Moving days are coming fast

So we will be slowly moving over the next week. We're getting excited as we feel we're moving 'up' in the rental market; really, it's just a modest move into a similar property but with a bit more space and a lot more natural light. We're going to junk out most of our 'stuff' that we've collected over the past four years, so we're shopping for some newer things to furnish our place.

Which brings me to the meat of this post: have you got any secrets you'd like to share with us and the readers of this blog? We've been checking out the usual online sites for used stuff in town and the classifieds in the newspaper and while there is some selection, it's usually just someone else's unwanted junk that they would rather foist onto someone else than drive down to the Sally Ann.

I'd love to compile a bit of a resource list of good quality retailers in the used-furniture marketplace. I know there are tons around, but if you shop at any, do you go regularly? And are you happy with the offerings consistently? Do the shops stand behind what they sell? Any secret websites?

How's This for Condo Driving?

Interesting article in the TC today about the Bayview and yesterday's untimely Spring rain: it seems that the torrential downpour wasn't able to dampen the perpetual pump and dump of condo marketing in this, the mother-of-all-retirement-markets.

Some notable highlights:

• in this market that sells itself, a developer must charter private jets and commercial airliners for 200 guests for a special "buyer's weekend" (estimates are "dozens of buyers" came out of that marketing campaign)
• the "buyer's weekend" includes golf tourneys, spa treatments and sightseeing activities
• Most buyers are from Alberta and Ontario and include former provincial premiers Mike Harris and Brian Tobin
• the next target is "people from the desert" looking for "opposite seasons"; I guess summer here, winter there?
• the two aforementioned premiers are said to be wooing "King" Ralph of Alberta to join their exclusive living in luxury accommodations

Bayview has units ranging in price from $400K to $3M. If you have political aspirations, that $400K studio apartment may be the best investment you can make in your career: you'll have an inside seat in the lobby where you can wait patiently for the twice-yearly appearances of the busy ex-politicians.

Either Palm Springs is getting unbearably hot in the global-warming winter, or all the well-publicized anti-American sentiment in Canada is making life uncomfortable for our heads of state down south as Mike Harris is quoted describing yesterday's weather as "beautiful West Coast"; of course, what else is he to say when his money is tied up in a development and he just arrived at the golf course in a stretch-limo to woo potential buyers with a little shoulder rubbing prior to their full body treatments later in the day?

And to think most of us just get a complimentary LCD flat-screen HDTV when we spend $400K on a closet-sized condo; we're going to start demanding free trips to Hawaii for a little "opposite seasons" with all our conditional offers to purchase from here on in.

Thursday News Hunt

Thanks for posting links in the comments these past couple of days.

Here's some news we've been a huntin':

BC housing crunch expected to ease

You've retired and 'downsized' in this market into a new 25 year mortgage; have no fear, mandatory retirement is no longer...

Buying a fractional ownership condo? You're in luck, you are about to receive tax-fairness.

Like most smart business people/economic specialists, even David Dodge doesn't want to hang out for the downturn...

When the smart money doesn't do it, should the little guy step in and provide opportunities for renter's in this market?

BC Home Sales Decline Six Per Cent in First Quarter; but apparently this means prices will continue to rise for the next two years, ah huh...

feel free to post links in the comments section.

Is Vancouver Different?

I'm not a fan of the big city... I prefer the lifestyle of Victoria. We've been highly entertained by the commentary over on CondoHype! So in that light, yesterday we travelled around to some marketing offices downtown pushing the condo lifestyle in Victoria.

I've heard that there are line-ups almost as long as the passport office one's for new condos in Vancouver's trendy neighbourhoods. What's the story in Victoria? Victoria's Truth has an insight into price reductions in the Victoria condo market. What did we find? Two general trends:

1. Either the doors on the display suite offices were locked
2. Or the display suite office was open and there were people inside, but they were staff and not potential buyers

I had no idea what to expect, to be honest. I wasn't thinking we'd see a line-up or even a bustling showroom. But I'd have at least thought they'd all be open. So kind of surprised.

We live not too far from the Richmond Gate development and we've watched it go up with curiosity. We've discussed it as a potential home for us for the long term. We like the neighbourhood and could see ourselves staying here, but not at those prices.

They started selling small one-beds at $250K. Now, you get a one-bed, 1.5 bath plus a computer closet for $340K (at 750SF). My friend sold his 2000 SF house with mortgage helper last year at the peak, just around the good corner from there, for $430K.

The marketing for RG seems diminished. There is no "lifestyle" pushing going on. Instead it's being touted as "affordable luxury". Considering you can get the same "affordable luxury" for $100K less on Goldstream Avenue in The Strathmore (you can spend the extra $10K yourself to swap out the fixtures and counter tops that make the difference there), what incentive is there to be in town? And does it equal a $100K premium?

The housing markets are more balanced between Langford and Saanich (in our market segment anyway). Why the big difference in condo prices?

New CMHC Financing Insurance Rules

Big announcement today--we'd heard rumours on other blogs, but I couldn't find anything in Hansard, so waited until confirmation before posting on this one--the Feds have reduced the minimum down payment from 25% to 20% to qualify for insurance-exempt financing.

At first I thought, uh oh, this is going to heat-up the market. But after some thoughtful analysis, I'm thinking different. I actually like this move. We're likely going to wait out this market for a bit and attempt to sock everything we can away to make that 20% mark. On an average family home using the median, not average price ($470ishK), that's closer to $100K down instead of $150K down. Much easier to attain and saving $3K or so on insurance premiums will help with a month or two's mortgage payment.

So it may help us out. But really I think it's going to help out the market. And not help the market keep going up.

20% seems like a lot on the savings side, especially in our market here in Victoria. But the Canadian average home price is significantly less than here, so saving up 20% should be considerably easier. 20% market declines are not unheard of. We may see something like this when this market cycle corrects in Canada (not just Victoria).

But here's my logic for why I think encouraging people to save is a good thing: because saving makes people financially responsible. And when people become financially responsible they will look long and hard at the market before jumping in.

But it won't be just individuals doing the looking. Banks and mortgage companies will have to look at people's credit a bit more carefully too. Think about it: if I come in with $40K down on a $200K condo most banks will give me the rest. But if the market corrects and my condo drops to $160K--and in the ensuing recession (which often coincides with RE corrections) I lose my job--it may mean the bank is left holding a declining asset and a mortgage liability without insurance. They know this better than I do, so they may exercise significantly more caution in lending me the money initially. And if I don't qualify, then that means there is one less buyer.

I'm likely stretching my logic a bit too far. But overall, I think this is likely a good thing for returning some rationalism to an exuberant RE market. Of course, you can feel free to disagree with me in the comments.

From Away's

If you've ever been out East, no not TO east, but Halifax or St. John's, you know, the real East, you are likely familiar with the saying, From Aways. It's not derogatory or a put-down, it is simply a descriptor that local people use to describe someone who is not born in the Maritimes.

One of the biggest myths of the local RE market here is that our prices won't ever go down because all of these "from aways" keep coming here driving our prices up. I had the pleasure of having breakfast this morning with four quickly-retiring "from aways" that are here on a whirl-wind tour of the RE town looking at moving here, to get away from the harsh winter climes of Edmonton.

One couple was my aunt and uncle, the other couple are their friends. My aunt and uncle have been talking about moving here forever; like most people that come here, they want to stay, and because they have family here, one would think it would be an easy transition. Yet they talk about it at least twice a year and still do not come.

Their friends, who are far more serious and are the drivers of this short little "drive-by, look see" trip are serious. They have seen a massive increase of their own home market value in Edmonton in one-year. If you aren't following the RE market outside of Victoria, theirs is far hotter than ours ever has been or ever was. They see this year as their opportunity to realize a dream.

Then they came here. While they may be looking in the wrong areas of town, their dream of a character house with 3-4 bedrooms and 2-3 bathrooms on a tree-lined street with a nice Garry Oak in their backyard has grown a little lost. They've driven through Gordon Head, View Royal, Langford, James Bay and Fairfield. They've been through Uplands, Cordova Bay, Mt. Doug and Estevan. They've even looked out in Sooke, Cobble Hill and Shawnigan.

They came armed with MLS numbers and addresses. They have been let down by the experience of driving past a home that doesn't match the mental picture they created when dreaming online. They'll keep looking today and will return this fall to look some more. They want to come here by 2009.

I doubt their experience is unique. If they are having reservations now, before even looking at the math of purchasing a home, I wonder how they'd feel then? If the boomer generation is riding as large a gravy train as the 'experts' say they are, then no worries. But will a $300K mortgage on a $700K home, that may not be quite as nice as the one they had in Edmonton, really be that appealing for retiree's?

The Bare Land Strata

We're pretty sure everyone knows what a strata is. But how about a bare-land strata? Are you aware of the number of new developments in the CRD that are using this method of gaining permits? And it's not just in Langford.

Essentially a bare-land strata works just the same as any other strata corporation. There are individual assets (your home) and there are shared assets (streets, sewer, water, power lines and street lamps). Some bare-land strata corporations also own golf courses, marinas and other recreation facilities. Some are upscale and have amenities to attract luxury buyers, but a growing glut of these bare-land strata's are being developed and targeted to low-end buyer segments.

When the municipal council grants developers permits to put in communities (I define a community as places like Sun River Estates, Citation Village etc) the biggest concern for the municipality is the cost in servicing these new areas of town. The municipality wants to increase its tax base (largest taxpayers are local business, not residential) and wants to keep its costs under control. So how do they do this?

Enter the bare-land strata. The province created this 'corporation' some time ago. Municipalities are taking advantage of it to pass on the costs of what we would normally consider community services paid through property taxes onto the strata owners. Consider this: you buy a house in Citation Village for $400K. You're getting a brand new home, it's pretty nice, it's pretty big compared to what that money buys you elsewhere and the community is new. Lots are real small though, but that's less lawn to mow anyway so no big deal. You have to pay a strata fee of $85/month, but that's less than the average condo fee by almost half, so again, seems like a great deal.

Are you aware though that when the winds hit and the lampposts come down that it's the strata that pays? Or when the rains come and the inevitable potholes appear, again it's the strata that pays. Now these would be relatively minor costs for the strata corporation to bare, but what about ten years from now when the roads need to be re-paved completely? Normally, the city takes care of it. Not in your bare-land strata though. Instead, it's like a condo roof has to be replaced and the strata corp either saves up for it, or if the strata isn't run in a proactive manner (and it's easy for strata's to be managed in less-than proactive ways) the bill gets divided up and passed onto the homeowners. I'm not positive on the CRD cases, but I've read about bare-land strata's that are responsible for their own fire departments. I can't imagine that being the case here though.

You still pay the same rates of property taxes as your neighbours who aren't part of the bare-land strata.

I know that I'm not painting a very good picture of the situation. And I also know that I don't have all the information. So please feel free to chime in with your thoughts and corrections. Does anyone own one of these or know of someone who does?

We walked through a home in a bare-land strata about 1.5 months ago. It was nice and big. It had a suite downstairs and parking for one car. If you wanted more than one car you had to park in the common parking two blocks away. There was no on-street parking as the streets are too narrow. We were actually pretty impressed with the home. It needed some work to complete it, but we figured we could get that as part of the offer, or knock $15K off the price to get the work done ourselves. The risks of the strata scared us off though.

With more and more of these bare-land strata's being developed and municipal councils seeming to favour this style of development over others, it's safe to assume that first-time buyers like ourselves may have to go this route to get into a home. We'd love to hear your thoughts on this issue. Are we reading too much into it? Should we just accept this is a new reality in the RE market and budget accordingly? Or should these bare-land strata's be avoided at all costs?

Mid-Month Low-End Market Watch

We've put this off long enough. We've been extremely discouraged by what's happening in our end of the market over the past month or two; I couldn't bring myself to actually take the time to sit and tally the results. I won't do another detailed accounting today either, I just don't want the tears.

Our criteria for houses is under $425K with a suite or suite potential. These are total numbers of listings and sales since late January.

90 total listings
60 total sales
sales to listings = 66%
5 taken off market (1 twice?); 1 re-listed and removed again

3 most recent sales this week went over list. When we started looking, we were told it was the condo market that was hot and houses weren't moving as fast or prices moving up as quick. This hasn't been the case in our minds.

Our criteria for condos is 2 bed 1 (or more) baths under $250K. Again, total numbers since late January.

159 total listings
76 total sales
sales to listings = 48%
15 taken off market; 5 re-listed

Hasn't been a recent over-list sale for at least one-month. Many price reductions (guessing at least 10% of total listings have had price reductions).

Some questions:

1. Are people selling their condos and trading up into houses? If so, this may explain why there is much more action in the SFH market compared to condos.
2. The rise in listing numbers widely reported through VREB and over at Victoria's Truth has been mostly listings over $700K. Is this a relatively small section of the market? I can't imagine that most of Victoria's homes are worth that much?
   

We're no closer to understanding this market today than when we started tracking this stuff 3 months ago. T'is fun though...

Ask and you shall receive

A couple of days ago I asked:

What exactly is the difference between a mortgage broker, a mortgage planner and someone who sells proprietary mortgages in the role of financial advisor?

I'd been asking Melanie directly. She responds here. Out of respect for her time and efforts I won't simply cut and paste her response.

I conferred with the resident 'expert' in my household and she agrees with the definition of mortgage sales under financial advisor, though feels confident that she can satisfy 90% plus of potential clients with the products her employer has to offer.

What say you, the broader reading public? Do you buy from a bank or a broker?

Saturday Open Houses

Managed to get off work earlier than usual today and we had time to spend together, so we headed out into Fernwood, Cedarhill and Gordon Head/Mt. Doug to check out some open houses.

Fernwood Leaner: this is the second house we've walked through in this neighbourhood where we've felt like we were going to fall over. Nice yard, looked OK from the outside, inside not so much, no suite potential, needed "$50K or so" according to the realtor. No one else walking through with us, but as we arrived the mid-50s couple leaving said to each other, "lot's nice, how much to tear down and build a new one?" Considering they'd pay close to $375K for a below average lot I hope they don't bother.

CedarHill Flipper: this house was an obvious flipper job. No furniture in the place, scent of building materials/new paint, updated fixtures, appliances, door knobs, closet organizers. It was as though they read that TC article from three weeks ago and got to work. The quality of finish was cheap; new baseboards had nail holes filled but not sanded; no caulking so you could see the un-evenness of the walls. Basement was suited out (tiny suite 7 foot ceilings) but you'd need to spend at least another $5K to finish the tiny kitchen/laundry/entrance way (yes, the same room). When I see stuff like this--how much would it have taken to sand and paint the baseboard and run some caulk?--I can't help but wonder what else didn't get done right?

Much more activity in this place: people chatting in the kitchen with the realtor, several families walking through etc. But at $520K for 2100SF, which incidentally is $130K over assessment, will it sell quickly?

MT Tolmie FSBO: nice house, 1800SF, $500K, one bed "mortgage helper". Don't have anything bad to say, gorgeous really, nice owner, answered our questions, just well out of our price range. Couple people walked through while we there, quietly. Family of four adults outside talking when we arrived, still there when we left.

MT Tolmie Family Home: Another really nice house. Quiet. No one going through with us. Obviously well kept, updated but not recent (maybe last 3-4 years as opposed to last 6 months). No realtor present, just assistant. $575K though for 2000SF.

MT Tolmie Condo: above average condo, above average price at $315K. Not something we'd be interested in long term. Lot's of walk throughs, though no 'buzz'.

Gordon Head Flipper: signs were up all the way out on Shelbourne too, but nobody home. I'd call this a flipper home too for the same reasons as above: no furniture, obvious new work done especially to the outside, but the quality was definitely there. This could well be a house that was updated to sell by the previous owners but not a flipper house. No idea of the price. Guessing $625K plus.

Mt Doug Family Home: One of three for sale/sold on the street by a low fee realtor. Really nice house, backs onto Mt Doug Park. "Staged" well for an open house being conducted by the owner. Cookies baking, music on, lights on in the nice rooms, lights off in the rooms that need work. Somewhat steady traffic through, though again, no 'buzz'.

Some general thoughts: surprised that there weren't more open houses advertised today, but looks like Sunday is the preferred day for these. Not really surprised by the lack of 'buzz'; if the market is as hot as the pros would have us believe two things would be happening. First, there wouldn't be an open house. Second, if there were, it would be a feeding frenzy would it not? But then again, the salespeople weren't exhibiting 'hungry' behavior so the feeding has been good lately.

I'm guessing what we walked through was the high end prices for homes in these categories. We came out of this experience feeling indifferent: though we both looked at each other in the car on the way home and wondered why we didn't get in 5 years ago to get out now.

I don't think the average person is aware of just how much there is to choose from right now. If we can, we'll get out and do this again in the next 3-4 weeks to see if things are different. I'm guessing that come mid-late May, the open houses will have a different feel altogether--maybe even have the realtor there to 'sell' us on the place.

Open Thread

We've got a crazy schedule ahead for a day or two. This is your open thread, so anything goes.

Nope, no bubble, keep moving, nothing to see here

According to TD Bank Economist, Beata Caranci, the decline in housing starts in Canada shows that our bubble isn't a bubble because it won't pop, like the US bubble did. Nope, I guess when the air starts coming out slowly, you didn't have a bubble to begin with.

"Here in Canada, you know it's not a bubble because it's not burst," Caranci said. "The air is being let out of it slowly, whereas in the U.S., you actually heard the pop.

Let's compare some numbers: apparently a one fifth or 20% decline is an audible bursting of a bubble. But in Canada, where housing starts are down anywhere between 10% - 16%, this is called a slow bleeding of air, and good for the long-term health of the housing market.

Actual single starts in urban areas were 16.3 per cent lower than a year earlier, while actual urban multiple starts were down 5.3 per cent.

So what will all those high earning trades people go on to do if the number of projects is down? Will layoffs signal an emotional reaction in our markets? Will there even be layoffs?

Another expert, Carl Gomez, an economist with TD Economics in Toronto had this to say in May 2005:

"Canada's red-hot housing market is on a solid foundation because there is very little evidence of speculative activity,"

Haven't seen much speculating going in in Victoria, nope, not here, everyone wants to live here, it's a great place to invest because everyone from out east will pay a premium to be here.

Funny how Carl changed his tune, just two short months later:

TD Bank Financial Group says Vancouver and Victoria are the two Canadian cities at greatest risk of a potential housing bubble. The report by TD economist Carol Gomez says speculative buyers and investors are driving up prices in beyond justifiable levels in the two B.C. cities.

And that was 2005. Did it get better between then and now?

A Comment of Note; A Blogger of Note

We've loved this blogging thing for one primary reason: your comments. We got into this looking for info; we thought it valuable to record our journey; and we thought it extremely valuable to learn from other's experiences.

We just noticed this comment to a post from April 5th.

Melanie McLister said...
Hi All, Unfortunately there is a wee little inaccuracy here. The GMAC 107% mortgage does not give you 7% cash back. It provides 3% cash back. The other 4% is a lender fee. There is no extra CMHC insurance on this mortgage because it is self-insured by GMAC. (That's what the 4% is for)

The loan-to-value (LTV) of this mortgage is therefore 107% -- not 112% as the story suggests.You can read more about this mortgage here:
http://www.mortgageintelligence.ca/imortgages_i107.aspx

Or feel free to email me
at melanie@myvirtualmortgagebroker.com if you need more info.

Kind regards,

Melanie

I'd been ranting about so-called alternative mortgage products. Melanie corrected me, which I am happy she did. I don't always go digging too deep, shall we say, into what I read and write about. So I was wrong and I say so. And this is the greatest thing about blogging IMHO.

So to check out who Melanie is, I clicked on her link. It's obvious from her comment that she's involved in the mortgage business and is likely a broker. I'm pleasantly surprised that she's also a blogger and didn't simply link to her commercial site.

I don't mean this post to come across as a rant against mortgage brokers or the mortgage business. Like all businesses and the sales people that work in them, they are simply reacting to the demands of the marketplace.

Some bears might like to argue that brokers are driving the market in a certain skyward direction--and you can feel free to make that argument in the comments if you'd like--but this bear believes that the market is an emotional machine that sways back and forth between the pressures of the consumer and the pressures of the sales people. Information bias is everywhere, it definitely exists in the MSM, it definitely exists on Melanie's blog, and it most definitely exists on this blog.

Our point is simply this: we think that information, carefully analyzed based on its source, is good information. It gives us insight into the 'other side' and may prove to save us time, money or from a bad situation. One of us sells mortgages (no commissions involved) but the other one of us thinks that using a mortgage broker can be a good thing too. We'll happily let them compete for our business when the time comes. What say you?

Income: for what its worth

In our seemingly never ending quest to explain who is buying our overpriced houses here in Victoria, we give you this.

Some highlights (all numbers 2004):

"Total income” in this case includes income from employment, investment, government transfers, private pensions, registered retirement savings plans and other income. You know. Total.

Median total income of all people (working or not) in Canada: $24,400 or $12.20/hour

In 2004, you were in the top third of incomes if you made more than…are you ready? $35,000.

Only 19.8 percent of Canadians with an income made $50,000 or more in 2004.

Now, although a bit over 12 percent of individuals had incomes between $50,000 and $75,000, the atmosphere thins out pretty quickly above that. Only 7.6 percent of people had incomes of $75,000 or more in 2004. Only 3.4 percent made $100,000 or more. And by the time we get to the $150,000 or more category, we're down to just 1.3 percent of income recipients.

What about families you say? “Couple families” are couples (married or common-law, including same-sex couples) living at the same address, with or without children.

The median total income from all sources for all members of such families in 2004 was $64,800. Less than a quarter of such households had total incomes of $100,000 or more. And just over 8 percent had incomes of $150,000 or greater.

What does this all mean? Considering that it takes a household income of $134K to purchase an average home in Victoria at $521K with 25% down at 5% interest over 25 years, we're talking about less than 25% of Victorians can buy an average SFH. Think about that. Less than 25%, many of whom will already own. No wonder why there are so many condos being built and so many alternative mortgages being sold.

Saanich Going Green

As an Easter gift to builders, it appears as though Saanich has created an incentive for small builders to go 'green'. We applaud this, Saanich can afford it, and quite frankly, we can't see anything wrong with consuming less and producing less by-products. If it takes a bit of an incentive to get the ball rolling, then so be it.

That said, how do you feel about green homes? We can't imagine many people would have any issues with the idea of building more efficient houses, but costs could be a deterrent.

Should Saanich have created an incentive for consumers rather than builders? Are you more likely to buy a green home than one that hasn't been built to meet the same standards?

As first time buyers with a bit of an environmental conscience, we'd love to find something in our price range that fits the ticket. The likelihood of that is nil.

We've looked at the Dockside Green development seriously. We like the ideas and think the location and the amenities would be attractive. But we're not big on the prices, the condo lifestyle and couldn't see ourselves stretching into a townhouse there.

Politically speaking, we prefer incentives to regulations. So we think that providing incentives to builders rather than requiring them to build a certain way is a good thing. But we also think Saanich really missed the boat. Why not provide those rebates to the consumer directly: that way we can reno our house (if possible) to meet the standards? That's how the Federal rebate program works; Saanich could have added-on to make the whole thing really attractive to homeowners/buyers, and go beyond changing light bulbs, appliances and furnaces.

Will you buy green? Will you pay a premium to buy green? Will green be worth more in the RE market?

Mortgage Mania: how the bubble grows?

Interesting article on MSN today.

It's obvious that 'innovation' is necessary in the mortgage market place in order to finance "one-million dollar starter homes" in some of our cities.

So what does mortgage innovation look like? In 2003, Scotiabank launched its Free Down Payment Mortgage. The other banks quickly followed. But they weren't the first to do it. So-called alternative lenders like Calgary-based CanEquity Mortgage or Toronto's Xceed Mortgage Corp. have been offering no-money-down mortgages for some time.

As if that wasn't enough, car manufacturer GM had to get in on the deals and they now offer 107% mortgages: because it's always a good idea to leverage more than your property is worth.

"The Canadian cash back program can also be used by someone who already has a mortgage with a rate that is considerably higher than the current rate and is in a situation where it pays to break the mortgage and use the cash back to pay for the penalty costs," [Callum Ross, a Toronto mortgage broker] writes on his website.

I'm curious to know who would have those high rates, considering that rates were below 5% for at least 3 years before our current 6% figures kicked in in 2006?

So why would lenders take such risks? Apparently they're not. After all these aren't sub-prime offerings; you actually have to have really good credit ratings to qualify for what David Dodge of the Bank of Canada, in a written expression of dismay, called

products [that] contribute to inflation... and increase the risk of a housing bubble by excessively expanding the pool of potential buyers.

But more importantly, these 'alt-mortgages' get [clients] into the mortgage cycle earlier than they would otherwise and

Most importantly, such mortgages entail higher interest rates — typically one or two points above what you could negotiate on a conventional mortgage. And if you want to get out of the mortgage before the end of the term, you'll need to pay back at least some of the gift amount.

Sounds like a good deal to us. Where can we sign up? What's that you say? These 'innovations' have a catch?

The catch — and you just knew there had to be one — is, boy, will you pay down the road.

No sh$t, Sherlock. But that's OK, we live in the buy now do not pay for 18 months era of 'free money' and guilt-less purchasing. After all, if we spend more than we earn, we can just go and refinance our debts into our mortgages, can't we? No wait, we already owe more than our homes are worth and the market value was going up. What a great deal we got ourselves into.

with no equity in the home, you essentially start out in the hole by the amount of your closing costs... the mortgage has to be insured by the likes of CMHC or Genworth Financial... This insurance ups your cost, and the lower the down payment, the higher the insurance rate. With a no-money-down mortgage, you're looking at 3.5% or higher of the principal.

Wow. Think about that for a moment. You borrow 107% of the market value of your home. Then it costs you 1.5% in closing costs plus 3.5% or more in insurance, so now we're at over 112% of the value borrowed. I know, you could use that extra 7% to cover the closing costs if you are smart. BUT IF YOU WERE SMART YOU WOULDN'T BORROW LIKE THIS.

So there's a particularly good chance you wandered down to Chintz and Co to stock up on glam furnishings prior to hitting up the Mercedes dealership to finance that new C-class you've been eyeing for years, 'wrapping' it all into your mortgage which is a great idea in times of low interest and rising property values.

How can we assume these mortgages aren't smart? Don't take it from me; take it from the pros

No-money-down mortgages — along with long-amortization and interest-only varieties that keep your premiums low but keep you in debt longer — are much more pricey in the end, which is why they don't have many fans among financial advisers (emphasis mine)

Considering that most Canadians get their financial advice in their bank, and that in 2006 CIBC reported "that non-traditional mortgages are growing by 50% a year" I'd say this market's practices are gonna be OK...

"Over the next five to 10 years," [CIBC] noted, "innovation in the mortgage market will accelerate at a pace not seen before in Canada."

Flippin' This

I've tried to adhere to my self-imposed policy of not taking particular listings or agents to task on an individual basis. But I'm willing to make an exception in this case.

Since the beginning of February there have been 6 listings in one building in town-5 units, one listed, taken off, then re-listed to set the DOM at 0. Another beef of mine, but I'll leave that one alone.

Here's the building:




She's a beauty. I actually knew someone who lived here 15 years ago... still looks the same on the outside. And he loved the four flight exterior stairwell with the laundry basket and bags of groceries plus case of beer. But apparently the inside of some units have undergone a dramatic transformation making them sought after homes.

Here's your MLS links: 1, 2, 3, and 4.

Now I know the banks have been calling every homeowner in town offering great rates on HELOCs, but could it be that 5 unit holders in 60 days in one building bought into the plan... or is this the work of flippers? Just asking is all...

Some Thoughts...

After the shock of March Market Madness wore off the past 24 hours, I thought it prudent to start digging and see just how 'off' my internal predictions were.

As a bear, I wanted to believe that the market was correcting. Were there any real signs of this? Or was it purely wishful thinking?



This chart that compares actual sales to new listings, not total listings suggests that this market is experiencing a rising number of sales and a rising number of listings. The language in the market update would suggest that its a good time to be a buyer and a good time to be a seller; after all buyer-choice is rising while prices are going up too.

If we look at last year, we can see that May was the peak month for both sales and new listings. Can we assume the same for 2007? Beginning in September 2006, the market started to trend downward. Left-overs from the Spring/Summer selling frenzy were either coming off the market or sellers were taking less, leaving some of us to think that the upswing was over. February and March 2007 demonstrated otherwise. If you could afford not to sell your home, there was a good chance you could wait for top-dollar.

But what if you'd already bought and you'd lose your new home if you didn't sell your old one? There was a good chance that this factor is attributable to the slight decline in average prices over the last 6 months of 2006.

Yesterday in the TC, there was a 4-page RE market pump. I have to admit, it was some of the more balanced reporting on RE market conditions I've seen in a while.

Here's the headlines and some quotes:

Historic low rates expected to continue
"inflation isn't a big concern but a recession is possible" US FED
"The economy is weakening quite rapidly and could even be close to a recession as we speak" Nick Majendie, Chief Portfolio Manager, Canaccord Capital
"rates will fall a bit but could spike at any bad news" Aron Gampel, Deputy Chief Economist, Scotiabank

Boomer's Market
"interest rates are expected to drift moderately higher this year and next" Paul Ferley, Assistant Chief Economist, BMO
"there has recently been some dampening of housing demand, which could have an impact on construction and house prices" Paul Ferley, Assistant Chief Economist, BMO

Seems as though Paul is right, as CBC states: In the residential sector, permit values declined 17.8 per cent to $3.0 billion, the lowest since March 2005.

And now for some anecdotal evidence in the low-end segment: 8 new listings and 4 price changes and that's just the condos. We're seeing prices all over the map too. I would venture a guess that price compression isn't taking hold in the low-end condos. Two-bed, 1+ bath places, all in relatively similar neighbourhoods are seeing price fluctuations between $189K and $249K for product that is very similar.

Maybe the condo market will be the first to slip? As the VREB has already indicated.

April Fools Came Late?

Have to say that the only word that describes my feelings after reading this is shock. Is this a joke? I guess not.

Looking at our end of the market, I wouldn't have predicted this at all. We've been seeing very little activity, and numerous price changes downward. My only explanation for the increase in average and median prices is maybe this is the last push by the flippers to not get caught with their pants around their ankles.

It would make sense that anyone who has purchased and updated their properties in the past 12-18 months would likely get more. If there is increased product on the market and more competition between places, then the nicer ones should go first one can assume. Maybe that's what happened in March?

There were more listings and more sales. This is normal after the winter slowdown. VT says the first quarter score has the bulls running away with the game thus far. My bears are a third period team playing the wrong game on the wrong field apparently.

Maybe we'll rethink the whole rent and wait this one out... OK, that's just my shocked emotions talking, but seriously, my gut feels pretty sick about this one.

Here's a serious question that demands a serious answer (and I ask all the bears that read this to really take an analytical look at our bearishness): are we fooling ourselves? Could it be that our wishful thinking has deluded us into believing that the downward correction is coming a lot sooner than it is? I'm not saying there will be no correction, but it apparently isn't coming anytime soon. After all, September 2006 - January 2007 looked pretty flat, even showing some slight declines in certain price ranges/neighbourhoods; it would seem like that 'trend' died in February.

Monday News Hunt

Decided to 'waste' some time today searching through Canadian news sites for some RE market-related news.

First off, maybe this explains why prices are so sharply increasing in BC?

Not only do Vancouverites live in the world's third-best urban centre, but they also enjoy the highest overall quality of life in Canada.

Apparently Victoria wasn't on that list at all because I'd bet we'd have a pretty good argument for a better quality of life here.

According to the Canadian Real Estate Association, February 2007 set a new record high for average sales prices nationwide, led by Alberta and Saskatchewan at 34% and 17% respectively. BC experienced "modest" gains at 12% only 0.1% above Manitoba.

Want to live in BC? Be prepared to shell out an average of $413K for a SFH. Compare that to $126K for the equivalent property in PEI.

Now, I know, I know, you're all thinking this bear has gone and put on his bull horns. So I give you this:

At the end of 2006, an estimated one out of every eight subprime loans was in default.

It would seem as though mortgage companies who didn't follow the fundamentals are losing their shirts. Don't think it can happen in Canada? Sub-primes aren't available here anyway, are they? Considering that 1 of 8 = 12.5% and that Canada has only 5% of its available mortgages in sub-prime territory, I'd say we're not as likely to lose all of our sub-prime mortgage companies, just some. So keep putting your RRSP's into mortgage companies who 'guarantee' 14% returns... you'll be fine.

Xceed Mortgage Corp., a Toronto-based "non-traditional" mortgage lender, puts the default rate on Canadian subprime mortgages at 2.1 per cent — less than one-sixth the American rate. And to drive home the message of the comparative health of the alternative mortgage market in Canada, Xceed recently raised its corporate dividend and reported higher profits.

That's not to say all is safe in WinterWunderland, as this most important sentence states: "A drop in Canadian housing prices and increases in interest rates would pose problems for borrowers."

Given that only 84% of our trade is done with our friends and partners south of the border, we'll be okay despite the talk of looming recession. And this dandy from August 2006. And this one from March 2006. Of course, George doesn't know what he's talking about does he?

And US new home sales declined too. But if that isn't indicative enough that the market is tightening up, check out how REALTORS are going after the 'little guys' who invariably appear during the bull periods and disappear when the bears wake up.

And purely anecdotal evidence gathered at a dinner party last night: retired couple owns two houses up on Bear Mt. Bought one to live, other to flip, both for sale, neither sold, on and off the market for the past 4 months. But they say its OK, high-end is a difficult market to sell in. I'll give them that.

Meanwhile, their early-20s kids proffer stories of buying and flipping town homes "because that's all people want anymore" and getting rich quick. (One's a telemarketer and the other a 2nd year apprentice, so they've got plenty of experience to back up their claims). I'll tell you, it was a real test to keep my mouth shut last night.

Welcome to Spring in Victoria

It seems as though the political pressures of rising housing costs has gone straight to the CRD's movers and shakers in the political world.

A local mayor Kris Caustinian sent us a PM yesterday morning that word on the avenue is that the 'old folks are getting restless and they just won't plum take it no more'. At a rally for affordable housing Saturday morning, to mark the 150th anniversary of the first time real estate prices doubled in one year, many of the community's original inhabitants turned out in a major show of force.

It may have taken almost one-hour for the foursome to drive their four-wheeled electric scooters from the corner of Foul Bay to the Penny Farthing Pub, but the enthusiasm was described as "intense" by one on-looker.

"The way they're waving those Union Jacks and tooting those bugle-horns, you'd think it was VE Day all over again."

So what was all the hullabaloo about? We caught up with Jack, Jake, John and Frank in the front of the pub to find out.

"We just won't plum take it no more," they said collectively before Frank's voice box battery gave out. "We've seen year-over-year growth that has made our modest homes into castles. This isn't what we worked so hard for all those years for."

The "three J's and a F" (their gang's street name, apparently it gives them more 'cred') woke up on Assessment Day pissed that the local liquor shop was out of Pim's and they we're finally Paper Millionaires who couldn't celebrate.

"My grandfather didn't fight at Waterloo for this nonsense," stated John. "We didn't work so hard and contribute to the CPP and all those new-finagled social engineering projects like Unemployment Insurance so that you young folks could just stop having babies and start flipping our homesteads looking for an easy buck."

He had me there. How was I to retort? So I ordered another round of Black and Tan's to general groans from the table: "You stinking Irishman, St. Paddy's day has been and gone. It's bad enough you get one day a year dedicated to you lazy louts, couldn't you have ordered us a Boddingtons?"

I could only reply with an explanation that the bank wouldn't give me an extension on my HELOC this year and it's all I can afford. I quickly changed the subject back to their protest and asked what it was they we're looking for as a response.

"It's quite simple really," Jake said. "The bastards at the [city hall] have got to start listening to us. We're older and wiser than they; even if we do forget to put our teeth in on occasion. These prices are unsustainable. Your youth is supposed to be about making babies and teaching 'em to play footie."

"Yes, not about working two careers each, flipping houses on the side, and complaining about no social daycare services," droned Frank-he'd changed the battery by now.

We left that pub at 11am, thoroughly sloshed and in fine fetter, thinking how lucky we are to have the '3 J's and a F' fighting the good fight and sending the message of unsustainability to the local politicians behind the 'Tweed Curtain'. As we walked along singing God Save the Queen behind those scooters, I turned to my soon-to-be-wife and said, "Now we know why houses are so sought after in this part of town. And some call it sleepy?"

Happy April 1st everyone.