg, principal at Los Angeles’ Beacon Economics. “It was eminently predictable if you had a realistic view of the world. I heard a lot of people say the Bay Area was never going to see prices fall, San Francisco was untouchable; in San Mateo, it was impossible; San Jose, not with all the tech money, blah, blah, blah. But prices at the peak relative to people’s incomes never made any sense.”
Full article here:
http://www.sfgate.com/cgi-bin/.....11QRVS.DTL
By the numbers
27.1% Drop in median price for Bay Area
$485,000 Bay Area median (first time under $500,000 in 4 years)
28.7% Sales involving foreclosed homes
7,178 Number of new and resale homes changing hands in June – the lowest June since 1993
July 18th, 2008 at 7:47 am
Just a few months ago San Francisco was proudly touted as proof we won’t crash here.
July 18th, 2008 at 8:16 am
I would like to point out that they are talking about the “bay area” right now. The “city proper” is down 5% YOY but rents up 9% according to this SF gate article.
http://tinyurl.com/5ph4he
July 18th, 2008 at 8:27 am
Chincy: great link, but I request people don’t paste entire articles in the comments – I’ve truncated your post and added a link to the full article. You can just paste article addresses from your browser window into the comments here and it will be automatically clickable. Thanks!
July 18th, 2008 at 8:52 am
WOW…San Francisco Bay area down 27% in ONE YEAR
This is the median. What happened in the Bay Area is that sales at the low end dropped off first, so the decline in the median lagged the actual drop in value as reported by Case-Shiller. Of course the REIC used the small decline in the median to trumpet that the BA was bulletproof.
Now the sales volume at the low end has more than caught up, particularly in high foreclosure areas like outer Contra Costa and the ghettoes, so the median is now outpacing the actual decline.
But as Thornberg said, prices are down everywhere. He was the most prominent economist on the West Coast to have called the bubble early and interestingly “left” his position with the UCLA business school not long thereafter. Too bad nobody up here is made of the same stuff as him.
Note BTW that the market in SF proper for both sales and rentals is one of most atypical in the US (rather like Manhatten). SF proper has only 10% of the Bay Area’s population.
July 18th, 2008 at 9:30 am
Pope,
Roger that on the post…cheers
July 18th, 2008 at 11:38 am
Saving for a house is hard!
https://secure.globeadvisor.com/servlet/ArticleNews/story/gam/20080715/RCARRICK15
Aspiring first-time home buyers, it’s time to discover the lost art of saving up to buy a house.
It’ll be tough. You may not be able to get the house you want as quickly as you want. But in the end, you’ll save tens of thousands of dollars and have a lot more financial flexibility in your life than you would otherwise.
Saving to buy a home used to be a rite of passage for twentysomethings. But as house prices soared in the past several years and it became increasingly hard to build the necessary hoard of cash, the mortgage industry came up with solutions like zero-down payment mortgages and 40-year mortgages.
July 18th, 2008 at 11:40 am
http://www.thestar.com/comment.....cle/458318
A more urgent reason is to protect taxpayers – you and me – from possible losses if too many stretched borrowers default on their 40-year mortgages.
The federal government is on the hook financially because it guarantees 100 per cent of the mortgage insurance claims paid by Canada Mortgage and Housing Corp., a Crown corporation.
It also stands behind the claims paid by CMHC’s private-sector rivals, such as Genworth.
Ottawa backstops 90 per cent of private mortgage insurers’ claims to make it possible for them to compete effectively with CMHC.
July 18th, 2008 at 12:40 pm
If you don’t buy now, you’ll hate yourself later.
http://www.vancouverreflection.....elf-later/
July 18th, 2008 at 12:45 pm
Privatize profits, socialize losses.
How about just getting CMHC out of the mortgage insurance business and letting the private sector price the risk appropriately?
July 18th, 2008 at 12:46 pm
The dramatic drop in San Francisco reinforces the fact that areas which managed to delay the crash are now falling faster than the leaders of the pack. The way prices are starting to fall here, in the last holdout of them all, it looks like Vancouver will even surpass SF on the way down.
July 18th, 2008 at 12:52 pm
From #12′s link:
Canada has a lower default rate and no adjustable rate mortgages, resulting in a different “culture of debt” as Canadian mortgage payments are not tax deductible.
No adjustable rate mortgages? You mean I pay the same rate for the whole 40 years? Where do I sign up?
And if BC’s -8% savings rate isn’t a “culture of debt”, what would you rather call it?
But not to worry, because:
Robyn Adamache at CMHC says we have no real estate bubble in Vancouver.
July 18th, 2008 at 1:23 pm
patriotz
She’s talking about ‘teaser rate’ mortgages. The first two to three years you pay just enough to balance interest (or even less in some cases) then after the teaser rate expires your payments increase to 150-200% of what you were paying. Often they were sold without anything but fine print explaining how the payments would balloon in a few years.
We don’t have those here. She’s right on that.
Problem is, adjustable rate mortgages didn’t pop the bubble in the states, if anything they kept it going for longer. Unreasonable prices did.
July 18th, 2008 at 1:31 pm
Dosh
“If you don’t buy now, you’ll hate yourself later.”
How will I feel about you?
July 18th, 2008 at 1:43 pm
Drachen
I see local newspaper ads from time to time that offer developer financing at low rates for an initial period of time (eg. 2.85 for first year). Are these not “teaser” rates… although not offered by the banks directly? I’m unsure of how these work – anyone have any insight?
July 18th, 2008 at 2:15 pm
On the Spanish RE crisis…
http://www.spiegel.de/internat.....01,00.html
July 18th, 2008 at 2:17 pm
“We don’t have those here. She’s right on that.”
Yeah but she’s so wrong. BMO offers a 3 month teaser rate mortgage. I have heard of others offering up to a year below prime. The enablers for the bubble are different in Canada but the result was the same: high prices and poor affordability with lots of debt.
July 18th, 2008 at 2:19 pm
I’m unsure of how these work – anyone have any insight?
the developer would buy down the rate for a given period of time as an incentive to buy…..
similar to the Florida story where you buy a
house and a “wife” is tossed into the deal….
buy now or forever hold your own….indeed!!
July 18th, 2008 at 2:38 pm
Problem is, adjustable rate mortgages didn’t pop the bubble in the states, if anything they kept it going for longer. Unreasonable prices did.
ABSOLUTELY. The peak of adjustable rate mortgage resets is just happening NOW. House prices have been falling in the US for about two years now. This is all besides the point though since we definately DO have teaser rate mortgages available in Canada.
July 18th, 2008 at 3:52 pm
Hey Dosh,
If I don’t buy later, I’ll hate myself now!
Nice photo on that blog site though. Wow….. people would have to be rock stupid to fall for these lines.
July 18th, 2008 at 4:01 pm
Per BBY (# 19) Wow, that’s quite a situation in Spain. Noticed this paragraph half way through…
“What is worse, however, is that the crisis has by now infected the entire country. Nowhere else in Europe in the last decade did the construction sector boom as it did in Spain: Real estate prices shot up by as much as 500 percent. The country invested in property, betting that prices would rise and rise. But, now the bubble has burst and the losers are those who did not sell in time.”
…exchange “Europe” for “Canada” and “Spain” for “British Columbia” and the statement fits….well maybe not 500% increase.
July 18th, 2008 at 4:09 pm
i posted a reply on that article: If You Don’t Buy Now, You’ll Hate Yourself Later
“I am unsure about your math:
strong local economy + good job growth + market fundamentals + sustainability = no real estate bubble
I understand that if you work in the Business of Real Estate it is in your best interest to keep the positives in the fore-front. However, in the last 20 years – our economic dependencies are no longer local. Like a Biological Web, we are attached/connected to more than whats in front of us. The spokes of our web touches all economies everywhere.
So instead of painting a rosy picture without having a full understanding of ‘the real world’ – it may have better served you to – be more realistic in your opinion piece.”
-i wouldn’t mind trying what ever…’she is on’.
July 18th, 2008 at 4:26 pm
something i did for a few weeks is keep an eye on craigslist to see how often the word ‘reduced’ was used. Here are some numbers (yeah i forgot about it for a while…thus the game in time):
http://vancouver.craigslist.or.....ry=reduced
Sept. 26 2006 : 37
http://vancouver.craigslist.or.....ry=reduced
Sept. 28 2006 : 42
http://vancouver.craigslist.or.....ry=reduced
Oct. 04 2006 : 40
http://vancouver.craigslist.or.....ry=reduced
Oct. 06 2006 : 44
http://vancouver.craigslist.or.....ry=reduced
Oct. 013 2006 : 49
http://vancouver.craigslist.or.....ry=reduced
Oct. 25 2006 : 65
http://vancouver.en.craigslist.....ry=reduced
July 18 2008 : 355
————–
so from 06 to now…one could say more people are ‘reducing’ their price. this is by no means scientific – duplicates may be included in the query.
neat huh?
July 18th, 2008 at 4:56 pm
haha, the job market is better? Only if you work at McDs or something. ‘Quality’ jobs are far and few between. Nice spin by the newspapers. The Province and the Vancouver Sun are just lackies of the BC Liberals.
July 18th, 2008 at 5:48 pm
yeah slappys! cmhc nutbags are right, all market pressures are fully baked in the cake! check with nutmaster paulb to see sales increasing today by 1000 percents! almost look like bubble! buyers strike fizzled out!
July 18th, 2008 at 10:12 pm
Oh yeah…..check out Paul’s numbers:
Inventory rise to 19,788 !!
Sales / list: 20% (SFH) 32% (Condo)
…. only 212 to 20K !
July 18th, 2008 at 11:20 pm
“Sales / list: 20% (SFH) 32% (Condo)”
Also, only 24 SFH and 69 condos sold today…..not much commissions for the realtors…..hopefully most of the realtors have been saving their money as many of them are not collecting much money lately!
July 19th, 2008 at 12:08 am
It’s over. Only 212 more units until 20,000. When was the last time REBGV hit 20,000 inventory?
July 19th, 2008 at 2:00 am
Almost 20K listings … more important it’s 30K listings in Metro Vancouver when including the Fraser Valley numbers.
July 19th, 2008 at 2:04 am
The bigger they are, the harder they fall! Vancouver of course! Browntown,Satv,Thums up 2 – Fools! Hahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahaahahahahahahahahahahahahahahahahahahahahahahahhahahahahahahahahhahahahahahhahahahah!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
July 19th, 2008 at 7:18 am
Congratulations to the Vancouver Sun which is starting to see the light. I trust you got permisssion from your RE masters to publish this more “balanced” picture of the current market.
Home Buyers take the upper hand
http://www.canada.com/vancouve.....96&p=3
July 19th, 2008 at 7:20 am
BTW, where is the “rush of greater fools” that was expected before the governments new mortgage restrictions kick in on October 15?
July 19th, 2008 at 8:47 am
Q. The term “bubble” is used frequently in discussing the housing market-did we have a bubble, and what does that really mean?
A. Yes, we did. A “bubble” is created when many people believe that an asset’s price, which has already greatly increased, must keep on rising, and that it therefore makes sense to borrow in order to buy it-for example, to buy a house with no down payment. Speculators acquire loans that can be repaid only if the asset is sold for a higher price, temporarily driving up prices and debt; lenders grow confident that it is attractive to make such loans. As long as the prices rise, borrowers, lenders, and investors all make money. But bubbles, by definition, come to a sad end, with defaults, failures, dispossessions, scandals, and late-cycle political and regulatory reactions and often overreactions.
http://tinyurl.com/54udux
Mostly US focussed, but recommended if anyone is still unclear on exactly how bubbles grow and pop. Even though so obviously wrong and dangerous once the clarity of hindsight takes hold, yet they still happen. Over and over, and every time the same type of people engineer them, take profit and let poor schmucks take the pain.
We are going hike in camping to Elsay Lake. Long and brutal hike to get there, gorgeous and all alone once there! And the fresh trout for dinner! If anyone wants to meet me in person that’s where and when. LOL. Don’t try it without steep snow experience and regular grouse grind type training, I don’t want to see your corpse on the way back.
Sitting at the computer, hitting “refresh” every 5 minutes and asking other educated guessers when the crash will complete won’t won’t change things at all. We sold last summer, and I’m pretty sure the time to buy isn’t this weekend! Have some nice spitting matches detailed here when we get back, OK? For amusement only.
July 19th, 2008 at 9:37 am
yeah acanucknut, don’t forget best time to buy is when no one else is buying! this weekend is good start! i’d buy today but have to go to beach and work on tan! enjoy hike, next leg up mountain may be painful!
July 19th, 2008 at 9:55 am
We sold last summer, and I’m pretty sure the time to buy isn’t this weekend!
good move…grab the money and run
enjoy your camping we’ll keep the market from collapsing in your absence…..
July 19th, 2008 at 10:03 am
I like Dosh’s link.
I’d like to suggest a Vancouver Sun “greatest hits” contest from their RE puff piece archives. Maybe Condohype would take it on?
July 19th, 2008 at 10:13 am
re: “Home buyers take the upper hand…” Vancouver Sun.”
I like the quote: “OK, maybe we need a backup plan.”
I’d like to propose it as the official motto of the bubble.
July 19th, 2008 at 10:14 am
Sales are down drastically, supply is up drastically, and not because prospective buyers have purchased a calculator from Dollar Giant, and finally figured how insane it would be to buy. It’s because there is a diminishing smaller pool of greater fools.
What happened to the international buyers/investors? The oil rich beer gut sporting Albertans bidding up prices?
Perhaps when the world receives our calling card, and is made aware of Vancouver-the Olympic city, the rush of rich tycoons will once again ignite the market, and perhaps if we can bring back the 40/0 down mortgage at 1% , we may be able to prevent huge lay offs in construction and Re related industry.
No, not different this time, same old pattern: hype, boom, bubble and bust.
July 19th, 2008 at 11:26 am
I went for a drive into west van yesterday with my gas mizer car, checked out some beaches, enjoyed the sunset, had a nice cuppa tea..(brought my own of course, the mizer I am
but..geee..i did not know that, that MANY of the people there are named Remax, Sutton, Virani, and Prudential. Makes me wonder if they are all related.
July 19th, 2008 at 11:40 am
No one is buying. Sales are disasterously low. Most realtors have had their incomes cut by at least 80%. I will only come to view the property if they are willing to entertain a sale price of 1/2 the current listing price.
July 19th, 2008 at 12:18 pm
#35 Re-diculous Says:
July 19th, 2008 at 7:20 am
BTW, where is the “rush of greater fools” that was expected before the governments new mortgage restrictions kick in on October 15?
According to previous posts on these blogs, sales take a week or two to be posted. The new mortgage rules were just posted. IF the new rules cause a rush to buy, we won’t see it in PaulB’s numbers for a few weeks. Chill.
July 19th, 2008 at 12:30 pm
For every fool rushing to buy, there will be ten flippers trying to sell to them.
July 19th, 2008 at 1:46 pm
#43 Burden of Proof Says
I will only come to view the property if they are willing to entertain a sale price of 1/2 the current listing price.
I wonder what kind of reactions one would get by simply saying “Oh the property is listed for 650, but would you entertain 225?”
No seriously, I want to try that… but I’m afraid they’d say YES and I’m not in a position to take them up on that!!
July 19th, 2008 at 1:50 pm
Wow,
I can’t believe how fast prices are dropping.
Not sure if people who have already bought are desperate to sell before closing, but askinkg prices are being slashed at an amazing rate. If this is not the main topic around the water cooler, it certainly will be…very very soon.
July 19th, 2008 at 2:42 pm
Wow,
I can’t believe how fast prices are dropping.
Um were down 0.5% MoM and still up quite a bit YoY. I wouldn’t get too excited just yet you may have to wait a while for any real declines. Just make sure you have a down payment in a safe place and be ready to move quickly when you see a good opportunity.
July 19th, 2008 at 3:32 pm
Hey Someguy, you’re at least a month behind with that 0.5%.
This market is falling apart much faster than you think.
BTW, What buyer in their right mind would be eager to move quickly in a falling market. There won’t be any competition.
July 19th, 2008 at 3:51 pm
“The most expensive words in the English language are ‘it’s different this time’”
Sir John Templeton
July 19th, 2008 at 4:59 pm
Oh the property is listed for 650, but would you entertain 225?”
No seriously, I want to try that… but I’m afraid they’d say YES and I’m not in a position to take them up on that!!
Would you entertain $225K subject to financing and inspection?
we talked to one realtor about a listing at $620K we suggested that if the price was lowered it would sell….. we were informed that there already was a price drop from $629K….
we suggested $520K would certainly attract attention in a faltering market….
din’t fly
July 19th, 2008 at 5:14 pm
Blueskies – lol!! Nice! The better half and I have been contemplating hitting some open houses to mess with some of the realtors, might as well get some entertainment out of this “temporary lull in the market”.
July 19th, 2008 at 6:00 pm
“Negative Equity and a bad investment is good to me”
- Slappy Thumsup Krish Browntown.
http://vancouver.en.craigslist.....02579.html
July 19th, 2008 at 7:09 pm
someguy “Um were down 0.5% MoM and still up quite a bit YoY” Yes but your out of touch with the front lines, had a great gabfest with three realitors who seem to be permanent residents in my Yaletown lobby. All different companies, they said there is stuff selling but all of it is at early 2006 pricing, NONE of the sales are equal to or above 2007 pricing. All these agents are telling their clients to list at early 2006 prices now, as by September they will have to drop to 2005 prices. The benchmark GVREB uses will lag as usual for 6 months
July 19th, 2008 at 7:53 pm
“The benchmark GVREB uses will lag as usual for 6 months”
Really? Please explain your reasoning. There certainly seems to be a bit of a disconnect between the benchmark and anecdotal stories I am hearing (not just from this blog either).
July 19th, 2008 at 8:14 pm
We’re almost at 20,000 units for REBGV inventory. It’s a PANIC to the EXITS but nobody is able to get out. This is going to be ugly.
July 19th, 2008 at 8:32 pm
…and the exits are increasingly plugged with RE professionals attempting to get out also…
your average warehouse worker will be left in the dust as it is already too late to get out….
RE Darwinism or “road kill”
July 20th, 2008 at 1:19 am
There is a great deal of smugness on this blog right now. Wouldn’t it be prudent to restrain the backslapping until significant price drops materialize?
All the talk of offering 225 for 620 homes is getting a little old.
July 20th, 2008 at 2:02 am
Yeah well maybe that has something to do with all the smugness directed at the bears over the last four years.
This is the end, my flipper friend, the end.
This is the end, my realtor friend, the end.
I’ll never see your smirking face again.
And asking 600 for 225 homes is getting really old, really fast.
July 20th, 2008 at 2:37 am
>ulsterman Says
>Wouldn’t it be prudent to restrain the backslapping until
>significant price drops materialize?
The benchmark for a detached SFH DROPPED BY $5,596 in June. Multiply $5,596 by 12 months, and that’s a loss of $67,152.
Materialize? Why don’t you materialize a loss of $67K and get your head checked!
July 20th, 2008 at 4:13 am
Just needed to post a copy here of a comment after the Vancouver Sun story, linked to by Re-diculous above. It’s courtesy of a CINDY:
Sat, Jul 19, 08 at 11:37 PM
There are absolutely no fundementals whatsoever why the real estate market in western Canada should slow down let alone slide at all! The only way at this point in time is if the morons in the left wing media here in lala land keep screaming that the proverbial sky is falling..something they have been doing for the past 6 years! The sky is not falling and owning your own home in Canada is the best investment you can every make..period. So, the next time so anti real estate “person” tells you the market is crashing or there is a bubble or some other fable..smile..because you know better! The anti-capitalism crowd is screaming and begging for the market to take a down turn..oh yes and the fools that were crazy not to buy years and years ago and if you cannot afford to buy here..that is your fault..no one elses. I’m buying real estate and renting it out to the west coast slackers that don’t or can’t buy..
______________________________________________________________________________
Could it be that Cindy is a bit agitated about some negative cash-flow that looks unlikely to improve anytime soon. Nah, she’s mad at you anti-capitalists.
July 20th, 2008 at 4:25 am
The anti-capitalism crowd is screaming and begging for the market to take a down turn
Um Cindy, capitalism is based on the idea that the value of an asset is determined by the income that it yields to the owner and that its market price should reflect this, and indeed must inevitably adjust to this.
People who don’t think that prices of assets should be determined by yield of income – like you apparently – are supporting something called “central planning”.
July 20th, 2008 at 8:23 am
Cindy – Lol!! Yes, smile, that’ll work! Everything in that statement is completely backwards.
I’m just going to go back to biting my tongue on the whole subject. No point in arguing with the likes of people like Cindy.
July 20th, 2008 at 10:34 am
While I agree that the market will drop, and that we are fundamentally overpriced, and that there is massive anecdotal evidence of the market crashing, and that it does seem as if the end is nigh, the end has not actually been reached yet. Someone I know listed their downtown condo at $660/sf, about the highest anyone ever listed in her building, and sold it in after one showing to someone from Calgary who then rented it back to my friend at just over a 3% cap rate.
Not everyone is as educated about fundamentals, which is why we ended up here in the first place. There is so much built-up positive sentiment about Vancouver housing that it will likely take some hard drops in the benchmark numbers to make people really believe, but when that occurs the things will really turn south. We’ll see what happens next month and if we can start the congratulations.
I’m not sure how fun this will be for most people though… a poor economy and crashing real estate will likely exacerbate the poor economy. We’ve seen the vicious cycle in the US. While I can always move around the world to somewhere else in the company that’s stable if the economy here tanks, a lot of people don’t have that option.
July 20th, 2008 at 11:08 am
or some other fable..smile..because you know better! T
yes indeed i do know better
if it sounds too good to be true……
the end is nigh!
July 20th, 2008 at 11:19 am
vanguy, your example shows the importance of interest rates to the market. cap rates were in this territory in the 82 and 90 busts also, but in those years you could walk into a bank and get a double digit g.i.c.. the competition for money left real estate in the dumper. many would argue that at this time there is a lot less money to compete for so it’s a moot point. we’ll have to see.
July 20th, 2008 at 11:46 am
I am of the view that the GVRD has and is currently experiencing a significant, perhaps massive amount of over-building. I’d appreciate some comments, however, on my math and thinking. Maybe I’m missing something.
Accordingly to BC Hydro, there are roughly 18,000 units in the GRVD occupy-able but not occupied. They know this through the existence of hydro accounts where there is either no power consumed or only enough to run a refrigerator. While I can’t think of a reason BC Hydro would overstate this number, it has been open to debate, but for illustrative purposes I’ll use it. The other figure that is not under debate is units under construction in the GVRD which stands at roughly 27,000. The third figure which is solid is the GVRD’s past five year, current and projected growth rate of 28,000 persons per year. Finally, we have the metric still used by the GVRD and Stats Canada for persons per dwelling at 2.4.
So, with 18,000 units currently empty but occupy-able and 27,000 units under construction, the total of both represents housing for (18,000 + 27,000 = 45,000 X 2.4) 108,000. At 28,000 persons per year, this represents 3.86 years of supply. The average single family house can be constructed in nine to 12 months. The average condominium project, according to my sources, takes two years to complete. Of course some projects, like Shangri-La, can take more than three years to construct. “Under construction” can mean a unit or a complex will be complete next week, next year or three years from now.
In any event, if I use two years as the average time to complete all units, by my calculations we have 1.86 years of surplus supply. If I use 2.5 years as the average time to complete, we have 1.36 years of surplus supply. Finally, at three years we have .86 years of surplus supply.
Regardless of the timeframe used for completion, this seems to me to be an enormous over-build situation. Is something wrong with my math or my assumptions? Does anyone have historical statistics on housing unit supply in the GVRD?
July 20th, 2008 at 12:08 pm
60anonymous Says:
July 20th, 2008 at 2:37 am
The benchmark for a detached SFH DROPPED BY $5,596 in June. Multiply $5,596 by 12 months, and that’s a loss of $67,152.
Materialize? Why don’t you materialize a loss of $67K and get your head checked!
Your frothing, wide-eyed tone exemplifies my point. When i see 67k wiped out in a year i will certainly believe that the correction will be deep and profound. Will it drop a 620 place to 220? No one knows. I’d suggest that the odds are against such a drop. Until then it is only sensible to temper your apocalyptic frothings.
July 20th, 2008 at 12:11 pm
From the San Francisco Chronicle: Bay Area home prices plunge 27% in last year (hat tip Vijay)
Affluent areas such as Marin County and San Francisco, which until now had resisted most price erosion, saw existing single-family home median prices fall by about 11 percent.
…
“This is pretty grim; double digits across the board,” said Christopher Thornberg, principal at Los Angeles’ Beacon Economics. “It was eminently predictable if you had a realistic view of the world. I heard a lot of people say the Bay Area was never going to see prices fall, San Francisco was untouchable; in San Mateo, it was impossible; San Jose, not with all the tech money, blah, blah, blah. But prices at the peak relative to people’s incomes never made any sense.”
July 20th, 2008 at 12:42 pm
” I heard a lot of people say the Bay Area was never going to see prices fall, San Francisco was untouchable; in San Mateo, it was impossible; San Jose, not with all the tech money, blah, blah, blah. But prices at the peak relative to people’s incomes never made any sense.”
Real estate believers are truly loyal to their retarded views; it might appear that the Rob and the rest of the dogs are just taunting the bears with the nonsense spewed by their verbal caricatures as represented by Rob a, Satv etc but the reality is that they actually believe in what they say, regardless of the many references made to actual documented data on currently unwinding RE bubbles as well as the many previous real estate crashes.
July 20th, 2008 at 12:46 pm
Stagnate,
It is VERY true that people are probably inclined to hold onto their real estate right now because they don’t know where else to put their money and they think real estate holds value. But when real estate stops holding value, and people really see that, they will rush to exit their investments.
I was inspired by this discussion to put some analysis of cap rates. You can see it if you click on my name.
July 20th, 2008 at 1:11 pm
Nice Site VancouverGuy.
Another point that supports what you wrote is that those are craigslst asking rents, in reality anyone can pick up a vancouver sun (or househunting*ca) or downtownsuites*com or bruceward, prompton and get an even better rate.
I saw Palisades 2 bedroom for $1800 in yesterdays sun, 590 nicola “bauhina” , 1220 sq ft loft, on the water for $1900 on downtownsuites and this is mid month and in the peak summer months.
For some reason craigslist attracts rookie landlords trying to get max rents which then attracts the lowest class of renters, the big PM companies usually rely on CL as a last resort, I’m told.
They tend to prefer good tenants who’ll stick around as opposed to transient construction types who’ll pay a bit more but are much more likely to break the lease, get complaints etc.
July 20th, 2008 at 2:02 pm
VancouverGuy – I like your analysis. I do the same thing everytime I come across a listing on mls.ca that reads “currently rented at $x/month.” My results are always similar, I’d estimate 3.5% is the average I’ve seen.
July 20th, 2008 at 2:09 pm
Johnnyrent: regarding overbuilding, see my comments in this post on Mohican’s site: http://langley-financial-plann.....using.html
July 20th, 2008 at 2:52 pm
225 -A- { 07.20.08 at 1:47 pm } Vomitingdog
“We must look at both sides, right?”
For sure, but I do think that the stickier prices are, the more spectacular the bursting will be.
To some extent I do believe that RE markets are local, so there maybe some “local eccentric” force at play, in the markets that have shown resilience, but with fundamentals so far out of whack as they are in Vancouver, I’ll take my chances and stay out of the market.
However, the old yarn spins of the shortage of land, rich international investors, and “no credit worthiness problems here” and it’s different here this time, seem universally overused pitches buy the RE pushers around the world, and so far in the USA, UK, Spain etc seem to be proving to be just hype.
It may well be that whether it is Vancouver Wash. Or Vancouver BC, the locals may have overdosed on the Kool-Aid, and it may take a while longer for them to come “down”, but the hangover may be painfully long.
Your comment is awaiting moderation.
Is anyone else being censored at Rob’s blog?
July 20th, 2008 at 2:56 pm
Jr said
“Accordingly to BC Hydro, there are roughly 18,000 units……”
This 18k number was pretty much claimed to be an urban myth by hydro
according to this now ex Vancouver Sun reporters blog.
http://tinyurl.com/5rbv9n
July 20th, 2008 at 4:21 pm
Another Canadian Bubble?
St. John’s up 23% in the last year!
My favourite quote from the article:
“The zero down and 40-year mortgage make it easier for the younger people to get mortgages,” she says.
Sigh.
July 20th, 2008 at 4:43 pm
The price drops in June followed the first hint that our market was changing, but now that the cat’s out of the bag, prices are dropping at an atonishing rate.
Sales have vitually dried up. The only stuff moving is acceptance of ridiculously low offers.
July price drops are gonna knock our socks off!
July 20th, 2008 at 4:49 pm
van-zee
Could be the 18,000 figure from BC Hydro is a red herring. On the other hand, even the biggest RE cheerleaders admit that 50% or more of the condos and townhouses in the DT/FC area are owned by investors and that only around 1/3 of them are rented. Don’t know what percent of investors there are in other parts of the lower mainlaind but I suspect its quite significant. All this suggests to me that there are many thousands of units sitting empty in the GVRD. Take even half of 18,000 and you’d still have 36,000 units complete and empty or under construction. We do know that 27,000 units under construction is an all time high for the GRVD. I’d still be interested to learn if anyone has historical statistics on total supply levels.
July 20th, 2008 at 7:13 pm
vanguy, great work on the stats; bdk’s point is very valid on the craigslist ads also. jr, no doubt a huge amount of properties are vacant and appear to represent wealthy vacation homes or stagnant money or money laundering, etc. i’m not sure what to make of that trend and where it goes from here. hard to assess.
July 20th, 2008 at 10:27 pm
“Sales have vitually dried up. The only stuff moving is acceptance of ridiculously low offers.
July price drops are gonna knock our socks off!”
I think what I’m seeing out there is long-time owners cutting flippers off at the knees. Savvy sellers with bucket loads of equity can totally undermine the market and still walk away counting massive profits. Goodbye comps!!!
July 21st, 2008 at 12:45 am
As much as I’d like to see that “Sales have vitually dried up. The only stuff moving is acceptance of ridiculously low offers. July price drops are gonna knock our socks off!” , I think this is a bit of reverse irrational exuberance. A friend bought an East Van house with a bit of character needing a bit of work for $750K in November. The adjacent house just sold for $705K about 2 weeks ago after being listed for only 3 weeks. It had less character, but probably needed less work. My friend and I debate whether it’s a comp. (I say it is) That’s only $45K less than my friend’s November price; about 6% less, I guess. The previous owners had it for quite a few years, so they could have gone lower. But they didn’t and it sold in just 3 weeks. Good for them.
So, while the market is changing — and will change alot more I believe — there are still buyers and prices are still high.
I don’t think my socks will be knocked off any time soon. Then again, I’m wearing sandals in this awesome weather, so I’ve got no socks to knock off…
July 21st, 2008 at 2:22 am
That’s only $45K less than my friend’s November price; about 6% less, I guess.
That’s as much as any US market in its first six months of declines, and far more than most of them.
And keep in mind the market top in Vancouver was later than last November.
http://seattlebubble.com/blog/.....#more-2090
July 21st, 2008 at 2:36 am
That’s as much as any US market in its first six months of declines, and far more than most of them.
Exactly. My socks stay on until this thing really gets rolling.
July 21st, 2008 at 9:30 am
A friend of mine is trying to escape the market right now and go back to renting. He bought his place in 2005 for $320k, in November he showed me his place was worth about $420k based on sales in his building. Now he has it up for sale for $378k and he can’t sell. So his place has already lost $42k in seven months and he’s definitely getting desparate to sell.
July 21st, 2008 at 9:57 am
“he’s definitely getting desparate to sell.”
that does not mean he has lost 42k that’s the price he want to sell his place for,if multiple units have different value buyer will be rewarded with 42k plus the remaining appreciation value need to get added after july-jan,09.
July 21st, 2008 at 10:29 am
SATV, please remember to post under one of your silly names so I can avoid your drivel.
Thank you.
July 21st, 2008 at 11:13 am
browntown Says: yeah acanucknut, don’t forget best time to buy is when no one else is buying!oh yeah and “the best time to sell is totally opposite”-Browntown and Cindy ROCKS.
July 21st, 2008 at 11:17 am
The vancouver real estate market remains stable and steady. Prices are high and continue to appreciate in smaller increments than in the past. The celebration of lights is attracting a lot of interest from foreign investors and oil soaked Albertans. I just bought 5 condos and a new boat. I’ve refinanced my second mortgage on my million dollar east side house to buy a smart car and a prius for the wife. We like hanging out in Kits though.
July 21st, 2008 at 11:32 am
john: you are wasting bandwidth.
July 21st, 2008 at 12:23 pm
Actually, I think John is a pretty good satirist (ala the recent NewYorker Magazine cover with Obama dressed up as a muslim etc). Unfortunately, as in the case of this recent cover, many/most do not see the satire that was intended.
July 21st, 2008 at 12:39 pm
“Actually, I think John is a pretty good satirist… many/most do not see the satire that was intended.”
That’s a contradiction. If he were a good satirist most people would be able to see it as satire. How can it be good if it’s unclear? I think he’s more of a troll than a satirist. A true satirist would push the envelope a bit further when he realized that he wasn’t creating a caricature so much as an extreme example of reality.
Sadly I’m sure there ARE people who own 5 condos and a new boat in Vancouver and expect their real estate ‘investment’ to be their ticket to everlasting wealth. There are probably dozens of people if not hundreds in similar positions.
July 21st, 2008 at 1:42 pm
Anecdote: I hear from a realtor that he was the only one at the office on Sunday. They’ve had a couple agents quit and leave clients in the lurch. Everyone is booking holidays and not even in the office.
July 21st, 2008 at 2:14 pm
Drachen: there’s a guy in my office w/ 7 condos.
July 21st, 2008 at 2:23 pm
Anon #85
Friend who Bought for $320K and up for sale at $378K. Is he living in the unit? Paying the bills? Because if so, the carrying costs of that house may have already put him in the negative. An excercise anyone buying or selling should do.
Here’s an example with your friend, assuming he lives there:
2005 – 2008 – 36 months (this is likely off, so we’ll use 30)
Mortgage on $300,000 – $1,800 (plus expenses, taxes, etc.)
We’ll say monthly payment $2,000 to be kind.
Total carrying costs to date – $60,000
If he were to sell at current list he would be net $2,000 lost. And we’re being very conservative here, just in case he threw down more than $20,000.
Just out of curiousity, what are the rest of the details to his situation?
(PS – Anons – you guys should really create a name, easier to reply to for the rest of us)
July 21st, 2008 at 2:24 pm
there’s a guy in my office w/ 7 condos.
if purchased recently and leveraged i know i’d be losing sleep….
July 21st, 2008 at 3:27 pm
I stopped into the boat yard today and was told my new boat has already apreciated 5% because of the rich albertans and the celebration of lights. The condos are looking nice and pristine. I checked them out today. I like to keep them empty because rich asians like new condo smell.
July 21st, 2008 at 3:29 pm
John, they might like the smell of a new condo but they sure like the smell of a bargain even more !
July 21st, 2008 at 5:14 pm
Hey, John.
That was Olympic Boat Center you stopped by, wasn’t it? I thought I saw you there. You were in a pretty heated discussion at the time, I didn’t want to but in. About that deposit on your new yacht you were talking about with the manager? Bad news I’m afraid: http://tinyurl.com/6movl2 Bankrupts don’t refund deposits, do they?
Still, to walk away from that deposit money and know they won’t be coming after you for the rest must be a good feeling compared to your presale condo deposits now that you can’t flip, can’t close and can’t carry!
July 21st, 2008 at 5:32 pm
ala the recent NewYorker Magazine cover with Obama dressed up as a muslim
Dressed up as a Yemeni, I would think. What you said is sort of like saying someone wearing a cowboy hat, boots, etc. is “dressed up like a Christian”.
July 21st, 2008 at 6:20 pm
Investor lose 29% this month wisemans make money so buy now and ask higher price and seller pay higher price market
http://www.forbes.com/feeds/ap.....23017.html
“the best time to sell is totally opposite”
July 21st, 2008 at 7:06 pm
Exactly right anonymous. Now is the time to buy before the asians come and buy them all. Just look at what’s happening in Alberta.
July 21st, 2008 at 9:43 pm
lol john! 5% on your boat already! maybe boast are the next bubble?!
July 21st, 2008 at 9:44 pm
oops, i meant boats…
July 21st, 2008 at 9:48 pm
“Investor lose 29%”
Who told them to buy in USA buy in Canada specially in Vancouver British Columbia “*The*Best*Place*On*Earth*”-bdk?
July 21st, 2008 at 10:03 pm
BC is the best place on earth to invest and yes boats are a good investment. If you bought a 17 ft double eagle last year when gas was cheap you would have made at least 2 grand by now. Albertans love boats and so do some asians. I buy boats and condos and sometimes big SUVs as investments.
July 21st, 2008 at 10:38 pm
19845 units for REBGV. We’re 155 away from 20K folks!
July 22nd, 2008 at 7:31 am
Recently Rob Chipman posted quotes from Sir John Templeton. He left out Templeton’s real estate advice. Here it is:
“After home prices go down to one-tenth of the highest price homeowners paid, then buy.”
http://traceysmarketupdate.com.....templeton/
July 22nd, 2008 at 7:32 am
Nothing is selling. It is time to make very low ball offers, like 50% off list. Even if they don’t bite immediately, it will demoralize owners and their realtors, contributing to negative psychology.
July 22nd, 2008 at 8:21 am
BOP
You’re mean.
But I like it
July 22nd, 2008 at 8:40 am
John, you just sound flat. Try running through a translator to, e.g, German and back again:
“BC is the best place on the earth to invest, and yes, what boats a good investment are. If you bought 17 ft double eagle last year, as a petrol was inexpensive, you would have made at least 2 splendidly, in the meantime. Albertans to dear boats and some Asians also. I buy boats and freehold flats and sometimes big SUVs as investments.”
July 22nd, 2008 at 12:43 pm
Replying to Vansanity about the friend selling his place for $378k. I don’t think his carrying costs are as high as you said, but you make a nice point. His profits from selling are not $378k – $320k. His carrying costs are probably around $40k for 3 years. His RE fees should be around $12k when he sells eventually. I initially thought he was making a huge profit, but now it doesn’t look like that much.
July 22nd, 2008 at 2:18 pm
I can’t for the life of me understand why people can’t wrap their heads around the fact that 40 amortizations are every bit as toxic as “teaser rates”, ARM’s, and all the rest of the sub-prime fiasco’s evil products.
The problem, the FUNDAMENTAL PROBLEM with these products is that over the first 5-7 years, the home buyers’ accumulate very little if any equity in the home. They are mostly paying off interest and barely paying down any principle.
You can use any mortgage calculator on any bank website to check this if you would like. If a home buyer has 0-5% equity in their home but the value of the home drops 10%, that is negative equity.
Negative equity is what prompts the most foreclosures. When people are in a negative equity situation, they WANT to default on their mortgages. They want to walk away and so they stop paying their mortgage payments.
Now in Canada, the fact that people CANNOT walk away from their mortgages actually will make our housing correction last LONGER. People will still be paying mortgage payments that they cannot really afford and will not be able to save any money to get BACK into the housing market.
In Canada, we may not have a “crash” the way that the US is having… but it will be just as painful overall except that it will take longer to get back to a “boom”.