Category Archives: debt

Buyers walking away from deposits

Well, there’s a change in the air when it comes to Vancouver Real Estate.   The ‘can’t lose’ investment is starting to look like the ‘must lose’ investment with reports of buyers walking away from deposits and waiting for prices to keep dropping.

“It happened twice in the last month. One [deposit] was $75,000 and one was a $20,000 deposit, the guys just walked away from it,” said Mr. Arora, who runs Oneflatfee.ca in Surrey, B.C. “They are going to wait it out. So they lost $75,000 and $20,000, but if the market comes down $150,000 on a $1.5-million house, that’s not uncommon.”

Vancouver’s once-overheated housing market has cooled sharply, with the average price falling nearly 10 per cent in April from a year ago to $735,315, according to figures released Tuesday by the Canadian Real Estate Association. That was the largest drop since the recession and it marked the fourth decline in the past five months.

In a market once famous for being overheated, Mr. Arora said he hasn’t seen a bidding war in months. “It’s totally a buyers’ market. Buyers are determining the price,” he said. “And sellers are surprisingly accepting it. They are taking it.”

Buyers always determine the price.  If there are enough of them that want to pay more they will drive prices up.  Sellers have no control if no buyer is willing or able to pay the asking price.

Price to rent bubble in the Province

Looky here, the Province newspaper has discovered the price to rent ratio!

Take the house price and divide it by what it costs to rent for a year to get the price-to-rent ratio: Price divided by (Monthly rent x 12) = X.

(Estimates for additional costs of homeownership, such as taxes, maintenance and insurance are factored into the equation.)

If the number is higher than 15, it’s generally not a good time to buy.

If the ratio is less than 15, buying is a better deal than renting, if you plan on living there for at least five years to offset moving and closing costs.

By the time the number hits 20, renting is apparently the way to go, except if buyers expect to stay put for at least 15 years, according to a formula used by trulia.com to rank major urban U.S. centres every year.

B.C.’s numbers, as shown in the graphic, are through the roof, from 29 (Prince George) to 73 (West Vancouver).

Compare that to a few little housing markets like Manhattan (20) and San Francisco (17).  That ratio doesn’t mean house prices are <i>low</i> it just means that they’re more reasonably priced compared to rents.

Since you can’t take on a big loan to pay rent it tends to show how much a place is actully worth in terms of desirability and local economics.

BMO: Vancouver price drops for next 2 years

A Bank of Montreal report is predicting that Vancouver house prices will continue to fall for the next couple of years:

BMO Senior Economist Sal Guatieri says the price of homes in Vancouver and uncertainty over long-term mortgage rates are creating a buyer’s market.

He also says rich foreign investors who have driven up real-estate prices in Vancouver are now looking at cities that are less expensive.

“The sizzle is coming off the Vancouver housing market,” Guateri says.

Read the full article over at News 1130.

Disappearing ghost towns in the media

This is odd.  The Globe and Mail published an article about the condo boom titled “How condo boom threatens a ghost city phenomenon” and included the following alarming section:

“CMHC estimates that roughly 25 per cent of condominiums in the Greater Toronto Area are sold but sitting vacant — shades of Miami at the height of its collapsed condo bubble in 2007. Other analysts say the 25 per cent figure may be too low.

“This is the ghost city phenomenon,” Mr. Holt said.

Condo developers in Eastern cities such as Toronto, Montreal and Ottawa, appear to be rushing to sell and build units before interest rates start to climb, and the market crashes.”

But if you visit that link you’ll no longer find that text and the headline has been changed to “Housing starts shoot higher on back of condo boom” (although as of this writing the URL still shows the original title).  Why the dramatic change in tone?

CMHC gets a bit weird

Here’s a couple of recent stories about Canada’s Housing Agency:  First off there’s the news that the government seems to be trying to figure out how to distance themselves from it, maybe by selling it off:

Anyone trying to understand the concern over a potential housing bubble in Canada need look no further than the debate among government officials over whether to exit the mortgage insurance business.

The board of Canada Mortgage & Housing Corp. considered selling the home loan insurer last year, according to former Chairman Dino Chiesa, who’s term ended in March. CMHC, set up in 1946 to promote home ownership, also studied the sale of Australia’s government-owned insurer and presented the findings to the Bank of Canada, according to documents released to Bloomberg News under Canada’s Access to Information Act.

Here’s the full article.

But of course the CMHC is also saying they see ‘no sign of a market bubble’.

While the report did not make specific reference to the government’s changes in the oversight of CMHC, it did offer what could be characterized an strong validation of its role and operations.

“CMHC follows prudential regulations as set out by the Office of the Superintendent of Financial Institutions, with CMHC maintaining more than twice the minimum capital required by OSFI,” it said. “As a result, CMHC is well positioned to weather possible severe economic scenarios.”

The report also highlighted the important role CMHC plays in the housing market, which it said accounted for 20%, or $346-billion, of Canada’s gross domestic product last year. It pointed out the agency “manages its mortgage loan insurance and securitization guarantee operations using sound business practices that ensure commercial viability without having to rely on the government of Canada for support.”

Here’s that article.