Wednesday, October 24, 2007

More reasoned than me

Further to last Friday's post, this letter appeared in the Kelowna paper today:
The Daily Courier (Kelowna), Page A11, 24-Oct-2007

History shows house prices will come down

By Mo Rajabally

This letter is as a result of The Courier's Steve MacNaull's Home out of reach' piece (Oct. 16) and Damon Enns' letter 'Home aren't out of reach...' (Oct. 18).

The intent is to caution any person who may think it is now or never time to own a home. I have lived in this valley for 32 years, and I have observed the ebb and flow cycle of real estate. It is not a line that goes straight up indefinitely. At most, it plateaus and perhaps gradually, it comes down.

The backbone of any economy is the middle class. I would like someone to tell me if this class has had a 10 per cent pay raise per year over the past five or six years.

This is how much the value of real estate has appreciated in Kelowna. When I read the statistics Irene Wilkinson of Express Mortgage Services provided (Courier, Oct. 18), I shudder. Now that the price of a home has jumped over the $500,000 mark, what will be the average mortgage with a 10 per cent down payment?

And, how could a young couple with two incomes pay a monthly mortgage of over $2,689? What happens if there is an accident, an illness, a transfer, or worse still, a loss of a job, not to mention an interest rate hike?

I remember being told in 1988 by a real estate agent if people didn't buy a home then, they would never own one.

Soon after, the market had peaked and I had sold my home. I rented for a year. The following year I bought a lot half the asking price when it came on the market in 1988 because the market had taken a plunge.

It is going to happen again; at least this is what I think, but perhaps not to the same extent. I would request any economist/statistician from UBC Okanagan, or Okanagan College, to do the math.

Of all the baby boomers retiring all across Canada, what percentage would retire in Kelowna?

Also, how many people in Kelowna have cashed in on their house equity and have moved on to cheaper locations?

Everywhere I go, I see apartment buildings, townhouses, and single-family homes under construction.

Will they all be sold at the asking price? Well, it depends on what the market will bear. There is always the possibility some developers could end up holding a bagful because they have missed the last ferry.

The one thing we have going for us in Canada right now is low interest rate and a solid economy.

Recently, MP Garth Turner, visited the Valley. I used to read his investment newsletter and even read his column in one of the local papers.

He warned Kelowna the boom could not continue. Frankly, one does not have to be a rocket scientist to know there is always a goal post and that the sky is not the limit, except perhaps if you sell real estate.

I would, however, caution any prospective buyer to make his or her own decision and not to rely on my observations and comments.

Now I believe in the process of writing this letter, I have created a problem for myself.

Will I find a real estate agent to sell my home? Well there is an open invitation.

Mo Rajabally,
Mo, I'm guessing you'll have line-ups of Realtors wanting to sell your home. I'm pretty sure that in your neck of the woods they've been too busy selling homes to read the paper.

Strathmore condos in Langford dropped their prices today.


Futura said...

The Daily Courier (Kelowna) has some journalistic chops. I wish The Times Colonist had some small measure of this kind of balance.

Hats off to you to Mo. Clearly a man of reasonable mind and seasoned opinion.

vg said...

Well written and balanced and the Garth Turner tidbit was bang on.

People in Kelowna don't seem to remember when the boom died in the 90's,it was one hell of a tough town to get a decent paying job.

Anonymous said...

Excellent! I am glad this guy said something.

Anonymous said...

Yeah, I miss Garth and his weekly conflicting views. Buy now, real estate is a sound investment! But diversify! Contribute to your RSPs!

I was always under the impression that he figured folks had stacks of money lying around to play with.

I miss Garth.

vg said...

Garth's best one was "back up the truck on Nortel at $60 and pin this to your fridge and look back in a year, I have it on good sources that it is soon to take off past the old highs of $100". I pinned it to my fridge alright and but never spent a penny on Nortel as a year later we all know where it went, LOL. That was a classic.

Almost as bad as the talking heads on CNBC yesterday when the DOW roared back from down almost 200 points on nothing. It was a total manipulation job by the PPT and they were so embarassed they had to say rumours are out on the trading floor of an interest rate lowering "in a week from now" ! can you believe this ? LOL Who leaks out the rumor of a rate drop from the FED a whole week in advance right when the market was about to keel over ? pathetic or what. Of course they said this is not CNBC saying this it's the traders rumour mill. No wonder people have no faith to trust the system out there.

vg said...


Here's an article out this morning discussing my question on the other thread about discounts off posted mortgage rates. Looks like the gap is narrowing and they will be soon be half a point at best.

Now's a good time to lock in a mortgage

October 25, 2007 at 6:24 AM EDT

Mortgage rates have hit multiyear highs, and there could be worse to come before things settle down.

Call it yet another example of collateral damage from the problems in the U.S. subprime mortgage market.

Simply put, it's costing banks and other lenders more to raise the money they use to finance mortgages, and they're passing the cost on to people buying homes and refinancing existing mortgages.

That's why the posted major bank rate for five-year mortgages is as much as 7.44 per cent right now, which is the highest level since May, 2002, and why new variable-rate mortgages are becoming more expensive almost by the day (existing variable-rate mortgages are unaffected).

vg said...

oops, bad looking link, try this one.

vg said...

Got this off Vancouver Condo. CHMC has now officially lost their sanity,nothing down folks,load up as fast as you can,we have to keep this machine juiced and keep the sheep lining up cause there aint no way your going ever ever be able to get in otherwise. This is now going to end much uglier then I ever imagined. 50% will be just step one.

CMHC lowers investment threshold for home-buyers

Garry Marr, CanWest News Service
Published: Thursday, October 25, 2007
TORONTO -- You have to wonder what David Dodge will be thinking this time. Just over a year ago, the Bank of Canada governor met with Canada Mortgage and Housing Corp. because of his fears exotic mortgages were juicing an already robust Canadian housing market. Now, CMHC has decided it is going to let Canadians buy investment properties with no down payment.

The Crown corporation, which controls about 70 per cent of the mortgage insurance market in Canada, has quietly introduced changes that lower the down-payment threshold for an investment property. Instead of needing 15 per cent down, Canadians will be able to buy a second property -- not to mention a third and fourth and fifth -- with no money down.

"These enhancements will ensure continued supply of affordable rental accommodations across Canada," said Pierre Serre, vice-president of insurance products with CMHC.

Anonymous said...

Is CMHC mad?

Yep, keep it going CMHC. Open the floodgates and then watch it all get so ugly on the way down that there won't be a bottom.

What will they say then I'd love to know?


Anonymous said...

Maneuvers like this from CMHC are like trying to save a man from hanging by tossing coils of rope down the sprung trap door after him as he's falling. All does is make for a much nastier jerk at the end when the rope finally runs out.


Anonymous said...

Article from today's Vancouver Sun:

'08 won't be as great

Vancouver Sun
Published: Thursday, October 25, 2007

The B.C. Real Estate Association's forecast for 2008 shows a drop in sales from this year, a dip in housing starts and a slowing of price gains.

2008 Housing Forecast

Sales: 96,300 (-5%)

Average price: $470,000 (an 8% gain, down from a forecast gain of 12% in 2007)

$ volume: $45.1 billion (up 2% from a forecast of $44.1 billion for 2007, but still a smaller percentage gain than the forecast increase of 12% from 2006 to 2007)

Starts: 33,000 (down 4% from 2007's forecast of 33,900)


vg said...

We can only imagine the economic fallout from the oil tax effect that will be rocking the markets tomorrow,glad I got out of my oil sands play months ago.

Many analysts saying this afternoon they will be dumping Canadian oil stocks tomorrow and these guys manage billions of dollars. Oil is up $3 to $90 again.... of course there is no inflation,it's all in your heads people,just take out a 40 year mortgage and you'll make it, lol.

vg said...


how much difference per month do your numbers go up if no one is getting better than 6.9 % versus your 5.85 % based on the half a point off rule from 7.4% kicking in here soon ?

hhv said...


I'm not sure where the half-point rate rule is kicking in? With good credit and income/debt servicing ratios at 30% I know that banks are still giving up to 1.5% discounts from prime on variable rate mortgages. I've seen some 5 year variables at 5.8% recently.