Saturday Open Houses

We went out a house hunting yesterday, more to check out the feel of the market than to actually look for a place. Which is a good thing because we didn't come across too many open houses.

The one that we did come across, at The Amana on North Dairy was good. For two reasons. First it was DEAD in there. And second, I was impressed by the place.

Let's deal with the first issue. When we go out to "buy" anything of value I always subscribe to the Bill Cosby as Dr. Huxtable school of thought on monetary purchases: Always hide the fact you have money. So I go looking like a shrub. Ms. HHV can make a track suit look good on her so it kind of defeats the purpose, but I look like a shrub none-the-less. Why do I do this? I want the salesperson to ignore me until I have a question and I want the price negotiation to seem like I'm stretching all my finances to get into the product. Has this been a good strategy for me? Who knows.

Anyway, the Realtor yesterday, incidentally selling a $400,000K condo, was over-joyed that we walked in his door. He was a good guy. Left us alone, answered our questions, didn't talk too much and asked us the questions he needed to for his marketing--where did you read about the place, the open house etc. I liked him enough that if I was in need of a Realtor to sell my place, I'd interview him.

But he made no attempts at qualifying us as buyers. No, what do you do questions or anything like that. No, who does your financing. It was almost as if two youngish people looking at a $400K place with no potential rental income was normal. And that I find very scary. But we were there 20 minutes of a 2-hour showing and no one else came or went.

The place was actually very nice. It was a 1-bed 2 full bathrooms with a loft master bedroom. So really it was 2-bed 2-bath. For its 1000SF it felt huge. Really high ceilings (14'+), nice layout, skylights, full size appliances including washer and dryer (not stacked). It even came with two parking stalls. It wasn't luxury, like they claim, as I don't consider melamine cabinetry, arborite counter tops and black appliances luxury, but that is irrelevant. Most places don't live up to their luxury billing anyway. So whatever.

It was a nice place. Somewhere we'd be happy and proud to call home. Somewhere where we could live for an extended period of time. But at $400K, which is only about $2500/month mortgage payments, that place would suck up fully 50% of our income to live in. No thanks.

The place was "staged" fairly well. As we were leaving, Realtor says, if you're thinking of making an offer, think about keeping the furniture that's in here, I'm fairly certain the developer doesn't want to move it out. I had a good laugh at that. And not jokingly stated, "Will you take $350 inclusive?" Silence. So we left.

Roger had an interesting comment earlier this week. If the market corrects, will it start with condos? That would seem to make sense to me in that there are more condos being built than houses. So if we are to get some build up of listings, then we should see price reductions there first. And in our experience we are. Tuscany, Richmond Gate, The Julia, The Amana, The Pearl on Hillside, all of these places are in neighbourhoods that we wouldn't mind living in.

But none of these are close to selling out. And the funny thing is it's the most expensive units that are still left. Those units have one target audience: the downsizing boomer. I don't believe the down-sizing boomer is a reality. Many boomers are moving up in the market. Drive up Bear Mt. How many people who don't fit the boomer generation do you know that can afford to buy those $800K monster homes?

The Songhees condos, and others like them around town, are being marketed heavily in Alberta and Ontario as vacation/retirement properties. We think the downsizing boomer isn't looking to live in any one particular town. They may buy a place here for use a few months of the year, but they will likely maintain a property in their "hometown" too. Who knows. But I don't see a condo on Quadra at Hillside as being a product that competes with a condo on Bear Mountain or the Songhees.

Unfortunately people my age do. They think that retirees from Gordon Head will sell their $550K houses and downsize into $250K condos. We think they're dreaming. And it will likely be a nightmare that wakes them up sooner than later.

As a complete anecdote, I spoke with my friend who lives in a great condo on Chatham and Government. I love that unit. She paid $200K 3 years ago. She was shocked to learn a similar unit just sold in her building for $230K. "Is that it?" she said, "I thought this market was supposed to be hot? Shouldn't it be closer to $300K by now? I would barely have made a dime by the time I pay the sales-related costs."

Open House/Open Thread

Gonna go see about 4-5 open houses this afternoon. Just to check the "feel" of the market.

Open thread for your comments/posts/suggestions etc

I love the smell of opportunity in the morning

I've been inspired to create a mountain out of a molehill. To turn lemons into lemonade. To take the sh&t that economic life has dished me, spread it on the ground and grow some freaking roses. And I want you bears to join me.

Imagine my surprise while watching movie and a makeover while sipping my coffee and reading my Post, when on comes a commercial I hadn't seen yet? It turns out that where there is misery, there is someone seeking to profit from it. Check it: webuyuglyhouses.com. This is a venture of HomeVestors which is an American organization that, well, profits from other's misfortune.

So enter the new venture of HHV (Ms. HHV wants nothing to do with this, apparently its a bit less than ethical, but I digress): webuyyourhousepurchasemistakesinvictoria.com. My Internet professors always cautioned me to not exceed two words in a URL address, but I didn't listen with this site and if you check the "How much this blog is worth" box on the right hand side of the page you'll see how good a choice my URL address was.

Anyway, back to the scent that has permeated throughout town this morning: Opportunity. No Wait. I know. The market hasn't fallen yet. YET. But when it does we need to be ready people. That means you need to meet me with your blank check in hand now. We'll put your name on the exclusive list of only ten investors (we don't want to dilute the profits here people) SMART enough to get ready for the coming auctions and fire-sales of distressed properties. When these $400K crack shacks are selling for $150K again, we need to be ready to pounce.

Check out that HomeVestors site. Actually they have three sites: webuyuglyhouses.com, uginvests.com, and wesellluvlyhouses.com. How an uginvest in an uglyhouse can turn into luvly I'm not yet sure, but rest your pretty little minds, I will find a way! and you don't want to miss out on this once in a lifetime opportunity, I need to say that again, ONCE IN A LIFETIME OPPORTUNITY. The RE market isn't cyclical folks. The opportunities that over-leveraged boomers buying big monster homes on Bear Mountains around town won't repeat itself like it did in 1982 and 1995. This time things truly are different.

Do yourself a favour, get in on this ONCE IN A LIFETIME OPPORTUNITY to PROFIT from other peoples mistakes. After all, we need to teach people a lesson. We'd be like educators. Except we actually profit from teaching. And we'd be doing our part to make sure that the RE cycle never repeats itself again.

It's a made in Canada problem! Y2ThisTimeIt'sDifferent

In case you've been under a rock today, the credit crunch has hit home in a big way.

Good thing the federal government reports an incredible $14.2 Billion surplus, because they're going to need it to bail out NavCan and CMHC who carry their fair share of ABCP exposure.

So what's to blame? It seems unlike our American cousins who just lent money to anything with a pulse, we in Canada just lent willy-nilly to any business with a pulse with our LAX REGULATORY REGIME. What does this mean?

It won't be just individuals who lose their shirts and homes, it will be businesses and their employees who lose their shirts, cars and homes. On what sort of scale remains to be seen.

The National Post has this account:

"It's a made-in-Canada problem," said Claude Lamoureux, head of Ontario Teachers' Pension Plan. Many people in the market "didn't know or didn't ask questions" because they were making more profits than elsewhere, he added.

In Canada, the market grew more quickly than in other countries, doubling between 2000 and 2007 to $120-billion, because the Canadian definition of disruption to the market was much narrower than elsewhere.

Mr. Smith calculated that Canada's big six banks are on the hook for total liquidity facilities worth $135-billion.

$135 Billion is about ten year's worth of profit for the big six, combined. Wow.

The more I read, the more I realize just how big and unstable this deck of cards is. All it's going to take is someone to get a bit jumpy, stop cooperating with their counterparts in other organizations, cut losses and run for this thing to get ugly real fast.

With all the recent talk of the Conservatives engineering their own defeat around the Throne Speech and heading into a fall election makes me believe they know this is going to get ugly real fast and they don't want to go down with the ship they didn't build.

You have to watch

Check out Mohican's post from today. Watch the YouTube. Can this happen here?

The single income household in Victoria is officially dead

According to Stats Canada only five percent, yes 5%, of Canadians earn $89,000 per year or more.

And according to CBC that makes you a part of a club. What does all this mean? Not much. After all, unless you're in the club, you're not in the know, so really, don't lose any sleep over this one. After all the death of the single income household happened sometime in the first half of the 21st century in Victoria. Right about the same time that housing prices for SFH crept, or leaped if you're hearing this from a Realtor, above the $400,000 mark.

The country's 1.2 million high-income earners — those among the top five per cent — were predominantly male (75 per cent), aged 45 to 64 (54 per cent) and married (78 per cent), Statistics Canada said.

Almost half (46 per cent) of the top five per cent of tax filers lived in Ontario. About 18 per cent are in Quebec, followed by Alberta (15 per cent) and British Columbia (13 per cent).

I guess this adds fuel to the argument that rich Albertans and Ontarians--everyone knows Quebecers don't want to come here ;-)--are driving up our real estate prices. Next thing you know, Realtors will be blaming "those men" and saying that as long as they keep making men and not land, prices will continue to rise. (That sound you just heard was Ms. HHV slapping me).

$400,000K really is a magic mark. Let's say that the (generous) average household income is roughly $75K/year in Victoria right now. And that "average" household has $100,000 or 25% down payment saved up or equity in the condo they bought 4 years ago. That means they can "trade up" into an average SFH house priced at $400,000K, amortized over 25 years at 6% interest and still fall into the 30% of gross income figure that CMHC requires for mortgage insurance.

That $400K is this Bear's target for a downturn. I won't hold my breath, but that's the mark of sanity in my mind folks. And that number represents a 32% correction from August's prices. That's a big drop, but won't be breaking new ground in the land of modern real estate corrections. And to be buying in that kind of environment may prove to be more exclusive than the so-called 5% income club. And I won't be losing any sleep over that purchase.

Don't forget to keep posting in the What's happening on the Victoria RE market thread.

Rev. Al Tysick For Mayor!

OK. Well maybe not mayor, but he puts forth a compelling argument. Or at least a rebuttal. Or at least a bit more of the same old, same old? And in my quest to be fair and balanced, I shall post it in response to Geoff Young's piece in the TC. (also from the TC).

Walking around downtown can be a scary experience -- particularly if you do not have a home and you are wondering where to lay your head and how to heal your broken body.

Fortunately the Greater Victoria Chamber of Commerce has decided to do something about homelessness and the city's downtrodden, something to improve the lives of our neighbours who are homeless, make the downtown more pleasant for everyone and save taxpayers $9.5 million annually.

As Bruce Carter, chamber CEO, argues in a recent news release, "Our lower levels of government continue to struggle with limited funding to deal with the problem, and in the meantime, the doorsteps of business are becoming the homes for an increasing number of people in need. It is unacceptable to continue the status quo approach because it's getting us nowhere."

The Homeless Needs Survey, which was conducted last spring, found that there were at least 1,242 people in the capital region who were homeless or unstably housed, that is, who could become homeless at any time.

Contrary to the myth that Canada's poor are flocking to Victoria, most of these unlucky people are from our hometown and just can't afford a place to stay or need some help to maintain housing.

According to the survey, three-quarters of people surviving without a home were previously housed in the capital region. A further 16 per cent were from elsewhere in B.C., mostly from Duncan and Vancouver. About 20 per cent of the people at the Streetlink emergency shelter have regular jobs but no homes.

Some people think we are wasting money when we help our most needy neighbours.

In fact the opposite is true. According to B.C. government research, it costs $12,000 more a year to keep someone on the street than to provide them with a modest home and some support. Multiply that by the number of people who are absolutely homeless in the capital region -- at least 791 individuals -- and you get a staggering $9.5 million wasted every year to allow people to be homeless.

Hard to believe? Consider the hidden costs of homelessness. During the Homeless Needs Survey we learned that 33 per cent of those surveyed had used a hospital emergency room in the previous three months and that nine per cent had stayed in a hospital bed in the previous month. In the general population, only 12 per cent access emergency room services each year.

Hospital beds are very expensive, running about $1,000 or more per night. Providing supported housing, a place where one can recover, gain health and better connect with society, costs about the same for an entire month.

When you factor in the costs associated with health care, the justice system, social services and business losses, you don't have to be an economist or a rocket scientist to realize that doing the right thing is also the most economical choice for our community.

Together we are working on only a few, small initiatives to make a difference. Tragically we are not doing enough and the results are plain for everyone to see.

It isn't "new services" encouraging homelessness but the high cost of housing and the challenges of maintaining housing if you are mentally ill, head injured or battling a debilitating disease such as an addiction or disability.

We need more action and less blaming. It's time to move forward to end homelessness in the Capital Regional District and make our community everything we want and need it to be for everyone living in our beautiful, generous Garden City.

Rev. Al Tysick is chairman of the Downtown Service Providers Committee, whose 21 members meet monthly to share ideas and strategize around solutions to Victoria's social issues.

Read his first line again "walking downtown can be a scary experience." No sh&t you say. I love how he qualifies it though. I actually agree with what he has to say. I too think it's time for our downtown community to be "everything we want and need it to be for everyone in our beautiful, generous Garden City."

So that means I shouldn't be scared when I walk downtown by aggressive panhandling. I expect you, Rev Al, to support my petition to ban panhandling like we banned smoking, like, almost everywhere. In my petition the only place where panhandlers can ply their trade will be in front of Streetlink and Our Place. (OK that reads a little harsh. I support the good work that the good Reverend does and mean no slight, I'm just feeling a bit miffed that while he dismisses Geoff's statements he offers little in the way of alternative suggestions.)

I also want to highlight the statement by Bruce Carter: "It is unacceptable to continue the status quo approach because it's getting us nowhere." The status quo is getting us nowhere and Rev Al your whole letter is about maintaining the status quo which is "We need more action and less blaming. It's time to move forward to end homelessness in the Capital Regional District..." Are you suggesting we build supported subsidized housing in the second most expensive city in Canada? Because that makes very little sense for EVERYONE involved.

Why not suggest that we create a plan that provides supported, subsidized housing in say, Sayward, or Port Alberni or any number of struggling towns on the Island or in the interior that would welcome both the jobs and building that will help their local economies while providing tax-conscious service delivery for the province (read lower priced housing options for both the people living in the housing and those who will have to work for the relatively low-wages those jobs pay)? It would also remove some addicts and other "ill" people from the major source of their "chronic conditions."

Link to open thread on Victoria Real Estate Happenings (please keep posting your anecdotes).

What is happening on the Victoria Real Estate Market?

An open thread for you to post your anecdotes. Anyone with PCS? What do you see happening?

We're seeing home prices starting to decline a bit. Our PCS only shows houses with suites or suite potential up to $425,000. We've seen perhaps five or six price reductions over the last week from above that number, and often well above that number, coming into our segment: i.e. original asking $449K new price $424,900 etc. The pace of sales is off slightly too.

On the condo side of things we still see dumpy condos in dumpy neighbourhoods asking way too much. No real significant price reductions, but no significant price increases either. The stuff is still selling though, I'm guessing there is roughly 3.0-3.5 months inventory.

Over to your insights. H/T to Roger for the post idea.

Taxation and Real Estate

Just watched Carol Taylor talking about the budget consultations that are happening around the province. Interesting question about the property transfer tax.

A while back Ms. HHV unfortunately owned a property she never lived in. We now no longer qualify for the property transfer tax exemption. That tax is fairly unique in BC. It doesn't exist in Alberta.

It works like this: you sell your home and buy a new one. The buyer pays the transfer tax. The tax is 1% on the first $200,000 and then 2% on the rest. What does that look like for us?

Condo max purchase would be around $225K = $2500 in property transfer tax. Lot of money sure. But is it going to keep us out of the market? Not likely.

House max purchase would be around $425K = $6500 in property transfer tax. Lot of money, more than our car is worth. Is it going to keep us from buying? No.

The tax goes to the province. It's worth about $1 billion per year in revenue. The province is running a surplus right now. Should we get rid of the tax and try to make housing a bit more affordable? ABSOLUTELY NOT.

I'm not a fan of lowering consumption taxes. Why? Because usually what happens, especially on big ticket items, is that the tax discount just gets priced into the actual product offering.

Say the province drops the tax. You go to a Realtor to list your house. She says to you, great timing, they just dropped the transfer tax, now is a great time to take advantage of some new buyers in the pool. Price the discount in: you were going to list for $425K, list it for $435K and see what happens.

If they want to lower taxes, they should pick areas of the economy that need incentive, like education, research and technological innovation. Education, to me, is an investment. If you can write off the interest on a loan for your RRSP or non-registered investments, why can you only write down 17% of the interest you pay on a student loan? Seems to me that would be better tax policy than giving home sellers more on their end of the real estate transaction. It would also have positive impact on the budget long-term, not negative.

I believe we are over taxed. But I also believe we need to support certain fundamental government-only businesses like health care and education. We can allow some privatization in these spheres; we can also allow some value-added, paid in cash options. But unlike the real estate market, I believe our society should guarantee that no one ever finds themselves priced out forever when it comes to medical care and education.

Friday Night Lights

I'm like a teenage football player in Texas right now: jacked up, trash talking and looking for a target for this linebacker. Ah, there he is.

Apparently, some don't believe that inflation should be the primary concern of the central banking system.

The Canadian Labour Congress has added its voice to those calling for the Bank of Canada to match the interest rate cut made earlier this week in the U.S.

CLC president Ken Georgetti said the role of Canada's central bank isn't confined to fighting inflation.

National Bank Financial issued a call for a trim, noting that the loonie has gained 16 per cent against the U.S. buck this year and 5.5 per cent in just a month.

"In our opinion, the [Bank of Canada] should release some pressure and lower rates on Oct. 16."

Let me say two things: the bank's role isn't confined to inflation fighting; and the bank's role doesn't include bailing out corporations that have uncompetitive workforces. That statement is only one of the two things I have to say. The other is this: lower rates will not have the effect of "releasing pressure." The banks artificially low interest rates are partly responsible for why we are where we are today. Do the right thing Dodge and fix this mess.

Inflation is, was and has been much higher than the BoC reports through the CPI. Don't take my word for it. Take Paul's.

Yes, we are shortchanged

The latest inflation numbers have been released by the U.S. Commerce Department and the annual level of consumer price inflation was 1.9 per cent.

Canadian statistics are essentially the same. Astonishingly, the media rhymes off these numbers as if they are legitimate.

Don’t these reporters buy food and gasoline, pay assorted taxes and such?

In the early 1990s, the U.S. government realized it had a problem with rising entitlement costs for government social and pension programs.

These payments were indexed to the annual inflation rate. With inflation on the rise, it meant these costs would drive government deficits into uncharted territory. To keep government deficits under control it would be necessary to bring entitlement costs down. Hence, it was necessary to bring inflation down.
The solution: change the way inflation is measured.

A federal commission was appointed to change and re-calculate the Consumer Price Index. Several tricks managed to reduce these increases.

Substitution: if a particular item became too expensive, substitute a cheaper alternative — remove steak, add hamburger.

Hedonics: adjust the prices of goods as a result of the increased innovation and pleasure a consumer derives from a product. Benefits of a new plasma television would reduce the price of a basic tube TV by say, half. It drives down the index but if one wanted a new TV, one must still pay the going rate of the new standard plasma.

Seasonal adjustments, the core rate and other deceptions, spin a tall tale.

With true inflation running closer to 10 per cent, is your income keeping up? On a fixed income, relying on the CPP? Preserving capital in money market funds? A three per cent return means a loss of 6-7 percent a year.

At the lower end of the wage scale, if you earned $10/hour last year, it’s close to $9 this year and heading to $8 the next.

Meantime, MLAs are getting for a net a pay raise of 29 per cent and the premier a 53 per cent increase.

If you’re feeling a little shortchanged, it’s because you are.

Paul Stuart
Parksville

Listen to the union bosses and drop the interest rates Dodge. Devalue the currency so manufacturing jobs can be saved and those unfortunate souls who should retrain with the ample EI dollars available to them to do so don't have to. Who cares about the rest of us? As for the working poor, we should follow the same left-wing "economic" thinking and just give everyone on minimum wage a raise. (SARCASM INTENDED)

I've got a novel idea. Let's raise rates. Let's tighten lending rules. Let's pay off some debt. Let's save some money. Let's invest in sectors that can provide long-term jobs that don't require a cheap currency. Let's, I don't know, take some freakin' financial responsibility people.

Confusion

I really want to comment on the dollar's value and how it will impact the local real estate market. I'd like to say that with our dollar worth so much the foreign buyers--largely assumed to be the one's driving prices upwards ;-)--are being slowly priced out forever. But I can't with any confidence.

I'd like to say that I agree with the JP Morgan analyst who says that the parity-thingy is the same as a 4.4% interest rate hike on our economy. But I don't. Rather I agree with the TD Economist that says that parity is only making inflation worse than it already is, which is already not being dealt with.

I'm really confused. I'm thinking if I had a clearer memory of 1981 (I was 6) I'd be feeling the same confusion my dad was feeling as he lost the liquid part of his business to inflation and unpaid accounts receivable. Why is this happening? Isn't someone in control?

This man has made me a lot of money in the past 2 years. I listen to what he says. But even he won't say how this will impact the economy, let alone real estate.

So the only real piece of information about local real estate that tells me how things aren't always as "torrid" as some claim them to be: Tuscany Village is still just over 50% sold. Which means they haven't sold much since I was last there, 2 MONTHS AGO, when they were still just over 50% sold.

Geoff Young For Mayor!

We've found our new Mayor. Someone email him and convince him to run.

From the TC today:

Services for street people grow, but so do problems
By Geoff Young

I have lived and worked in the city of Victoria for 30 years. My wife and I have chosen to raise our family in the city and to send our children to public schools here. The impact of what is happening in our downtown -- open drug use, infected needles, panhandling and urban camping -- is very real to us and I am as frustrated as many others that nothing we try seems to help.

More and more services are being offered to support the homeless and mentally ill -- shelter beds, hot meals, drop-in centres. Yet the problem grows. We can blame other levels of government, but perhaps it is time to look at what we as a city are doing. By trying to bring care and comfort to the less fortunate are we in fact enabling and attracting the very behaviours we are trying to change?

As an economist I know that incentives are powerful in shaping people's behaviour. Should we ask whether the unconditional food and shelter and support we offer, combined with our warm weather, might be drawing the vulnerable here? Are we sometimes doing too much, rather than too little?

Of course it is difficult to enforce laws against drug use, aggressive panhandling and street camping when there is no adequate treatment for mental illness or addiction and no solution to poverty. When we see people in distress it is a natural reaction to try and help.

But will enough resources ever be made available as long as we paper over problems by providing unconditional day-to-day maintenance and services, "warehousing" those with true needs in the parks, streets, squares, back alleys and church halls of the city? Are we simply reducing the pressure for the provincial government to accept its health-care, treatment and housing responsibilities?

Are we also allowing the federal government to postpone writing realistic and publicly supported drug laws? We have given up enforcing drug-possession laws downtown (neither the needle exchange nor the proposed safe injection site could exist if we did). As a result I have watched an addict injecting herself on the same steps of a downtown office building where she would be fined for smoking a cigarette. We accept that laws restricting smoking can work to change behaviour -- why are unwilling to restrict use of drugs that may be much more harmful?

And every needle drug user must find hundreds of dollars a day. It is a mathematical certainty that much of that comes from panhandling and petty crime. As a result, the social problems and growing dangers of our downtown are beginning to dominate how visitors view our city, whether they are tourists from Toronto or shoppers from Central Saanich.

As businesses and shoppers leave the downtown fewer of us are left to carry these social burdens, and our political influence diminishes. Suburban voters can avoid exposure to unpleasant reality by shopping in new malls that re-create the urban experience on private land. No one disputes that the problems of the downtown are complex, or that the upper levels of government bear much of the responsibility for conditions that appear in other cities too.

But the downtown is troubled and the trouble is spreading. Simply blaming others or letting the "experts" tell us to do more of what clearly has not been working is no solution. We must at least debate the question of whether the policies that we advocate as a city council and the way we spend our money are helping or hurting all of us.

Geoff Young is a Victoria city councillor.

This is exactly what I want a city councillor to be saying in these very difficult and paralyzed times.

On a completely different topic, someone tell me why the TSX climbs 200 points on a day when the US Fed embarks on the same stupid policy that got us into this mess in the first place? Look out, come October, the BoC will be raising rates. I won't be surprised to see a 50 basis point (0.5%) hike.

The winds of change: Y2ThisTimeIt'sDifferent

To say that there have been a lot of warning stories in the MSM this week would not, I repeat, NOT be an understatement. Here's an interesting one, thanks to Roger.

Of course, the highlights:

Tighter lending conditions around Canada's small but expanding subprime mortgage market could splash some cold water on Canada's housing sector in the months ahead.

Many of the mortgages... offered were to segments of the population, such as the self-employed and immigrants, that have been key drivers lately in the real estate market.

"If banks start holding back credit because they get nervous and ... credit-worthy borrowers can't access loans to make purchases, that could slow the economy,"

several subprime lenders are battening the hatches. Xceed raised its mortgage rates by 100 basis points in the past three weeks and Money Connect has also raised its mortgage rates. Money Connect CEO Maurice Forget said they've also withdrawn one type of product from the market aimed at self-employed people.

What could possibly be driving these mortgage lenders to change their products up here in Canada? After all, CMHC guarantees these types of loans against losses, don't they? That's what we hear up here whenever someone tells us we won't be like the US. You can read here for a little insight into the underlying trouble that will in fact spread northward, just as hit has hammered RE markets in Europe.

Meanwhile, there was more fallout from credit market turmoil. Investors hammered shares of Xceed Mortgage Corp. after the alternative mortgage lender suspended its dividend and warned that market upheaval could hurt its profitability for the rest of this year.

"At this time, we have no way of knowing how long the current market conditions will last," said Xceed chief executive Ivan Wahl. "For the duration of this period, it is going to be a difficult and challenging time for our industry, Xceed, and our investors."

On Aug. 13, Coventree disclosed it was having trouble rolling over its commercial paper while some lenders balked at its call for emergency funds.

Up here in Canada, where subprime lending is roughly an "expanding" 5% of the mortgage business, where it is expected that subprime should have no impact on the market whatsoever, it has suddenly become in vogue to blame subprime lending for the looming RE correction. But when you get someone saying that it is in fact subprime lending that has been a key driver in current market conditions, you kind of have to scratch your head a little.

What really got me though was that they're predicting that because of ABCPs now being worth less than the paper they occupy, credit-worthy borrowers won't get mortgages. I guess I'd better buy now before I'm kept out of the loans forever, then right :) ?

Think about how big a correction will be coming if subprime borrowers can't get mortgages and credit-worthy borrowers can't too. Only people with cash can buy. If this is true, and this happens, whoa is the homeowner who has to sell.

A little fun poll:

Where did Victoria go?

Report on Business has a good article about growth, trends, real estate etc. It closes with a ranking of Hot and Not cities in terms of GDP. I'm assuming Victoria falls somewhere between the Hot and the Not. Maybe that's a good thing?

HOT

Saskatoon 4.7%

Calgary 4.4%

Winnipeg 3.7%

Edmonton 3.6%

Regina 3.5%

NOT

Vancouver 2.9%

Toronto 2.7%

Quebec City 2.6%

Halifax 2.5%

Ottawa-Gatineau 2.3%

Montreal 2.1%

Hamilton 1.3%

They point out that Victoria is currently 10% above the historical RE inflation trend line. I'd thought it much higher, closer to 15%. I can't find the data I thought I'd read (maybe I'm imagining things again?). Anyone in the know, please chime in.

Why are prairie towns so hot right now? Is it because of oil? Considering that Winnipeg stands 3rd on the list I'd say no. I'm willing to venture a guess that goes something like this: incomes are pretty close across the country, within $10K or so in the same jobs in different cities; young people wanting to buy a home and raise a family look where they can get the best bang for their buck; families add to a city's growth, they get jobs, pay taxes, buy cars and furniture and start businesses too; retirees do add to a city's bottom line, but nowhere near the same scale because they pay less tax, buy less, and don't usually start businesses. Of course, the best option and most sustainable would be a healthy mix of both.

Just a wee bit of irony in this one

I'm surprised no one's mentioned this in any significant way. First, thankfully no one is hurt. From the looks of this photo, it can only be described as a miracle that no one was even scratched.

Now some questions.

I've heard that with the pace of new construction and the considerable demand for tradespeople that hiring standards have been relaxed and in some cases the ratio of journeymen to apprentices to labourers is ridiculously in favour of labourers. Not saying this had anything to do with the "Fall" of the--can we call it a wall?--at The Falls, just asking is all?

I've noticed in the house hunt that quality is pretty shoddy in some new "luxury" condos we've toured, and often wondered if the quality is shoddy in what we can see, imagine what it's like on the bits we can't. Like the structural stuff.

The Falls accident isn't the first major construction mishap I've heard of this year. I know that a clay wall came down in The Juliet when they were prepping for pouring the foundation and walls for the underground parking.

I'd be concerned if I owned a unit in one of these two places. Can I get my deposit back now that this has happened?

The past few years of crazy prices and even crazier pre-sales has me worried. Are we in for another condo crisis? This one caused not by rain screen technology but by poor quality building due to labour shortages and build 'em as quick as you can mentality?

Balanced Reporting

I've been saving this one for a couple of days. After the National Post article, Disgusted in Victoria, Victoria's mayor ALowe felt he needed to say some words in his, and the city's, defense--likely in that order too. He claims the author of Disgusted is not balanced in his reporting. Because I posted the whole article before, in an attempt to be balanced I'll give ALowe his fair shake of things.

Victoria's Mayor Responds
Re: Disgusted In Victoria, Brian Hutchinson, Sept. 1.

When I agreed to speak with Mr. Hutchinson regarding the state of Victoria's downtown I did so with the intent of providing a frank and forthright assessment of the challenges we are facing in our urban core. In exchange, I expected a balanced reporting of the problems, and solutions we are working to advance. Sadly, and perhaps not surprisingly, sensationalism triumphed once again over thoughtful and comprehensive journalism. In particular, I challenge Mr. Hutchinson's negative and one-sided characterization of our community without any reference to our consistent ranking as one of the top international travel destinations. I continue to receive feedback from many visitors who feel Victoria is a safe and beautiful city to visit.

We have never denied that our city, like so many other urban centres across the country, is confronted with the street-level impacts of escalating addiction and homelessness. And in many cases, undiagnosed and/or untreated mental illness is creating a more complex set of social and health challenges whose consequences are becoming more visible and more acute every day. These street-level impacts are not acceptable to me or to our citizens.

What does distinguish Victoria is our genuine commitment to finding a new and better way to assist these individuals:We are eagerly awaiting the recommendations from an expert panel of medical practitioners and researchers, chaired by our provincial health officer, Dr. Perry Kendall. The panel's recommendations will lead, I hope, to a new integrated model of service delivery that will represent a substantial shift in the way we respond to social and health challenges.

People must have access to stable housing, detox, treatment, health and social services if we want to end the downward spiral. Cities must be assisted in this endeavour by other levels of government who ultimately determine funding levels and service priorities. It is shameful that our streets have become the de facto institutions for the homeless, addicted and/or mentally ill.

Alan Lowe, mayor, city of Victoria.

ALowe accuses Hutchinson and the NP of sensationalism. In defense of the city, ALowe says we are consistently high-ranked as a travel destination. Wow. Thanks ALowe. Why don't you just say we consistently have over-priced RE, so that means everyone wants to be here, don't you know? ALowe "continue[s] to receive feedback from many visitors who feel Victoria is a safe and beautiful city to visit;" but notice how he doesn't mention any specifics?

ALowe could have said CondeNast Traveler Magazine, or any one of a myriad travel publications. He could have tossed some celebrity names around. But. He. Didn't. Guess what? Hutchinson did toss in some names. And big ones. Like the Auditor General. Or mention of the well known fact that this city has had big name companies cancel conferences here because of the street issue.

Hutchinson did write a balanced article. The problem in ALowe's eyes was that it was too honest. Hutchinson did editorialize on the issue for certain. But you see, he's not a bleeding heart, so therefore in direct opposition to ALowe's plans to study this issue ad naseum and at great cost to the taxpayer and still do nothing (think sewage treatment) until the provincial and the federal governments legislate action (again think sewage treatment) and commit equal money.

I won't get too political on you. Really my thoughts on this issue are irrelevant. But I will say this: for any city official, from the mayor to the city manager, to say that this city just doesn't have enough funds for extra policing and more support services (remember they wouldn't license the church basement ones) is absolutely freaking ludicrous. Property taxes have risen, both because there have been rate increases and because property values have skyrocketed. This city is swimming in cash. If they're not, then someone somewhere needs to be asked why and held to account.

Tuesday News Hunt

Not too much, if any, commentary today... but here's a bunch of links for you to discuss, or not.

Markets, dollar go up on a day when our southern neighbours feel more pain

TD says "Get ready for some rockin' and rollin'"

New homes get more expensive, more slowly (see post below for some insights into what this may mean near-term)

When in doubt, follow the smart money

I'm really waiting to see this headline read CANADA

"In fact, there were excesses going on. The market was taking risks that I think were not adequately being rewarded." Not here though, not this time, haven't you heard, "This time it's different"

Market Cycles

A regular reader sent me a fantastic article from the early 1990s written by economist Patrick Foley of Lloyd's Bank of London. The article, A market like no other is unavailable online these days, and out of respect for its source, I won't post it here, for reasons of identification. But I'll give you a synopsis of his arguments for your debate/commentary.

Foley's argument is based on the RE market in England back in 1990. At that time, prices were stable, but sales were stagnant. How can this be? As Foley suggests should be the case "the seller would simply reduce the price until buyers were attracted." The RE market is different though, "many sellers would prefer to take their house off the market rather than lower the price."

Maybe we bears should pay closer attention to the number of expired listings happening lately? If we see more listings removed prior to sale, then we know what is happening is similar to what Foley describes. What about the other's though, the ones who must sell? Foley says those indicate the next shift in the cycle.

When that happens, we see a reduction in prices. Who are forced to sell? There are plenty of reasons why someone might be forced to sell, but perhaps the first indicator would be broad reductions in new home prices, especially in completed condo developments with unsold units.

The first sign we'll see is a reduced number of sales. And the number we need to focus on is year-over-year sales, not month-to-month because the market is so seasonal. When the number of sales is reduced, so is the corresponding sales prices, so we must be careful that the weakness in the market isn't over-stated--the same factor exists on the upside, and we see it every time a high priced home sells in Victoria.

What part of the cycle is Victoria in according to Foley? Foley says prices are slower to react. In fact, when volume falls, sometimes prices spike before they begin a decline. But we witness a sharp decline in price inflation. (Considering that inflation is roughly half of what it's been over the past 2-3 years, I'd bet we fit somewhere in this part of the cycle).

What has been the trigger for cycles to end according to Foley? "...the end of the boom for all three of the most recent cycles coincides with a tightening of macroeconomic policy by the government of the day."

Foley's study period had governments raising rates due to exchange rate weakness, rather than domestic demand. Today we see the opposite: the BoC is concerned about domestic inflation, not exchange rate weakness. Foley felt that the previous economic policy would contribute to a deeper than normal trough.

Today's situation is not so black and white. In the US, it's expected that the Fed will reduce rates due to weak economic fundamentals, while their currency takes a hammering on the world market. But in Canada, it's expected that the BoC will have to reign in inflation and potentially drive the $CDN to parity. Both of these could have considerable economic constraining effects.

Based on Foley's example, it isn't clear where this Victoria market sits.

Differing Opinions

I've gotten way more than my $2 worth out of the National Post this weekend. Two commentary pieces caught my eye, or rather, contradictions within themselves and each other caught my eye.

The first, entitled What subprime crisis? reminded me that I'm pretty much sub-primed out. It's almost as if the sub-prime debts have become the big bad wolf that economists and people who write about the markets can just refer to and expect us all to just get it--though apparently few do--without question. It's as if they can't explain their point using rational, reasoned, time-tested economic theory, so they just cry "wolf."

In a completely different section, and an obscure location as if editors either expected no one to read, or wanted no one to read, Our housing bubble may be the next to pop seems to have a more credible author (economics professor) and an easier sell in hhv-land.

Here are the highlights:

What subprime crisis?

Subprime does not mean the interest rate is below the prime lending rate. It means the borrower is below what is considered a prime candidate for a mortgage.

Canadians are not facing a subprime mortgage crisis.

After [subprime lenders] got the borrower to sign on the dotted line, the lending institutions packaged up the loans and sold them to hedge funds, mutual funds and private equity groups looking for quick returns.

The shares of these companies were then bought by pension funds and insurance companies looking for high returns, even though they would never have bought the risky mortgages outright.

Over the past five years, thousands of new mortgage brokers have entered the market in Canada and the U.S.

...it is true that some Canadian lenders dramatically lowered their lending criteria...

...the Canadian housing market has not been artificially driven by bad lending practices.

So, what's the lesson in all of this? Chasing short-term returns leads to an inevitable correction in any market.

Look carefully at those last three lines: lowered lending criteria, not been artificially driven, chasing short term returns = correction. Anyone else see the contradictions there? Nope, no one in Victoria has been chasing short term returns in the RE market. Not my dad with his two houses, nor my friend's parents with their two houses, nor my other friends' parents with their three houses (only one of this group happens to be rented by the way). Nope 5 people, 7 properties, 3 principle residences, 1 rental, and 3 vacant "flips." Nothing to see here kids.

Our housing bubble may be the next to pop

After a decade of low interest rates, it is no surprise that investors poured their money into real estate and the stock market.

Not raising interest rates in the foreseeable future may stave off pain for a little while longer, but the end of cheap credit is near.

...Canadian housing prices over the last decade have risen to the extent that we may also need to be concerned, given interest rate trends.

In Canada, the average MLS residential price rose from $150,720 in 1995 to reach $249,311 in 2005 -- a 65% increase.

In many cities, the price increases are so steep that homeowners are experiencing massive wealth effects as their homes appreciate, while first-time buyers are increasingly unable to afford a home.

The lowest interest rates in 40 years fueled this boom, and as prices and mortgage sizes have risen, financial institutions have "helpfully" come up with new affordability strategies, such as putting only 5% or even a zero down payment and extending amortization periods beyond 25 years.

A price-earnings ratio is the ratio of the price of an asset to its earnings flow.

...a crude P/E ratio can be constructed by taking the average MLS residential price and dividing it by the average annual rent for a two-bedroom apartment.

Declining P/E ratios can represent undervaluation, while rising P/E ratios can represent overvaluation.

...in Toronto, the residential housing P/E ratio remained at about 20 from 1995 to 2001 and then jumped to 27 by 2005.

...Vancouver, which already had P/E ratio of 31 in 1995. This actually declined to a range of 26 to 28, but then soared after 2003 and reached 35 by 2005.

Does this mean anything? Maybe no.

...in stock markets, whenever the P/E ratio for the market has risen substantially above 25 there has often been a correction, meaning a sharp drop in the prices of shares.

The P/E ratio for Canada as a whole is about 28, suggesting that the real estate market may be overvalued.

In light of the turmoil in the U.S. economy and the tightening of credit markets, which foretell a rise in interest rates, the question is not if but when the housing boom here will end.

Reading this one seems kind of familiar to anything else being espoused lately by economists: inflation concerns, rising interest rates, over-valued markets, looming correction. History has a funny way of repeating itself, non?

As an aside, with my new schedule it would appear I will have all kinds of blogging going on over the weekends. I know many of the regular readers of HHV are Monday-Friday types, so I'll make a habit of indexing the weekend posts on Sunday afternoons so you can catch up Monday mornings if you'd like. Did you like the polls?

A life sentence to the poorhouse
Weekend Poll

A life sentence to the poorhouse

A while back I received a request to give my opinion on 40 year mortgages on the local CBC radio station. I was on the road at the time and planned to do a story here about the 40 year mortgage and my thoughts but as things tend to go life got in the way and I never got around to writing down my thoughts. Until tonight.

The National Post ran this story today: 40 Years of Debt. Here are some highlights, emphasis mine:

Benjamin Tal, a senior economist with CIBC World Markets, says the change in the way Canadians pay off their mortgage is the most significant innovation to hit the industry in almost three decades.

Mr. Tal, who is the process of compiling a report on how the new products have changed the market, says interest-only and zero-equity loans are probably less than 1% of new business. It's the long-term amortization that has caught everybody's fancy.

"They were available in the early '80s and nobody was interested. The attitude toward debt is totally different now," says Mr. Tal, who adds his study will show a "significant" amount of new money is geared toward that 2047 mortgage-burning party.

The Canadian Real Estate Association says the average sale price of a home was $311,495 in July. If you bought that house with 0% down and a 25-year amortization, the total interest would end up being $277,993 over 25 years, based on monthly payments and an interest rate of 5.85%, a typical discounted rate today. Extend the amortization period 40 years under the same terms and you end up paying $488,116 in interest --more than the price of the house.

[Mr. Cirotto, www.amortization.com] laughs at the suggestion the 40-year amortization is giving Canadians more flexibility when it comes to making lower monthly payments. "I'm not sure you can call it an advantage to pay interest for another 15 years," says Mr. Cirotto. "To me it's bullshit. The best way to save money is not to have any mortgage."

Much of what is happening in Canada has been lender-driven, agree many in the industry.

"The 40-year amortization is the only way to get people qualified."

Want to know how much that 40 year amortization "saves" you every month? I'll do up the numbers on an arbitrary $300,000 mortgage. Doesn't matter what you put down or what your home is worth, the mortgage is $300K regardless. Interest rate is 5.85%.

$300K over 25 years = $1892/month and $267,732 in interest

$300K over 30 years = $1756/month ($136 lower than above) and $332,188 in interest

$300K over 35 years = $1666/month ($90 lower than above) and $399,754 in interest

$300K over 40 years = $1604/month ($62 lower than above) and $470,112 in interest

So by amortizing over 40 years you'd "save" yourself $288 dollars a month. In order to save yourself $288 dollars a month it will cost you $202,380.

Look at those numbers again. Notice how the big jump in monthly payment "savings" is between 25 and 30 years? Every five year period tacks an additional $70K in interest, roughly. But the payment doesn't lower proportionately. In fact, the "savings" shrink drastically the longer you amortize. There are some even more interesting numbers at work here behind the scenes. They have to do with income.

If you want to amortize $300,000 you need a household income of approximately $83,000 annually--that's assuming 0% down and no other household debt. What happens when you amortize over 30 years? Income need drops to $77,500. Over 35 years? $74,000. Over 40 years? $72,000.

Rather than close with my own advice for you, I'll quote someone far more knowledgeable than I:

[Mr. Cirotto] has an answer for the people who say the only way they can buy a house is with a 40-year amortization: Don't buy a house! "There a lot of people buying a house who shouldn't be buying the house they're buying. They need to buy a smaller house. People turn down their nose at smaller houses. They need to lower their expectations."

I know this article is leading, but I believe that readers of this here blog are smart enough to see through my opinion and form their own. So I give you another poll. Comments, as always, are welcome.

Weekend Poll

Just trying something a bit different. Who have you used to buy or sell? Who would you use again? Who would you recommend? Comments of course are welcome. This is unsolicited, and totally not scientific. Just curious to see what the readers of HHV think about the various full service realty companies in Victoria.

We owe all bears an appology

No we didn't break down and buy a place. It's much worse than that. Apparently it is the complete and utter fault of Ms. HHV and I that this market is now balanced and has returned to historic price-to-income fundamentals.

We've heard a lot in our house hunt journey, but I think we can officially say we've now heard it all. You see with entry level homes at around $400K and our annual income approaching close to 25% of that (believe me, there's no "hey look at how great we are" in that statement) we can now buy an entry level home at the historical norm of 4 times annual earnings. And if we can do it, anyone can. No sh&t! That's what I was told. No correction looming because you FTBs can buy again with confidence that your "investment" has no where to go but up.

What a crock. This nameless/shameless person went to great lengths to "explain" how wrong we are to hold firm to our belief that this market is beginning to correct even as I write this.

"Don't say I didn't warn you, but you'll be sorry you didn't buy now while you could, because pretty soon you'll be priced out forever."

I'm getting pretty good at not getting baited into the trap anymore. After this individual finished berating me for my "silliness" I simply walked over to his laptop and showed him this graph. (H/T Mohican) Then I said:

"We don't make an average income. We make an above average income. We won't buy an average house. Because we can't. But we can buy a neglected dump "with good bones" and with a dumpy "mortgage helper." For too much. But we won't. Because, well, how can I say this politely? We won't pay too much for a crap house in a crap neighbourhood because history has always shown that people who do buy at the market peak, end up needing to live there longer than they ever wanted to while waiting to just break even again."

The rest of the conversation went like this:
"it's not the peak."
"yes it is."
"no, it's not"
"is so"
"uh uh"
"whatever"

August Numbers

You may have noticed, if you're a regular reader, an absence of "low-end market segment" numbers last month. I decided not to do a count because a) it was depressing and b) I'm not sure if anyone else was getting any value out of it. If I'm incorrect on b, let me know in comments and I'll begin again September 15th.

VREB released their August numbers today. It's a mixed bag 'o' positive if you're selling a house or make a living selling/building housing in this town. Here's some highlights:

• There were 846 sales through the Victoria Real Estate Board’s Multiple Listing Service® (MLS®) in August, up 22 per cent from the 694 sales in the same month a year ago.
• There were 922 sales in July of this year. Meantime, 23 sales of over $1 million, including one sale in Oak Bay of over $5 million, helped push the average price of single family homes sold in August to another record high of $576,632
• the median price was considerably lower and remained unchanged from July at $515,000; the six-month average was $566,094.
• nearly 20 per cent of sales of single family homes last month were under $400,000.
• The average price for all condominiums sold in August was $298,852; the average for the last six months was $313,852. The median was again lower at $275,000.
  
• The average price for townhomes last month was $395,646; the average for the last six months was $398,299. The median was $379,000.
• There were 3,352, properties listed for sale on the MLS® system at the end of last month, virtually unchanged from the 3,345 properties in the same month a year ago.

In a nutshell, sales are up significantly, prices are a mixed bag, but generally flat in SFH and slightly down in condos and townhomes. I'm completely de-sensitized to this bad/good, depending on who you ask, news so no glum feelings for me. MLS doesn't release DOM numbers but I'm guessing where it previously took days to sell a home it now takes weeks, if not months. A house down the street from us sold for too much after 3 weeks on the market; SFHs in Saanich don't seem to have trouble getting between $500-$600K.

We're expecting condos to get ugly soon. There is a glut of product in our immediate neighbourhood about to come online. Tuscany is almost done and still not 60% sold. Richmond Gate has been "over 65% sold" now for months. I keep waiting for that sign to say 75% or 80% but I guess they don't have the money to update it? That should drive some prices down.

Any parents of college kids out there buying condos as an investment rather than making your kids try and fight for rooms in the rental pool?

As a complete aside, I started a new Monday-Friday daytime job, so posting will likely happen in the evening now. We're officially DINKS, I expect our realtor to be calling everyday as we just pre-qualed for an extra $100K. This may be fun for a while.

UPDATE: Roger has a great analysis of why this news is good for those of us who consider ourselves RE market bears.

I love my city

So when I see headlines like this I can't help but be saddened, H/T to Stargazerxl. I've re-published it in its entirety for your convenience. It may disappear suddenly if the NP complains.

DISGUSTED IN VICTORIA: National Post, September 1, 2007

There is something wrong in this city. Blessed with natural good looks and a charming, historic downtown core, B.C.'s political and tourist capital is losing appeal, nonetheless. It's no secret why; local officials don't try to deny it. Junkies, panhandlers and drunks are growing in number and becoming more brazen. They are scaring people.

"The state of downtown is our number one issue," says Victoria Mayor Alan Lowe, sitting in an outdoor cafe. "It's the same for tourists and for those of us who live here. It's the fear of coming downtown."

Most Canadians probably still imagine Victoria as a quaint seaside community, tweedy, mild of climate, with a distinct British accent. It's still all of that. But there is more talk of "junkies" and "fear" and "disorder," from the Mayor on down, and, correspondingly, more worry about the city's reputation as a great place to live and to visit.

A senior provincial bureaucrat -- B.C.'s Auditor-General, no less -- is startled when addicts start injecting drugs outside his downtown office. In February, he fires off a letter to city council, demanding action, more police patrols.

"This is not the workplace I or my staff would like to have, and certainly not the image we want to have about Victoria," writes Arn van Iersel.

A U.S.-based company cancels its four-day conference in Victoria last summer, citing "countless homeless children" as a main reason.

An event organizer explains that the atmosphere downtown "was not relaxing and enjoyable but rather quite uncomfortable. It reminded me of the Downtown Eastside of Vancouver rather than a world-class city."

A pair of veteran restaurateurs pulled the plug on their waterfront business this summer, blaming "human misery and degeneracy" in the downtown district. Other business people empathize. "I call the police on a regular basis once or twice a day," the manager of an adjacent furniture shop tells the Victoria Times-Colonist.

One can see why. On Thursday, a pair of injection drug users crouched in the shop's doorway. They pushed needles into their arms. Finished, they tossed their empty syringes on to the pavement, struggled to their feet and wobbled off. Watching some of this unfold from across the street was a horror-struck family of five.

One block south, in the narrow gap between a derelict building and a parking lot, there is a busy outdoor shooting gallery. Users call it "the pit" or "the cage."

It rivals anything in Vancouver's drug-riddled Downtown Eastside. Except "the cage" is a short walk from the provincial legislature.

Men and women of all description squat on dirt and rocks and inject drugs: combinations of heroin, cocaine, crystal methamphetamine, prescription tablets ground into powder and then mixed with water. Others smoke crack cocaine and crystal meth. Trash lies everywhere.

It's where I meet Codty Gray. At 19, he claims to be the youngest person here. He says he holds a "legit" job at a fast-food restaurant, but smokes crack to ease some personal trauma and anxiety. His mother died of a heroin overdose 10 years ago.

Mr. Gray claims to live on the streets; outside of work, his world is restricted to about 10 downtown city blocks that are filled with restaurants and retail stores, many of which cater mainly to tourists. The area is also inhabited by other drug users who leave trails of syringes and broken bottles. Some defecate on sidewalks. "It's getting pretty disgusting," concedes Mr. Gray. He estimates that 200 drug users frequent "the cage" on a regular basis.

He scoffs at the suggestion, promoted by some advocates, that some 70% of drug users living on the street had mental-health issues before turning to dope. "If we have mental illnesses now, it's because of drugs."

There are other notorious hangouts, among them the plaza that surrounds Victoria's City Hall. Known as Centennial Square, it seems especially popular with boozers. They loll about a grassy knoll and on benches, drinking. They make rude comments to passersby. They seem to rule the place. A security shed sits outside one of downtown Victoria's few public toilets. It's a single room, shared by men and women. For "control purposes," I'm told. A guard warns me not to linger there.

Kenneth Kelly is general manager of the Downtown Victoria Business Association; his office faces directly on to Centennial Square. Mr. Kelly is an enthusiastic civic booster and points to many improvements the city has seen in recent years. Even so, tourism, the city's lifeblood, is flat.

He acknowledges that Victoria needs to clean up its act. "There are some days when I look out at the square and I think, 'This place is a zoo,' " Mr. Kelly says. "We should not be tolerating this."

Yet it is tolerated, to some degree. "What are the options?" shrugs Mayor Lowe. Yes, he would like to see more police officers on Victoria's streets. A summer pilot program that diverted more officers to downtown foot patrol was a success. But there's no money for more hires. And the Mayor thinks it important to "strike a balance" between law and order and respect for individual rights and freedoms.

"I don't think that grabbing people and throwing them in jail to rot is much of a solution," he says. Neither, he adds, is ignoring the growing drug problem. "Letting people overdose in the streets? I don't think that's what we want, either."

Mr. Lowe has struck a task force to identify ways to deal with public disorder in the downtown core. An interim report is expected next month. He concedes it will take more months, perhaps years, to address the problem -- and, he expects, millions of dollars for more social housing, treatment and other forms of assistance to drug addicts, the mentally ill and the homeless.

He thinks Vancouver may be on the right track, offering such services as a supervised injection site where injection drug users can fix in a controlled, "safer" environment rather than in streets and alleyways. Mr. Lowe wants to open a "supervised consumption site" where users can both inject and smoke drugs.

But the Vancouver approach -- or experiment -- can't be called a success. That city's drug problem is as bad as ever. Some say it is getting worse, thanks in part to the increasing availability of user services, most of which are concentrated in the Downtown Eastside, where thousands of addicts live.

The drug scene in Victoria is not so concentrated; rather, it is spread throughout the downtown core, which is small and easily traversed on foot. There is no desire to even attempt to contain drug use in one area. "I don't want to give any one zone over to the junkies," the Mayor says.

So "the cage" on Store Street, where Mr. Gray smokes crack, is four blocks west of a busy needle exchange on Cormorant Street, which is nine blocks north of a drug haunt and former homeless encampment near Beacon Hill Park, which is a few blocks southeast of the Inner Harbour, where panhandlers roam, which is a couple of blocks from Douglas Street, where there is just about everything.

There is virtually no place free from street crime and public disorder in downtown Victoria. No one knows this any better than Inspector John Ducker, a 28-year veteran of the Victoria Police Department. He leads the Focused Enforcement Team, a group of 25 officers that patrols the downtown area. Half of the officers walk the beat at any given time.

His men and women are overworked; Victoria police officers already have one of the highest annual caseloads in the province, at about 90 each. The national average for municipal police officers is about half that.

"Twenty years ago, we were dealing with drunks hanging around the bus depot," Insp. Ducker says. "Now it's hundreds of drug users."

He does not have any proven answers. "Things have definitely become worse in just the last two years. Open, intravenous drug use is now common. It's upsetting to people who have lived here all their lives, and to people who come to visit because it's a nice place."

It is still a nice place. Just not as nice as it used to be.

As we approach the Olympics in Vancouver, this problem will get worse and not better. Victoria is focused entirely, as is Vancouver, in transforming downtowns from multi-socioeconomic venues into playgrounds for people with money. This problem is a direct result of poor civic planning and catering to developers pimping the "World Class City" dream. I'm sorry, but no matter how many world class communities developers build, the problem on the streets will not go away.

How many times have we been told in our house hunt that skyrocketing property prices is good for cleaning up neighbourhoods. We've heard this about Vic West and Esquimalt. We've heard this about Langford and Colwood. Where do people who can't afford to rent or buy get pushed? Vancouver is redeveloping live-in hotels into luxury condos. Victoria is absorbing Vancouver's Downtown Eastside problems as fast as vagrants can "bum" ferry fare. World class city indeed. This city needs to be woken up from its ridiculous dream of being a two-month playground for the world's uber-elite and re-focus on developing sustainable, reasonable living and working conditions for the people who want to call it home year round.

Marketing to the ages

We're having a little fun today with some of the marketing "geniuses" at work in selling local RE. We're first time buyers. We're little city folks with big city dreams and the careers to go along with them. We figure this ad is targeted to us:

Gone are the days when a real estate developer just wants to sell. you. a. house. Radius is different because Radius believes that potential condo buyers don't want just a place to live; nope, apparently condo buyers want to purchase their way into a daytime soap opera complete with all the intrigue and surprises that come from inviting nosy-neighbours in for a cartoon cocktail. Note the "older lady's" statement: "They initially bought at Radius as an investment, now they live here part-time to avoid the cold winters."

Note to marketers: the tired, old statement of blah, blah, blah, Victoria RE is great investment, blah, blah, blah, great mild winters is, well, both tired and old. We do like the fact that you call the north-end of downtown Uptown. That's better than calling it kitty-corner to the arena. Or right across from the cop-shop. Or White Spot just down the street. You get my meaning, non? We'd just like to tell everyone from away, do your homework on the neighbourhood before buying, cause Radius's location is at the very heart of one of the most aesthetically challenged parts of "Uptown." In the meantime, could someone pass me a prozac, I'm feeling a bout of "suburban long driveway loneliness" coming on ;-)

So we've seen how marketers target the lower-end segment of the market by appealing to our "youthful playfulness." How do they go after the aging Boomer who has it all? Here we turn to Aquattro, who apart from offering four types of waterfront, markets with a massive, back page ad in today's Homes section of the TC:

THE BEST THINGS IN LIFE ARE $750,000 to $1,500,000

Some of the best things in life are free and some are well worth the money...

Extra, extra large luxury condominium and townhomes available for those with money to enjoy

Wow. And in case you were wondering what apparently other people think about Aquattro: try here. This link is in their section titled WHAT PEOPLE ARE SAYING. Think you this may have absolutely nothing to do with either Aquattro or say condo/townhouse communities on the Westshore? We figure it can only mean one thing: back up for the agent selling the place saying to a potential buyer "now past performance is no guarantee of future returns, but (wink, wink) I'm sure these people would beg to differ."

Someone. Please. Help. Us. Soon.