Where have all the buyers gone?
The July stats package from the REBGV should be released soon, but in the meanwhile Inventory shared some interesting month end stats for unit sales – they’re dropping all over the place compared to the same month last year:
August 2nd, 2010 at 1:03 pm 1
First!!!!!!!!!!
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August 2nd, 2010 at 1:25 pm 2
As the bulls continually said during the rise…
"It's supply and demand"
This means one thing and one thing only.
Price declines. I do hope that the declines stay less than 2 percent per month this time. The last correction was unprecedented and way too fast. Let's hope it goes slow and steady this time.
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August 2nd, 2010 at 1:30 pm 3
These numbers are weak. I find it fascinating the monthly sales pattern seems to be following 2008 quite closely. If the trend continues, which is no sure thing, mind, the rest of the year is going to suck for sellers and Realtors alike.
To all those sellers who have de-listed: profit: ur doing it rong.
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August 2nd, 2010 at 1:37 pm 4
I wonder, should the downward trend turn into a multi-month rout, could we possibly see the federal goverment intercede with some sort of initiative that leads to banks offering 30 year mortgages at rates comparable to current 5 year rates?
It is one thing that would certainly keep values inflated for a while – the ability of people to obtain 30 year fixed rate mortgages like Americans can.
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August 2nd, 2010 at 1:49 pm 5
summer 2009 was unusually strong. the numbers this year aren't particularly weak. september will be a key month to watch this year. the second and third weeks of september will give a window forward for the rest of the year.
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August 2nd, 2010 at 1:49 pm 6
@ Underdog
I doubt the government would intervene any further than they already, indirectly have…after all they've claimed that there never is/was a housing bubble.
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August 2nd, 2010 at 1:54 pm 7
@ Underdog
"…one thing that would certainly keep values inflated for a while…30 year fixed rate mortgages like Americans….
I was caught out by the lack of sarcasm tags once already. Serious?
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August 2nd, 2010 at 1:56 pm 8
"the numbers this year aren’t particularly weak." they are the 2nd worst in ten years. You are wrong.
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August 2nd, 2010 at 2:06 pm 9
looked more closely at rebgv's benchmarks from Apr-Jun today…it's strange that while the Coquitlam detached benchmark dropped -7%, neighbouring Port Moody was up 5% over the same period. Even stranger is that while the West Van apartment benchmark dropped a whopping -19%, the West Van detached benchmark remain flat.
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August 2nd, 2010 at 2:12 pm 10
i would have predicted between 1500-1800 for july this year. a slow summer was baked in the cake. listings and sales in september will be much more interesting to watch. anyone getting particularly excited about this months numbers has probably spent a bit too much time in the sun.
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August 2nd, 2010 at 2:13 pm 11
@crashcow: Port Moody and West Van are pretty small samples. Very noisy.
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August 2nd, 2010 at 2:21 pm 12
@stagnate: Shorter version: I predicted 0. When '1' came up, that means things are booming.
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August 2nd, 2010 at 2:22 pm 13
"Let’s hope it goes slow and steady this time."
Why? I was thinking along the lines of "fast is good". "Steep precipice" would work for me. "Catastrophic collapse" is also acceptable. Let's get it over with. Normalcy can't return until the market bottoms. The longer it goes on, the more victims there are.
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August 2nd, 2010 at 2:22 pm 14
Sales figures? Inventory numbers not working out as you all predicted, or what?
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August 2nd, 2010 at 2:31 pm 15
@Dan in Calgary:
Victims? Nobody held a gun to anyone's head when they said the likes of "Buy now or you'll be priced out forever" or "Housing prices only go up". What there will be is a lot of sheeple learning an important life lesson.
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August 2nd, 2010 at 2:32 pm 16
@Anonymous: How drunk are you tonight? Inventory numbers are looking like 2008, that not bad enough for you? You know that it's a combination of listings and sales that make up the total inventory number right?
Are you looking for every story thread to include every current stat? They'd go on for pages!
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August 2nd, 2010 at 2:44 pm 17
@Anonymous: It's all about the sales. Just ask any Realtor. Inventory tracking is just 4 fun but the real key to market weakness is low volume.
vreaa put it best: delistings are failed sales and are effectively a "shadow inventory" that will watch in frozen awe as prices sink like a lead ballon.
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August 2nd, 2010 at 3:01 pm 18
Where's the "like" button?
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August 2nd, 2010 at 3:14 pm 19
Surprised Squamish is only down 3%. I'm guessing this is because the market took a nosedive in 2008 but didn't experience the 2009 recovery that the lower mainland did?
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August 2nd, 2010 at 4:03 pm 20
Wow….Vancouver East and Vancouver West sales volumes are down 42% and 37% respectively……a few more months like this (regardless if benchmark price goes up or down), there will be a large number of starving Realtors (TM).
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August 2nd, 2010 at 8:15 pm 21
@“A-sharp” Accountant:
The correction cannot come too fast. The best thing that could happen would be for prices to fall 50% overnight. Then this city and province could get on with building a real economy. And that includes a RE industry that builds and sells for prices that make sense.
In early 80's nominal prices dropped 40% in 2 years and real prices dropped 50% in 4 years and that's what made the economic recovery of the the late 80's possible – people who had real skills and industries that needed to be competitive found the city an attractive place to locate.
The slower prices fall, the more people will buy high. The fewer such people the better for everyone. Get off the juice.
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August 2nd, 2010 at 10:46 pm 22
Things are looking EXACTLY like 2008, and we all know what happened there.
Is it just me, or are the posts form bears even more shrill than usual?
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August 2nd, 2010 at 10:51 pm 23
425 point interest rate cut then versus 25 point hikes now and no room for a big cut. Looks like 2008 alright except there is no parachute.
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August 2nd, 2010 at 11:23 pm 24
@crashcow:
Possibly explanation… when sales are low, higher end sales skews the benchmark price.
Make no mistake, downward pressure overall is increasing.
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August 2nd, 2010 at 11:25 pm 25
Love the bull counter argument against sales being the lowest in 10 years.
"but… but the last 10 years have been phenomenal. you can't compare normal with the last 10 years!"
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August 2nd, 2010 at 11:27 pm 26
@Bilbo Bloggins:
The benchmark is not supposed to be skewed by sales mix, which is the reason for using one.
However in the smaller municipalities the sample size is small enough that the benchmark is not very reliable on a MOM basis.
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August 2nd, 2010 at 11:31 pm 27
@DannyBoyd:
It's just you. You want shrill, wait a couple years for when the FB's and the RE industry are begging for bailouts and saying that "nobody could have seen this coming".
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August 2nd, 2010 at 11:40 pm 28
Actually the real story was how fast NEW sales fell. I can't help but think the HST had some role to play, at least in initial sticker shock. I'm also hearing (uncorroborated) stories that some RE marketers (who shall remain nameless) are dropping prices hard on some developments.
Unless August sales pick up big time, sellers re-listing in September are going to find a different type of "sticker shock" — comparable sales down even more than when they de-listed. The inventory spike in September may be more muted than normal.
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August 2nd, 2010 at 11:47 pm 29
@Dan in Calgary:
2% a month is just right.
1% a month takes forever
4% (like some months in 2008) is a psychological minefield for buyers, and may attract regulatory attention.
I hear what you are saying, but remember that in the world of RE 2% a month IS fast. 2008 was truly a special kind of decline.
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August 2nd, 2010 at 11:51 pm 30
@Anonymouse: "Surprised Squamish is only down 3%. I’m guessing this is because the market took a nosedive in 2008 but didn’t experience the 2009 recovery that the lower mainland did"?
Exactly.
in 2009, the benchmark at the Squish gradually dropped for attached.
This is similar to Kelowna, where there really was no recovery.
Abbotsford too, only saw about 2/3 the recovery in prices that GVRD did.
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August 2nd, 2010 at 11:56 pm 31
@“A-sharp” Accountant: "may attract regulatory attention. "
Rising house prices was not what regulators wanted during a recession. Their policy change at CMHC to change MI requirements and the BoC's public speeches in the past 8 months were a pretty solid indication of that.
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August 2nd, 2010 at 11:59 pm 32
@jesse:
I agree that the low NEW sales will be a key measurement.
Developers have high sunk and carrying costs on projects. There are only a few Rennie 40% off specials happening now but more will get desparate and the competition will intensify.
Can't wait to see more of the 'free Mercedes' or 'free parking stall' promos.
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August 3rd, 2010 at 12:02 am 33
@jesse:
They want stability
Unfortunately, with yields so low, there is no such thing as stability. Truly, the only possible outcome with these crappy yields is double digit annual increases or decreases.
witness every year since 2005 (when all fundamentals were abandoned across the board)
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August 3rd, 2010 at 12:39 am 34
Calgary has had 2 straight months of 45% +/- declines (YOY versus 2009) of unit sales in both the SFH and condo markets…….month three is just starting, and I expect it to be no different in August.
In fact, when measured against 2008 (when the crash started, and the government panicked, after the criminals in the RE industry lobbied hard) they are down between 25-40%…….
How does that song go ??
Oh yeah…..
Nah, Nah, Nah, Nah…..
Nah, Nah, Nah, Nah…..
Hey, Hey, Hey…..GOODBYE….!!!!
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August 3rd, 2010 at 12:47 am 35
Bear if you look at graph of sale and listing you can see tripple vortex formation. This is signal for wealthy buyer to come in to buy just like tripple M and candlestick. If you wait too long bear you miss out again. Don't be last bear posting on blog. Over years of being wrong many bear have left blog to buy and as market take off like drunken RCMP motorcyclist killer you maby be last bear left.
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August 3rd, 2010 at 12:50 am 36
@“A-sharp” Accountant: "They want stability"
Yes but that got blown out of the water when national prices jumped 15% in a year. Stability is when prices are affordable, meaning fewer distortions in the overall economy. How much human capital has poured into real estate and construction with not much to show for it in net?
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August 3rd, 2010 at 12:52 am 37
@Carioca Canuck:
Nitpick: the crash in Calgary started in summer 2007. That's one reason why prices have never recovered to the peak, unlike Vancouver. Twice as much time during the decline.
Other than that I fully agree, there's lots more downside in Calgary and Edmonton.
http://cuer.sauder.ubc.ca/cma/data/ResidentialRea…
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August 3rd, 2010 at 1:22 am 38
Let's see.. fewer people buy, more people rent.. what do you think will happen?
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August 3rd, 2010 at 1:33 am 39
@Hmmmmm:
There is a double whammy for speculatators.
They price their condo too high and could not sell it.
They take it off the market and try to rent it out but of course will ask a high rent (to cover their costs) and again get shut out.
Buy high but can't sell or rent high. Boohoo
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August 3rd, 2010 at 1:54 am 40
Just returned from Kelowna and Penticton after a week. You would have to see the for sale signs to believe it. The are honestly everywhere. Even some developments that they have stopped working on because they have ran out of money. They are even attempting auction sales in Penticton on new condos.
I would not have believed it is as bad as it is up there if I did not get to see it myself. Everyone you talk to up there is talking about it.
I truly think the party is over.
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August 3rd, 2010 at 2:28 am 41
I don't know about you, but I think the market has a very 1981-ish "feel" to it.
I know people who are going to get hammered when all is said and done.
They either bought too high with too little down, purchased second properties as "investments" or used their homes as bank machines.
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August 3rd, 2010 at 2:36 am 42
@patriotz:
hmmm, wont 40% nominal drop in 2 years equivalent to more than 50% real drop if inflation is 5%? and as far as I remember inflation was through the roof during that era.
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August 3rd, 2010 at 2:37 am 43
@arbroathscotland:
I agree, I know several people who are trying to sell in Kelowna right now with no success. Some people are still delusional, thinking that the market will recover in August, still holding on to their high prices. It is kind of overwhelming when I think of all the people I know who are completely overleveraged in real estate-they have several properties and lots of debt. It is quite scary! It's the beginning of the end, and yet some people I know are still buying, thinking they're getting a good deal. I can't wait to see the July numbers for the Okanagan.
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August 3rd, 2010 at 2:40 am 44
I tried posting this earlier: average detatched prices are down $30,000 or 3.1% MOM in vancouver. yattermatters.com has the graphs. All three categories had price declines.
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August 3rd, 2010 at 2:42 am 45
@Hmmmmm:
I don't know… what do YOU think will happen?
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August 3rd, 2010 at 2:45 am 46
Is this guy desperate or what?
http://vancouver.en.craigslist.ca/van/reo/1823640…
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August 3rd, 2010 at 2:47 am 47
@Hmmmmm: "fewer people buy, more people rent"
Nothing changes. Guess why.
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August 3rd, 2010 at 2:51 am 48
@arbroathscotland:
Can u put up a picture on photobucket?
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August 3rd, 2010 at 3:11 am 49
Hey Guys (and Gals),
The spin machine at the Victoria Real Estate Board is in absolute OVERDRIVE this morning. Check out the latest numbers and subsequent comical commentary from your BC capital real estate association.
http://vreb.org/mls_statistics/current_statistics…
Sales have crashed 43.5% from last July and the best they can come up with is “Sales return to historically average level”….from 10 years ago!! These clowns are bringing back numbers from the 1990’s! Desperate times calls for desperate commentary. Oh yeah, prices are down across the board – 5% in one month for single family.
Victoria is in big trouble and the realtors know it. Our local Times Colonist newspaper had better have a proper headline tomorrow not matching the laughable headline put out by the VREB!
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August 3rd, 2010 at 3:19 am 50
Hmmmmm Says:
Let’s see.. fewer people buy, more people rent.. what do you think will happen?
Unless the population increases dramatically and/or a significant number of current owners liquidate their main residence's not much will change.
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August 3rd, 2010 at 3:30 am 51
@Mike in Victoria:
>>>Masters added that sales activity is expected to pick up again next year as we return to a more balanced market over the coming months.<<<
Ok, sure buddy. Everything will be fine next year.
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August 3rd, 2010 at 4:05 am 52
Victoria is weak, I think weaker on balance than Vancouver. I can't help but think that provincial government austerity is having some impact there.
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August 3rd, 2010 at 4:31 am 53
The story of a relucant landlord:
A friend of mine bought at the Waterscapes Skye developement in 2008 (pre-construction) hoping to flip the property. He paid about $650K incl GST for a beautiful 2 bedroom that was completed in Jan 2010. He saw the writing on the wall and decided to get out but the most he was prepared to lose was $50K. So he listed it for $599K with no interest. At this point he made the decesion to hold it for "10 yrs or more". He was simply not prepared to sell it for less than $599K. He has a tenant in there and between the amount he bleeds each month it is almost exactly what he pays down on the mortgage (he put down 25%) so in his mind is not actually losing anything each month (except the drop in value) He is committed to holding it for the long term and will not and does not have to sell.
I am telling this story because its important to note that many people don't have to sell and won't. He believes he will get his $100K back (which is what he believes he would have to eat if to sell it today) over a 10 yr period. He can afford the payments and it is not affecting his lifestyle he did consider that worst case senario when he bought which I am not sure all wanna be flippers have. Not everyone needs to sell and many are prepared to hold on.
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August 3rd, 2010 at 4:35 am 54
@McLovin:
Yes, and all is good as long there is a tenant to pay asking rent price. There are so many vacancies, in my building they have 8 one bedroom suites vacant and they were forced to reduce the price.
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August 3rd, 2010 at 4:38 am 55
@McLovin:
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August 3rd, 2010 at 4:52 am 56
@McLovin:
throw in interest rate hikes
———-or————-
unemployment
———or————–
underutilization and it is a different story. Of course nobody wants to take a loss. Not everyone needs to.
All it takes is for a couple people in the building to be in one of the three groups I descibed, and the price drops, since as many mention regularly…prices are set at the margin.
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August 3rd, 2010 at 4:58 am 57
@Mike in Victoria:
I'm planning to move to Vic in a year or so and I've been watching the RE market closely – Based on a little informal analysis, I think maybe 10% of houses actually go over asking. Everything else either sells at list or gets cut heavily – many SFH properties are not selling until they have been reduced by up to 20%, even in Oak Bay.
From the looks of things, I am going to get a great deal.
If only the Province would get the Unions in that city under control (who are the only group still getting raises) – a friend of mine just had a 1M house (land + build) built next to his parents – guess who – 2 cops making 100k a piece. Probably two of the best paying jobs in Vic on 6 months education. Ridiculous.
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August 3rd, 2010 at 4:59 am 58
All good points! I agree its the people who have to sell that set the prices not the ones that don't sell. However he has a 5 yr. fixed rate so interest rates aren't important to him now and he feels that in 10 yrs. prices will be higher. (That may or may not be true of course)
For further clarifcation, he bleeds about $700 per month (after mortgage, strata, taxes, insurance) but he pays down almost exactly $700 on principal each month currently so he feels like he isn't really bleeding but treading water.
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August 3rd, 2010 at 5:01 am 59
PS – Why would people vote down a post where I am sharing a real life example? If you don't agree with him that doesn't make the story any less useful. Its another person's opinion.
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August 3rd, 2010 at 5:02 am 60
McLovin, how much is your friend willing to lose per month? Because when prices start falling all those who thought like him will be desperate to maintain rental income, meaning competition for tenants, and increased competition always means lower prices. Your friend's break even point is at a market high.
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August 3rd, 2010 at 5:02 am 61
@McLovin:
I was thinking the same thing
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August 3rd, 2010 at 5:12 am 62
@McLovin: With all due respect McLovin, your friend is an idiot. Factor in the interest rates in 5 years, property tax hikes, special assesments, and he'll be bleeding even more in that time.
Invest the $700 per month he is bleeding and after 10 years (even at 2%) he'd have over $90k cash in hand. No headaches with being a landlord and there are no guarantees that the condo will be worth $110k more than it is today (don't forget RE commissions).
No wonder RE is so high in this city.
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August 3rd, 2010 at 5:21 am 63
@McLovin: "in his mind is not actually losing anything each month"
He better be praying every night for interest rates not going up. I think one of the reasons inventory is dropping is because there is less distress than there was in 2008, primarily due to historically cheap credit.
I think landlords like this one will eventually come across a few landlords who are pulling in 7-8% net per year on their fully-paid properties, AFTER all expenses and capital replacement fund allotments. Then it starts hitting home that "someday never comes."
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August 3rd, 2010 at 5:21 am 64
@McLovin:
Yes, it's a good story. I know a few people like that too-who have purchased investment properties that are cash flow negative, but they don't want to sell now that the value has dropped. Some of these people will be ok financially (maybe a little depressed though, if the value goes down a lot from what they paid). Sadly, I know many, many more of the other group of people-those who WON'T be ok if interest rates go up (they are on variable), or they lose their job, or they lose a tenant. And if the value of the property has dropped so much that they would end up owing the bank if they sold, well, then, that would be a financial disaster. So yes, some people will be ok, but given that many people I know have taken out 5% down variable, 35 year mortgages on investment properties, I think that many people will not be ok and this will have huge consequences for the entire market.
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August 3rd, 2010 at 5:23 am 65
@McLovin
The real truth is that your friend would have to eat $100k loss today. Either that or bleed $700/month which would take about 11 years to equal that 100k loss. It's a matter of taking your lumps all at once or just waiting it out with a slow bleed. Obviously if they do not NEED to sell then it is preferable to stretch the loss over a decade and hope/expect that prices will rebound in that time. Many new completions are on this track, I imagine.
What will happen in the future? Well, that's anyone's guess. Were it me, I'd take the prolonged risk and loss than an immediate crystallization.
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August 3rd, 2010 at 5:24 am 66
@McLovin:
This must be the only city in the world where bleeding money is considered A-OK.
God bless your friend and all like him for subsidizing the rent for the rest of us so we can enjoy life and invest our cash in places where we get real returns.
He truly is a saint.
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August 3rd, 2010 at 5:35 am 67
@Beatbox: "Were it me, I’d take the prolonged risk and loss than an immediate crystallization."
Well there's the rub. Take 100 of these guys and 95 of them will be fine, the other 5 will have some "black swan" event happen to them that will wipe them clean. Take it all on average and holding on is the wrong decision. He has an overinflated asset. Inflation will not save him; either rates go up and he bleeds even more money with higher rates, or inflation stays low and real prices stay well below current value for way longer than his cited 10 years.
But I agree — it's undeniably hard to eat a sure loss today, rather than a fool's hope of a gain later with significant risk of even bigger losses. Denial is rampant but it's a necessary human trait designed to avoid mental depression.
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August 3rd, 2010 at 5:35 am 68
@Anonymous: I agree. (And that's for the clarification, McLovin.)
So the guy paid 650K including GST. Therefore, the actual price of the condo was 650/1.12=580K. How does he think he's going to sell a condo today for more than he paid for it in January?
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August 3rd, 2010 at 5:47 am 69
http://www.toothpastefordinner.com/011908/waste-m…
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August 3rd, 2010 at 6:04 am 70
I, for one, appreciate hearing about what's going on the heads of property speculators. McLovin, please keep us updated on his story. And any others who know speculators, please pass on more anecdotes. Thanks.
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August 3rd, 2010 at 6:06 am 71
oneangryslav2 Says:
So the guy paid 650K including GST. Therefore, the actual price of the condo was 650/1.12=580K. How does he think he’s going to sell a condo today for more than he paid for it in January?
The GST he paid was 5% (it closed in Jan so there was no HST) so I am assuming he paid $620K pre GST.
One final point, he doesn't view it as bleeding as he feels the $700 he is paying extra each month is reducing the mortgage by that amount so it is basically a forced savings plan. He figures in 10 yrs. he will have paid off well over $100K of principal.
This story has created some of the better dialogue I have seen here in a while.
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August 3rd, 2010 at 6:19 am 72
Condo Sales drop in T/O for the first time in 16 years
http://www.theglobeandmail.com/report-on-business…
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August 3rd, 2010 at 6:33 am 73
@ Jesse – Many thanks for this:
"He better be praying every night for interest rates not going up. I think one of the reasons inventory is dropping is because there is less distress than there was in 2008, primarily due to historically cheap credit."
I hadn't quite managed to figure out why inventory wasn't skyrocketing pace 2008. This helps me put a big piece in the centre of that puzzle. So, a followup question: as interest creeps up, are we looking at a slowly bloating inventory over the coming few years?
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August 3rd, 2010 at 6:37 am 74
@McLovin:
He should just sue the developer.
Tell the lawyer that the ceilings were supposed to be 8.5ft but they r only 8.49ft.
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August 3rd, 2010 at 6:42 am 75
I don't understand the argument you're making. The carrying costs are $700 and he pays down $700 of principal a month. What does one have to do with the other? How much does the rent cover?
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August 3rd, 2010 at 6:47 am 76
@McLovin:
Yes. And this is the fallacy that kills investors. That the market will always come back to its "highs." Maybe it will. Maybe it won't. And even if it does, who's to say it won't be in 5, 10, 15, 20 or 30 years?
Last time I checked, it's been 10 years and the Nasdaq is nowhere close to a return to it's glory days. It's been 5 years already and U.S. RE markets are ready for another dip.
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August 3rd, 2010 at 6:57 am 77
And here are the sales figures for Vancouver Island (excludes Victoria):
July 2010 347
July 2009 536
Here is what was written in the press release:
“July 2009 was a bit of an anomaly having higher than normal sales volumes than that of previous years,” says Cliff Moberg, President of VIREB. “I think the misconception out
there is that the HST applies to existing home sales, which it does not.”
Is July 2009 an anomaly? Let's take a look.
July 2009 536
July 2008 444
July 2007 616
July 2006 445
July 2005 540
July 2004 501
July 2003 548
July 2002 406
July 2001 404
July 2000 286
There were 3 other years in the past decade that had more sales than Jul 2009. It is far from an anomaly. One must go back 10 years ago to find lower sales figures than 2010!
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August 3rd, 2010 at 7:10 am 78
@McLovin: Thanks for the correction. There was no HST before July 1st, of course. 620K plus 5% GST is about 650K.
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August 3rd, 2010 at 7:11 am 79
@Meat Robot: "as interest creeps up, are we looking at a slowly bloating inventory"
One thing that happened in the US is that inventory was high when prices were high but fell somewhat when prices fell significantly. This makes sense when looking at it from McLovin's example's point of view: if prices drop to the point where an owner has negative equity, they can't sell unless they go bankrupt. (Contrary to popular belief, you can't "walk away" from all properties in the US, even in non-recourse states.) That's when short sales and bank-held inventory start creeping into the market but they tend to release it slowly over time.
If rates do increase, and this is JMHO, we can expect to see perpetually high inventory on the market until prices are markedly lower. Rising interest rates are certainly a major reason for this. However the home ownership rate has increased significantly and I think this will revert back downwards again which means more attempted sales, forced and voluntary. Increased distress due to amateur landlords getting burned will also play a big part. (I'd give the 5-10% of amateur landlords who roll craps 10-20 months before they acquiesce and sell for a loss.)
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August 3rd, 2010 at 7:12 am 80
@G:
“July 2009 was a bit of an anomaly having higher than normal sales volumes than that of previous years,” says Cliff Moberg, President of VIREB."
Lies…all lies…and what does the public do? No questions asked. No wonder our MSM has no credibility these days. I wonder if we'll get the same garbage reporting here in Vancouver.
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August 3rd, 2010 at 7:18 am 81
@McLovin: I was in TO a couple of weeks ago and was astonished at the amount of highrise condos that have been built since I was there last.
If the "no lights in the windows during the mid-evening" is a good indicator of speculation, I'd have to say that there is even more speculation in Toronto than in Vancouver. There were some towers, 35-40 stories, completed up to five years ago, where at about 9:00 pm only a handful of windows were not dark.
My brother's condo building–on Queen's Quay–is built with the lowest door handles I've ever seen. That and the fact that floors 4, 13, 4, 24, were missing points to obvious clues as to the developer's target market.
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August 3rd, 2010 at 7:39 am 82
@oneangryslav2: “no lights in the windows during the mid-evening” . I HATE that indicator. Look at rental buildings and you'll see pretty much the same. You see lots of lights off. People work, have social lives, go for a run, whatever.
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August 3rd, 2010 at 7:41 am 83
@vibe: Like you, vibe, I'm really a bit stumped by McLovin's friend's logic. I've truly never heard the argument that renting out a place at negative cash flow (that's not including potential special assessments, repairs, etc.) is "breaking even."
Moreover, McLovin noted that his friend put down 25% of his own money. If he bought it for 620, that means he put down 155K of his own money. If he were to put that into GICs that averaged just 2.5% over the next 10 years (which is a conservative estimate), that's another 50K in opportunity cost down the drain.
If I have time later this evening, I'll set out the two scenarios–buying versus not buying–line by line and see what his net financial position is at the end of 10 years in each. Or maybe someone else could do this.
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August 3rd, 2010 at 7:51 am 84
@VHB: I'm more agnostic than you with respect to the "lights-in-windows" phenomenon. It may be bunk, but then again, there may be something to it. Sitting on my balcony in the West End, I have a view of three buildings across the street from me. They are 10,8, and 12 stories, respectively. Last night, there were lights on everywhere (at least on the side facing my building) and it seemed as of every single unit was occupied, which is not surprising given that the buildings are dedicated rentals a block from Stanley Park.
Until someone demonstrates that there is absolutely no link between lights and speculation I'll hold to the view that "where there is light, there is fire."
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August 3rd, 2010 at 7:51 am 85
@McLovin:
I doubt many flippers did any math correctly, even on their expected profits.
While secondary property owners may be able to hold on, assuming they can afford to service the mortgage for a decade in a rising rate environment, it does put a lot of strain on their finances. The house, a depreciating asset, needs capital input to maintain and operate, and rental income is uncertain at best.
Primary residences in a similar position are even worse off, because their situation renders them geographically immobile. Can't move to be closer to better paying work (with corresponding commuting monetary and time costs). Can't move to be closer to family. Can't move up because another baby is on the way. Unless they are prepared, and financially able, to sell at a loss. Unless, I suppose they have enough equity to rent out, and convert their financing.
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August 3rd, 2010 at 7:54 am 86
@McLovin: I agree–it is fun to try to get in their heads. I think that one point McLovin is trying to make is that, even though we may think it is dumb, there are MANY people who will just hold on all the way down. For whatever justification they have. If people don't have to sell, many will not.
But, where McL's friend may be surprised is the impact of interest rates. Try working through the numbers at 7% rather than 4% mortgage rates. Ouch.
Or, try going without a tenant for a few months. Or one who wrecks the place up. Or, a special assessment.
When you're already bleeding 700/month, these extras will hurt. But hurt does not mean he will sell, necessarily.
All of which isn't to say that prices aren't going down. Just that we won't have a quick armageddon in the absence of a big shock to interest rates or incomes or employment.
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August 3rd, 2010 at 7:55 am 87
I agree the logic is shaky at best.
He supplements his renter $700 per month but he feels that since his principal goes down by $700 per month he is standing still. Further as time goes on the amount of principal he pays down each month will increase. He balances that vs selling right now for a $100,000 loss. He tells me he would rather take his chances over a 10 yr. period. The building is brand new with a warranty so a special assessment is unlikely.
Truthfully, if in his shoes and I didn't need to sell I would have a very hard time swallowing $100K.
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August 3rd, 2010 at 7:57 am 88
@Devore: "While secondary property owners may be able to hold on, … it does put a lot of strain on their finances." Yes. One thing is for sure–McL's friend won't be standing in line for another pre-sale any time soon. So, even if he does hold on to his one turkey, he is not likely to add a second.
And the catch is that even Rennie said that well over half the demand for downtown condos was investors/speculators. If that half of demand goes away, well, that means prices fall.
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August 3rd, 2010 at 8:02 am 89
@oneangryslav2: Indeed, you are right. Just to break even on the price in nominal terms, the property would need to appreciate 17% (12 to recover the HST and another 5 for the agent commission upon sale).
Magic 8-ball says….. outlook not so good.
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August 3rd, 2010 at 8:12 am 90
New Listings 176
Price Changes 131
Sold Listings 68
and counting…
Cant wait to see that stats package.
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August 3rd, 2010 at 8:13 am 91
@McLovin:
Because it's a true story, not some theoretical scenario! Someone is living this.
And I stand corrected on the PST vs HST thing.
That someone would think bleeding $700 a month is "breaking even", or that paying $1400 to pay down $700 principle is getting them ahead, I don't know what to say to that. It defies all logic, all I can come up with is an offhand quip about our schools failing our children, but that doesn't seem quite appropriate.
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August 3rd, 2010 at 8:15 am 92
@paulb fan:
The numbers from UBC are $233.5K at nominal top in 81.1, $150.8K at nominal bottom in 83.3. That's actually a 35.4% drop. The 40% was just my estimate from eyeballing the chart.
Real top was $552.33K also in 81.1, real bottom was $276.54K in 85.3 which was almost exactly a 50% decline. 2008.1 is their baseline for real prices, which gives you an idea of how massively higher real prices are today than at that bottom.
http://cuer.sauder.ubc.ca/cma/
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August 3rd, 2010 at 8:16 am 93
@VHB:
Unfortunately, when they DO have to sell, it will likely be at the bottom of the market. Buy high, sell low?
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August 3rd, 2010 at 8:20 am 94
@paulb.:
I wonder what kind of cleaver BS the board will come up with to explain the drop. I know for sure they will NOT compare with July 09. This is going to be interesting.
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August 3rd, 2010 at 8:21 am 95
@Devore: Oh wait–didn't Chipman used to tell us this made sense because you would pay lower taxes because of your loss? It's a tax write-off! Ha! Losing $100 so that you can save $43 in taxes is something that makes sense only to real estate people, I guess.
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August 3rd, 2010 at 8:22 am 96
@VHB:
Exactly. This is the point that so many bulls don't get – RE busts happen because people stop buying, not because people have to sell, apart from those who have to sell for the usual reasons (death, moving, new construction, etc). And those people have to take what someone is willing to pay.
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August 3rd, 2010 at 8:22 am 97
@Devore: McLovin's story is by no means an exception. People deceive themselves on purpose because living with a pit in your stomach is untenable for very long.
I really believe people ignore logic and reality as a means of self-preservation (with a pinch of hubris), not necessarily because they're retarded.
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August 3rd, 2010 at 8:22 am 98
@VHB: I was told that college students were hired to go around various building downtown and into empty units just to turn on and off the lights, collect mail so it looks like the units are occupy. Does any one know of this?
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August 3rd, 2010 at 8:32 am 99
@VHB: Not to completely derail things, but isn't there some CRA rule about business losses allowed being "reasonable"? Ie, if your business model bleeds red ink for decades, you can't write it off? Basically, you can't purposely indefinitely generate losses to lower your tax bill.
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August 3rd, 2010 at 8:33 am 100
@Devore:
It's quite logical if you start with the axiom that you can be assured of selling for a higher real price than what you paid at some point in the future.
Non-Euclidian finance.
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August 3rd, 2010 at 8:35 am 101
Just to remember, here are the August sales from 'inventory' going back awhile:
August Units 1994-2009
1994 = 2159 = 44%
1995 = 2326 = 47%
1996 = 2141 = 48%
1997 = 2096 = 55%
1998 = 1589 = 49%
1999 = 2002 = 59%
2000 = 1805 = 51%
2001 = 2659 = 77%
2002 = 2558 = 73%
2003 = 3413 = 88%
2004 = 2570 = 61%
2005 = 3800 = 82%
2006 = 3092 = 65%
2007 = 3493 = 75%
2008 = 1611 = 35%
2009 = 3496 = 74%
In 2008, that was about 77 a day. In 2009 it was about 166 a day.
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August 3rd, 2010 at 8:39 am 102
"If the “no lights in the windows during the mid-evening” is a good indicator of speculation, I’d have to say that there is even more speculation in Toronto than in Vancouver. There were some towers, 35-40 stories, completed up to five years ago, where at about 9:00 pm only a handful of windows were not dark."
How is that a good indicator? One observation at an arbitrary time?
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August 3rd, 2010 at 8:41 am 103
@VHB:
I think we are lucky if we crack 1500 this month especially with new home sales totally demolished and dead.
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August 3rd, 2010 at 8:52 am 104
@Anoymous: There's absolutely nothing arbitrary about picking 9 p.m. I suppose I should have picked 5pm, when the sun is still shining and people are still at work? Maybe I should have picked 3 a.m. when most people are sleeping?
And it wasn't one observation. I was there for a week and observed this every single night.
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August 3rd, 2010 at 9:08 am 105
New Listings 205
Price Changes 158
Sold Listings 80
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August 3rd, 2010 at 9:15 am 106
@Devore:
The CRA used to apply the reasonable expectation of profit test to determine whether there is a business source of income from which to deduct expenses and claim losses, but that rules was invalidated by the Supreme Court of Canada in 2002 in a case called Stewart v. The Queen. Stewart was a case of over leveraged condos that had, at the time, no reasonable prospect of producing a profit. (incidentally, with interest rates at all time lows, Mr. Steward may well be making a profit now).
The legal test for whether there is a business in now:
1. Is the activity purely commercial in nature or is there a personal element to it?
2. If there is a personal element, are there sufficient indicia or commercial, business-like behaviour to enable a court to conclude that the activity was a business?
By the way, the old test was not a "CRA rule". It was a rule of common law. The CRA applies the law. It doesn't make up its own rules.
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August 3rd, 2010 at 9:32 am 107
In 1993 I bought a condo in Coquitlam. By 1999 the value had plummeted by 35%. I finally sold it in 2004 for $5,0000 more than I paid for it 11 years earlier. I cringe when I hear of homeowners taking their property off the market expecting prices to come back because sometimes that can take a very long time.
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August 3rd, 2010 at 9:34 am 108
That should read "I sold it for $5,000 more than I paid for it 11 years earlier:.
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August 3rd, 2010 at 9:55 am 109
here's a few decent mortgage calc spreadsheets, for anyone looking to see the results of a mortgage scenario.
http://www.google.ca/search?hl=en&q=excel+mor…
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August 3rd, 2010 at 10:10 am 110
"The July stats package from the REBGV should be released soon…"
Well, it sure as hell is taking them long enough.
But, I guess putting the right spin on it takes a long time, doesn't it?
"Spooked by the biggest North Korean dance marathon ever…"
"Now that the Gulf oil spill is finally over, buyers can breathe a sigh of relief…"
"Despite tensions along the Lebanon/Israel border, Vancouver buyers are meeting market conditions head on…"
Should be interesting.
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August 3rd, 2010 at 10:20 am 111
@Devore:
….. Buy high, sell low?…..
New path to self-enlightenment. (Seriously).
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August 3rd, 2010 at 10:30 am 112
@oneangryslav2: "My brother’s condo building–on Queen’s Quay–is built with the lowest door handles I’ve ever seen. That and the fact that floors 4, 13, 4, 24, were missing points to obvious clues as to the developer’s target market."
Okay, 4 is death to some Asians, 13 is unlucky to some Europeans, you listed 4 twice, and 24 I don't know. And I guess they're short. Who are we talking about here? Martians?
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August 3rd, 2010 at 11:07 am 113
@Devore:
Yes, It is called a "reasonable expectation of profit"
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August 3rd, 2010 at 11:08 am 114
@Devore:
Yes, It is called a "reasonable expectation of profit"
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August 3rd, 2010 at 11:11 am 115
@VRENGD:
REOP is still a backbone of CRA interpretation bulletins. It is nota commonlaw concept, but the CRA's interpretation.
The challenge is that REOP represents something different for every industry, from RE to art to manufacturing.
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August 3rd, 2010 at 11:15 am 116
@oneangryslav2: I don't think any buildings are built with floors involving a "4" anymore. 13 hasn't been used in a long time. Apparently unlucky numbers affect value.
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August 3rd, 2010 at 11:45 am 117
"I don’t think any buildings are built with floors involving a “4″ anymore. 13 hasn’t been used in a long time…"
Not so at Nahanni in the Klahanie neighbourhood in Port Moody.
Opened exactly one year ago.
No 4, 13, 14, 24…
Catering to superstitious Asians and Europeans.
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August 3rd, 2010 at 12:17 pm 118
@SomeGuy:
It's a cheap, ugly crap-house not worth more than 126K at its best, especialy taking into account all possible fundamentals and common sense.
http://www.realtor.ca/PropertyDetails.aspx?Proper…
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August 3rd, 2010 at 12:48 pm 119
I think the BCREA has already telegraphed their spin on the numbers with their revised forecast for 2010.
1. Demand brought forward by (a) tightening of CMHC insurance qualifications, (b) anticipated rate increases, and (c) the introduction of the HST.
2. Low sales numbers are temporary and will rebound in 2011 with continued favourable mortgage rates.
3. Prices are firm. Any decline in prices will be small and temporary.
4. The improving economy and strong immigration will strengthen the market in 2011.
In other words, the usual spin for the sheeple.
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August 3rd, 2010 at 12:57 pm 120
Small developers who are heavily leveraged see the writing on the wall and have started to drop prices with the hope of blowing out remaining inventory. I am taking about complete projects. This is also true of some larger developers who are holding inventory. The small guys have to obtain approval from their lenders for price drops which obviously begins to raise concerns for the lenders. It is very early days in this correction. Later this year and early next I predict you will see a good number of complete and partially complete projects in foreclosure. Virtually nothing new is moving and hasn't been for months.
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August 3rd, 2010 at 1:30 pm 121
@ Stanislav
Aragon's had these two houses up for sale for about a year now. No price reductions yet, I wonder what their thinking?
http://www.realtor.ca/propertyDetails.aspx?proper…
and
http://www.realtor.ca/propertyDetails.aspx?proper…
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August 3rd, 2010 at 1:36 pm 122
@Raguz:
"It’s a cheap, ugly crap-house not worth more than 126K at its best, especialy taking into account all possible fundamentals and common sense."
Nonsense. What are the fundamentals that give you that number? Comps rent for 1.8 to 2 K. Do the math.
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August 3rd, 2010 at 1:44 pm 123
"4. The improving economy and strong immigration will strengthen the market in 2011."
With Harper intent on sabotaging the 2011 Census we may never know to what extent immigration is a factor.
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August 3rd, 2010 at 1:51 pm 124
@Newcomer:
Similar crappy houses that can't sell:
http://www.realtor.com/realestateandhomes-detail/…
http://www.realtor.com/realestateandhomes-detail/…
http://www.trulia.com/property/1069520805-12241-S…
http://www.trulia.com/property/3016084253-23081-S…
http://www.trulia.com/property/1060294531-12412-S…
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August 3rd, 2010 at 2:44 pm 125
Vanhemmeroids a no fun town they say….whys that? because the morons on the shitty council think they can schedule fun and now have decided what food you should eat? Look at North American cities and we find open markets free of government constraint. Vanshitholio is an sheep filled anal shithole compared to anywhere else on the continent.
http://www.nationalpost.com/news/street+food+succ…
BTW 'Vanshitholio' is now a Goggle search word. The English language has been enriched.
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August 3rd, 2010 at 2:58 pm 126
#123 SG, 4 in Cantonese is 'Sei' ( pronounced 'say), but don't forget that Cantonese is tonal and every word has several meanings depending on the pronunciation. The number 4 is 'dead' but it is also 'forever' and sometimes the swear word 'death' ( like fuck off and die)
.
#24 , unknown ( because catonese is like Cockeny…a rhyming slang … yi sup sei…means nothing so I think the poster has it wrong.
#13 , well thats just stupid superstition and no one in their right mind sets their watch by the Gregorian calendar anymore….well at least since the 14th century.
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August 3rd, 2010 at 3:03 pm 127
Condo naming contest on in TO….any suggestions? I 've got dibs on 'Fools Paradise' and 'Sheeps Pasture'.
http://news.nationalpost.com/2010/08/03/condo-nam…
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August 3rd, 2010 at 4:01 pm 128
@oneangryslav2:
"And it wasn’t one observation. I was there for a week and observed this every single night."
Perhaps the people in adjoining buildings had a more active social life than you.
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August 3rd, 2010 at 4:06 pm 129
For how long has Google Maps been doing Real Estate listings?
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August 3rd, 2010 at 4:49 pm 130
Hi! Delurking for the first time.
I’d like to re-visit Mclovin’s sample landlord. I can see how it makes sense for that landlord, so I can’t quite grasp why most think it’s a really bad idea.
I have been a bear for several years, and have had my share of being the only one (and being proven wrong) saying prices will fall, in a social situation. What makes it worse for me is the people in the circles I walk in do not have mortgages, or if they do, it’s a conscious decision to use other people’s money at such low rates rather than a financial need that will lead to their downfall once interest rates rise or prices drop. Most of them would agree with Mclovin’s landlord. Here’s why.
Assume : Purchase price = 600K
Downpayment = 200K
Mortgage, strata fees, taxes, insurance, etc = 2500 per month
Principal portion of mortgage = 700 per month
(I’m just throwing numbers out, so please don’t comment on the accuracy of these numbers. It’s more for illustrative purposes.)
Landlord knows he bought high, since to sell would be an immediate 100k loss. So no need to drum into his head what a mistake the purchase was. We just move forward to his options and thought process.
1. Sell – would incur realized 100k loss
2. Rent – under this are 4 scenarios
a. Rent > 2500 – ideal, no question, he’s keeping the cashflow positive property
b. Rent = 2500 – no win, no loss, might as well keep it
c. Rent 1800 not ideal, but he doesn't consider it a loss (see below)
d. Rent < 1800 – he is losing money and he knows it
In scenario c (Mclovin’s landlord), the argument is that as long as the $1800 portion covers the non-principal portion of expenses, the owner is not actually losing money. Any portion above $1800 would go towards principal. They see it as having to pay $700 (or less) per month for the next x years to pay the $400k mortgage rather than having paid that amount in outright cash. So in effect, they get a drawn out payment scheme with the interest, etc, or even a portion of the principal paid by the tenant. Using other people’s money. Yes, costs rise, but so do rent prices, so assuming it’s a wash and they pay $700 per month till the mortgage is all paid out, they would still think this is better than the 100k loss upfront. It doesn’t matter how much the property costs by the end of the mortgage period, as they would now have a fully paid property and can earn the full rent less expenses.
If we’re talking about opportunity costs, they usually are risk adverse and aren’t well-versed with stocks, bonds, preferreds, TFSA, RRSP, etc. Their basis for comparison is the lowly GIC. And weighing opportunity cost in risky instruments vs 100k immediate loss, they'll accept the opportunity loss.
My question is, how would this decision be considered inferior to selling or losing money (except for opportunity cost)? I could see their point of view, even though it’s not the ideal investment. Please explain. Thanks!
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August 3rd, 2010 at 5:00 pm 131
We are entering a period in history where massive amounts of wealth will be transferred from one segment of the population to another segment. Investments which appear to be ‘too risky’ for many people will turn out to be hugely successful for the few who dare to take that risk.
http://www.kitco.com/ind/Degraaf/images/aug022010…
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August 3rd, 2010 at 5:01 pm 132
One thing bulls may be forgetting is that there are several price reductions that have not sold yet. Once sold, they will impact the stats even more.
Example: MLS V841129
Not sure of the original list price but:
May 21 – Reduced to $659,900
July 7 – Relisted at $648,800
Aug 3 – Reduced to $628,800
That’s 5% in a couple of months..
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August 3rd, 2010 at 5:27 pm 133
In Burnaby where building has at least 50% owners of Asian origin, empty condos for newer buildings are around 30%-35%. Older buildings of 15-20 years, around 20-25%. One condo for sale in an older building in Metrotown as the owners are working in China for past 2-3 years. Previous sale prices in that building in 2008 & 2009 were high $300k to $420k. They are asking $488k for a shabby 20-year-old condo for a big profit. Good luck to them.
fwiiw #24 in Cantonese is also pronounced as "yee sei" meaning "easy to die"
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August 3rd, 2010 at 7:18 pm 134
@Stanislav:
Nice, but you forgot to mention that with so much inventory on the market now has never been a better time to buy with so many properties to choose from!
The Calgary news release is out and even though SFH prices fell 5% (median) or 4% (mean) in one month, King Realturd(TM) has managed to actually spin this into “we are seeing relative stability in our average and median prices for the Calgary market.”
Now anyone with at least a grade 6 education would see right through this crap, no? Well here's the lead sentence from the Calgary Herald article on the release:
"Calgary’s housing market continued its summer slowdown in July, although prices appear stable, new figures show."
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August 3rd, 2010 at 7:56 pm 135
@Stanislav:
That's completely true, which is why BCREA won't say it. It means that prices have nowhere to go but down.
Expect them instead to keep talking about "pent-up demand".
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August 3rd, 2010 at 10:29 pm 136
@patriotz:
No it means we had a good start to the year with a tough finish. The market will balance itself out again by next Spring, if not earlier.
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August 4th, 2010 at 3:07 pm 137
Your graph going positively. Great
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