All posts by wreckonomics

Global real estate hotspots

Forbes has an item about the top ten global hotspots for real estate investment and there’s one pacific rim jewel that is missing.

The biggest fallers seem set to be Geneva, Zurich, Washington and San Francisco, while Vancouver falls out of our future top 20 entirely. The three biggest winners point to a rebalancing within Brazil, Russia, India and China, with the main cities to watch being Mumbai, Moscow and São Paulo. They look set for a dramatic upswing in their status, with each expected to climb by between six and eight places over the next decade.”

New York and London remain the No. 1 spots to invest in global real estate, but honestly, who can afford it? Soon, we may be asking the same thing about São Paulo.

Wait. Vancouver falls out of our future top 20 entirely? Why?!?

Bubbling up in the media

Picture this: a noon news story on Global TV that has a financial expert talking about 25% house price declines in Vancouver. It happened and AJ Sull from Pacifica Partners Capital Management played the counterpoint to the Royal LePage argument that everyone wants to live here:

Of course, by the time the story was repeated at 6pm, it had changed a bit.

Meanwhile over at news1130 they’re reporting on Joe Castaldos warning to young buyers about the ‘normalacy’ of this market and the National Post has a comment about the lack of election talk around a Canadian housing bubble.

In a comment yesterday reader Real Professional commented about the medias difficulty in finding voices of balance when it comes to real estate. There’s no shortage of Realtors who long for that moment of airtime to raise their profile but when was the last time you heard somebody talk about the potential downside of the product they were peddling?

Even if a reporter can find talking heads for both points of view the publisher or broadcaster of the news product may be disinclined to upset advertisers. Reader Southseacompany points out this tidbit about Sun reporter Ben Parfitts early stories on the leaky condo crisis and pressure from advertisers to bury the news.

So what does it tell you if there are all these reasons why we don’t see mainstream media stories about housing bubbles, and yet we’re starting to see all these stories about a housing bubble? Reporters, economists, former politicians, etc.. Is this the tipping point?

A strategy to beat rising interest rates

RE/Max has released a report saying that the Metro Vancouver real estate market is being driven by first time buyers looking to avoid higher interest rates down the road.  Did we get US style mortgages where you can lock in low rates for the entire mortgage term?  Maybe I haven’t been paying enough attention.

Re/Max said the prospect of higher mortgage rates has prompted many of those determined to get into the market to act in the early part of this year.

It also noted the federal government’s newly implemented conditions for mortgages that reduced the maximum amortization period for government-insured mortgages to 30 from 35 years, and limited the amount people can borrow when refinancing their mortgages to 85 from 90 per cent of the value of their homes.

Led by the Bank of Canada’s relatively low benchmark rate of one per cent, homebuyers continue to enjoy mortgage rates that are low by historical standards. However, it’s not expected to last.

Just this week, most of Canada’s major banks hiked their mortgage rates, with standard five-year, fixed rates moving up 35 basis points to 5.69 percent a year.

Locking in for 5 years on 25-30 year debt because you expect interest rates to rise sounds like an interesting strategy.. Be sure to get as much as you can afford, because by the time you have to renew at a higher rate your income is sure to have risen tremendously right?

No F#(*!n@ Bailouts!

Noticed some interesting discussion here the other day about personal responsibility and bailouts.  This comment was from Frank Grimes:

I’ve been hoping for a while to see a blog post about preventing a bailout. We all have the general assumption that there will be a crash/burst/melt of the real estate market in Vancouver. Maybe an issue we should concern ourselves with is preventing governments at any level from spending money on flawed and doomed-to-fail subsidies and buyers grants in hopes of stabilizing the market. I see it as being a black hole of money (corroborated by the US experience), and feel that it would hinder the process of resource re-allocation back to parts of the economy that are more “productive”.

Here are a few of my thoughts, how about you guys?

Bulls: Prices are HIGH! If you bought years ago you can cash out and escape Vancouver with quite the bundle now.  Congratulations!  .. or you can let it ride and see if there’s even MORE money to be made!  Exciting times indeed, but how about this: Whichever you choose how about you agree now (while prices are high) that in the event of a housing market crash it’s caveat emptor?  Let’s not try the same failed bailouts and market meddling they’ve tried in the states, how about a real free-market eh?  You win some, you lose some.  No F#(*!n@ Bailouts!

Bears: Election coming, is this the right time to contact candidates and preemptively ask them to pledge to stand against housing market bailouts? In a way the Canadian market is pre-bailed out via the CMHC, maybe it’s time to ask candidates to look at limiting taxpayer exposure to a housing market crash?

Everyone: What is about housing that makes people believe there’s such thing as a free lunch?  Grow some balls and take personal responsibility for your buying decisions.  No one else is going to read your contract for you or protect your bank account, it’s all up to you.  If it’s worth it to you, BUY IT!  .. But FOR THE LOVE OF GOD don’t complain to anyone if it turns out you paid the highest price and nobody else thinks it’s worth that.  It was worth it to you right?  You wanted it, you got the loan, you bought it.  Just shut up and pay for it now, I don’t want to have anything to do with your decision, and I doubt any other taxpayers do, so let’s just say it loudly now:  NO F#(*n@ BAILOUTS!

‘Perfect storm’ for buying in the USA

Anybody planning on selling high and buying low?  Financial Post says its the perfect time to buy some property down south if you’re a Canadian.

“It’s hard to pick the bottom” says Brian Wruk, a partner in Transition Financial, a cross-border planning firm with offices Arizona. He’s telling clients not to rush to buy, but to have their Canadian dollars converted to U.S. dollars now — at today’s sweet rates — if they’re even thinking of buying.

“You need to get that currency risk out of the picture — get Canadian dollars into U.S. dollars now, so you’re ready to move.”

In Phoenix, Mr. Andersen estimates that about 70% of the mortgages are underwater, which means the amount outstanding on the loan is actually greater than the current value of the house. Competition for these units is fierce and almost everything is bought ‘‘as is’’ and most likely with cash. There are about 40,000 listings in the area, up from a more typical 10,000 units, but still banks generally won’t negotiate the price so most deals are done at list price or higher.

While Western Canadians often buy in Arizona and California, Eastern and Central Canadians favour Florida. And the housing situation is the same there.

“With prices like this it’s crazy not to buy,” says Diana Carter, an Ontario retiree who just had an offer accepted on a single-family house in Florida. Ms. Carter had spent four intense months looking at properties. “We looked at places for US$23,000 or US$24,000 but decided on something so much nicer for US$43,555.”