Vancouver Condo Info

Those heretics over at Canadian Business magazine have a cover article this month called Why Buying a House is a Bad Investment.

The euphoria around home ownership crowds out some of the unpleasant truths about real estate: mainly, that long-term returns are often modest at best. Some studies have found that stock indexes actually outperform housing. More worrying is that real estate prices can and do fall — and they can take a long time to recover. Canada has not been immune to severe price corrections in the past, and we could be on the verge of another one now. With interest rates set to rise and curb affordability, and with economists speculating about a bubble, staking one’s entire financial future on a home is not necessarily a wise bet. In fact, a house just might be one of the most overrated investments around.

..and it goes on and on.

“There’s a unique confluence of factors that has driven house valuations up this sharply,” says Derek Holt, vice-president of economics at Scotia Capital. “They’re all temporary, and that’s a house price bubble that could be pricked as we go off into the next year.” The rate of growth in home prices for the past 10 years has in fact been out of line with prior decades, pointing to lofty valuations today, according to Holt. Prominent Canadians such as money manager Stephen Jarislowsky and former Bank of Canada governor David Dodge have also sounded the alarm recently on today’s unusually rich home prices.

You can read the full article at the Canadian Business website, but these people clearly don’t know what they’re talking about.  After all, real estate prices never go down, everybody knows that.

This fixer-upper is conveniently located near the center of Vancouver BC host city of the 2010 Olympic and Paralympic games.  Just minutes from downtown, it can be yours for only $579,900.  You may be slightly put off by the pictures, but remember, many investors won’t be able to recognize a diamond in the rough, so you might not have to bid too much over asking price to put this baby in your portfolio of investment properties.

First time buyers, Investors, Builders. Corner lot with lane. Nice residential street. Close to everything. Central location. Handy man special. Needs TLC. Mainly Land Value. 21st Avenue and Prince Albert St. 10 mins to Downtown Vancover.

Thanks to crash and tincup for finding this gem!

When Flaherty announced new rules for CMHC insured mortgages in Canada a few weeks ago, there were a lot of questions that remained unanswered. One of the big ones was about the new rule requiring approval based on the 5 year interest rate. The question was which 5 year rate would that be, the posted rate or the discount rate?

Canadian Mortgage Trends is reporting that it will be the 5 year posted rate, which makes sense since the discounted rate is infinitely variable, whereas the posted rate is consistent across all lenders. The posted rate can be found on the Bank of Canada’s website. That rate is posted weekly on Mondays, and as of Sunday night it is 5.39%. The current rule, set to expire April 19th allows lenders to approve insured mortgages based on a discounted 3 year rate, which is currently 3.29%.

This means that as of April 19th, buyers who don’t have at least 20% down and require a CMHC insured mortgage will be approved based on a rate that is more than 2% higher than it currently is to ensure that they can weather rising interest rates.

Just to illustrate what that 2.1% represents in real money, I used the ING mortgage calculator and plugged in some round numbers:

Household income: $100,000
down payment $30,000
Monthly loan credit card payments: Zero
Term: 25 years Property taxes: $2000 Condo fees: Zero

3 year discount rate: 3.29% – you can borrow $491,551

5 year posted rate: 5.39% – you can borrow $397,349

As always, corrections to my math or reasoning is welcome in the comments section below!

The latest issue of Business BC is all about the property market rebound and they focus on 5 ‘hot pockets‘ to watch for and invest in for 2010.

What goes down in B.C. real estate must, apparently, come up. And quickly: by the end of 2009, the average home price in the province had risen to $463,000, back to where it was in 2007. Interest rates are, at least for now, at record lows, and increasing consumer confidence has spurred the market’s recovery beyond expectations. Barring the usual unforeseeable mayhem, things are looking good.

Just for fun, let’s see if we can predict which of those five markets will do best by January 2011.  Below are the BC markets they focus on, vote for the one you think will have the best percentage return by the end of 2010.  In the event of a housing market crash, best performance would be the market that lost the least amount of value.

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The REBGV benchmark house price reached $800,796 in February.  The rise in listings puts us into a ‘balanced’ market condition according to the Real Estate board.  Will we be able to maintain this ‘balance’?  I suppose it depends on how much our market is driven by CMHC support and how new rules and higher interest rates affect those margins.  Here’s some interesting math courtesy of reader bestplaceonmeth:

Based on $58,000 median household income in Vancouver using ING’s “how much can I borrow?” for 35 years (yes, 35 years – it’s what all the cool kids are doing nowadays).  Also assuming no other debts (ha ha) and a conservative $250 a month for property taxes or condo fees or both.

Prior to April 19, qualifying at 1.95% variable rate:

YOU QUALIFY FOR A MORTGAGE OF $415,270 WITH 5% DOWN!

After April 19, now having to qualify at 3.89% fixed rate:

YOU QUALIFY FOR A MORTGAGE OF $313,880 WITH 5% DOWN!

Holy foreclosure, Batman! That’s a 25% haircut off current prices!

Now let’s fast forward to the end of 2010, 4 successive 1/2 point interest rate hikes and you now need to qualify at a rate of 5.89%.

YOU QUALIFY FOR A MORTGAGE OF $244,287 WITH 5% DOWN!

That’s 41% less than 10 months ago, and we’re just getting started.

See, I told you math was fun.

Now, who wants to go out and get into a bidding war?

UPDATE: It’s been pointed out that CMHC currently requires the 3 year rate to be used, so the difference is not as extreme as the above example. DoDo1975 clarifies with this math:

A quick calculation shows that a family with absolutely zero debt making $90k a year could borrow $533,721.32 over 35 years today. All else being equal, after April that number will be $456,311.49 or approximately 14.5% less. This 14.5% is constant across all income levels.

If interest rates on the 5 year prevailing rate also go up 1.5% in the future, this translates into a 28% decrease in the amount someone can borrow compared to today.

Well that was fun.  The games have wrapped up, but we’re not completely done yet – the Paralympics are up next, so still a chance to partake in some Olympic fun before 2012.  Hopefully everyone out there had a good couple of weeks, whether you stayed in town or skipped out to some holiday destination.

Despite a bad start to the games, we had some unseasonably beautiful weather and wrapped up with a nice amount of Gold for Canada. Overall a positive experience with an upbeat ending.

So now what? We’ll find out what bills are due soon, but what will be the long term economic result of hosting the games? Are there people out there that have just discovered Vancouver and now must move here and buy at any price?

A recent UBC study found that host cities see no measurable boom or bust in real estate values due to the Olympics, but maybe it’s different here.  Do you think the next few years will see an economic boom or bust in BC?

At the end of last year we had a post about contacting your Member of Parliament to find out their stance on Canadian Housing Economics and the role of the CMHC.  Did any readers out there contact their MP and get a response back?  If you did get a response, were there any suprises or did they see keywords ‘housing’ and ‘economy’ and send you back an unrelated form letter?

Are there any MPs out there that are actually looking at the Canadian Mortgage and Housing Corporation and the role they play in pumping up housing markets?

If anyone feels like contacting their MP, here’s a contact list for Vancouver area Members of Parliament.

From the Vancouver Sun:

Although January construction numbers are up to 198,600 jobs, it is below the 202,100 jobs from a year ago, and a far cry from the 220,800 jobs during the boom.

The good news is that new construction is on the rise in the province, with the seasonally adjusted annual rate of housing starts reaching 186,300 units in January, a 5.8-per-cent increase from December.

That’s much better than the 149,081 housing units to begin 2009, but the construction starts have progressed steadily until now, according to the Canada Mortgage and Housing Corp. It’s even better than the figure that economists from financial institutions had been predicting.

The pessimistic CREA throws some cold water on this positive news by predicting that the HST and higher interest rates will push the real estate market down in 2011.

Anybody looking for a little local ski hill to call their own? Your timing could be just right.

WHISTLER, British Columbia – At the height of its Olympic glory, Whistler — the ski resort hosting glamorous Alpine events at the Winter Games — may be headed for the auction block.

It’s owned by a New York hedge fund that is reportedly behind on a $524 million loan payment, the result of flagging resort business and plummeting property values.

Creditors want their money back, and they’re playing hardball — calling an auction to put Whistler and other property up for sale Friday, the same day Bode Miller is scheduled to compete for his second Olympic medal in the men’s super-G.

Full article at MSNBC.

This should come as a surprise to no one, but this province leads the nation when it comes to concern over personal debt according to an RBC report.

RBC chief economist and senior vice-president Craig Wright said much of the debt concern centres around higher real estate costs. “Historically, if you look at the housing market, it’s always highest [in B.C.] in terms of affordability.”

The survey also notes that B.C. residents have the grimmest assessment of the economy in the country (43 per cent characterized it as good, compared to 48 per cent nationally), something Wright found a bit surprising because RBC expects the 2010 Olympics to boost B.C.’s economy into recovery mode. “It may be that [B.C.] is looking backward instead of forward.

“We expect to see B.C.’s economy grow by a solid 3.3 per cent in 2010 before moving higher to 3.4 per cent in 2011.”

Good solid growth, I’m guessing that’s why they’re sponsoring the games.