FFFA! Bubble! Battle! Plummet! Onni! Ohno!

You’ve made it to the end of another work week! Lets do our regular end of the week news round-up and open topic discussion thread! Here are a few recent links to kick off the chat:

Canada, another crisis?
Vancouver sales drop sharply
$300 a day
NS condo project dead
Home sales are plummeting
Battlemap! SFH & Condo

So what are you seeing out there? Post your news links, thoughts and anecdotes here and have an excellent weekend!

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[…] HAM Solo at VCI 7 Dec 2012 1:58pm and at VREAA 7 Dec 2012 […]

patriotz
7 years ago

@Anonymous:
” “Market price”, in my mind refers to something like what you might reasonably expect to get in a given market environment; not what some clueless fool might be willing to pay.”

The market is buyers and sellers, and the market price is whatever price buyers and sellers agree on in an open transaction. It’s that simple. Your or my judgement on the rationality of the buyers has nothing to do with it. The market price of Nortel in 2000 was whatever it was selling for, however foolish the buyers.

Dumbest time in 30 years to buy RE
Dumbest time in 30 years to buy RE
7 years ago

“Slow decline of 5% per year”?

Quite possible with one exception.
Such a scenario will most likely require a clear signal that the jig is finally up (which we have just had), to be followed by a “statement” year with larger drops (20%?)…or more???

It could take a few months for some of those sellers still clinging to rediculous asking prices to understand that the only stuff moving is deeply discounted. Some new listings are surprisingly low. These are mostly by better known realtors and they will set the stage before the flood of new listings in early spring…panic anyone?

2013 will be the “wakeup year”. After that the market could very well languish with mere 5% drops per year.

Anonymous
Anonymous
7 years ago

@N: “I see your point. It is true that one data point doesn’t prove anything.”

Completely wrong. That one data point sets the market price for all current listings in West Vancouver and the even other areas. It will have a massive impact on how realtors price new listings and what a buyer will offer to buy a similar place. This can have a ripple effect through the market because if a almost brand new 5000 ft immaculate high end house with a ocean view is worth 2.5 million the tear down with no view is no longer worth 1.5 million. The brand new 4500 ft house in North Van is no longer worth 2.5 million, etc.

Devore
Devore
7 years ago

@Con-Rad:

My argument from last week was trying to understand why the concept of a slow decline of 5% per year might be possible. There are some arguments for this.

Anything is possible. But how likely? The “slow melt” you’re talking about is dependent on the scale of speculative demand. In an environment of prolonged flat or falling prices, speculators will disappear until market begins to recover. In that scenario, 5%/year is probably a pipe dream in highly speculative sectors, ie see condos, Richmond. The drops will be sudden and large. In places where demand is largely end-user and prices supported by local incomes and rents, drops would be small.

Anonymous
Anonymous
7 years ago

“Overpaid when he bought and overpriced when he tried to sell!… Forgot to mention that assessed value is $3.4M.” When they bought the place the buyers would have compared it to other properties and based on that made a decision the price was fair. It probably was at the time. The place was probably priced similar compared to other listings at 2.95 million recently. Most likely what happened was the owner needed to sell and the only offer was 2.5 million so they took it. Now the problem is this sets a new price for the rest of the West Van market. All current listings will be compared to this sale and buyers will not want to pay more. This is now the ‘market price’. All future sales will now be discounted. It will take the next ‘must sell’ to… Read more »

Anonymous
Anonymous
7 years ago

“Listed originally in Jan for $4.2M, just sold for $2.5M. Previous sale in 2009 for $2.95M.” Good thing the person who bought this place didn’t throw their money away by paying someone else’s mortgage with rent. Good thing they got in by buying in 2009 just after the 2008 correction and just prior to the HAM invasion of 2011. Here is what it cost them over 3 years: $57,000 – Property Purchase Tax paid when they bought $247,800 – Interest at 3.5% with 20% down over 3 years holding it $35,400 – Opportunity cost for the 20% down payment 2% per year GIC $28,000 – Estimated property taxes over 3 years $450,000 – Gross amount they paid for it over and above the sale price $67,000 – Real estate commission paid at the sale _________________________________________________ $885,200 – Total loss or… Read more »

Con-Rad
Con-Rad
7 years ago

@N: You said $500k is too low for new build. What would be realistic for new house with basic west side finish and laneway.

Are my calculations the right way of approaching this?

I could do a price rent multiplier. Say 150.

Let me try one with a legal suite and a laneway. $3500-4000 main 1200 suite and 1800 laneway. That is 6500-7000. Times 150 is about 1000000-1050000. If 150 is too low because of whatever maybe prices are higher. Lots still look to bottom out at 500 or so. Unless my rents or other assumptions are way off

N
N
7 years ago

@Con-Rad:

Houses in Wan West typically rent for 3 to 4 thousand dollars a month. I think you can do the math from there.

N
N
7 years ago

@Con-Rad:

By the way, if you want a real-life example, I have a friend who bought a one million dollar house with two suites, in the 2008 market dip. It was in Burnaby, which is the city to the immediate east of Vancouver. He only rents one of the suites, which has two bedrooms. He got $1200 but had six tenants in eight months and the police there for domestic violence twice (two different sets of tenants). He has now lowered it to $800 so as to be able to rent it to a single woman, and things seem to be OK. His teenage son occupies the other suite, but he has no intention of renting it out when his son leaves, because he cannot imagine handling the extra work load.

Con-Rad
Con-Rad
7 years ago

@N: Your rebuttal offers no concrete numbers other than criticisms of some starting points for a numerical analysis. Please rerun the numbers and come up with your own calculations instead of dumping over someone else’s

I may be wrong on my numbers but I already derated suites for add to income. I used a conservative dsr that allows for maintenance and other expenses.

So, N, what numbers would you use to estimate baseline lot value? In the interest of healthy debate. Thanks for the response.

Con-Rad
Con-Rad
7 years ago

@Anonymous: You are referring to appraised price. Market price includes foolish pricing. That there are fools with too much money is a big part of why prices are sticky. Stories of some oblivious fool overpaying get passed around. Justifies others not dropping the price hoping to land their own fool.

Someone has to say it. Vancouvers market has gone full retard

N
N
7 years ago

@Con-Rad: I think one of the issues that is making analysis difficult for you might be that you are not even slightly familiar with what is going on in Vancouver. You say, “there is obviously a speculative bubble in van west, 2800 on 1million does not make sense but where will the bottom be.” But the property in question is not in Van West. It is a 1000 sq foot condo downtown. You go on to say, “Lets take a new build at $500K with 2 suites at 800/month each and laneway at 1200.” Just this week we saw that the building cost for a laneway house was 300K. That might have been a bit high, but the idea that you could get a house built with two suits and a laneway house for 500 K is overoptimistic to say… Read more »

Anonymous
Anonymous
7 years ago

@Anonymous: … although you might argue that “market price” in recent years has moved into “clueless fool” price territory.

Anonymous
Anonymous
7 years ago

@patriotz: “What the house sold for in 2009, assuming the buyer was the high bidder, was the market price, and what the house just sold for in 2012 also was the market price, assuming the same. The market is what properties sell for, and in the case of this property, the market is down.”

The price is whatever the seller and buyer agree on. “Market price”, in my mind refers to something like what you might reasonably expect to get in a given market environment; not what some clueless fool might be willing to pay. That is what we have comparables for.

CMHC hater
CMHC hater
7 years ago

Went looking for a bigger house for rent here in Surrey. Met one of the amateur builders who is unable to sell 3 of his houses and is planning to rent them all. He has two more under construction. His logic? market is going to improve after the HST is gone and hold your breath, lots of americans are coming to buy real estate here. I am sure that is the case as houses are so expensive down South and they dont have any place as great as the BPOM up here.

Ralph Cramdown
Ralph Cramdown
7 years ago

Rent to own is a cesspool, all right. Different jurisdictions have different rules (e.g. when is the property transfer deemed to have taken place?) but the seminar peddlers gloss over these.

In the particular example, the “buy it now” price increases by 2.8% per year, quickly moving it over the $1mm hurdle which is the cutoff for CMHC insurance, i.e. a 5% downpayment, which is what the numbers show the buyer saving to. So that’s a fatal flaw right there. Also, there’s an inbuilt assumption that, should the buyer walk away after 5, the seller will be happy to have pocketed market rent + $50,000 rather than selling today, which not everyone on this blog believes will be the case.

patriotz
7 years ago

@Anonymous: ” There are always going to be some people who simply have a very poor sense of the market value of a house and therefore pay too much and ask too much. ” What the house sold for in 2009, assuming the buyer was the high bidder, was the market price, and what the house just sold for in 2012 also was the market price, assuming the same. The market is what properties sell for, and in the case of this property, the market is down. Market price is simply the highest price that someone is willing to pay and that the seller is willing to accept. Excluding non-arm length transactions where the seller is trying to make a gift to the buyer or vice-versa. You can’t make an ex post facto argument that the price paid in 2009… Read more »

Guy Smiley
Guy Smiley
7 years ago

@Landbaron: You’re absolutely right. This is wrong on many levels. I have a friend who gets suckered into every terrible new MLM scam and investor scheme. She is trying to sell me on this Rent-to-Own thing (not trying to convince me to buy, trying to convince me of the merits of this program so that i will quit giving her shit for paying to atted their seminars). People have been paying to join seminars that convince them to sell this product as: 1) a novel new approach to getting marginal income families into homeownership; 2) a high rate of return for the investors who put up the initial cash. The organization supposedly has a global scope and purely altruistic intentions. From what i understand, a benevolent middle man, such as my friend, will find a family who has stable income… Read more »

CanuckDownUnder
CanuckDownUnder
7 years ago

If Vancouver used house salesmen are anything like those in Sydney expect to hear a lot about skyrocketing rents in the near future. Once we hit a peak the talking points moved from “buy now or be priced out forever” or “buy now, HAM is coming” to “buy now and stop throwing away money on rent” while completely false statistics were thrown around to scare the last of the greatest fools. I was walking home today when I passed one of the local agencies for a browse in the window. They had an “information” sheet up which claimed that industry analysts are predicting that rents are going to rise 10 per cent per annum over the next 10 years due to a severe housing shortage! That means the median rent for apartments in Sydney will rise from $500 per week… Read more »

Con-Rad
Con-Rad
7 years ago

@Short’em High: “there is no debatable point or wiggle room for buying from your stupid posts” You see you are not contributing anything to the debate. You are trolling someone trying to get some solid numbers on where a bottom would be. I am surprised reasonable bears on this site would let yo uget away with such comments. I am not here to suggest NOW is a good time to buy. This is I think obvious from reading my previous comments. Let me be clear. I am bearish. There is a speculative bubble. I am trying to find out how far and fast prices could drop. The last post was thinking about how far Now bears are you going to throw one of your own under the bus? Here is a test case. Vote shortemhigh down into hidden status and… Read more »

Con-Rad
Con-Rad
7 years ago

@N: there is obviously a speculative bubble in van west, 2800 on 1million does not make sense but where will the bottom be. If its all 200k+ income families not 100K and add in suite and laneway income we can determine what lot value will be.

Lets take a new build at $500K with 2 suites at 800/month each and laneway at 1200. Family wants to spend 20%gds and 50% add to income that puts total annual revenue at 40k+0.5x12x2800 is $58600. What can that carry at 5% mortgage rate? I’m getting $800,000. With 20% dp this property is $1million. That puts lot value at $500,000. That would be oer of about $3300/mo for brand new westside main level.

Are these rental assumptions reasonable? Maybe one of the renterbears can confirm rental rates for a new build.

Short'em High
Short'em High
7 years ago

@Con-Rad: re: “Look at the density.” I know this joke has been made before. The density is that of a solid block of metal spanning the 6 inches between the ears of people who think they are going to somehow save rent or better their finances by owning anything in Vancouver or Canada for that matter. No @Con-Rad, there is no debatable point or wiggle room for buying from your stupid posts. If you are as dense as the rest, then so be it. Canadians are completely and utterly brain dead with unrealistic dreams of future earning power or even participation in productive economic activity at all. The only activity we can pull off now is to get a one time premium price from foreign dictatorships who want to extend the scope of their regime into oil and coal extraction… Read more »

N
N
7 years ago

First off, why would anyone aspire to pay one million dollars for a place that can be rented for 2800?

Con-Rad
Con-Rad
7 years ago

@s: ‘they did more to fuel the housing bubble then anything’ You are primarily blaming the media for causing a housing bubble? There’s enough blame to go around but in the work I do there are only two signature on the dotted lines that count for my paycheque, and it ain’t the mainstream media. I lost my faith in the media years ago, and yes this blog and others provides a great source of information. You bears are shouting down some good debate. Here is an example of something I would like to discuss. You decide if this is good faith debating/discussion. vancouver west prices have been increasing way faster than other areas for over 30 years. yvrhousing pointed this out on twitter. There has been an upwards trend for prices for a long time. Then 2001-2011 hit. Prices went… Read more »