Vancouver Condo Info

From the ’sun predicted to set’ department of todays Province comes this article: BC developer warns of cooling condo market.

B.C.’s development industry must be nimble, disciplined and well-financed to survive the cooling of the provincial market, a veteran developer says.

The Lower Mainland has yet to experience the full impact of the U.S. housing slowdown and the troubles sweeping the Interior’s forest sector, Concert Properties president David Podmore said yesterday.

“I do think you’re going to see a continued slowing of our economy as . . . what’s happening in the Interior and the U.S. spill over,” Podmore told a conference on the future of B.C.’s housing industry.

“You’re going to have to really sharpen your skills to be successful and to compete effectively.”

Podmore said developers should stop relying on pre-sales, which he called a phenomenon of the past eight to 10 years.

The market is heading into a period where projects may take half-a-year to sell out, he said.

Disciplined developers will pull the plug on projects if it becomes clear they can’t succeed, he said.

There will be opportunities for well-financed developers to take over idled projects - but they must be fast on their feet, he said.

The ‘pulling of plugs’ has already started to happen on some projects like the Eden group Elyse.  Those that don’t pull the plug when they can get it pulled for them and go into recievership Sophia, H+H, Gardencity, etc.  There’s good news though, as the US housing slowdown continues it’s forecast that material prices will moderate.

Even after years of falling real estate prices in Miami it’s still cheaper to rent than to buy according to this article in the Wall Street Journal, sent in by bcbuds.  As prices are falling so are rents.

It’s a dilemma for owners, do you try to wait out a recovery and pour money into the condo you’ve got rented out at a loss, or do you stop the bleeding and sell in a down market?  Many are choosing to wait out the market and hoping for a recovery soon.

…But that has created a new, predictable situation. “Rents are falling,” says Miami broker Leslie Cooper. “You and your brother and everyone else is trying to rent your new condo out. So no wonder. But the rents won’t even cover your costs.”

I looked a number of fabulous condos in new developments on Brickell Avenue in downtown Miami. Their prices had been slashed drastically from peak levels. Some are now in forced sales.

You can get a two-bedroom condo in some places for $400,000 or less. And that’s considered a great deal.

Of course the problem is that even these reduced prices aren’t justified by the rental income.  The article goes on to examine the numbers- even if you aren’t renting the money and have the $400k cash interest free to buy one of these condos it’s still a losing proposition in a post-boom era of property depreciation.

Another lower mainland condo project in trouble, this one in New West. Story at the CBC:

United Properties, the developer behind The Anvil in New Westminster, has run out money, and that means pre-sale buyers are being asked to pay an additional $20,00 to $40,00 if they want to keep their condos.

Pre-sale buyers have received letters from the developer saying they have 14 days to decide whether they want to pull out and get their deposit back or pay the additional costs. The project needs an additional $4 million to meet its financial obligations.

“Development is a tough game and United Properties has been at it for some time, so it is quite unique to have such a developer run into this kind of difficulty,” said real estate lawyer Ron Usher.

Apparently the Anvil is currently 18 months behind schedule. Insert appropriate Wile E. Coyote comment here.

Thanks to Macchiato and Exx for the story link.

RBC has released a report on the saving and spending habits of Canadians, apparently we’re saving less than ever, with more Canadians relying on credit cards, loans and mortgages.

Canadians are not prepared - and not preparing - for a rainy day, like an economic downturn, a major bank is warning.

The vast majority of Canadians admit they’re poor savers, with barely one-half having a rainy-day account. And of those, only half have enough to cover a month’s expenses, RBC said Wednesday in releasing results of a spring survey of the saving and spending habits of Canadians.

–

“One need only look at the newspapers or television to see that North America is in an economic downturn,” said Ashif Ratanshi, senior vice-president, RBC Branch Investments and Banking.

“This is the time for Canadians to re-assess their own finances and ensure they are effectively managing their money so that they can withstand any sudden pitfalls or changes in their lives.”

I’ve already run a poll on savings and income that indicates most readers here are in the minority, but since the RBC reports refers specifically to a rainy-day account I’ll pose this question:

 Loading …

Are you priced out of the Vancouver real estate market? According to the Province, you’re not the only one.  The weekend the Province ran a series of articles on the costly local real estate market:

So who’s buying? 

The answer is anyone with one or more of the following: wealthy boomer parents, equity from previous real estate or extremely high double-income earnings.

But even with those prerequisites, many are stretching their limits.

“Everybody maxes,” says Marty Pospischil, a realtor with Dexter Realty specializing in the west side.

The profile of a typical buyer of a $1.3-million, three-bed, two-bath west-side home is a couple between 35 and 45 years old with one or two young children. They are both professionals who have ascended the ranks — think stockbroker, lawyer, doctor.

They will usually have a down payment of $400,000 to $500,000 — derived from a combination of personal equity, inheritance or a substantial gift from a wealthy boomer parent, says Pospischil.

That means they’re still borrowing between $800,000-$900,000.

Expectations clash with reality:

With the income-to-house-price ratio the highest it’s ever been in B.C., the overwhelming perception — particularly in Vancouver — is that the market has changed the definition of “middle class” and displaced the working poor.

It is increasingly common to see children raised in condos, married couples living in their parents’ basements, young professionals taking on second jobs, workers commuting long hours, the growth of the 40-year mortgage (which 65 per cent of first-time buyers are now using, according to a RE/MAX report) and the realization for some that an inheritance is the only way to a single-family home.

Tsur Somerville: its not a bubble:

“If you say bubble, then at some point it’s going to pop. And if you look at our price increases, they’ve been double-digit, but for the most part they’ve been between 11 to 15 per cent for the past few years. That’s high, but in a bubble you start to see 20-per-cent growth, 30-per-cent growth. Just really rapid acceleration, and we haven’t seen that. That’s what happened in 1981 and 1982 . . . That’s what a bubble looks like.”

Reader feedback:

John: There’s no point complaining about prices. I think people should focus their energy on how they can find new ideas/businesses/solutions to generate more income. If you spend all your time complaining you won’t have enough time thinking about new businesses that can work and make more money!

Thanks to Condohype for sending in the link to this story in todays Vancouver Sun: mortgages move into uncharted waters.  This is a similar article to the one linked to last week about over-stretched buyers fueling the real estate boom, but refers to a Scotiabank report released yesterday focusing on the risks created by relatively new 40 year mortgage terms.  According to the report, longer term mortgages now account for a full two-thirds of all mortgage applications.

In the near term, their introduction — which began in 2006 when Ottawa “unshackled” the Canada Mortgage and Housing Corporation from the traditional 25-year mortgage — will help stabilize a softening Canadian housing market as it draws in a new group of buyers.

Longer term, however, nobody knows what the effect will be, Holt said.

If, for instance, buyers as a group tend to pay back the debt at an accelerated pace, it will increase the risk for the originators of the mortgages and buyers of mortgage-backed securities into which they are folded.

On the other hand, the report says, “future shock risk is being intensified,” in the event that a large portion of new buyers move into such leveraged products and suddenly face a shock to interest rates or wage growth.

Now, if faced with sudden difficulties, the holder of a 25-year mortgage can move into a 40-year, but it’s unclear what would happen if the 40 becomes the norm and economic difficulties arise.

I’m not sure why it’s so ‘unclear’ what would happen if the majority of buyers have no adjustment room in their mortgages, pay a majority of their income to cover loan interest and ‘economic difficulties’ arise. I don’t need a crystal ball to foresee that such a situation would be ‘problematic’. Unfortunately as we’ve seen in the USA, ‘economic difficulties’ can simply be a drop-off of buyers at over-inflated prices.  Prices in the US started dropping long before problems with sub-prime mortgages and recession fears started looming.

I also find it strange that all these new products were introduced in the midst of a boom rather than when the housing market needed ’saving’ from a collapse.  Seems a bit like using up your nitrous on the drive to the racetrack.  This article also touches on the way these new mortgage products encourage speculation:

Equally significant is the impact changes to the mortgage industry may have on the condo market, Holt said.

Starting last year, Ottawa changed the rules on insured-investor mortgages, allowing buyers to acquire an insured mortgage on a property other than a principal residence.

Holt said he estimates one in four condo buyers is a speculator looking to profit from property price gains and, he forecasts, “This is going to intensify influences of investor sentiment, particularly the condo market over the next few years.

“You’ll see more speculative activity in the market at a time when there’s already a fair amount.”

This can sharpen market downturns, as appears to be the case in Calgary, when prices drop and speculators rush to unload properties.

I’m not sure why this article is located on ‘globe sports’ in the hockey section, but this article about mortgage trends in Canada has some shocking statistics based on a recent RE/Max report and some interesting quotes from a few of the big Canadian banks:

Nearly two-thirds of buyers in major centres now favour extended amortization periods of up to 40 years, while putting little or no money down was prevalent in 38 per cent of regional markets surveyed across Canada.

The country’s real estate industry has played down any similarities to the U.S. when it comes to subprime borrowers. But as new segments of the Canadian population enter the market, the findings raise questions about what’s been driving soaring house prices in recent years.

“The reason we think the market has been staying hotter much longer than anyone anticipated was because of these newer amortization mortgages,” said Craig Alexander at Toronto-Dominion Bank.

“Because it really does change the affordability equation,” Mr. Alexander said.

Canada’s housing market has for years defied predictions of a slowdown. From 2002 to 2007, average home prices rose at about 10 per cent a year nationally, Mr. Alexander figures. A willingness to buy now and pay later explains much of the recent heat. Longer amortization mortgages “have had a very profound impact on the Canadian housing market since they were introduced” in 2006, he added.

Buying a house has become increasingly accessible. The flip side, though, is that more home buyers are now susceptible should the housing or labour markets weaken, or if interest rates change direction.

“We’re more vulnerable than we were in the past, and I think that’s just a factor of financial and mortgage innovation,” said Adrienne Warren at Bank of Nova Scotia. “At the same time, it’s a trade-off - more people are getting into home ownership earlier.”

In their report RE/Max attributes the boom to these new mortgage products:

“Innovative financing has become key to home ownership in today’s environment,” yesterday’s report said. “Entry-level purchasers are adjusting their expectations by sacrificing size, location, and even long-term financial freedom to overcome challenges such as rising prices and serious supply issues.”

Policy changes help explain why so many people have been entering the market. Ottawa extended the maximum amortization period to up to 40 years from 25 years in 2006. In the same year, Canada Mortgage and Housing Corp. began providing insurance to lenders for interest-only mortgages.

Mr. Alexander figures that as many as 70 per cent of first-time buyers are opting for longer amortizations. “It’s a double-edged sword. It brings down your monthly payments. But it will actually double the amount of interest you pay over the lifetime of the loan.”

When you’re in the middle of an investment mania it’s hard to imagine things ever being any different. A couple of years ago a number of Americans thought investing in real estate in cities like Las Vegas, Miami or San Diego was a great idea - if the market stopped going up it would simply stop appreciating as quickly, prices would never go down.

Well after two years of lower sales and slowly dropping prices pessimism has started to overtake the US housing market with a growing majority showing no interest in buying a home anytime soon:

In a vivid sketch of how the sputtering real estate market is causing distress throughout the country, the Associated Press-AOL Money & Finance poll found that more than a quarter of homeowners worry their home will lose value over the next two years. Fully one in seven mortgage holders fear they won’t be able to make their monthly payments on time over the next six months.

“This is a great time to buy, but not necessarily to sell,” said Robert Jackson, who lives in a two-bedroom house in Ferguson, Mo., with his wife and four young children. He said he would love to purchase a larger home, but can’t because even if he found a buyer, he would probably lose thousands on his house, which he bought less than two years ago.

…

Sixty percent said they definitely won’t buy a home in the next two years, up from 53 percent who said so in an AP-AOL poll in September 2006. At the same time, just 11 percent are certain or very likely to buy soon, down from 15 percent two years ago.

The growing reluctance to dip into the housing market seems to stem partly from worry that housing prices will continue falling — good if you’re buying a house but bad if you have to sell one.

The number envisioning falling prices in their area has grown to one in four, while four in 10 think prices will rise, a decrease from two years ago. Expectations for rising prices are highest in the South, with Westerners likeliest to predict they will drop.

Underscoring the public’s unsettled feelings, the number saying local housing prices are about right has fallen to 35 percent. Half say homes are overpriced — especially in the Northeast — while those saying housing is underpriced have doubled to one in 10, particularly Midwesterners.

Here in Vancouver with our run-up in house prices it’s hard to imagine the majority of residents having an overall negative outlook on investing in local real estate, but it’s happened here before and I wouldn’t be surprised to see it happen again when the market corrects.

 Loading …

The Bowra group has started sorting through which presales buyers are willing to pay more to keep their condo units:

Their options are to agree to pay a price that is 90 per cent of current market value for their units, which in some cases is more than $100,000 higher than initial pre-sale contract prices they signed in late 2005 and 2006, or take their deposits back and walk away.

British Columbia Supreme Court Judge Grant Burnyeat, last week, issued an order of foreclosure on the project for Bancorp Growth Mortgage Fund Ltd. and a second order authorizing receiver David Bowra to get the 85-per-cent complete development back into construction. That included offering pre-sale buyers the option to still claim their units, but at higher prices.

Buyers can take their deposits back if they want, but the order authorizes Bowra to cancel contracts and sell units at current market prices if necessary.

Developer Bill Eden turned the project over to receivership at the end of February when some $4 million in cost overruns threatened to sink the 81-unit development.

Previous related stories:

-Financing difficulty cancels Vancouver condo projects
-Eden group Sophia goes into receivership
-Receivers report for Eden Sophia
-2 more local condos run into financing problems.

There’s an interesting ’slice of life’ article in Toronto Life that profiles buyers who have overextended to purchase a home.  Looking at the numbers in that story you can tell Vancouver is just as bad if not worse:

Their budget inched up, first to $550,000, then 100 grand more. When they saw a detached house in Hillcrest, with its spacious bedrooms, modern kitchen and large yard, it felt like home. It was listed at $589,000, and there were two other interested buyers. Their agent encouraged them to make an aggressive offer of $647,000, a price that was just manageable because the house had a basement apartment they could rent out to help cover the higher mortgage payments. On the night of the offers, Daniel and Louise sat in their car in front of the house, with their competition parked nearby. When the owners rejected the two top bids, the couple had to decide whether to go up or let it go. “Daniel asked me if I thought the house was worth $650,000,” Louise says. “I said that I didn’t think it was worth $250,000, but that’s not what houses are going for in Toronto right now.” They bid $650,000 and the house was theirs.

When they picked up their keys last November, they had few regrets, not even about the cost of the house. “Now we’re in the game,” Daniel says.

But they hadn’t moved in yet. They haven’t had their furnace die during a February freeze, or a tenant’s rent cheque bounce, or a slow leak from the dishwasher rot the floor joists. When you’re overextended by an irrational market and barely making mortgage payments, the smallest house repair can push you over the edge.

I imagine that many first-time buyers in Toronto and Vancouver are getting by on a fairly thin margin, recent stats put the BC provincial savings rate at a negative 7.9% (yes, we owe more than we earn).