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What to do about falling prices.

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No Longer Looking points out this great editorial in the Vancouver Sun. I’m trying to figure out if it’s intent is the calm people about the Vancouver real estate market slow down, or freak them right out:

I penned this editorial to calm fears that the real estate market in Vancouver was collapsing and I’ve added some brief comments at the end.

Living in Canada’s most expensive housing market, residents of the Lower Mainland are obsessed with real estate prices and mortgage rates.

And no wonder. The benchmark price for detached homes in Metro Vancouver last month was $793,193. A down payment of 25 per cent would leave the buyer with a mortgage of $594,894, in which case a difference of just one percentage point in the interest rate can vary monthly payments by $500.

In comparison, the average price of a house in the Greater Toronto Area is $420,482. The standard down payment brings the mortgage to $315,316 and the interest rate impact to $260.

They recommend NOT walking away from an underwater mortgage – just keep paying more than they house is worth, after all:

..it might be a few years, perhaps a decade, before real estate prices return to the heady levels of 2007. But there’s a good chance they will.

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Canucklehead

'..it might be a few years, perhaps a decade, before real estate prices return to the heady levels of 2007. But there’s a good chance they will.'

I agree. Given enough time house prices will get back up to that level – it's the nature of inflation. 10 years at 3% per year inflation should bring them down to a more affordable level.

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VultureBoy

Yalie, that video is *perfect*. very funny.

tincup: thanks! I have been watching this one for a while, but had completely forgotten the starting price.

Jesse: Good points. Something doesn't seem quite right, beyond just the description.

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tincup

VultureBoy, that one was first listed on May 17th for $818k.

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Yalie

Infamous is when you're so famous, you're INfamous!

http://www.youtube.com/watch?v=egLjBsK9K8o

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VultureBoy

Paulb & PW:

So perplexing to me…why would they have to drop the price 20k on a place when it is sitting beside an "infamous" lake? (LOL)

798k here (june 30): http://vancouver.en.craigslist.ca/van/reb/1819452…

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jesse

@VultureBoy: That is freaking hilarious!

I remember touring a few places like this: newly renovated with laminate flooring throughout and undeniably vacant. That was enough of a taste that these places are for mugs. Check the walls for moisture damage is all I can say.

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patient renter

@Vulture Boy

That's good.

I also get a chuckle out of ads that talk about houses in the "HOT Renfrew area".

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Paulb.

@VultureBoy: Lmao!!

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VultureBoy

@patient renter:

Now I agree that is bad copy. But in the same area I think this stinks worse:

"only steps away from infamous Trout Lake"

see http://www.realtor.ca/propertyDetails.aspx?proper…

What sort of idiot agent/seller refers to the lake adjacent to the listed property as "infamous"?!?

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patient renter

I love this listing for a completely overpriced house near Commercial Drive.

899 000 for such an average house. Absolutely absurd, I wouldn't pay more than $550 000 for it.

But the last line in the listing is priceless:

http://www.realtor.ca/propertyDetails.aspx?proper…

'Live in this home today and build a massive apartment building in the future.'

Who writes these things???!!!

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Boombust

"Lenders say they are trying to recover some of that money but their success has been limited, in part because so many borrowers threaten bankruptcy and the collateral in the homes backing the loans has often disappeared.

The result is one of the paradoxes of the recession: the more money you borrowed, the less likely you will have to pay up."

-Calculated Risk

Yep. I owe $100,000, and I'm the one to worry, I owe $100,000,000 and YOU worry!

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Boombust

"I see red people.

Well, "Better red than Socred" as many used to say in this province.

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crashcow

@Best place on meth: I see red people.

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Renting

There are generally two types of people who sell. Those who "must sell" and those who "want to sell". The must sells – death, divorce, loss of job, health reasons, etc. will still sell regardless of the market even if they are underwater. Those who "want to sell" are typically people who are going to buy a new place anyway. In most cases they are move up buyers or even a presale flipper. This just takes two transactions out of the market for those who "want to sell" but can't due to being underwater. One reason why sales volumes plummet in a declining market. We may be seeing the volumes slip now is there are already plenty of "want to sells" around today who can't just based on little or no appreciation and having to cover transaction costs putting them… Read more »

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anon

If your house is under water…and you cannot pay your mortgage…how many months of not paying have to go by before the bank just forcloses on you…if you aren't paying your mortgage are you likely paying taxes? strata fees?

If your mortgage was backed by CMHC why would any bank let you stop paying and not call in your loan? The CMHC will pay the bank and then go after the borrower won't they?

So the borrower will declare bankruptcy because like realpaul says…your credit is only defunked for two months if you declare bakruptcy…lol

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GB

@Best place on meth: Whoaaaaa Meth. Shanghai is only down 12 pts as of now. It's holding in very well given NYSE today. And don't look for China to implode just yet. The Chinese gov't will print insane amts of money to keep their GDP growth 9%+….they will make the US look like they are hardly trying. If they don't, they will have a revolution.

In any event, as to how this ties to here….I don't buy into the "Wealthy Asians" being the prime reason for Van real estate being so overpriced. It's the local speculators dude. Sure, the Asians have some impact, as does the illegal drug industry…but mostly it's those cheeky speculators.

Doubt very many chinese were buying those Woodwards or Espana units that were all bought as flips…

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Boombust

Home (how?) much inventory could potentially be held back from sellers that have to hold, cuz the bank won’t release the lein on the asset, cuz they can’t cover the outstanding balance?"

This has not stopped market slides in the past; particularly, 1981-82.

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FlipFlop

Anonymous said:

If you can’t pay then you can’t sell.

Could this help hold prices from falling with the velocity that they did in the US?

Home much inventory could potentially be held back from sellers that have to hold, cuz the bank won't release the lein on the asset, cuz they can't cover the outstanding balance?

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Best place on meth

Wealthy Asian Index (WAI) down sharply this evening.

http://finance.yahoo.com/intlindices?e=asia

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patriotz

@Vanguy:

Funny how they don’t understand or probably care that the ‘bank’ has lost over $200k on their little adventure.

California law says that mortgages made to purchase property (not refinances) are non-recourse. That means the borrower has the legal right to either pay the loan back or give the property back.

The reason this law was passed (years ago) was to protect people from RE scams. It prevents the lender from recovering more money than the property is worth.

The bank had the choices of refusing to make the mortgage loan due to overvaluation or requiring a large down payment. They decided to take their chances on RE continuing to go up, and they lost. That's what happens when you get greedy.

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Vanguy

Astonishing NY times article on americans who won't pay back a dime on money they owe. Friends of mine in LA just walked away from a house that they paid $650K for, and is now worth $425K. Oh, and they had $42K HELOC as well for a boat that they 'had to have'.

But it's okay they are renting now in Calgary now…they just see their two years of mortgage payments in LA as rent. Funny how they don't understand or probably care that the 'bank' has lost over $200k on their little adventure.

http://tinyurl.com/268h2g7

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anon

I don't quite get why people living in charished family homes would give a rat's ass if their home suddenly decreased 30% in value. I know my parents wouldn't. But then, a 30% drop wouldn't come close to touching the price they paid for the pace in 83 when they bought for 100k on a listed price of 225k.

The 30% of todays market value wouldn't bother my siblings or myself either, though we know the house will eventually come to us, as we don't intend to sell it…reason being that it is a cherished family house.

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crashcow

@Kim Jong-il buy 3: everyday since April has been Christmas

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tincup

North Shore News article titled: "North Shore home sales drop sharply"
http://www.nsnews.com/business/North+Shore+home+s…

The reporter briefly talks to the president of Landcor and good 'ol Tsur Somerville.

Landcor guy says prices "could level off" but sees no big downturn. Why?

a)they're not making more land!

b)everyone wants to live here!

c)there are other places that are more expensive!

Geez, makes me wonder if the guy owns a house here.

Somerville gives some reasons why prices might be sticky, but as usual makes no real predictions.

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Anoymous

@patriotz:

"There is no HST on used dwellings"

But there is HST on all the services associated with buying any dwelling, used or new.

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