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.

Potential Buyers?

Ok, lets say we think the market has peaked.. lets assume we have a few months to sell our condo investment property and lock in some gains before prices start to drop. What sort of buyers are out there?

Type 1 has got to have it. They will buy your home at any price. Maybe they’re freaked out about being priced out of the market. Perhaps they are very very wealthy and desire Vancouver above all other cities in the world, or maybe they’ve won the lottery and money is no object for them. You want at least two of these type 1 buyers interested in your house or condo. They’ll bid up each others price and will never insist on sticky points like ‘subject to inspection’ and ‘subject to financing’. These are the people that will make you money. Hunt them down and keep them close to you.

Type 2 will buy, but not at any price. These people are typically refered to as bears. They want to buy, but they have a limit to how much they are willing to pay. They’re looking for something specific priced below a certain level. They’ll crunch numbers and think long and hard before buying. These people will be your fallback position if you can’t find any TYPE1 buyers out there to make you stinking rich. As long as you didn’t buy within the last two years you’ll probably be able to make some money off of this type of buyer, at the very least you’ll be able to get most of your principle out of your property to make that money available for other uses.

These are the bastards you have to watch out for. These people aren’t keeping an eye on prices or perusing the MLS. They don’t even know what current house prices are. They have no interest in the Vancouver Real estate market and the only way they’ll buy anything is if they win the lottery or have a rich aunt kick the bucket and leave them a bucket of cash. Maybe they’re still in highschool. Maybe they’ve allready bought a place. Maybe they are bankrupt and planning to move out of vancouver in the next year. Maybe they’ve attained a level of spiritual nirvana that leaves them uninterested in worldly possessions. Whatever the reason for their lack of interest, they aren’t really a factor in the price of your home. Shun these people. Yell at them when you see them on the street. They will ruin our economy and they will destroy our property values.

So where is the market now? what percentage of the population is type 1? What percentage is type 2? The number of house and condo sales have dropped in the last couple of months from the previous two years and inventory is up, but maybe the majority of type 1‘s just happened to take the last couple of months off and traveled away from Vancouver. Any estimates for the current population breakdown? And where will we find future type 1‘s to keep the money train going uphill?

August sales down, inventory up.

This story in the Vancouver Sun has some stats on the real estate sales figures for the lower mainland in August 2006. This is the fourth straight month of growing MLS listings. August saw a drop of 17.8 percent in sales overall, but the sale of single family homes were hit hardest with a drop of over 25%. Prices were still up in August, with the average single-family home price reaching $649,042, but with increasing inventory competing for fewer buyers there is a concern that property values are vulnerable to price drops as noted in a recent TD Bank bubble-watch report.

Helmut Pastrick, the chief economist for Credit Union Central B.C., expects that as long as the economy stays strong there won’t be any significant downturn:

Pastrick started sensing a slowdown in sales last fall related directly to the inching up of mortgage rates, which “hasn’t been . . . precipitous, but has been fairly steady.

“This is more an affordability-driven sales decline . . . but not enough [of a decline] to really trigger a significant downturn.”

Pastrick does foresee fewer first-time and low-equity buyers entering the market.

I wonder what will happen to prices if we were to remove demand from first-time and low-equity buyers? It looks like thats starting to happen now, the next year or so should be interesting.

Dave Rishel, president of the Fraser Valley Real Estate Board, said August sales were still at high levels, and the drop does not represent “quote, ‘the beginning of the bursting of the bubble.’ “

The increase in listings, Rishel added, should give buyers more selection and more time to rationally contemplate purchases.

“I think we are all in agreement that there will be adjustments in the market,” Rishel said. “We’d be fooling everybody to say that there will be a steady cycle all the way up to wherever. We all anticipate these slowdowns from time to time, but [overall] I don’t envision anything radical.”