Sunday, June 1, 2008

Sign, Sign, everywhere a sign


Blocking out the scenery breaking my mind, do this, don't do that, can't you read the sign?

Just got back from a fantastic weekend in Vancouver, enjoying the West End and running the trails in Stanley Park. Mrs. HHV's new pad is great, close to everything and costs us $50 a month more than we were paying in Victoria. Which, turns out, is a net savings of $100 a month because she walks everywhere and the gas bill for our 4 cylinder car is less than a quarter of what it was here. But I digress.

Man, are there a lot of properties for sale there. Everywhere we went downtown, there was either a place being built or a building with a half dozen or more for sale signs. And lots of rental suites available too. We even drove out to Pitt Meadows to her boss's place today and on one corner of their fairly new development there were 8 For Sale signs. I had a bit of a perma-grin going on all weekend. This sure is fun to see some of the regular posters on this blog's predictions play out.

The writing is on the wall. Anyone who hasn't seen it yet is either not paying attention or is blinded by emotions. The peak was sometime this spring.

Back on the homefront, my neighbours still haven't sold their place, but they did tell me they got two lowball offers on the same evening last week (why their Realtor couldn't parlay this into competing lowball offers is beyond me). Looks like they may take one of them. The last three weeks has demonstrated that the market is indeed different now and their confidence isn't what it was.

Every few months, the Mrs and I take some time to review our finances and our plans to see how well we are on our way to making them happen. We've decided that number one priority this year is to eliminate any debts (we still have a bit left in student loans to go) and number two priority is to preserve savings. She has a great stock purchase plan through her employer and I happen to believe bank stocks are starting to get back into value range, all factors considered.

We expect this market to turn slowly. First new condos will burst. They already have in Victoria. I believe it will take the Vancouver condo market to turn ugly to be the "climber falling over the precipice" that drags the rest of the market kicking and screaming with the MSM coverage of bursting bubble. SFH in outlying areas and re-sale condos in urban centres will go within a few months of one another.

We set our benchmark for coming into the market: no more than 35% of our pre-tax income for a SFH or very nice townhouse (without a suite) in a neighbourhood we like. Until this happens, we don't buy. If the market doesn't correct to what I believe it should, then we won't buy here. We have had no trouble finding good quality rental accommodations. We don't believe that we will in the future. If we can't find what we'd like when it's clear the market has run its course, we will consider leaving for the right opportunity.

In the meantime, as Patriotz says, we'll just "grab a bag of popcorn and watch as this show plays out for the next couple of years or so."

It will be pretty cool when we buy our first place and our parents and friends say to us: "are you crazy, real estate sucks, what are you thinking?"

What are you waiting for? When will you buy? And what will it be?

213 comments:

1 – 200 of 213   Newer›   Newest»
Anonymous said...

The type of house we want is sitting around $600,000 right now has to go to $300,000 ($400,000 tops) and then we would buy because then we could do our own mortgage. Until then we wait.

S2 (too tired to sign in)

womp said...

Wife and I are looking for something around $350k. Up until this spring we were thinking it would have to be a townhouse (and not a very good one at that.)

Now we're thinking that when we're ready to buy (6 or more months from now, perhaps as much as 18 months), we can get a lovely townhouse or maybe even a small house with a helper. I'm aiming for a 20% from peak correction.

Sorry about my blog being down btw, I don't know if anyone heard about the explosion at ThePlanet, but they are my hosting company, and they're still not back online :(

Anonymous said...

We're in no hurry. Renting a nice whole house for $1300/month. It assesed at $525K. Until we can buy it for well under $300K it ain't gonna happen!

Despite the downturn now underway, I do believe it will take a good 5 years until we hit bottom. There needs to be some rate hikes, and most of the 5 year resets are still a few years away. Only then will the "average owners" start to feel the pressure.

condohype said...

I live in Vancouver and I'm a renter, single income, and the place I'm in is currently "worth" around $350K. In today's market, that puts the monthly costs of owning at close to three times my rent. If I'm to consider buying this apartment, prices will have to fall at least 40%. This is not to say I'm predicting this will happen -- who knows -- but that's what I'd need to start thinking about becoming a homeowner.

For more than a year, I've been blogging trash about condo ownership but lately, I've come to terms with the whole renting thing. Ownership at today's prices involves so many sacrifices, I just don't see how it's worth it. It was different for my parents' generation. Times have changed. Renting is the way to go.

Art Vandelay said...

Competing offers from lowballers? Huh? They're lowballers. They're not interested in competing, they're interested in getting something on the cheap.

Anyway, peak to trough last time in Victoria took 6 years (roughly 1993 to 1999) so it could take a while to unwind the latest bubble. It was 2003 before prices recovered to 1993 levels.

My advice: don't try to catch a falling knife. Wait patiently for the bottom. You'll have plenty of time to buy into the market once it starts to rebound.

patriotz said...

Ownership at today's prices involves so many sacrifices

This is exactly why prices must come down. Landlords are only in it for the money, and prices cannot increase indefinitely. When they stop buying and start selling, the bottom falls right out of the market.

boomer said...

"They're lowballers. They're not interested in competing, they're interested in getting something on the cheap."

huh? "interested in competing" with what?

Sellers want high prices-Buyers want low prices. Its a MARKET. In the absence of a better bid, my lowball bid is as good as what you may think is the "proper" price.

roger said...

art vandelay said:

My advice: don't try to catch a falling knife. Wait patiently for the bottom. You'll have plenty of time to buy into the market once it starts to rebound.

Thanks for your post. I see from the Web site listed on your blogger profile that you are a local real estate agent. Nice to see someone in the RE business who is not in denial. Hope you stick around and give us your perspective on the market over the coming months.

Anonymous said...

Consumer confidence plunges
HEATHER SCOFFIELD

Globe and Mail Update

June 2, 2008 at 10:10 AM EDT

boomer said...

Art Vandelay

It will indeed be interesting to get a realtors viewpoint-please keep posting, "Art"

S2 said...

While we were enthralled watching Cirque de Soleil on the weekend, at almost $300 for the 3 of us, I was was thinking how thankful I was that we rent.

We can afford to go to things like this that come to Victoria.

I know people who couldn't afford to go or had to go into debt to go because of their 'going to make me rich' house.

Anonymous said...

Prospective Buyers must show patience. It will save them big dollars.

Even if you don't consider waiting for the market to bottom out, you can easily save thousands of dollars by ignoring the new listings, prowling about a bit, checking out the listings that have been hanging around a while, and offering something low but not quite outrageously so.

There are a growing number of deals playing out like this one:

MLS# 243446
#4 - 4295 Carey
3 brdm 2 ba townhouse
Listed April 1 for $429,000
Sold May 29 for $388,500

If that buyer had jumped in earlier, he would have probably spent a good 10% more than he bought it for. And the market hasn't even sank yet.

You WILL NOT get this advice from your realtor, who benefits most from generous offers, quick sales, and higher prices. They will let you fall for the pretty new listings with the new paint, the fancy cabinets the clean faux hardwood floor. And they will encourage you to jump at it before it goes. You can't blame them -- the more emotional you are about the lovely home the more likely they will pocket a quick commission. It's their job; it's what they do.

Slow it down. Don't do something foolish like offer anything near the asking price unless you are 100% SURE the seller has capitulated to the market and priced sharply. Forget the very real fear of negative equity, you do NOT want the agony of buyer's remorse when the guy whose going to live down the hall from you got a deal at least $40K better than yours (ask the folks who bought in the Juliet about six months ago...)

- awum

Anonymous said...

Had a quick peek at Sales to New listings ratio and inventory for Sooke homes the other day. Looks like the Sooke Home market is doing poorly. So you can check off one more item on the way to lower prices.

Siobhan

vg said...

VREB stats seem to be coming out late this month, maybe they are trying cram any possible last minute sale into the stats,lol.

VicREBear said...

VREB stats are now out; the wording sounds pretty glum if you read between the lines.

roger said...

What the bears have been waiting for: VREB numbers just released.

May 2008
Total sales - 770 (963) - Down from last year
SFH sales - 470 (575) - Down from last year
Condo sales - 168 - Down from last month
Townhouse sales - 71 - Down from last month
Active listings - 4332 - Up 25% from last year
SFH average price - $601,897 - Down from last month
SFH median price - $545,000 - Down from last month
Condo average price - $336,157 - Up from last month
Townhouse average price - $435,058 - Up from last month

April 2008
Total sales - 768 (898) Down 15%
SFH sales - 395
Condo sales - 235
Townhouse sales - 80
Active listings - 3859 (3305) up 17%
SFH average price - $630,295
SFH median price - $558,000
Condo average price - $325,975
Townhouse average price - $420,658

Numbers in (parentheses) are last years numbers.

vg said...

Joe noted that a significant number of new properties came on the market last month:

"There were 1,850 new listings in May - the highest number for a single month in over 18-years".


OUCH !!!

hhv said...

My smile just won't go away... May was a particularly good month for those of us on the sidelines, eh?

olives said...

:)

B2B said...

I'm with many other posters. It simply wouldn't make sense for me to consider buying until prices were 50% or more off their current values. My last place is valued at $700k but rents for $1600. It would have to sell for under $300k to make sense - that's a 60% reduction.

I'm thinking it will be 2-3 years before we get to 50% off.

Anonymous said...

A bull over on KIV has written that there is a frenzy for places under $700ish and even more so for places under $500.

Any of you numbers guys seeing a frenzy for these price points?

S2

Anonymous said...

A bull over on KIV has written that there is a frenzy for places under $700ish and even more so for places under $500.

Any of you numbers guys seeing a frenzy for these price points?

S2

Anonymous said...

The median price for a waterfront single family home is now $845K. It was $1.35 mil last month. That's a price drop of 37% in one month for this category! WOW!

http://www.vreb.org/pdf/
historical_statistics/MSS0805.pdf

Anonymous said...

It'd be nice if Clara from the TC would write about the 37% drop in one month in prices for waterfront SFHs. But, they'll completely ignore this.

Anonymous said...

What’s happening to Victoria Real Estate (a selection of interesting stats May 2008):

Victoria SFH median price 2008 so far -7.65%
Greater Victoria SFH median price 2008 so far 1.68%
Victoria condo median price 2008 so far -6.06%
Victoria condo median price YoY 4%
Greater Victoria condo median price 2008 so far 0.89%

New listings: 1850 (VREB: “highest number for a single month in over 18 years”)

Condo sales: 168 (down 26% YoY, lowest percentage of sales relative to SFHs in over 4 years)

MoI: 5.63 months (59% higher YoY)

The market is already slipping, but especially so in condos, and even moreso in Victoria condos. Like I said, prospective buyers must be patient and persistent in demanding good prices.

- awum

olives said...

The active listing graph on the VREB website is beginning to look pretty interesting.

roger said...

My Web site Needs Analysis is in the process of being updated. There are links to various statistics sites including the Slideshow Statistics Gallery. The Gallery was updated this afternoon with the latest VREB data.

Take a look at what is happening in the city of Victoria (James Bay, Fairfield, downtown etc.) with single family dwellings. You will be surprised. There will be more updates on different areas like Langford and Sooke in a few days.

sitting pretty said...

I'm pasting in my comment on the April stats, because it also applies to the May stats.

The VREB stats for April[May] are out. Doesn't look good for people looking for a crash. That median price graph for 2008 is still comfortably above the 2007 graph on every data point for Victoria, Saanich and Langford.

Don't worry though, I'm sure Roger will be able to spin it negative!


Yawn.

Anonymous said...

Make a prediction:

In the next few days, an “economist” hired by a group of people or a statistic done by a “association” will come up in the media, it saying “the market is balanced, there will be a soft landing, the price will keep going up, don’t rush to sell, but a good time to buy, it is a good change for the market, bulaaaa…”

hhv said...

S2,

Don't you know that everyone wants to own homes in Colwood and Langford between $500K-$700K. That market is different. It's isolated. It has great demand. No not great. Never-ending demand. It's where everyone wants to be.

It'll be a frenzy right into the fall. At least in the mind of the KIV uber-bull who bought out there in the last year and needs self-reassurance to make sure her market doesn't collapse under the strain.

My PCS isn't in those price ranges, but I can tell you SFH in Colwood and Langford priced $425K and less are pretty much in line with the rest of the city: listings rising, sales falling and price changes galore. Doesn't sound like a "frenzy" in that segment to me.

roger said...

sitting pretty:

I wondered if you were lurking around here. I see you are still driving around looking in the rear view mirror. No disagreement from me on YOY price gains being positive but the percentage is shrinking every month. SP - keep clinging to the past. Taunt all you want.

Most bears are patient and are happy with May's numbers. May is supposed to be the best month for real estate and look what happened. Active listings at multi-year highs; high numbers of owners listing every month; low sales and and the median and average SFH price both dropped even with 24 sales over a million.

The summer RE market will be great to watch as the buyers fade away and all that inventory just sits there. And what about all those new condos nearing completion? But SP just shrug all this off - you have faith and are a true Real Estate Believer®

sitting pretty said...

roger- I'll check back next month, and most likely post the same message

vg said...

largest increase of listings in 18 years doesn't transpire into a crash in one month but it will in due time.

Sitting ugly in denial of whats unfolding but whats new... yawn.

Anonymous said...

Sitting Pretty - Waterfront single family homes are down 37% since last month. I wouldn't say that prices are sitting pretty.

http://www.vreb.org/pdf/
historical_statistics/MSS0805.pdf

mommy said...

".....Sitting Pretty - Waterfront single family homes are down 37% since last month....."


If SP neither lives on Waterfront nor wants to upgrade to there, how does that 37% affect SP?

roger said...

Will Vancouver real estate lead the way down??

If you drop by Mohican's blog you will see that Vancouver's 3,100 sales are down 29% from last year and inventory is closing in on 18,000 listings. Top it off with 26,000 new units under construction (21,910 are condos) and you have an interesting summer for bears.

Anonymous said...

Wow KIV is in complete denial. Should be interesting. These poor poor people are really going to get hurt by all this aren't they?

roger said...

Actually Langford was one area that did well in May with 69 SFH sales and an average price of 520K and a median of 490K. In April there were 48 sales with a 531K average and 483K median. Today there are 161 SFH for sale so it is still a sellers market.

The market is still tight, in most areas, below the Greater Victoria median of 545K. However, buyers need to be careful where they buy. Some areas like Sooke are fading already. Sooke had 31 sales in May and 23 in April. Today there are 184 SFH for sale so it is a buyers market.

I am not suggesting that this is a good time for buyers anywhere. As the market corrects the high end will drop first and this will ripple down to the low end. Today's Langford buyer will watch their new neighbour buy at a lower price a year from now.

olives said...

speaking of denial (or something), check out Usedvictoria ad #5975259 - Remax realtor John Tuplin thinks renters should buy now to avoid "loosing" money every month.

S2 said...

It is a hoot over on KIV:

Two houses on my street had sold signs after a couple of weeks and in my in-laws neighbourhood one house on their street had sold on it within a couple of weeks. I don't see it slowing down.

Yes. A few houses selling in a couple of weeks make a hot market.

Geeesh! Denial is thick.

Wasn't it just a year ago roughly that House Prices was 30 pages long and now it is Olives and I just talking to each other. Where did everyone go?

olives said...

That's okay s2, i like talking to you :)

yes it was a year ago I started posting on KIV about the market, and it has been a pretty crazy year with the real estate markets in the U.S., spain, U.K. etc. really starting to dive, the credit crunch starting to take hold, commodity panics and now finally our prices are finally declining!

more good times to come I'm sure....

victorianna said...

Wow! Go away for a day or two and look what happens. I realize it's late in the discussion, but I'm looking for 3000 sq. ft. or more, 5 bedrooms at least, 3 full baths, in Oak Bay, Saanich or Victoria (walking distance to husband's office), for $450 K tops. No suites, no finished basement included in sq. footage. Yes, I realize that takes a drop of 50% or more in current prices. Don't care. That's what it would take for me to buy. I currently rent just such a house for just over $2000 a month. Renting has allowed me to take my four kids to Europe every year for the past five years. Yep, that's worth more to me than paying some ridiculous price to be a "homeowner."

Anonymous said...

I can wait for the foreclosure bus coming into Victoria and Vancouver.. soon

http://www.bloomberg.com/apps/news?
pid=20601109&sid=a1qrqxe61SAI&refer=home

vg said...

"Renting has allowed me to take my four kids to Europe every year for the past five years. Yep, that's worth more to me than paying some ridiculous price to be a "homeowner.""


exactly, if you can enjoy life renting versus sacrificing every spare penny to pay a mortgage for 40 years then where is the "joy" of home ownership ? It's a prison sentence.

The most insane part of this bubble is the "acceptance" of these ridiculous prices,wait til the commodity bubble pops in the coming months,then we will see how great BC's booming economy will be.

talus said...

Does anyone have the "under construction" numbers for Victoria?

What is waiting in the wings to add to this heap of inventory??

Anonymous said...

Right on Victorianna!


Siobhan

roger said...

Times Colonist tells the real story on real estate in todays TC
Housing market continues to cool

But there are far more sellers than buyers as the region's housing market continued to cool from last year's record highs.

Gotta love this line:

The real estate board was putting a positive spin on yesterday's numbers, saying it's a more balanced market with more choice for buyers. But everyone is conceding the market is cooling considerably as average and median house prices faded from the record highs of 2007.

Also in todays's paper - more bad news from Duncan:
Money and water woes plague The Cliffs golf resort

The planned residential and golf resort village of The Cliffs Over Maple Bay has run into financial difficulties and is still trying arrange access to water to irrigate its planned 18-hole championship golf course.

A monitor has been appointed by the Supreme Court of British Columbia for The Cliffs, owned by area resident Warren Paulin.


And related news in the business section:
Consumer confidence plummets during May

roger said...

talus said:

Does anyone have the "under construction" numbers for Victoria?


CMHC publishes the numbers monthly. Here is the latest report in pdf format.

In addition to new construction
growth, Metro Victoria’s volume of
new homes currently under
construction has now reached its
highest level since July 1976 (see
Figure 1). The current generation
of builders is experiencing their
busiest year on record, with over
3,300 homes currently under
construction. Three quarters of all
units currently being built are
apartment condominiums, and the
bulk of these units are in Victoria
City and Langford.

While the number of year-to-date
completions is well above the
2007 level, so too is the inventory
of new homes in Metro Victoria
(see Figure 2). The inventory of
new homes currently sits at nearly
250 units, up from 150 units in
April of last year.

Tony Danza said...

If SP neither lives on Waterfront nor wants to upgrade to there, how does that 37% affect SP?

Sitting Pretty is a renter, she (at least I think it's a she) lives next door to me in my rundown apartment building in Esquimalt. And I can confirm she is "employed" by the government as I see her cashing her government check at the Money Tree some Wednesday's. Yawn...

Tony Danza said...

HHV I loved your post at KIV, though I think trying to reason with the readers over there is akin to trying to reason with a zombie. They've drunk deep at the RE Kool-Aid punch bowl and are lining up for more. Good on you for trying though!

Anonymous said...

Joe said more than 75 per cent of homes sold in the last year to residents of the capital region while another 13 per cent were to Lower Mainland residents. The remainder of the buyers were from the Prairie provinces, the rest of Canada and international buyers.

Is this new info?
So we are the SAME as most market in Canada.
Does everyone want to live here? No.

Anonymous said...

MLS# 246819
From $699k to $649k after the news today.
quick reactioin!!!
race to sell.

If you have to move you have to do like this.
if you want to earn money, the chance is passing by quickly.

roger said...

Just got an update on PCS. Is the market still hot??

PCS Screenshot

roger said...

VIREB has released the stats for May 2008. Lots of spin in this months release and the price hikes are good old rear view mirror YOY. The PDF news release is here and the actual stats as a pdf are here.

You can see all the stats from 2008 as a slideshow Click the big X to watch full screen.

The shocking thing this month is that inventory is up 30% and sales have plummeted.

There were 451 sales of single family properties in the VIREB area through the Multiple Listing Service®(MLS®) in May 2008, down from 511 sales in April 2008 and down from 685 sales in May 2007.

VIREB President Subhadra Ghose says a nearly 30% increase in inventory coupled with a moderation in the number of sales offers further indication of a more balanced market.


Moderation in sales? Balanced market?

Anonymous said...

Wow! IT'S REALLY STARTING!

This is unfolding EXACTLY like the declines in the US bubble states two years ago... Increasing inventory, more balanced blah blah realtor spin, MSM reporting the facts and boom - the bubble pops.

From '06:

http://tinyurl.com/63xrxx

B2B said...

Many, many thanks to the writers of these blogs, and all the regular posters, for helping us all to stay the course during the earlier, frustrating times! Indeed it looks like now the ship is finally listing. Unhappyrenters et al, don't throw in the towel now! Hang in there - we should continue to support each other's patience and wait this thing out. This is only the first inning.

Thanks again to HHV, PrairieBoy, and everyone else on here (too many to list!)!!!!

greg said...

Roger -

that price reduction screen shot is astonishing. My own PCS is focused sub 550 in a pretty small area - Ferwood, Sears, Camosun, Mayfair, Fairfield (haha) - not much happening there, but I guess this wave is rolling from top down.

Anonymous said...

thanks to all the regular posters to this site. It has kept my sanity up when the market continued to baffle me. Finally we are seeing a definate downward trend, and I think it will pick up speed over the next few months. The fall months should be extremely interesting.

Regarding how long this will all take, given the parallel with US market, I think our downturn will progress MUCH faster. Homeowners here can see what has happened in the US - huge downward trend, no relief in site - and want out asap.

The open houses I saw this weekend were filled with neighbours.... any comments ?

Anonymous said...

It's interesting what perspective does to what we get from articles.

I read that 25% of buyers were not from here, but were from Vancouver, Alberta etc. With the wisdom of some of your best here I'll take that statistically insignificant number and assume our Island population is growing astronomically.

Are we looking at a doubling of Victoria's population over the next ten years? Being as nonone will be buying homes, I think I'll go into canvas manufacturing...mmmm..tents.

Is this what it's like to belong to a cult?

Anonymous said...

anonymous 5:07

translation please

roger said...

anon 12:09 said:

MSM reporting the facts and boom - the bubble pops.

MSM is on a roll tonight... Just watched Global And CHEK news do a story on real estate. No spin except from one agent talking about a plateau in prices and a wonderful time for buyers.

Theme was consistent for Vancouver, Victoria and Vancouver Island. High inventory, big drop in sales and talk of price drops. Ozzie showed up on Global and agreed that prices would fall but don't worry it only dropped 17% over 3 years in Vancouver last time.

Tony Joe, Ozzie and the other agent all said you better price it right if you want to sell. Buyers can take their time and have lots of choice was mentioned more than once.

Bears - we are on a roll!!

vg said...

you got that right Roger,a major roll here, and the MSM is starting to run with the new angle,watch them put some fear out there at long last,exactly what we want to see.


I believe Ozzie said there were declines already in some areas but overall expected the "rate of increases will decline". Sounds like double speak to me to keep his seminars well stocked with his deal of the week in Timbuktwo.

PS I was wondering if Ozzie was even living in Canada/BC in 1982 ?

Anonymous said...

I think the sales that have occured are the dead cat bounce. This thing has been declining for a while.

patriotz said...

Ozzie showed up on Global and agreed that prices would fall but don't worry it only dropped 17% over 3 years in Vancouver last time.

"Last time" was the late 90's. The runup had been nowhere near what we have seen in the last 6 years, and the economy both here and in the US was doing well (forest industry healthy, dot-com boom).

So what have we got now? RE bubble, dead forest industry, US recession. Now when have we seen that before? Not in the 90's, folks. Put on some Dire Straits, because that's what we're headed for.

Anonymous said...

re: "Had a quick peek at Sales to New listings ratio and inventory for Sooke homes the other day. Looks like the Sooke Home market is doing poorly. So you can check off one more item on the way to lower prices."

Not exactly, there is a large number of sellers (ie Sunriver) trying out Sooke over $500K and these are taking a long time to sell. The homes that are appropriately priced are selling well. Note that the higher model new homes in Sunriver are now selling $500 - $600K depending on model and upgrades, and they are very busy.

With all this RE Bear talk, where does the smart money go? Stocks? Mattress? Paying down debt would certainly be a good answer, but not hugely profitable.

What's the next big run? (and I have no idea) Can a person make money in RE if it's on a free-fall?

hhv said...

According to Tim Ayers, Sooke Realtor, the market out in Sooke had a better May than the market in Victoria. He does do some selective disqualifying of properties outside of the Sooke core though.

I have to say I was a bit surprised that Sooke didn't take a beating. Anyone know what's going on in Shawnigan and Cobble Hill?

roger said...

anon 9:15 said:

Not exactly, there is a large number of sellers (ie Sunriver) trying out Sooke over $500K and these are taking a long time to sell. The homes that are appropriately priced are selling well.

What about these houses in Sunriver? They are priced well below the median. Why aren't they selling? Not cheap enough?

MLS: 244941 409K - 38 DOM

MLS: 244722 415K - 43 DOM

MLS: 245200 400K - 34 DOM

MLS: 243349 400K - 69 DOM

DOM = Days on Market

Anonymous said...

Those are the lower models and over-priced (small ranchers and 2 stories.) I'd have to look but I think a couple of them will be the 1400' Birchwood model which isn't much more than a townhouse on a decent sized lot. Price them back where they belong say $350 - $375 and they'd sell by the end of the week. The sellers would still be making pretty good coin.

patriotz said...

The homes that are appropriately priced are selling well.

This is a tautology. If a house sells it's appropriately priced and vice versa. That's the definition of the market price.

You can sell a house in any market if it's priced right. This isn't Detroit and someone is always going to be willing to pay to buy a house here. The only question is how much.

Anonymous said...

You can also find a Driftwood model up there priced at $435,000 that's been up for sale since at least last fall. It was over-priced when it went up and remains (the last I looked.) This is plain and simple fishing. Had that home listed say $410, it would have long since sold, again at a handsum profit.

Anonymous said...

"This is a tautology. If a house sells it's appropriately priced and vice versa. That's the definition of the market price."

Exactly, and a whole bunch of sellers and their realtors have overshot the market price (and perhaps stalled it in the process.) You see the average Fairfield homes listing at say $670,000. With the odd unfortunate exception, they don't sell. Price it where it belongs at 610 - 630 and its gone by the end of the week.

Actual sales prices have not "plummeted" from $670, they never got there. Let's not get too excited just yet...

Anonymous said...

"Let's not get too excited just yet..."

I don't think we're too excited about May's numbers, we're excited because Victoria (and Vancouver) have begun to turn the exact same way cities in FL, AZ and CA turned 2 years ago. We all know how they're doing now!

Anonymous said...

You guys do realize that for the $600,000 prices to come back to $300,000, interest rates rates have to go back to 8 - 10 % right?

If it isn't a good investment now at $600K and 4.2 %, how is it a good investment at $300K and 10%? Or are you also predicting a resurgence after the free-fall?

I did year-end accounting for a large (one of Victoria's largest) developments back about year 2000. They had a 21 year plan that included 3 falls and rises - and they spent big $$$ on their market analysis. I think they are at the top of cycle 1 of 3.

vk said...

CheckTV and GlobalTV news clips June 3 :

Victoria (CheckTV)

Vancouver (GlobalTV)

Anonymous said...

"With all this RE Bear talk, where does the smart money go? Stocks? Mattress? Paying down debt would certainly be a good answer, but not hugely profitable.

What's the next big run? (and I have no idea) Can a person make money in RE if it's on a free-fall?"

Does anyone have any comment here? Where to next?

vk said...

Whoops, corrected Vancouver/GlobalTV link :

Vancouver

Anonymous said...

I love people like anon 10:26, and spinning pretty, they have a fear that I like. They try to convince people that houses will never drop and buy now because even if the price drops it will not be that much and everyone wants to live here attitude! Well, myself and all my banker friends love to lend money to people like that. Hopefully everyone listens to your 21 year plan because I will have to inflate like crazy to keep this party going so my banker friends and myself keep making more money. HAHAHAAAA....


-Central Banker-

patriotz said...

You guys do realize that for the $600,000 prices to come back to $300,000, interest rates rates have to go back to 8 - 10 % right?

Really now?

50% drop in San Diego

Granted that's only one property, but the index for SD is down over 25% and has a lot farther to go. And with no increase in interest rates.

Closer to home, interest rates were a LOT lower in 1984 than in 1981, and that didn't stop a 45% bust in Vancouver.

Anyway, I'll be happy to buy after a 30-35% drop and I think most people here would be too.

Anonymous said...

"I love people like anon 10:26, and spinning pretty, they have a fear that I like."

Sorry no fear, just trying to engage a little common sense conversation. You're right, the bankers have a role to play in allowing people to over-extend themselves. Do you actually laugh at people when you loan $600,000 to a family that earns $100,000 per year? No guilt? I shake my head everytime I meet someone that has just paid in excess of $400K with minimal downpayment. A 1-2 % swing up in interest rates is, what, $1,000 per month. Never mind the home values, the payments alone are far beyond their means. I'm not laughing at anyone.

I paid less than half of what my home would sell for today, and less than half for what my rental would sell for (I'm talking actually sell for, not list.) My mortgage payments are less than most of your rents and my renters pay all bills on the rental (and my mortgage principles (did I spell that right banker?) go down by $2,000 per month. Seems like a pretty sweet deal to me.

10 years from now the mortgages will be gone, because I make good decisions, saved my down-payment rather than exploiting my credit cards, and wasn't afraid to get in when the time was right. I'll have a property paying me today's equivalent of $2,000 per month and increasing in value over the long haul.

We're not buying or selling for 10 years. Bring on the price drops. In fact. maybe it will be 75% so we can buy even more. I hope the bears are saving up a down-payment for this next big correction

And the 21 year plan wasn't mine, I was demonstrating that even the big players anticipate swings.

You like to point to years ago and attempt a prediction to today. The biggest assets most of our grandparents had was their homes - pick any decade, they were never sorry to have purchased their houses.

By the way, to all, be careful when taking any advice from your friendly banker, 95% of their knowledge is tied up in selling you products that you do not need or that do not fit your circumstances.

Maybe they're too busy laughing at you to pay any attention to your actual needs as a customer. Seek out a compentent advisor and use a broker for your mortgage when you do take the plunge.

vg said...

"You guys do realize that for the $600,000 prices to come back to $300,000, interest rates rates have to go back to 8 - 10 % right?"



not neccessarily, the US market tanked very nicely on todays rates but yes they will be going back to 8% or more over the next two years as inflation kicks into high gear and there is no choice but to increase rates.

Anonymous said...

So your thinking of holding property for ten years and prices will be back up again.

The baby boomers are the largest group of consumers in history.

So tell me:
How old will the largest group of home owners be in say the year 2018?

How many septuagenarians and octogenerians do you know that are buying real estate for future appreciation?

What is the average Canadian life expectancy? And, since Victoria is a retirement destination our average age is higher than the Canadian average, putting us a decade ahead of the nation.

Perhaps you should sell off your real estate homes and buy shares in funeral homes.

You live and die by demographics. The Real Estate game is over and while nominal prices may rise, inflation adjusted real estate prices will NEVER be this high EVER again.

Siobhan

Anonymous said...

It is possible that the government's plan to increase immigration to solve the demographic problem may work. If it does though I think we'll still see a big shift in terms of what real estate is attractive to the majority of people. I'd say it's a good bet that Surrey would be a prime example of what kinds of communities would be popular in a successfully executed immigration saviour plan. I think it'd be neat if this works but I can't give it more than a 20% chance.

eos said...

I too think this market will continue to see more price drops. I'm seeing it every day!

Two years ago if I showed 10 homes to one of my buyers no agent would call me back asking for feedback as it was fairly busy back then.

Now I'd say I get 7 out of 10 agents are calling, emailing and sometimes begging for feedback.

Agents in the office are complaining things are slow and I expect this to keep going on until the market levels out.

I even have agents from other companies who have places listed in same area asking how the acitivity has been on my listings.

There are signs all over the place about this market slowing. No pun intended :)

I just hope this continues so we can see prices of SFH at levels that make it possible for first time buyers to afford.

One thing about working in this industry is to make sure you have some other form of income... especially now.

boomer said...

slobhan

agreed.

NEVER EVER is a long time but until we get a new demographic shift away from lotsa old folks trying to sell their overvalued homes to young folks (who generally dont have any money in the new economy) real estate values will continue to slip

(supply and demand)

And that doesnt even include the additional supply from speculators /investors eventually bailing out after trying the "rent it at a loss-until the market improves" gambit

As many have pointed out, Real Estate HAS been a good profitable game but its a little difficult to see a reason for a price resurgence in the near future--quite the opposite.

spinning pretty said...

Anyway, I'll be happy to buy after a 30-35% drop and I think most people here would be too.

Ever hear of "supply and demand?" The problem is, unlike San Diego, Miami, Phoenix and Las Vegas, Victoria is not burdened by an oversupply of vacant SFH's. Any property priced at 35% less than it's competition would attract a bidding war, and guess what, the price will be driven right back up.

There is an oversupply of condos right now, but don't kid yourself, Victoria ain't Miami (or even Vancouver or Calgary). Condo prices will slip 15% or so until demand kicks in.

Sorry to rain on your parade, but getting a SFH in Victoria for 35-50% less than current valuations is just a wet dream.

boomer said...

anonymous 7:52

Immigration will create additional housing demand but not many of these folks are going to be shopping for the big homes that retiring boomers are trying to cash in on, or $1000 sq. ft.luxury condos.

Regardless, Quaint little (low income -high housing costs)Victoria aint going to be their destination of choice.

boomer said...

SP
your "Condo prices will slip 15% or so"
is no more(or less)valid than the other posters 35%+ SFH prediction.

Both numbers are picked out of a hat.

What specific insight makes YOUR prediction more accurate than his "wet dream"?

olives said...

I totally agree too Siobhan. The run-up in prices began in the 1970s (or thereabouts) because of boomers. I recall reading somewhere that it was at that point prices began to get out of whack with historical increases. Maybe it was Schiller?

Anonymous said...

Immigration to fix the problem, you are dreaming!!!

The Canadian government are asking people with high education to come to this country because a “work force” shortage. Now these people with high education are drivers, labors and their home country are booming. Who will come? Oh yes, labours, can they afford a house with $16/h?

Simple, if you use 50% of income to pay housing, it will drop.

S2 said...

Oh please, oh please give us interest rates of 8% - 10% per cent.

That is exactly what we want.

Then when we give ourselves our own mortgage all that lovely high interest will be paid back to...us. :-)

Anonymous said...

"Spinning Pretty" said:

"Ever hear of "supply and demand?" The problem is, unlike San Diego, Miami, Phoenix and Las Vegas, Victoria is not burdened by an oversupply of vacant SFH's. Any property priced at 35% less than it's competition would attract a bidding war, and guess what, the price will be driven right back up.

There is an oversupply of condos right now, but don't kid yourself, Victoria ain't Miami (or even Vancouver or Calgary). Condo prices will slip 15% or so until demand kicks in.

Sorry to rain on your parade, but getting a SFH in Victoria for 35-50% less than current valuations is just a wet dream."


Ever hear of BS? San Diego, Miami, Phoenix, and Las Vegas didn't START with those empty houses 3-4 years ago. On the contrary, most of those house-emptying foreclosures happened in the past year, at an ever-increasing accelerating speed.

The same thing WILL happen here; it's inevitable as foreclosures hit, people leave their houses (often in revenge ruins) and renters and crack squatters move into formerly prisine neighborhoods.

Sorry to rain on your parade, but keeping the value of a SFH in Victoria from falling 35-50% less than current valuations is just a wet dream.

And what you're saying is exactly what people down south were saying at the beginning of the crash. And there ARE properties already priced significantly lower than current assessments, and attracting NO interest whatsoever, let alone bidding wars.

Anonymous said...

Buy one, get one free.

http://www.michaelcrews.com/IMAGES/flyers/BOGOF_flyer.pdf

vg said...

"Sorry to rain on your parade, but getting a SFH in Victoria for 35-50% less than current valuations is just a wet dream."


SP,
where were you in 82 ? by the sounds of it you weren't even born yet so best you do some studying up on some history. Classic denial statement, "sorry but I know more than you cause I am a government employee burning up your tax dollars posting on this site when I should be doing my job".

vg said...

PS sitting pretty,
the numbers say there is 30% less people interested in buying your dump and the empty houses will soon be piling up... but you are right on one count, the condo's are all stacking up with no one to buy them as in past market crashes thats where it started first then spread like wildfire to SFH's... sorry to rain on your parade.

Anonymous said...

Real Estate prices never truly increased until the 1970's. Before that time real property was purchased for its income producing potential. So much so that large apartment blocks were being built by investors.

Along came the oil embargo, spiraling inflation, wage and price controls and the begining of the end of the single income family where dad worked and mum changed diapers. Remember Edith Bunker had to get a job as Archie couldn't pay the bills anymore? New York city and Mexico were on the verge of bankruptcy.
Anyone remember this saying "last one leaving New York, please turn out the lights".

The double income family and ease of getting a mortgage (CMHC was formed in the 1970's) sparked the
real estate boom during that decade. The oil embargo with line ups at the gas station and fuel costs near a buck a gallon (thats a Canadian gallon - not the yankee pint size) along with the end of the Vietnam war caused a recession and home prices fell.

Along came the eighties and the hippies of the 60's got hair cuts and joined the establishment. They also began to mate and produce the Bill Gates of today. Remember even Ozzie Osbourne was sexy then. They needed homes after all that black light over Blondie's or Doug and the Slugs picture in their parents basement was not cutting it anymore.

Hence the boom in the decade of greed "the eighties" happened. The governments discovered deficit financing (see picture of BC's contribution to federal politics Prime Minister Turner) now I'm really embarassed!!

Run away deficits and national debt lead to uncontroled inflation. Hence interest rates in the high teens and low 20 percent ended that real estate boom.

The beigining of the 1990's saw a mini-boom in real estate as the baby boomers children started to buy homes. Of course this group was much smaller than the boomers and only procuced the much smaller sociopaths like Paris Hilton. The NDP was in power in BC (Anyone for Bingo on my new back deck where we can watch the fast cat ferries) -okay now I'm really really embarassed.

A small recession in 1990's after the Gulf War ended that boom. Thats the Gulf War or G. Bush I as opposed to G. Bush II of today.

So where are we today. It takes more than two people's income to buy a home (buddy up), gas is nearing $6 a gallon, the US is in a recession and Canada is right behind them, the Bush II war may be ending and Gordo is still our premier (maybe not so after the Olympics).

SO, I forecast rising real estate prices that will continue on forever and ever, or unil at least I dump mine and move to Panama. Some of the above is not exactly to the time line, but heck I'm old give me some slack.

Your Mummy
(PS I spent your inheritance on botox injections)

vg said...

the blood letting continues,this should solidify the odds of a North American recession :


Moody's may downgrade MBIA, Ambac on concerns

By Wallace Witkowski

Last update: 12:57 p.m. EDT June 4

SAN FRANCISCO (MarketWatch) -- Moody's Investors Service said Wednesday it may downgrade the Aaa insurance financial strength ratings of MBIA Inc.'s (MBI:MBIA Inc insurance units.

Also, Moody's said it may downgrade Ambac Financial Group's Aa3 debt ratings, and the Aa2 surplus note rating of MBIA Insurance Corp. and the Aa3 ratings of MBIA Inc. The moves reflect Moody's growing concern that MBIA's and Ambac's credit profile may no longer be consistent with current ratings given the diminished new business prospects and financial flexibility of the companies.

greg said...

I might add that housing under construction in Victoria is at an all time high right now in Victoria.

There's your excess inventory, starting this summer.

boomer said...

"Your Mummy-(PS I spent your inheritance on botox injections)"

Mummy--- thats Funny---
serves the chubby,little,know-nothing,credit card abusing,video game addicts right
(actually they're mostly 35 or so now-wish I was)



But isnt it starting to look just a bit "Stagflation"-ish?

Ulysses said...

Is it possible that Janice and JimBob from AIV are one and the same person?

Anonymous said...

"So your thinking of holding property for ten years and prices will be back up again."

Would you actually read what's written in the post rather than what you would like to see written, please...Nowhere did it say I think the prices will be back up again in ten years. I said I will not be selling anything for at least 10 years (could in fact be twenty.) I'll probably pass the property to my children.

What I did say was the mortgages will be paid off in 10 years and I'll be receiving today's equivalent of $2,000 per month. YOU will still be paying rent if you wait for prices to drop 50%. Even with that price drop, interest rates will be up and a mortgage will cost the same.

Isn't this blog entitled "First time homebuyers?" Should really be called, "no time homebuyers" for some of these bears.

And don't chomp down into any of that fear you think your smellin cause it's Bear Sh*t. Yummm...

talus said...

Thanks for link and the numbers Rodger.

Anon 2:51 - Love it! That is the kind of wit I like on "bubble bursting day".

Make that bubble bursting week or month even.

Do you know that someone told me I was finally right (after calling this market insane since we moved here in 2006).

In the same breath they also said that had I bought I would have been up?!

People just don't get it do they? They really don't understand that this is waaayyy bigger than what we are seeing this week/month.

boomer said...

Is it possible that "Anonymous" and "Anonymous" and "Anonymous" from Victoria Housing and Real Estate Market Blog are one and the same person?

patriotz said...

YOU will still be paying rent if you wait for prices to drop 50%.

And the person who buys today will be paying over twice as much rent (rent on money aka interest) as me during that time for the same property.

And then I buy for 35% (or whatever) less than he paid, and pay 35% less rent (on money) than him for the next few decades.

So who comes out ahead, Einstein?

Anonymous said...

ME, thanks for asking.

Anonymous said...

"YOU will still be paying rent if you wait for prices to drop 50%.

And the person who buys today will be paying over twice as much rent (rent on money aka interest) as me during that time for the same property."

Actually, here's the full relevant portion:
"YOU will still be paying rent if you wait for prices to drop 50%. Even with that price drop, interest rates will be up and a mortgage will cost the same."

Once again, tried to take er' out of context. Let's not forget the second half, interest rates will be up and you will not be paying any less.

I will give you this.. that now is not a good time to buy, and you will save, at least on inflation adjusted pricing within 3-5 years, if not absolute pricing. That is if you are able to save and then are able to afford the interest rates.

No, sorry.., that smell is still bear sh*t.

Anonymous said...

"And then I buy for 35% (or whatever) less than he paid, and pay 35% less rent (on money) than him for the next few decades."

There's a number I can agree with (seems moderately rational.) I agree, prices could come off 35%, but it will take 3 - 5 years. At this time interest rates will be back to say 7%. Can you justify $400,000 at 7% (assuming we are talking today's price of $600K.) Your friendly banker may not think so..

So, you're right, today is not a good day to enter the market, but tomorrow will be a lousy day to be still paying rent.

I also realize (pre-emptive strike) that by not selling today, I am effectively paying today's prices. I purchased my home to live in and enjoy, which I will do for a long-long time. That value appears conveniently be forgotten here.

Bertha said...

Is anonymous 10:32 pm and anonymous 10:54 pm Bearshit?

Anonymous said...

Is anonymous 10:32 pm and anonymous 10:54 pm the one and the same as KIV, AIV and RBCB+V?

Anonymous said...

How about Ed McMahon? He thought he'd be ahead? Must have got lost in all that BULL sh*t? He's got nice dentures though? Maybe he can sell them before he's sent to the po house.

patriotz said...

Even with that price drop, interest rates will be up and a mortgage will cost the same.

Ha ha ha.

You're forgetting that the interest rate on mortgages is fixed only over the term, at most 5 years.

Thus the guy who bought at a high price and low rates will soon be paying the higher balance at the same rate as the guy who bought at a low price. IOW bigger payments.

Oh BTW, the guy who bought at a high price will also likely be underwater and at risk of bankruptcy if he loses his job or gets divorced, etc.

patriotz said...

Can you justify $400,000 at 7% (assuming we are talking today's price of $600K.) Your friendly banker may not think so.

Um, if nobody can qualify for 400K at 7%, doesn't that mean prices will have to go down some more?

Anyway, I don't need no stinkin' mortgage. I'm going to pay cash. Bring on those high interest rates.

Anonymous said...

"Um, if nobody can qualify for 400K at 7%, doesn't that mean prices will have to go down some more?"

Um, no...There will be lots of people wanting to move up from the condos and townhouses they bought last year or two.

Now paying cash, there's a novel idea. I'm not sure your investment advisor would agree with that one (self interests and all) - great financial security though.

patriotz said...

Um, no...There will be lots of people wanting to move up from the condos and townhouses they bought last year or two.

How on earth will they be able to do that?

If prices fall, condo and townhouse owners will be underwater, as I already said.

If prices don't fall, they won't be able to trade up to a more expensive property because with the higher interest rates it won't be affordable.

Got arithmetic?

fodder said...

I'd like to thank you for your posts annon. It seems people are reacting to what you wrote like it was purposefully controversial. I thought it was a different view point from an intelligent person.

I am a bear who doesn't like the price of housing at the moment and sees interest rates rising to 8% in the next few years. I would rather buy with housing price down and interest rates at their highest than vice versa. I will need a mortgage, but will make sure I do it with room to weather some rainy days.

I agree with the basics of what your saying about the multiple properties you have... If you don't buy based upon the need for a future sales increase, real estate will always be a great investment. If the numbers made sense for me I'd have a home. If the numbers never make sense, I'll just grow my savings and retire up island.

Please keep posting.

Anonymous said...

In 1998 you could buy a starter home for $185,000. Say, you put $45,000 down and took out a $140,000 mortgage and paid an additional 10 percent ($14,000) down each year. You could be out of your mortgage today. Very possible scenario on the typical double income household (sans kids) of $90,000 per annum.


Its now 2008, that same starter home is now $450,000. 25 percent down is $112,500. Ooops, can't do that you only have $45,000 or 10 percent. High ratio financing here we come (cmhc must be raking it in!!) Mortgage of $405,000. Can't put down 10 percent each year or $40,000 because you just don't make enough money on a combined income of $90,000. But you can put down $14,000, So now it will take you 20 years to pay off the mortgage.

So what is the difference of paying today's prices or waiting for prices to decline. Its time. If you wait say two years for prices to drop, then you could possibly save eight years in a mortgage.

What if prices don't go down. Then build up your investments, retire early and rent on the Mexican Riviera.

Siobhan

Tony Danza said...

ME, thanks for asking.

HAHA anonymous that's hilarious. I love it how landlords think they're making out like bandits collecting $2000 a month on an investment they could liquidate right now for $600k plus!

You're making 4% on that 600k not including maintenance, insurance, your property management costs, taxes, future/past transaction fees and last but not least inflation.

Do you realize that your risk premium is effectively negative? Not to mention you're deciding to hold when valuations on your investment are at an all time extreme and you're taking on increased liquidity risk with every passing day. The only landlords holding on now are the lazy, ignorant or the amateurs. Wow you're really screwing those renters aren't you :)

Tony Danza said...

God bless the landlords, without them my net worth would significantly lower!

roger said...

Let's take a look at some numbers and see if waiting is a good idea. For the sake of argument lets say interest rates, in three years, on a five year fixed go to 7% from the current 5.6% big bank rate. An eager buyer has 100K as a down payment and is interested in a modest 500K house at today's prices. Let's assume a 10% drop in house prices over the next three years so a patient bear buys for 450K.

Monthly mortgage payment on 400K @ 5.6% today is:
$2072 using 40 yr. amortization
- balance owing in 2013 is 384.3K
$2464 using 25 yr. amortization
- balance owing in 2013 is 357.3K

Monthly mortgage payment on 350K @7% in three years is:
$2149 using 40 yr. amortization
- balance owing in 2013 is 346.5K
$2451 using 25 yr. amortization
- balance owing in 2013 is 338.7K

What happens if prices drop by 20%??
Monthly mortgage payment on 300K @7% in three years is:
$1842 using 40 yr. amortization
- balance owing in 2013 is 297K
$2101 using 25 yr. amortization
- balance owing in 2013 is 290.3K

Looks like the bear is the big winner!!

Anonymous said...

Its a slow day so I thought that I would look back in time at condo sales during a bad period in the market place. Right after the commonwealth games and the "leaky condo syndrome".

The year is 1995
During the period between March 1, 1995 to June 1, 1995 there were 250 condominiums listed for sale in the capital area of Victoria. Of these listed for sale some 75 sold for a sales to new listings ratio of 0.3


Now lets look at March 1, 2008 to June 1, 2008 for the same area.

Of the 812 listed for sale, 281 have sold for a sales to new listings ratio of 0.35

IMHO, we have only a little longer to wait before our condos start dropping in price, most likely well before the end of this year.


Incidentally, the median condo price in that period of 1995 was $134,900. Today its $294,000. No secret now were people have been getting there down payment for a home.


Siobhan

Anonymous said...

Ooops, have to add one more item. What was the market like in the good times.

March 1, 2007 to June 1, 2007. Number of condos listed was 578. Number that sold was 405 for a sales to new listings ratio of 0.7

Now if that doesn't scare the heck out of sitting pretty - nothing will.

Siobhan

Name the Price said...

Prices are just too irresistable not to go bid at auction. I'm going to check these out! I look forward to day when we get our Victoria auctions (those $1 m + homes recently bought by "rich" people with nothing or little down on 40 year mortgages). We'll be picking up those Oak Bay waterfront "multi-million" mansions for $400-$500K at auction.

http://www.ushomeauction.com/

Anonymous said...

"Four states — Arizona, California, Florida and Nevada — accounted for about 89 percent of the foreclosures, a disproportionately high amount of the newly reported figures. Those regions have suffered the sharpest price drops." Those are the states that previously experienced the highest price increases.

Guess which places in Canada have experienced the highest price increases?

http://www.nytimes.com/2008/06/06/business/06mortgage.html?hp

greg said...

I like this anonymous better than those other anonymouses, or should that be anonoymi?

Aleks said...

Buried on page 4 of the business section in the Globe today is a story that personal bankruptcies in Canada spiked in April, up 19% MOM and 18% YOY. That surprised me, as I really don't know where they'd all come from. Maybe in Ontario? The bubble hasn't burst and the construction boom isn't over yet, and bankruptcies are already at their highest level in 4 years. It could get really bad when things start to pile on.

roger said...

aleks said:

The bubble hasn't burst and the construction boom isn't over yet, and bankruptcies are already at their highest level in 4 years. It could get really bad when things start to pile on.

Unfortunately you are right!!

Canadians are not prepared for economic downturn, bank warns

Many Canadians are also not prepared to cope with an unexpected long-term emergency or sudden life-changing event," it said.

Only 49% have a rainy-day account set up, and of those that do 55% have only enough saved to cover one-month's worth of expenses, while just 24% have three-month's worth of expenses covered.

"Surprisingly" two-thirds consider their line of credit and credit cards to be their backup in case of an emergency, it said. Meanwhile, 60% of the more than one million Canadians who keep $1,000 or more in their bank account each month, consider that money to be their safety net.

sitting pretty said...

Prices are just too irresistable not to go bid at auction. I'm going to check these out! I look forward to day when we get our Victoria auctions (those $1 m + homes recently bought by "rich" people with nothing or little down on 40 year mortgages). We'll be picking up those Oak Bay waterfront "multi-million" mansions for $400-$500K at auction.

If you are serious, I feel really sorry for you--you are obviously a complete idiot. The people in those multi-million dollar waterfront mansions paid cash for them.

sockpuppet said...

sitting pretty said:

The people in those multi-million dollar waterfront mansions paid cash for them.

SP - Do you think some of them would rather pay 4.15% interest on a variable mortgage loan and invest their own money in something that can make them some serious cash? These are presumably smart folks that know how to make money. Or are you speaking from personal experience and revealing some of your own financial acumen?

sitting pretty said...

And Ed McMahon paid cash too?

My secret:

No down payment and take a 40 year mortgage.

I don't spend money on travel. The farthest out I have been is Malahat. I have not bought new dentures in 40 years, yes I have bad breath, but so what I have an appreciating asset.

I cannot afford new and clean undies and I have bed sores in my ass.

I'm on disability (too hard to work when you have to be on-line all the time) and also have a second welfare check at my brother's address in Alberta.

Anonymous said...

"ME, thanks for asking.

HAHA anonymous that's hilarious. I love it how landlords think they're making out like bandits collecting $2000 a month on an investment they could liquidate right now for $600k plus!

You're making 4% on that 600k not including maintenance, insurance, your property management costs, taxes, future/past transaction fees and last but not least inflation."

Where would I even start? Let's begin with I didn't pay $600K (bought in 2002,) I had a 25-30% downpayment, I currently owe much less than 1/2 of what the house would actually sell for. I'll leave you to sort out the rest.

Now, admittedly holding the property past today is as good as buying it, but I purchased it as a long time investment and not necessarily for the capital appreciation (as great as that has been) as much as having it pay for itself, which it does quite handily. As for interest rates going up, I'm buffered with tax deductions. As for property management costs, my time yes, but no significant costs.

I would point out that as a landlord, I do not have any aire towards the tenants and respect them very much - they have simply made different choices around investment and lifestyle.

Which brings me to a question that the bears might have a good hold on. Where are you putting your money today? Stocks are risky, real estate at its peak (yes, I can hear the angels singing;-) But where else? I assume with all this focused attention to your investments that your riding another wave elswhere or? I'm having trouble justifying, on an after tax basis, investing anywhere other than my personal mortgage (I don't carry consumer debt.) Thoughts?

sitting pretty said...

anon 7:56
Do you really own real estate, or is just a fantasy of yours? Why all that blah, blah.. I do own real estate and one thing for sure, it can only go up. These people don't know that Victoria is paradise and we are different than those dirty, dirty places in the United Amreica.

Anonymous said...

I do own RE, no dreaming. I agree that Victoria is the prettiest place in Canada, but that's just my opinion.

I would tend to be a little more humble in the current market and not suggest that it can only go up. Seems as irrational as the bear posts suggesting a 35% - 50% drop.

Be glad that your an owner (hopefully not $600K with 5% down, that would be worrying.)

Is there actually intelligent communication on this blog or only nose thumbing from either side?

Happy Owner said...

May 2008....4332 properties listed for sale. Out of a total of 120,000 households in greater victoria. In round figures that about 3% of households on the market for sale. So 3 out of every 100 on the market. Hardly seems like a sea of for sale signs.

As one poster stated " you will never see house prices like this again" ( not an exact quote).
Ya, thats right. I heard that in 1994 and again in 1982. I'm sure after the big crash in 1929 they were saying the same thing...."you'll never see a 5 hundred dollar house again".

Kudos to Prairieboy and the blog, this is better than 30 minutes of Family Guy.

Bubble 'n Fizz(le) said...

SP - Do you think some of them would rather pay 4.15% interest on a variable mortgage loan and invest their own money in something that can make them some serious cash?

You are showing your complete ignorance about all things financial. Prove me wrong by answering the following question: if you had $2 million cash, what kind of return do you think you could get today, at what level of risk?

fodder said...

Stopping in for two points. The first is for Tony Danza. I'm a little lost at calling someone stupid for making a choice to buy and hold real estate for the long term. In the situation annon. sounds he is in an affordable situation for him. I think we miss the point if we think everyone is stupid not to sell when prices are high.

I think the point of this discussion is that it's stupid to buy more than you can safely afford. It's also dangerous to buy needing real estate to increase in value.

To annons question on what to do with saving until the market becomes affordable... great question. I'll admit I don't like to look of anything right now. I think investing in oil, coal, and food would make money, but I just can't screw the world over for a house. I'm just putting 2,000 into GIC's each month. It's not the plan of a genius, but I don't claim to be that. I just want to save my money hoping housing prices move down 25%. Then a 400,000 starter home comes down to 300,000 and I've saved enough of a down payment to carry a reasonable mortgage.

Honestly I wish it was the 70's. I'd love to buy a small piece of land and put my trailer on it. Then build from their when I have the cash on hand. Well the bell bottoms were sweet too.

Anonymous said...

Credit card companies will give you 8% on $2m or more. You can 12% on relative stable income trusts such as say pengrowth.

sockpuppet said...

bubble... said:

You are showing your complete ignorance about all things financial. Prove me wrong by answering the following question: if you had $2 million cash, what kind of return do you think you could get today, at what level of risk?

I am surprised that you think someone is ignorant because they suggest people can make more than 4.15% on their money!! No hard feelings. Here are couple of investments to start you off:

1. Big Five Canadian bank preferred stocks: paying around 5.6 to 5.8% and have a tax advantage. Low risk but not exciting for $2M players.
2. iShares TSX Index - capped 60 company index. Low MER. Stock market has better returns than real estate over the long term. More risk but beats mutual funds.
3. Segregated mutual funds. Low risk, high MER but chance to make big returns in stock market.
4. Basket of income trusts like Enervest or Sentinel Diversified. Current yield around 14% and worst of trust news is over.

Go read the Globe & Mail if you want more or talk to a financial planner. Heck this is a bear blog!!

Do you really think rich folks with millions invest in GICs and are afraid to take risks?

BTW - you used to have an interesting bear blog but it vanished. What happened - did you buy a house and become a bull?

greg said...

I can say with a fair degree of certainty that Bubble 'n Fizz(le) and Sitting Pretty are one and the same, if anyone was wondering why they show up at the same time as the other bear bashers, happy owners etc. Wonder no more.

patriotz said...

Where would I even start? Let's begin with I didn't pay $600K (bought in 2002,) I had a 25-30% downpayment, I currently owe much less than 1/2 of what the house would actually sell for. I'll leave you to sort out the rest.

Ok I'll sort it out.

2002 was a good time to buy, and 2008 is a good time to sell.

Or did you think we couldn't figure that one out?

Anonymous said...

Thanks Patriotz. Actually, I was hoping you'd key in on something with a little more depth.

Good post Fodder, although I'm not sure too many of these folks are interested in rational ideas. It's too bad too, as there's lots to learn.

Anonymous said...

Fodder,
Sounds like a good plan, that's how we got in. I'm not doing too much differently now, I put my savings against my mortgage as additional payments. This is the equivalent of about 7% (tax adjusted) and I'm the risk factor.

If your looking at 3 - 5 years from now, have you considered getting into the 2nd mortgage game? I talked to some folks up island a while back that were making very good returns through a credit union. They spoke of not lending past 60% (LTV?) and they maintain control over a specific property (rather than going into one of these REITs, which appear risky at best.) This could be a good fit with your strategy - being extremely careful of course.

Food for thought.

boomer said...

anon 5:55

invest in a first mortgage-- maybe-at least if you have to foreclose you get the property/house (make sure its something that you wouldnt mind owning)

second mortgage- no way-not in this market-with falling values you could easily end up with nothing but a few months of interest after the first mortgage holders foreclosure claim is satisfied

boomer said...

speaking of investing, the TSX is above 15000 again this morning based on the latest jump in the price of oil.

The Dow is down again for the same reason.

Ridiculously,our whole stock market at the moment is tied to the price of crude -----WHICH is leading to a major downturn in our economy(and worldwide as well)

IMHO something pretty bad is shortly in store for Canadian stock prices -lets hope it ends at the TSX
Crappy economy-_high stock market is NOT sustainable.
( on topic------or inflated real estate)

Anonymous said...

Yup, you could short the TSX. High risk, but probably a guaranteed money maker with things going the way they are... Not like real estate!

Billy TwoBaulz said...


Which brings me to a question that the bears might have a good hold on. Where are you putting your money today? Stocks are risky, real estate at its peak (yes, I can hear the angels singing;-) But where else? I assume with all this focused attention to your investments that your riding another wave elswhere or? I'm having trouble justifying, on an after tax basis, investing anywhere other than my personal mortgage (I don't carry consumer debt.) Thoughts?


I am sympathetic in a sense, because I do think having a good portion of one's funds in cash is a good idea right now, and your paying down personal debt in the form of your mortgage is another form of saving cash.

But I have to admit I find your blanket statement that "stocks are risky" a bit perplexing. This sounds uncomfortably close to the current, doomed, mantra that real estate is the only good investment. There are thousands of companies out there to invest in, take your pick. They're not all universally risky. And in any case, "stocks are risky" is a non sequitur. Risk is proportional to reward, so a sector with low risk will give you a low return. If housing is as safe an investment as the masses currently think, then its future returns will be low. If it is extremely risky, as most people on here think, then returns will be high - but the risk of a catastrophic loss is far higher.

If you can't think of anywhere to invest, you need to talk to a qualified financial advisor. But I have some advice - first is to not use Canadian banks and advisors. The UK, followed by the US, is a better place to get intelligent financial and investing advice. Canada, as great as it is, is a financial backwater (Victoria worse than most places) and most banks and advisors here would prefer to sell you Canadian mutual funds (the worst ripoff in the world as far as charges) and investments with a Canadian bias, which violates a central principle of risk management, i.e. not to overinvest in sectors (e.g. your own country) on which your livelihood already depends. The same argument can be made for not buying stock in the company you work for, since in a downturn your job and your equity are likely to be impacted at the same time.

Here's a couple of investment ideas to kick things off. Gold and silver are good hedges right now against currency and catastrophic risk. Oil also seems solid, even if it should correct a mite. Pharmaceuticals and the airline sector are almost universally despised right now and this probably signals a perfect entry point around this time. Finally, follow Warren Buffett - he's recently acquired more pharma shares, Coca Cola, J&J, Kraft, etc etc.

Now. It's great to have alternative opinions on here - but your attitude comes across as condescending when you trumpet how you bought a number of years ago with a good-sized down payment, and now have lots of equity and have done well for yourself. Do you not think that anyone with any financial sense would do the same? What you seem to think is your personal formula for investing in real estate is what most people on this blog intend to do - buy a property during a slower period for real estate, and throw down a good sized down payment to guard against risk and keep payments low. Not rocket science. Bully for you for your success, but your presumption that you know something we don't, in the form of buying reasonably priced real estate with a large down payment, understandably gets people's backs up. Offer something more insightful than "I bought real estate a number of years ago and have donw well, why don't you do the same" and you will get more interesting responses.

Tony Danza said...

Where would I even start? Let's begin with I didn't pay $600K (bought in 2002,) I had a 25-30% downpayment, I currently owe much less than 1/2 of what the house would actually sell for. I'll leave you to sort out the rest.

It's called efficient allocation of capital and risk management, your investment is even worse than I thought since you pay carrying costs on it as well. No surprise that people holding RE as an investment now are completely clueless when it comes to investing.

I'm a little lost at calling someone stupid for making a choice to buy and hold real estate for the long term. In the situation annon. sounds he is in an affordable situation for him. I think we miss the point if we think everyone is stupid not to sell when prices are high.

Fodder what are you talking about? Affordable for him? I'm talking about return on capital and risk compensation, do you understand that he is not realizing any return on his investment? He is paying to hold the house hoping for future appreciation to make his alpha at a time when real estate valuations are at extremes.

If you think this is wise then I have a great deal for you, lend me 300k and pay me $500 a month (inflation adjusted) for the pleasure, I'll pay you back 300k in real dollars in 20 years.

patriotz said...

Housing is not a risky investment.

Now before you get all excited, let me explain what I mean.

Risk means uncertainty, the inability to predict something.

The value of any asset is equal to the present discounted value of its earnings. For housing that's the net rental income. This is very predictable going forward. Thus it's easy to estimate the valuation of housing - way easier than for stocks, even conservative ones. This is the reason why housing has historically returned a lot less than stocks - long term return increases with risk, as billy said.

Housing today is not any more risky than it used to be, it's just severely overvalued. That's something entirely different from risk. If you buy a house today it's almost a dead certainty that you or a greater fool will lose money on it.

roger said...

HHV,

You can definitely start a new thread on this news release out of Calgary. Best spin I have ever seen for a Real Estate Board:

Buyers need to pay attention - Homes are on sale today!

"Now is not the time to wait until the sale is over and then decide to buy; after you read a headline, the best time to buy has passed," cautioned, CREB(R) President, Ed Jensen. Home inventories are high; buyers are reaping the benefits of selection and are able to negotiate the best sale price and terms. Today's market presents buyers with great purchasing opportunities, according to information released by the Calgary Real Estate Board.

"The conditions today are perfect for buyers. We have a surplus of homes on the market, there are many great mortgage products available to fit the needs of every buyer, and interest rates have never been better," remarked CREB(R) President, Ed Jensen. Some buyers are waiting and trying to time the next market shift, which is almost impossible to do, a crystal ball is not a great forecasting tool.

Anonymous said...

Before the “Board” said: “the house price will go up, buy quickly”
Now they say:” it is a very good time to buy a house, more choices, quick, quick, you don’t know what happen tomorrow.”

Anyway, buy, buy and buy, quickly, quickly and quickly.

Billy TwoBaulz said...


Some buyers are waiting and trying to time the next market shift, which is almost impossible to do[;] a crystal ball is not a great forecasting tool.


I love it. If it's impossible to predict the way the market will go, then prices could go up or down. Thus waiting is the better thing to do, when prices are historically high, since over time they should return to the norm if odds are exactly even of an increase or decrease in any given year.

Anonymous said...

"Now. It's great to have alternative opinions on here - but your attitude comes across as condescending when you trumpet how you bought a number of years ago with a good-sized down payment..."

Good post Bill 2B.

My apologies if it comes across condescending, certaintly not the intention. Hoping it actually inspires the hopeful buyers on here. My intention is to buy more real estate in the future, and although my net worth is building, I'll face the same new challenges that everyone will to get further in.

I am quite satisfied with my track record so far. Out of school 10-12 years ago with $70,000+ in student loan debt. Debts gone, raising a family, pretty healthy net worth, and on moderate wages. As you point out, anyone on here can accomplish this, and in fact many probably have - just in other areas.

I also do not presume that I have caught the golden apple. At 40+ and rough NW of $600K, that could slip very quickly, I'm far from retirement ready or recession proof. There has been so much money made on this rock in the past number of years that it's time for all of us to cash in.

My path has been ten years of long hard planning, learning, and relative sacrifice. I believe I have used some strategies that some may not consider and may find useful in 3-5 years.

I'm looking for ways to expand my investments and make some real cash. It is nice to see that the conversation has expanded, and I look forward to learning from the others on this site.

roger said...

anon 5:02 said:

I'm looking for ways to expand my investments and make some real cash. It is nice to see that the conversation has expanded, and I look forward to learning from the others on this site.

Nice to see that you have done well due to hard work and taking a risk. If you want to learn about other investments, I suggest you visit the Victoria Library downtown and check out the financial section. I go there to read the financial newsletters which would cost 1000's of dollars in subscription fees if you purchased them. Moneysaver magazine, Moneyletter and Investors Digest are particularly good and cover a wide range of topics.

There are also some evening courses at Camosun on financial topics for investors and there are local investment clubs. The Wealthy Boomer series in the Financial Post makes for interesting reading. I took the Canadian Securities Course a number of years ago and it gave me a good foundation in investments and was well worth the effort.

boomer said...

"I'm looking for ways to expand my investments and make some real cash"

Thats the main reason the TSX is at record highs--there is a dearth of investment alternatives at the moment. Its pretty much like kissing your grandmother to invest in GICs at 3 1/2% max -unless you want to lock in for longer terms-when it looks like rates may go up soon. Likewise for the bond market. Gold and many commodities are still close to historical highs-generally not a good time to buy. For day traders todays volatility can be good but can also put a real big hole in your portfolio with one wrong move. Doesnt leave much for the conservative investor.Canadian Bank stocks are yielding pretty well --but who knows if all the shoes have dropped-,and Nortel (!) has got a pretty good story at the moment. Many foreign markets are looking pretty dubious however,there may be some undervalued individual American stocks worth looking at (exporters who are starting to do quite well with the weak US buck).
Real estate?-uh NO.

patriotz said...

Hoping it actually inspires the hopeful buyers on here.

Well it sure does. The lesson is that if you wait for the end of a bear market to buy (e.g. 2002), you're going to get a good deal.

Right folks?

Sitting Pretty said...

My net worth will be $800K when I inherit my gramma's house in Fernwood.

Sitting Pretty said...

I'll sell it to the investors from San Francisco for $1 million.

sitting pretty said...

Ever hear of "supply and demand?" The problem is, unlike San Diego, Miami, Phoenix and Las Vegas, Victoria is not burdened by an oversupply of vacant SFH's. Any property priced at 35% less than it's competition would attract a bidding war, and guess what, the price will be driven right back up.

There is an oversupply of condos right now, but don't kid yourself, Victoria ain't Miami (or even Vancouver or Calgary). Condo prices will slip 15% or so until demand kicks in.

Sorry to rain on your parade, but getting a SFH in Victoria for 35-50% less than current valuations is just a wet dream.


Not much response, apart from the spittle-laced blathering from vg. Feeling uncomfortable with the truth? Resigned to living out your sad lives in your basement suites, dreaming of getting rich as renters?

sitting pretty said...

Did I say that my bedsore is starting to heal?

sitting pretty said...

I love real estate speculators. They are my wet dreams.

Anonymous said...

"...dreaming of getting rich as renters?"

Renters are getting richer than owners right now, no one can dispute that. We rent a house that is assesed at $525k for $1300/month. To buy with 10% down would still require double the monthly payment. You would have to be crazy (or a realtor) to tell me that's a better deal!

sitting pretty said...

San Francisco investors are coming.

patriotz said...

Would that be the same San Francisco where local RE prices are now down over 20% from the peak?

That's in USD of course, the decline in CAD would be much larger.

And SP, why don't you talk granny into selling that house right now, because that 800K isn't in the bag unless she does.

Anonymous said...

Sitting Pretty needs to stand up and walk around a bit. All that sitting has obviously cut off the flow of blood to its brain and it can no longer think clearly.

Actually, it never COULD think clearly in the first place.

But it's gotten worse lately. Must hurt when the property values go down.

sitting pretty said...

Good idea. I'll put gramma into a home on account of memory and mobility loss. BC can pay for her and I'll take care of the house and her pension cheques.

Anonymous said...

Thanks Roger, the library is a great idea. I don't have the time to maintain a deep understanding of the markets, however, and I think Boomer pretty much sums up my potential confusion around the subject.

I'm looking for home grown ideas and local investmenting and therefore my raising the question around investing in second mortgages. I think they have potential. I agree you would have to be very selective and count on potentially owning the property, but for the right return, I'm not sure I would entirely discount the idea.

One of the ideas I've been researching and that some may want to know about and plan for ahead of buying their home is self directed RRSPs holding their own mortgage. It looks like you want at least 50K to start it up (so the start up and annual costs don't eat up too much on a percentage basis.) I realize there's probably better places for money to go, but I'm looking at a plan that will have me owning my own mortgage in a fairly short time period.

Patroitz: Do you think that was the end of a bear? Didn't people simply stop buying and selling?
I thought the market was simply relatively flat for a long time. You would rightfully point out that (inflation adjusted) properties lost money through about ten years to 2000-2001; however, I would also point out that inflation eats away at a person's mortgage at the same time i.e. where I'm paying 5% for the next 4 years, about 3% of that will be inflation and what I actually owe by the end of the term is much less in real dollars than the reduction in mortgage principle.

My sister owned a home through part of that decade and believes she lost about $10,000 on her house (not exactly a bear situation.) However, her mortgage came down a lot and she moved up to a much nicer house (I think in 2001.) and now thinks she's made all kinds of money. This is still one house in the same city. What she has gained is that her mortgage will be paid off within the next ten years or so and she has a pretty healthy standard of living on relatively modest wages.

One last comment: Sitting Pretty, please do not respond to any of the foregoing. Thanks.

Anonymous said...

I would like to see more discussion on the self directed mortgage. Is there anyone who has had one or has knowledge of them?

Siobhan

Anonymous said...

I would like to see more discussion on the self directed mortgage. Is there anyone who has had one or has knowledge of them?

Siobhan

patriotz said...

Patroitz: Do you think that was the end of a bear?

Yes of course it was. That was the real price bottom. It was also the cash flow break even point which has been a reliable indicator for a market bottom in RE.

Didn't people simply stop buying and selling?

What are you talking about? People are always buying and selling.

Anonymous said...

Patriotz said: "It was also the cash flow break even point which has been a reliable indicator for a market bottom in RE."

Excuse my ignorance, but are you reffering to when rent income on a property pays 100% of a mortgage? (and at what % of downpayment was that mortgage?)

If this is not the case, could you please explain it as I'd like to understand that.
Thanks
Fred

roger said...

Siobhan said:

I would like to see more discussion on the self directed mortgage. Is there anyone who has had one or has knowledge of them?

In essence your RRSP funds are used to fund a mortgage on a property which you own. The RRSP needs to be a self-directed RRSP which can hold different investments under your direction.

Not all institutions will do this but I know TD will do it. Here are the steps at TD:
1. Set-up a self-directed RRSP at TD Waterhouse if you don't have one already.
2. Speak to the folks at the main branch downtown on Douglas about setting up a self-directed RRSP mortgage.
3. They will require an appraisal on the property which you will pay for. They will also need to draw up a mortgage which you will pay for. Around $600-$700 for both.
4. CRA rules require that you pay CMHC mortgage insurance regardless of the amount of the loan. The fee is a percentage of the Loan-To-Value with a minimum of 0.5%. This is to make sure that even if you default the RRSP gets back the money.
5. Select an interest rate and term which is based on current market conditions. (i.e. can't charge 1% or 15%).
6. Pay TD a fee for their services to setup the mortgage and around $250 a year for every year they administer it.

You can see that the setup fees for a 100K loan can easily be well over a thousand dollars (600+500+250) and $250 annually. Typically it is not really worth setting up one of these self-directed mortgages unless you are borrowing several hundred thousand.

There are many tradeoffs that need to be considered before you decide if this is a financially sound thing to do in your circumstances. A financial advisor and/or a good google search will help you make the decision.

Anonymous said...

Can the mortgage be a mixture such as:

$300,000 from your RRSP
and
$200,000 as a bank mortgage or demand loan?

I know that the principle and interest payment each month of the RRSP portion goes back into your RRSP.

For the bank portion, you would get the principle pay down, but the bank keeps the interest portion.

So I would want the self directed RRSP mortgage at the highest allowable interest rate, paid monthly, over the longest amortization period say 40 years. In otherwords, I want to give myself the worst mortgage terms because the money is being paid back to me.

While I would want the Bank mortgage at the lowest interest rate, Bi-weekly payments, over the shortest period of time with the ability to make an additional lump sum payment of say 10 or 20 percent of the original mortgage amount each year. In otherwords, the best possible terms. So that you can extinguish this loan quickly.

And if you use your RRSP to buy an investment property, then you would be able to deduct the interest expense from your income taxes.

Please correct me, if any of the above is off track.


Siobhan

roger said...

Siobhan,

The RRSP is a trust and is loaning the money via a 1st mortgage on a property. This is a CMHC insured mortgage which means it is must be first in line on the property.

An additional loan on the property would be a 2nd mortgage and you will not get great terms or conditions. Interest rates will be high. Even if you used TD for the bank loan it would still be a second because the 1st mortgage is issued by the RRSP trust as mortgagee.

As I mentioned in my first post the interest rate and mortgage terms for the RRSP mortgage depend on your personal financial goals. At first glance a 40 year amortization at a high interest rate seems attractive. However you would be paying more interest (in after tax dollars) than you would with a bank mortgage in order to increase the capital in your RRSP. But you would be taxed on these dollars when you take them out. This may or may not be advantageous. Google "RRSP freeze" and see why some think you can have too much RRSP.

Also with the new Tax Free Savings account that is where I would put my extra after-tax dollars instead of diverting it into a self-directed RRSP mortgage via high interest rates. In both cases you are using after tax dollars in order to build tax sheltered savings but with the TFSA there is not tax on withdrawals.

roger said...

Siobhan,

The RRSP is a trust and is loaning the money via a 1st mortgage on a property. This is a CMHC insured mortgage which means it is must be first in line on the property.

An additional loan on the property would be a 2nd mortgage and you will not get great terms or conditions. Interest rates will be high. Even if you used TD for the bank loan it would still be a second because the 1st mortgage is issued by the RRSP trust as mortgagee.

As I mentioned in my first post the interest rate and mortgage terms for the RRSP mortgage depend on your personal financial goals. At first glance a 40 year amortization at a high interest rate seems attractive. However you would be paying more interest (in after tax dollars) than you would with a bank mortgage in order to increase the capital in your RRSP. But you would be taxed on these dollars when you take them out. This may or may not be advantageous. Google "RRSP freeze" and see why some think you can have too much RRSP.

Also with the new Tax Free Savings account that is where I would put my extra after-tax dollars instead of diverting it into a self-directed RRSP mortgage via high interest rates. In both cases you are using after tax dollars in order to build tax sheltered savings but with the TFSA there is not tax on withdrawals.

roger said...

Siobhan said:

And if you use your RRSP to buy an investment property, then you would be able to deduct the interest expense from your income taxes.

Here is where you need to be real careful and consult a tax accountant. The RRSP mortgage is not being done at arms length and CRA could disallow the entire arrangement as a tax sham under the General Anti-Avoidance rules. CRA is also revising the interest deductability rules after the Singleton Lipson court cases. Some concern is also being expressed about the validity of the Smith Manouevre.

Anonymous said...

That sounds fairly well on track Roger. The situation and advisability will differ between homeowners and objectives. The only correction I might suggest is that there is no CRA restriction that it be a 1st mortgage (as far as I know.) I have come across the issue with BMO but it was an internal restriction, nothing to do with CRA or CMHC.

The biggest hurdle appears to be finding a trust that will handle it. B2B does it and is a sub of Laurentian bank.

Anonymous said...

Also, I mean homeowners present or future. Good idea to consult an advisor and he/she should tell you that the interest would be deductible on investment property or against revenue from a suite in your home - as part of the overall mortgage interest (not to be confused with interest on money to buy RRSPs, which is not deductible.)

I have been researching a plan whereby my intention is to start with 50K (SDRSP non-arms length) and re-invest the monthly payments back into the mortgage over time (may have to be annually or at the end of the terms.) The idea being that at each interval my bank mortgage shrinks and my NAL mortgage increases to the point that within perhaps 10 years the only mortgage I will owe will be to myself. I'm not finished the research into the viability and hope to put this into play in the new year as I set up my RRSPs. My primary objective here is financial security.

This may work well for first time homebuyers as they are incurring a lot of the appraisal and legal fees etc anyway.

Again the biggest hurdle appears finding a company that will do this.

I would recommend any one interested do a search under "self directed non arms length mortgages" and also review the public CRA (look under RRSPs and qualified investments) and CMHC websites for their parts.

Anonymous said...

Good Stuff

I have also heard that if you are a principle in a corporation, it is possible for the corporation to borrow say $300,000 from the bank which is tax deductible. The corporation can then give you a shareholders loan of $300,000 that you use to buy a home. The purpose of this is make the interest deductible which on a normal mortgage is not.

Now this one sounds "screwy" to me and I am not sure of the details.

Siobhan

roger said...

CRA is taking an increasingly dim view of any "arrangement" for making your mortgage tax deductible. You could end up paying a lot of taxes and interest to the government down the line. I encourage anyone interested in these schemes to talk to a tax accountant that is up-to-date with the latest tax appeals and rulings.

Anyone interested might want to Google "singleton cra tax", "lipson cra tax", "Ludco CRA" and "Smith Manoeuvre CRA". You will then see what you are getting into with CRA. You should also review the General Anti Avoidance Rule – GAAR which is a catch all for CRA to plug loopholes.

BTW - If you have two mortgages on a property one will be a first and the other will be a second. I doubt you will be able to do a second with an RRSP because CMHC does not insure second mortgages (to my knowledge).

Anonymous said...

Keep in mind that CRA specifically lists the self directed non-arms length as qualified and thereby encourages it as an option. (subject to very specific conditions that we must be aware of) and this arrangement does not fall in with the Smith Man or Singleton.

CMHC insures 2nd and 3rd mortgages (to the best of my knowledge) and has been expanding their rules considerably over the past few years. I believe I found this right on their website, but will leave the research to anyone interested.

It's actually the banks that are eliminating the option because they make no money on it (IMO.) When I approached BMO they said oh ya, we do non-arms length. It turned out that THEY (nothing to do with CRA or CMHC) do not allow second mortgages and their fee schedule made the arrangement prohibitive at best (quite rediculous really.) I guess they would like to offer a second so they can charge a higher interest with the same basic risk level. Talk about a sham...I was considering calling TD, but is it the same there?

Definitely agree the corporate debt swap could be considered a sham and that CRA is looking at these types of transactions including the others you mention above.

patriotz said...

Excuse my ignorance, but are you reffering to when rent income on a property pays 100% of a mortgage?

Correct. Generally for 20% down payment and 25 year amortization, which used to be the norm before the bubble era.

This may come as a shock to you, but before house prices started getting bubbly in the 70's, it was always cheaper to buy a house than to rent it. That is the reason why people bought houses rather than renting - they saved money on a monthly basis, or made money in the case of landlords. People didn't buy in expectation of gains on the sale price (i.e. speculation).

Anonymous said...

"Patroitz: Do you think that was the end of a bear? Yes of course it was. That was the real price bottom. It was also the cash flow break even point which has been a reliable indicator for a market bottom in RE.Didn't people simply stop buying and selling?What are you talking about? People are always buying and selling."

Patriotz: Agreed it was the real price bottom. But that market was very flat for a very long time and simply slowly petered-out. I would have thought it was a fairly balanced market - certainly not the bear that some anticipate here.

Your right people are always buying and selling, but when demand roughly equals supply, most of that movement could be classified as structural or cyclical (need a realtor to jump in here and give the day's buzz-words.) - ie people are moving on or off the island for work, or a family moves from a condo to a house out of need. When I say people were not buying or selling, I guess I meant the speculation demand frenzy that has occured over the past 5-7 years was not happening. RE was flat.

It's no coincidence that people flocked to RE after the stocks tanked early in the decade as they shifted their investment from stocks to RE. People still need to invest. I wonder where the emotions are in the market place today? Someone mentioned Gold and Oil. Could be a safe place for a while if not too late already.

greg said...

anonymous -

I suggest you google peak oil before recommending oil as anything but a short term play.

Anonymous said...

Actually not recommending it, really not sure where someone would money at the moment

Anonymous said...

HHV I loved your post at KIV, though I think trying to reason with the readers over there is akin to trying to reason with a zombie. They've drunk deep at the RE Kool-Aid punch bowl and are lining up for more. Good on you for trying though!

You guys have been "outed" over at KIV by some poster calling himself "bubblenfizzle."

patriotz said...

I guess I meant the speculation demand frenzy that has occured over the past 5-7 years was not happening. RE was flat.

That's exactly the case. Without speculative buying, prices revert to levels justified by fundamentals, i.e. rent equivalence.

Until the next round of speculative buying begins. That's why you get price cycles in RE. Prices start rising when speculators start buying, and once prices inevitably start falling they bail out and you get a bear market. The dance of fools.

Anonymous said...

What is KIV? Kids in Vic? I searched it the other day but did not come across significant RE discussion.

Thanks

boomer said...

From Vancouver Sun and TC today:

"Generally though, British Columbians, and Lower Mainlanders in particular, are pretty savvy about their property, the experts believe, with so much information out there about real estate, between Real Estate Weekly, the real-estate sections in newspapers, the realtors' Multiple Listing Service posted online and Home and Garden TV."

No wonder we're so "savvy".
Thanks, "experts"

( an expert---definition of a realtor 5 feet outside his front door)

Anonymous said...

"That's exactly the case. Without speculative buying, prices revert to levels justified by fundamentals, i.e. rent equivalence.
Until the next round of speculative buying begins. That's why you get price cycles in RE. Prices start rising when speculators start buying, and once prices inevitably start falling they bail out and you get a bear market. The dance of fools."

How long do you think it will take for rent equivalents to catch up to prices? Or do you expect them to meet in the middle somewhere? Victoria is at least somewhat unique in that there are a lot of people here for the tea regardless of wages and home prices.

Looking at the rents offered today, it would appear that they have also increased an overall 25 -30% since 2000 and so that price point has already moved up. Vacancy is still at .5%? Personaly, I know I could make a whole lot more money elsewhere, but couldn't imagine living anywhere else.

I will be watching for that bottom point again. Maybe another 5 -7 years?

roger said...

Foreclosures heat as market cools
Rate surge in Lower Mainland, but not comparable to U.S.-style meltdown

Lower Mainland foreclosures have doubled in the last two years as affordability has decreased along with the promise of quick profits.

Kap Hiroti, who tracks Lower Mainland foreclosures at ForeclosureList.com, says foreclosures stand at 20 per week, up from 10 per week in 2006.

hhv said...

Anon at 9:15

According to CMHC, between 1992 and 2007 rents increased an average of less than 1% per year.

The vacancy rate is not accurate either. They don't count rentals owned in groups less than 3. That is, they'd count an apartment building or a bunch of condos owned by the same investor, but they don't count individual condos and basement suites owned by individuals.

I see a lot of rental listings and vacancy signs around. I'd guess that the real vacancy rate in town is over 1%.

Anonymous said...

Try, RBOIV, Rust Bucket Owners in Victoria.

Anonymous said...

"According to CMHC, between 1992 and 2007 rents increased an average of less than 1% per year."
Maybe vic is different as I see 1 bedroom apartments advertisied for $800 + and I know of a couple recent 2 bedrooms that rented for $1,100 +. These would not have gotten more than $800 in 2000.

"The vacancy rate is not accurate either. They don't count rentals owned in groups less than 3."
That is interesting info that I wasn't aware of.

"I see a lot of rental listings and vacancy signs around. I'd guess that the real vacancy rate in town is over 1%." Your guess could be right; however, there's almost as many rentals wanted signs on the boards as there are aprtments for rent. Speaking from my own experience, our rents have increased 25% over the past 7 years.

hhv said...

""According to CMHC, between 1992 and 2007 rents increased an average of less than 1% per year."
Maybe vic is different"

Those are Victoria numbers.

It's hard to take individual numbers and then express them as averages.

CMHC only tracks two bed "apartments." Of course you will find that some places will be advertised higher and be rented for higher.

The average is for an average two bed apartment in town.

Anonymous said...

"CMHC only tracks two bed "apartments." Of course you will find that some places will be advertised higher and be rented for higher."

It's too bad CMHC excludes these as it becomes a bit of an apples and oranges comparison when discussing house and condo pricing and future rental rates. Good discussion just the same.

olives said...

Because of the unaffordability factor I would assume that Victoria (and Vancouver) would have a much higher ratio of basement suites than most cities in Canada - which would not show up on the rental stats.

there are numerous basement suite rentals advertised on the Usedvic daily.

Anonymous said...

I've never liked the CMHC vacancy study, but it does show a change over time.

The marketplace has dramatically changed since CMHC started providing this stat.

Back in the 70's we had apartment buildings being constructed for rental purposes and few condomominums.

Today, you find that it is almost exclusively condominiums (typically not included in the stat) that are being built and to some extent apartment buildings either converted to condos or demolished for new condo complexes. At the same time our population has been increasing. So, is it fair to compare a 2 percent vacancy rate in 1980 to a 0.5 percent rate in 2008? Heck, they actually could be equivalent after making adjustments for the above.

Also, apartment buildings typically provide the least costly form of rental. If you have a lot of low wage earners they will tend to fill up the apartment buildings. A little logic tells us that Property Management companies want to maximize profits, so why are the apartment suites not at substantially higher levels with such a low vacancy rate. Because, the managers know that they will have higher turnover and bad debt with people skipping on the rent. They also rather have 30 people apply for the suite from which they can choose one, rather than a short list where they have to take what they can.

And have you ever asked yourself what is a high vacancy rate? If you look at areas that have had economic downturns with falling home prices the vacancy rate is only in the 3 to 4 percent range. So whats a normal vacancy rate?

Could the reason for our low vacancy rate be that people from the rural towns have been coming to find work in Victoria's construction bussiness? And when construction slows down, will they also not leave Victoria?

And for all of us "bitter renters" out there if a two bedroom in an apartment building in your neighbourhood rents for $750 would you be so inclined to pay $1,500 per month for a two bedroom basement suite?

So after the construction workers leave town and our vacancy rate goes to 4 percent and property managers lower rents to fill their buildings - would you also not a reduction or improvements make to your rental home.

Anyone want to buy a house with a needed basement suite in order to just make the payments?



Just Jack

sitting pretty said...

You guys have been "outed" over at KIV by some poster calling himself "bubblenfizzle."

Wow, you lot really got it up the wazoo over at KIV. I guess you won't be visiting there as often now!

roger said...

Siobhan:

Do you have any new stats on condos? In particular are new units still not selling as well as the older stuff?

BTW, I see Bear Mountain is trying a new angle to sell units.

Anonymous said...

Are you looking for something more specific say condos in the west shore only or all of them?

Because of the recent bad media about Victoria's market I'm waiting a couple of days to see if the number of purchases per day dropped. I thought it would be an interesting measure of the affect of the media on the market.

Siobhan
(or Jack's my neighbour)

Anonymous said...

okay here are some condo stats for all areas.

I broke them down into two groups for comparison purposes.

Group one - Condos built in 2007 and later.

648 listed for sale with an average 46.6 sold per month for a 13.9 month supply. Number of new listings in the last 90 days is 429of which 72 have sold for a sales to listing ratio for new condos of 0.17

Which may be compared to group 2 which are condos built in 2006 or earlier.

574 condos listed for sale with an average 57.4 sales per month for a 4.4 month supply of older condominiums. Number of older condos listed in last 90 days is 771 of which 268 have sold for a sales to listings ratio of 0.35

You can see that the demand for older condos is significantly stronger than new ones. Although neither group would be considered a stellar performer - especially for a spring market.

Siobhan
(or I think one of my sister's ex's was a Jack)

patriotz said...

Foreclosures heat as market cools
Rate surge in Lower Mainland, but not comparable to U.S.-style meltdown


Well of course not. We're two years behind the US in this cycle. There were hardly any foreclosures in Phoenix in 2006 either.

Just wait.

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