Vancouver Condo Info

There’s an interesting article in yesterdays New York Times about American debt, complete with interactive features and debt calculators to compare your debt load to others:  Given a shovel, Americans Dig Deeper into Debt.

Years of spending more than they earn have left a record number of Americans like Ms. McLeod standing at the financial precipice. They have amassed a mountain of debt that grows ever bigger because of high interest rates and fees.

While the circumstances surrounding these downfalls vary, one element is identical: the lucrative lending practices of America’s merchants of debt have led millions of Americans — young and old, native and immigrant, affluent and poor — to the brink. More and more, Americans can identify with miners of old: in debt to the company store with little chance of paying up.

It is not just individuals but the entire economy that is now suffering. Practices that produced record profits for many banks have shaken the nation’s financial system to its foundation. As a growing number of Americans default, banks are recording hundreds of billions in losses, devastating their shareholders.

There’s a meme in the local media that Canadians are more financially conservative than Americans, and while that may certainly be true I wonder about Vancouverites specifically - With our negative savings rate, relatively low incomes and high housing costs are the residents of this city really that different from some of the more extreme US cases?

It’s time for our end of the week news round up and open topic discussion! Here are a few stories I’ve noticed, feel free to comment on these or add your own links in the comment section:

- Canada in a recession?
- Brace for inflation
- The stink of corruption?
- Job Market better than it appears
- Dropping house prices increase inflation?
- Vancouver homeless rights complaint
- You’re richer than you think.
- BC: Number 1 in property crime
- Flaherty: No housing bubble in Canada
- Bay Area prices drop 27% in one year
- Pitfalls of a cheaper US market
- US Rate hike debated
- Merrill Lynch: 1 year, $19.2 billion lost

So what are you seeing out there? Post your news, links and anecdotes here and have an excellent weekend!

note: any conversation on real estate or economics is allowed, please keep it civilized. When posting articles please only quote pertinent points and link to the original instead of pasting the entire article here. Pasting a link will automatically create a clickable hot-link. Thanks!

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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This from today’s Globe and Mail - Canadian house prices dropped in June for the first time in nine years:

Canadian home prices fell in June for the first time since January, 1999, as the number of houses for sale remained at record levels.

The average price of an existing home fell 0.4 per cent in June to $341,096, compared with $342,615 the year before, according to statistics released Tuesday by the Canadian Real Estate Association (CREA).

“The fall in home prices…is a sizable dip in this indicator, given that not too long ago the Canadian housing market was witnessing double-digit price gains,” Millan Mulraine, economic strategist at TD Securities Inc., said in a research note.

Of the 25 major markets included in the statistics, average home prices declined on a year-over-year basis in Calgary, Edmonton, Victoria and Windsor-Essex. The largest decline of 2.6 per cent was in Edmonton, while the smallest was in Windsor-Essex at 0.5 per cent.

Last month, BMO Nesbitt Burns Inc. economist Douglas Porter raised the possibility of an overall drop in home prices in Canada. Most industry watchers have stayed with the view that home prices will rise slightly this year.

In June, Mr. Porter said it was “unnerving” to note that Canada’s housing market performance appears to be tracking that of the U.S. but with a two-year lag, although he also sees a number of differences between the two markets.

He said he was tracking prices in the “middle ground,” cities such as Toronto, Montreal and Ottawa, which still have fairly robust economic fundamentals but haven’t been supercharged by the commodities boom.

Prices in those cities all rose moderately year-over-year in June, up 3.7 per cent in Toronto, 4 per cent in Montreal and 6.8 per cent in Ottawa.

The Canadian and U.S. markets are still very different, CREA president Calvin Lindberg said in a statement. U.S. home prices dropped by 14.1 per cent in the first quarter of the year, according to the benchmark Case-Shiller national home price index.

Out local market stands out as the biggest year-over-year decrease in sales in all the Nation, Greater Vancouver saw sales drop 42.9% from last June.

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Those of you that are regular visitors know what this means. The ‘free for all’ post is a general news round-up and open topic discussion we do every weekend. Here are a few stories I’ve noticed this week:

-zero down mortgages ‘have been quite popular‘
-price drops on the outskirts and upper end
-cracks in housing market spur new rules?
-new rules won’t deflate market
-buy now, save later
-house sales slow across North Shore
-lower mainland house prices start to sag
-building still booms in Vancouver
-REBGV listings continue rapid growth
-leaky condo crisis far from over
-Bank of Canada urged to raise interest rates
-new Canadian bankruptcy laws
-six months, 343,000 lost homes
-Fannie Mae and Freddie Mac, too big to fail?
-Fannie Mae and Freddie Mac shares plummet

So what are you seeing out there? Post your thoughts, news links and anecdotes here and have an excellent weekend!

note: any conversation on real estate or economics is allowed, please keep it civilized. When posting articles please only quote pertinent points and link to the original instead of pasting the entire article here. Pasting a link will automatically create a clickable hot-link. Thanks!

Looks like the Canadian government is starting to heed the US housing market lesson - the Federal Government will no longer guarantee 40 year or zero down mortgages. The new limit will be a 35 year maximum term and a minimum 5% down payment will be required on all new federally guaranteed mortgages.

The federal government will no longer guarantee 40-year or zero-down mortgages in an effort to avoid a housing crisis like the sub-prime mortgage meltdown experienced in the United States.

In an announcement released today, the government said government-backed mortgages would require a minimum down payment of five per cent and a maximum amortization period of 35 years. The borrower would have to have a consistent minimum credit score and there would be new loan documentation standards.

“Today’s announcement marks a responsible and measured approach by the Government to ensure Canada’s housing market remains strong and to reduce the risk of a U.S.-style housing bubble developing in Canada,” a release issued by the federal Department of Finance said.

The new rules will take effect Oct. 15, 2008 to allow existing mortgage pre-approvals to be used or expire.

So get out there and get your 40 year zero down mortgage while you can, these things are destined to become collectors items! My guess is we’re about to find out how thin of a speculative margin has been driving the Vancouver real estate boom.

The CBC is reporting that two Concord Pacific condo towers in downtown Vancouver have developed leaky condo problems requiring millions in repair work. The ‘leaky condo issue‘ is very familiar to Vancouver residents, and apparently still very much a concern.

Governor’s Tower at 388 Drake St has required replacement of all windows, exterior walls and bricks which has cost owners at least $100k per unit:

The cost of repairs to the tower was estimated at $29 million, and each of the 237 condo owners had to fork over at least $118,000, with the cost depending on the size of their apartments, Fox said.

Governor’s Tower was built 14 years ago and the 10-year warranty had expired.

The Parkview Tower at 289 Drake street is the other Concord Pacific tower reported with this issue:

All the windows on the 14-year-old tower were replaced because they leaked, said Alan Cadwell, whose Langley-based company, The Condo Advocate, repaired Parkview Tower.

Cadwell’s company specializes in restoration management for leaky condos in B.C.

“With one good push, the window wall system, in theory, could be kicked out and could be travelling to the floor,” Cadwell said of the condition of the windows.

The cost of the repairs for Parkview Tower amounted to more than $8 million, he said.

Thanks to LaLaLand and Bizznitch for the story tip and link.

UPDATE: In a bit of synchronicity the Vancouver Sun has this article in todays paper: Leaky condo crisis far from over.

By 2012, when the leaky condo era enters its fourth decade, as many as one-third of the defective units will remain unrepaired, said the report, prepared for the province’s Homeowner Protection Office (HPO) by private consultants.

At least 45 per cent and possibly as many as 68 per cent of leaky buildings have not been repaired yet, according to various scenarios explored by the consultants.

…

The consultants made no attempt to estimate the total cost of the damage, but concluded that early estimates of the repair cost per unit - $10,000 to $15,000 - were way low.

“Based on the HPO experience, it would appear that the actual average repair costs are approximately five times or six times higher,” they said.

By last September, repair loans the HPO makes to leaky condo owners had grown to an average of $62,000 for wood-frame apartments, and $72,000 for those in concrete buildings.

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?

Re-diculous posted this link to an article in todays Vancouver Sun about a dramatic drop in consumer confidence in BC.

Consumer confidence in B.C. plunged to its lowest level in five years last month as high energy prices and economic concerns test people’s resolve, the Conference Board of Canada reported Monday.

The board said B.C. consumer confidence fell 9.3 points in June to 94.3 - dropping below 100 for the first time since mid-2003.

The consumer confidence rating across Canada dropped 6.2 points in June to 79.6, following a seven-point drop in May, leaving the second quarter reading at its lowest level since the fourth quarter of 1995 when it was 68.8.

There’s been a lot of buzz in the news about inflation and recession worries lately - could this drop in consumer confidence be blamed on the media?

The world is going through some interesting times: a hangover from the boom of loose credit, house prices dropping in many cities, inflationary pressures and skyrocketing energy prices. This is our open-topic weekend post to discuss anything related to economics and real estate on the global and local level. Here are a few stories I’ve noticed this week:

- June 2008: Vancouver house prices drop slightly.
- Real estate inventory continues to grow
- Screen Actors Guild strike threat looms.
- Kevin Falcon cares about your convenience
- Victoria: love the weather, not the street people
- Americans move to Canada (less than vice-versa)
- Canadians work more for less
- Canadians no longer spending like ‘drunken sailors‘
- Loonie predicted to drop
- Canada from a Hawaiian perspective
- Will gas prices kill the suburbs?

So what are you seeing out there? Post your news, links and anecdotes here and have an excellent weekend!

note: any conversation on real estate or economics is allowed, please keep it civilized. when posting articles please only quote pertinent points and link to the original instead of pasting the entire article here. Pasting a link will automatically create a clickable hot-link. Thanks!