Patriotz points out that Phoenix Arizona has just become the first US city on the S&P Case Schiller index to have house prices drop below 50% of their peak value. Prices in Phoenix have now dropped 50.8% from the June 2006 high followed closely by Las Vegas.
Could it happen here?
Here’s an interesting new twist on ’staging’ houses for sale: Instead of paying a staging company to rent furniture to give homes that ‘lived in’ look, some US builders are now cutting deals with renters to temporarily move into new homes in an attempt to get them sold.
OCEANSIDE, Calif. — The fragrance of sage-scented candles and sounds of jazz fill the air of a 2,600-square-foot house a block from the beach. Tiger-striped chairs flank tables crafted from exotic woods. Photos of a chubby baby hang on the walls. Whoever occupies 211 Windward Way, they seem to live the good life.
Too good to be true, in fact. The house is owned by a builder, who hasn’t been able to sell it for more than a year. And while someone really does live here, it’s as part of an elaborate bit of stagecraft aimed at moving Southern California’s echoing inventory of luxury vacant homes.
This $1.2 million seaside pied-a-terre is occupied by Johnna Clavin, a 45-year-old Los Angeles event planner and decorator who has seen business slow. In exchange for giving the townhouse a stylishly lived-in look, she gets to stay there at a steep discount and stands to earn a bonus if the house sells fast.
Full article is at the Wall Street Journal website. Hat-tip to BC buds for the link!
Alrighty, time for our end of the week news round up and open topic discussion. Here are a few stories I’ve noticed lately:
-BOC: Economy contracted 7.3% in first 3 months of 2009
-Low interest rates revive Vancouver rental market
-Economy blamed for shorter camping season
-Consumers see glimmer of hope for economy
-Canadian have more home equity than Americans
-Canada prepared to offer auto giants $6 billion
-Vancouvers affordability problem
-Recession weary consumers crank up booze consumption
-Bank of Canada prepares to fight record slump
-Hope of USA spring bounce gets a setback
-Critics stress out over US bank stress tests
So what are you seeing out there? Post your news links, thoughts and anecdotes here and have an excellent weekend!
Greg wrote in to let everyone know that Metro Vancouver is holding regional growth strategy meetings over the course of the next month. The first one is TODAY in Vancouver:
The Metro Vancouver region could grow by over 1.2 million people and 600,000 jobs by 2040. Metro Vancouver’s draft Regional Growth Strategy proposes actions and strategies to accommodate this growth while continuing to advance the region’s livability and sustainability. A spring series of consultations are being held around the region to hear from citizens. Please join the discussion, and help spread the word about this opportunity to help shape our region’s future!
REGIONAL GROWTH STRATEGY Meetings
Public Evening Meetings: 7 – 9 pm (registration 6:30 pm)April 22 Vancouver Pan Pacific Hotel, Ocean View Suites, 999 Canada Place, Vancouver
April 29 Pitt Meadows/Maple Ridge Ridge Meadows Seniors Society, 12150 –
224th Street, Maple Ridge
For the dates of all other meetings through May, please see the Metro Vancouver public consultation web page.
As we all know, BC has one of the biggest housing bubbles in the world. The collapse of the global housing bubble is directly responsible for the economic crisis we now find ouselves in. So we would expect BC’s political parties to spotlight this to demonstrate their grasp of economic issues, right? Wrong. None of the parties uses the phrase “housing bubble”, or even ventures the thought that maybe housing in BC is too expensive and prices have to come down.
At least the Liberals are giving us what we would expect. They have been cheerleading this bubble all along, so why should they stop now? But why the silence from the other parties?
The housing bubble is the greatest scam ever perpetrated on workers by the rich, yet the party of the workers, the NDP, won’t mention it. It’s also the biggest misallocation of resources ever seen in a market economy, yet the party of sustainable development, the Green Party, has nothing to say either.
What do the party platforms (available on their websites) have to say?
“Pushing the federal government to change federal tax laws to encourage the development of market rental housing … Encouraging new market rental and co-op housing through the Market Housing Partnership Program in concert with the private, non-profit and cooperative housing sectors.”
Developers build condos rather then purpose-built rentals because condo owners are willing to pay prices out of line with rental value. They cannot be incented to build rental housing unless the government takes the role of the condo specuvestors by supplying cheap capital. This is a subsidy to land owners and developers. It will not affect market rents.
“BC Greens will establish a provincial housing program that works with municipalities to build affordable housing or to purchase existing housing that can be moved into permanent rental housing.”
This is a subsidy to existing property owners and developers. If housing is not affordable prices must fall. The housing has to be rented out at market anyway. Purchasing existing stock does not affect rental supply.
“Commit 1% of the total provincial annual budget to solving the housing crisis.”
The “housing crisis” is simply one of inflated prices due to speculation. The government does not have to spend a dime to end speculation.
“Mandate BC Housing Corp to purchase units of market housing within current or stalled projects to provide an expanding pool of permanent below market and market rental housing”
Can you believe this? An outright handout to the developers. These projects will have to be sold anyway, either to owner-occupiers or landlords at prices they are willing to pay.
I am not trying to pick on the Green Party BTW. They have more policy planks on housing than the NDP so there’s more to criticise.
Both the parties are trying to fix a problem that does not exist. There is not a problem with general rental affordability. The problem is with people with special needs who cannot afford the market rent.
To be fair, both parties do advocate programs to assist those with special needs or to allocate public lands for non-market housing. This is a legitimate role for government. Subsidies for market housing are not. They only make it more expensive.
There is one simple, universal measure the government could take to remedy the discrimination against renters built into the property tax system – a refundable renter’s tax credit equivalent to the homeowner’s grant. This would also be largely self-financing, because by requiring renters to document their rent payments on their income tax returns it would put an end to evasion of rental income by landlords.
How can the provincial government put a stop to speculation so that housing prices reflect rental value and no more? Easy. A speculation tax. For any property sold within, say, 5 years of purchase, all capital gains are taxed 100% by the province. Exempt principal residences and purpose-built rentals. Problem solved.
The provincial government could also increase housing supply at no cost, by assessing for taxation unimproved land that has been approved for development by municipalities as though it already had improvements. This would provide an incentive for municipalities to approve land for development and make it economically unfeasible for owners to sit on raw land, and so increase housing supply.
Revenue from these policies could be earmarked for providing housing for those with special needs.
The Liberals simply want to pretend that the current housing bubble, which is already collapsing, is sustainable. The NDP and Green Party both advocate spending money on schemes that would not make housing more affordable. But effective measures to make housing more affordable could actually bring in money to the government.
What’s the better choice?
As to who to vote for May 12, that’s up to you. I must say that distasteful as it may sound, I would prefer to see the Liberals re-elected. I don’t want to see anyone else blamed for the collapse of Gordo’s house of cards. Perhaps after the “golden decade” has been revealed to be fool’s gold all the parties can start getting serious about what kind of sustainable economic future is possible for BC.
Your comments are welcome as always.
-patriotz
It’s time for our end of the week news round up! Here are a few stories I’ve noticed lately:
-RBC: Vancouver affordability improves, but “still exorbitant”
-Personal bankruptcies jump 13.5% in February
-Big MAC sale sells out the Beasley
-Woodwards crumbling or supposed to be like that?
-Intrawest eyes asset sale to pay down debt
-Auction tries to kick-start BC vacation property market
-Hawaii foreclosures soar 503% in March
So what are you seeing out there? Post your news links, thoughts and anecdotes here and have an excellent weekend!
Housing markets tend to run in multi-year cycles, but the Vancouver Sun is reporting that spring sales and prices are up in BC since January:
“[March sales are] actually quite an improvement from what we experienced in the winter months, and really, right now are trending on what we might expect,” said Cameron Muir, chief economist for the B.C. Real Estate Association, in an interview.
Extrapolating March sales out over the rest of the year, Muir said sales will trend at levels somewhere around sales levels experienced during 2000-01.
“That’s what we would expect given a weaker economy [and] rising unemployment.”
From November to January, Muir said sales levels resembled the mid-1980s, which saw much worse economic conditions.
Muir said unemployment levels at the beginning of the current decade were higher than they are today, though “we’re expecting, of course, continued erosion of employment levels over the coming months.”
However, he said the combination of falling prices and interest rates continues to draw buyers back into the market.
Full article at the Vancouver Sun.
Rather than ramble on about spring bounces I’ll just show a picture of the last three years in Sacramento from the Sacramento Land(ing) Blog – the only spring that hasn’t bounced is this one:
Here’s a story I haven’t seen in the Sun or Province: Canwest shares now ‘worthless’. What happened? How have the mighty fallen so far and so quickly? Where they too reliant on real estate advertising for income or is this a larger problem?
Last week, Canwest posted a net loss of C$1.44 billion for the three months ended February 28. This included a C$1.19 billion writedown related mostly to its publishing operations.
“We see no compelling reason to own, let alone buy Canwest shares, which we would continue to avoid,” National Bank Financial analyst Adam Shine wrote in a note.
Analysts have previously said that Canwest could file for bankruptcy protection, but the company thus far has continued to negotiate with creditors rather than involve the courts.
“We continue to believe there is significant risk Canwest is forced into bankruptcy protection or to sell assets at unfavorable prices or a massive debt restructuring,” GMP Securities analyst Jason Jacobson wrote to clients.
“Either way, we believe Canwest equity value is very limited.” His target price on the shares is zero.
A Canwest spokesman had no comment on the status of the creditor talks on Monday.
Read the full article here.
Happy weekend everyone! It’s time to do our end of the week news round up. Here are a few stories I’ve noticed lately:
-Vancouver house prices take a steep dive
-We’re #1: Vancouver has biggest price drops in first quarter
-We’re #1: BC leads nation in job loss
-BC housing starts down 70%
-Cruise visits drop off, hammering Vancouver
-Council expedites 2010 rental rules
-We’re #8: Calgary named ‘best city on the planet’
-Peter Schiff on mark to market: Lets play pretend
So what are you seeing out there? Post your news links, thoughts and anecdotes here and have an excellent long weekend!
The discussion around affordability keeps coming up, especially with the recent drop in housing prices and lower interest rates. Arguments for and against real estate are often rationalized based on affordability from both bulls and bears. But what exactly does the historic and current data show?
First let’s define affordability. It is simply the percent of household income taken up by ownership costs. For this exercise, I followed the methodology used by RBC (http://www.rbc.com/economics/market/pdf/house.pdf) because past information was readily available. Household income is based on published numbers for Greater Vancouver (median) and mortgage costs are based on a five year fixed rate mortgage amortized over 25 years. You may argue that this is not representative of buyers for whatever reason, but to do so would be to miss the larger point, which is to simply compare where we are now relative to the past.
Second, let’s look at historic data. I referenced the RBC to obtain affordability percentages (rounded to 5% increments) for various years, as follows (see page 5):
Condo TH SFH
1986 20% 25% 35%
1990 40% 50% 70% (Peak)
1992 30% 40% 50%
1995 35% 45% 65% (Peak)
2000 25% 35% 45%
2004 25% 35% 50%
2008 40% 50% 75% (Peak)
To define the norm, I looked to where affordability ranged for most of the time (say 80%) going back to the early 80’s. The historic norms for condominiums, townhomes and single family homes have roughly fallen between 20-30%, 30-40% and 45-55%, respectively. These ranges ignore the ‘spikes’ of low affordability at peak years (e.g. spring 2008), but also the ‘trough’ of high affordability in the early 80’s.
And finally, where are we now? Using $60k as the median household GVRD income (used by RBC), the latest MLS GVRD benchmark prices (Mar 2009) and the current five-year fixed rate mortgage (using the ING calculator), I come up with 27% for condominiums, 33% for townhomes and 51% for single family homes.
All of those values fall near the mid-range of historic affordability.
- Dave
