All posts by jesse

Falling Markets

The TSX index fell by about 450 points

The USD-CAD fell to 0.97

The GoC 5 year bond fell to 1.286

So given all we know about real estate investing and price-rent ratios to determine fundamental value, perhaps a few can chime in on what they think is going on in Canadian and world markets and how current valuations align with future earnings.

HST and House Prices

Poor Helmut Pastrick is at it again, (HT Raize on Realestatetalks) providing insight into how markets will react with BC voters laying the smack down on a harmonized sales tax. So let’s assume for a moment what’s done is done and look again at how the HST affects house prices. According to Pastrick:

According to Pastrick—chief economist for Central 1 Credit Union, the association of credit unions in B.C. and Ontario—some buyers, especially of new homes, may delay purchases and save themselves some extra money.
“Will it hurt?” Pastrick asked in a phone interview with the Georgia Straight. “I think that impact will be temporary. The activity would be made up under the new system shortly, and indeed under the new system, the demand for housing is somewhat improved given the lower costs that will be in effect. So that would provide some lift to the housing market.”
A housing-market analyst with the Canada Mortgage and Housing Corporation in B.C. before joining Central 1 in 1997, Pastrick said that the changeover period will also likely see postponements in the planned construction of new homes.
“It depends on the transition rules, but in general I would expect to see some delay into the new tax system for some new construction,” he said.

Ah so demand will improve under the new system. Well that’s good news. But let’s remember a few things about the housing market:

  • Most housing stock is not taxed and often competes directly with new stock.
  • A large part of total costs are associated with land prices.
  • Developers want to make money.
  • Rational investors have other competing investment choices.
  • It is true that Realtor and other transaction fees will be taxed less under the new regime.

I do not pretend to be a professional economist, but I’m trying real hard to figure out how, as an investor, I would hold off a purchase solely due to the repealing of the HST. After all, I can factor the tax into my ROI calculations. Please help me out, readers!

Village Incentives

Untimely mentioned at a time of increased global uncertainty, the Great Sweatered One Bob Rennie has unleashed a new salvo in his Millennium Water Village at False Creek marketing campaign:

We’re kicking off a brand new promotion tomorrow—an amazing move-in package of essentials for every buyer—it’s everything you’ll need for life at The Village!* The package includes:
  • A hybrid bicycle – for your 5KM ride along the seawall to Stanley Park
  • A portable BBQ – for Saturday’s BBQ with the in-law’s, on your balcony or at Hinge Park
  • A one-year Aquabus ferry pass – for a last minute trip to Granville Island or Yaletown
  • A single person kayak – get to know the neighbourhood sea life
  • A year’s worth of one-zone Translink FareCards – the skytrain is only 5 minutes away
  • A coffee per day for a year at Terra Breads Café – just downstairs
  • A pair of running shoes – run the seawall in style
  • A year’s worth of groceries from Urban Fare – an elevator ride away
  • A year’s membership to Modo Car Co-op – for your day trip to Seattle
  • A set of All-Clad cookware – for your Miele kitchen
Village at False Creek Incentives Picture August 2011
Village at False Creek Incentives Picture August 2011
Come and visit us at the sales centre for your pricing, floorplans, and full details on our new promotion! We’re open daily 12-5PM, closed Fridays or by appointment at 1693 Manitoba Street at 1st Avenue.

*Homeowner may choose this package OR cash value of $5,000. Photos are representational only, actual prizes may not be exactly as shown. Ernst & Young Inc. reserves the right to end this promotionat any time without notice. For more details please speak with a sales representative from The Village on False Creek.
Untimely, too, since more uncertainty surrounding the removal of the maligned HST won’t help matters on higher-priced properties. This blogger is also a taxpayer and wishes Mr. Rennie all the best in recouping my money, but man we ain’t making it easy for the poor fellow, are we!
$5,000 sounds nice but seeing all the great stuff $5,000 buys, it kind of puts spending $750,000 $745,000 into perspective. As a bit of inspiration when you’re feeling down, I offer Mr. Rennie a quote from a Realtor operating in Southern California: “It’s nothing a lower price can’t fix.”

Economic recovery – u r doing it rong

Well with S&P downgrading the US from AAA to AA, that should send interest rates for a ride. Yup, interest rates just went for a ride all right, and hard. Below is the Government of Canada 5 year note one-year chart:

Yes, interest rates fell when, normally, a ratings downgrade would increase yields. The story to pay attention to isn’t the S&P downgrade, it’s comments like this from Hon. Jim Flaherty on continuing government-led austerity measures in countries that are not running at full capacity:

European and American leaders have demonstrated they have the “will to act” but more needs to be done to rein in global debt and deficits, Canada’s Finance Minister Jim Flaherty says.
In an interview Monday, Flaherty told Amanda Lang of CBC News that he is most concerned about European sovereign debt, though he noted that the U.S. also needs to tackle its debt and deficit.
“These are fiscal issues; they’re not bank issues, they’re not monetary issues,” Flaherty said. “And it’s very important that Italy, Spain and the others — Portugal, Ireland and Greece — go ahead and implement the programs that they’ve committed to, the fiscal restraint programs, the reforms they’ve committed to. They have to get it done.”

Just throwing it out there… comments like these from Flaherty and others, along with the pudding of actually cutting said governments’ expenditures, may actually be why global stock markets are taking a rather large poo.

What will all this mean for Vancouver and its real estate? Dunno, but two things look baked in for the next few quarters: lower mortgage rates and more employment weakness.

Vancouver’s Housing and Homelessness Strategy

Yesterday the City of Vancouver released its “Housing and Homelessness Strategy”:

The views and opinions heard during this public and stakeholder engagement were used to shape the Housing & Homelessness Strategy…  Building on what the City has learnt from past practices and policies and what we heard during Talk Housing With Us, the Strategy focuses on three strategic directions:
1. Increase the supply of affordable housing
2. Encourage a housing mix across all neighbourhoods that enhances quality of life
3. Provide strong leadership and support partners to enhance housing stability
The Strategy addresses the entire housing continuum with the City committed to improving choice and affordability for all residents and in all neighbourhoods across the city.  The housing continuum consists of the range of housing options available to households of all income levels, from emergency shelters for people who are homeless to affordable home ownership options for key workers with moderate incomes.
All income levels except those have above-moderate incomes. Or am I missing something? Apparently…
… the continuum doesn’t seem to include cooperatives, rented detached and rented attached dwellings. When the City talks about a “range of housing options available to households of all income levels”, we should separate what a family is willing to pay and what a family is able to pay to live in the City. On this front, unfortunately, the City is unwilling to deal with its rampant land hoarding and speculation addiction. If they want to join SpecAnon, the door is always open.