Friday, July 11, 2008

Ya Think?

Brilliant. They are finally starting to tell it like it is: (H/T s2)

the market here could turn ugly too as more houses are being built than are needed, says an analysis released Thursday by Peter Hall, chief economist at Export Development Canada.

That holds true even in B.C., where the number of housing starts has begun to fall but is still outstripping demand, said Canada Mortgage and Housing Corp. regional economist Carol Frketich.

the feds are right to pull the plug by withholding guarantees on 40-year, no-down-payment mortgages.

Because, while buying a home may be the best investment many of us will ever make, it is never a sure thing. And there are times when people are better off not owning a home.

You don't need money in your pocket to buy. And the payments will be as low as they can possibly be - though the need to keep making them goes on, and on, and on.

So you'll love it if you're a speculator who wants the most-possible property for the least-possible cash outlay in the expectation that prices will continue to rise. Who cares about paying down principal in order to build equity if you're counting on ever-higher prices to do that for you?

A better option, I think, is for people to wait until they can afford to buy. And, in an odd way, this policy change will help them.

One of many factors that drive Metro Vancouver (and Victoria) home prices is the number of buyers. And it's an artificially high number as long as people are enticed into the market with no down payment and lowest-possible repayment schedules. If those kinds of would-be buyers no longer qualified to borrow, there'd be a little less pressure on prices.

Emphasis in quotes is mine. Yours in comments.

48 comments:

Anonymous said...

Thanks hhv.

Check out today's TC and Van Sun. Today is chock full of these kind of articles.

The MSM is turning the screws it seems.

S2

hhv said...

some of the comments in this article are incredible. Talk about "so-called" experts contradicting one another and giving great advice. My favourite from Joe: "will definitely have some impact because we know that a lot of people definitely stretch the boundaries of their affordability as best they can in order to buy." and followed up with this dandy gem of common sense: "The market may heat up before October for buyers pre-approved for mortgages who want to get a home under the old rules before the new measures come into effect, Joe said."

So prices will fall, but expect a frenzy of buying activity right before this happens.

Wishful thinking by those "experts" who make a living selling you mortgages or houses.

roger said...

Garth is really dishing it out in today's post titled The mortgage bomb The comments from readers are interesting to read as well.

This week’s blockbuster changes – good reforms, but at the worst possible moment – guarantee the already-deflating real estate market will be out of air by Christmas in most places. Within 12 months, it’s a safe bet to say everyone’s house will be worth 15% less, and some will be cheaper by a third.

Don’t confuse this with US-style foreclosures or people being forced out on their lawns or sheriffs’ notices on windows. Rather it’s a 1993-style meltdown in housing values that will drop the net worth of the country. If you don’t need to sell for a few years, no problem. But if you were planning to cash out to fund your retirement; or if you’re a young couple with a big mortgage and no equity; or you just need to change houses because of a job switch, a divorce, a downsizing or whatever, well, Ottawa has skewered you.


#23202

beagle said...

I think Garth is just getting his political diggs in. Things are going to unfold the way they will unfold no matter what the government does. Look at the US, they can't do sh*t about it. The real deflationary causes are to big. It's like trying to stop an iceberg with your row boat.

hhv said...

I commend Garth for taking advantage of the turning tides and writing a book about the inevitable bust of the real estate cycle, but the intellectual dishonesty of his highly politically charged recent post is off-putting in my opinion, despite the market facts it contains.

To attempt to hold the current finance minister responsible for CMHC's actions ignores the liberalization allowed by policymakers under the Chretien and Martin governments.

Those policies would have been adopted regardless of who was in power. Garth knows it but won't say it (why would he?)... he already has a platform for his politics at garth.ca, I'm dissapointed he's started using greaterfool to advance his ever-stuck-to-the-opposition agenda.

It's also equally dishonest that he railed in Ottawa for changes and then, when they happen, tries to tie the current gov't's actions to the value of your home in deflection against poor economic and worse (or more acurately complete absence of) environmental policy in the "Green Shaft."

Garth, please make a decision, either use greaterfool to sell your book, and keep garth.ca to sell your politics, or merge them together so readers aren't confused by your motivations.

roger said...

Those who have already bought (or about to buy) with zero down and 40 year amortization will soon be questioning their decision. Here are the facts associated with purchasing a modest 450K house in this area:

CMHC insurance is 3.7% or 16.7K
Property transfer tax 7.0K.
Legal fees 1K
Building inspection .3 K

Total purchase price is 475K and a mortgage of 466.7K on a property with a market value of 450K. The monthly mortgage payments @5.5% fixed, 40 year amortization are 2.4K. Add in property taxes and the PIT is 2.7K per month.

The day they buy the property they are "upside-down" on their home purchase with a mortgage that exceeds the current market value. If they sold with an agent using typical commissions they would net 433K for a total loss of 42K and a payment to the bank of 33K less the small amount of principal already paid.

What if the house market value drops by 10% over the next year? Selling would result in a loss of 87K and a payment to the bank of 72K. If they keep the house they keep paying that PIT of 2.7K per month. Talk about being between a rock and a hard place.

beagle said...

Good example Roger, and if it's a new home there is GST, if not good luck not having to sink some money into it to fix something.

B2B said...


I think Garth is just getting his political diggs in. Things are going to unfold the way they will unfold no matter what the government does. Look at the US, they can't do sh*t about it. The real deflationary causes are to big. It's like trying to stop an iceberg with your row boat.



Beagle, I couldn't agree more. It's one of the more pathetic and immature features of Canadian politics that each party spends 90% of their energy claiming that everything the previous party did was incompetent and damaging, and this becomes the all-encompassing excuse for anything their party does that doesn't work out. This applies universally to all the parties.

You're too right - this is so much bigger than Ottawa's recent change. There was a big hullabaloo in the UK a couple years back due to some change in the mortgage and tax laws, and there were widespread predictions of doom among the opposition. Well, guess what happened - the housing market is crashing there, but long after those changes, and it's nothing to do with them. The UK has 170% debt to income - that is the issue and no funny little bills can change that. Ditto with Canada's 130% debt to income and woefully inflexible and single-track economy.

hhv said...

Roger said: "What if the house market value drops by 10% over the next year?"

Or like it did on some properties in Victoria proper over the past 2 months? I'd say it's beer time Roger. If we're all in agreement, Bengal here we come. (Shoot me an e-mail anyone if you're interested)

roger said...

HHV said:

Or like it did on some properties in Victoria proper over the past 2 months? I'd say it's beer time Roger. If we're all in agreement, Bengal here we come. (Shoot me an e-mail anyone if you're interested)

Count me in for a brew! I will send you an email.

#40131

roger said...

New home builders in Victoria see price increases stall.

Today Stats Can released their New Housing Price Index-May 08

New housing prices increased at their slowest pace in almost six years in May, continuing a deceleration that started in September 2006, due mainly to the softening market in Alberta and British Columbia.

Nationally, contractors' selling prices rose 4.1% between May 2007 and May 2008, a slower pace than the year-over-year increase of 5.2% in April. This was the slowest rate of growth since July 2002 when year-over-year prices increased by 4.0%.

The picture was similar in British Columbia. On a monthly basis, prices in Vancouver and Victoria declined between April and May. But on a year-over-year basis, builders in Vancouver increased prices by 2.7% from May 2007, while prices in Victoria were unchanged

greg said...

bengal -

count me in.

Metaldwarf said...

HHV Said: I'd say it's beer time Roger. If we're all in agreement, Bengal here we come. (Shoot me an e-mail anyone if you're interested)

Count me in too. email is in the tubes.

What happens if the last dying rush in before Oct. 15 pushes prices back up? Do we get to go to, say Swans, at the end of November?

Anonymous said...

Not a huge Garth fan, but on this, he's got it right. Dead on. Too late, too slow, worst possible timing.

Note that ING has already pulled the plug on their 40 year mortgage. Right thing to do, they said.

Think about this: Who's interests are CMHC protecting by delaying this decision to October? First-time home buyers with weak credit, who are being enticed to enter the market at the worst possible moment? No. They might as well send out an invitation for those people to volunteer for the position of "Greatest Fool."

CMHC have shown their (un)ethical stance, as well as their (lack of) understanding of the market. Watch the spinners try to make this into "no big deal."

Here's one ray of hope: The poor saps rushing into the market will be balanced out by smarter folks with better credit who recognize the CHMC decision for what it is: A warning, a no-buy order from now until... well... 2009? 2010?

2012 anybody?

- awum

Anonymous said...

OOOH, exciting: the stampede continues!

http://www.thestar.com/Business/article/458918

CBIC, BMO have followed ING and dropped 40-year mortgages.

- awum

hhv said...

awum,

are we surprised about banks dropping this product? No. But garth is a hypocrite regardless.

I say politics and the market are best left without one influencing the other or one taking credit for the other. Garth, he takes cedit for both where no credit is due and lays blame for both dishonestly. That's all I'll say on that matter.

Anonymous said...

What will this do to rents and first time buyers? Seems the middle income guys will get it again to me.

patriotz said...

It won't do anything to rents. Rents depend on physical supply and physical demand for housing, which is why they follow inflation and don't go up and down like sale prices.

As for first time buyers, they will get lower prices, because sellers will have to drop prices to get a sale.

Anonymous said...

So which is it, are people renting more or buying more - the housing demand is certainly there. Whichever way it will be, it is mutually exclusive with this near-zero vacancy that has persisted for two decades.

Don't believe this? Try posting a vacancy add in Victoria for a day or two and take the phone calls - wholly..!

If prices did go down, it wouldn't make any difference to first timers for at least 2 or 3 years - given that they are already 200 - 300K over what people on here claim to be willing to pay.

By then interest rates will be up another 3-4% with the resulting mortgage payments the same or more than today.

There is hope for first timers. Start saving, paying down debt, and get ready to pick up on other's misfortunes as the zero-down mortgages come due over the next 3-4 years and people have to make difficult decisions. Regardless of what happens to prices, there will be deals to be had.

That's what I think.

Village said...

Well, this looks like big news...

FDIC seizes IndyMac

talus said...

It won't do anything to rents. Rents depend on physical supply...

Don't you foresee more units (supply) coming online, therefore a decrease in rent prices??

Anonymous said...

The rental supply has been restricted for years due to both property values and government regulations. Demand remains very high for both rental and purchase property.

There are currently as many or more adds for homes wanted than for rent - even in Sooke.
It's very tight.

patriotz said...

Demand remains very high for both rental and purchase property.

Yeah OK, so why does it cost 1/2 as much to rent the same house as it does to buy it? If demand for rentals were so high why aren't rents higher? Remember there are no controls on rents to new tenants.

High demand means high prices.

$800 WE ACCEPT DOGS (DOWNTOWN)

Don't tell me there's a tight rental market when you see ads like this.

Anonymous said...

Are you serious? You could also find something for $600 but you wouldn't want to live there either. The rental market is very tight and has been for decades, it's not my opinion, it's simply a fact. Have a look around, and every add you produce as example could be matched with "housing wanted" adds. Many basement suites are now renting over $800 plus util.

As for why are rents not relatively higher with the higher house prices, that's a good question, and maybe it'll simply take a few years to catch up. Rents in SFHs have gone up considerably over the same boom period.

Our rentals are up about 25-30% over 4-5 years including that we no longer provide any utilities - tenants were leaving water hoses running for days and windows wide open with the furnace running. We have been told that even with those increases we are still $200 / month under market for each suite. We stay somewhat beleow market because we believe that higher rents simply lead to higher turnover and more opportunity for problems.

What might make a difference is if the Feds brought in a change to the capital gains tax. Bring that back to zero and maybe more land holders would choose to afford to build rental accommodation,.. maybe.

It truly is the government that has helped to create the rental situation years ago with both the tax structure (interest deductibility) and the RTO, market restrictions do not favour the tenant. Look at the new mobile home laws in some local municipalities. Although I haven't followed it closely, I understand that landholder's have to pay market value for people's mobile homes should they wish to remove them and change the use of the land.

How many new mobilehome parks and therefore affordable accommodation will we see in that sector in the next 50 years? Zero. It's not worth the landholder's risk. What's the result? More people competing for rentals.

roger said...

Another week of price reductions in Saanich & Victoria in all price ranges.

Why is this happening??:
a) Sellers are unrealistic.
b) Buyers won't pay those prices any more.
c) Fewer buyers and more competition.
d) Prices are dropping in Victoria.
e) Some sellers are getting desperate.
f) Uh-oh the boom is over.
g) RE market wants HHV to have a beer party.
h) All of the above

#42012

patriotz said...

As for why are rents not relatively higher with the higher house prices, that's a good question, and maybe it'll simply take a few years to catch up.

It's a good question with an easy answer - there is a housing bubble.

And it will simply take a few years for prices to come down. Housing stock in Victoria is growing faster than the number of households, which means rents aren't going anywhere. Just wait until the RE boom is over and government cutbacks happen because of the recession. This perpetual motion machine can't go on forever.

roger said...

Here is the latest RE news:

From our favourite investigative reporter at the TC - Carla Wilson:

B.C. and Alberta markets lead house price slowdown

But year-to-year figures for Victoria show prices are holding steady

Surging home prices in recent years have prompted many buyers to start not with a detached house but a condominium instead.


That's good because now they have so many condos to choose from. But they better bring that 5% down payment with them.

More denial from the leading RE shill Cameron Muir, CMHC and RE agents

The resale market has its challenges, but prices still rise

Yes, the resale market is having its challenges, as listings significantly outpace sales, transferring the upper hand from sellers to buyers and taking the panic out of the purchase.

But Cameron Muir, the respected chief economist for the B.C. Real Estate Association, said: "There is no evidence of any kind of substantial decline in prices."

Also, I believe some of the homes lingering on the market were listed above true value, due to lofty expectations by homeowners and inexperienced agents. Homes that are priced right are selling.

Canada Mortgage and Housing Corporation predicts prices in Metro Vancouver will increase eight per cent this year and five per cent in 2009. Not heady numbers, but not bad either. Our situation here is a far cry from the misery experienced in many U.S. housing markets.


From the lost touch with reality department

Home Thoughts

Despite reports to the contrary, American real estate is still considered a sound investment for the affluent, a study done for Architectural Digest and Sotheby's suggest.

Some 85 per cent of survey respondents agreed with the statement, "I think real estate continues to be one of the better investments a person can make."


The law has caught up to real estate developer Mark Chandler again

Easy come, easy gone

For Chandler, this is yet another brush with the law. In 2000, he was indicted on 13 charges of fraud, theft and forgery in Arizona. In May 2003, he entered into a plea agreement and was ordered to pay $189,500 in restitution. He was also placed on three years' probation and deported back to Canada.

After he returned to Vancouver, Chandler began developing a 21-townhouse development at 37th Avenue and Oak Street called Hamlin Mews, and was looking for a financial partner.

The catering manager of a local restaurant introduced him to real estate marketing whiz Bob Rennie. Rennie, who said he had no idea about Chandler's background, introduced him to his long-time stockbroker, George Dengin.




#4302

olives said...

uh-oh the boom is over!

Rents - they obviously jumped up quite a bit a couple years ago, but from looking at the ads in the past year they seem to have levelled off and don't seem to be increasing anymore (hey just like real estate prices)

vg said...

Lets not rule out the Israel/Iran threats that have reared their ugly head,this is serious shit. Should things get worse over there, oil prices would blow thru $200, then what ? global economies would tank big time.

From a big picture outlook this is the worst time in many moons you should be buying overvalued real estate.

patriotz said...

Homes that are priced right are selling.

Wow Cam is so profound.

Houses that are priced right sell, by definition. All the time.

womp said...

Roger - great screencaps. From my stats we're already at the same inventory level as we were at the end of last month before the expired listings dump.

This week saw a significant jump in inventory (+169 listings) with almost 50 listings in one day... if it continues even for another 3 days, we definitely didn't peak in June ...

roger said...

womp,

I made a couple of posts on your site about PCS and other real estate client software. It hasn't posted yet. Is there a delay on your system?


#50211

Anonymous said...

I remember the leaky condo fiasco and it seemed like that no matter what price they were at they were not selling.

They did sell pretty much when they hit rock bottom. I remember some of them selling for $35,000.

Sometimes in a correction houses can be priced really well and they just sit and sit and sit. It can happen.

S2

Anonymous said...

Patriotz is right. If a house doesn't sell after a certain time on the market, it's priced too high, and the longer it sits, the more ridiculous the price.

A house priced perfectly in relation to the current market and to its neighbors for similar value will sell, and quick, in any market.

Sellers: just keep lowering until you sell. Couldn't be simpler.

And if you've got a dog that you know an inspection will find $100,000 or more of problems so you have to up the asking price, look for a buyer that will make an as-is where-is offer; true an inspection will have to be made and the problems found, but your buyer will have agreed to not lower the offer based on what was found during that inspection and priced their offer accordingly and you can count on getting what they've offered.

If you have to price your house above the repair costs an inspection will uncover, you will NEVER SELL.

The only alternative is to pay the money to fix it yourself, and then you have the records for proof to potential sellers.

It would be far easier to find an as-is where-is buyer and PRICE ACCORDINGLY.

Anonymous said...

Sorry, I meant:

The only alternative is to pay the money to fix it yourself, and then you have the records for proof to potential buyers.

Anonymous said...

Garth was calling the top of the market in summer of 2004 and every year since he has been wrong. He is bound to be right sometime.

Canada has oil, wheat/corn, uranium, coal etc etc...which is what the whole world wants.

We don't have sub-divisions full of unsold homes & unsold high rises like down south.

The rental market is also strong with really low vacancy rate.

Plus we are the gateway to China & Indian. This will be China's/India's century.

We will temp. slow volume wise, but prices will remain stable (ish) IMHO.

talus said...

The rental market is very tight and has been for decades, it's not my opinion, it's simply a fact.

I can't disagree more. I have been renting in this market for the past two years.

My target is 3 bed homes and there is an incredible number of them available. Some seem to be priced correctly. Some totally out to lunch.

I feel the rental market is looking good right now.

The question is -- will enough new product come onto the market to lower rents?

Will potential purchasers be smart enough to rent until house prices reset and thus tighten the rental market keeping prices high?

Or, will job losses and recession force this all in an entirely new direction?

patriotz said...

Will potential purchasers be smart enough to rent until house prices reset and thus tighten the rental market keeping prices high?

This is a fallacy, because new supply has to be either sold to a former renter (who vacates his old rental) or sold to an investor and rented out itself. It makes no difference to the net rental supply and demand whether renters buy or keep on renting.

All that matters is the total number of dwelling units versus the total number of households.

Anonymous said...

I just read the Special to the Sun article from Peter Simpson.

I think I just threw up a little in my mouth.

It isn't a surprise although it sickens me. You really have to look at the source. I mean what else is he and everyone in the article going to say. Geesh!

I'm surprised now to hear quite often people saying that it is slowing.

They can flog it all they want but people are starting to notice it isn't red hot anymore.

S2

patriotz said...

What's the difference between the Vancouver Sun and the Real Estate Weekly?

The Real Estate Weekly is free!

roger said...

One of the local Victoria REALTORS® publishes extensive quarterly reports on RE market conditions.

The summer 2008 issue (pdf) is interesting reading.

There has been a general weakening in the market for all price categories and for all types of housing. Overall, we have clearly moved into a balanced market. Arguably, some types of housing are in a buyer’s market. Even the usually strong market for moderately priced SFDs has weakened significantly. For example, the sales to listings ratio for SFDs priced less than $450,000 was a rather weak .54
in the 2 Qtr of 2008, compared to .84 in the 2 Qtr of 2007.


The Market Conditions are reported as a balanced market with a falling price trend.

womp said...

Hey Roger, thanks for the heads up... my spam filter was working extra overtime, both your comments got caught in it... should be better now... :(

patriotz said...

Arguably, some types of housing are in a buyer’s market.

Not this buyer.

The Market Conditions are reported as a balanced market with a falling price trend.

Er, a falling price trend is a bear market, not a "balanced market".

Anonymous said...

A "balanced market" is the lie they can claim until EVERYONE knows it's truly a bear buyers' market.

Kind of like "It's the best time to buy" is the lie they can claim ALL THE TIME by concocting up other lies like "Buy now or be priced out of the market" or "Real Estate always appreciates" or "We're now in a balanced market" so "It's the best time to buy!"

The only "best time to buy" is truly at the bottom of a crash, AFTER the initial inevitable dead cat bounce on the way down.

Like Patriotz said, when prices are slowly hedging up for the second time, and have been for awhile.

Then you can be sure you're at the real bottom on the way up.

That's the only best time to buy, and the rest is BS.

Village said...

So the bank failure of IndyMac raises the following question for me. I have RRSPs with RBC.

With money in split in Mutual Funds, GIC's and in Savings. Would/what of it would be protected. Not that I'm expecting RBC to fail anytime soon. But you know, knowledge is power and all that.

roger said...

Village,

Answers @ CDIC site

B2B said...

Mutual funds are of course never protected, but bank deposits are.

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