Are the lights ever on?

Drive down through the Songhees or "Humboldt Valley" at night and one thing is very striking, all these new luxury condo developments have no one living in them.

It seems this issue isn't isolated to Victoria. A great article in the Straight highlights the Vancouver situation:

• For the 15 years between 1991 and 2006, the city grew by about 106,000 people.

• The city also grew by about 69,000 housing units.

• At 2.2 people per unit, that should have accommodated 151,800 more people, which could have created the conditions for a housing glut and falling housing prices.

• Instead, housing prices doubled over that time period.

• In 2006, there were 4,736 new housing units completed in Vancouver–the most in a single year since 1995.

• The vast majority of those were in eastern downtown and the East Side.

• Strathcona, Kitsilano, and Kerrisdale received the fewest number of new housing units.

• In 2007, 3,294 new condo units will have been completed in downtown alone.

Sources: City of Vancouver Housing Centre; Statistics Canada; Canada Mortgage and Housing Corporation

My only issue with this report is the 2.2 people per unit average. I find it hardly likely that the number is 2.2; I'd bet it's closer to 1.7 as I doubt there are anywhere near as many 3 person (2 adult + child) households as there are 1 person. Anyway. It's telling non? When you go back over the historical time frame of 15 years and you offset the current influx of people with the 7-9 years of out-migration in the 90s, you get less than 1% growth in total, yet you see 5-6% (my guesstimate) growth in units available.

Perhaps this is the key information for Vancouver:

"Empty housing stock is very difficult to estimate," he said. "BC Stats has previously undertaken some analysis based on hydro usage, which indicated that four percent of all downtown apartments were identified as unoccupied in 2003, with eight to nine percent of condo apartments included in that number." In addition, he said, the 2001 census found that 2,600 downtown apartments were unoccupied.

So much for 0.5% vacancy rates, eh? When the market shows signs of cracking, think you that those owners of the empty places will be keen to hold onto a losing "investment?" Victoria is in the same boat, to a lesser scale, but I'd say the percentages of vacant properties are likely higher here.

As an aside: I haven't been around much lately I know. I actually have, but just not posting. I had let this blog get the better of some of my emotional common sense and decided a little break was necessary. I appreciate the discussion that happens here. When it tapers off as it had over the past month or two, I take it as a sign that my rants are not doing the readers, or me, any service. I'm not yet sure if the break is over.

Collusion in Canada?

I have a friend who is a CFA. We had an interesting conversation that led me to do some digging. He asked a simple question when we were talking about ABCP and how good a deal some US financial stocks are compared to their Canadian peers: "have you noticed how the banks aren't announcing write downs on the same day?"

I hadn't. But what would it look like if they did?

Today, National Bank Financial, the smallest of the Big 6, announced the biggest write down yet: $575 million. It's stock went up. It holds $2.25 billion worth of worthless paper. I'm guessing the other mortgages haven't reset yet?

Anyway, here's what they all have written down thus far:

NBF: $575 million
CIBC: $463 million
RBC: $360 million
BMO: $275 million
BNS: $190 million
TD: nada

Total: $1.863 billion

Now that barely equals the RBC quarterly profit thanks to yours and mine bank fees, so no sweat right? Wrong. Why do they simultaneously announce profit taking, like, say, selling off Visa and Mastercard assets to mitigate their reported losses? Because investors don't like any losses. Period. They panic. And sell. And panic and sell and panic and sell. You get my meaning.

Things are only just starting to get ugly for our friends down south. Citi, the world's biggest bank is rated by some as a "sell" stock today.

Our banks meanwhile, thanks to an assumed lunch date between bigwigs several weeks ago, decided in their wisdom to announce write downs little-by-little; and that's exactly what they did too, the smallest losses were announced first to numb the greater pain announced today. The situation is not rosy here, no matter what any of the so-called economists would have you believe.

Dodge was in South Africa over the weekend, where he hinted a rate cut would be necessary. This will only fuel the inflation that is already much higher than reported in N.A. 2010 could easily prove to be as disastrous as 1981.

Of course, none of this has anything to do with real estate (sarcasm intended) so carry on people.

Truth in Advertising

I was minding my own business today at lunch. Idly munching on a sandwich reading the weekly Real Estate marketing newspaper's condo section when something dawned on me. It was like a bright light on a gray day, as if the clouds opened up and a single beam of sunlight had penetrated through creating my own little private opening of Highway to Heaven. What was this brilliant insight, you ask?

Truth in advertising. It's missing from the real estate market. But it's law in the securities industry. Why isn't truth in advertising required for the "investment" that is constantly being pumped in this town?

Case in point: The Julia is having a hard time selling out right now. The ad in question states "priced below market value to sell out the project." How can something be priced below market value? It simply can't. Market value is the value the market will bear and the only time somethings' market value can be determined is at the exact moment that it is sold. And market value is constantly changing as a result.

So they could have written priced below assessed value. Except that they haven't been assessed yet. They could have written priced below appraised value. Except appraised value has nothing to do with investing. And these "marketing systems" are about making me think I'm going to be rich by buying this over-priced 2-bedroom condo.

Market value tells me that there is a market for this product and the price will fluctuate. Telling me that I can buy a unit below market value is the same as telling me that I can buy the unit today and sell it for more tomorrow simply because I got it for less than market value. Which is clearly not true.

I also noticed that there are a number of Rennie wannabes springing up in this town. It seems every Realtor with a condo listing is somehow an owner of a Marketing System TM.

At one point in time in the BC Legislature a normal citizen could enter a bill for legislation to make a law. I'm not sure if this is still possible, but I believe it is time for all investments to be subject to the same disclosure laws as securities. I can see the headlines when the market turns "Angry citizens outraged by guaranteed investment salespeople, used to be known as Realtors."

Is anyone really surprised?

More here, and here. Don't forget to vote below.

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Which logo do you like best?



This one was designed by lineardesign.ca for another project not associated with this blog or writer, and has been offered up for use here.

Or we can stick to this obviously amateurish effort at creativity:

Which may or may not infringe on the BC Government's trademarking of the Spirit Bear.

Little of this, little of that

Not much to say today. So I'll give you this: (H/T to Mohican)


On another note: Roger asked about personal anecdotes regarding buyer sentiment. It's been a long time since I heard anyone say now is a great time to buy. Anyone I know that has a home is reassessing their need to continue owning their present house. A few are looking at cashing out. Some, like my parents and their peers, are looking down south.

I know of one flipper (friend of a friend of Ms. HHV) who is having trouble selling his "updated" flip unit. He's lowered the price twice and is now considering, gulp, using a Realtor. The market has definitely changed. It could be seasonal.

It may not be though. Considering sales are higher in October 2007, the start of the traditional slowdown, I'm more inclined to think the price reductions in SFH has nothing to do with seasons and everything to do with affordability. I'm seeing a lot of "deal collapsed due to financing" on MLS. This means either the accepted offer came from someone who couldn't afford the joint, or the lending institution thought it over-valued, under-kept or just a lain old bad risk. I'm glad that for whatever reason, the credit market is tightening; it's good for the long-term overall health of the economy.

Check out this ad from Edmonton. Apparently now is a great time to buy when the developer gives you a money back guarantee that if the market value of your home is less than what you paid for it when you take occupancy, they'll refund the difference. I don't know about you but I'd be hoping that the sub-trades are too busy to get the jobs finished so my "refund" gets bigger. Of course, it will be hard to give back the difference in cash when the company is filing for bankruptcy protection which is what companies do when there is a run on them.

I wonder if we'll see ads like this in Victoria? I wonder if all those people that are expected to come to Vancouver/Victoria? and buy houses during the Olympics will still be coming when the 2008 economic slowdown expected everywhere but China turns to a recession in 2009? Maybe we'll get to see hockey games for less than $500?

A sign of times to come (I hope)

Check this out: MLS # 235876.

This is a 2-bed plus den, 2 bath 1174 SF steel and concrete construction (1974) condo on Johnson St.

Original asking price was $239,900. It sat on the market for 49 days. It sold today for $198,500. That's a $41,400 reduction for 17.3%!!!! I haven't seen a reduction like that in the low-end condo market yet.

Now I know nothing about this building. It has a high monthly assessment of $295 which leads me to expect that there is work to be done, which is normal for buildings of this vintage.

Good work barbers, good work. Keep this coming.

Ethics

We've made much of ethics in the past, and we'll likely make much of them again in the future, as we are about to make much of ethics right now.

Roger gave us a link in yesterday's comments that sheds some light on to the much-seen practice of re-listing properties on the MLS. When we see a property using our Realtor, we ask about this; but it was actually our Realtor who turned us onto the whole practice in the first place as this Realtor is honest and does the homework and tells us. Contrary to some beliefs, many Realtors don't like the way other Realtors operate, thus giving all Realtors a bad name. Anyway, point being, the Realtor has the information, and you have a responsibility to ask for it.

Here's the meat of the issue:

If a property is not selling the listing agent can, with permission of the owner, re-list the property on MLS. They pay a small fee, the property is withdrawn, and then re-listed back on the market and becomes a new listing. The history of the old listing is available to Realtors but not the public, except when you ask.

Re-listing can affect the statistics for:

1. Days on the market
2. Percent of asking price paid
3. Canceled and withdrawn home
4. New listings

This practice of re-listing can make the market activity look different. It could show a different trend then what is actually happening. It is deceptive in nature. It should not be allowed.

Here is an example of re-listing:

Jan 1 listed $800,000
March 1 Re-listed $700,000
May 1 Re-listed $600,000
May 15 sold $590,000
Days on the market 15
Percent of asking price 98.3%
Number of new listing 3
Number of withdrawn 2

Now here is the same house without re-listing:

Jan 1 listed $800,000
price adjustment $700,000
price adjustment $600,000
May 15 sold $590,000
Days on the market 136
Percent of asking price 73.75%
Number of new listing 1
Number of withdrawn 0

It is the same house but at the difference in the statistical results.

And this came from a Realtor (with minor edits from me). This same Realtor also talks about dual-agency. His explanation goes much further than my rudimentary knowledge on the subject. I was interested to learn that the brokerage and not the agent is the actual seller contracted. What this means is that two agents working both ends of the deal from the same agency are really in conflict and acting on behalf of the seller.

I can't think of any reason why a buyer would not want to employ an agent on their behalf. It costs you nothing and if you use one that has no business connection to the seller agency, then you presumably have one working on your behalf. They sign a contract. You have legal rights associated with that contract. Makes sense to me to use one.

Now what would we do if a property we wanted to make an offer on was listed by the same brokerage as our agent represents? We'd first have a conversation with our agent. Do we feel secure that our agent has our best interest in mind? Do we think our agent is selling to us? If we felt at all uncomfortable, we'd get another agent to represent us. Is our agent showing us a disproportionate number of properties listed through their brokerage? All of these are warning signs in our minds.

Agents work relationships. It's a networking thing. If an agent felt we were acting inappropriately by using another agent to make the offer on a dual-listed property, that agent isn't looking out for our best interests. And thus would never get to list our home when we sell it nor gain referrals to our friends and families. If the agent can't see this then they are too short sighted to be working with us in the first place.

I'd like to hear from other agents out there on ethics in their business. And of course I'd like to hear from you too.

Check out Mohican's place for a much better Rent vs Own argument than I've ever articulated.

Talk me out of this

I'm thinking about jumping in. Everyday on my drive to work I pass one of those "Real Estate license in 5 weeks signs," funny I saw one in Vancouver this weekend too, anyway, I'm thinking about jumping in to that pool. Not because I want to buy and sell real estate for a living, but because you have to learn to think like your opposition if you want to beat them at their own game. May as well get the training right?

Last month there were 1200 Realtors in Victoria and 708 sales for a sales to Realtor ratio of 0.59. The median commission for those 60% of Realtors fortunate enough to make a sale on a house was roughly $23,000. The agency takes half, leaving $11,500, minus advertising and expenses, and paying a share of the commission to the buyers agent, say $4K or so. I'm guessing that if a Realtor sold a house here in the median range they're pocketing about $6K.

But we all know that like all sales related businesses, it's the top 20% that do 80% of the business. I'm guessing that even though there were record sales here, there were also at least 50% of Realtors who didn't make a dime last month. I wonder what the turnover rate in RE offices are like these days?

Anyway, I've digressed. Anyone take the licensing course? Tell me what I need to know. This might be a fun winter blogging project. Maybe I can infiltrate the industry through the back door and expose the unethical practices that are going on? Is it still OK to be licensed and work a job outside the industry? Funny how few other sales-related professions allow this practice, think financial advisors etc. Anyway, tell me what you know.

When I sell my first luxury townhouse, I'll buy you all a bear. Oops, I meant beer.

Flipped right in half

I'm torn over flipping real estate. The entrepreneur in me doesn't fault anyone from making a buck on a service or product for which there is demand. But the ethical side of me finds fault in the facts that:

• flipping artificially inflates property values because it temporarily removes units from the market reducing supply
  
• flipped units are rarely subject to permits and inspections because most flippers are slapping paint, snap-flooring and tile over eyesores, not changing structure
• flipped units come with no guarantees
• flipping most often happens in tight sellers markets where subject to inspections can often be turned down because of hyper-demand and stupid buyers

Whenever we look through MLS we see empty units. Some are obviously the work of flippers, some are honest updates done by the previous owners. How can we tell the difference? Owners are less likely to do the work after they've bought and moved and more likely to do the work while they still live there. When we walk through a unit that is empty, has a new "kitchen, bath and flooring" including the aforementioned snap-lock flooring, stainless appliances, granite-look counter tops and $10 pot lighting, we can smell the flip.

What is a bear to do? Don't buy the flip job. Ever. The deal is in the sweat equity. Flippers, unless they happen to be contractors, rarely have access to the supply discounts. So this means they get their mark-up from doing the work on the cheap, doing it themselves, and selling for maximum profit.

You can beat them at their own game by not buying a flipped unit. If you must buy now, try and buy a good deal. Flipped units are never good deals. Buy the unit that needs cosmetic work. Do the work yourself. Take a vacation when you take occupancy and put a week into cleaning, painting, replacing worn flooring, getting new appliances and redoing kitchens and bathrooms. If the work you are doing is not structural, you can do it a lot faster than you think. Leave the finishing for last. But don't finish last by buying a flip-job.

If people stop buying the flips just because they look nice and start paying attention to the underlying economics involved, then the flipped units will sit, prices will come down and the 20-30% (our guesstimate) of properties that are currently sitting vacant will give the bump to the listings necessary to keep the downward momentum moving.

For what it's worth: we were in the US yesterday. Save yourself the time, don't bother looking there for good deals. All the numbers we were seeing in the malls were within $5-$10 of the ones we see up here. Even on the big ticket stuff. Real estate, that's another story. Anyone know if you can live in Blaine, Washington and work in Canada year round? If you can you can live for 50 cents on the dollar compared to White Rock.

Weekend Open Thread

Ms. HHV and I thought with the temperature so low outside, this weekend would be a good one to head over to Vancouver and get in line for the OlympicTM village condos. We figured we'd buy two or three and flip them this time next year so we'll have our down payment for our new Uplands house.

So while we're over in DreamlandTM.... here's your open thread. Please go easy on one another.

If you're a BC blogger or other web-person and you're so inclined, feel free to rip off the BC Real Estate Bear's Alliance logo on the sidebar (just do a right-click, save-as) or send us an e-mail and we'll e-mail the original to you. Reciprocal links are always appreciated.

October Sales: Need's Analysis

Roger's words:

VREB stats are now out. More positive spin from VREB. Lets take a look at the facts.VREB in italics; Last months numbers in brackets.

• The average price of single family homes sold in October was $556,222 (584,193); the six-month average for single family homes was $570,454 (572,007).
• The median price was considerably lower at $495,000 (520,000).
• The average price of all condominiums sold in October was $343,334 (341,014); the average for the last six months was $321,993 (318,198).
• The median was again lower at $291,000 (288,500).
• The average price of all townhomes sold last month was $407,031 (402,213); the six month average was $404,163 (402,246).
• The median price was $369,950 (375,000).
  
• MLS® sales last month included 375 (335) single family homes, 196 (150) condominiums, 79 (77) townhomes and 22 (21)manufactured homes.
• There were 3,311 (3381) properties listed for sale on the MLS® system at the end of last month, down slightly from the 3,426 properties in the same month a year ago.

Now for the analysis:

1. Sales of homes and other properties in the Greater Victoria area soared 20 percent in October compared to the same month a year ago. There were 708 sales through the Victoria Real Estate Board’s Multiple Listing Service® (MLS®) in October, up from the 590 sales in the same month a year ago. There were 632 sales in September of this year. This is true but the tone leads the reader to believe that the market is still hot and rising. What is happening is that more buyers are buying houses at a price that is cheaper than last month!!

2. Meantime, prices for single family homes moderated somewhat while prices for condominiums and townhomes showed little change. Victoria Real Estate Board President, Bev McIvor, says the strong sales and stable prices show continued consumer confidence in the market. McIvor added that it’s normal for overall prices to fluctuate on a month-to-month basis depending on the properties that sell in a given month. “While the average price of single family homes moderated slightly last month, the overall average price so far this year is over seven percent higher than at the end of last year.”

Moderated somewhat - moderated slightly - stable prices !! The statement is true for condos and townhouses but the average price for single family homes dropped by $27,981 (4.8%) and the median by $25,000 (4.8%) in one month!! stable prices show continued consumer confidence in the market. Oh yeah - for those of you registered for real estate PCS you know that there are big price reductions every day and some nice haircuts given out in October. Bears - stay tuned - we are on a roll here. The cold weather and Christmas season are coming up fast. Next month sales will be down, lowballers will be active and the inventory is still high. I can hardly wait for the November and December numbers.

H/T Roger...

UPDATE: I'd just like to add how funny it is in a month that the average and median prices in SFH both dropped 4.8% that VREB decided to compare the average to the 6-month to make it seem less so of a drop. Ah, spin.