Category Archives: economy

Happy buyers don’t have regrets

Are we having fun yet?

If you’re ‘in the game’ you know that the real estate market in Vancouver has been a frothy pond of fun for years.  If you don’t count transaction and renovation costs it’s easy to get rich flipping condos.

Or if you want to get more meta just resell presales contracts.

That’s right, we have people here who will buy the right to buy a building that doesn’t exist yet!

The funny thing about easy money is that it seems so unreal. This city is filled with people who could easily cash out even at current post peak prices and have a big chunk of real money, but will the majority do that?

Nope. The majority will stay put, renovate, buy back into the same market or turn their home equity into more debt via a HELOC.

In fact the majority couldn’t all cash out even if they wanted, we simply don’t have the buyers to enable that. Even when we had bidding wars we didn’t have enough buyers for a majority to cash out and now that sales have plummeted we really don’t have enough buyers.

A few lucky sellers will cash out and make money off this bubble. Likely because life changes caused them to move on. The majority will keep on paying their mortgages or get foreclosed on. Recent buyers will be paying more to keep their homes and may start to feel a bit trapped.

You saw this here just a couple years ago when buyers were complaining that developers were selling condos in their building for less than they paid and developers were suing presales buyers for money to cover the difference between their deposit and the lower resales value.

But you know what? They’ll be fine, they payed the price they felt their home was worth to them. A market decline doesn’t hurt someone that is happy with the price they payed and can keep paying their bills.

And if rates go up or job losses occur? Well someone without a financial buffer and emergency savings to deal with such a scenario really wasn’t ready to buy a house in the first place.

Less than a hundred reasons RE is collapsing

There are 3 sales day left in September 2012.

That’s 3 more chances to have a day when we see sales over 100.

Do you know how many days we’ve seen sales go over 100 so far this month?

ONE.

There has only been one day this month where sales went over 100.

Here’s the last couple of Septembers for historical comparison:

2010: 11 days with triple digit sales

2011: 14 days with triple digit sales

2012: 1 day of triple digit sales (max possible 4)

Thanks to VHB for the stats and PaulB for the numbers.

Paying debt with debt

This Globe and Mail article starts like this:

A new poll suggests that most Canadians are quite comfortable with using debt as a financial strategy – at a time when debt loads have risen to alarming new highs.

Shouldn’t that be the other way around?  Canadians are quite comfortable using debt as a financial strategy and that has driven debt loads to alarming new highs.

The survey shows 9 out of 10 respondents would consider borrowing money to pay for an unexpected $2,000 cost.  Yeah, that’s right: $2k. These people appear to have little or no financial buffer.

While 55 per cent said they were extremely or very confident they could raise the cash, 92 per cent said they’d consider borrowing to come up with some of the cash.

Less than half – 45 per cent – said they’d never faced a debt problem.

The poll results come as Canadian debt-to-income ratios sit at a record 152 per cent and top officials issue warnings to start paying down debt before interest rates rise.

The findings suggest consumers have been unmoved by warnings that rates will inevitably rise and that the resulting financial burden could sink some households.

“It’s frightening to see that Canadians have become totally blasé about debt – it’s becoming their new ‘normal’ and they’re numb to this dangerous trend,” says Douglas Hoyes, a bankruptcy trustee with Hoyes, Michalos & Associates Inc.

“For many, the use of debt to not only pay for big ticket items like cars, but also to cover day-to-day living expenses, has become commonplace.”

Now compare this to the USA in 2006 where household debt grew at a record level, but a housing boom had also boosted networth.  Some were concerned about unsustainably high house prices, but Ben Bernanke said that he would not prick asset bubbles.

And he didn’t.

In fact the US government did everything in its power to prevent house prices from collapsing.  They pumped money into the system, drove down interest rates and came up with all sorts of programs to prevent people from losing their homes.

You may be surprised to find out what happened to house prices in the US since then, especially the ‘hot’ markets like Florida, Arizona, California and Nevada.

We built this city on real estate

From a Vancouver Sun article about shifting tax burdens for the province posted by New Junky:

The convention comes on the heels of a business taxation report that suggests provincial and federal government decisions have had negative financial implications for local government.

The report by an expert panel also suggests the province doesn’t have any more money to dole out, Moore said. But he takes heart in a recommendation that the province work with municipalities to find alternate forms of funding to provide services.

“We really feel there hasn’t been a lot of cooperation,” he said.

Delegates’ resolutions include using development cost charges to fund projects such as recreation centres, fire halls and flood mitigation. Moore said other suggestions will focus on grants and shifting existing taxes — such as income, corporate and sales taxes — from the province to the municipalities, where they originate.

Moore noted changes in everything from improved workplace standards in fire halls to cameras in jail cells and rifles for RCMP vehicles have a financial effect on local government.

“We have to pay the price with no revenue coming with it,” he said.

It seems that local governments are becoming increasingly dependent on Development Cost Charges.

It seems like a bad way to pay for essential services like fire halls. How are we going to pay for these things after all the real estate development stops/slows because of a real estate crash???

Are city councils going to approve real estate development projects that are bad for the community simply because city finances are addicted to Development Cost Charges just to keep the fire halls functioning???

Read the full article here.

The Little Mountain that Couldn’t

Apparently Vancouver has an affordable housing problem.

For buyers housing affordability is at a new low despite our problems with construction quality.

And lately we’re seeing more news stories about more families leaving BC due to the high cost of living.

So are we building more affordable housing?  Well, we’re trying I guess, but if you live in Vancouver you may have noticed a big vacant spot for homes just up Main street near Queen Elizabeth Park.

Several years ago the housing units at Little Mountain were torn down to make way for a new higher density housing development.

So why has nothing happened over those years?

According to Michael Geller it’s developer inexperience.

“The developer … doesn’t fully understand how to do business here,” Geller said in a phone interview.

Four years ago, BC Housing started moving the 224 residents of a social housing project into other subsidized homes. Now, only four residents remain in one building on the 6.2-hectare site by Queen Elizabeth Park and bounded by 37th and 33rd avenues and Main Street.

In June, a city report said there was a blueprint for Holborn Properties to redevelop the site with as many as 1,800 units in stepped towers up to 12 storeys, most buildings being four to 10 storeys in height. The province has committed to replacing all 224 social housing units plus another 10 for aboriginal residents. Most of the buildings at Little Mountain were demolished in 2009.

Geller also referred to the years of delays Holborn has faced in building a proposed 64-storey hotel and residential tower at West Georgia and Thurlow.

“If one wonders why this one is taking so long, one might also wonder why the same developer’s project on West Georgia took so long — although I see construction is finally underway,” he said.

“All of these things are symptoms of the lack of experience with high-profile, highly complex undertakings.”

So apparently we sold that land to a developer that doesn’t know how to get things done and to make matters worse, they bought it for an undisclosed sum right before the mini market crash of 2008.  If prices keep falling as they are now is anything going to get built there?

And if it does get built how much responsibility will the city end up taking for falling profit margins or ‘developer inexperience’? Are we looking at the potential for another Olympic Village scenario?