Say I'm a stock broker who calls you up and says "Have I ever got an investment for you. Over the past 60 years this investment has doubled every ten years. If you had put $50,000 in it 30 years ago, you'd have almost $403,000 today and you wouldn't have to do anything. Just sit there and watch it grow."
What would you think? No brainer, right?
So me being the smart bloke that I am, I'd realize that I was wasting my time phoning people to tell them of this deal. It would be far more advantageous if I found a good-looking person and made a commercial so I could tell hundreds of thousands of people about my investment that I'd found.
It's the same principle that applies to all those late night, get-rich-quick from your one-bedroom apartment by placing tiny little classified advertisements in thousands of community newspapers selling nothing much at all. Now that's a mouthful.
So what's preventing me from pulling this off. It's not money. My investment is guaranteed. I have 60 years of history to take to the bank to borrow money for my advertising campaign.
Except that I have to run one tiny little sentence at the end of my ad. I have to do something that pretty much everyone who sells any kind of "investment product" has to do (with one exception) I have to write it on the screen and I have to say it out loud: "Past performance does not guarantee future results, these results are not typical."
Now I'm sure you know where I'm headed with this. This isn't a swipe at any particular individuals who sell real estate. This is a complaint about the profession of real estate sales. They're self governing, so I guess you'd win an argument that this is a swipe at everyone who sells real estate, except that in a democracy, the few can be outnumbered by the many, so I'll use this disclaimer: one bad egg does not necessarily represent the whole carton being bad, check your eggs carefully, we do not take responsibility for the fact that the good eggs did not outnumber the bad.
There is a series of Realtor commercials running in the states telling people exactly what I stated above: 10 years to double your money, history is the guarantee. Watch the videos. See if you can find the disclaimer. If you can, I'll give you ten bucks. Disclaimer: you'll notice I used ten bucks to represent an imaginary monetary sum. I will also make you aware that current hunting licenses prevent this writer from actually getting you ten bucks, so don't ask if you prove me wrong, you will only be disappointed.
A quick search of the Realtor.org site will produce hundreds of links to one kind of disclaimer, but it has nothing to do with economics, it just says we won't discriminate against anyone's human rights.
A quick search of the CREA website turns up even less.
Me thinks that after the bubble bursts, many people will be seeking legislation that forces adequate disclosure and separation between being a Real Estate Professional and being an "Investment Advisor."
Oh and by the way, for RE to double every ten years "or so" requires an annualized rate of 7.2%. Realtors are calling an average of 6%. What's the difference? Only 2 years. And if you owned a house for the last two years in the US, you may find yourself cursing that "advice."
Now I'll add the final disclaimer: before you go dismissing me as a ranting bitter renter, I'd like to point out that this post is in jest, for the most part (I still think they shouldn't be allowed to talk about "investments") and the fact that I have to point out it is meant to be more funny than serious means its likely more serious than funny. I've never been accused of being a comedian. So sue me. No, wait.
135 comments:
WHY are we discussing USA realtors? Have you run out of Cdn RE topics?
What are you talking about? It was just a little example of how people shouldn't make claims for performance of an asset class in the future based on past performance.
If you get a chance, check out this new real estate marketplace website called UniFersal.com
Tim Ayres:
Actually, we aren't as self-governing and evil as you might think in Canada. Each province has increasingly strict legislation which governs the real estate industry from every angle you can think of. In this Province, the Real Estate Services Act and the Real Estate Development Marketing Act were introduced in 2005 and completely re-wrote (literally) the book on selling and marketing real estate in British Columbia.
Federally, we must comply with ever-tightening restrictions on advertising and promotion. I doubt that the commercials you described would be allowed in Canada.
You'll probably notice a lot fewer REALTOR® guarantee type ads of this type this year "If don't sell your home in 60 Days, I'll buy it*"
New restrictions in our Code of Ethics (brought about by Competition Act legislation) prohibit us from advertising the above with a simple "*call for more details". The whole offer must be clearly spelled out on the advertisement.
It's a completely different world in the United States. Comparing organized real estate in Canada to what they do in the U.S. is like comparing apples to battleships.
Any reasonable person checks their facts before investing in anything. I know this article was mostly about deceptive advertising and past performance not guaranteeing future returns, but I had to comment on the difference between Canadian and American REALTORS®. Despite using the same brand name, they're as different as night and day.
- Tim Ayres
Tim:
Nice to see a local Realtor following this board and posting well thought out commentary. Stick around; we value your input!
VicREBear
"I had to comment on the difference between Canadian and American REALTORS®. Despite using the same brand name, they're as different as night and day"
nonsense- my wife and i (canadians) have owned 23 properties in the usa and canada (approximately 40 transactions-privately and thru mls.) If anything,IMHO the American realtors are generally more professional and less hysterically frantic to "get the deal" than their Canadian counterparts. Any recent provincial regulation is in response to rampant semi-ethical behaviour which results from decades of RE industry "self regulation"
Tim Ayres:
Actually, there is no such thing as a "Standard" real estate commission. Price-fixing legislation prohibits this. There are many different companies with many different fees for service.
6% on the first $100,000 and 3% on the balance is common to be sure, but there are REALTORS® in the local marketplace that charge more, some that charge less. In the east, many companies charge 5,6, or 7% across the board, no split rate commissions like we do here.
It's lots of fun to blame REALTORS® for the escalating real estate prices, but the reality is that prices are set by market demand, not real estate professionals.
Anonymous (...my wife and i (canadians) have owned 23 properties in the usa and canada..., you have been obviously been dealing with the wrong agent. Give me a call or an e-mail and I'll change your mind.
-Tim Ayres
So Tim, what's your take then, is it a good time to buy now, or how about waiting a year for prices to drop?
Tim Ayres:
Greg, thanks for your question. I honestly don't see the market declining over the next year. I know that I have a vested interest in the strong market (ie, continued employment!), but all signs point to increased valuation in real estate, both on the Island and off. I think most growth this year will be away from major centres like Vancouver and Victoria. Mid island communities like Duncan, Cowichan, and to a lesser extent, Nanaimo, will continue to grow and attract buyers priced out of Vancouver and Victoria. Our employment numbers in British Columbia are bucking the national trend, which is a good sign for our increasingly diverse economy. It's not surprising that the manufacturing-and-financial-sector-heavy economies of Ontario and Quebec are flagging right now in the wake of the sub-prime mortgage fallout in the States and the high Loonie. Most of Canada's population is in those two provinces, so it's not surprising that their current woes are dragging down the latest statscan reports.
I've been meaning to blog about that lately... perhaps this is the start of a post.
In short. Buy now if you've got the means to do so, as we're not going to see any serious retractions of the market in the near future.
And always remember that if you are in fact buying a place to live in long-term, rather than to hold and flip, you're hard-pressed to find anyone who's owned property for 30 years and not ended up ahead. Even if you plan to stay in a home 4 or 5 years, and then sell it and buy again, with cyclical downturns in the market, your net difference should be positive in the long term.
"In short. Buy now if you've got the means to do so, as we're not going to see any serious retractions of the market in the near future."
Tim, I'm glad you are here and welcome your comments. As I said in my post, I'm not taking a swipe at any particular REALTOR, but rather a swipe at the collective dis-will, if I may, to disclose certain aspects of the product they sell which are not guaranteed.
The quote above is case in point. What if you are wrong? Can I sue you for having taken your advice?
Any other mainstream investment product sold comes with disclaimers for this very reason. Yes, I know that a home is not a traditional investment vehicle, but every conversation that I have had with every REALTOR I have ever dealt with always invariably contains a claim to "great investment" or "guaranteed equity."
I expect a profession to conduct themselves professionally. Which in my mind includes taking responsibility for the "advice" they give.
I'm very surprised at the response this post has received, in a positive way. I'd expected my readers to ignore my little attempt at ranting disguised as bad humour.
I attribute the discussion to Tim's presence and I am glad he's here. I encourage you, Tim, and the rest of you, to keep it up.
While we are talking about ethics, here is a question for Tim.
I understand that an agent must disclose to a buyer or seller that he/she has an interest in an existing property. For example, the agent is selling his/her own home or the agent is buying a home.
BUT, if the property is a pre-construction condominium complex and the agent or his/her company has purchased several of the suite options in the complex in order to get the listing contract for the building, the agent does not have to disclose that to a prospective buyer.
For example, we sold 10 percent of the condominiums yesterday (to ourselves). I think a prospective purchaser would like to know that.
Hope you stay with us Tim, cause most of us bears will eventually be buyers.
"In short. Buy now if you've got the means to do so, as we're not going to see any serious retractions of the market in the near future"
How long have you been in the RE bizz Tim ? All the agents told us all that back in 1982 as well, even with the rates going thru the roof,which they will eventually have to once again.
I think you have to pay attention to the big picture here, the fallout to the Canadian economy will be massive and any thoughts Victoria and BC will be immune is wishful thinking. This market has been running on fumes for the last year and the MLS's own numbers of 74% of locals as the main buyers show us this market will flip on a dime.
I know your in the bizz and you have to say that but I would only use an agent who has an open mind,and I will be buying a nice sized house in the future so I guess I will keep looking for that agent.
Incase you missed this Tim the markets tanked bigtime today on credit fears which means the ability to borrow money for mortgages.
Stocks plunge on credit fears
Globe and Mail Update
January 15, 2008 at 4:41 PM EST
Canada's benchmark stock market plunged more than 375 points Tuesday, with the big banks paving the way lower after Citigroup Inc.'s financial results sparked fears of further subprime mortgage market troubles and on concerns that the U.S. economy is headed for a recession.
The S&P/TSX composite index tumbled 381.50 points to 13,316.78, its steepest drop since at least July. The index has lost 3.5 per cent so far this year.
“We have a mini panic going on,” said David Cockfield, a fund manager at Leon Frazer Associates Inc. in Toronto. “People are shaken enough by some of the financial numbers that they just want to get out. We have a lot of very nervous investors out there — retail as well as institutional.”
Murray Leith, director of research at Odlum Brown in Vancouver, said investors are coming to grips with the realization that economic growth is slowing, not just in the United States but around the globe.
“The idea in 2007 was that the rest of the world was decoupling with the U.S. and slowly, painfully slowly, people are realizing that the rest of the world is also going to be impacted by this credit crunch,” he said.
A global economic slowdown would have a major impact on Canada, cutting demand for commodities.
Tim,
Don't forget to mention the Olympics (Sarajevo also had Olympics), that we have the best climate in the world, every Canadian wants to retire here (though most are now buying detached single family homes in Phoenix with pools for less than$150K and best of all, we have the highest percentage of old polluting cars in Canada (dumping raw sewage into the ocean is another story). The truth is, the majority of the population in this city is simply poor. Your nonsense will soon coming crashing. The only reason prices have escalated so fast is because of the artificial demand created by speculators. That will soon end as it did in Florida, Arizona and is now happening in Alberta. Maybe it is a sign of desperation that you have to resort to blogging to sell your wares. Isn't business booming out there for you?
I am glad that Tim is blogging, although his blog from the few first posts that I read is mostly re-publishing feel-good news stories about RE, with the exception of that post on wine.
Anyway, point being, if we treat him like dirt, he likely won't participate here. I'd like him to stick around, I'd like him to answer our questions and I give him kudos for not participating anonymously, which is more than what most of us here (myself included) do.
Anyway, please don't bash him. He's chosen to make a living selling RE. If he's been in the game for the past 4-7 years and is good at what he does, he's likely doing OK. I don't think RE sales is an easy money gig in any market condition.
Please Tim, if you come back around, I'd appreciate further insights, even if you choose to join us on the dark side and post under an alias. :)
Where's there's panic buying there is panic selling,even in the RE bizz,no one wants to go bankrupt cause they got a little greedy,they will sell and take a small loss rather than wait and get killed....this ship is goin down and not in a year or two, the next three months will clearly demonstrate this, the party is over Tim,we aren't naive here.
"And always remember that if you are in fact buying a place to live in long-term, rather than to hold and flip, you're hard-pressed to find anyone who's owned property for 30 years and not ended up ahead. "
I don't buy that theory, my sister bought two houses at the peaks and had to sell at the lows in two different communities due to career changes and she is just now paying the last of her mortgage now 30 years later when if she had waited by a mere 2 years on either sale she would have been mortgage free 10 years ago. Timing is critical and Tim's comment is just an ole real estate agents tale.
HHV, I am not going to bash but I won't listen to RE agent pumper BS after all this time. I am not sure what he has to offer here except to drum up sales in what must be a slowing market,take that as a positive indicator for the bears.
Just when I was thinking of getting Russell to list my rustic cabin with ocean glimpses in Sooke for $1M, I find that he's spent his commission on too many drinks. If only he had made less commission, maybe he wouldn't have splurged on this trip to Miami. Speaking of Miami, why would a RE agent from Victoria go there? To pick up some cheap real estate? I thought Victoria RE agents don't subscribe to the notion that RE prices can fall?
http://www.canada.com/victoriatimescolonist/news/story.html?id=7c0667a1-a048-4235-a40e-c40fcd5bf98f&k=42461
VG:
You are correct. Timing is everything. I sold my house at a loss in the Sandy Hill area of Ottawa in 1999 for $136K, after commission, due to a career move. I had bought it in 1990 for $160K. Two years later it was listed on MLS for $325K, and last year I saw it listed for $500K.
"And always remember that if you are in fact buying a place to live in long-term, rather than to hold and flip, you're hard-pressed to find anyone who's owned property for 30 years and not ended up ahead. "
Tim's statement is factually correct but it is misleading.
Thirty years ago the workforce was much different than it is today. The concepts of the gold watch, one career or company in a lifetime, residing in a city/town for life and low divorce rate were still common. Today's reality is much different. The workforce is more mobile, careers change, marriages fail more often and people move from place to place more frequently.
Who is going to buy a property today and be there twenty or thirty years from now? Estimates currently average around 7 years. We are not talking about buying a 25 year bond for your RRSP. The purchase is a home and lifestyle. If circumstances or opportunity make a sale necessary there is a distinct possibility of selling below what you paid as noted by the poster who had to sell a property in Ottawa (which is a world class city)
The "real estate in the long term" statement is one that is used to convince FTBs and those without much financial experience to take the plunge. I personally find it disingenuous at best and somewhat manipulative.
HHV started this post with a discussion concerning the lack of disclosure and risk caveats by the real estate industry and here we have an example of why legislative changes are required for this industry.
Some readers may comment that it is obvious that you might lose money in the short term and that future increases may be affected by interest rates or changes to the economy. However, other investments like stocks, bonds or mutual funds have disclosure rules outlining risk in detail and brokers are prohibited from making unsubstantiated performance predictions.
Since the real estate industry and homeowners are now considering their home an investment further regulation is now required. Don't even start me on the pre-sales condo scam.
"there is no such thing as a "Standard" commission"
My experience on more than one occasion has been somewhat different. I was told that if I wanted to get the best "exposure" for my house I should pay the full 6 and 3. In other words the other agents would be less interested in bringing clients if they saw that a lesser fee was being paid.
So a buyer may never see his ideal house because it is listed at too low a fee.
Should have seen the reaction I got when I suggested an hourly commission of $50.
Not much selling at the Breakwater ( http://www.thebreakwater.ca/pricing.htm ). It's sitting been empty for the last 4 months and starting to look like a ghost town. Soon there'll be grafitti, squatters and crackheads. Also, such soddy quality. When I walked my dog by it today, I noticed the short perimeter concrete wall was falling apart. Must have not mixed the cement properly.
Brett and Kevin make such a nice real estate couple. http://www.koetkejones.com/feature_properties.php
They just ooze with success selling unbuilt condos.
Tim, why isn't your RE society condemning this sort of gimmicky practice of selling assignments?
Better not catch on the plane to Miami.
The Breakwater townhouses are selling for three times the median price of Victoria townhouses in 2007. They are obviously not representative of the market.
"In short. Buy now if you've got the means to do so, as we're not going to see any serious retractions of the market in the near future...."
Tim, I happen to have heard good things about you, so I will not bash you like I first intended to, after reading your statement above.
It says you are 'greener and younger' than most RE agents and even normal folks who were either never in the RE market before, or choose to FORGET the angst they witnessed in 1982 and other times.
You happened to have entered the biz just before the upswing started, so I forgive you.
Sorry, Timmy, but affordability is the key here. The manipulation of interest rates and/or the freebies which will be handed out----will do NIL to stop the carnage once PSYCHOLOGY changes.
I just met this poor person who bought a house 2 months ago, who has not slept well since buying. The fear is losing it all, which WILL HAPPEN. This buyer is an intellectual, not an idiot, but they honestly believed they would be 'priced out forever' if they did not buy NOW.
People like that should be renters. Less stress, and NO RISK! Why catch a falling knife?
BTW, I admire your spunk in revealing your name here. Please continue to do so. You're entitled to your opinion. Maybe we bears are only 'sourgrapers'. Thanks for opining, and I don't agree with HHV that you should ever post anon. Keep it up. thanks
Q: If Florida's 18 MILLION population were not capable of stopping their RE bubble from popping out loud, will Victoria's 300,000 people hold up our market, seeing that 74% of sales were/are to locals???
A: A loud NO
Tim Ayres:
Thanks to HHV for trying to calm the masses. And thanks to those who didn't bash me.
Those who suspect I'm relatively new in the real estate business are correct; I've just entered my fourth year of licensing. And in 1982 I was just learning to talk.
However, I don't think that makes my opinions invalid.
VG: "HHV, I am not going to bash but I won't listen to RE agent pumper BS after all this time. I am not sure what he has to offer here except to drum up sales in what must be a slowing market,take that as a positive indicator for the bears."
And I thought I was a cynic. Wow. The reason I am here is to offer insight from somebody who is actually involved in the day-to-day business of real estate in this area. I blog because I like to blog. Not to "drum up sales."
I'm not going to argue about the market going up or down. It's pointless on this board. I will respond to queries, and will ignore rude retorts. And, if the time comes for you to buy real estate, I hope I'll have convinced you that I'm not an evil real estate agent bent on commission dollars, but somebody knowledgeable about the market that can help you.
HHV: "...but every conversation that I have had with every REALTOR I have ever dealt with always invariably contains a claim to "great investment" or "guaranteed equity."..."
I can't deny that lots of agents are like this. I don't think some of them realize (or care) that the advice they give could be relied upon and hence become liable for. I'm very careful in talking to people about this. Some real estate boards even have a clause in the contract of purchase and sale similar to investment product clauses: "past performance is not indicative of future success, etc." In all I think it's a good idea to do so. If a client comes to me seeking investment advice, I have a good accountant and financial planner I can refer them to for solid, independent advice.
Anonymous: "...BUT, if the property is a pre-construction condominium complex and the agent or his/her company has purchased several of the suite options in the complex in order to get the listing contract for the building, the agent does not have to disclose that to a prospective buyer..."
I'll admit that I've never come across this, as I'm not involved in project marketing, but the individual agent still has to disclose if he or she or even the brokerage has an interest in the property the client is buying. I don't know how your situation above would change things. Perhaps you could clarify?
Anonymous: "...Maybe it is a sign of desperation that you have to resort to blogging to sell your wares. Isn't business booming out there for you?..."
I blog because I like to write. I have plenty to do, and yes, business is picking up.
HHV: "...I am glad that Tim is blogging, although his blog from the few first posts that I read is mostly re-publishing feel-good news stories about RE, with the exception of that post on wine..."
Thanks HHV, and you're right. I have recently decided to change direction on my blog. I have separated it from my marketing website and I hope it will evolve into a discussion place and advice source for consumers. You will still find the monthly real estate stats and the odd news story, but the flavour of the blog will be moving away from sales and marketing.
Anonymous: "...I just met this poor person who bought a house 2 months ago, who has not slept well since buying. The fear is losing it all, which WILL HAPPEN. This buyer is an intellectual, not an idiot, but they honestly believed they would be 'priced out forever' if they did not buy NOW...."
If he/she can afford the mortgage payment, then why is he/she afraid of losing it all? Why is it guaranteed that it "WILL HAPPEN?"
Also, where did the figure of 74% come from as far as sales to local people? The last I heard it was closer to 85 or 90%, with 5% coming from other areas in BC and 5% coming from out of province and USA. But maybe you have another source of information.
Thanks to all.
-Tim Ayres
Globe & Mail article today - big banks want to hold steady on prime rate due to credit problems even in view of Bank of Canada lowering:
http://www.reportonbusiness.com/servlet/story/RTGAM.20080116.wrprime/BNStory/Business/home
Tim -
that 74% figure came from the local head of VREB, Tony Joe. I would presume it is therefore not innacurate, 'cause VREB wouldn't spin or publish inaccurate stats, right?
olives -
they are widening the spread, if they hold the line on mortgage rates, it hasn't stopped them from dropping savings rates.
Must mean some of these banks are in serious trouble.
But that won't have any effect on the housing market, right?
I would think that a good indication of the strength of the real estate market is related to the number of agents actively working in the field. A good real estate market means more agents entering the profession because of the anticipated income from all the homes selling at high prices. When homes aren't selling and at lower prices then I would expect less agents to be licensed. I believe that, in BC, agents are required to re-license every 2 years; so the numbers of licensed agents does not necessarily continue to increase. Only agents who see a source of income would bother to re-licence. I would expect there should be some correlation between numbers of active real esate agents and housing prices.
The Financial Post printed a story today on how active agents have increased this year in comparison to last year.
http://www.nationalpost.com/todays_paper/story.html?id=241072
So obviously, CREE keeps track of numbers of agents but I can't find it on their website. (It would be best if we could get just the BC numbers.)
I'd like to see a chart showing the last few years -- is the number starting to plateau? Is it still increasing exponentially?
Does anyone know of reliable statistics on Canadian (or BC) real esate agent numbers over the last few years?
The increase of RE agents are speculators who can't sell their empty properties and getting desperate
I wished there was the equivalent of a short sale in RE as with stock equities. Time is ripe to short the Victoria market. Why with all the Alberta "investors" buying bargains Phoenix, the Ontario retirement crowd buying in Florida, the only speculators left here are the locals. Given the low salary levels here (we're not a headquarter city with thousands of executives, just a bunch low level government, geriatric, hotel and retail workers nowhere near earning 6 figure salaries), these poor souls on are shaky financial footings. The bloodbath is coming and very soon.
Either way, bad or good market, RE still pocket good money as stock brokers do. In fact, they do better in a down market as they are fewer of them to claim a piece of the pie according to the article in the National Post. In that case, it would behoof the career agents to promote a bear market and filter out the opportunistic RE agents. What a concept.
anon 3:39 PM said
In that case, it would behoof the career agents to promote a bear market and filter out the opportunistic RE agents. What a concept.
Aaah you mean switch the line from "Real estate always does well over the long term and is a good investment" to "This is a good offer under current market conditions and you may get less a few months from now."
However the agent can continue to use this line in the bar and at the office: "I had a really great month and sales were brisk. Commissions are still rolling in."
Thats what I figgered,barely 3 years experience caught at the peak of the wave and never had to struggle thru nary a rough water. I give you credit for catching the wave at the right time Tim but we all know the stats of who survives a serious correction in the RE bizz,not many.
And if you don't see any possibility of prices going down anytime soon then I am afraid you are in for a rude awakening and are not paying attention to world events and the serious effects the recession is going to have on us.
Just a refresher for you Tim,this whole housing boom is the device of the US Fed who wanted to avoid a recession after the tech crash and decided to pound down rates to unheard of levels to avoid the inevitable but this time the inevitable is in the "trillions" of dollars,not billions. If you think us in little ole Victoria can avoid a correction then you need to do some serious DD on "derivatives"
and how we will all be effected.
Lets not get into psychology and affordability,we have been thru those too many times now.
VG,
Seem so bitter. I would not be so bold to make the statement that you made to Tim re: about decling of prices. I am not sure if you are in this boat but many bears have been on the sidelines saying there is going to be a decrease for the past three years. Well, I guess you are due...
People make money and people loose money in all markets. In my opinion a crash does not help anybody out. More jobs, more wealth,boomers retiring, more entrepeneurs, healthy business will hopefully lead to higher wages to make homes affordable for enough people. All I know is that if we crash then it sets us back as a whole.
I cannot afford a SFH in Metro Vancouver (can in Victoria) but I strive for it everyday. I do not wait for a crash.
To me that is a cheap way out.
^^ No pun intended for cheap way out. I just mean you are not pushing yourself to overcome obstacles.
Sounds like Tim is now the anonymous post of January 16, 2008 10:51 PM. Tim, turn on the TV and watch the news, man! Do you have a TV? Do you have a filter that prevents you from reading/listening/reading news from outside of Victoria? Man, we are going into a recession, and this is the biggest ever housing crash in history. Hold on as you will have to pay buyers (not they pay you) to take on your Sooke crap/marsh land/condo assignments or whatever the heck you are peddling. Plenty of sleepless nights for you in the years ahead.
Sorry, not Tim, ask HHV to check IP records.
By the way, I think you must be watching CNN as Canada has not hit a recession.
Anywho, what about the last three years? Fundamentals were completely off yet I and many other made some money. Mine was not done in the form of investments as I was buying primary residence but had to sell twice do to moving.
As I have said to my friends. One thing is certain in RE. If you like it, want it, can afford it then you will be fine.
I find it more amusing that people try to justify RE as a primary investment. Take a look at the top 400 of forbes and see how many people made it on the list due to RE. Not as many as someone who had done well in Business.
There is too much emotion in RE that gives it an "x" factor.
Make enough to buy in a peak market and you will be able to buy in a down market.
me bitter ? LOL hardly anonymous whoever you are. I don't buy over- valued real estate,stocks or collector sports cards.
Those who overpay wind up being a bagholder in the end, I have lived thru it twice so why is this concept of a price decline so far fetched to these people ? inexperience, that is why.
And why have people been wrong the last 3 years ? the invention of the 40 year mortgage which is the equivilent of the subprime mortgage in the US as they lend out huge amounts of money to naive people right here in Victoria BC doing the same juicing the books to make people qualify when they have no business owning a home making $15-$17 an hour.
This bubble should have ended 2-3 years ago but the media blitz told you that you have to own a home no matter what... before it's too late....the biggest fraud line used in history.... LOL ...me bitter ? I am stoked for the correction and I won't shed a tear.
"the invention of the 40 year mortgage which is the equivilent of the subprime mortgage in the US"
That's arithmetic nonsense. If a borrower requires income verification, a non-zero downpayment and a decent credit score, then a 40 year amortization is simply an option to manage payments versus pay-down of principal. A sub-prime mortgage is basically the opposite of that--no income verification, no down payment, and lousy credit--no problem. In that context, amortization (if it's not an interest-only loan) is irrelevant.
As for the past three years, I don't recall anyone saying that a correction is going to begin on a certain date, but the point is that it will happen eventually. Who knows, prices may increase in Victoria for the next 2 years before they level off and then correct - I can't see it though taking into consideration all the chaos that is going on not only globally but in Canada as well - and it seems like the Bank of Canada is losing control.
Canada will be affected period, and sooner than you might think. Not 2 months ago the loonie was at 1.10 cents US... it's now at 97 cents. Oil surged to $100 and yes its back down to $91, but forecasts are as high as $1.50 at the pump this summer. And we all know when gas goes up, within months, EVERYTHING cosumable goes up due to increased transportation costs. The federal government cut back on additional tax breaks because they are expecting tough times ahead. The CEO in my company advised in Q4 of 2007 to all employees that the outlook for 2008 was not great and to expect much lower bonuses (I work for a bank, albeit not in finance related depts). The TSX just broke down into the 12,000 range today... remember it was at 14,000+ last summer. We're already being affected economically, and the US recession is not even here. Sooner or later people are going to realize that they can't afford what they used to, and eventually the RE market will get hit. Maybe its Q4 2008, maybe its Q4 2009... but by 2010, you can bet the RE market will dive... even all my bullish RE friends expect a sell-off due to the Olympics as rational or irrational as that may be. Oh and don't even get me started on rents. One of my family members, just raised his rent by 40% on new tenants, and was still able to find tenants in less than 4 days in downtown victoria... if all of this is not a sign of erroding affordability, I don't know what is.
VG,
So you have lived through it twice? I guess you would be smart enough to figure out what anonmous is saying about wanting it, being able to afford it, well work out in the end no matter when you buy it?
If you bought at the peak in 1981 and were able to afford it and held on to it till know would you not be ok?
Remember, the value of your home only affects you when you want to sell. Equity is an advantage to housing not a necessity. If your home drops in value and you can not borrow against it it is not the end of the world.
I agree with anon saying that if you can afford it, want it, it will work out.
You can keep saying, if you know prices are going to decline would you not wait. The issue is that nobody knows for certain.
As for the past three years. It does not make a difference what triggered the runup. I will ask you the same question, if you knew that easier lending was going to increase the value of your home should you have not purchase and sold at the peal?
^^ Tons of spelling errors - got a little heated while writing. Sorry!
"Equity is an advantage to housing not a necessity. If your home drops in value and you can not borrow against it it is not the end of the world."
This is precisely the difference between poor (financial) mentality and rich mentality.
A house is the biggest 'investment' you will ever make in your life. Knowing this, a smart person would buy when fundamentals are favorable and sell when they are out of whack. If you buy when the market is high and about to start coming down, you DESERVE to work for the next 40 years to pay off your mortage!
As for me, I'll happily wait 2-4 years and retire 10-20 years earlier, thank you very much.
Here's a quote I once read: (paraphrase) "The opinion of the majority can never amount to genius, because genius only belongs to a few select individuals whom are capable of clear and concentrated mental effort".
Buying RE without looking at the fundamental and what's going on in the enconomic market place is like going to the casino and betting your entire life savings to a game of chance. You might get lucky, but you might also lose your shirt; and likely you will quit too late.
Anon January 17, 2008 10:29 AM - It is a good time to buy. I have brought a detached home on 1 acre with a pool and jacuzzi north east of Phoenix for $185K over x-mas. I went there on vacation and couldn't believe the prices. I'm thinking of getting a 2nd mortgage for my property in Victoria and buying the property next door in Phoenix (also has a pool) which just has been price reduced from $195K to $175K. What a deal! Good time to buy.
Anon said: "If you bought at the peak in 1981 and were able to afford it and held on to it till know would you not be ok?"
The problem comes up when the rates adjust upwards and you can no longer afford the payment, OR it's time to renew but you can't qualify because you are under water, OR you need to sell due to divorce, job transfer, etc. etc.
I think also the psychology of the market/situation comes into play - whereby it is currently normal to extrapolate the good times into the future, the same thing may happen in a downturn when people become pessimistic.
I wonder how many people in Southern California, Arizona, or Florida right now are able to afford their payments, but may eventually walk away anyways when their debt exceeds the current market value of their home by $100,000, or $200,000, or more. At some point, and for some people, maybe it doesn't even matter anymore if you can actually make the payments.
nick said...
A sub-prime mortgage is basically the opposite of that--no income verification, no down payment, and lousy credit--no problem. In that context, amortization (if it's not an interest-only loan) is irrelevant.
I'd have to disagree here - a subprime mortgage is not at all "no income verification, nothing down, etc". It is simply a mortgage where the buyer has a FICO of less than a certain amount. In any case, the problem in the US extends to prime mortgages, alt-A, you name it. The problem was loose lending practices, and unaffordable, bubbled-up prices.
IMHO, amortization is not irrelevant - the fact that the 40-year mortgage is now the norm in Canada indicates that people are stretching themselves to absurd mortgage amortizations purely to afford the monthly payments.
If you bought at the peak in 1981 and were able to afford it and held on to it till know would you not be ok?
If you bought at the peak in 1981 or now, you would only be able to "afford it" if you were earning an income massively above the norm. But yes, if you made $100k in 1981, bought at the peak and didn't lose your job, then you were OK 20 years later.
Remember, the value of your home only affects you when you want to sell.
Sure, but the price of your house affects you when you buy it. Massively. And if you can afford a $600k POS house now in Victoria, bully for you. But most people can't. And you will be paying $4k a month for the next 40 years. You may well be OK in 20 years but you will still look like an idiot and you will have wasted a lot of money that someone who bought the same house for less will not have. So I guess this is a case of "more OK" and "less OK". And if you've taken on a 600k mortgage you can just afford and you lose your job or something else happens, you are not OK at all.
But point well taken. If you can comfortably afford to buy a house today, even if things change, and you can stay in it for decades, you'll likely be fine. But this is a truism. The point is that this applies to very few people. You may as well say that if you can afford to pay $50 for a chocolate bar, you will be all right. But it was still a stupid and wasteful thing to do.
Billy TwoBaulz
"As for the past three years. It does not make a difference what triggered the runup. "
If you really think this then I am afraid you have shit for brains,pardon my French.
Why do you think the US market is going down ? they have lots of jobs coming out their ying yang,but now it's slowing,what do you think when a market slows ? people stop buying expensive overpriced things like $400,000 700 sq Ft boxes ? DUH
Have you watched the stock markets the past week ? they are tanking ....read the paper ? don't look good when there is blood on the streets and people lose on their investments....where do you think psychological optiomism to buy an overpriced house comes from ? open your eyes Mr. Anonymous,you're on another planet.
Did Mr. Anonymous see the mortgage broker the other nite on the news ? he said NO ONE should be taking out a 40 year mortgage,but they are... WHY ? cause they can't qualify otherwise cause they can't afford it.
This crowd that thinks the party never ends cause we live in Nirvana is so hilarious. Probably the ones who own 3 condo's and a chalet at the ski hill as well all with nothing down.
Interesting article from the Saanich News:
"Rising values
January 09, 2008
Strong economy helps 144 more homes top the million dollar mark
Residential property values in Saanich are up about 10 per cent from last year, according to the 2008 assessment, released last week. While the margin of increase has declined over the last three years, from 20 per cent to 15 to 10, the area assessor with says the trend doesn’t predict a downturn in the real estate market.
“It’s still a pretty good increase,” said Brian Hawkins of BC Assessment. “It’s still an indication that the economy is strong.”
The overall assessment roll in Saanich increased from $21 billion in 2007 to more than $23 billion this year. In School District 61, the average single family dwelling jumped from $490,000 to $534,600. In SD 63, it increased from $623,500 to $670,900.
As for million-dollar homes, 144 new properties attained the status this year, bringing the total to 843.
These few houses on the upper end were largely responsible for the assessment increase, said Wayne Schrader, owner of Remax Camosun. He predicts a strong market in 2008with price increases at around five or six per cent.
"The number of) homes sold will drop a bit from 2007, because it was that busy of a year,” said Schrader. While it was a seller’s market in 2005 and 2006, this year has been more balanced, he said.
AS THE MARKET BEGINS TO SLOW SOMEWHAT, PEOPLE ARE BEGINNING TO SELL OFF THEIR SPECULATIVE PROPERTIES, making more houses available on the market. This, he says, is really good news for buyers.
Many Saanich farmers, however, are still waiting to hear some good news from B.C. Assessment. Over the last few months, 97 farms were reclassified as split-use, resulting in significant tax increases.
While the minister of small business and revenue has called for a review of the reclassification, farmers are still waiting to see if they will be returned to farm status.
“We did our inspections and reviewed the situations with those farmers,” said Hawkins, “and we’ll continue working with them throughout the review process to make sure we have all the information to base our decision on.”
Hawkins says he has heard from almost all the reclassified farmers and says he’s sure some will be returned to their full farm status. The deadline to appeal any assessment decisions is Jan. 31. Formal complaints will be reviewed by an independent panel between Feb. 1 and March 15."
S2
"As for the past three years. It does not make a difference what triggered the runup. "
I would think that if the run-up was due to a massive global credit bubble at the tail end of the business cycle, then this is much different than a normal real estate cycle - and will end much differently and more dramatically.
Olives, I am amazed at the naivity showing up here. If the opposite happens of what drove the market up then shouldn't the market go down ? common senses and economics 101 says yes but some folks have their own theories and those will be the ones in the most pain when it eventually hits here.
US housing numbers out today worse in 27 years, recession fears everywhere, even our own Finance Minister Carol Taylor told us in polite terms that tough times are coming soon but not to those in the RE bizz in La La Land,we're different.
vg, you shouldn't be surprised - with few exceptions, if people are gifted and knowledgeable about global business, they are not in Victoria. They're in Toronto if they're mildly skilled, and in London, New York, Hong Kong, Paris, etc etc if they are highly skilled.
A CFO of one global company I worked for was from rural Saskatchewan. There are no prizes for guessing how much he'd been back to Saskatchewan since making it big.
Even the UK market is turning on a dime down the biggest amount in 15 years.
This is a global event folks,it was global when it went up and it will be global when it goes down.
thanks to patriotz who posted this on the Van Condo blog.
Housing market closest to slump for 15 years, say chartered surveyors
· Tighter mortgage controls and interest rates to blame
· Professional body urges Bank to make rapid cuts
The Guardian, Wednesday January 16 2008
House prices across the UK tumbled in December at the fastest pace in more than 15 years as tighter mortgage lending and higher interest rates pushed the property market closer to the biggest crash since the early 1990s, the Royal Institution of Chartered Surveyors says today.
"If you bought at the peak in 1981 and were able to afford it and held on to it till know would you not be ok? "
If you bought in 81 and watched all your buddies buy a house at half the price then what you did within a couple of years,would you not feel like an idiot for a very long time and that they paid their place off in half the time you did ? That's alot of pain to endure,no thanks,I have the patience and experience to know when it smells like a correction is coming, it is.
I may have been off by a year but I have saved a bundle and made a bundle investing it instead of dumping it into the bank payments at 90% interest.
oh VG, don't be so hard on people - most people think the topic of "economics" is a total bore.
Even then, most of those who have an interest think the theory of business cycles is bunk.
VG,
Last time the stock market crashed people dumped their money into Housing.
I think that last time the stock markets crashed the economy began to contract and interest rates were slashed and credit furiously pumped out and normal lending standards put aside, which then led to even bigger problems via the real estate mess we are currently in globally.
This time if the stock markets crash - a credit crunch has already begun - both lending and borrowing is drying up even as rates are again lowered. As we saw yesterday, some Canadian banks do not appear to be even able to lower rates. Is it pushing on a string at this point?
VG, Olives, HHV
I think we are wasting our breath with many readers. If one has not experienced a real estate or stock market downturn before it is difficult to accept that things can change quickly. Getting older has few benefits but hindsight is one of them.
I have seen the stock market crash several times and have seen real estate tank in Ottawa, Toronto, Calgary and Vancouver in years past. It usually starts with smugness, followed by denial, then fear and finally ends with desperation or capitulation at the bottom.
Most Victorians think this is a special place and those that benefit from real estate sales will keep pumping this to the end. I have heard it all before in the other cities I have lived in before the market turned.
For those that bought a few years ago I congratulate them on their purchase and hope that they can keep up their payments as the economy starts to falter. The ones I feel sorry for are the recent and upcoming spring buyers that are stretched to the max on payments and amortized out for forty years. Many may believe that they can just walk away and leave the keys at the bank because they only put down 5%. This is a fallacy - the bank and or CMHC will hound them into bankruptcy.
I do not wish homebuyers any ill at all and by posting here am just trying to give them a balanced point of view. Speculators, on the other hand, have just driven up the prices for quick profit and will get their just reward.
Total number of new condominiums for sale in the Greater Victoria Area -
537
Total number of sales of new condominiums for the last 90 days -
106
Number of months to absorb the current supply of new condominiums -
15
Too many condos too few buyers
POP!
Roger,
I value your points and believe you do provide balance. On the other hand I do not value VG as it seems like he/she is someone that posts out of frustration.
As for the crashing of markets I do not disagree with your insight. The only thing that I try to state is that everyone is not in the same financial position. I also believe that if you are someone that can afford a home, want/need a home, you "historically" will have a good outcome in the long run.
Getting back to VG. As for me buying at the peak in 1981 and my friends buying for half price after. In the end it still depends on when they sold and for what profit. If they sold at the same time as me and made more profit - good on them. I made money and they made more (seems like life to me).
As you can tell, I am not a greedy person.
I do not wish for a crash to this housing economy. I would rather see a plateau. Not for personal reasons (I have my home clear and free) but because I would like to see the Canadian economy keep on jugging and would like to see our wages become tops in the world. I thing Victoria and Vancouver are incredible and that is why I choose to live here. I hope it becomes more affordable but in a reversal method, pay our professions more, not have a catastrophe to bring back affordability.
anon said
I also believe that if you are someone that can afford a home, want/need a home, you "historically" will have a good outcome in the long run.
As I stated in a previous post this only works for people who can stay in the home for many years. Parents who have lived in their home for twenty-five years will often try to convince their kids to buy based on their experience. RE agents will tell you that today the average home ownership period is around 7 years. Unfortunately, this is how long decline RE market cycles often last. In other words some folks will buy at the top and have to get out at the bottom.
You might ask "Why do they have to sell?" Many reasons including: job transfer; loss of employment, increased family size; illness; divorce; financial problems; retirement etc.
In particular the younger FTB can get really burned. Due to limited finances they may have to buy a starter home that is too small for their needs a few years down the road. At the start of their working life many of the factors I listed above may become their reality after a few years of ownership.
The problem with 40 year amortizations is that you are building very little equity in the first five to ten years. With taxes and maintenance a 400K starter property will have an occupancy cost of around $3000 per month. This is almost double what one could rent a similar unit. So if you have to sell in five or six years and the market turns you have lost your potential savings and may have a loan for a property that someone else owns.
Roger
I think we are wasting our breath with many readers. If one has not experienced a real estate or stock market downturn before it is difficult to accept that things can change quickly.
What makes this blog interesting is the discussion and debate. If everyone simply agrees with each other it would be boring.
"VG,
Last time the stock market crashed people dumped their money into Housing."
So what happens when the credit markets are so tight no one can borrow ? Hmmmm.
"On the other hand I do not value VG as it seems like he/she is someone that posts out of frustration."
I post under an identifiable name and not "anonymous". Very typical of your type to try to classify me as a disgruntled renter or whatever, I am completely the opposite. I am here to share my experience and wisdom from fools like you who believe all is going to be peachy while their is danger signs are everywhere.
"I hope it becomes more affordable but in a reversal method, pay our professions more, not have a catastrophe to bring back affordability."
Your theories of wages catching up to price affordability shows your lack of experience,when is this supposed to happen ? and at what % of wage hikes ? 10% a year ? LOL
You have a great inability to see what is happening in the stock markets and credit markets are going to be much nastier then anything you have ever seen. Buckle up buddy,cause if the markets really crash as hard as they might then there won't be anyone buying your house or your neighbors for quite a spell.
We are in a VERY critical point in world economy over the next few weeks and like I said before,please study the word "derivatives", there's $900 trillion worth of them hanging over our head like a sledge hammer about to fall. Best you do some DD on that.
" nick said:
A sub-prime mortgage is basically the opposite of that--no income verification, no down payment, and lousy credit--no problem. "
As per my earlier post ,the mortgage brokers in town just lent a young couple I know $300,000 with nothing down and they guy works seasonal and has no job,if they really checked his employment history they would have found it and he has no job at present. It is the same thing as subprime if no proper job verification is done correct ?
I often drop by the Financial Planning and Personal Sanity Blog to see what's happening.
Today there was an interesting post called
Wealthy people can be stupid too
I think the readers will find it interesting.
Where did all the non-bear voices suddenly come from? Don't get me wrong, I'm glad you're here, but can't figure out where you came from...
Man I am reading some brutal quotes on here,maybe some more RE agents in disguise trying to calm the masses like Bernake was trying today.
"If your home drops in value and you can not borrow against it it is not the end of the world."
Hmmm.... so it's not the end of the world ??...so then it means you have lost all your equity, or even worse, you have NEGATIVE equity and can't even get a basic loan cause you are in the hole maybe in the hundreds of thousands in a nasty correction.
Nope,not the end of the world but
what if you lost your job ? nope,no equity fund to tap into to tide you over,then it's called bankruptcy...nothing to worry about,forget about all the toys,you can't have them cause your broke dude.
Roger,
You are right. I posted earlier about buying a house in Sandy Hill in Ottawa in 1991 for $160K and having to sell it in 1999 for $136K. When I bought in 1991, everyone was saying this being a government town, we are not affected by the ups/downs of the economy, blah, blah.. we are special, just like here.
"Where did all the non-bear voices suddenly come from? Don't get me wrong, I'm glad you're here, but can't figure out where you came from..."
exactly my point HHV, are they Tim's RE friends/bloggers with too much time on their hands cause sales are slowed to a halt ? it appears so.
Did all these bulls hear Prime Minister Harper just tell us tonite that tough times are ahead ? of course not,they have condo's to sell dammit and we are not a good influence on those sitting on the fence.
anon 5:35 said
posted earlier about buying a house in Sandy Hill in Ottawa....When I bought in 1991, everyone was saying this being a government town, we are not affected by the ups/downs of the economy, blah, blah.. we are special, just like here.
You brought back memories for me. I lived in Ottawa for many years and remember that immune cause we're a government town story.
In Ottawa in the mid seventies I often heard buy now or you will be priced out forever
Don't the bulls have their own blogs where they can talk forever about how brisk condo sales are, the 10%/month appreciation, the best climate in the world, how the Olympics will triple the value of RE, the flood of US and Alberta investors coming here, etc, etc??
I find it odd that 90% of the posters here are called "anonymous" (bears as well as not-so-bearish people). Makes it tough to follow a thread, and why are people too timid to even make up a first name (and use it consistently) so they can be easily quoted?
I agree with nick, just using two letters like myself at least seperates you from the pack. Too many anonymous's to track back.
What are Derivatives?
Hi VG,
I've seen you post several times & warning about "derivatives", and recently mentioning something about 900 trillion dollars, which triggered my curiosity.
Unfortunately, after about 30 minutes of online research, whilst I found some info about what derivatives are and now have half a clue, I did not find any news about how they will impact the economy as you have been warning. So I'm wondering if you could provide a few educational links to what you are talking about? I trust you are refering to derivatives based on leverage?Thanks in advance.
For others also wanting to learn, here's a couple of links I found interesting re:derivatives.
1. Youtube Video (1yr old), on subprime derivatives for dummies
2. From BBC website: What is a Derivative? (read the section about leveraging)
Nick said:
What makes this blog interesting is the discussion and debate. If everyone simply agrees with each other it would be boring.
Actually, I prefer boring to hysterical, anonymous real estate shills who can't find a blog in line with their interests but instead have to spend time here telling people it will be okay in 30 years no matter what they do, so might as well buy now if you can "afford it", whatever that means.
Then they mention how unemployment is low and wages are up.
Unemployment may be low, but nobody working for a wage can afford to buy anyway, so that argument is irrelevant.
Mr. anonymous,
I led you to the water,do you want me to pour the water in your mouth too ? thats your job dude, I can't hold your hand when you don't think I am just a bitter guy and you can't come up with an original nick name for yourself.
I see you can google so thats a start,wether you have the right articles needed to understand the current market implications well thats up to you to find out.
I don't give up my prize sites to someone with such a sour dispostion towards me so keep looking,maybe you will get lucky,but I doubt it.
"I trust you are refering to derivatives based on leverage?"
Mr. anonymous,
just to show you I am a nice guy I will give you one clue.
What are those
derivatives "leveraged" against ?
Happy googling.
Wow - heated discussion. Not sure why VG is on edge. Seems like you have be sharing information for at least a year if not longer about "fundamentals" not being aligned and for some reason are ceratin it will snap back.
History proves that their are cycles but history also proves no one can time it. I know many people were able to get into a home 3 years ago but stated fundamentals did not support the prices. So, if you were on the sideline three years ago and now they want prices to go back to that pricing not sure why they did not buy at that time?
RE -
maybe they have saved some money in the last three years, or scored big in the stock market in the last three years....
Or inherited money in the last three years, or sold all their condo presales in the last three years.
Get the picture?
Greg
Actually, I do not get the picture. How does that affect them if they WERE able to afford it three years ago? Scoring in the stock market, inheritance etc just puts them off in a better position but I stated they were already able to purchase.
To me it looks like they did not want to pay that much then, but now they will? I guess when you see what someone/something has the potential to do you will hope that you get a second chance and usually you do - I just hope they do not sit there and do nothing when it does like many tend to do during all cycles.
I guess that is why wealth is not be more evenly distributed. Some people are willing to talk about it and some people are willing to act on it.
It's called valuation RE, even 3 years ago valuations were out of alignment with average incomes for Victoria.
Why did I wait ? cause I plan to own a home not a 600Sq Ft box for $350,000 and a $2000 mortgage payment the rest of my life nor a 800 Sq Ft bungalow that needs $50,000 in reno's, does that sound like fun to you ? Plus condo's have never appealed to me as a home,too many politics so I save,invest and re-invest and my few years renting will get me a nice sized house in another 2 years when the worst should be over and excess flushed out.
It's also called being patient,there isn't enough of it around anymore,everyone wants it now. An extra couple of years can be the difference between struggling to pay (like most people the last few years) or having 50% or maybe paid off completely.
RE - I think most people here believe the prices three years ago are irrelevant. In many places in the U.S. prices are already at or below the level of 2005 - prices may decline for another 10 years (or more)- impossible to "time" a correction (when and how long) at this point as someone mentioned.
If you bought at the peak in 1981 and were able to afford it and held on to it till know would you not be ok?
Yes.
Here is an example - my parents bought in the fall of 1981 because my dad got work out here. They sold their home out east and got 45k of equity out of it. They bought a 5 bedroom two level 2500 sq ft home on a 12,000 sq ft lot here for 120k and had a mortgage for 75k at 10% for the next two years. By the time they had to renew, interests rate were coming down off their peak and they got another 5 year term @ 12%. At the time of purchase, my dad was grossing about 40k a year, my mom stayed at home and looked after the kids. I don't know how he did it but he managed to pay off the mortgage in 10 years without making us eat kraft dinner every night or lighting up a room (that I know of). The last assessment was 450k.
What you should note is the purchase price and his salary. A ratio of 3 to 1. Today, that salary adjusted for inflation is around the 80k mark which is what most professionals with 5 years experience (like him at the time can expect). Can you get a house here for the same ratio (240k)? No, of course not, today a similar property will sell for at least 500k, a ratio in excess of 6 to 1.
All the usual arguments to explain why this has happened apply but I think one that often gets overlooked are family dynamics. Economists sometimes mention increasing divorce rates but they often overlook the fact that mom doesn't stay at home anymore - most married and common law households are dual income allowing them to take on a house that they otherwise couldn't afford if only one was working.
Regarding the original topic, I think regulating real estate anymore than it is would be a mistake.
First of all, self regulation is out of the question. You only need to look at the securities industry in this country to see that a sales-driven, commission based business can't regulate itself. Rreal estate boards and their 'mediation processes' don't count. You only need to be involved in one to realize they are a complete joke, designed to protect the real estate agent, not the consumer. Best to keep the self regulating thing to the true professions.
It's a given when government gets involved, you and I pay. Government regulation would only add to the already ridiculous cost of acquiring the services of a real estate agent and just like the provincial securities regulators, it would not have any balls or any teeth because they would cave to special interest as well.
I know some people might not have the time, but there is no excuse not to do due diligence in real estate (or securities for that matter). It's not complex - if it was, it would take more than a 3 month course to become an expert in it.
VG,
When the market decides to correct when will you purhcase? Considering that prices were not in alignment three or four years ago it would not make sense to purchase if prices do not drop below those levels does it?
@RE
You said
Greg
Actually, I do not get the picture. How does that affect them if they WERE able to afford it three years ago? Scoring in the stock market, inheritance etc just puts them off in a better position but I stated they were already able to purchase.
Umm, that's not what you said, you said:
So, if you were on the sideline three years ago and now they want prices to go back to that pricing not sure why they did not buy at that time?
Get the picture?
Not everybody who wants prices to go down can afford to buy now. Wake up, if there are less buyers, eventually prices will fall.
Last post was by me "RE". Considering we will be in a down market when you purchase when will you not kick yourself for buying too high while going down?
Because at one point fundamentals needs will kick in but it could drop lower and you may have purchased it more then your neighbour. Wouldn't you just hate that...
@ anonymous at 11.36 PM
Do a bit of basic economics - prices don't have to fall as far nominally because there has been inflation in the meantime - if we figure 5% a year, getting a house for $460,000 today is the same as getting it for $400,000 3 years ago.
Nominal prices do not have to fall as far as you would like to pretend.
Greg,
If I am not mistaken, prices will only fall based on if people need to sell?
Believe me, I am no bull. However, I do not just look at plain fundamentals when it comes to Real Estate. Emotion is a big factor these days that does not get enough wait.
When it comes to stocks you can usually detach any emotion based on the shear amount of number crunching and valuation.
Never heard of someone saying look at the view from that stock...
I do believe we will plateau and even dip potentialy 10-15% but going back to post 2004-2003. I do not see consindering that our economy is not in dire straights.
Yes our neighbours to the south play a big part in our lives but sometime little brother grows up to be better then big brother. Is this case, only time will tell. All I know is that our lending pricinples are not as exotic as the ones in the u.s. which contribute to huge portion of their issues.
@RE
If I am not mistaken, prices will only fall based on if people need to sell?
Ummm, not exactly. Prices will fall if people don't need to buy, or if there are not enough buyers - you can need to sell and not be able to sell. I know it seems impossible to all the real estate big shots and "developers" in the game now, but that's how it works.
On another note, did a realtor hire you to type this stuff from your pad in Manila or Delhi or something? How do you expect to be taken seriously when you don't even know how to correctly spell or use words like weight or sheer?
Consindering the learned tone of your posts, I would consinder I know a few more things about the situation than an advocate (erm, shill) who consinders to give advice on a blog without any credentials or track record to speak of.
Why should anyone pay attention to your economic advice? Are you saying we'll miss out on big time appreciation in the next few years?
I would consinder that if you go look at my site, or better yet, charles hugh smith's blog, or Mish's blog, you might want to consinder widening your horizons, before offering your wishful hypotheses about housing.
By the way, for the record, do you own or rent, do you live in Victoria, or for that matter, do you even know where Gordon Head is?
Give us your consindered opinions again as soon as possible, and we'll all let you know if we are duly impressed.
I'm just being strait with you.
Thanks for that Mish's blog, Greg. There was one particular article in there that really seemed to sum up a lot of the topics we've been discussing here for the past few months (aside from Victoria-specific real estate) and ties them all together nicely.
The article's title is Things that can't happen, and touches upon the US recession, the US Fed, sub-prime mess, derivatives, etc. A very worthwhile informative read, so thanks for sharing.
Also VG, I would like to let you know that there's more than one person posting under anonymous, so when I asked you earlier about more links re: derivatives, it was an honest question because I am interested in learning more, and yes I am a RE bear too.
I did take your advice and googled some more about what derivatives are leveraged against and came up with some pretty interesting articles about wtf is going on in this market.
1. Derivatives Monster, 2001 article When the "monster" was only some 50 Trillion large. FastForward to 2008, and estimates are 500 - 900 trillion! Yikes!
2. Central Banks can't determine how much leverage (in derivatives) is out there... hence the wide range above.
"VG,
When the market decides to correct when will you purhcase? Considering that prices were not in alignment three or four years ago it would not make sense to purchase if prices do not drop below those levels does it?"
I will wait til that time.And if this market gets like 1982 then why settle for 20% correction when a 30-50% correction is around the corner ? plus my investments have given me much more to work with,something I would not have been able to do paying $2000 plus a month plus all those unexpected repairs in the thousands.
As I have said it's all about valuation not wether you can afford it. Not all of us are 25 years old here and want to be paying a mortgage til we're 65 like all the fools taking out 40 year mortgages just cause they have to be in the market or they think they will never get in cause some slimy agent told them so.
My friends in the US just laugh their heads off when I tell them what is happening up here and the people who think we are immune to all this, they cannot believe the naivity.
Didn't Warren Buffett call derivaties "weapons of mass financial destruction"? (or something like that)
Am I the only one who seems to have caught what anon on Jan. 17 at 4:14pm said. Seems like it is someone who has an inside track and knows what they are talking about.
"Anonymous said...
Total number of new condominiums for sale in the Greater Victoria Area - 537
Total number of sales of new condominiums for the last 90 days -
106
Number of months to absorb the current supply of new condominiums -
15
Too many condos too few buyers
POP!"
S2
I saw that S2 - it is shocking, particularly in view of the amount of condos now under construction and/or planned. It's amazing that new condo prices are holding up as well as they are so far with a 15-month supply.
To those who wonder about all the ‘bulls’ coming out of the woodwork all of sudden, I’ll just relate my own motivation for tracking this blog, and as of now, for posting in this thread.
I am neither a real estate agent nor an acquaintance of Tim’s or anyone else posting here -- just a first time house owner in Fernwood, since 2004. I usually find it informative to read hhv’s blog, along with many others about housing in Victoria as a way of sampling different perspectives on the market. I’m not looking to sell any time soon, but you never know. And while I try to think of my primary residence as home and not an investment, I can’t help myself from straying from that path occasionally.
I expect I’m not alone here, and that others like me viewed Tim’s initial contribution as a healthy counterpoint to what has become an increasingly one sided-discussion in the comments section of hhv’s blog. Or at least it was something different.
A quick review of the archives reveals that many of the regular bloggers end up continually rehashing the same points over and over again—and probably have been doing so for the last three years. Not that I don’t empathize with their frustration regarding affordability…it’s just that there isn’t much left to remark on when the script for the comments section has pretty much already been written in advance. So when one sees a new contribution, it sparks a desire to contribute, and to cultivate new lines of discourse and discussion…
At least that’s how I felt 30 or so posts in to this particular comment thread.…but in the more recent contributions, I’m amazed with the veracity with which vg and others have ‘reclaimed’ the thread with their usual tired and hysterical rhetoric. To what end I wonder? The diatribes are so well scripted, the arguments so well canned (and often faulted) — really an exact mirror of the canned hype we hear from development bulls here in town…I suppose a bear might say, one must fight fire with fire? But I say hype from either extreme benefits none of us in between.
I don’ think a blog needs to be, or should be, even and fair handed. But those contributing to the comments might do well to help cultivate and nourish a healthy and robust debate as opposed to knee-jerk labeling of anyone with a bullish outlook as a ‘real estate pumper’.
Finally, hats off to the commenter who pointed out that a real estate crash in Victoria won’t likely help many bears, since so many of our livelihoods would be dragged down by that sinking ship. And to those begging for such economic destruction, I’m left only to wonder what personal financial blunders in your past have left you so jaded and bitter that you would wish such an outcome on anyone.
I am glad that there are others with different viewpoints contributing to these RE blogs and not only us hardcore bears.
It was getting where there wasn't much more to be said then what had already been said before.
I like the difference of opinions and debate and don't want to scare anyone off.
S2
5thbiz,
You said a lot words, but really brought nothing new to the table either. Please do contribute factual information that justifies bull mentality into the next couple of years - I'd like to hear that.
As for avoiding a rehash of the same bear stories, I'll spare you that today with some current news that (oops) support our bearish outlook...
TSX just lost 6% in the last 3 days in a row and we're at over 150 point loss today because the puny 140 billion dollar "economic stimulus" package from Bush is practically a joke. Expect the stock market to dive for several more days at least unless additional and substancial bail-out packages are offered.
5th biz -
some regular posters do rehash ad nauseum here. jmk anyone?
Don't pretend for one minute that if I went on a real estate agents blog and continually posted bearish statistics that they would be left there as a healthy counterpoint.
It's the pathetic marketing attempts by those who shouldn't care that is so transparent.
If you want to see where these arguments all end, and who is vidnicated, check out the blog archives at Patrick.net from fall 2005 to spring 2007.
When the markets turned, panicked bulls suddenly appeared on bear boards in the US to market the real estate dream, and probably unload their own highly leveraged properties. Not many of them left making their arguments there now.
Finally, hats off to the commenter who pointed out that a real estate crash in Victoria won’t likely help many bears, since so many of our livelihoods would be dragged down by that sinking ship. And to those begging for such economic destruction, I’m left only to wonder what personal financial blunders in your past have left you so jaded and bitter that you would wish such an outcome on anyone.
Just to give you some perspective here on my own situation: I don't feel overly jaded and bitter, just realistic. And I'm looking out for my own interests. This is the way that business and the economy works. I have lived in the UK the last 4 years, and have recently returned to the island. I sold my house over a year ago in the UK, because I believed the market was hypervalued/in a bubble. I was also aware that the US and parts of Canada were in a similar bubble. Thus I am now waiting for a correction in the BC/Canadian market because (a) this is what all the signs are pointing to, (b) it is cheaper and more convenient for me to rent right now, and (c) if a correction does happen, I may get a very good deal on a property. My livelihood won't be affected, because I don't have anything to do with construction or RE, and I work for a multinational that has no connection with Canada. This is my own doing, and I don't feel guilty about it. I grew up in Victoria on welfare, and I've had to make my own way in the world. If it's my position in the market that it will crash, and I am staying out and stockpiling cash for that reason, this is just my perfectly fair position on the market that anyone is welcome to take. There are risks to my position as well as being in the market - I accept those risks. But I don't accept any guilt you're trying to lay on me for "wishing ill-will" on people. You may as well say that my wishing the price of beer went down a little is wishing ill-will on my brethren in the brewing industry. Nonsense! To a large degree we must all look out for our own economic well-being and make our own investment decisions. I totally reject your implication that by not buying BC real estate right now and saving cash, that I am somehow harming my fellow citizens. I might well argue that I am helping the market to return to sanity.
You might draw an analogy with the dot-com crash - if you'd seen in the late days of that bubble how irrational it'd all gotten, would it be jaded and bitter to plan for and welcome the crash that inevitably arrived? Yes, this was a big problem for those who were heavily invested in the tech market, but they're big boys and girls and should have known what they got themself into. And nobody disputes now, after the fact, that the peak of the dot-com craze was just pure silliness and all the more damaging the longer it went on.
I recommend you read the following article, which points up some reasons why a drop in house prices is not an unmitigated "catastrophe/sinking ship" (even, as you have it, "economic destruction"(!)):
http://www.moneyweek.com/file/39374/its-time-this-house-price-obsession-ended.html
You make the assumption, shared by many, that a drop in house prices is bad news. I would submit just the opposite. Was the dot-com crash a total disaster, or a necessary return to sanity that helped to return the markets to health, and remind market participants that there is no free lunch? "Creative destruction" might be a fair way to put it.
I not only reject your assumption that an RE market crash in Victoria is bad news, but also your (frankly childish) accusation that I must have made past financial blunders to get to the position (or lack thereof) in the RE market which I hold now. I have done very well for myself, for which I do not apologize since it was achieved through hard work and intelligence. I would consider it a financial blunder of the first order to buy real estate in Victoria today. But that is my position, and I could be wrong. I would encourage you to display the same humility.
Billy TwoBaulz
An interesting perspective from today's New York Times on the changing face of the American housng market. Will we ever see such an opinion in the Times-Colonist?
http://tinyurl.com/2k6fy7
Next will be Oil dropping to below $60 a barrel due to US recession (less consumption = more supply = lower price for oil), which will grind the Oilberta projects to a complete halt (because break even point for oil extraction is $60 a barrel) and Canada will soon there after follow in its own recession, because the only substancial thing holding up our economy IS Alberta.
I am a real estate agent in Reno,NV.
And I approve the message above.
I would be lying if i say every word and phrase in this article was pleasurable.
But I commend the author for clearly expressing what's on many people's mind about half-truths in our profession. And how it can mislead the good majority.
This is a challenge for us in the industry. I despise it. Yet we know deep inside we need it.
I just had an interview with a very prominent local mortgage guy yesterday afternoon. (I will be posting the interview next week.) He mentioned about real estate investing as THE primal investment vehicle if you look at it in the long term. What really impressed me is the use of stats in basing his statements.
"How is the average JOe to argue with someone with stats in his hands." I began to wonder.
But it still is half-truths. All of it. Very dangerous.
Thank you for the challenge.
I was having a similar dilemna last week: http://renomarketblog.typepad.com//reno/2008/01/my-first-ever-r.html
-Joe Salcedo
Wow 5th Biz - I think there's a big difference between believing a recession will occur and "begging for economic destruction"
Honestly your post (to me) resonates fear, which only helps confirm the changing psychology from a socionomic viewpoint.
Denitely good to have have opposing opinions on the blog, it keeps the conversation going, even if some think its repetitive.
To all Anonymous posters
Please use a nickname when posting. It is very hard to follow the thread and reply when so many different people are using Anonymous.. It's easy - just check the Nickname button and use what you like. Leave the URL field blank - it is not required.
S2 and BillyTwoBallz you both sign at the end but use Anonymous. It would be nice if you signed with Nickname.
This has been an interesting thread with many different points of view.
Oops. Thanks hhv. I'll use nickname from now on.
anonymous 5:59, I would help more but please use a handle so I can tell you all apart.
To those wondering why I get a little heated on here,it is due to the fact I have seen many people in past booms get screwed to the max and wind up bankrupt cause some sleazy agent or dumb family member told them they had to buy now or they would never ever get in at the top. I like to help people and if some bull thinks I am a jerk I could care less if I have saved even one person from over paying by tens of thousands if not hundreds of thousands more.
With the economic signs the worst since 1982 is it not normal to be cautious and think clearly about the largest investment you will ever make in your lifetime ?
As far as a correction hurting everyone so hard it is not nice to wish ill will.... thats a joke,whose wishing ill will ? cause they are up a bunch of paper profits ? if they can afford it when they bought it and they have a good job then they should make it through a correction no problem correct ? ...especially if they plan to be there for 30 years right ? If you have visions of everyone lining up for the food bank who owns a house I think you aren't on the right track here of what I and other bears are saying.
As greg says,if we all showed up on a RE agent blog what do you expect would happen ? hmmmm.
Billy TwoBaulz, great post, some people don't get it that correcting markets is healthy for an economy,like correcting stock markets,it lets those in who missed the boat back in at a reasonable price...ill will has nothing to do with it.
I am amazed at the bulls that dont get the whole over valuation theory and that prices should just stay up because they were someone how smarter to buy.Some of us didnt even live here then or weren't in the right financial/life position then,it was not always cause we thought the market was overpriced 5 years back.
Calling VG, HHV, Greg, Billy, S2, Olives and other bears....
It is hard to be a contrarian. Perhaps we should just let Ozzie Jurock deprogram us
Learn The Secret to Real Estate Investing
Learn to Create Passive Income for life!
or … learn how to Flip for Fast Profit.
Any takers - should I warm up the passenger van and make a ferry reservation??
roger,
It will be interesting to see what Ozzie says at the World Outlook Conference in Vancouver next month. Those are very savvy investors who attend that show and they wont listen to his BS he pumps on the radio shows and news shows.
If he doesn't tell it like it is then he will be in for a rough ride. Like past shows he attended and they showed on video he seems to lighten up there and explain "the greater fool" theory as if to say "get with the program people,the market is overpriced,the easy money has been made ".
He has even said a month or so ago that the market is due for an 18 month correction here so he has given the warning too which suprised me at the time as that was on the radio show which he usually pumps on.
Forget about the financial speculation, just look at the facts at http://bubblenfizzle.blogspot.com/
Well Roger,
I'm kinda busy for Jurock and that van trip, but I'd like to schedule that -10% beer at the Bengal with you guys, like, let's all wear sunglasses, tap your noggin and I'll know you're in the know, no real names now....
I think we should walk around the Bengal growling like a bear at everyone until we find the other bears at the RE table. Could you imagine how many people we could freak out. Then again that may get us kicked out and since I've been kicked out of better places I don't need to get kicked out of the Bengal. :)
This is a good read:
The Black Swan: The Impact of the Highly Improbable
By Nassim Nicholas Taleb
However, if Nassim Nicholas Taleb is right, any attempts at prediction are a fool’s game. Taleb’s advice is to assume that really crazy things can and will happen. You should set yourself up so that you can benefit from good crazy things rather than being hurt by bad crazy things. His best-selling The Black Swan: The Impact of the Highly Improbable (Random House) elaborates on the unpredictability of life, a thesis first expounded in a previous book, Fooled by Randomness. Taleb ridicules the mathematical constructs underlying modern finance in what reviewer Peter Coy called “a richly enjoyable read with an important message.”
Hmmm 'bubblenfizzle',Victoria's housing bear blog #3. Yay! :)
A Sooke Question for Tim Ayres
Tim,
I personally know two people who moved to Sooke and then sold because the commute was too far to Victoria. One couple moved to Bear Mountain and the other to Langford.
I was curious about the Sooke market so I looked up the stats. Last month there were 12 single family home (SFH) sales. Today there are 120 SFH listed on MLS.
Your comments on this 10:1 ratio and predictions for Sooke would be interesting.
Follow up to my post to Tim Ayres.
Langford - 22 SFH sales in December and 91 SFH currently on MLS - ratio 4.14
Saanich East - 43 SFH sales in December and 117 SFH currently on MLS - ratio 2.72
City of Victoria - 32 SFH sales in December and 71 SFH currently on MLS - ratio 2.22
Would location, location, location be one factor to consider??
Roger,
we know the retracement will begin in the burbs, so those stats seem in line with what you would expect if this is shaping up to be a less than robust spring.
For anyone intersted, Doug Noland talks about derivatives this week:
http://www.prudentbear.com/index.php/CreditBubbleBulletinHome
Scroll down to "Daisy Chain" heading.
scary stuff olives,thanks.... but we're OK here,we have the Olympics and all that other good stuff.
This one is for you VG:
The staunches bulls in the U.S. become bearish - video of Jim Cramer admitting he is now a bear and predicting the Dow to be 2000 points lower in 3 weeks.
http://video.msn.com/video.aspx?mkt=en-US&brand=msnbc&vid=6b76c81a-dce0-4f5e-a9e0-d18410bac879
This is finally starting to get fun.
thanks olives, if that doesn't wake you up then nothing will.
Sure makes you want to go to an open house today doesn't it. ;)
VG said
thanks olives, if that doesn't wake you up then nothing will.
The video link that Olives posted was interesting. Your references to derivatives were food for thought. Let's consider the following for a moment:
- Subprime mortgage defaults have only just started with more US foreclosures on the way. More Bank subprime writedowns will be happening over the next few months.
- The financial market is highly leveraged right now with trillions of dollars in jeopardy. Offshore Hedge funds, in particular, are not regulated and lack transparency.
- Bond and mortgage insurers are having their ratings downgraded and many would default if they had to pay up. The counterparty problem is not well known but it will be soon
- Many feel that the US is in a recession now and that things will have to run their course. Over 70% of Canada's exports are to the US.
- The rapid rise in the Cdn. dollar is causing major pain for Eastern Canada manufacturers, Victoria high tech companies and the BC lumber industry.
- Stockmarkets worldwide have been dropping drastically in the last few months. January markets are a good indicator of performance for the rest of the year.
While the above may be unsettling to many, including our Prime Minister, we can relax out here on Vancouver Island. Just remember that many experts including VREB, CREA, RE agents, Times Colonist, Olympics Committee, and the local business community predict that things will be OK in 2008. What we have here is special and we are shielded from world events.
- 2010 Olympics
- Strong housing market
- Everyone wants to move here
- The boomers are coming
- Best weather in Canada
- Ferry separates us from mainland
- Victoria is a world class city
roger,
great post, don't forget CMHC has predicted 8- 10% price increases I believe, these guys must have the best drugs in town.
It's what all those derivatives are leveraged against and their "value", which is no where near what it is supposed to be plus there are derivatives bet against those original derivatives,it's a house of cards about to unleash it self with huge ramifications for the entire financial system.
This is where the inexperienced agents and even bankers don't get it or don't want to get it, or won't breath a word about it if they do know.
VG,
David Chapman is a Canadian investment advisor and author that has been predicting a day of reckoning for some time.
I recommend his informative article Derivatives disaster, hedge fund monsters?
A number of his other articles may be of interest to readers.
The worldwide financial system truly is a deck of cards. When will it fall?
"Ferry separates us from mainland"
Yes, I think this is it!
Tim Ayres:
Roger,
That's an interesting stat. In our office, we did have a slower December than 2006, so I'm not surprised at the numbers. The January sales are likely to be better. Anecdotally, in our office, agents have been surprised by the level of activity this early in the year. I went to show some clients some new houses this weekend, and 3 out of 4 in one particular subdivision (Arranwood rd) had conditional offers on them.
As far as predictions go for Sooke, I'd like to think that this market will perform just as well if not out-perform many others in the region. The reason is that the prices here are still $100,000 - $150,000 cheaper than Langford, even. That buys a lot of driving time/gas money. We also enjoy the lowest property taxes on southern Vancouver Island.
I think that as the region continues to grow, and people get used to the idea that you're going to have to commute, more people will continue to move to Sooke and the West Shore.
I moved here about 2.5 years ago, and was astonished that people said commuting from View Royal was "Too Long" at 15 minutes. Seriously. I came from the Vancouver area, where 15 minutes gets you very literally nowhere at times. The traffic problems in this region are nonexistant compared to major centres like Vancouver. Commuting will become more accepted over the years.
Thanks for asking, Roger, and I hope you take my comments seriously.
-Tim Ayres
HHV,
cant see the message box on the thread above once you posted the video (thanks for cutting it)
I see Merrill says house prices have to come DOWN another 25-30% in all cities on the west and east coasts to become more "affordable", what a concept eh ?
Housing prices to free fall in 2008 - Merrill
According to a Merrill Lynch report, home prices will drop 15 percent this year, and declines will continue in 2009.
January 23 2008: 5:24 PM EST
NEW YORK (CNNMoney.com) -- The worst housing financial crisis in decades is only going to get worse, a Merrill Lynch report said Wednesday.
The investment bank forecasted a 15 percent drop in housing prices in 2008 and a further 10 percent drop in 2009, with even more depreciation likely in 2010.
But for those who think that the worst is over, Merrill Lynch said that housing prices still remain comparatively high. The brokerage believes that home prices are still far above historical norms when compared to other measures such as rent or GDP. "By our calculations, it will take about a 20 to 30 percent decline in home prices to correct this imbalance," said the report
Why do we always try to compare Victoria to Vancouver!
Our prices are more in line with the Fraser Valley.
White Rock and South Surrey with Oak Bay.
Abbotsford with Sooke.
Langley with Langford.
Ladies and Gentlemen this aint Vancouver
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