Vancouver Condo Info

Every so often a market takes a dive, but they usually turn around. After a while it it starts to look like it’s hit bottom and a recover is just around the corner. The people with their livelyhoods tied to the market hold out hope of a turn around. Then oil starts washing up on the beach.

The phone call was short and to the point: A buyer who had agreed to spend $500,000 (U.S.) on a beachfront home with a stunning view of the Gulf of Mexico was backing out.

The cancelled sale was a blow to real estate agent Linda Henderson, but it wasn’t a surprise. Globs of thick, pungent oil are washing up on the shores of Alabama’s Dauphin Island, and the smell on some days is enough to drive the island’s predominantly senior population back into their homes.

It’s also enough to drive real estate agents to despair. “I can tell you that things have pretty much dropped to dead,” she says. “We were on track for our best year since Katrina. This is devastating – you can say that the spill killed the real estate recovery.”

Full article in the Globe and Mail.

US incentive programs for home buyers have expired and it looks like the real estate industry hasn’t got enough momentum to lift the US economy. Even with rock-bottom interest rates the industry is slumping.

WASHINGTON – Homebuilders are sending a message: They won’t be able to contribute much to the economic recovery now that government home-buying incentives have vanished.

Home construction and applications for building permits sank in May, overshadowing favorable reports on manufacturing and wholesale inflation.

Fewer homes mean fewer jobs. Construction fuels a broad swath of industries across the economy. Yet double-digit unemployment is among the main reasons people have passed on buying new homes.

The solution is simple. Government must take on more debt and pour more stimulus dollars into the economy, then the problem will be solved and everyone can get back to living the good life.

Over at the LA Times Walter Murch and Lawrence Wechsler make a convincing argument that it’s time to retire the term ‘bubble’ when it comes to speculative excess:

The word “bubble” just has an inescapably happy feel to it, conjuring up kids and parties and sudden iridescent poppings, screams of laughter, the giddy clapping of happy hands and an overall lack of consequence. That was fun; now where’s the cake?

Even more so when the word gets paired with “tulip” or “South Sea.” Where could the harm possibly be in such blithe and fragrant things? Certainly not in the words themselves: exotic petals, swaying grass-skirted maidens, spheres of trembling insubstantiality.

So what do they suggest as a more appropriate term?

What if, instead of that playful word bubble, we tried something a bit more accurately descriptive when growth at any cost became the goal. Say, “tumor”: “the dot-com tumor,” “the subprime tumor,” “the derivatives tumor.”

Would anyone seriously gainsay the highest possible vigilance over the proper functioning of their own body or doubt the need for strong regulation? Who, facing the prospect of a tumorous outbreak or living with a body demonstrably prone to such outbreaks, would entrust that body to a band of physicians blithely committed to laissez faire regarding these fatal bubbles of flesh?

Words matter. Metaphors frame thought. Pay them heed and tend them well.

Read the full editorial over at the LA Times website. The Vancouver housing tumor?

Vibe posted an interesting comparison of the 2006 US bubble peak to the present day Canadian situation in the forums this weekend.  The local Vancouver market is bubblicious, but is there a national Canadian housing bubble?

Everyone pretty much agrees about Vancouver, but here are a couple of points that were made about the national scene:

1.It is reasonable to claim that there is not a housing bubble in Canada because only certain areas are over inflated.

2.Vancouver’s very high prices skew the national average and cause Canada to look worse than it really is.

One thing I think we can all agree on is that the US did have a housing bubble. Well I put together a spreadsheet that I feel shows that affordability is about as bad across Canada as it was in the US at their peak. It also shows that Vancouver is not skewing our national data any more than the most overpriced cities in the US were skewing their data.

In order to measure affordability I used house price to personal income ratios. I compared the 20 cities used in the Case Shiller Housing Index to the 6 cities used in the Teranet Housing Index. The US data is from 2006 while the Canadian data is from 2009.

I think the following graph most clearly illustrates my point:

Vancouver is the only Canadian city with a ratio over 9, while the US had 3: LA, San Fran and San Diego. Toronto is the only Canadian city with a ratio between 5 and 9, the US had 9 in this range. The under 5 range looks bigger for Canada but we have more population covered by our index than they do by theirs. The important thing is that the percentage of each nations population living in cities with elevated ratios is similar.

The distribution and average ratios for both countries are almost identical. I did a population weighted average of the ratios and this gave a higher value for the US than Canada, 6.3 versus 5.6. Keeping in mind that the Canadian data comes from 3rd quarter 2009, during our recent price dip, I don’t think this is a huge difference.

Now I don’t know what the future holds, but to me this data suggest we are in a very similar situation to the US at their peak. We might not take the same path down (we already had a double top) but I don’t see why our eventual bottom should be much, if any, higher than theirs. And any price drops should be distributed across the nation in a similar fashion as well.

Here is a link to the data for anyone interested.

Remember the excitement of the US housing bubble?  Property values were shooting up and lenders were throwing money at anything with a pulse.  Now that the dust is clearing it seems so silly, but at the time even the ‘professionals’ seemed to think that prices would rise forever without a correction.

One small repercussion of those times is now making itself clear: in the excitement some people forgot to keep track of the records.  At least one delinquent borrower has seen their $460,000 mortgage debt disappear, because the mortgage company was unable to prove they owned the loan.

Here in Canada the CMHC doesn’t seem to be heeding the ‘pumping money into the lower end of the market’ lesson from the US, but I doubt we’ll see this particular mistake made here.  I bet everyone’s keeping immaculate records.

Pani sent in two interesting links recently – the first is to a look at why Canadian banks seem to be faring so much better than their OECD counterparts in this downturn:

Canadian banks’ pre-crisis balance sheet structures were broadly similar to those of banks in other OECD countries with one notable exception – funding structure. Canadian banks were in the top quartile of the OECD sample in terms of their use of depository funding. The advantage of stable deposit funding may have insulated them from the freeze of wholesale funding markets, contributing to their resilience.

Why do Canadian banks have a firmer grip on depository funding? Environments and circumstances are important factors. On the supply side, large Canadian banks, benefiting from their nationwide footprints and a universal banking model, are able to offer one-stop service to households, which helps attract and retain household savings. On the demand side, in recent years, Canadian banks experienced slower asset growth than their neighbours in the US, leading to a narrower funding gap and hence a lower need for wholesale funding in addition to household savings

The second link is to a note about the Feds stated willingness to employ ’shock’ interest rate jumps, and the difficulties in pursuing such a policy.  The following is a quote from Carl Walsh quoted in the Wall Street Journal:

[O]nce the Fed does start raising the federal-funds rate out of its current record-low range near zero, “it should be increased quickly,” Mr. Walsh argued. “There is no support for raising rates at a gradual pace once the zero rate policy is ended.”

Based on recent anecdotes, quickly rising interest rates would have a dramatic impact on our local real estate market.  It’s a good thing our banks are so healthy… or are they?

Cashisking points out this article in the Wall Street Journal about the history of the North American dream of home ownership and how it’s changed over time.

Until the early 20th century, holding a mortgage came with a stigma. You were a debtor, and chronic indebtedness was a problem to be avoided like too much drinking or gambling. The four words “keep out of debt” or “pay as you go” appeared in countless advice books. As the YMCA told its young charges, “If you can’t pay, don’t buy. Go without. Keep on going without.” Because of that, many middle-class Americans—even those with a taste for single-family houses—rented. Home Sweet Home didn’t lose its sweetness because someone else held the title.

The article goes on to cover changes in government policy and lending, from the depression up to the recent housing boom and bust in the US.

Like the US, the Canadian government has policies to encourage home ownership (via the CMHC) based on the assumption that home ownership is good for society, but is it?  Do you as an owner or renter feel that there is a fundamental difference between the two choices?  Are owners more responsible and more involved in their community?  On the flipside, are renters with a higher disposable income more beneficial to a local economy?

The WSJ article ends with an interesting note on the origins of the ‘American Dream’ quote:

James Truslow Adams, the historian who coined the phrase “the American dream,” one that he defined as “a better, richer, and happier life for all our citizens of every rank” also offered a prescient commentary in the midst of the Great Depression. “That dream,” he wrote in 1933, “has always meant more than the accumulation of material goods.” Home should be a place to build a household and a life, a respite from the heartless world, not a pot of gold.

Foreclosures in the US took a 7 percent jump from June to July, and a 32 percent jump from July of last year.  The hardest hit cities are the ones where prices rose the highest during the boom.

Nevada had the nation’s highest foreclosure rate for the 31st-straight month, followed by California, Arizona, Florida and Utah. Rounding out the top 10 were Idaho, Georgia, Illinois, Colorado and Oregon. Among cities, Las Vegas had the highest rate, followed by the California cities of Stockton and Modesto.

While there have been numerous recent signs that the ailing U.S. housing market is finally stabilizing after three years of plunging prices, foreclosures remain a big concern. Foreclosures are typically sold at a deep discount, hurting neighbors’ home values.

Meanwhile here at home, personal bankruptcies in Canada jumped 51% over last year, and 9.1% month over month.  Where’s that decoupling theory when you need it?

If you were paying attention to the news over the last couple of years, you may have noticed a bit of a global financial hiccup that brought down house prices, stock markets and some banks while driving up unemployment.  Subprime mortgages where blamed, because apparently loaning people money they can’t pay back to buy houses that are priced on enthusiasm rather than fundamentals is not a good long term business strategy.

Fortunately as of late some soothsayers are seeing green shoots that indicate the recession is nearing an end.  This would mean that even if prices and economic activity don’t shoot back up to boom levels they would at least stop falling.

Unfortunately other soothsayers are seeing yet another problem on the horizon before this whole situation calms down: The bulk of Option ARMS are going to reset in 2011.  These are the ‘pick a payment‘ mortgages that are perfect for sophisticated buyers with growing incomes, but can quickly get out of hand if the buyer chooses the negative amortization route.  In the US about 40% of these loans made in 2006 – 2007 are already delinquent.

New Barclays Capital research from Sandeep Bordia and colleagues shows that the recasts in the next year or so are expected to be a minor event. But by mid-2011, these borrowers are forecast to see payments that are 50% to 80% higher than what they are grappling with now. (Many of these option ARMS are concentrated in former hot-spot real estate markets, such as California and Florida.)

Modification don’t seem to be working with these particularly noxious loans. In the face rising payments, borrowers don’t have an incentive to keep up with their current payments for homes that are already so horrendously under water, i.e. the loan amount is far above the current value of the property. Bordia says that many of the option ARM loans that do get modified turn delinquent soon after anyway. They’ve crunched some numbers and forecast that 95% of the loans that are slated for modification will eventually default. If you think that sounds bad, get this: They say that 80% of the option ARM loans out there that are ok and up-to-date as of right now will eventually default, too.

So are the coming resets in Option ARMS going to be another sub-prime crisis, or is this just a ’sky is falling’ redux of the Y2K hype?  Either way I hope somebody is watering those green shoots.

An anonymous reader posted this link in the weekends free-for-all post: Wells Fargo bank is suing itself in Florida court over a mortgage foreclosure case.

In this particular case, Wells Fargo holds the first and second mortgages on a condominium, according to Sarasota, Fla., attorney Dan McKillop, who represents the condo owner.

As holder of the first, Wells Fargo is suing all other lien holders, including the holder of the second, which is itself.

“The primary reason is to clear title and ownership interest in a property to prepare it for sale,” Waetke said in an email exchange. “So it really is not Wells Fargo vs. Wells Fargo.”

Yet court documents clearly label “Wells Fargo Bank NA” as the plaintiff and “Wells Fargo Bank NA” as a defendant.

Wells Fargo hired Florida Default Law Group., P.L., of Tampa, Fla., to file the lawsuit against itself.

And then Wells Fargo hired another Tampa law firm — Kass, Shuler, Solomon, Spector, Foyle & Singer P.A. — to defend itself against its own lawsuit, according to court documents.

Wells Fargo’s defense lawyers even filed an answer to their client’s own complaint.

“Defendant admits that it is the owner and holder of a mortgage encumbering the subject real property,” the answer reads. “All other allegations of the complaint are denied.”

This is even dumber than the lending practices that led to this foreclosure mess, yet this is what the court record says. I learned about this from “The Consumer Warning Network” Web site, which posted an article by Angie Moreschi titled, “Have The Banks Gone Crazy?”

“We’ve apparently reached the perfect storm for complete and utter idiocy by some banks trying to foreclose on homes,” Moreschi wrote.

McKillop, the condo owner’s attorney, told me he thinks Wells Fargo doesn’t know what it’s doing, and that its lawyers figure it is all billable hours to them.