Vancouver Condo Info

Canada’s inflation rate hit 2.2% in May, jumping from Aprils official rate of 1.7%.  The dramatic increase is blamed mostly on increasing fuel cost:

Statistics Canada said gas prices rose 15 per cent in May from a year earlier, up from a year-on-year pace of 11.6 per cent in April. Excluding gasoline prices, the 12-month growth in the CPI in May was 1.6 per cent, it said.

Meanwhile core inflation, which excludes volatile energy and food prices and which the central bank monitors for underlying price pressures, rose 1.5 per cent in May from the same month last year - the same pace as the 12-month increase in April.

“Lower prices for passenger vehicles dampened the upward pressure on the core index,” the agency said.

Last week, the Bank of Canada surprised markets by not cutting its key interest rate and expressing concern over growing inflationary pressures. The key rate remains at three per cent.

Thursday’s CPI number surpassed the central bank’s two per cent target.

Most economists had expected May’s inflation rates would be around 1.9 per cent.

We could always deal with inflationary concerns the way Argentina does - They’ve managed to maintain a remarkable 0.6% official inflation rate in May thanks to the innovative way they calculate the figure:

According to the new methodology, every time a product’s price rises too sharply, it will simply be removed from the index on the ground that consumers will be deterred by the expense and switch to other goods.

Vision Vancouver mayoral candidate Gregor Robertson has proposed that Vancouver implement a speculator tax to deter condo speculation. In this case speculation is defined by the condo unit being left vacant rather than by flipping or simply taking on more debt than you can handle based on the hope of future gains.

Robertson justifies the need for this tax by referring to the BC Hydro grow-op study that found 18,000 vacant condos in Vancouver, which is equal to half the total number of condos in the Downtown Westend. This number is said not to include units that are part-time occupied as second homes or vacation properties, only units that use no electricity through the year.

The obvious difficulty comes in defining the criteria by which condos would be taxed at the business rate. Taxes on speculation are often based on ‘flipping’ rather than holding an empty condo. How do you determine if a condo truly is empty? Would there be penalties for ‘faking’ occupancy? What are your thoughts on this proposal, would it help or hurt the Vancouver housing market?

There are increasing indications that our reputation of being a financially conservative in Canada is more myth than reality.  As a group, we’re taking on more debt than ever before and finding ourselves with less of a personal safety net should the economy take a dive.  Since 2001 the number of people over 60 that still have a mortgage has been steadily increasing, and the mortgages that we all hold are of more and more exotic varieties.  From todays Vancouver Province: Why we’re up to our necks in debt.

A rash of recent reports paint a scary picture of Canadians as spending like drunken sailors, leading to the prickly question of whether we should be forced to save money.

A Statistics Canada study showed Canadians are finding themselves with two mortgages and deeper in debt than at any time in their lives. They are increasingly house poor, and with housing values sliding, they often owe more on their properties than they’re worth.

…

The StatsCan study came out at the same time that the Office of the Superintendent of Bankruptcy Canada reported that personal bankruptcies reached their highest level in more than four years during April, up 19.3 per cent over the previous month and 18.3 per cent over the previous April.

And things will only get worse if recent numbers showing a gross domestic product decline during the last quarter continue, signalling an economic downturn, and if unemployment rates should start to rise.

As it is, mortgage payments make up 37 per cent of average household spending in 2007, up from 32 per cent a year earlier.

And those mortgages are getting more ‘interesting’.  The common refrain that the Canadian housing market is not as vulnerable to downturn as the US market  because we don’t have ’sub-prime’ mortgages is only part-true.  What we do have is an mortgage insurance market that was liberalized in 2006 and has dramatically changed the landscape in the last few years with the introduction of zero-down, 40 year terms and adjustable ‘teaser’ rate mortgages:

With interest rates dropping, consumers might consider a front-loaded variable- rate mortgage.  This option gives you a larger-than-normal discount from the prime interest rate for an initial period, say six months, before you decide whether to lock into a fixed rate.

Longer amortization periods, now up to 40 years, also are new.  Holt estimates longer-term mortgages now account for three quarters of monthly insured purchase applications in Canada, with 40-year products accounting for half of that.

So will following the US lead into the area of ‘exotic’ mortgages lead to a similar result?  Only time will tell, but it is interesting to see that this topic seems to be getting more attention within the government.  That first article had this bit of info that was new to me:

Finance Minister Jim Flaherty recently suggested it might be wise to outlaw 40-year mortgages.

With up to a third of new mortgage applications opting for the longest term, removing that option could have a dramatic impact on our housing market at a time when it appears to be already slowing due to affordability concerns.

Good news if you’re looking for recreational property in BC, you’ll find less competition as demand has dropped off and recreational property in areas like the south Okanagan has moved into ‘clear buyer territory’ according to RE/Max:

“The demand for waterfront recreational properties remains strong, but prices have stabilized,” Re/Max regional executive vice-president Elton Ash said in an interview. “That’s good news for consumers because there are fewer multiple offers driving prices higher.”

As well, Ash said, the availability of bargain real estate properties in the U.S. has clearly reduced the number of buyers looking at Canadian recreational properties.

“We see U.S. owners of Canadian properties putting them up for sale now so they can take their profits and reinvest them in the U.S sun belt,” Ash said.

…

While the price of a three-bedroom winterized home on ocean frontage on Saltspring Island starts at about $1.3 million, there are more affordable properties for sale throughout B.C.

The report said the South Okanagan market has moved into “clear buyer territory” for the first time in five years, with rising inventories, falling sales and price corrections underway.

The price of a two-bedroom condo on the water near Penticton now starts at about $400,000, with some developers paying the GST and providing complete appliance packages.

The report noted the North Okanagan recreational property market has also reached a plateau, but affordability remains an issue with a typical three-bedroom winterized home on a 66-foot Okanagan Lake lot starting at $1.5 million.

Does less competition and low interest rates make this the perfect buying opportunity or are ‘price corrections’ due to take a further chunk out of the recreational real estate market?

A cautionary tale in todays Vancouver Sun for those seeking high returns AND security in a real estate investment: Two time real estate loser leaves investors high and dry.

A former bankrupt, Hauff made his first stab at developing the 35-acre residential project on Bullock Lake near Ganges in 1996. To fund the development, he borrowed millions of dollars from Multimetro Mortgage Corp. at up to 20 per cent per annum.

Multimetro, run by Vancouver businessman Ken Megale, raised most of the money from mom-and-pop investors. He promised them extremely high rates of return and assured them it was a safe, fully secured investment.

In fact, the project was mismanaged from start to finish, and ended in foreclosure. Multimetro lenders, who were owed $11 million including accrued interest, lost everything.

… but dreams die hard, so Hauff bought the property back out of foreclosure for $9 million and started all over, this time with money from Calgary based Gibraltar Mortage Corp at a 24% per annum rate.

Like Multimetro, Gibraltar raised the money from many small investors, promising them high returns on a supposedly fully secured basis.

Alas, under Hauff’s stewardship, the project once again stalled. In February 2007, Gibraltar called its loans and David Bowra was appointed receiver.

Subsequently, the resort lodge and spa burned down. The insurer has agreed to pay $7.4 million compensation. The property, as is, is estimated to be worth another $18 million to $20 million. So in total, creditors might realize anywhere from $25 million to $28 million.

Meanwhile, there is about $36 million worth of debt on the property, most of it owed to Gibraltar investors. Interest is accruing at the rate of about $600,000 per month. There are also property taxes and professional fees to be paid. So even on a best-case scenario, creditors are going to take a serious hit.

Read the full article here.

A couple of economic bad news stories posted by Via on this weekends Friday Free-for-all post: The spring selling season so far has us looking at a very different market from previous years. Sales have dropped and inventory has risen dramatically, at the beginning of June we’re looking at close to 18,000 listings for sale in Vancouver. As it becomes harder to sell the number of foreclosures have doubled in the lower mainland:

Kap Hiroti, who tracks Lower Mainland foreclosures at ForeclosureList.ca, says foreclosures stand at 20 per week, up from 10 per week in 2006.

“For one reason or another, they didn’t pay the mortgage, or insurance, or property tax,” says Hiroti, who advises real estate owners looking to foreclose or prospective buyers looking to buy a foreclosed property. “Or they get behind in their strata or condo fees, or face a one-time cost such as a roof or a leaky condo, which might set them back 40, 50 or 60 thousand dollars.”

…

Hiroti believes the Lower Mainland real-estate market has “flatlined,” meaning investors who were counting on making a profit no longer see an upside.

As a result, some have chosen to lose their investments through foreclosure rather than hanging on with no sign of a significant upside return.

“They were kind of speculating that the market would go up, but when the market flatlines, some people just choose to get out. Local people are getting priced out of the market.”

At the same time BCs unemployment rate has been creeping up - the jobless rate is now at 4.5% as positions are lost in trade, transportation and agriculture. The unemployment rate is particularly high for young people at 8.8% and for recent immigrants with an unemployment rate of 9.8%.

The bright point in the jobs data remains construction which has been the key driver in the BC jobs market for the last 5 years. The question is: how long can you have a jobs market driven by construction?

Thanks to Gadwin who sent this info in: The FVREB statistics package for May 2008 has been released, you can get the PDF here. With the huge listings increase we’ve seen in Vancouver you’d expect the Fraser Valley to see a fair increase in inventory as well right?

Nope. Total FVREB listings for April 2008 was 11,111. At the end of May that grew to a total of 11,133. Thats a total monthly inventory increase of only 22 listings and a big difference from the monthly increase of over 2000 units in Greater Vancouver. They must be selling like hotcakes out in the Fraser Valley!

…well not exactly.

Apparently they just changed the way the total inventory is counted. Its all explained in this small footnote found at the bottom of page 3 of the above linked PDF:

Footnote: * As of May 2008, an adjustment was made to our active listings calculation to ensure it captures only Fraser Valley listings. Previous calculations inadvertantly included Fraser Valley member listings in other Board jurisdictions. As active listings are a constantly moving target, we are unable to generate revised active listings for previous reporting periods.

Too bad their system doesn’t keep track of historical active listings data, that would make the revision of the old numbers a snap. I guess we’ll only have apples to apples comparison for Fraser Valley inventory going forward.

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.

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 …