Review of leaky condo crisis dropped

The government has decided not to follow through on its election platform promise to review the leaky condo crisis in the lower mainland and CMHCs involvement and responsibility in said crisis. This story from todays Vancouver Sun:

“The Conservative government has shelved its election promise to conduct a review into a federal agency’s role and potential culpability in B.C.’s $1.5-billion leaky condo crisis, according to a letter sent by Human Resources Minister Diane Finley to a homeowners’ group.”

The promise to review CMHCs responsibility in Vancouvers leaky condo crisis was made by Stephen Harper when he visited Victoria in December. They now claim that promise can not be fulfilled because of court actions launched against CMHC.

According to internal documents CMHC was aware in the early 1980s that new federal building regulations could lead to severe damage to homes in coastal areas

“As I’m sure you can appreciate, it would not be appropriate for me to comment or to consider initiating a review into leaky condo issues while these matters are before the courts,” Finley wrote to Consumer Advocacy and Support for Homeowners (CASH), a consumer advocacy group that is seeking compensation for the thousands of B.C. residents whose homes and property values were devastated by moisture damage.

CASH president Carmen Maretic, in a letter sent Wednesday to Harper and Finley, said the Tories “knew or should have known” at the time of the campaign promise about a lawsuit filed against CMHC in B.C. on Dec. 6, 2005.

Critics have also noted that CMHC has been named in more than 30 other lawsuits. Former Liberal housing minister Joe Fontana and former Liberal industry minister David Emerson, now Tory trade minister, stated publicly in mid-2005 that the government couldn’t comment on CMHC’s role in the crisis because the issue was before the courts.

That didn’t stop Harper from including a promise to “review CMHC’s handling of construction regulations and ‘leaky condos.'” in his “Stand up for B.C.” election speech on Dec. 17th.

A press release accompanying the platform boasted that Conservative MPs “understand and have advanced the interests in British Columbia” on several fronts, such as pressing CMHC “to investigate how it failed to warn homeowners about potential problems with ‘leaky condos.'”

In an exclusive interview with The Vancouver Sun after the announcement, Harper said he’d consider compensation for condo owners following the review.

Here’s the full story.

Vacation Condos get really expensive.

You know that quarter share vacation condo you were going to buy as an investment? It looks like its going to get a whole lot more expensive. Owners are finding their property taxes doubling or tripling after they buy when the property classifications get changed from residential to business. From the Vancouver Sun article:

“Taxes on one vacation unit in a Vancouver Island resort jumped from $3,800 to $15,200 when BC Assessment changed its classification from residential to business in a shift that is hitting resort properties around the province.

At Pender Island’s Poets Cove resort in the Gulf Islands, strata fees including taxes tack on almost $1,100 a month to the cost of a quarter share in a townhouse that is listed for sale at $229,000 for 12 weeks of occupancy a year.

Some buyers are signing up for fractional ownership in vacation homes only to find long after the deal is sealed that the residential tax rate has given way to business and their costs are much higher than they expected.

The poets cove example floored me – $1,100 a month in taxes and strata fees for a place you can only stay in 4 months of the year?! Naturally there is an uproar over this classification shift:

“Developers and property owners are appealing the assessments but the regulations are against them. A group of Whistler owners, the Legends Owners Association, lost an appeal on the issue in 2005 in a decision that resonated throughout the industry.

“That Legends case at Whistler has set the tone in the property tax matter,” said Phil Leseur, vice-president corporate and legal affairs at Bear Mountain, a destination resort in Victoria.

“The judge said if it looks like a hotel, smells like a hotel, is being operated as a hotel, it’s taxed as a hotel.”

Bear Mountain was successful in appealing one year that saw taxes on its quarter-share units hiked to a business classification, but Leseur said the company is still appealing that classification for another year and there is no guarantee what will happen with upcoming tax years.”

US foreclosures spike in august.

Wow. Bad news from CNN money about the US market. Foreclosures in August jumped up 53% higher than the previous year, most of this happening in what was once the hottest markets: Florida, California and Nevada. From the article:

“Rick Sharga, RealtyTrac’s vice president of marketing, says the rising foreclosure numbers are in part the result of rising monthly payments on adjustable-rate mortgages, which have a low introductory interest rate that heads higher after an initial period.

“Usually, foreclosures are a lagging [market] indicator,” he says. “But we’ve never had a situation like this with adjustable-rate mortgages amounting to $400 billion to $500 billion coming up for adjustment over the rest of the year.”

Fortunately we don’t seem to be as keen on these types of mortgages in Canada, but there are concerns about a tanking US market dragging the Canadian economy down with it. The US is by far our largest trading partner.

“Contrary to what many consumers may believe, lenders are not anxious to foreclose on homes and put families out on the streets. Foreclosures tend to be money losers for lenders and are done mostly as a last resort.

Sharga says lenders are beginning to recognize that a problem is brewing and are taking steps to address it. They are much more amenable to a short sale, for example, in which they accept a low-ball, cash bid early in the default process that may not even cover their mortgage, in order to avoid a larger loss later. That can help homeowners by preserving their credit scores and easing their transitions into the rental market.

“Lenders say they’re looking for ways to work with homeowners in trouble,” reports Sharga. “So for homeowners looking at a default situation, the sooner they talk to their lender – and see what options are available – the better.”

If bank foreclosures are accepting low-ball cash bid offers that don’t even cover the mortgage, what pressure is that going to put on home prices in their area overall?

House prices to go flat?

There’s an article in today’s Vancouver Sun about the average cost of carrying a mortgage in Vancouver – It currently costs an average of $2,322 per month for a mortgage on an average house in greater Vancouver, and that’s IF you put 25% down. The subtitle on this article is ‘Vancouver area close to levels last reached before previous downturns.’

There’s a graph attached to the article that shows the two previous market peaks they compare today’s prices to and its kind of scary, both peak years had a huge drop after the peak.

“We haven’t been where we are today since 1994 and 1989 which were both peak years in their respective cycles,” Cameron Muir, senior market analyst with CMHC, said in an interview.

The study supports other surveys that suggest real estate prices will level off as homes become less affordable, although Muir doesn’t expect that to happen before next year.

Although the CMHC doesn’t seem to think prices will drop like they did after the two years today’s prices are compared to, they do think prices will level off, which is a soft way of saying they will stop increasing at the rate they have in the last couple of years. This is completely unacceptable! If I want an investment that will stay flat I’ll bury canning jars full of Canadian Tire money in my backyard. I suggest we boycott the CMHC until they can GUARANTEE that prices will continue to increase by 20% per year to infinity.