Why Being Owed Money Sucks
In a previous post The Pope highlighted a spreadsheet looking at the City’s loan to Millennium to fund the Olympic Village construction and how much of the loan amount could be recouped should only sales revenue from this development be used. The calculations ignore interest payments, ongoing management of the whole process, land value, unpaid property taxes and strata fees amongst a handful of other (comparatively) small expenses.
The outstanding loan was $731MM. Millennium recently repaid $192MM of this amount. I’ve updated the spreadsheet to reduce the primary debt owed to the City.
The big item ignored, of course, is going ruthlessly after the collateral of the debtor, Millennium, which the City is now doing according to fearless City reporter Frances Bula:
Vancouver is taking aggressive action to secure the corporate and personal assets worldwide of the Olympic village’s private developer after acknowledging that the developer did not pay the full amount of its first $200-million loan payment to the city. …
As well, the city, which took over financing the village construction in February of 2009 after Millennium’s original lender refused to continue making payments because of cost overruns, has told Millennium that it either has to pay out the $561-million it owes the city or prove that it has a solid plan for making the loan payments that were originally scheduled.
The City is starting to put feelers into Millenium’s holdings to uncover how much additional collateral is available to repay the loan. But it’s unclear how much collateral Millennium actually has. Many of its holdings are highly mortgaged and it’s uncertain, at least to me, if the owners can face judgment against their personal holdings. Long story short, the City won’t be the only creditor represented at a bankruptcy hearing.
It may well be Millenium will go insolvent. But given how many tiered creditors Millenium has, we don’t know how quickly the City can recoup the money it is owed beyond the collateral of the OV itself.
On the plus side, the City just got $192MM from Millennium. How does that change the calculations? If Millennium does go technically insolvent before its next scheduled debt repayment, we have the following approximate shortfalls:
At $700psf, there is a $200MM shortfall; selling all the rentals and retail space reduces this to about $100MM. (Interest payments to the City’s creditors on the total balance outstanding will be on the order of $25MM for a year.)
$600psf – $250MM shortfall ($170MM if rentals/retail sold)
$500psf – $300MM shortfall ($230MM)
$400psf – $350MM shortfall ($300MM)
The question is, what will be the average price of the market units? If we do a bit of analysis based solely on rental income and assuming some “rosy” rental rates of $2.75psf/mo (500sqft flat $1500/mo) and a “rosy” 150 price-to-monthly rent ratio, we end up with a market “value” around $450psf.
I think the sales staff for the Olympic Village can do better than this. It involves, in my opinion, finding people who are willing and able to pay well above rental rates for a building with unproven infrastructure and a less-than-whole strata. But it will involve selling these condos reasonably quickly or the price will likely continue to drop.
In summary, it looks like Millennium has come up with some cash to reduce the City’s shortfall on this project. That is a good thing for ratepayers. Loss estimates are now better but still ostensibly in the neighbourhood of $250MM-$300MM, minus any additional funds Millenium coughs up. Better, but still one helluva mozza ball.
October 3rd, 2010 at 7:22 pm 1
OK this is looking more and more like an amount that can be covered by a modest surtax for a few years. Vancouver will not become the New York of the 1970s, other levels of government will not need to help out, and life will go on as normally as it does in Vancouver.
Of course, the media and whiny tenants might make things a little difficult: http://www.theprovince.com/Tenant+green+building+…
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October 3rd, 2010 at 10:24 pm 2
$2100 for an 888 Sf condo where nothing works. What garbage. You can get so much more for $2100 a month, I don't understand why people would want to pay top dollar to live in these places. Can nothing in this province be built correctly?
I wouldn't buy a condo in a million years, I don't care how cheap.
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October 4th, 2010 at 12:30 am 3
Oh lookie bear…
Agent Will's numbers show a balanced market…
His numbers show a shrinking inventory…
Average prices going UP UP bear..
And don't believe Garth that it is normal for prices to go up with declining sales volume and that this is a sign of a coming collapse…
He believes that fewer sales skew the prices, and paints an unreliable picture..
But he only believes that when it shows prices going up…
When prices are declining with lower sales volume then that is somehow more accurate…lol
Cherry picker Garth is at it again…
When is my crash bear? Olympics gone….new mortgage rules in place….HST in place….interest rates rising…
But but but…no collapse..
What you waiting for bear? what is the next black swan event that will tip the market? hahahhahahhah
loser bear
Because Garth also says that
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October 4th, 2010 at 12:46 am 4
@Bullknowitall: Haha. Keep paying and praying spaz. Remember, when you start getting too freaked out just click your heels together three times and repeat "house prices never go down".
Also, please work harder at convincing people that the OV is worth it – its a bit of a black eye for the city right now. You could start by convincing the buyers who bought already to hold up their end of the deal.
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October 4th, 2010 at 12:59 am 5
@Bullknowitall: baby bull needs to start watching the news, and reading the newspaper.
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October 4th, 2010 at 1:19 am 6
Strangely enough, there are no positions currently available on Millennium's career page.
http://www.millenniumdevelopment.com/careers.php
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October 4th, 2010 at 1:31 am 7
@Patiently Waiting:
"The village is beautiful. Sixty-five apartments have been leased or rented. In the long term, people will be very happy."
This dope sounds just like an agent, make unrealistic claims with nothing to back them up. Wow, they've rented 65. Why will people be happy? Are they going to return the over-charged rent for all the garbage they have dealt with?
I rent in a building that was completed about two years ago and also shares some of the LEED technology that the OV uses – what a hunk a junk is all I can say. What is interesting is that it seems that the building is significantly occupied by renters and we all discuss how lousy the construction is and that we would never buy here. The lack of owner occupier's has also led to poor upkeep where it seems that a lot of people who live here just don't care about the strata rules or taking care of the common areas. I'm not saying renters are slobs or trash the place but the truth is that when you don't own, you treat the place more like a hotel than a place that eats up 60% of your take-home (myself included). I pay a lot for rent, I'm not going to wear kid-gloves when I interface with the building, if something breaks from shoddy construction or maintenance I am going to complain to the landlord!
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October 4th, 2010 at 1:35 am 8
This is a good analysis of the OV, trying to put some numbers around the potential loss. This project is a fiasco, but it's clear that MSM and bear comparisons to Montreal'76 are wildly overblown. This is not a $1B boondoggle.
In other news, I'm curious what the bears take is on the state of the market right now. It's not looking particularly bearish or ripe for a crash. The bear meme of the month led by Garth is that low sales and rising prices predict a crash, but the fly in the ointment is that listings are also dropping like a stone. There hasn't been a huge 'rush for the exits', which we were told was going to start in the fall.
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October 4th, 2010 at 1:44 am 9
@SuperSmartBull:
What I see is the first time buyer is all but gone, we've pretty much used them up.
As for listings dropping like a stone, month end expiries will do that. No need to get too excited.
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October 4th, 2010 at 1:53 am 10
Sharp pencils in the US are saying that a bottom is being formed and 2011 may see the trough. While this guy has a great track record markets can stay irrational for frustrating periods of time due to black swans and circumstances which delay and retard a trend in motion. Betting on the macro is always the right thing to do …but the bet takes an indeterminate time to 'look right'.
http://finance.yahoo.com/banking-budgeting/articl…
Canada is far behind ( probably a good three years) in this cycle vis a vis the US…Vancouver especially has a lot of hot air to deflate before any semblace of fundamental stability reasserts itself. If the article is near correct and there is a better time to buy in 2011 because of rising inflation it would still be 18 to 24 months after the trough becomes apparent where the results will begin to show up on main street…..making the time frame of 2013-14…or roughly 9 to 10 years of recession in the US based on it having started approx 05 or so.
Is that the same clock that Canada is looking at? The last real estate downturn took almost 12 years of 'the death of a thousand cuts' before the nascent signs of recovery took place. If the downturn has just started here will the next real estate cycle begin in 2020-22. If so …the current pumping by the pimps to 'hold for the long haul' will seem like a very long haul indeed for those strapped with mortgages that suck the life (style) out of their lives. Many FTBS will be middle aged and pissed by the time they break even. Bwahahahahahahahahahahahaha…thats what you get when the Vanc Sun makes your decisions for you.
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October 4th, 2010 at 1:59 am 11
Wonder what will become of the controversial Millennium "Alexandra project (http://www.alexandraliving.com/) @ Davie & Bidwell in the West End now that the developer and the City are no longer full steam ahead. Community support is zero and the whole Gregor Robertson f-bomb media bonanza is hanging over it like a big stink, http://www.cbc.ca/canada/british-columbia/story/2….
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October 4th, 2010 at 2:07 am 12
@Best place on meth:
What evidence do you have for that assertion? Even if true, how exactly would that work, having a bunch of move up buyers on the property ladder with no FTB's?
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October 4th, 2010 at 2:15 am 13
@SuperSmartBull:
It may interest you to know that in the early days of the US housing crash it was not uncommon to see greatly dimished sales volumes coupled with increases in prices…
Some examples (change from 2005-2006)
Sales Prices
Las Vegas -20% +6.3%
Phoenix -31% +11.8%
Miami -23% +2.0%
San Diego -22% +1.2%
Well, we all know what happened to prices in these cities after that…
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October 4th, 2010 at 2:16 am 14
@SuperSmartBull: SSB…here's a hint…what makes up the bottom rung of the ladder?
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October 4th, 2010 at 2:16 am 15
500sqft flat $1500/mo
will people really pay that? I pay just a little more for a 2 bedroom and den twice that size in a relatively new building on the west side.
Oh, and the heating/cooling systems in my building work, and there aren't yellow overflowing toilets, but maybe that's a premium for some people.
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October 4th, 2010 at 2:30 am 16
@supersmartbull
Vancouver home prices have increased quite a bit in the last seven years. Income has not risen, and in the last few years, banks have not increased their mortgage portfolio in the last 4 years. so where DID the money come from? locals will say rich foreign investment, and that is partly true. (more on this later)
So if peoples debt is increasing, and the banks arent loaning money and keeping it on their books, and there are not enough rich foreigners buying houses, where does the money come from?
If you answered mortgage backed securities, you are correct. What is a mortgage backed security? I am glad you asked. The CMHC takes the mortgages from the banks, securitizes them (pools them together) and sells them on the open market. The people who buy them get a stream of cash flow from buying the securities (cash flow stream comes from monthly mortgage payments).
Does this sound familiar? If you said, jesus, this sounds like the sub prime meltdown in the US, you are right again. Look at the big brain on brad!
Why would anyone buy this crap after the US market went belly up? Canadians say they are different, is that enough for me, Johnny Investor? Hmmm, no.
Hmmm, what do. I would need some sort of iron clad guarantee. Now if only the Government of Canada, through the CMHC, would only guarantee all these loans. Then if these mortgages default, I wont lose money, the Canadian taxpayer will.
Done and done.
People will keep buying these securities if the government of canada keeps backing them, and prices keep rising (leading to ever rising cash flow streams)
Now if Vancouver real estate only ever goes up, and the government backs it, eventually it will have unlimited liability.
So it said, hold on, lets tighten the requirements for the types of loans we will guarantee. (insure). So now people go in, try to get a loan, and the bank looks at their income and down payment, and they dont qualify for insurance.
So listings go up, sales go down, and prices stay the same or slightly rise. Jackasses like you think, well, that must mean no crash. Just because home prices have always lagged sales in real estate in every instance in recorded human history (lagged means sales rises, and later prices rises, or sales fall and LATER prices fall) you think it must be different here.
You come on here and say, well sales just tanked, but prices didnt, so we are fine.
But as sales lag, prices will go down. When prices go down, cash flow goes down. As cash flow goes down, yield on mortgage backed securities go down, and investment from the secondary market goes down. As investment goes down, bank and mortgage loan origination goes down. As loan origination goes down, unemployment goes up. As unemployment goes up, defaults go up. As defaults go up, prices go down. As prices go down, prices go further down. Where once we have the positive feedback loop fueled by easy credit, provided by a secondary market trading in these GUARANTEED by the government of canada sub prime loans, we now have a negative feedback loop that leads to price home deflation. Then a deflationary spiral.
So the sideways prediction in home prices that homeowners are predicting? WISHFUL THINKING. The downward spiral the bears are predicting? The natural outcome of moral hazard.
If you understand that the government of canada became the biggest subprime lender in the world, you are right. If you dont understand this, you are the one we are all going to laugh at.
If you dont understand that the government of Canada is actively trying to deflate this bubble (praying for a soft landing that never actually happens) you are the village idiot!
So by all means, encourage people to buy overpriced homes in a system they dont understand.
What the fuck do you care? Its not your money. Their financial ruin won't lead to you losing sleep.
Before you post here again, ask yourself. Am I a man? Can I take responsibility for my words and advice? Or I am just an internet blowhard who doesnt know their ass from a hole in the ground?
I think we all know, and I think you do too.
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October 4th, 2010 at 2:43 am 17
@Girlbear: What were the total number of listings doing during that time?
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October 4th, 2010 at 2:56 am 18
@vancouverseniorsecondarymarket:
Owned.
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October 4th, 2010 at 3:02 am 19
@SuperSmartBull:
With no first time buyers, lower end units would sit on the market, such as one bedroom apartments and average prices would rise due to the lack of low end sales. Hmm sounds like what is happening now.
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October 4th, 2010 at 3:04 am 20
@vancouverseniorsecondarymarket:
The part that you missed, in what appears to be a neat summary of an animation that's currently doing the rounds on Youtube, is that those in the US were able to walk away from their houses when they realised they were in a negative equity position. That won't happen in Canada, because mortgages here are full recourse.
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October 4th, 2010 at 3:07 am 21
@vancouverseniorsecondarymarket: probably one of the best posts I have read yet on this blog. Bang on.
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October 4th, 2010 at 3:22 am 22
@Patiently Waiting: "this is looking more and more like an amount that can be covered by a modest surtax for a few years"
Let's figure out what such a surtax would be. $250MM outstanding on a 5 year repayment schedule at 5% interest is $4.7MM per month or $56.4MM per year. If we say that 50% is paid by a residential property surtax and 50% by businesses and other revenue sources (as the City tries to better equalize residential and commercial tax sources), this is a $28.2MM total annual surtax for residential property taxes, divide by 270,000 residences gives about an average $104 surtax for 5 years per residence.
If the surtax is extended to a 35 year repayment schedule this reduces to a $28 average annual charge for 35 years.
I wouldn't be surprised if the City does need to raise cash it will revert to using its old utility fee increase scheme: it avoids unduly raising the headline property tax numbers but sidles businesses and larger scale residential buildings with auxiliary fee increases.
The City's ability to raise cash is not infinite. Accepting a tax on a debt with no net benefit means less revenue for more productive uses. I expect there are other ways to save money off the bottom line that would reduce tax increases but when it comes down to it none of the avenues are pleasant.
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October 4th, 2010 at 3:24 am 23
@SuperSmartBull: SSB – those percentage changes are from Q2 2005 – Q2 2006. From what I can see re inventory – it started to really rise starting Q3 2005 and then exploded in 2007 and after. By then prices were declining also…
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October 4th, 2010 at 3:29 am 24
Thee is a good lesson in all this:
LEEDS is bullshit, and stay away from any project that doesn't have simply basic systems delivery. The OV can be used as an example of what not to buy.
I know people who live in hi-density units and they either have electric heat or a boiler system. Air conditioning = open door/window, stand-alone fan, or dress appropriately. That is simple and long term cost effective.
The guts of this OV turkey was slapped together and deficiencis will continue to expose themselves. Remember when one union ratted out the sloppy pipe insulation work ?
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October 4th, 2010 at 3:30 am 25
@Anoymous:
>>>those in the US were able to walk away from their houses when they realised they were in a negative equity position. That won’t happen in Canada, because mortgages here are full recourse.<<<
That makes things even more painful and complicated for our economy if underwater home owners can't walk away.
They will either have to keep paying large amounts of their income on a depreciating asset, depriving the rest of the economy of dollars – OR – they declare bankruptcy to unload the problem but that will also affect the banks' credit card and loan portfolios.
This could be a long and ugly scenario unfolding, possible worse than what we've seen in the US.
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October 4th, 2010 at 3:36 am 26
@Best place on meth:
"That makes things even more painful and complicated for our economy if underwater home owners can't walk away."
Possibly, but it stops the positive feedback loop which developed in the US.
Here's the animation I referred to earlier : http://vimeo.com/3261363
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October 4th, 2010 at 3:38 am 27
@Anonymous: Many states are full recourse.
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October 4th, 2010 at 3:45 am 28
@Anonymous:
It didn't stop the prices drops, they just took longer to reach bottom, they're still going down now.
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October 4th, 2010 at 3:49 am 29
@vancouverseniorsecondarymarket:
For the win!
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October 4th, 2010 at 4:00 am 30
@vancouverseniorsecondarymarket: Very nicely put. But here is the outstanding question(s).
- what are the underwriting standards for a mortgage to get into a CMHC backed mortgage pool?
- How rigorously are those standards applied. (ie what proof of income do they need to see; is a computer-generated appraisal good enough, etc.)
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October 4th, 2010 at 4:06 am 31
@Not much of a name…:
"Many states are full recourse."
Didn't know that. Which ones? Was there a significant difference in price changes between full recourse and no recourse states?
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October 4th, 2010 at 4:15 am 32
@Anonymous: I don't have the list, but if memory serves correct, Florida is a state with it. We know how it turned out there.
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October 4th, 2010 at 4:21 am 33
Girlbear : The areas that you are talking about showed declining sales and rising listings (increasing MOI) which led to downward pressure on prices. This is not what we see with the Van RE stats right now.
Ouch and BPOM : You both maintain that there are no first time buyers anymore in Van RE, yet can't seem to grasp that's not possible since each move up buyer is dependent on selling to the move up buyer below him/her and ultimately on a steady source of FTB's.
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October 4th, 2010 at 4:35 am 34
@SuperSmartBull:
Ignoring everything else, is it not possible that there are 'move down' buyers (say empty nesters looking for a condo now that the kids are long gone)?
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October 4th, 2010 at 4:36 am 35
@SuperSmartBull: Nope. The rising listings didn't show up right away SSB. They lagged. And I betcha the same thing happens here.
I personally know some people who pulled their house from being listed here and decided to give it a month or two "until the real estate market comes back". (No prospective buyers were coming by).
That's the lag…
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October 4th, 2010 at 4:38 am 36
Re: walking away?
Canada once had a good system. In the late 1970's early 1980's specualation got out of hand, the natural reaction was interest rates were 20% + .
However, things went global viral. all ecomomies seemed to glean on the RE tit, probably inspired by the US bomb.
Canada can feel insular, but IMHO, once a critical mass of foreclosures happens, people can and will walk away and their is sweet F*Ck all the banks can do. The courts can't handle the cases, chaos will rule , so Gov't will have to step in and do you know what…..
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October 4th, 2010 at 4:39 am 37
Dear forenting loser bear,
What a ride for renter bear in basement spend all summer salivating over looming collapse watching number everyday coming to blog hoping for crash. Months go by no crash happen… loser still wait hoping crash just around corner. Mortgage rule change… YES crash almost here…. nothing happen for bear he still wait in basement. HST come in no crash again. Interest rate keep going down…. Bear you wait forever.
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October 4th, 2010 at 4:50 am 38
@Girlbear: Here's a chart for Phoenix:
http://seekingalpha.com/instablog/7811-john-wake/…
Sales and Listings went in opposite directions, MOI shot up to 14 and prices dropped. That's what we saw in 2008 here and led to price declines. That's NOT what we are seeing right now. A crash does not look imminent, look for MOI to spike before making that call.
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October 4th, 2010 at 4:54 am 39
@superduperbulltime: Get back to work, those cold calls aren't going to make themselves.
Maybe you should invest in another bus stop ad, or maybe if you get on facebook and Twitter you can network your way to success! Don't worry, the market always slows down in the fall, you'll make a sale sooner or later.
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October 4th, 2010 at 5:05 am 40
Non-recourse states:
Alabama
Alaska
Arizona
Arkansas
California (as long as non-judicial foreclosure is used which is the most common)
ColoradoDistrict of Columbia (Washington DC)
Georgia
Hawaii
Idaho
Mississippi
Missouri
Montana (as long as non-judicial foreclosure is used)
New Hampshire
Oregon
Tennessee
Texas (but even in a non-judicial foreclosure, the lender can pursue a deficiency judgment)
VirginiaWashington (as long as non-judicial foreclosure is used which is the most common)
West Virginia
These are states that also allow non-judicial foreclosure, and/or where non-judicial foreclosure is more common and deficiency judgments can be obtained more easily:
Michigan
Minnesota
North Carolina
Rhode Island (lender can seek deficiency judgment)
South Dakota
Utah (lender can seek deficiency judgment)
Wyoming
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October 4th, 2010 at 5:17 am 41
@Best place on meth:
Further to that list, Nevada has since become non-recourse only for those who bought after October 1, 2009.
Anyone who bought before that is on the hook for the mortgage.
So out of the big 4 that blew up, Nevada and Florida are full recourse, California and Arizona you can mail in the keys and wave bye-bye with a big smile on your face.
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October 4th, 2010 at 5:28 am 42
Did the bears started a cult or something?
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October 4th, 2010 at 5:32 am 43
Latest poll on Calfornia prop 19 to legalize pot.
51% yes, 42% no.
http://stopthedrugwar.org/chronicle/2010/sep/30/p…
If they vote yes and can legally grow their own, will this affect BC's underground economy and by extension the entire economy?
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October 4th, 2010 at 5:34 am 44
Best place on meth Says:
October 4th, 2010 at 1:32 pm
Yes! We're toast if that happens!
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October 4th, 2010 at 5:43 am 45
California is only non-recourse to the extent you took out the mortgage to purchase the home and it is a first mortgage. Any refinancing becomes recourse, and if it's a second mortgage it's recourse.
I spent a lot of time discussing this with lawyers at the peak of the credit crisis when financing dried up overnight for non-standard whole-loan mortgage portfolios.
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October 4th, 2010 at 5:50 am 46
@Anoymous:
I take it you weren't around in Vancouver for the early 80s bust. People walked. People who are paying more than rent, have negative equity, and have no attachable assets have no reason to keep paying. Especially if they've lost their jobs.
And as the other posters have pointed out, that's the same reason they're walking in the US recourse states.
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October 4th, 2010 at 6:08 am 47
@vancouverseniorsecondarymarket:
Great post.
Is it only me who thinks that SuperSmartBull is really a satirist? He's not a real bull, just someone who feels like having some fun with uptight bears by deliberately being "off the mark" on facts and issues so that bears can pounce on him.
Laugh, move on, don't take him so seriously.
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October 4th, 2010 at 6:13 am 48
Even though we are full recourse (maybe not Alberta?) I have a feeling so many people are going to be walking the banks, courts and lawyers won't be able to keep up.
When that happens we will have a situation like the US is in now. The banks will just get their money directly from the government, and the delinquent "owner" will spend his money elsewhere thereby helping the floundering economy. Once again the savers will lose. Don't ya just love it!
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October 4th, 2010 at 6:16 am 49
@Edward: Oh yeah those people who sold there house in the US in 2005 and have been saving for the last 5 years sure got screwed
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October 4th, 2010 at 6:17 am 50
@Edward: Oh yeah those people who sold their house in the US in 2005 and have been saving for the last 5 years sure got screwed
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October 4th, 2010 at 6:20 am 51
Stats are out:
http://www.vancouversun.com/business/Metro+Vancou…
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October 4th, 2010 at 6:22 am 52
@Royce McCutcheon: Yes, we've been told that this type of "move-down" buying would become a much more prevalent social phenomenon once the boomers began to retire en masse. But I'm not certain that it accounts for more than a very small percentage of sales. The data are simply not there to make any definitive claims.
I agree with SSB that we (bears) don't have data to support some of the claims that we make. (Oh, and apropos of the bovine one, I find it annoying that his posts get reflexively voted down. Sometimes he makes some good points and our votes should reflect that.) Anyway, we don't have a clue as to whether the number of FTBs has decreased. Given that up to 50% of the condo market is comprised of speculators, it could be that FTB demand has remained resilient, and the drop in sales could be the result of speculative demand drying up.
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October 4th, 2010 at 6:44 am 53
@airborne canine:
Pretty non-eventful month, although Richmond and Burnaby took a beating on prices and sales.
Coquitlam did well though.
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October 4th, 2010 at 6:56 am 54
The following is BREAKING NEWS:
Racketeering suits (RICO), now as civil class action suits in two states, have hit the nail on the head. The civil suit says the banks do not have proper title to the homes on which they are foreclosing. This by direct inference questions if securitized debt on mortgages have real collateral behind them.
Simply stated a long time ago by Marie McDonnell and myself, THEY DO NOT.
That means legacy assets are cooked, dead, and worthless, yet are now marked up in value to cost and above. This is all thanks to FASB’s capitulation that now represents a large amount of capital for the Western world’s financial entities.
The you know what hit the fan today for those that understand. October 4th 2010, the essence of securitized debt on mortgages died!
That alone gives you gold at $1650.
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October 4th, 2010 at 7:16 am 55
This is like being in the eye of a storm.
Sept REBGV benchmarks:
Detached -0.5%
Apartment +0.6%
Attached +0.2%
Total +0.1%
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October 4th, 2010 at 7:18 am 56
Updated Vancouver market charts with September REBGV data:
http://vancouvercondo.info/forum/topic/rebgv-sept…
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October 4th, 2010 at 7:25 am 57
Can someone post a link to the PDF? I can never find a direct link on the REBGV page. Agent Will has a scribd copy up, but I want it for my hard drive.
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October 4th, 2010 at 7:27 am 58
Things are flat flat flat.
For a bubble to continue you need both bankers willing to lend and borrowers willing to borrow excessive amounts.
While both of these have pulled back, I think there are still enough of both willing lenders and borrowers at this point.
This market will be snoozy until February.
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October 4th, 2010 at 7:35 am 59
Some more fun charts from our friend Alexandre Petrov..oh oh…
http://www.zerohedge.com/article/update-canadian-…
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October 4th, 2010 at 7:37 am 60
Not much going on in the Fraser Valley either, overall benchmarks down about 0.5%
All areas of Surrey fell sharply.
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October 4th, 2010 at 7:50 am 61
Things are flat flat flat.
For a bubble to continue you need both bankers willing to lend and borrowers willing to borrow excessive amounts.
While both of these have pulled back, I think there are still enough of both willing lenders and borrowers at this point.
This market will be snoozy until February.
*********
Lol – no Spring crash, no Summer crash, and now no Fall crash…
And look, an acknowledgment of a FLAT market, just like all the economists, bankers and REALTORS predicted…
And look, interest rates remaining low for some time, just like all the economists, bankers and REALTORS predicted…
Wow, this has to be the longest running "bubble" eh? Or maybe its just not a bubble
Hmmm…some bears have been on the sidelines since 2004…
Now you tell them ONCE AGAIN that the crash is just around the bend…
Prediction: Spring 2011 – bears predict that crash is just around the corner in Fall 2011…
And so on and so on…
You always identify a black swan event, and yet that even never prompts a crash…not the Olympics, not the new April mortgage rules, not the HST…
Enjoy the egg on your face again for another shitty record for predicting price drops…
Looks like those uneducated greedy little realtors were right with their predictions for the past 7 years, and you guys, well you know your track record..
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October 4th, 2010 at 8:05 am 62
I like flat. Flat creates certainty. Certainty that things are not going to race up like a beanstalk. Flat creates a stop in the market where people assess carefully rather than compete as if price is but a number. Flat creates expectation of no more future price increases, hence the game of solitaire at new condo sales office. Flat creates nervousness as the jig is up. There is a ceiling and we bumped into it.
Most importantly, as any roller coaster rider would know, flat is the equilibrium, the apex, calm before the drop. Wheee
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October 4th, 2010 at 8:07 am 63
Kunstler talks about this mortgage fiasco today.
Full Bore to the Vanishing Point
http://kunstler.com/blog/2010/10/posting-a-little…
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October 4th, 2010 at 8:07 am 64
"@vancouverseniorsecondarymarket: Very nicely put. But here is the outstanding question(s).
- what are the underwriting standards for a mortgage to get into a CMHC backed mortgage pool?
- How rigorously are those standards applied. (ie what proof of income do they need to see; is a computer-generated appraisal good enough, etc.)"
Due to the nature of securitization, and the extraordinary backing of the government of Canada, I don't know that it matters all that much.
Lets step back and take a look at what happened in the US- they securitized mortgages, used a Canadian developed mathematical formula that said that if the pool of mortgages had enough diversified prime and sub prime mortgages in it, the risk was essentially zero. They took these models to the rating agencies like moodys, who signed off on it, saying the mortgages were of a higher quality then they were, and the wall street firms and large banks sold the securities (a security being broken up parts of many different mortgages bundled together) to suspecting and unsuspecting investors alike.
This was a successful model for quite awhile, a lot of money was made. It was so successful that the CMHC decided to do- wait for it- the exact same thing.
Why would wall street sell people sub prime mortgages that at the end knew were going to fail? Who would be so evil?
Well, basically everyone on wall street. Your broker DOES NOT care if you make money. They joke about "blowing up clients" They will underwrite garbage, and people will sell you garbage. Millions of shares of lehman were trading hands up until the day firm collapsed.
Your real estate agent does not care if your house goes down in value- they just want the vig, the vigorish. The commission.
Now back to Canada- far from a calculated navigation of treachorous financial waters, we started doing sub prime in earnest right before the collapse, causing the canadian government to bailout the canadian banks, moving all of the toxic debt on the books on to the canadian governments balance sheet when things went south- in the south.
So back to your question of the quality of mortgages going into these securitization pools:
all types of quality. We have two clues this is true: 1. since 2007, the banks have increased their mortgage liabilities by about one tenth of one percent. They dont need to take the risk if they can just sell the mortgages to someone else, take their cut, and let the new investors worry about it. 2. The CHMC has admitted publicly they were required by the Canadian Government to increase the pool of mortgages they insured, even if the borrowers were not credit worthy. (thats Sub Prime kids)
So you have all of the Canadian mortgages issued in the last few years- good mortgages being sliced up and sold with bad mortgages (bad meaning they have above average chance of defaulting) and because the investors know the government of Canada is good for it, they will buy it. Its one reason why we were beat over the head day after day in the media that Canada was different, no sub prime here, because the stuff still needed to be sold.
I would buy a loan issued to supersmartbull if I had it in writing that the Government of Canada was good for it if it defaulted. So where is the risk?
More than likely most canadians will keep paying their mortgages, as 9 out of 10 people in the US will continue to keep paying theirs. Aside from recourse/non recourse issues, it is not a walk in the park to be foreclosed on. Nobody wants it.
The problem can grow systemic in Canada however if the default wave is sufficiently large enough, and mortgage defaults increase as real estate prices decreases, for a variety of reasons, but one just follows the other.
The government of Canada didnt really have much of a choice- it thought it had to issue more mortgages to keep the whole economy from collapsing. Time will tell if that was the best thing to do. The problem with securitizing the mortgages and propping the housing market up is it has an inflationary effect on prices (cheap rates and outside investors provided the perfect ingredients for our bubble)
Now the government is walking a tightrope – trying to gently deflate a bubble it helped create.
But as other people have pointed out, you don't need waves of defaults to lower prices- you just need to turn off the spigot of cheap easy credit, which the CMHC did with their new rules. Now they can go back to insuring mortgages where people have enough down that it would be very painful to walk away. Lots of people walk away when its 1% equity, or negative equity, very few walk away when its 20 and above.
So in short, VHB, because you can't find new mortgages on the banks books, and the CMHC has increased the amount they insure by hundreds of millions of dollars of these securitized mortgages in the last few year, it means they just took everything and swept them together in one big sh*t sandwich.
And we all get to take a great big bite out of it.
Don't forget to vote.
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October 4th, 2010 at 8:08 am 65
Inventory is dangerously low again. Condo Unit tracker is in uncharted territory of 385. Oh my Lord. God save us.
Soon bidding wars will fire again ! Soon multiple offers !
NO NO NO !
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October 4th, 2010 at 8:10 am 66
RE post 54
what kind of mental midget would gray out an on topic post by Jim Sinclair? Either the retard who moderates this thread doesn't understand the significance of this news today on us here in Canada or he's too busy thinking up new ways to practice his cyber bullying.
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October 4th, 2010 at 8:15 am 67
"Flaherty won't tighten mortgage rules, yet". Guess its time to print a few trillion more dollars to keep the bubble going a little longer.
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October 4th, 2010 at 8:22 am 68
@No More Gordocracies: Hey Mike, there isn't a 'retard moderator'. It's peer moderation here at VCI. And a jury of your peers said they didn't like your post.
Kiss your gold from me.
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October 4th, 2010 at 8:24 am 69
Actually while visiting my parents place on Sunday they forced me to check an open house down the road.
699K for an old timer on a corner lot near metrotown. When I got there, there were about 3-4 East Indian guys all with hands free ear sets right in the middle of a bidding war. I am positive they are going to build an amazing, quality home with that property!
http://search.suttonwestcoast.com/map#listings/in…
V852831
It will be interesting to see what it will sell for.
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October 4th, 2010 at 8:29 am 70
@No More Gordocracies:
It's all of us that are foreclosing your stupid comments.
Even when you do have something relevant to say, you have to slip your inane gold pumping bullshit in there and ruin it.
I'm as bullish on gold as anyone, but shut up already.
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October 4th, 2010 at 8:46 am 71
"…in the US were able to walk away from their houses when they realised they were in a negative equity position. That won’t happen in Canada, because mortgages here are full recourse.
I take it you weren’t around in Vancouver for the early 80s bust…"
ABSOLUTELY!
I have a friend who bought a house in Prince George in 1981. Market tanke, so he stopped paying his mortgage for almost a whole year.
Mortgage company took him to court and ended up only paying them back only TEN CENTS on the dollar.
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October 4th, 2010 at 8:54 am 72
This one cracked me up…Beautiful "character" house?? WTF?
http://vancouver.en.craigslist.ca/van/apa/1989074…
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October 4th, 2010 at 8:58 am 73
seriously abut the gold thing….why would you tel him to shut up…is he wrong?
Gold is the next bubble. I bought it when it was an ounce for 750. Buy some more now. or wait.
and be priced out forever.
hahahhahaha….
seriously get on it…wait until every other guy gets in on it….
and then sell it.
Use your knowledge of vancouver real estate cycles ot apply to gold market…buy now…sell soon.
serious
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October 4th, 2010 at 9:38 am 74
@4SlicesofCheese: as big as they friggin can then fill it with 9 families and pay one tax
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October 4th, 2010 at 9:49 am 75
Dailies – List | Sold
Vancouver East & West*
New Listings -75
Back On Market Listings – 10
Price Changes -33
Sold Listings – 35
Vancouver All Areas*
New Listings – 263
Back On Market Listings – 38
Price Changes – 161
Sold Listings – 119
*Attached & Detached – Date: 10/04/2010 Time:17:05 PST YatterMatters.com:Courtesy REBGV. Data believed to be accurate but is not guaranteed.
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October 4th, 2010 at 9:53 am 76
New Listings 268
Price Changes 165
Sold Listings 119
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October 4th, 2010 at 10:01 am 77
The confidence intervals etc. are goofy with only 2 data points, but here are the projected month end totals from what we know so far in October:
October Projections for month totals
Days elapsed so far 2
Days remaining 19
Average Sales this month 107
Average Listings this month 230
Projected sell/list 46.6%
SALES
Projected month end total 2033
NEW LISTINGS
Projected month end total 4361
MONTHS OF INVENTORY
Inventory as of September 30th 15401
MoI at this sales pace 7.58
Note: This is a simple linear projection of month end totals.
This provides the answer to the question
"What will month end totals be, if things continue
on the same pace we've seen so far this month?"
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October 4th, 2010 at 10:09 am 78
It's not that being owed money sucks, but like someone said, if you owe me a few thousand dollars and you have trouble paying it back, you have a problem, but if you owe me a few million and can't pay it back, _I_ have a problem.
Lending money is a risky business, you really need to know who you're lending it to. Of course, if it's not your money, and you're not responsible for it… well…
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October 4th, 2010 at 10:16 am 79
@VHB: As we all know around here, prices will drift gently down when MoI is greater than about 6.0. We're clearly over that threshold–and we can see the still-massive number of daily price changes as confirmation of this.
But if you want to see prices seriously get boogying down, then we need MoI over 10. For that to happen, we need a lot more 'have to sells' to get listing (rather than taking their listings off the market until the market 'gets better'), or we need a lot more "can't buy" guys on the demand side. Or both, would be nice, too.
I don't see any massive spike happening over the rest of this fall in inventory. If sales keep coming in at 40% or so, then we're just going to drift in this 7-8 MoI range.
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October 4th, 2010 at 10:16 am 80
Apologies for this being non-real estate related, but I just drove by Kingsway & Fraser and noticed the Canadian Bible Society shop is having a sale on their inventory. The sign goes like this:
SALE
Fiction – $3.99
Non-fiction – $4.99
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October 4th, 2010 at 10:26 am 81
Sell-list for September 2010: 46.9%.
Sell-list for October 2010 (after two days): 46.6%.
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October 4th, 2010 at 10:59 am 82
Much of the discussion about changing the mortgage rules seems to stem from comments made by the Bank of Canada governor who last week warned that consumer borrowing could not continue at its present clip.
<a href="http://www.financialpost.com/news/Ottawa+ponders+further+tightening+mortgage+rules/3617608/story.html" rel="nofollow">Ottawa ponders further tightening of mortgage rules
…consumer borrowing could not continue at its present clip….yeah, what else is new?….RTP
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October 4th, 2010 at 11:36 am 83
@vancouverseniorsecondarymarket:
Are you going to write the Canadian version of Stiglitz's?
http://www.amazon.com/Freefall-America-Markets-Si…
No, seriously, a 10 page PPT presentation of why Canada is not different would be an interesting lecture for MBA's and business undergrads; just need to get the references correct.
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October 4th, 2010 at 11:38 am 84
@ReadyToPop: From the article: ""There is growing concern about the growth of debt. It’s now 146% of personal disposable income"
Keeping the rules the way they are will not reduce this level debt; rather Carney obviously wants to see it lowered going into a more sustained recovery. That means hamstringing new loan originations and letting the existing balances unwind because the population apparently can't control itself without these rules.
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October 4th, 2010 at 11:41 am 85
Things won't stay flat. RE has become too big a part of the economy, and flat RE means less investment, less construction, less sales, and ultimately a lot less jobs.
Then the defaults happen. Won't be different here this time.
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October 4th, 2010 at 11:41 am 86
@Girlbear: Our friend, Mr. Pestov, takes to the airwaves:
http://www.howestreet.com/audiovideo/index.php?pl…
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October 4th, 2010 at 11:50 am 87
@VHB:
well thanks to the narrow mindedness of some here, if I do decide to ever buy a house its going to look like this:
http://tinyurl.com/2ejhogl
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October 4th, 2010 at 12:10 pm 88
@crashcow: why does listening to that audio clip remind me of this photo?
http://www.flickr.com/photos/53332339@N00/3329076…
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October 4th, 2010 at 12:15 pm 89
RBC waves red flag over Vancouver housing market
Housing affordability lacking, crippling household income
' VANCOUVER – RBC economist Robert Hogue is raising a “red flag” about housing affordability in Vancouver.
The bank’s quarterly report on housing trends and affordability, released Monday, said Vancouver is one of a handful of Canadian markets where the share of household income taken up by home ownership costs “is at worrisome levels.”… '
http://www.vancouversun.com/waves+flag+over+Vanco…
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October 4th, 2010 at 12:32 pm 90
For those that don't know, Petsov is our very own Patriotz. The new company is called Three Bears.
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October 4th, 2010 at 12:44 pm 91
@CondoCrash: "Petsov is our very own Patriotz"
Nope.
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October 4th, 2010 at 1:02 pm 92
@jesse: Trust me, inside info.
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October 4th, 2010 at 2:13 pm 93
@VHB:
A lot of people are expecting encore of 2009 in 2011. Afterall RE can never go down in Vancouver. Those who sold in a hurry in 2008 became laughing stocks. The industry is going to harp on recovery like a broken record. My impression is that past Mar 2011 is when the real fun will begin. Till then, its slow bleed. I am loving it anyhow.
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October 4th, 2010 at 2:32 pm 94
@VHB:
Why not use a 30 day moving window?
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October 4th, 2010 at 3:01 pm 95
@Pat:
Will anyone really pay $2.75 a square foot? This guy has been asking the same question for the past 3 months:
http://www.google.ca/search?q=%22(604)+562-0313%2…
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October 4th, 2010 at 3:17 pm 96
@Anonymous:
I still can't believe how awful those OV condos are.
The kitchen must be a joke. Two square feet of counter space!
I thought wood panelling died in the 70's.
Good luck to this guy.
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October 4th, 2010 at 3:43 pm 97
@Anonymous: "Will anyone really pay $2.75 a square foot?"
To live in that dysfunctional deserted dystopia? How about per square meter?
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October 4th, 2010 at 3:47 pm 98
@Best place on meth: So I need to pay $1 extra for the Old Testament? Aww raspberries.
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October 4th, 2010 at 3:58 pm 99
@No More Goldocracies: Gold at 1650? On a related note I heard some of the LEEDS infrastructure is using gold as a catalyst for grey water reconstitution. Now you know why they want $900 a square foot. Think about it.
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October 4th, 2010 at 4:07 pm 100
#2 @DaMann: "I wouldn’t buy a condo in a million years"
Priced out forever?
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October 5th, 2010 at 4:25 am 101
@rp1:
Nope, Sold and got out of this insane mess
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October 6th, 2010 at 7:04 am 102
Commodity price is going up and bound to go up more. I think wutever kind of depreciation with real estate will be offset by the huge injection of currency.
At the end, holding on to depreciating currency doesn't do you any good in a long run.
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October 14th, 2010 at 1:21 am 103
MILLENIUM WATER , Why , Because it will take a MILLENIUM for the
Vancouver tax payers to get their money back , if then , and also
because the project is dead in the WATER !!!!!!!!!!
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