July 2010: sales and prices down
The hot summer is not so hot for the Vancouver real estate market which seems to be withering on the vine. July saw the third month of price declines that started at the April peak. If this keeps up how much longer will we be able to hold on to our coveted ‘most overpriced real estate in North America’ status?
Here’s the story in the Sun: Sales plummet in July
Lower Mainland real estate markets saw their slowest or near slowest July in a decade, the region’s real estate boards reported Wednesday, with sales down by almost half from July 2009′s red-hot markets and prices slipping from the previous month’s levels.
Here’s the Globe and Mail: Vancouver Homes Market goes cold
And there’s a lot of supply on the market, threatening to pull prices lower, with inventory levels 33 per cent higher than this time last year, according to the Real Estate Board of Greater Vancouver.
“With the pace of home sales and listings easing off in our market, we’ve begun to see a levelling of home prices from the record highs seen in the spring, creating greater affordability,” said Jake Moldowan, the board’s president. “Activity in today’s marketplace is clearly trending in favour of buyers.”
Here’s the PDF stats package and Crashcow rounded up the following list of benchmark price slippage since April:
Residential (GVRD)
Greater Vancouver: -3%
DETACHED
Greater Vancouver: -3%
Burnaby: -2%
Coquitlam: -5%
Maple Ridge: -3%
New Westminster: 3%
North Vancouver: -3%
Pitt Meadows: -7%
Port Coquitlam: -7%
Port Moody: -3%
Richmond: -3%
South Delta: -5%
Vancouver East: -3%
Vancouver West: -4%
West Vancouver: -3%
ATTACHED
Greater Vancouver: -2%
Burnaby: 0%
Coquitlam: -5%
Maple Ridge & Pitt Meadows: -2%
North Vancouver: -4%
Port Coquitlam: 0%
Port Moody: -6%
Richmond: 1%
South Delta: -1%
Vancouver East: -8%
Vancouver West: -4%
APARTMENT
Greater Vancouver: -2%
Burnaby: -2%
Coquitlam: 0%
Maple Ridge & Pitt Meadows: -2%
New Westminster: -3%
North Vancouver: -2%
Port Coquitlam: -1%
Port Moody: 0%
Richmond: 0%
South Delta: -2%
Vancouver East: -5%
Vancouver West: -3%
West Vancouver: -12%
August 4th, 2010 at 1:49 pm 1
Hopefully the government doesn't step in with those rediculous zero down/ 40 year mortgages or offer tax credits for homebuyers…..this time, there better be no lower interest rates to bail out the real estate market.
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August 4th, 2010 at 1:51 pm 2
there better be no lower interest rates
Not a lot of room left for that these days.
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August 4th, 2010 at 1:55 pm 3
Gravity works. D=1/2at^2. Look for the % mom drops to increase as sellers start caving.
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August 4th, 2010 at 2:03 pm 4
How the heck did New Westminster manage a 3% gain on Detached when everywhere else fell???
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August 4th, 2010 at 2:08 pm 5
New West would have a lot of noise. A couple of mansions sold in Queens Park, or not, will throw it off.
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August 4th, 2010 at 2:26 pm 6
Deanna Horn, president of the Fraser Valley Real Estate Board said that while real estate sales typically slow in the summer, “we didn't anticipate this level of change.”
Wow what a surprise! When has the Real Estate Board correctly anticipated any level of price or change correctly up or down at ANYTIME IN HISTORY???
Realtors and Real Estate Boards are a joke and are the horse buggy makers of our time. They are a ridiculously over paid "profession" that can be accrediated in 8 weeks.
They are unregulated and 95% of them are unfit to clean sidewalks and 99% of them are unethical and ignorant.
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August 4th, 2010 at 2:37 pm 7
It's gotta be because I moved there last month! I alone make the value of local real estate go up!
Now seriously, I did move to a new rental last month in New West from Richmond, and am paying less for a lot more! I'm happy, wife is happy, the only thing I have to get used to is hills while exercising which is a good thing.
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August 4th, 2010 at 2:42 pm 8
@No Longer Looking:
I didn't think these anomoly sales would affect the benchmark price?? Obviously it affects average prices but how do they come up with benchmark prices, then?
I admit I was hoping to see steeper price declines but if this is a prolonged monthly decline then that should add up over time. Its hard to be giddy about the price declines when you look at those charts in that pdf package. Prices are still ridiculously high.
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August 4th, 2010 at 2:46 pm 9
Sales and prices are ok,Economy is ok with increased numbers of jobs,These are only the Banks and Investors believe to be playing hide and seek to grab a last remaining piece of bargain and very soon they will settle up for the importance of necessity.I wish Good luck to those who deeply believe in the processed property sales and prices that slash the index every month,otherwise,everyone knows that Vancouver Real Estate Never Goes Down.
Uruguay 2,Brazil 1,Argentina 0
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August 4th, 2010 at 2:51 pm 10
Housing: Still Flooded ( US )
http://seekingalpha.com/article/218141-housing-st…
One of the central reasons for the recession — and for the anemic recovery from it so far — has been the issue of the popping housing bubble. Housing is, for most homeowners, a highly leveraged investment. Even the old conservative rule of a 20% down payment is a far more leveraged position than is allowed when buying stocks, where at least 50% down is required. During the housing bubble, almost no one was putting 20% down anymore, and down payments of under 5% were common.
*EDITED* Please don't post full articles, only key excerpts.
Read the full article here: http://seekingalpha.com/article/218141-housing-st…
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August 4th, 2010 at 3:00 pm 11
@Anonymouse: The benchmark is formed by a hedonic analysis with the characteristics of the houses that are sold. I don't know what variables they use, but maybe # rooms, SqF, etc.
If there are houses that sell that have nice characteristics that are not captured in the benchmark (e.g. nice view, really big bedrooms, new windows) then that would bias the prices upward. Similarly, if a place has uncaptured characteristics that are bad, the prices would be biased down. On average, these things would more or less balance out. However, with a small number of sales, things are less likely to balance out in a given month.
If you look at the price history for New West or any of the smaller districts you will see a lot more volatility both on the upside and the downside.
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August 4th, 2010 at 3:03 pm 12
Here is background on hedonic models of real estate valuation.
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August 4th, 2010 at 3:23 pm 13
@Argentina Zero:
Dude, you better take care…
When one uses too much Crystal Meth he often wants to cut up his dick, put some ketchup on, and eat it while keeps saying: "Vancouver Real Estate Never Goes Down".
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August 4th, 2010 at 5:33 pm 14
More than 400 Chinese tourists to arrive in Canada on the 18th. The various groups have different itineraries but they will meet in Vancouver where a welcome ceremony has been planned at YVR Airport and a banquet hosted by local authorities.
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August 4th, 2010 at 5:35 pm 15
http://www.life416.com/index.php?option=com_conte…
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August 4th, 2010 at 7:35 pm 16
Looks like the "rich Chinese" and "running out of land" arguments don't carry much weight in China itself:
http://www.bloomberg.com/news/2010-08-04/chinese-…
Thanks to Calculated Risk for link.
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August 4th, 2010 at 9:21 pm 17
The denial is still strong out there.
Spoke with the neighbour's wife on the street.
She knows I have talked about buying another property in the past. She mentioned now is a good time to buy, read it in a paper, heard it on the news. I said now is exactly the wrong time to buy. Prices are still very near peak and the downturn is only just starting. She seemed surprised. Many people that don't keep up with blogs or follow stats closely haven't really got it yet.
Hell, witness the bulls on RET. Not pulling in their horns at all. Same old, same old.
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August 4th, 2010 at 9:41 pm 18
From last thread, still regarding McLovin's friend:
@space889: "@vreaa: Not quite. Opportunity costs for the downpayment is irrelevant here because that money is already spent, it’s a sunk cost. Opportunity cost might be used when deciding if the condo should be bought in the first place or not. Since the condo is already bought, there is no point in including opportunity cost anymore. The only thing that matters right now is what’s the best option going forward.
His friend has basically two choices, sell now and take $100K loss right up front, or sell later."
—-
Valid point about the opportunity cost of the down-payment, space889.
But, by the same token, one could argue that the 100K is no longer a 'loss', as it's already gone!
His emotional attachment to 100K that no longer exist is influencing his decision about this investment.
In principle, I agree with your point that McLovin's friend should reassess his options now that the flip-plan has gone sour.
Another way of doing this is asking whether he would 'buy' his current situation for $0. (Would he take on the liabilities and possible benefits of his position for no cost whatsoever?).
This is not a very different question from whether any investor should be a buyer in this market.
He should bail.
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August 4th, 2010 at 10:27 pm 19
@metalhead:
It's not a case of denial. A lot of very well informed people do not expect a housing crash. I think the real test of this market will be Spring 2011. I think those months will be a barometer of activity over the next 3 to 5 years.
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August 4th, 2010 at 10:43 pm 20
@VHB: Correct, it's very unlikely the benchmark uses dwelling quality to adjust. More likely they use absolute quantitative measures such as square footage, # and type of rooms, etc. New West having more variance isn't surprising.
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August 4th, 2010 at 10:45 pm 21
#19 Dave,
The real test won't wait until Spring 2011. The market will fall considerably this fall and winter. Many "well informed" people in the US got it wrong as well 5 years ago. There is plenty of that to go around.
By next Spring all the industry will have to talk about is how far away the bottom is. Answer: Still a long way away.
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August 4th, 2010 at 10:45 pm 22
@Dave: "A lot of very well informed people do not expect a housing crash."
You mean like Bernanke's famous "there is no housing bubble" comments in 2005? Give me a break. These are the same "informed" people who tout immigration and employment as pertinent "fundamentals." Once you're on the wrong train, every stop is the wrong one.
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August 4th, 2010 at 10:45 pm 23
As always, time will tell Dave.
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August 4th, 2010 at 11:44 pm 24
@Junius:
Nope, they will be calling the bottom. The RE industry will never admit the likelihood of substantial price declines going forward. Just like their counterparts in the US. For example:
http://themessthatgreenspanmade.blogspot.com/2008…
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August 5th, 2010 at 12:00 am 25
Buyers exit Toronto housing market
http://www.theglobeandmail.com/report-on-business…
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August 5th, 2010 at 12:17 am 26
I have to give CBC credit for balancing their story, and not just being a Robyn Adamache press release. I hope to hear more from Darryl Sjerven, as he seems like a straight shooter:
"You don't see people going down and waiting in line and picking up six condos in the same building, for example, because they want to flip them and sell them down the road," said Vancouver realtor Darryl Sjerven.
"He said there simply does not appear to be as much speculation in the real estate market as in past years.
People have less cash at hand, Sjerven said, and many are finding it harder to borrow money from the banks."
Read more: http://www.cbc.ca/canada/british-columbia/story/2…
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August 5th, 2010 at 1:02 am 27
@patriotz:
Nice find, I hope vreaa is able to make a similar one up on our local experts very soon!
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August 5th, 2010 at 1:03 am 28
Sjerven said speculators never made up a huge portion of Vancouver's buyer's market, but now they're outnumbered even more by those shopping for a place to live.
Right! I believe that speculators made up 50% of sales in DT Vancouver condo's in the last several years. The spin continues.
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August 5th, 2010 at 1:07 am 29
@McLovin: "I believe that speculators made up 50% of sales in DT Vancouver condo’s in the last several years."
So where do you draw the line between speculator and non-speculator?
We're all speculators now.
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August 5th, 2010 at 1:12 am 30
The Chinese will no longer be able to buy third and forth homes in China:
http://www.theglobeandmail.com/report-on-business…
Where will that money go? you guessed it bears: Vancouver
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August 5th, 2010 at 1:17 am 31
"Where will that money go? you guessed it bears: Vancouver"
All of China's billion will be investing in one little city? Lord I wish I had your network of contacts. How do you ever sleep?
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August 5th, 2010 at 1:17 am 32
@metalhead: "She mentioned now is a good time to buy, read it in a paper, heard it on the news."
Surely the real estate industry was misquoted. What they actually said was: now is a good time for us for you to buy.
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August 5th, 2010 at 1:27 am 33
More politics, more bailouts – this fiscal train wreck never seems to end.
"Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.
The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie. "
http://blogs.reuters.com/drudge.html
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August 5th, 2010 at 1:32 am 34
@vreaa: What matters to most people is terminal wealth. If McLoving's friend believe he can get the most terminal wealth/highest return by holding then the right decision he should be making is to hold the property.
Now obviously he probably hasn't really analyzed all the other expenses and hassles that come with holding the property and thus most of us would say take the loss and move on.
What I'm trying to say is that given the assumptions and believes he has, he's actually making the right decision. What we should be doing is not criticizing the decision as being wrong but points out the inadequacy and over-simplication of his assumptions and believes. When his assumptions and believes change, he decision to hold or sell will also change. Simply telling him that his decision is wrong because price will drop and he should sell now isn't really going to work.
As well I find that most people believe being landlord is extremely easy. You just have to find good tenants – professinoals, family, responsible people – and you will not have to do much aside from collecting rent and increase the rent every year. Hence that's probably why most people think renting is an easy option to go with. No one ever seems to think that they will get bad tenants, fix leaky toilets, repaint/refurnish the suite after 10 years, etc. Even when you try to be reasonable and get them to think about the possibility of not getting the perfect tenant, they just don't believe it will happen to them…weird.
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August 5th, 2010 at 1:40 am 35
@McLovin: That "huge portion" paragraph is a paraphrase. I'd like to know more specifically what Sjerven said. It seems to contradict his quotes. What's a huge portion? 90%? 50%? 30%? That last paragraph is a sloppy ending to the story, and possibly editorial bias coming through.
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August 5th, 2010 at 1:43 am 36
The Realwhores are back at it….full bullshit mode. Nowhere in the article does it remind us of the price reductions or the growing number of days on the market…instead its 'balanced'. I love the one line by a real whore on the news last night 'the asian buyers are sitting on their cash waiting for lower prices…but prices will not go down', she boldly stated. Bwahahahahahahahahahahaa….no, realwhores are always right and real estate never goes down…….now you just keep saying that, keep your eyes closed and maybe the bad man will go away. Like I said yesterday, I'm pretty sure that a majority of the VanSheep have their head up their collective asses and have no idea whats going on around them…they are slavishly fixated on the message from the local media whores and think that what they hear on television is true.
http://www.vancouversun.com/business/Lower+Mainla…
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August 5th, 2010 at 1:50 am 37
BTW, the plunge in Vanshitholio is over 30% greater than in TO, that is a yawning gap, considering TO is #1 when it comes to pop and immigration.
http://news.nationalpost.com/2010/08/05/toronto-r…
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August 5th, 2010 at 1:57 am 38
Follow up on my friend.
Thanks to all for the comments and input. I have shared much of it with my friend who is an seasoned investor and does not have his head in the sand in anyway. He acknowleged that he screwed up but was prepared for the "worst case" senario which has come to fruitation. This unit does represent a "chunk" of his investment capital but by no means prevents him from looking at other opportunites. He has an ample net worth so a job loss or sickness would not impact his ability to pay the mortgage.
He did say something that is very important for all of us Bears to remember: No one knows foresure what the market will do in the next 1-10 years. We all feel that we know 100% that it is a bubble and will crash but many of us have been wrong for a long time. He acknowledges that if he know foresure it would not be worth what he paid in 10 years he would sell now and take the loss. Becuase he does not he would rather take his chances and hold slowly paying down the principal.
He added the following:
He has an excellent long term tenant at slightly below market value so his is less likely to move and if he does because he is asking below market he will have an easier time renting it.
He has a 5 yr fixed at 3.85% so higher interest rates are not an issue for some time for him.
The building is brand new and has a 10 yr. warranty so special assements are very unlikely.
This is an interesting case of someone who has looked at all the variables and in his best estimate made the decesion to hold verus sell. You may not all agree with his decesion but it shows that not everyone who bought in the last 3 years has their heads in the sand and further has to sell into a declining market.
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August 5th, 2010 at 1:59 am 39
@space889: "…they just don’t believe it will happen to them"
And 95% of the time, they're right. It's the 5% who have "it" happen to them who will lead the market down.
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August 5th, 2010 at 2:00 am 40
@space889:
No need to continue dissecting Mclovin friend's decision to hold and rent. Watch the TED video posted by specuskeptic (July 29th, 2010 at 1:03 pm)
http://www.ted.com/talks/laurie_santos.html
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August 5th, 2010 at 2:03 am 41
@space889:
I had never before heard the phrase "terminal wealth". If McLovin's friend (is his name Michael Cera?) wants the highest return, then his beliefs/assumptions should be consistent with the facts and with future-discounted assessments of the probabilities of future events. What is the net present value of his investment, given the information that we have now, and assuming i) no increase in real price in 10 years?, ii) a 25% increase in real price in 10 years? iii) a 25% decrease in real price in 10 years?
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August 5th, 2010 at 2:06 am 42
@McLovin: This is an extremely important point: concentrating on the fates of the vast majority of buyers (such as your friend) ignores who will be setting prices going forward. Your friend is most likely not going to be the marginal seller and will emerge "unscathed." But take 20 clones of your friend and 1 of them is going to get slaughtered. And that's all it takes for prices to fall.
"No one knows foresure what the market will do in the next 1-10 years."
A marked increase in foreclosures happens mostly BECAUSE of significantly lower prices, not the other way round.
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August 5th, 2010 at 2:09 am 43
@McLovin:
No we haven't been wrong. Being wrong in investing means losing money. Since renting is cheaper than buying, those of us who haven't bought have actually been making money on a cash flow basis, compared to the buyers.
The point so many bulls don't get is that it doesn't matter how long it takes prices to go down, all that matters is that they eventually do go down. And then the bears win, big time, because they will be ahead of everyone who has bought at a higher price on both a cash flow and balance sheet (equity) basis.
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August 5th, 2010 at 2:24 am 44
@Vanrod: Ha Ha, from one bubble to another. Remember all bubble will burst in time!
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August 5th, 2010 at 2:41 am 45
@patriotz: "No we haven’t been wrong. Being wrong in investing means losing money. Since renting is cheaper than buying, those of us who haven’t bought have actually been making money on a cash flow basis, compared to the buyers"
Exactly.
even if house prices stay level for 10 years…or even moderately (1% yrly) appreciate…the renter still is in a better financial position (cash flow/flexibility/yield), however you want to measure it.
I had my place paid off last spring summer. I looked at it and thought to myself…this 300k will allow me to live in a 300k home with monthly expenses (strata tax, mait etc).
….or….this could go into the market and earn me enough after tax revenue (not just dividends, I'm factoring in CAP gains too), to rent a 650k property. (once I added the incremental effect of the other charges on my previously paid off place).
I don't need a crash to feel good about my decision. Being able to buy back in for cheaper later is just bonus.
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August 5th, 2010 at 2:41 am 46
Here are Rob Chimpman's latest musings/ramblings re: the July stats.
You go first, Patriotz.
"What to make of those numbers? A few obvious things.
First, nobody’s rushing to the exits. Both listings and sales are way off. Unlike 2008, listing volume has reacted pretty quickly to the drop in sales.
Second, this is not a buyer’s market, despite what the MSM says. When a seller asks 400 times the gross rent on a property he’s asking a huge premium, regardless of the fact that he’s willing to sell for less than he could have gotten three months ago.
Third, 45 DOMs is a low number. Yes, its almost 50% higher than the DOMs we saw in the record markets of the past, but those markets also saw 100% sell/lists consistently, day after day.
I suspect that, unless we see something black swan-like, we aren’t going to drop much below the 2007 peak. Bets, anyone?"
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August 5th, 2010 at 2:48 am 47
Got a boingboing account? Go to boingboing.net/submit Scroll down and vote up the Vancouver house price rollercoaster submission!
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August 5th, 2010 at 2:51 am 48
Just found this video. Can you post it?
http://www.youtube.com/watch?v=qx2vQjtyyVg
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August 5th, 2010 at 2:52 am 49
Beginning of the end or just the end of the beginning?
http://www.youtube.com/watch?v=qx2vQjtyyVg
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August 5th, 2010 at 2:53 am 50
@Boombust:
The first few month of a housing crash always look like the last few months in the Vancouver market. The Vancouver market is at the begining of a price collapse.
And this is at a time when you can still get a 5-year fixed rate at 3.95% (I saw that yesterday at coast capital savings). How can prices fall when mortgage rates are so rediculously low? Answer: the boom is over and the bust is here.
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August 5th, 2010 at 3:05 am 51
It's funny that a few months ago potential home buyers were being urged to buy before HST makes homes more expensive. Now that the HST is here, it's being blamed by the same experts for lower prices and lower sales… talk about a contradiction.
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August 5th, 2010 at 3:05 am 52
@ McLovin
I get from the tone of your posts that your friend isn't necessarily confident that the place will be worth what he paid for it in 10 years.
I'd be interested in what he would apply as rough estimates on;
a) equal value
b) 25% appreciation
c) 25% depreciation
say 60/10/30 or whatever odds he feels are appropriate.
What that, he could work out the NPV on the 3 scenarios, add them together proportionately and see if his decision is in line with his market expectations.
An interesting story nonetheless. As an investor with other resources at hand, I wonder if there is a way for him to hedge against the potential depreciation. Any market instruments with a strong inverse relationship to Canadian hosing stock?
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August 5th, 2010 at 3:10 am 53
@Kim Jong-il buy 3: I live in New West. I'm currently sipping on the frappe that I got from the local coffee shop, easy walking distance from me. I'm continually amazed that houses in East Van, sitting in a sea of unattractive Vancouver Specials with poor transit access and nearby services, cost a lot more than New West. I guess the address doesn't have the magic V word. It's one of the key indicators in my mind that the market is insane.
I expect the New West market to do relatively well in the coming downturn, i.e., it'll be less horrifically devistated.
As for the current uptick, it's a small market, numbers tend to be noisier.
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August 5th, 2010 at 3:10 am 54
@Pope:
"Not a lot of room left for that these days."
Maybe. But the momentum to higher rates seems to have stalled.
The forward looking economic stats look awful.
It seems the huge stimulus spending did little but arrest the downward momentum for a relatively brief period.
The FED is signaling more QE, the traditional drivers of expansion; housing, consumer spending etc are out of gas.
Seems to me we are headed to rates far below even todays shockingly low rates, ala Japan.
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August 5th, 2010 at 3:21 am 55
CULT index down again.
This will get voted down.
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August 5th, 2010 at 3:21 am 56
@LightsOut: As others have pointed out, look how well that worked out for Japanese house prices.
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August 5th, 2010 at 3:36 am 57
@Anoymous: Vote is like vancouver real estate, only ever go up.
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August 5th, 2010 at 3:40 am 58
@oneangryslav2: Try doing NPV when the discount rate is volatile. Still indexing to the broader market? In case you didn't know, CAPM is dead (ask any economics / finance professor).
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August 5th, 2010 at 3:43 am 59
@patriotz: China is a land of contradictions. On one hand they appear highly risk-seeking (see history of gambling problems.) On the other hand, they also appear highly risk-averse (think high savings rates). Utterly bizarre policy response.
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August 5th, 2010 at 3:47 am 60
We've got Bears and Bulls.
Now the Tigers want to be here too.
http://www.news1130.com/news/local/article/85706-…
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August 5th, 2010 at 3:50 am 61
@Bob Lucas: I'm sorry, but I'm not a finance professor. If CAPM is dead, what are finance professors using to assess the worthiness of a potential investment?
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August 5th, 2010 at 3:55 am 62
It's different here. Everyone gets that except all of you. All of you need to get education. Everyone says the housing is a good investment. U think they are all wrong and u r right? LMAO.
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August 5th, 2010 at 3:58 am 63
@pop:
"As others have pointed out, look how well that worked out for Japanese house prices."
Totally agree – lower rates means stagnation, everything goes down in this environment including house prices.
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August 5th, 2010 at 4:01 am 64
@Cody:
Hey Cody,
Everyone has changed their mind about real estate now that the July stats report is out. Now everyone says jump off a bridge.
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August 5th, 2010 at 4:05 am 65
The cycle of investment emotions in a declining market:
concern, fear, panic, despair
I vote for just passing the concern stage moving into fear.
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August 5th, 2010 at 4:11 am 66
Interesting spin by the REBGV for the drop in sales: "people are confused so they aren't buying"
http://www.cbc.ca/canada/british-columbia/story/2…
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August 5th, 2010 at 4:14 am 67
@oneangryslav2:
CAPM
NPV
IRR
…are the three primary measures. Each has strengths and weaknesses, but taken together they are better. Of course, the devil is in the assuptions.
Other measures like Payback period, or Accounting ROR etc are seem to be losing prominence other than for specific situations where circumstances merit their importance.
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August 5th, 2010 at 4:17 am 68
@“A-sharp” Accountant: So which of those don't use a discount rate?
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August 5th, 2010 at 4:18 am 69
Having said that…I rarely use CAPM outside of very basic security valuation. It ties in nicely with M&M if you believe what they believe.
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August 5th, 2010 at 4:22 am 70
@“A-sharp” Accountant: I agree with everyone about how the renter is coming out way ahead. I was speaking with my sister about the stupid prices of RE in Canada in general. We played with some of the numbers of the place I'm living at right now (the Point on Georgia Street).
I saw an add for sale. I think I've seen these places asking $440k, and taxes plus strata fees are roughly $400 a month. My buddy pays $1300 a month for rent. So the landlord is making $11k a year on $440k, or 2.5%. This is not including a vacancy allowance, any repairs, or special assessments. To buy, I plugged in a $400k mortgage (~10% down) @ 4% interest rate and 25 year amortization. Assuming you could get a 4% rate for 25 years, the mortgage payment is $2100. With the $400 in fees and taxes, your payments are nearly double what you can charge your renter!
So would you say that property is overpriced by a factor of 2? By using 100 times monthly rent it's overpriced by a factor of 3! It's hard for me to imagine a drop of that magnitude, but still. It happened in Florida, where you can get a condo for the price of a new car!
KK
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August 5th, 2010 at 4:22 am 71
@jesse:
Payback
ACCT ROR are criticized for ignoring the time value of money.
IRR does not have an explicit input for "discount rate" but the IRR output certainly invites comparison to WACC (an appropriation for discount rate)
CAPM inputs WACC (or similar) so that is where the disounting "effect" comes into play.
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August 5th, 2010 at 4:25 am 72
#66 B….It seems that the whores cannot accept the idea that prices have hit the wall. Even at zero and 35 they've run out of customers…duhhhh…. The pyramid scam ( like all pyramid scams) runs out of bodies in a finite space of time…its predictable, there simply isn't enough people on the planet to keep the game going. China is finding out the same thing, you can only fund so many third home loans before there is no one left to trade to.
Its not the HST that killed the market…it is the fact that prices have gone beyond the average persons ability to pay…..even with zero down and 35…the monthly payments are too high for the limited leftover suckers who haven't already bought in. There are no investors in this market…the rents don't support the overhead…it is purely speculative and like musical chairs the gam always ends with people falling on their asses.
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August 5th, 2010 at 4:26 am 73
@Krazy Kanuk: So would you say that property is overpriced by a factor of 2?
No,
when I look at Abbotsford stata (discount rate at 8%) I usually end up finding that condos here are overvalued by about 30-50% depending on the example.
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August 5th, 2010 at 4:31 am 74
@Krazy Kanuk:
What's the interest portion of the monthly payment? About 50%? The principal portion, assuming unchanging prices, goes back into the landlords pocket eventually. So your direct comparison is heavily biased towards renting.
Also, an investor is unlikely to have a fixed rate mortgage, in my opinion anyway.
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August 5th, 2010 at 4:31 am 75
I'd like to add that we have the insidious effect of 'socialist QE' built into the market. Our government is flooding the market with cash by way of outrageous wages and benefits to a growing number of civil servants. This artificially allows the sector to buy higher and higher priced properties with the wage increases and pension benefits.
Lets face it…if you're getting a huge fucking pension that negates your need to save then you will automatically feel entitled to spend more on ostentation because the taxpayer is going to backstop any financial mistakes you've made in life.
21% more civil servants are making more than 100,000 per year than last. The gov is secretly juicing the RE market with taxpayer dollars through the back door of civil service largesse causing the rest of the pop to continue to suffer the consequence of having this cult of outrageously compensated parasites skewing the market.
Guess you didn't consider that eh?
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August 5th, 2010 at 4:33 am 76
@“A-sharp” Accountant: It wasn't too long ago when condos in Vancouver were trading with cap rates around 8%. Don't know what Abby was at but, at valuations producing 8% cap, the discount rate is higher than 8%. Or is my math wrong?
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August 5th, 2010 at 4:34 am 77
I've read on this, and other blogs, people asking "what happens when you come to renew your mortgage and you can't because the outstanding debt is greater than the value of the property?"
What I've not been able to determine is HOW the bank would evaluate the worth of your property? It's not like they insist on inspecting it before releasing the mortgage funds. Do they look at the city's tax assessment values? Or are in-person inspection/appraisals likely to become mandatory if the market falls heavily?
Anybody?
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August 5th, 2010 at 4:38 am 78
@FlipFlop:
There's a double entendre for you
One thing to note is that historically Canadian regional RE markets have been out of sync (e.g. Vancouver went up a lot during the Toronto bust of the late 80's/early 90's) so you can't really talk about the historical performance of the "Canadian" housing market versus securities.
If BC still had its own bank it would be a good candidate for shorting, certainly that was the case in the 80's when the Bank of BC failed. I think BC credit unions are going to take big hits to their equity (mainly due to construction financing and commercial bankruptcies) and some may fail but you can't short them. So I think the answer is no. I think we're headed for a bear market in stocks but I'm not confident enough to short the TSX.
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August 5th, 2010 at 4:39 am 79
@granite countertop: New West has a lot of fairly unique advantages AND disadvantages. The downside is they let the condos developers run rampant by massively increasing population density without collect sufficient fees to expand services. I can't help but feel there is a financial reckoning coming at New West City Hall that could haunt New West taxpayers down the line.
The advantages you speak of can also be enjoyed by tenants, of course.
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August 5th, 2010 at 4:45 am 80
@Anoymous:
They don't have to because the government has guaranteed them the principal back anyway. IOW the collateral isn't just the property, it's you and me.
That's for a simple renewal, refinancing for a higher principal amount or longer amortization would require a new insurance contract with CMHC which requires a new appraisal. And if there's no equity that's not going to happen.
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August 5th, 2010 at 4:47 am 81
@Anoymous: I guess the interest portion of the payment starts off at 60 or 70%? And you are right about the fixed mortgage rate. I just picked 25 year fixed at 4% as the best possible scenario for the buyer. It just amazes me that the renter can save $1200 a month (almost the same as his rent) over owning.
KK
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August 5th, 2010 at 4:50 am 82
@Anoymous, regarding "What I’ve not been able to determine is HOW the bank would evaluate the worth of your property?"
Doesn't the BC Assessment authority do this for every property in B.C.? They do it for municipal taxes presumably, and it may not always be right, but it could certainly be used as a guideline.
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August 5th, 2010 at 4:52 am 83
Nobody could see this coming.Not JimTan not Eyesthebye not Horton.
http://www.youtube.com/watch?v=qx2vQjtyyVg
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August 5th, 2010 at 4:53 am 84
Nobody could see this coming. Not Eyesthebye, not JimTan, not Thompson and not Horton. And they are smart!!
http://www.youtube.com/watch?v=qx2vQjtyyVg
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August 5th, 2010 at 4:53 am 85
@ specialfx3000
Tigers…Oh boy new buyers for the west side…Lol
Anyone know what the law would be if someone sunk their ship in international waters before it came?
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August 5th, 2010 at 4:54 am 86
"…(e.g. Vancouver went up a lot during the Toronto bust of the late 80’s/early 90’s)…"
To my eye the Sauder data shows Vancouver was headed in the same direction until Britain saved its bacon by way of Hong Kong and repatriation. Not sure how many external 'white swans' are available for local salvation today.
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August 5th, 2010 at 5:07 am 87
@Krazy Kanuk:
I agree, I'm in the same situation. I'm living in a condo where similar units in the building are on the market for $440k (granted, they are not currently selling, but still). My rent is $1350. It would make absolutely NO sense to buy a unit like the one I'm living in. The current owner of this place probably purchased it for half of what it is now (or less), so I guess they are making enough on this property to meet the mortgage. But I really wonder why they haven't sold…oh I know why…because real estate never goes down and soon this condo will be worth $600k-$800k-$900k-and then a million. To the moon, to the moon!
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August 5th, 2010 at 5:11 am 88
@jesse: I totally agree, jesse. Since real estate values are based on comparables… just one sale at a really low price will bring everybody's "value" down.
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August 5th, 2010 at 5:16 am 89
"What’s the interest portion of the monthly payment? About 50%? "
This is precisely why so many people get the buy/rent thing wrong. With a 35 year amm and 5% rate, it is 82% interest over the first year.
It doesn't get to 50-50 until YEAR 22. Payment #253.
This is what they don't tell you when you are signing up for a presale. You will be paying pretty much all interest and not building equity.
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August 5th, 2010 at 5:31 am 90
July 2010 graphs updated
http://vancouvercondo.info/forum/topic/rebgv-july…
And some anecdotal evidence to add: I've heard from several people lately that recent condo buyers are having to move back home and rent out their condos to covert the mortgage. The hassle of being a landlord, living at home because you can't afford to rent, wow I wish I was part of this awesome wealth-building and lifestyle opportunity!
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August 5th, 2010 at 5:37 am 91
@Starving Artist: Great! More supply for me when I look at deciding whether to stay or move in a couple of months time.
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August 5th, 2010 at 5:45 am 92
Did Rennie quietly drop prices at Millennium Water? Saw an ad in the Westender and the starting price was like $379k. I think it was $423k in May.
Just wait till we get those bright yellow MACbulk ads again!
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August 5th, 2010 at 5:58 am 93
@Dan in Calgary:
BC Assessments are NOT accepted for mortgage lending either by the banks or CMHC. The appraiser might use them as a starting point but that's all.
Remember that the purpose of the assessments is to apportion property tax between properties, not determine what they're really worth at any given time. They just try to give a ballpark of the market value once a year.
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August 5th, 2010 at 6:04 am 94
@fixie guy:
You need glasses. The runup in Vancouver RE from 1987 up to 1995 was one of the biggest ever. The Toronto bust over the same period was the biggest since the 1930's.
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August 5th, 2010 at 6:20 am 95
@JimTanned:
Post #84
Wow Ian Watt actually seemed normal and had smart things to say. Someone posted a clip from his in the last thread where he was saying you need a no subject offer to buy the place, now he says lowball and see what happens, they have to keep dropping the price if they want to sell. Wow, how times have changed so abruptly
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August 5th, 2010 at 6:24 am 96
@oneangryslav2: There are many different theories that tend to follow the "no-arbitrage" approach. A Finance prof is excellent at coming up with theoretical ways to value an asset but they surely wouldn't stake their tenure-based (read: unionized) academic career on it.
That said, it is probably an exciting time to work in Financial theory as what once was true is no more, but again, toy models for a toy world. As Economists are fond of saying: "all models are wrong, but some are useful".
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August 5th, 2010 at 6:25 am 97
@DaMann:
Its refreshing to hear that from a realturd. But its certainly sound advice.. since when did realturds give sound advice? Its stuff like this that contributes to the changing psychology.. woo hoo
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August 5th, 2010 at 6:28 am 98
@Bob Lucas: "A Finance prof is excellent at coming up with theoretical ways to value an asset but they surely wouldn’t stake their tenure-based (read: unionized) academic career on it. "
That makes no sense. If they have a secure tenured job, then why wouldn't they take intellectual risks? They have nothing to lose, so why on earth would they need to play it safely? Pre-tenure, sure, they would play it safely. But after tenure?
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August 5th, 2010 at 6:29 am 99
@VHB: It doesn’t get to 50-50 until YEAR 22. Payment #253.
…and of course interest/vs principal ratio is irrelevant to anyone who has
1) other debt
2) other investment opportunities.
I know you know this VHB, but I still like to get this point across whenever I can.
cue A#'s broken record—-"debt represents an interest outflow, equity represents a missed income inflow". Aside from tax Quibbles and some potential "unigue situation" considerations, whether you have 0% down or 100% down makes no difference in terms of determining if something is a good investment.
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August 5th, 2010 at 6:33 am 100
@ patriotz
Let me quote again what you wrote:
"e.g. Vancouver went up a lot during the Toronto bust of the late 80’s/early 90’s"
Sauder shows an unambiguous peak at 1991 as the Hong Kong effect was taking off:
http://cuer.sauder.ubc.ca/cma/data/HousingPrices/…
Again, Vancouver caught the same wave and was saved by HK repatriation. I was living in Toronto over that period and know full well what happened, in fact spent years on RET trying to beat it into their heads.
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August 5th, 2010 at 6:39 am 101
See guys, it was all a big misunderstanding:
http://www.cbc.ca/canada/british-columbia/story/2…
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August 5th, 2010 at 6:42 am 102
@fixie guy:
I simply said:
The Toronto bust ran from 1989 (peak) to 1996 (bottom). Vancouver RE went up substantially over that period. I know there was a blip in Vancouver in 1991. You can make conjectures about how and why things happened, but the facts are the facts.
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August 5th, 2010 at 7:07 am 103
@VHB: "This is precisely why so many people get the buy/rent thing wrong. With a 35 year amm and 5% rate, it is 82% interest over the first year."
The original poster was talking about 4%/25yr. Not sure why you started going on about 5%/35yr.
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August 5th, 2010 at 7:08 am 104
@Anoymous:
Why would they? As long as you can keep paying, why would a bank care how much your house is worth?
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August 5th, 2010 at 7:16 am 105
@Devore:
"Why would they? As long as you can keep paying, why would a bank care how much your house is worth?"
That's sort of why I'm asking. They don't check – at least in any visible way – when you initially take a mortgage on a place so what mechanisms are or might be in place when you renew?
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August 5th, 2010 at 7:16 am 106
@Vanrod:
I guess it was confusion over the non-existent HST/GST that also caused sales in Calgary to fall 42% from last year. I'm glad the Realturds(TM) cleared that up for us.
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August 5th, 2010 at 7:18 am 107
@Devore: "why would a bank care how much your house is worth?"
Because secured debt and unsecured debt are two different animals. That it why credit cards charge around 20% while mortgages can be as low as 2%. You can never get a loan or a line of credit with no collateral anywhere close to the size of an average moprtgage. Once equity is not enough to cover the loan, it becomes unsecured and it's a completely different story. By the way, this is the major reason why millions of regularly paying Americals have foreclosed – they simply can't renew their mortgages.
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August 5th, 2010 at 7:18 am 108
@VHB: They're a product of the system, having spent decades in it. I can't imagine too many people willing to play along just to get tenure so they can let their REAL theories bust out then. There's no less groupthink happening in academia than any other closed system.
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August 5th, 2010 at 7:23 am 109
@Anoymous: "…so what mechanisms are or might be in place when you renew?"
We can figure it out pretty easily. The bank can do any of:
A) Offer to renew but with CMHC insurance (assuming criteria are met)
B) Cram down the mortgage amount until the LTV makes sense again
C) Tell the buyer to pony up or threaten to foreclose and sue for the balance
D) Lobby the government for bailouts
Have I missed any?
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August 5th, 2010 at 7:25 am 110
Historically RE goes up.
a stock can go to ZERO, but a house will not
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August 5th, 2010 at 7:33 am 111
The HST spin has always been nonsensical. Buyers set prices. Period. Now they're claiming HST confusion is keeping people away? Bullshit. All you have to do to avoid confusion is say "I will offer $X including HST." Bang, done.
The only reasonable impact of the HST was to pull demand forward into June, thus giving us a hangover in July. Confusion? Give me a break.
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August 5th, 2010 at 7:36 am 112
@Alum:
- Historically, real estate tracks inflation.
- Detroit.
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August 5th, 2010 at 7:39 am 113
This may be the ugliest house I have ever seen.
http://www.burnabysouth-homes.com/listing/V837771…
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August 5th, 2010 at 7:40 am 114
@ Joeblow
"Because secured debt and unsecured debt are two different animals."
Is that an avenue for the fed to bail out underwater home owners, by 'co-signing' (for lack of a better word) the unsecured portion? The bureaucrats who got them into this mess can play good guy, continuing to pay down the mortgage is spun as a matter of personal volition and integrity, blame shifts to the buyer, debtors remain on the hook, banks make out like bandits.. what am I missing?
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August 5th, 2010 at 7:40 am 115
@Alum: Historically RE is leveraged. A stock goes to zero, your RE equity goes NEGATIVE. Thanks for your brilliant insights.
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August 5th, 2010 at 7:55 am 116
@CanuckDownUnder:
>>>I guess it was confusion over the non-existent HST/GST that also caused sales in Calgary to fall 42% from last year.<<<
Maybe Albertans are the most confused of all Canadians and actually thought they were getting the HST.
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August 5th, 2010 at 8:01 am 117
@Alum:
"a stock can go to ZERO, but a house will not"
$20K in Miami is pretty damn close.
Or $1 in Detroit.
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August 5th, 2010 at 8:38 am 118
Thanks for the link to http://www.cbc.ca/canada/british-columbia/story/2…
I read through the comments and, based on the sample of 105, it looks like the word is out there. That word, of course, starts with a "c" and ends with a "rash".
One of the big barriers to getting the ball rolling is turning public sentiment. The first few take forever to build up to a tipping point in public sentiment. Again, only a sample of 105 (@4:30 PM) that are predominantly bearish.
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August 5th, 2010 at 8:40 am 119
After all this time, the slime has been talking in riddles; he finally reveals the planks holding his pitch.
He thinks prices won’t drop much because- get this:
Interest rates are low
Speculators will just hold if prices drop
(Let’s not give him any free press, and mentions his name)
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August 5th, 2010 at 8:58 am 120
New Listings 217
Price Changes 91
Sold Listings 112
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August 5th, 2010 at 9:05 am 121
@Devore, regarding "There’s no less groupthink happening in academia than any other closed system".
You're absolutely right. I saw many examples of a particular groupthink at two recent (science) conferences I attended in Banff and Hamilton.
Stats prof George E. P. Box is said to have said "all models are wrong, but some are useful". I'm starting to believe that if a model is popular in academia, it's not only wrong, but also of little utility.
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August 5th, 2010 at 9:07 am 122
@McLovin: "Follow up on my friend."
—
Thanks for the extended anecdote regarding your friend.
Please keep us updated in coming months.
Until then, two questions for him, if he feels up to responding:
"What percentage of your total net-worth is in RE?"
"What is your leverage to the Vancouver RE market?"
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August 5th, 2010 at 9:10 am 123
Off topic
$ 12M mortgage fraud
http://www.theglobeandmail.com/news/national/prai…
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August 5th, 2010 at 9:10 am 124
Nice numbers today, Paulb!
Thanks.
Market adjustment is under way, the ground is shifting beneath our feet.
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August 5th, 2010 at 9:11 am 125
@jesse:
"We can figure it out pretty easily. The bank can do any of:
A) Offer to renew but with CMHC insurance (assuming criteria are met)
B) Cram down the mortgage amount until the LTV makes sense again
C) Tell the buyer to pony up or threaten to foreclose and sue for the balance
D) Lobby the government for bailouts
Have I missed any?"
Don't all of these require the bank to know what the NEW value of the property is at renewal time?
I'm wondering if the market plunges whether the banks might start sending in their own appraisers….
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August 5th, 2010 at 9:12 am 126
@Boombust
regarding Chimpman’s latest musings/ramblings re: the July stats)
"….this is not a buyer’s market, despite what the MSM says. When a seller asks 400 times the gross rent on a property he’s asking a huge premium, regardless of the fact that he’s willing to sell for less than he could have gotten three months ago."
—
Hey, what do you know? I agree with that!
Now: Definition of 'huge'?
200% premium? (meaning housing is three times overvalued?)
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August 5th, 2010 at 9:16 am 127
@VHB: "If they have a secure tenured job, then why wouldn’t they take intellectual risks? They have nothing to lose, so why on earth would they need to play it safely? Pre-tenure, sure, they would play it safely. But after tenure?"
—
Once they've learned to play it safe, and have been rewarded with tenure for doing so, very few do any different for the rest of their careers.
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August 5th, 2010 at 9:19 am 128
@joycer: "@patriotz:
Nice find, I hope vreaa is able to make a similar one up on our local experts very soon!"
—-
Until then there is always "It's Only A Flesh Wound!"('Vested Interests and Market Participants Make Light Of Market Weakness')
with recent updates:
http://wp.me/pcq1o-15h
Please send relevant quotes you stumble upon.
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August 5th, 2010 at 9:27 am 129
I have been in the unfortunate position of having negative equity in real estate in the past. During that time my mortgage came up for renewal 3 times and the bank never once asked how much the property was worth. As long as payments are made on time it isn't in the banks best interest to do anything about falling real estate values.
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August 5th, 2010 at 9:35 am 130
@E:
The key phrase is "in the past". In the past a dog oce got approved for a 500K mortgage. Times are changing.
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August 5th, 2010 at 9:40 am 131
RE in Canada wont go down, we have found the economic miracle of the century…
http://ca.news.yahoo.com/s/capress/100805/kodditi…
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August 5th, 2010 at 9:47 am 132
@E:
I have "heard" though (not speaking from personal experience) that if a mortgage comes up for renewal and the homeowner is in a negative equity position, the bank can either 1)just renew the loan, no questions asked or 2)ask the homeowner to cough up more money, since they don't end up renewing the full amount of the loan. Interestingly enough, I've been renting for a long time and it seems like every so often the landlord calls and says the bank guy has to come out for a visit, to check the place out before they will refinance. Maybe that's just because it's a rental and they want to be sure that the tenants haven't trashed the place.
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August 5th, 2010 at 9:54 am 133
" regarding Chimpman’s latest musings/ramblings re: the July stats)"
Ok, enough already, let this be a warning, one more disparaging remark about Rob, and I will unleash the power of the authorities on you.
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August 5th, 2010 at 9:59 am 134
Like the numbers – reminiscent of late June. Wondering how many de-lists are accompanying them or is inventory climbing again? Turn this oil tanker around!
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August 5th, 2010 at 10:00 am 135
I'm glad we revisited Mclovin's friend's as I didn't want to seem like I'm beating a dead horse.
Vreaa, I don't think the 100k is considered a loss, in the same way that an increase in value is not considered a gain, until a transaction takes place. Herein lies the dilemma. To sell now would actualize the loss, while to hold has a chance of gaining some of it back in exchange for the opportunity cost of the net proceeds after sale.
Mclovin's friend's profile is exactly like the people I meet. They are reasonable people with enough resources that they won't suffer if they hold. And what I write below is how they think.
Without concentrating too much on his specific circumstance, my broader question was why does it seem the general consensus is negative cashflow automatically represents a loss? I understand if the property is fully paid up, since any negative cashflow goes to carrying cost and "paying your tenant to stay". But if there's a mortgage, the rent covers all carrying costs like interest, strata ,etc, and the negative amount only represents a portion of the principal being paid down, isn't this similar to having a 0% interest installment plan? Isn't it similar to paying a monthly pension amount and realizing it after several years (when the full mortgage is paid off)? If the owner plans to hold indefinitely, the price after 10 years or so doesn't matter. Once it's paid up, rent less expenses (the principal portion of his costs) becomes income. Is this a reasonable way of looking at it?
Of course there are risks e.g. bad tenants. But any other form of investment (if he sells and invests elsewhere) would also carry risks. He might not like trading one form of risk for another. A common line is if the asset price goes down, with stocks, you're holding a piece of paper, with property, you at least have physical land. (I know, he got a condo, but I'm generalizing the word property).
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August 5th, 2010 at 10:03 am 136
@Joeblow: I bought in 1993 and at that time mortgage financing was much more conservative than it is now. The reckless financing that you're speaking of has been going on for the last 10 years.
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August 5th, 2010 at 10:05 am 137
@Anoymous: "Don’t all of these require the bank to know what the NEW value of the property is at renewal time?"
Yes. This is the old mark to market versus mark to myth problem US banks are facing. If it's their own balance sheets they can try to do this however if the loans are to be newly insured by CMHC/Genworth there is significant pressure to appraise it properly. Queue government bailouts and guarantees.
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August 5th, 2010 at 10:07 am 138
Vancouver's economy gets another kick in the nards – non-stop flights from Bellingham to Hawaii for 1/2 the price they cost here and taxes of next to nothing.
http://www.alaskaair.com/as/www2/promo/farepromos…
Good on 'em, hope they turn Bellingham into a mega-airport for Vancouverites.
Aloha, suckers.
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August 5th, 2010 at 10:09 am 139
@Alum
If you're worried about a stock falling to zero, buy the market index which won't. For example, pull up a chart of the Dow over the last hundred years. Even better, plot it against real estate prices, which will look horizontal in comparison (3% per annum over a century is 19x, compared to 10% per annum = 10,000+).
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August 5th, 2010 at 10:10 am 140
Rumors swirling about Obama administration forgiving homeowner debt via Fannie Mae and Freddie Mac. Bailing out the over-leveraged on the backs of savers prior to the mid-term elections.
http://tinyurl.com/38lf4vo
It's early yet, but one wonders what the political calculations are, and if something similar could happen here at some point.
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August 5th, 2010 at 10:29 am 141
@Sara Palin: Oh, Sara, one day you come to refudiate any and all support for Mr. Chipman.
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August 5th, 2010 at 10:29 am 142
@Confused_among_rich_asians: "Once it’s paid up, rent less expenses (the principal portion of his costs) becomes income."
Real estate is an investment like any other and many people invest in it to make a living, not some side job for retirement. They can't make a living by staying cash flow neutral or negative for very long. Like was seen in the US, the money eventually runs out and values return to levels that immediately put food on the table.
Your math looks like a can't lose proposition but that should be a tip-off that something's amiss.
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August 5th, 2010 at 10:34 am 143
@Best place on meth: I tried to book a flight from Vancouver to Washington, DC last night and the cheapest price I could get (inclusive of taxes and fees) was about 950 CAD. I found a package flying out of Seattle PLUS three nights at the Marriott for 575 USD, all inclusive. That is enough savings where I don't mind driving the 3 hours to SeaTac and back at the beginning and end of the trip.
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August 5th, 2010 at 10:36 am 144
VHB, that's true.
I'm sure we all agree that was a bad choice.
I'm actually more concerned and confused about the negative cash flow = principal portion of the mortgage thing. As I mentioned, it seems it's considered a loss here but in my group, it's not considered totally a loss since the amount being paid still goes to principal and not to any other carrying costs. Can you or anyone else clarify?
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August 5th, 2010 at 10:44 am 145
"Good on ‘em, hope they turn Bellingham into a mega-airport for Vancouverites."
They did that a looooong time ago.
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August 5th, 2010 at 11:36 am 146
The obvious difference with a stock investment going to zero and a Real Estate investment being in negative equity is simply that. The stock investment can only go to zero while your rock solid real estate investment can really wipe you out and you can't just mail in the keys to your bank like most of our neighbours to the south have done. I have been saying for a long while there will be blood in the streets. There will be many so called rich baby boomers living on cat food long into their golden years. Stupid is as stupid does. Real Estate speculating is great just don't stay in too long.
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August 5th, 2010 at 11:47 am 147
Re: Bellingham 1/2 price to Hawaii
Starting from $149 US each way plus taxes and baggage fees is not half price over flying from YVR. All in you are looking at $400 return with bags.
You can go Westjet for similar pricing out of YVR. I go to Hawaii regularly and never pay more than $400 all in return.
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August 5th, 2010 at 12:07 pm 148
Victor Adair is a regular on CKNW tells BNN what he really thinks of the current asset markets including real estate. Very interesting and something you have never heard on CKNW. Hint he is not bullish on Canadian real estate and even rents his principle residence.
Check it out:
http://watch.bnn.ca/headline/july-2010/headline-j…
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August 5th, 2010 at 12:13 pm 149
I just posted a link to part 2 of the Victor Adair interview by mistake. Here is part one where he talks about Canadian real estate. Very interesting.
http://watch.bnn.ca/headline/july-2010/headline-j…
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August 5th, 2010 at 12:13 pm 150
@Boombust:
Not really. Currently, there are like two counters and no ticker to show arrival/departure.
The runway is too small and only handle smaller planes.
Right now, they are going thru a relatively major facelift and will be ready next year to handle bigger planes and longer-haul flights.
Hawaii will be awesome. Hopefully Florida and other eastern states soon after.
Bye Bye YVR.
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August 5th, 2010 at 12:19 pm 151
@Anonymous:
BS. I challenge you to go to westjet right now to find a return vancouver/hawaii set of flights $400 all in for early 2011.
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August 5th, 2010 at 12:37 pm 152
@Confused_among_rich_asians:
The comment VHB made is very true. Essentially it takes him out of the market for future purchases. If this is the economic norm then prices can’t move up anymore.
Looking at the math of the whole thing the person is essentially paying 120k in escrow for a forced savings account that holds tons of risk. Compare the yeild of the asset ex carrying costs you are yielding about 0.5% above the gov can 5yr bond (2.3%). So tell me what would be different then buying 120k of 5r AA corporate bonds with 120k capital (~4% yield right now) or buying this property where carrying costs equal the yield (0%). It means you require 1% capital appreciation per year (4:1 leverage) just to outperform a low risk profile bond with 0 leverage that you can pretty much always liquidate. This assumes that no months of rent are lost; no assessments and no price declines. It also doesn’t compensate you for any labour put in. This is the issue I see with a lot of investment positions is that risk is never considered (you alluded to this in your post; high five).
Now if you look at what has happened in the real estate market. Sales have dropped off and taxation has increased. If you project the regular sales pattern forward with our inventory then we will be getting some impressive MOI later on in the year indicating price declines. We’ve watched this move a few times now. We should know what happens by now. Now consider that housing is the main driver of money entry into our economy (and the US) which dollar volume has fallen off it means our economy will at least get a slight cold. If 0% forced savings is the norm and x% of people lose their job these people will be forced to liquidate eventually. If you ever wondered what the difference likely is between here and Edmonton in terms of recovery it is simply timing. Edmonton prices dropped sooner and so the loss was sustained for a longer time becoming permanent. Vancouver 4 months in had ZIRP implemented by BOC.
So what are the favourable outcomes in this individuals scenario?
-Capital appreciation: not likely given above.
-Rental increases: not likely given no price increases
-Inflation: i doubt it; at least not in 2-3 years. By the time it is likely the individuals mortgage rate will be resetting… This is terrible.
-They hold for 5 years without any "economic event". There principal gets paid down x% through that time. They have saved 800$ x 60 = 48k at near 0% return. Their yield would increase and now be an epic 0.2% yield on 25 yr amt. GASP! The only other option is to go variable which may be good.
-Interest rates going down. While it is true there is a small amount of room for yields to contract; BOC already has their thumb on the overnight rate down as far as it will go. Any substantial shifts in 5yr debt would indicate a flight to safety aka recession. I don’t know if anyone else follows the bond market closely but the recent moves haven't been very encouraging.
The only favourable benefit is the tax deferral that RE offers. But it doesn’t sound like he’s a Billy Gates.
I could type a whole novel on this but this should be good enough. I agree with you this is a good discussion.
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August 5th, 2010 at 12:39 pm 153
@Disbelief: You can also hedge stocks w. options so they don't go to 0.
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August 5th, 2010 at 12:54 pm 154
Fishy's got the OK numbers here.
29.6 MOI in the Shuswap/Revelstoke Area
23 MOI in the Central OK area (Kelowna etc)
26.8 MOI in the North Okanagan area
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August 5th, 2010 at 12:56 pm 155
I found Vancouver-Hawaii flights for $480 all-in return on westjet.com, September 2010. So Bellingham most definitely isn't a constant 50% discount.
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August 5th, 2010 at 1:07 pm 156
"BS. I challenge you to go to westjet right now to find a return vancouver/hawaii set of flights $400 all in for early 2011."
I assume you don't travel much. Waite a couple of months out and you can book for $400 in Jan.
Try September, October, November and you can get $400 right now for many dates (not every date). BTW the $149 for the US flight you can't book now, was for select flights, an introductory offer and you pay extra to take each bag each way. Go ahead and book out of Bellingham if you think you are getting half off but your not. The power of marketing is making the naive think they are getting a special deal when they are not. Kind of like realtors are doing now when prices slip.
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August 5th, 2010 at 1:08 pm 157
@VHB:
Good 'o Cameron Muir says "“However, the buyers’ market is
expected to be short-lived…."
Of course Mr. Chief Economist, the Abertan and Asian investors will return to the Okanagan shortly after all the smoke clears.
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August 5th, 2010 at 1:10 pm 158
East Van is central and closer to downtown. For those that work and play downtown and Westside, it is a way better option. IMO, the only advantage New West has over East Van is the presence of an IHOP. Sorry, not a fan of New West.
Actually I think his videos are pretty good. He's generally an optimist of course but he's pretty honest about when there is a slowdown and often mentions when listings are high and the impact on prices and how sellers need to be realistic. If you can get past his gravelly voice I think a lot of his videos would be informative for anyone buying a condo downtown. He's even talked about bedbugs (probably hoping to get realpaul as a regular viewer).
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August 5th, 2010 at 1:11 pm 159
@Anonymous: #155
"I go to Hawaii regularly and never pay more than $400 all in return."
I'd like to know how you "never pay more than $400". This is the absolute best fare I could find all in, a blowout sale from Westjet.
Base Fare :337.99 CAD
HST:1.80 CAD
AIF:15.00 CAD
ATSC:25.91 CAD
US Taxes and Fees:52.69 CAD
NAV/Ins:15.00
Total:448.39
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August 5th, 2010 at 1:11 pm 160
@specialfx3000: perhaps someone needs to put up "Cameron Muir is a liar" posters up near the Sun offices…
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August 5th, 2010 at 1:16 pm 161
@VHB:
Holy crap.
If I owned property in the Okanagan I'd auction it off tomorrow for whatever I could get.
UGGGLLLYYY!
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August 5th, 2010 at 1:16 pm 162
Buyer's market? Please, everyone, stop using that propaganda. A buyer's market is when prices, not sales, are low. We are in nothing more than a very well concealed seller's market.
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August 5th, 2010 at 1:18 pm 163
@Anonymous:
"I assume you don’t travel much. Waite a couple of months out and you can book for $400 in Jan."
I assume you don't understand the tax difference between travelling Can to US vs. US to US.
If you want to 'wait' for a seat sale, why don't you wait till Allegiantair introduces their Bellingham Hawaii route. Family of 4 and you can easily save $1000 for flights out of Bellingham. Then shop in the US before you come home. Pick up cheap booze and cig at the duty free while you're at it.
I agree it's not always 50% but why don't you compare YVR to Vegas versus BLI to Vegas and see the price difference. Sometimes, it is 50% difference.
Hate it or love it, this is excellent news for Vancouver vacationers and bad news for local travel economy.
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August 5th, 2010 at 1:20 pm 164
@Anonymouse:
I can get past Ian Watt's gravely voice just fine.
It's his cocaine induced facial contortions I can't get past.
Normally you only find a face like that on stroke victims.
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August 5th, 2010 at 1:22 pm 165
@VHB: Great find VHB – funny enough even with 17 months of inventory, residential median and average prices are flat since April (i.e. distributional changes).
This one will be ground zero for the B.C. bust. Watch what happens, particularly with new developments and foreclosure sales.
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August 5th, 2010 at 1:24 pm 166
It seems that some of my messages don't get through. Are links held in moderation?
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August 5th, 2010 at 1:30 pm 167
Its not the boomers that will be affected. They bought their houses long ago when prices were low. Unless they took out HELOCs or bought multiple investment properties in the last few years, boomers will be fine. Its the folks who bought in the last 5 years that will be hurting i.e. mostly likely folks in their 30's. As usual, the boomers will make out like bandits and screw over the following generations.
@GB:
What the hell IS that? A former prison? Cult headquarters? Gulag dormitory? That is nasty!! And they're asking for $2M!! Gah!! *shoots self in head*
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August 5th, 2010 at 1:32 pm 168
Michael Hyatt who co-founder, BlueCat Networks (a very rich guy) was co hosting the Lang and O’Leary exchange on CBC today when they discussed Canadian real estate 30 minutes in.
Check it out as Michael reveals he has lots of money but sold his principle residence 6 months ago to rent because he doesn’t see the value (he lives in Ontario). He is planning on buying back in when prices drop. Some very bearish comments about Canadian housing in general.
After the 15 second commercial move to 30 minutes in for the segment for the part on real estate.
http://www.cbc.ca/video/#/News/TV_Shows/Lang_&…
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August 5th, 2010 at 1:37 pm 169
"As usual, the boomers will make out like bandits and screw over the following generations."
Boomers are historically the worst savers and won't be sipping Crantinis into the sunset years. Don't get your demographic data from Fark.
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August 5th, 2010 at 1:48 pm 170
@fixie guy: "Crantinis" That would be cranteeny's, actually.
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August 5th, 2010 at 2:05 pm 171
Meth:
"I’d like to know how you “never pay more than $400″. This is the absolute best fare I could find all in, a blowout sale from Westjet"
I guess I am smarter than you. Cut back on the Meth.
Anon:
"I assume you don’t understand the tax difference between travelling Can to US vs. US to US."
Yes the HST does not apply to flights out of Canada. I was talking all in including taxes BTW.
"If you want to ‘wait’ for a seat sale, why don’t you wait till Allegiantair introduces their Bellingham Hawaii route. Family of 4 and you can easily save $1000 for flights out of Bellingham."
Almost any airline ticket you buy is a "seat sale". I will wait and see when it happens.
"Then shop in the US before you come home. Pick up cheap booze and cig at the duty free while you’re at it."
You can still shop in the US when traveling to the US regardless of flying through Bellingham. The same booze is available in other states such as Hawaii. Man you are dumb. Like I said I guess you have never traveled.
"I agree it’s not always 50% but why don’t you compare YVR to Vegas versus BLI to Vegas and see the price difference. Sometimes, it is 50% difference."
I know, but we were talking about Hawaii not Vegas. I often fly to Vegas out of Bellingham because it is way cheaper. Hawaii it doesn't look like it as of right now.
"Hate it or love it, this is excellent news for Vancouver vacationers and bad news for local travel economy."
I don't think booking a few flights out of Bellingham is going to make too much difference. Hey, I wish Hawaii was cheaper out of Bellingham but I was just pointing out it is not by much if at all and not 50%. We will see when flights start going what happens and more competition is always good.
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August 5th, 2010 at 2:11 pm 172
@Anonymous: great video find! here's a fixed link: http://tinyurl.com/2bfbdwm (skip to 30 min mark)
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August 5th, 2010 at 2:19 pm 173
@Anonymous: "The same booze is available in other states such as Hawaii. Man you are dumb. "
Yes, taking bottles of liquor through airports is so troublefree. Ha! If you check it, high risk of theft. Or it breaks all over your clothes. If you take as carry on. Whoops! CATSA employees get to drink it.
Been there, done that, lost the 100 euro bottle of scotch . . .
I would be picking it up in Bellingham, myself.
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August 5th, 2010 at 2:25 pm 174
@Anonymous:
No one mentioned HST and everyone is talking about taxes-in BTW.
You still can't show sub $400 return-flights for Vancouver.
You are dumb to say almost all tickets are a 'seat sale.' … And you are horrible with your guesses.
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August 5th, 2010 at 2:29 pm 175
@VHB:
Actually I think fixie is right, its a cranberry martini therefore it should be -tini-, not -teeny-. Wow, I feel foolish spelling it cranteeny this whole time. I blame Samantha D. for this.
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August 5th, 2010 at 2:29 pm 176
And why would I have to put on my helmet Mr. Genus?
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August 5th, 2010 at 2:32 pm 177
@Cody:
Thank you for your input, Cody.
And please remember to put on a helmet before leaving the house.
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August 5th, 2010 at 2:33 pm 178
VHB:
"Yes, taking bottles of liquor through airports is so troublefree. Ha! If you check it, high risk of theft. Or it breaks all over your clothes. If you take as carry on. Whoops! CATSA employees get to drink it."
Just pay for it at duty free in the airport and it is waiting for you packed in bubble wrap upon boarding. No hassle at all. I would do that even if traveling through Bellingham as it is easier than stopping at the border. It sounds like all the commentators have never traveled as they seem to be unaware of the basics. Who packs booze? Especially with the current luggage weight restrictions. Only a novice newbie would do that.
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August 5th, 2010 at 2:39 pm 179
Anon:
"You are dumb to say almost all tickets are a ’seat sale.’"
Over 95% of all airline seats sold are not "full price" and are therefore a seat sale. No one pays full price unless they have to fly a specific day and time and are stuck paying it. Usually for business on short notice. I suggest you find someone to help you out if you ever do decide to travel.
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August 5th, 2010 at 2:42 pm 180
@Anonymous:
"I don’t think booking a few flights out of Bellingham is going to make too much difference."
You are dense. The millions that they are investing in the airport there is not to cater to locals… they are targeting people from the GVR. Yes, it will make a difference.
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August 5th, 2010 at 2:46 pm 181
@Anonymous: "Over 95% of all airline seats sold are not “full price” and are therefore a seat sale."
Where did you pull that stat out of?
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August 5th, 2010 at 2:52 pm 182
@Anonymouse: ok. humour was lost. I was quoting samantha's mis-spelling for humour.
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August 5th, 2010 at 2:55 pm 183
@“A-sharp” Accountant: Thanks A#. I do fully understand that. But so many people think their payments are ‘building equity’ instead of what they are really doing which is renting money from the bank.
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August 5th, 2010 at 3:03 pm 184
@Cody:
That's Mr. Genus-Species, to you.
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August 5th, 2010 at 3:06 pm 185
@realpaul: Not that I disagree, but you are off base thinking this has anything to do with RE.
It is true that traditionally civil servants made less money than corresponding position in private sector, in exchange for greater job security, great benefits, and guaranteed pension with generous early retirement provisions. It is also true that recently that income gap has been closing, through a combination of rising compensation (inflation indexing, and wanting to attract the best and brightest /rolleyes/) and stagnant and falling private sector real wages, without a corresponding drop in the attractiveness in public benefits and pensions.
But, I don’t think this has anything to do with the government wanting to indirectly juice RE or pump inflation. Rather it’s very simple. The civil servants are the largest voting block bar none, and their entire livelihood depends on government largess, so naturally they will vote whoever is most likely to keep the good times rolling, and the politicians desire is to keep them happy.
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August 5th, 2010 at 3:14 pm 186
“As long as you can keep paying, why would a bank care how much your house is worth?”
Do Canadian regulations allow mortgage lenders to grant/renew a $700K mortgage on a property worth <$400K?
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August 5th, 2010 at 3:16 pm 187
@Devore: “As long as you can keep paying, why would a bank care how much your house is worth?”
Because there is a tiny tiny tiny chance that you won’t be able to keep paying. Banks tend to notice these things because they’re full of bankers.
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August 5th, 2010 at 3:19 pm 188
@Cody:
Let me help;
http://www.urbandictionary.com/define.php?term=He…
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August 5th, 2010 at 3:22 pm 189
I found the news story about a single instance of raw sewage escaping into Halifax harbour really funny. It made the National rotation on all the stations.
Vancouver dumps an estimated 800 million liters a day of untreated raw sewage into the waters of English bay, False creek and the Harbour….every day of the year. There is certainly a credibility gap in the news coverage. Vancouvers case is public information for all to see as COV vs DOFAO-Regina before the Supreme Court of Canada.
Dr David Suzuki and the UBC marine bio-labs have proven that 99% of all sealife in the waters surrounding Vancouver is too toxic to eat and displays cancerous lesions ….. there is an infectious strain of incurable bacteria infecting beach goers that has washed up on the beach having been discharged as hospital waste ( it took the Americans to bring this story public but not a peep here…. yummy)…….this is not news apparently…..now get back to the bank and get pre approved for your new pre sale people…..nothing to see here.
There are some cheap flights, I found a Continental filght Vanc – New York direct for just over $400 inc taxes. I did notice that there are a great variety of prices on the same flights through the same carriers…its like they're fishing for suckers…prices can rise and fall hundreds of dollars in a few hours…its so wierd…..Air Canada wants $1030 for the same flight…..on the same plane…..caveat emptor.
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August 5th, 2010 at 3:26 pm 190
Some of the Hawaiian airlines rates out of SEA are as low as $135 each way. As usual play with the dates.
http://www.hawaiianair.com/
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August 5th, 2010 at 3:53 pm 191
@Anonymouse:
Most boomers retirement plan is their house. How will they be fine, exactly?
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August 5th, 2010 at 6:17 pm 192
@BPOM,
re: flights to Hawaii. Brilliant, that’s what I’ll be doing next winter. As bulls know, renters use their monthly savings over home ownership to travel the world!
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August 5th, 2010 at 6:21 pm 193
@Confused_among_rich_asians: About McL’s friend. As fun as it is to debate whether he should sell or hold, the most salient thing is that he is almost surely NOT going to be buying another. No buyers = prices down.
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August 5th, 2010 at 6:24 pm 194
@Miracle:
Rewarding failure, one citizen at a time.
It’s clear that country is finished, and no, it can’t happen here. We can’t print money at will like the Ameretards can.
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August 5th, 2010 at 9:36 pm 195
Buff Butler, thank you for your explanation. I agree that it doesn’t make sense to purchase such a property. I have done the math a few years back and that’s why I haven’t bought and am on this blog. The original premise was the property was already bought and selling would incur 100k loss. I see more choosing to hold at the miniscule yield than losing 100k outright. If there are a lot of people in such a position, that might explain why inventory hasn’t been growing like we thought it would. As long as the negative cash flow is less than principal portion of mortgage, they’ll hold.
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August 5th, 2010 at 11:16 pm 196
@vhb
as a long I was voting your
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August 6th, 2010 at 5:48 am 197
I’m continually amazed that houses in East Van, sitting in a sea of unattractive Vancouver Specials with poor transit access and nearby services, cost a lot more than New West.
I have a friend that lives in New West and he's always asking me to have coffee in his hood. I have took him up on his offer few times and each time I do I can't wait to get out of there. Many zombies and hood rats, to me it has very few redeeming qualities that make for a decent neighbourhood. There is one street with lovely tree lined street and huge heritage homes on nice sized lots but the rest of it is nothing special.
It is funny how he thinks his little home on a small flat lot will be appreciating forever. I have another friend that thinks the same of Coquitlam like its something very special. They both think that anything on this side of the bridge will be fine and will not go down but in the valley they will take a pounding. I just chuckle and say yeah that makes sense. If you put a bull in his own home beside a garbage dump he still would think he has found paradise.New West and Coquitlam are far from paradise, there are worse places in the world but there are way better for half the price.
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