A significant portion of what you pay for a condo is the land value– if that portion of the price drops (ie, if land values drop), then a developer can buy cheaper land and build developments with a lower purchase price.

You have the causality backward – land prices are determined by what builders are willing to pay, which in turn is determined by buyers of the condos (and correspondingly SFH) are willing to pay.

Land prices are high because people are willing to pay ridiculous prices for SFH and condos. Not the other way around.

Current score: 2 (to vote for this comment, please visit the site)

BoC has dropped its conditional commitment to leave rates low until June 1, 2010.

In plainer language, the bond markets have told the BoC to get serious about inflation or else. The bond markets now control the qualifications for all mortgage borrowers, whether for fixed or floating rates, as those taking the latter must qualify under for former.

Current score: 11 (to vote for this comment, please visit the site)

On the topic of new condo construction: the last time the condo construction market faltered, in the very late 1990s, units under construction dropped way down, until around 2001, when people started buying again.

Developers don’t need prices to be in the stratosphere in order to build a profitable development, but they do need people who are willing to buy. A significant portion of what you pay for a condo is the land value– if that portion of the price drops (ie, if land values drop), then a developer can buy cheaper land and build developments with a lower purchase price.

Current score: 8 (to vote for this comment, please visit the site)

http://www.rttnews.com/Content.....Id=1274391

I just wanted to recap The Current episode. Some of Danielle Park’s points were:
1) Interest rates are heading up;
2) Canadian Household debt is now 149% and heading higher;
3) Typically during recession people pay down debt, we’ve done the opposite in Canada;
4) Prices are at record level of unaffordability, prices 200% higher, income 13% higher;
5) 6-7% of buyers are precariously positioned, more than US pre-bust;
6) This will not end well.

Klump’s points:
1) Rates not going up too much in short term (he thinks 1% by end of 2010 and 2% by this time next year);
2) No significant drop in price as it will be a “demand driven price decrease”;
3) Prices across Canada only 6% too high in his opinion;
4) We’re not in a bubble.

Listening to Klump was painful at times. He sounded nervous, unsure of himself and very defensive. His points were muddled. It almost sounded as if he was trying to convince himself of what he was saying. Danielle Park is always very articulate.

Similar to what we see on this blog, the bearish commentator presents us with stats, facts, numerous similar opinions. The bullish commentator presents opinion and attacks the stats and credibility of the bear.

It was interesting, if you haven’t heard it yet, you should.

Current score: 23 (to vote for this comment, please visit the site)

@vanhattan: you allude to a potential stagnation in the market along the lines of prices are sticky going down

Let me put this more concisely.

A house cannot sell for more than someone is able and willing to pay for it. If a year from now the highest price that someone is able and willing to pay for a given house is 20% less than today, prices must go down 20% from today. Regardless of what the sellers want or the sellers do. Because buyers always determine what a house can sell for, not sellers.

Current score: 17 (to vote for this comment, please visit the site)

Current score: 3 (to vote for this comment, please visit the site)

Current score: 0 (to vote for this comment, please visit the site)

So, it’s hard to understand your conclusion when affordability is being stretched near peaks and the economy as a whole is much weaker in an environment of rate hikes from historic lows. If it came crashing down quick under relatively better economic conditions, a more plausible conclusion would be that it will be at least as fast to come down this time around … further, I’ll also mention that supply is piling up faster and higher than 2008.

Current score: 3 (to vote for this comment, please visit the site)

Current score: 2 (to vote for this comment, please visit the site)

See, the job picture will improve drastically in BC as this mega project creates employment. These rich construction wages will allow Vancouver households to maintain current mortgages and allow more FTBs entry to Vancouver’s hotly desirable RE market.

Oh wait. The project is in Fort St. John. Oh. How much of a commute is that? Is it closer to Langley? or to Richmond?

Read more: http://www.cbc.ca/canada/briti.....z0lceFHcb0

Current score: 7 (to vote for this comment, please visit the site)

Current score: 28 (to vote for this comment, please visit the site)

My antique crystal balls are telling me that we’re in for a nice ride. It is not only in Canada that rates are rising, they are in China as well. A 10% drop in prices will wipe out 90% of the specuvetors.

There an old saying in the RE trade “First and fastest , last and least.” meaning that if you take the urban center as the ‘epicenter’ of a market you have the sharpest spikes in price at the center but also the most extreme drops in price when the market tanks. The market farther out of the price and proximity rings will react much more slowly, last to rise and less volitile in price fluctuations.

However I am goinf to go out on a limb and say the dreaded phrase “This time it’s differant”. Why? Because in a traditional market the buyers were proving up a higher percentage of the overall equity in the fringe markets and lowering the risk, where as this time the borrowing has been much more frenzied and misunderstood throughout the spectrum this time and now EVERYBODY has taken out unsustainable mortgages which makes them ALL speculative. Lets face it …5% down is not a downpayment.

I see major moves down in all markets as intrest rates rise. Look for another round of dead duck condo flippers very soon.

Current score: 12 (to vote for this comment, please visit the site)

Is there any practical way to short the canadian housing market?

No.

Are there any options trading based on the teranet indices?

I don’t think so, but even if there were, that is not the same as shorting the market. Index options trading is making a bet with someone about the future direction of the market. IOW you would have to find someone to bet with who thinks the market is going up. With stocks you can do that because the underlying asset is liquid in both the long and short directions so the option can track the asset. With RE you can’t. Everyone who would be interested in trading such options in RE would likely be a bear, so there would be no bulls to bet against.

Current score: 2 (to vote for this comment, please visit the site)

I agree but the main reason why rents have been so low around town in relation to what housing costs are is due to the constant building that has gone on for the past 10 years.

Take the supply away, demand will go up. Rent prices are like everything else, higher demand, higher prices.

Of course, it is almost impossible to say with any certainty, what the housing supply actually is because no one has taken the time to make serious efforts at finding out. I agree, if there is an actual huge glut of overbuilding that has occured than you will of course be correct.

My own anecdotal evidence is that most of the buildings in DT/FC/WE and CH are mostly full with the exception of the higher priced units >1M. Most people in the rental pool are looking to rent basic 1/1 or 2/2 that are moderately priced in the < 2k/month price range.

Lastly, I do not expect that many folks here in Canada will default on their loans as we did not have the lending practices here that they did in the USA. Most homeowners will sit still that will only contribute to further stagnation in the markets, and not just real estate.

Current score: -5 (to vote for this comment, please visit the site)

Vanhattan, people can’t get a loan to pay for rent. Unless people start making more money, rent will not go up.

And you needn’t worry about vacant rentals. We should have the next ten to fifteen years covered with this recent build-up.

Current score: 33 (to vote for this comment, please visit the site)

I have never quite understood why so many people get so giddy when the market seems to be headed down? For myself, a homeowner, I am more than happy to see the real estate scene here stablize but to crash? Not sure why so many want it to crash? I have plenty of friends who live in the USA and trust me, the housing market crash has not done any of them any good, realestate owner or renter. All are doing much worse than they were several years ago.

Anyways, I think the new mortgage rules are a mixed bag of good and not so good but I really don’t think that the unintended consequences of these new rules have been thought out very well.

A few thoughts;

If real estate investors (as defined by their RE not being occupied by the owner)are driven out of the market, and it looks like they will be, new construction will surely take a huge hit.

I fully expect RE prices to decline somewhat over the next year or two…..but once the market absorbs all the ‘extra’ housing units available, which is anybodys guess, housing demand will start to pick up, and due to lack of new housing being built in the next few years, will once again drive up RE prices. If this holds true then rental prices will also start to increase. I say this because there is currently, and hasn’t been to my knowledge any real incentive for rental housing to be built by large developers. The proof is that there has not been any large rental buildings put up in decades and the private sector has provided nearly all new housing stock in this area.

So yes, prices are way to high and they will start to come down but eventually they will head back up due to lack of supply. The main difference I see with the next upward movement in prices….say in about 3 years, is that unlike today, rental prices will also move up, perhaps even more than housing prices.

The bottom line is that the fed surly has popped this bubble, but doubt they have seriously considered the consequences of their actions say 3 years up the road.

I also personally believe that this economy is entirely way too fragile for the fed to stomp on it in such a severe way. With increased interest rates, the CAD will start trading much higher than it currently is and there goes the rest of the exports that are already considerably down. Also, Canada is producing far too few jobs as it needs to create to maintain the employment/un at a constant or lowering percentage….

My job is not in anyway connected with the ‘real economy’ however most peoples jobs and careers are. I just hope all the bears in the room are confident that they can ride out potential unemployment if the housing bubble goes crash instead of slowly letting off steam and if it brings down the rest of the fragile enconomy down with it.

Current score: -20 (to vote for this comment, please visit the site)

Current score: -24 (to vote for this comment, please visit the site)

No need to be rude, have a drink on me, tonite. There will be plenty of time ahead of us for blood, sweat & tears and maybe something else…

Current score: 7 (to vote for this comment, please visit the site)

“We”
Are you even Vancouverites?

there is no mother fucker on earth ever born to put his city in pain,however it’s not even 11 o clock yet, so hold on to your breath.

Current score: -31 (to vote for this comment, please visit the site)

Great, let’s drink to it. Cheers!

Current score: 7 (to vote for this comment, please visit the site)

Current score: 1 (to vote for this comment, please visit the site)

The sound of the burst bounced from Hastings and Boundary in a northward direction until it hit Mount Seymour. It reverberated, growing in strenght. Now headed back south, the growing wave of sound rebounded off the ‘W’ building in gastown, bidding a hasty retreat northward. Growing, ever growing in magnitude. Again North! It was a deafening roar. The gentle forest creatures in the approaches to Grouse looked up from their morning activities to see what was coming. They shuddered as it passed and bounced off the mountain and again headed South. The crescendo was deafening. Off the Shangri-La it went and returned north, quickening and gathering in strength. From there, to Cypress, and from there passed quickly over West Van across English Bay toward the promised land–Van West. Across spanish banks, up the hill, through Point Grey it roared. Rippling across Kerrisdale; racing to southlands and marpole; passing quickly over the airport and from there out to sea and then . . . .

silence

Current score: 28 (to vote for this comment, please visit the site)

Current score: 13 (to vote for this comment, please visit the site)

[regarding the hidden cost of a $600,000 mortgage with a prime VRM]
“At 2.25% (on a 25-year amortization), over five years you will pay $62,076 interest on this mortgage. At 5%, the interest payable mushrooms to $140,450. So, while mortgage rates hike less than 3%, the interest burden soars by 126%, costing an additional $15,674 per year.”

—
Remember that Elvis Costello song ’5 Gears In Reverse’ ?

Current score: 14 (to vote for this comment, please visit the site)

Current score: 0 (to vote for this comment, please visit the site)