Vancouver Condo Info

Yes, markets change and so do ‘expert opinions’. And what a difference just a few days can make! Housing markets change at such a glacial pace that they miss out on the exciting daily ups and downs of the stock market, but the flip side is that once they start to slide it can take years for them to hit bottom. You don’t have to look further than our closest neighbor to the south to see an example of this slow downward slide.

This gradual change makes it all the more remarkable that a local housing market ‘expert’ would be singing two different songs within the space of just a few days. Thanks goes to Condohype for pointing the evolving marketview of Cameron Muir:

• “There is no indication, at this point, of any kind of substantial decline in prices,” Cameron Muir, Friday, July 11 2008
• “It is perfectly reasonable to expect home prices will stay fairly flat or even decline a couple of per cent a year until affordability picks up.” Cameron Muir, Tuesday, July 15 2008

Skeptics take heart, because I already know what you’re thinking - its the wonders of vague wording: a couple of per cent does not equal a ’substantial decline’, so this is not a reversal. And maybe you’re right, except there’s this small point: how many years do we have to suffer declines of ‘a couple percent’ until ‘affordability picks up’? Particularly with a global economic slowdown, a local economy coming off a boom and new mortgage rules that require more fiscal responsibility from buyers? Would a sharp shock to the market that quickly restores ‘affordability’ be a worse scenario than 10 years of slow equity leakage?

In June the REBGV benchmark price for a house dropped by about $5500 to $765,654. From that starting point a drop of just ‘a couple percent’ is a loss of more than $15,000 a year. Of course now that these predictions appear to be changing on a weekly or even daily basis, perhaps we’ll be hearing about the next leg up soon.

Thanks again to Condohype for the tippage.

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I’ve heard a number of times that ‘historically’ a variable rate mortgage saves you money over a fixed rate locked in mortgage. This sounds good, but it’s never been clear to me if that ‘history’ only includes the last 25 years or so when rates went from extremely high levels (in the 20% range) to the extreme lows of this decade.

With the Bank of Canada joining other world banks now expressing concern over inflation the assumption is that mortgage rates will be going up. If you currently have a variable rate mortgage is now a good time to lock in? Rob Carrick at the Globe and Mail says no -although locking in now would get you a pretty good deal, rates would have to rise by at least 1% to make a five year locked in mortgage a better choice.

If you prefer the security of a locked in rate your choices as a Canadian are limited. Unlike mortgages in the US where you can lock in a rate for the entire term of the loan, in Canada the longest lock-in I’ve seen is for 10 years. My own gut feeling is that with a small enough premium the full-term US style lock-in would be the best deal - five years might see you renewing at much higher rates. The problem is that nobody can predict how far or how fast rates will move, and if they start to move quickly the best time to be locked in will have already past.

Even if you’re not a homeowner these expected rate changes will affect on you, either with higher rates on consumer debt, changing bond and equity prices in your portfolio or just higher rates paid to you on high interest savings account. So what do you think - am I being to gloomy in my expectation of higher rates?

May 14th 2011 - Vancouver house prices have risen to a new record high for the month of April bringing the REBGV benchmark home price to $3,432,285.  Another record was broken last month as condo prices in the downtown core actually surpassed the SFH benchmark price in Vancouver.  A 5 year old 450 square foot condo in downtown Vancouver is now worth $3,458,998.

Vancouver Mayor Cam Muir has just announced plans for a mass-awards ceremony to award the ‘bravery and faith’ of Vancouver real estate investors.

“These are the people who have really kept this economy going while the rest of the globe stumbled” Muir explains.  “Not so long ago there was a real danger of all the naysayers drowning out the strong and reasoned voices of condo investors.  I recall the dark spring of 2008 when condo prices actually fell a small fraction and some assumed we would follow the US into the dark abyss of depreciation.  Of course as we all know now that was the perfect buying opportunity”

Many give at least partial credit for Vancouver’s eternally booming real estate market to the ‘minimum rent increase’ act that was brought into law just under two years ago.

Many residents spoke out against this law at the time claiming ‘rent is determined by what people can pay’.  Some believed that requiring a minimum rental rate increase of 20% per year for all rental units would wreck our economy as people moved away.  Clearly this has not happened as the increases have only improved our position on the world stage.  City planner Robn Adamache explains:

“Just like Prada or Gucci, smart people know that the more you pay for something the more it’s worth”

The awards ceremony will be held June 30th at the new BC place stadium. There will be free hot dogs for the kids and a special performance by Billy Ray Cyrus.

Here’s a more bullish counterpoint to ‘Chicken little’ Lereah’s opinion that the US housing market is in for more pain - The Wall Street Journal is declaring that after 3 years of decline the US housing bust is over.

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won’t happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.

Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what’s going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

Thanks to BCbuds for the link (which will expire in 7 days)

Looks like a couple of years can really change a guy.  According to this article in Newsweek David Lereah, the former chief forecaster for the National Association of Realtors now says the US housing market is nowhere near the bottom.  This is the same guy that published a book in 2005 (awkwardly close to the peak of the US market) titled “Why the Real Estate Boom Will Not Bust - And How You Can Profit From It“.  Around the same time he gave a housing presentation where he called anyone who thought homes were overvalued and in danger of correcting ‘Chicken Littles‘.  Lereah gathered quite a bit of notoriety online for his steady flow of rosy forecasts as the housing market crumbled around him.

It’s been more than a year since Lereah left NAR, so I called this week to check in. It turns out he has recently set up a new firm called Reecon Advisors, which is advising Wall street firms and institutional investors about the real estate market. “Wall Street has an intense interest in [this], because they’re looking for when is the recovery going to come, and at what point does the cycle turn,” Lereah told me.

His answer: not yet. “We’re not at the bottom,” he says. “[People] want it to be near the bottom, but we’re not there yet. The leading indicators are still very bad. Pending home sales are still in bad shape. Mortgage applications are low … There’s still supply out there in abundance … This thing is going to get worse before it gets better.”

Lereah says that the industry may begin to see a slight uptick in sales later this summer, which could signal the start of the recovery. Home prices, however, will continue to fall. According to the latest numbers from the Case-Shiller index, the average U.S. home has lost around 15 percent of its value since the market’s peak. “We’re probably going to end up with a 20 percent [decline], but if I’m wrong it will be even more than that,” he says.

This weekend the Vancouver Sun ran a story about the top 15 real estate myths and realities which generated a lot of reader feedback.  As of last night their website had many comments, the majority of which disagreed with some of the points in that article or the way that it was presented.

Today the comment section looks different.  This morning all but two comments had disappeared, with many readers here claiming to have re-submitted comments that have not showed up.  I’ve personally submitted a comment that has not yet appeared on their site.  Since this morning one additional comment has been posted (congratulations ‘crabman!’).

I’m going to give them the benefit of the doubt and assume that this is a temporary technical problem rather than a concerted effort to censor public feedback and appease real estate advertisers.  If they are experiencing technical difficulties I’m sure they would want to keep the conversation going, so please feel free to post your comments here while we wait for them to solve the problem and re-post reader comments on their website.

The Vancouver Sun ran an editorial this weekend about the ‘firm foundation’ of the local real estate market.  The gist of the piece is that people should not panic over last weeks declaration that the Canadian housing boom is ‘officially over‘.

Compare Canada’s situation with the horror show south of the border and beyond. American homeowners from Blaine to Maine have witnessed the value of their property go down almost as quickly as it went up. The median price of a single-family resale home fell 8.7 per cent in February from a year earlier, the most in four decades of record keeping, according to the Chicago-based National Association of Realtors. Some cities, including Miami and Las Vegas, have reported declines approaching 20 per cent, which is widely expected to be the U.S. national average price drop in 2009.

Let’s not compare too closely to the American market though, because if we did we might worry about the recent increase in listings.  In the US prices continued to increase as listings grew, unfortunately as soon as the trend changed and appreciation stopped people were less interested in buying and the bottom fell out of the market.

I do appreciate the assertion that the ‘firm foundation of the local market lets it weather boom-bust cycles’.  What else is the local market supposed to do, disappear?  We’ve weathered many boom-bust cycles and we’ll weather many more, the only problem is that ‘firm foundation’ can turn out to be a lot further down than some people expect.  We survived 50% drops in the early eighties and lesser drops in the nineties but that doesn’t mean that buying at those peaks was a great investment.

I guess the point of the editorial is this: Don’t panic, because the local market won’t crash for at least a year:

The bad news, according to the IMF, is that real house price movements tend to lag cyclical peaks and troughs — generally by one or two quarters, but in Canada’s case as many as six quarters. In other words, the collapse here may be a year to 18 months away. According to the Canadian Real Estate Association, sales dropped 13 per cent in the first quarter of 2008 from a year earlier and the ratio of new listings to sales stands at a nine-year high.

Look at these chicken littles at the International Monetary Fund:

The world has a 25 per cent chance of tipping into recession this year and next, and countries in trouble should pull out all their policy stops to make sure it doesn’t materialize, the International Monetary Fund says.

The global expansion which has endured for years is now at risk because the U.S. slowdown will likely stick around well into 2009, the IMF projects in its latest global economic forecast.

Canada’s economy will muddle through, however, with sub-par growth, the forecast suggests.

“The global expansion is losing speed in the face of a major financial crisis,” the IMF warns in its global economic outlook, released Wednesday morning in time for this weekend’s high-profile meeting of economic policy makers in Washington.

You know what you need to do. Go out there and buy more stuff! Take on more debt, get all the credit you can and together we can keep this thing from falling off the rails. Why are you just sitting there? Get out there and buy something!!

The Canadian Real Estate Association is predicting the Canada resale housing market will remain ‘at or near record levels’ this year.

“The statistics again show just how different the housing markets are in Canada and the United States. Canadian realtors know that Canadian mortgage lenders correctly see that home prices will continue rising.”

The association sees three factors that it believes will save Canada’s housing markets from the woes engulfing the sector in the United States: consumer confidence, employment and affordable interest rates.

CREA economist Gregory Klump said the market will pull back from the “breakneck pace” of 2007, but this is still forecast to be the second-busiest year on record in almost all provinces.

Average prices are forecast to continue rising in record territory, but the increase is likely to become slower, to 5.5 per cent nationwide.

“Slower job growth, not massive layoffs, are forecast for Canada in 2008,” Klump said.

What I’d like to know is which parts of canada will rise as forecast? Are there any overpriced Canadian markets that risk a drop in prices or will we see a steady rise across the board?

note: For a comprehensive look at why all might not go perfectly for the Vancouver market check out Mohicans Bubble Uberpost over at Financial Planning and Personal Sanity.

Things aren’t quite looking up state-side yet: Countrywide Financial is starting to layoff employees and Capitol One is closing its mortgage unit, but things are certainly different up here.

The Canadian Real Estate Association has just announced that its product will sell very well this year predicting record home sales for 2007.

Klump said the home-financing market in the U.S. and in Canada are completely different.

“(Canadians) have to pass tighter credit standards in order to get home-mortgage financing,” Klump said. “So, there’s no unwinding in Canada as there has been in the States.”

Its good to know that here in Canada we’ve got higher standards for our No-Doc zero-down Neg-am 40 year specu-vestor mortgages.