Vancouver Condo Info

Those heretics over at Canadian Business magazine have a cover article this month called Why Buying a House is a Bad Investment.

The euphoria around home ownership crowds out some of the unpleasant truths about real estate: mainly, that long-term returns are often modest at best. Some studies have found that stock indexes actually outperform housing. More worrying is that real estate prices can and do fall — and they can take a long time to recover. Canada has not been immune to severe price corrections in the past, and we could be on the verge of another one now. With interest rates set to rise and curb affordability, and with economists speculating about a bubble, staking one’s entire financial future on a home is not necessarily a wise bet. In fact, a house just might be one of the most overrated investments around.

..and it goes on and on.

“There’s a unique confluence of factors that has driven house valuations up this sharply,” says Derek Holt, vice-president of economics at Scotia Capital. “They’re all temporary, and that’s a house price bubble that could be pricked as we go off into the next year.” The rate of growth in home prices for the past 10 years has in fact been out of line with prior decades, pointing to lofty valuations today, according to Holt. Prominent Canadians such as money manager Stephen Jarislowsky and former Bank of Canada governor David Dodge have also sounded the alarm recently on today’s unusually rich home prices.

You can read the full article at the Canadian Business website, but these people clearly don’t know what they’re talking about.  After all, real estate prices never go down, everybody knows that.

This fixer-upper is conveniently located near the center of Vancouver BC host city of the 2010 Olympic and Paralympic games.  Just minutes from downtown, it can be yours for only $579,900.  You may be slightly put off by the pictures, but remember, many investors won’t be able to recognize a diamond in the rough, so you might not have to bid too much over asking price to put this baby in your portfolio of investment properties.

First time buyers, Investors, Builders. Corner lot with lane. Nice residential street. Close to everything. Central location. Handy man special. Needs TLC. Mainly Land Value. 21st Avenue and Prince Albert St. 10 mins to Downtown Vancover.

Thanks to crash and tincup for finding this gem!

The latest issue of Business BC is all about the property market rebound and they focus on 5 ‘hot pockets‘ to watch for and invest in for 2010.

What goes down in B.C. real estate must, apparently, come up. And quickly: by the end of 2009, the average home price in the province had risen to $463,000, back to where it was in 2007. Interest rates are, at least for now, at record lows, and increasing consumer confidence has spurred the market’s recovery beyond expectations. Barring the usual unforeseeable mayhem, things are looking good.

Just for fun, let’s see if we can predict which of those five markets will do best by January 2011.  Below are the BC markets they focus on, vote for the one you think will have the best percentage return by the end of 2010.  In the event of a housing market crash, best performance would be the market that lost the least amount of value.

 Loading ...

The REBGV benchmark house price reached $800,796 in February.  The rise in listings puts us into a ‘balanced’ market condition according to the Real Estate board.  Will we be able to maintain this ‘balance’?  I suppose it depends on how much our market is driven by CMHC support and how new rules and higher interest rates affect those margins.  Here’s some interesting math courtesy of reader bestplaceonmeth:

Based on $58,000 median household income in Vancouver using ING’s “how much can I borrow?” for 35 years (yes, 35 years – it’s what all the cool kids are doing nowadays).  Also assuming no other debts (ha ha) and a conservative $250 a month for property taxes or condo fees or both.

Prior to April 19, qualifying at 1.95% variable rate:

YOU QUALIFY FOR A MORTGAGE OF $415,270 WITH 5% DOWN!

After April 19, now having to qualify at 3.89% fixed rate:

YOU QUALIFY FOR A MORTGAGE OF $313,880 WITH 5% DOWN!

Holy foreclosure, Batman! That’s a 25% haircut off current prices!

Now let’s fast forward to the end of 2010, 4 successive 1/2 point interest rate hikes and you now need to qualify at a rate of 5.89%.

YOU QUALIFY FOR A MORTGAGE OF $244,287 WITH 5% DOWN!

That’s 41% less than 10 months ago, and we’re just getting started.

See, I told you math was fun.

Now, who wants to go out and get into a bidding war?

UPDATE: It’s been pointed out that CMHC currently requires the 3 year rate to be used, so the difference is not as extreme as the above example. DoDo1975 clarifies with this math:

A quick calculation shows that a family with absolutely zero debt making $90k a year could borrow $533,721.32 over 35 years today. All else being equal, after April that number will be $456,311.49 or approximately 14.5% less. This 14.5% is constant across all income levels.

If interest rates on the 5 year prevailing rate also go up 1.5% in the future, this translates into a 28% decrease in the amount someone can borrow compared to today.

I think Domus was the first to point out this article in the Wall Street Journal - it looks like the Canadian Housing Bubble is getting some attention in the US media.

But some economists who are concerned point out that home prices are rising far faster than other measures of economic health. The 2009 price increase of more than 20% came as personal income in Canada fell nearly 1% and total employment was 1.4% lower than the year earlier. In a December report, the Bank of Canada warned that household debt—largely mortgages—was 1.42 times disposable income during the second quarter of 2009, a record high.

Another possible danger: Because Canadian banks typically reset adjustable-rate mortgages every few years, those who are buying now at low rates will likely see increases soon. Toronto-Dominion Bank forecasts suggest that the rate to which many Canadian mortgages are pegged, the prime rate, could nearly double by the end of 2011. The Bank of Canada warned in its December report that if interest rates increase as expected, by mid-2012 about 9% of Canadian households could have so much debt that they’d be “financially vulnerable.”

“This is exactly what happened in the U.S., when affordability had moved way out of whack with prices,” says David Rosenberg, an economist who witnessed America’s housing bubble at Merrill Lynch in New York, and now sees similar trends up north from his post at Toronto-based wealth-management firm Gluskin Sheff.

Reading the article it quickly becomes apparent that Canada = Toronto (with a dash of Red Deer).  So we finally get some mainstream media coverage and there isn’t a single mention of the Vancouver market in there.  What are we, chopped liver?

Several people wrote in and posted a link to this article in Macleans about the Canadian housing bubble.  It’s an interesting read and a good introduction to anyone who wonders what all this bubble talk is about.

Room 32 of the B.C. Supreme Court in Vancouver is where dreams of owning a home go to die. It’s the main foreclosure court in the Lower Mainland, where banks and other lenders ultimately turn when homeowners can’t keep up with their mortgage payments. The homes get seized, then sold off. “There are many tears on that carpet,” says Andrew Bury, a partner at Gowlings and the top foreclosure lawyer in the city. But lately the cramped courtroom has come to represent something else entirely—the utter insanity of Canada’s red hot housing market.

Last week Bury was in court to seek approval for the sale of a one-storey foreclosed home in central Richmond for $670,000. That was already $40,000 more than the house had been valued at two months earlier. Then, as he always does, Bury asked whether any other bidders were interested in the 2,000-sq.-foot home. Ten hands shot up. What happened next left him stunned. After a secret auction, the winning couple offered a whopping $852,500. “That’s an extreme case, but it’s the kind of thing we’re seeing all the time now,” says Bury. “It’s a feeding frenzy out there.”

The article points out that we have many scary similarities to the US housing bubble and excessive household debt levels that have raised alarm from many corners.  All the same arguments have been made for why ‘it’s different this time’ from ‘wealthy foreigners’ to ‘drug money’ to that old ‘running out of land’ gem.  Meanwhile the elephant in room keeps getting bigger and bigger.  Interest rates going up just a few percentage points ( a near certainty ) will push many people into deep financial trouble.  Unfortunately as the situation down south showed us, it’s not just first time home buyers and recent purchasers that get hurt when speculative housing bubbles collapse.

The Conference Board of Canada is predicting perfect stability in the local real estate market for the year ahead.  They see the Metro Vancouver real estate market as currently hot, but not overheating and predict that it ‘likely won’t overheat as 2010 progresses’.

While Metro Vancouver home sales in December tracked a pace that was nearly three times higher than sales last January, board senior economist Robin Wiebe said new listings also rose keeping the overall market in balance.

“Though [the market] is closing on the top of the balanced range, buyers are provided with a reasonable choice as the go out searching for homes,” Wiebe said in an interview.

However, Wiebe added that “it wouldn’t take much to tip [the market] over into seller’s territory.”

That is one factor that has the Conference Board putting Metro Vancouver on the list of cities it expects will see property prices rise between five and just under seven per cent along with Victoria, the Fraser Valley, Calgary, Regina, Ottawa and Halifax.

Edmonton, Saskatoon and Montreal are among the cities that the Conference Board expects will see price increases over seven per cent, with Winnipeg Toronto and Hamilton among cities that should see price increases between three and five per cent.

The Conference Board is estimating that no Canadian cities will see price decreases in 2010.

The full article can be read in the Vancouver Sun.

News Flash! This just in, hot off the presses!  Vancouver has become one of the most unaffordable cities in the world.

Vancouver not only has the least affordable housing of 28 markets measured in Canada, but of 272 metropolitan markets ranked in Ireland, the U.K., New Zealand, Australia, the U.S. and Canada, according to statistics compiled by the Winnipeg-based Frontier Centre for Public Policy.

We’re number one! We’re number one!

The numbers are calculated by dividing the median (or middle) residential house sale price from the third quarter by median annual gross household income. In Vancouver, for example, a median home price of $540,900 was divided by median household income of $58,200 to create a multiple of 9.3. The group describes as “severely unaffordable” any reading of 5.1 and over.

Not only that, it is “unprecedented in modern history,” the group said.

Ah! A brave new era!  We’ve broken records and surely now prices have nowhere to go but up!  Congratulations to everyone who took part in the contest by bidding up home prices, and a special thanks to the CMHC.  I don’t think we could have done it without your generous support!

According to this article on househunting.ca, the Canadian desire to own a home was the key to the quick recovery in the real estate market.

“While low interest rates were a principal factor driving home-buying activity, no one can discount the value that Canadians place in owning a home,” says Polzler.

Because of the increase in first-timer interest, the real estate industry was able to shrug off initial forecasts of a totally bleak year.

By the time the year-end national tally is complete — something that should come in the next week or so — 465,000 homes will likely have changed hands in 2009 in Canada, a seven-per-cent increase over 2008, predicts a Re/Max report.

“Some of the greatest percentage gains were reported in Western Canadian markets in 2009, demonstrating the higher the peak, the lower the valley,” says Elton Ash, executive vice-president of Re/Max of Western Canada.

“That said, the recession barely registered on year-over-year activity in most major centres — and the economic fundamentals in place going forward ideally positions the 10 provinces and the sector overall for further growth.”

“While low interest rates were a principal factor driving home-buying activity, no one can discount the value that Canadians place in owning a home,” says Polzler.

Because of the increase in first-timer interest, the real estate industry was able to shrug off initial forecasts of a totally bleak year.

By the time the year-end national tally is complete — something that should come in the next week or so — 465,000 homes will likely have changed hands in 2009 in Canada, a seven-per-cent increase over 2008, predicts a Re/Max report.

“Some of the greatest percentage gains were reported in Western Canadian markets in 2009, demonstrating the higher the peak, the lower the valley,” says Elton Ash, executive vice-president of Re/Max of Western Canada.

“That said, the recession barely registered on year-over-year activity in most major centres — and the economic fundamentals in place going forward ideally positions the 10 provinces and the sector overall for further growth.”

The higher the peak, the lower the valley?

Bob Rennie is the quintessential salesman and like most marketers he knows how to talk his product up.  Here he is expounding on the wonders of Vancouver condos on the Chinese news site xinhuanet.com.  This follows the template of most of his ‘news’ releases but includes one very interesting quote about the post-games market here in Vancouver:

“I’ll guarantee it won’t hurt our values. I’ll guarantee it will maintain our values. The frightening part is if values go up too much. We don’t have financial sector head office jobs, no manufacturing. If we are basing things on local incomes, how does housing keep up with local incomes if we have a shortage? We have to be very careful on the affordability side.”

This is a very generous offer.  If anyone has the financial resources to ‘guarantee’ that your condo won’t drop in value it’s Bob Rennie.  This could be exactly what anyone who fears the fallout of a housing bubble needs to get them to buy property in Vancouver.  After all, many people are leery of buying in a market where prices are near record highs and there are no ‘financial sector head office jobs’ and ‘no manufacturing’, particularly when that city has a history of volatility in house prices and has seen market crashes of up to 50% in the past.  Watching people in cities around the world go into foreclosure or make mortgage payments that are far beyond the current value of their property doesn’t exactly instill confidence either, even if it IS different here.

I’m not sure exactly what the contract on this deal would look like but I imagine that you’d ‘lock in’ your purchase price and it would be held on record for any future point you decide to sell.  If the market goes up, you’ve made free money.  If the market goes down, I’m guessing Bob Rennie would write you a cheque to cover the difference between your purchase price and the price you were able to sell for.

Nah, that’s just silly… he’d probably have an employee write you the cheque.

I’m not sure if there are any catches, but with a deal like that how could you possibly go wrong?