Monday, August 18, 2008



The G&M has an interesting story that, I think, while not only telling the present, also tells the future.


There are few economists working for the big dogs--the banks, the real estate associations and just about any others that have their hands in the real estate pockets of Canada--that I trust to truly tell it like it is when it comes to market predictions. I think their mandate is to report the numbers as they currently are and have recently been, then look forward and seek language in their press releases and interviews that serve to soften the blow or the hype, in the name of the economy and their major shareholders. Armed with a critical mind, and a constructive attitude though, anyone is able to figure out what they need to from the numbers and subtle suggestions these financial wizards cast, to protect themselves from the spells of the bubble(s).

The slowing economy is taking its toll on household finances, driving up debt at a faster pace than incomes and assets, new analysis from CIBC World Markets shows.

In the first quarter of 2008, household debt in Canada rose almost 3 per cent but personal disposable income rose just 2 per cent, pushing the debt-to-income ratio up to 130 per cent from 122 per cent a year earlier.

At the same time, the level of assets hardly changed during the first quarter of 2008, since the stock market was correcting and house prices were levelling off.

“Canadians are seeing their net wealth position shrinking,”

Rising net worth has been an important driver of consumer activity in the past few years

“The wealth effect should not be underestimated.”

I bring this last point to your attention because it want to contrast it to what Mr. Muir says about the factors leading to, what he calls, "slow[ing] to a level not seen since the beginning of the decade... BC households are now cautious about making major purchases in light of uncertainty around fuel prices and other inflationary pressures."

I would like it very much if someone, anyone, anyone, Bueller, Bueller, would write it down (oh wait, Merrill Lynch did): Western Canada is very much like every other housing market that has peaked and is now heading down: we are over-valued, over-building and under-selling expectations to margins not unlike other nations that experienced the same trends.

In the last post below, the old "Victoria is different, don't you know, every boomer and their immigration cousins are moving here en masse and everyone else just got 40% raises" myths crept back in to the housing correction denier's talking points.

The way I see it, is even if, and I use if here very strongly, because statistics from BCStats and StansCan do not support the claims, it wouldn't matter, because very few will want to buy RE when they know they can get it cheaper next month or next year--and the decline in sales is evidence enough for this theorist. And guess what? According to those experts with their hands in your pockets, the people, regardless of where they come from or how much they make, have started to figure it out. And now they are waiting to see what happens in the next 6 months or longer. Like us.

127 comments:

Anonymous said...

hhv

you're right, a decline is a positive feedback loop, once prices go down awhile, or even stop going up, nobody will be buying houses to make money on quick flips or renos. That's a big change in psychology...

Art Vandelay said...

Every time I think, "how could people not see that the bubble has burst," someone else calls me and, in the course of our conversation, reveals to me their pie-in-the-sky price expectations for selling their house.

The level of denial among sellers in Victoria is off the charts.

Buyers, on the other hand, are savvy.

Anonymous said...

Sharp U.S. Money Supply Contraction:

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/08/19/cnusecon119.xml

Anonymous said...

Art,

I would have to disagree on the buyers part. There are definitely some fools still out there. I've had a few acquaintances buy houses in the past few months and are now all of a singular mantra - "I don't think [my area] will go down very much".

Thinking about this makes me feel a need to educate potential buyers - it's sad that people that can't afford it are going to get burned, badly, with repercussions for the rest of their lives. How do you stop them? How can you positively educate people set on buying a house right now?

Anonymous said...

At times like these I find it instructive to remember that people bought Nortel all the way down to $0.47 a share, too....

Actually, $0.47/share was a great buying opportunity, as it turns out!

;-)

Anonymous said...

I would have to disagree on the buyers part. There are definitely some fools still out there. I've had a few acquaintances buy houses in the past few months and are now all of a singular mantra - "I don't think [my area] will go down very much".

I agree, there still seem to be enough fools paying inflated asking prices that sellers seem emboldened to keep prices high.

Ryan said...

I have friends living in California right now who are planning to move back to Canada but not BC because they don't think Vancouver's market will fall because of how desireable the city is. They must be getting bombarded with housing crash news constantly, and yet they think Vancouver will only correct 10% or so.

Anonymous said...

Following up on the last post on rentals, Calculated Risk has a good post on it today: http://calculatedrisk.blogspot.com/2008/08/downward-pressure-on-rents.html
2008/08/downward-pressure-on-rents.html

My suspicion is that there are both a lot of empty flipper houses for sale and that a number of rentals are not used very much (in the character house that we live in, the two other rentals are occupied maybe 10% of the time. One fellow lives mostly with his girlfriend, the other in Alberta.

Same as in the States - when the bubble was starting to burst, rental prices went up as flippers and recent buyers tried to make bills. As things went down there (housing and economy), people moved in together, emptying both houses and rentals.

We'll be no different:
- economy hurting in 6 months as new condo starts drop, laying off workers (our unemployment will go up quicker than in the States - they had a large number of illegals working there)
- then in within a year we'll have very significant (20%) price declines
- at the same time, or slighter later, the rental market will free up

If gov't were smart, they'd plan a bunch of infrastructure projects for 1-2 years from now (for all of the unemployed construction workers)

Dumb Canuck

Anonymous said...

Ya, I know, nobody really wants to move to lil' ole Victoria. Backwater of the west coast.

You'll have to paste this link. I'm sure the nerd's here can figure that out.

http://www.forbes.com/realestate/2007/10/12/homes-canada-expensive-forbeslife-cx_lk_1015realestate2_slide.html?partner=cbc

Well I guess 3 out of 10 ain't bad.

Anonymous said...

HUH? Happy owner, I don't get your drift. You posted an article from OCTOBER 2007.

What does that have to do with TODAY'S or TOMORROW's RE market??

Obviously, you've got nothing to do and all day to do it. Don't you have access to CURRENT news? Sad....

patriotz said...

they don't think Vancouver's market will fall because of how desireable the city is

You mean desirable like California? San Diego is now down almost 30% off peak and the whole state is getting hammered.

Anonymous said...

"Obviously, you've got nothing to do and all day to do it. Don't you have access to CURRENT news? Sad...."


happy owner prefers to live in the past,not the present nor anticipate the future unless it's based on "we're different" or Flip This Shack repeats.
The ugliness still to come from the US will make many wish they never bought in the last 5 years.

Robert Reynolds - HMR Insurance said...

Does anyone know of anywhere to find inexpensive recreational property out in the "boonies". My grandparents have a cabin on Jones Lake a hour up a dirt logging road near Hope BC, I m looking for something similar but on the island. I want it far removed from the rest of the world, no electricity, no stores, no paved road, as few other people as possible. I would like a piece of land with or without a shack to escape the modern world sometimes. On Vancouver Island would be best, ferries or personal watercraft are more expensive and difficult.

Has anyone run across a Realtor or agency or anything of that sort which sells what I'm looking for? I have looked but all I find is "recreational subdivisions" which is an oxymoron and not at all what I'm looking for.

Anonymous said...

Metaldwarf, there's a realtor called Ed Hanja (Handja? sp?) up on the north island who covers that kind of property.

Prepare to be disappointed however - with the same compression whereby a crappy Stepford Wives house in Parksville costs almost as much as Victoria, you will find that acreages on the north island, outside places like Gold River, Woss, etc, are wildly expensive for what they are, and not far off acreages in the south island. And as they will drop in value like a lead weight when the market corrects, whereas south island acreages have at least some inherent value, north island acreages would be a terrible investment right now, IMHO.

Ryan said...

"You mean desirable like California? San Diego is now down almost 30% off peak and the whole state is getting hammered."

Exactly. I didn't know what to say to them, because they are living through it down there and still believe it can't happen here.

Anonymous said...

hhv,
I noticed the other day that your favorite piece of real estate on the corner of Bay and Quadra has only one unit left. I believe the price said $289,000. Let me guess, it is the basement unit on the Bay street side. Imagine the ghosts of all the unsavory going on's in that place.

Better get in quick folks, only room left for one last sucker.

Anonymous said...

In a crack house, do the least desirable crackheads get the basement and the higher-ranking crackheads get the "penthouse"? If so, indeed the basement must have the raunchiest stories of all.

Anonymous said...

You guys are way out of line discussing an individual's home on a publice website. Let's see, could the new owners' have friends that visit this site, maybe they visit it themselves? How would you feel?

Or maybe all you care about is your weak attempt to trumpet the market into a hole. Good luck.

And no, I'm not a realtor, and no I don't own there.

Anonymous said...

"Let's see, could the new owners' have friends that visit this site, maybe they visit it themselves? How would you feel? "

"Or maybe all you care about is your weak attempt to trumpet the market into a hole. Good luck."


Sounds like the real estate guy blaming Garth Turner for the Toronto market tanking. You buy a place with a shady reputation then you suffer the conseqences.

I feel so bad alright, I am sure those friends feel bad for those of us who got shut out of the market for the last several years cause greed and insanity pushed prices up beyond affordability. Boo hoo.

Anonymous said...

"I feel so bad alright, I am sure those friends feel bad for those of us who got shut out of the market for the last several years cause greed and insanity pushed prices up beyond affordability. Boo hoo."

Those people have also just bought over the last couple years and I'm sure have paid dearly.

Those bitter renter sores must run awefully deep to calously discuss someone's personal home with such disregard - GET A HOLD OF YOURSELF.

Anonymous said...

Maybe stop blaming everyone else for you being shut out of the RE market - those were choices you made, no one else.

I'm just glad I chose to buy two when they were cheap - and I'll be sure to be in line when prices come down to compete with you again and keep prices that much higher when the tide turns again.

Anonymous said...

VG said:You buy a place with a shady reputation then you suffer the conseqences.

And you are the consequences??? Really

Anonymous said...

wow, 3 anonymous posts in a row.
How dare I make jest of someones overpriced place cause someone was too stupid to not do any DD on an old crack shack.

Could they not see it was on one of the worst intersections in town ? and that is my fault cause I question someone wasting good money on a bad location as they "paid dearly" for that privelige ? LOL... you pumpers are pathetic as you pray every night this market doesn't crash and call every one who wants to afford a home at a reasonable price as some sort of bitter person, get a life.

Unknown said...

You guys are way out of line discussing an individual's home on a publice website. Let's see, could the new owners' have friends that visit this site, maybe they visit it themselves? How would you feel?

Thankfully, we live in a country with freedom of speech, so we can laugh at the owners of renovated crackshacks if we want to.

Anonymous said...

"You guys are way out of line discussing an individual's home on a publice website."

Yes, because [sarcasm] we are naming the buyers on here with first and last names, email addresses and phone numbers, right? Also aren't just about anybody's lives discussed every day on public television, newspapers, magazines, internet, etc?

I agree that, the Bay/Quadra reno is a horrible location to buy/live and still a very high price regardless of the reductions so far; however, I also am glad the developers took on that place because it was a horrible eye sore for the thousands that drive by there every day.

I wonder if they'll manage to sell that "last one, best one for $289K". Because if they don't the other buyers that didn't buy the best one will have paid significantly more for less. Can you imagine driving home each day for weeks and facing the [sign] reminder that you paid too much for your home?

Anonymous said...

Anon 6:02, how would I feel if I visited here and find out I'd just thrown away my money on something most folks considered hideous AND hideously overpriced?

First, angry that I hadn't found this first; then grateful to know that I should list the POS immediately and get the heck out and take out a smaller loss before I held it for months or worse yet a year or more and went upside down in the POS place.

Neighbours always talk about the neighbours over the back fence, and occassionally it gets back to the neighbours. So what? It's a fact of life.

People should have enough presence of mind and faith in their own tastes to not care what neighbours and strangers think. What matters, unless you really want to live in a house for forty years, is what the market thinks.

And little ol' us on these bear blogs can't even begin to influence a market the size of the real estate market. Even on an island "with no more land."

That's a myth, perpertuated by a real estate industry that's well aware that ALL markets move in regular cycles, and that THEY, through the power of the bought-and-paid-for press, ARE quite able of influencing a market to hold off a natural correction as long as economically possible.

And as long as they can get folks to believe in and repeat the lies.

patriotz said...

Those bitter renter sores must run awefully deep to calously discuss someone's personal home with such disregard

What's with this "calously" crap? We're the ones who have been warning people not to mortgage their lives to buy an overpriced POS.

It's the sellers and their henchmen the realtors who have been callous about leading buyers into debt servitude.

Anonymous said...

"It's the sellers and their henchmen the realtors who have been callous about leading buyers into debt servitude."



anonymous 6:02 doesn't want to talk about the lying and deception by the RE machine that has set people up for years of financial pain. Nor the brainwashing that over extending themselves at all time high prices are the norm and they best accept it or get the hell out of town and quit being some bitter loser renter.

Anonymous said...

Good news, apparently it's not too late to cash in.

Anonymous said...

"Good news, apparently it's not too late to cash in."

Bu tapparently it is too late for a basic grammar + spelling lesson. Who misprints there freaking phone number in a resume? Area code 205... where's that? Central Alabama. Not South Island... lol :)

See, we don't just point out the obvious to homeowners here... we point out the obvious to those who sell homes too...

Anonymous said...

Not just the phone number....


"Shelna Atkinson

...

WWW.SHELNAAKTINSON.COM"

If you can't spell your phone number nor your own name, it's not a good sign for getting hired as a realtor.

Anonymous said...

Me thinks Shelna could benefit from SpellCheck.

Anonymous said...

dont think that spellcheck corrects misspelling your own name or phone #.


could have been useful for "leveled" "companie" or "haveing"

I guess she's thinking "OUT OF THE BOX"


hilarious

Anonymous said...

Regarding that bay / quadra property, would the sellers not have to disclose its history - I mean fully? You would think with a property as notorious as that that they would have to be pretty transparent.

Anonymous said...

As far as I know, the disclosure is on the property that is being sold, not what happened in the past to some property that the current one no longer resembles.

In general a standard disclosure form (2 pages long) is used by most realtors, but is not a legally required document in a real estate transaction, so if you buy directly from an owner and one is not provided, ask for one to be filled out.

Here's an online disclosure form I found, though the one I saw recently being used in Victoria had a few more questions.

Also, some of the questions I had seen were related to records at city hall (i.e. permits taken for renos, illegal suites, charges against titles, etc) which historically speaking would be a reference to the past, so those parts would in theory be disclosed if a form was filled out.

Anonymous said...

Sorry, try this link instead for the disclosure form.

Robert Reynolds - HMR Insurance said...

Before you buy: The power of investing early.



When you buy: Using the Home Buyers Plan.



After you buy: Paying your mortgage AND your RRSP.


I'm not endorsing Great West Life. I just had access to the three PDFs and thought they were clear concise and helpful and I thought I would share.

Anonymous said...

Yup classic 40 something high school dropout realtor. She got her URL wrong in the ad as well. Phantastic JOB STELPHA!!!

Anonymous said...

Looks like the Radius has a new owner with "conditions" attatched. I wonder how much cash the 50 % original presales will get screwed with.


Bay building developers dealing for Radius site

Townline confirms interest in acquiring neighbouring residential/office project

The $160-million Radius development -- one of Victoria's most ambitious and visible new developments -- could be in new hands by the end of September.


http://www.canada.com/victoriatimescolonist/news/business/story.html?id=c02e86f9-0bc8-4af9-82ea-c6425a5cb715

Anonymous said...

I sure hope Townline has deep pockets, because if the ridiculously priced Hudson condos don't sell, they'll have 2 towers of doom to contend with when the bad times really hit.

Hard Money Lenders Direct in California said...

CALIFORNIA HOME SALES UP UN JULY

California Real Estate market gave signs of relief. Home sales went up 12.3 percent in July compare to the same month last year. According the Quick Data, a company that monitors Real Estate Activity nationwide.

Of the homes sold 44.8 percent were foreclosure resales.

The median home price last month was 318,000 down 3% from 328,000 for the month before and down 33.5 percent from July a year ago. Most of the drop in home prices is due to the depreciation properties are facing because of the mortgage meltdown.

Not even the most knowledgeable Real Estate indicators know exactly where the market is going. Foreclosure activity is at record levels, banks are asking for tougher requirements, non-owner occupied homes are almost impossible to re-finance.

Anonymous said...

For those of you keeping an eye on the US credit crunch mess, Mish has just come out with a new article naming the next 10 Financial institutions on the brink of failure. The problem is these aren't small banks, and so the Fed can't bail them all out. In fact, he ends his article coining what I believe is a new hilarious term, soon to become a truism.

You've all heard of "Too big to Fail", well, considering the contrarian that he is and the mounting evidence before us, he ends the article claiming that these financial institutions can't all be saved because they are in fact "Too big to Bail". Made me laugh!

Mr.4AM

Anonymous said...

The problem is these aren't small banks, and so the Fed can't bail them all out.

The Fed can't bail out anyone. All they can do is loan money. That can only solve a short-term liquidity problem.

If an institution needs to be bailed out only the US government can do it, as Congress recently authorized for Fannie/Freddie.

Anonymous said...

From the Globe and Mail

"Agents see a new trend emerging"

"A change in the wind
The challenge is to set the right asking price"

http://tinyurl.com/64tgh6

Imagine telling your clients (sellers) that they are going to have to price their house accordingly if they want it to sell. This is news!

The agent goes on to say that he hasn't had to do things like this is 10 years.

But I guess if the MSM says it, it must be true.......

Personally when selling in the past, (3 residences to date over 25 years) I have always preferred to price competitively rather than have open houses ad nauseum. All sold within a week and often during times of market downturn or flatness. 1983, 1988, 2006 -(I feel like a dinosaur on this blog!).

Anonymous said...

It's interesting, there are 6 homes on the market within a block or so of our house (including ours.) Of the 6, 5 are interested in moving up in the market and will only sell within their range of asking price - if they don't sell, they will be content to take the sign down. One did this today.

If we don't sell by mid-September we will go off-market and think about it again in a year or two. This is a pretty small picture but likely telling of the market overall. IE, don't expect great price drops just because you see inventory, most of it is not in a hurry.

Content

Anonymous said...

"don't expect great price drops just because you see inventory, most of it is not in a hurry."

You're right, nothing happens quickly in real estate. But if you think you will get your dream price by waiting a year you need to review the facts. This bubble took half a decade to form and so the bust may take just as long. If you can't get the price you want now you will probably have to wait at least a decade to see prices climb to the point we have witnessed.

Some of us even believe that so many will get burned that real estate will be seen as a sour investment for the next 15-20 years or so.

Anonymous said...

your theory is bogus, if the remaining sellers that need to sell will be the ones to dictate the price if the buyers decide to completely pull back. In two years you may be down 50% waiting for your price. I am amazed at the underestimation of the power of the market decline when the buyers all disapear.

Anonymous said...

"In two years you may be down 50% waiting for your price."

Believe me if that happens I'll take 4, thanks. And so will many others. I believe there remains a significant demand in the sidelines waiting to see what happens.

If prices dropped 10-20% I believe we'll see a quick rebound here. IMO.

Anonymous said...

"If prices dropped 10-20% I believe we'll see a quick rebound here. IMO."


there are many 10% plus sales/price reductions, better get buying. Mohican just got 20% off on his new place.

Anonymous said...

As VG says ANY market price is determined by the deals that get DONE, not by the prices that sellers would LIKE to get, or that buyers would PREFER to pay.
And the price trend of actual market transactions has been downwards for months and will continue to be so for the foreseeable future due to economics and demographics.

Those with active inflated price listings dont matter-they're bystanders.

Anonymous said...

Here's a scary one, was just listening to Ozzie Jurrock on the Michael Campbell show and he's saying he is hearing that the Royal and TD banks are pulling unused lines of credit on commercial AND some of his private clients accounts.

That is huge and very scary news that our banks that are supposed to be so sound are now behaving like the US banks. Maybe it is time to load up on gold and gold stocks.

Anonymous said...

There have been a lot of people taking advantage of home equity lines of credit.

Say, last year you had set up a line of credit based on your home's worth. And you have the ability to access $200,000.

I can see the banks getting nervous about the almost instant ability to get this credit. Especially, if home prices are declining. So, the banks are going to have to start clawing back the equity lines.

In my opinion, I feel that these lines of credit have been one of the major causes of the current financial crisis. The ease at which one could tap into this low interest money for purchases of second or third homes, cars, vacations, boats, etc. allowed the "I want it NOW" attitude to flourish.

People are financing a $50,000 vehicle over 25 years. The vehicle will be rusting away in a junk yard and you will still be making payments on it. In many cases these same people would not qualify for a five year car loan, but could easily add it onto their line of credit.

Of course when house prices come down, a lot of people will owe more than their homes could sell for. Exit the wealth affect that has caused this decade of conspicuous spending and job growth.

I think were are looking at a marketplace similar to the recession of the 1980's but on a larger scale.

I cannot understand why anyone, except for a primary residence, would want to hold real estate today.

just jack

Anonymous said...

A year ago my bank wouldn't approve me for a $10k loan for a used car. At the same meeting they said I would qualify for a $300K, 0 down 40 yr condo mortgage. I guess with the CMHC backing them they could care less.

I am 95% sure we are going to see a US style govt bailout of the banks via the CMHC in the next few years.

Anonymous said...

In July 2005 a friend living in Naples Florida visited me in Vic. They did not like Florida and wanted to sell, but the market had softened and they wanted to wait a 'year or two' until prices went back up. Ha ha. Today they still own the Florida place, worth at least 40% less, plus it sits empty while they live in Houston and rent a place there. No mention of selling now.

If Victoria sellers don't think that same scenario is playing out here they are sadly mistaken. Just this week I had one Oak Bay owner tell me that individual streets will remain ok (immune) to price drops. Absurd.

Just this week a long-term Rockland listing that started at $1.495M finally sold for $1.150M. A landsdowne listing originally at $1.1M is still on the market but now for 'only' $847k. This is just the start of the price drops.

patriotz said...

I am 95% sure we are going to see a US style govt bailout of the banks via the CMHC in the next few years.

That's not a bailout of the banks. The borrower pays for the CMHC insurance at the time the mortgage is issued, and if the borrower fails to repay, CMHC fulfills its contract to make good the loss just like any other insurer.

The taxpayer may be forced to bailout CMHC itself (which has never happened before), however. If that happens expect a firestorm of opposition in non-bubble areas (particularly Quebec). Maybe yet another reason why Harper wants an election sooner than 2009?

Of the 6, 5 are interested in moving up in the market and will only sell within their range of asking price - if they don't sell, they will be content to take the sign down.

This puts to lie the bull claim that discretionary sellers taking their houses off the market will reduce supply and prevent price declines. If a move-up owner decides to stay put, they are reducing demand, not supply.

Anonymous said...

"there are many 10% plus sales/price reductions, better get buying. Mohican just got 20% off on his new place."

To be clear, we're talking about actual selling price drops not reductions to over-inflated asking prices. Actual selling prices haven't changed much in my area since about last Fall (with a few exceptions on both sides of course.)

Anonymous said...

From today's Vancouver Sun

"Builder drops townhouse prices by as much as 10 per cent"

http://www.canada.com/vancouversun/news/westcoasthomes/story.html?id=defb3168-9f34-43d2-9246-6439ed6e9340

I apologize if this has been posted previously.

Anonymous said...

A few interesting little gems I thought I'd share...

1. Mish's blog: China's Olympic Sized Bust. How the olympics dissapointed business in China and how it is likely to do the same for Vancouver in 2010. Oops so much for holding on to your houses so you can rent them for an astronomical $35K per MONTH! I guess some greedy dreamers will be in for a bit of a nightmare instead.

2. Youtube: Why the Paulson plan (US Fed)isn't enough to fix the Freddie/Fannie problem. When gov bails them out, they will retain a monopoly meaning less competitive and higher interest rates for mortgage consumers, not to mention no reform of the system to solve the root cause.

3. Youtube: I.O.U.S.A movie launches tomorrow.

4. Reuters: Roubini says hundreds of banks will fail, and we're only in the 2nd of 9 innings in this bear streak. Yikes! Video also here.

5.Youtube: Vancouver's former realty cheerleader Ozzie Jurock now stating on camera that Vancouver may go down 17% over 3 years. Looking forward to the correction of that statement to some 25%+ number in just 6 months from now.

Anonymous said...

"To be clear, we're talking about actual selling price drops not reductions to over-inflated asking prices."


Whose to say they that all those listings were overpriced ? not every agent is stupid or greedy enough to go too far beyond what the neighborhood is selling for. That is the basics of pricing. An agent wants a sale,not sit on it for 3 months doing endless open houses.

Sounds to me like you are another "wishfull" owner who isn't serious about selling but has never lost on real estate before and is in denial of whats coming. When 90 % of listings are reducing prices I think you best think about what is really happening out there. the market has began a correction. Saying they are all overpriced is just a weak excuse.

patriotz said...

vg, if a house sells for less than original listing price, the listing was overpriced, by definition.

Anonymous said...

By that definition, all homes are overpriced.

A list price is ment to invite offers.

A reasonable list price should entice several prospective buyers. An unreasonable asking price may discourage those same prospects resulting in low ball offers or the last of the greater fools.

I don't put much stock in what someone is asking for a property or even what other properties are selling for. My sole concern is what I consider to be reasonable for my own self centered interests. When asking prices fall to a reasonable level that are in line with my personal finanical criteria, I will buy.

Prices may continue to fall after I purchase, but for me that is of no concern. I made my best deal in the marketplace on that day.

In this way I secure the property that I want at the price that I am willing to pay. I do not have to worry about the competition (people real or ficticious that I will never meet) only the terms of the contract. All negotiations are to keep in mind that I am in fact haggling with the selling agent and not the home owner. My negotiations will therefore centered around the fear and greed of the selling agent not the home owner.

For example,

"If we don't buy this home we have several other properties to view from other realtors."

Subtle difference in the way it is phrased makes all the difference in negotiating.


just jack

Anonymous said...

"vg, if a house sells for less than original listing price, the listing was overpriced, by definition."



patriotz, by definition that may be true but in a "hot" market they are being bid "overprice", does that make them "underpriced" ? no,you just have more people chasing the market.

In this case we have fewer buyers,if it is based on what the neighbor got for a similar sized place last week then they offered "fair" price, it was just the timing of the sale or the change in enviroment that effected it not that it was necesarily overpriced.

Anonymous said...

Starting to see more under $400,000 FTB type bungalows being listed for less than assesement price. I thought this was the last domain the agents were claiming were flying off the shelves only a couple of months back ?

Interesting too the amount that are listed at $399,000 and previously would have not even made it on the MLS listings before having a bidding war on.

patriotz said...

in a "hot" market they are being bid "overprice", does that make them "underpriced" ? no,you just have more people chasing the market.

Wrong, if a house sells for above listing price the listing was underpriced, i.e. below market.

The market price is whatever the highest bidder offers, not what you or I think the property is worth.

If a property sells for more than justified by rent, i.e. fundamental value, we say it is overvalued.

Anonymous said...

Who is "we"?

Anonymous said...

The "we" are the mice that keep spinning the wheel around and around.

patriotz said...

Who is "we"?

Me and all the other RE bears. Who of course were proven right south the border.

Is it different here?

Anonymous said...

"Wrong, if a house sells for above listing price the listing was underpriced, i.e. below market.

The market price is whatever the highest bidder offers, not what you or I think the property is worth.

If a property sells for more than justified by rent, i.e. fundamental value, we say it is overvalued."



Wrong, a house is only underpriced depending on how many boneheads want to fight over it. You can't make ecomomic logic out of an uncontrollable action. The bidding war games overprice is a new phenom rarely happened in previous booms it does not justify wether a place is over or underpriced,just that the short term excess demand made it overpriced in a temporary condition.

Anonymous said...

"excess demand made it overpriced in a temporary condition."


oops, meant to say "underpriced in a temporary condition".

Anonymous said...

All I know is that, the last house sold in Fernwood was August 9th, and since then, we've had 22 NEW listings.

Anonymous said...

Or maybe the person buying wanted the house as it is situated across the street from his ailing mother and he/her was willing to pay over the list price to secure the property in order to be close to her.

In this case, the property's purchase price was not a market price and is not representative of market value.

And it does make sense to buy in over inflated markets. As long as some of the fundamentals are there. The fundamental that has for the last half decade been driving our market has been steady double digit appreciation. Simply put, the reason our prices went up this year was because they went up last year.

Eventually, the market place exhausts itself and we revert back to long term sustainable levels in terms of the range in personal incomes and various rental rates for different properties.

just jack

Anonymous said...

Post script to the above

The long term sustainable levels should not be confused with "fundamental value". There is no such thing as fundamental value only market value.

You may not like the current price/rent ratio (actually term for this is the Gross Rent Multiplier or GRM) for properties, but that does not mean that the properties are over valued or under valued.

The marketplace may be acting in an irrational way in relation to historical GRM rates and other units of comparison, but that does not mean that you will not be able to sell your home for the same price as you could have yesterday or that you are going to get a large discount on a house today as opposed to yesterday.

The majority of purchases are at fair market value. The problem with fundamental value is that it's like trying to grab a greased pig. The variables are always changing and difficult to measure, consequently it can not be calculated within an acceptable degree of certainity.

Unlike market value which is determined through sales of similar properties and may be calculated within a few percentage points of what the property would actually sold for.

I believe that the marketplace will correct and quite possibly over correct for a short period of time, and eventually be stable in relation to a range of historial rates and ratios.

However, to say that someone has overpayed for a property because what they purchased the property for is not in your opinion the property's fundamental value is ludicrous. It's just a cheap party trick that will end up getting you a poke in the nose by the new home owner.

When it comes time to purchase real estate. It is better to look seriously at your own financial circumstances. If you buy a home when it makes economic sense for you and your family, how could that ever be considered a wrong decision.

If your buying for an investment, then you should really be seeking reputable advise as this may not be the market you want to be in.

just jack

patriotz said...

In this case, the property's purchase price was not a market price and is not representative of market value.

Yes it was. The highest bid received in a public listing, if accepted, is the market price. The buyer's motives are immaterial.

There is no such thing as fundamental value only market value.

How about googling "fundamental value". Or look at Wikipedia on fundamental value

Fundamental value of any asset is the present value of its future income, and represents what the asset is worth to the owner if never sold, or to put it another way what it is worth in aggregate to all future owners.

Anonymous said...

You can not be any farther off the track.

The formulae that you are trying desparately to twist are financial composition models. These formulae are only useful for properties that trade entirely on their income producing potential. That would be shopping centres, high rise office buildings and apartment blocks. The formulae are not applicable to condominium or single family ownership.

John and Jane Doe are buying a home. They are not buying an investment grade property.

They are competiting with other prospective purchasers based on the physical composition of the property which may include house size, lot size, age, updating, location, condition etc.

John and Jane are willing to pay more for a house with a new furnace. A renter does not pay more rent for a home with a new furnace.


just jack

Anonymous said...

"If you buy a home when it makes economic sense for you and your family, how could that ever be considered a wrong decision."

That's like saying, if you can afford a used $20,000 car and you paid for it, how can that be a wrong decision?

Easy. When a nearly identical car can be purchased for $15,000 a few weeks later from a different dealership.

Or perhaps a stock market/mutual fund example is more appropriate. Buy high without doing research, and you will regret it later. Most people that lost money in 1999/2000 .COM pop think they made bad decisions. The same holds true in real estate.

Of course analogies are analogies and eventually they break down but if you buy something when it is at peak price, because you didn't do your research, or because you didn't care, or because you just followed the crowd, or because you believed the sales pitch, or because the asking price was too high, etc, ultimately, and in hindsight it will still be a bad financial decision. The difference is, with a house (instead of a car or a non leveraged stock investment), that bad decision can tie you down to your mortgage (and your job) for quite a few extra years.

If the market corrects some 20-40% as some people on here are predicting, I would bet money some people are going to think they made a wrong decision when they bought.

Anonymous said...

If I purchase a home with a comfortable monthly mortgage payment of $1,200.00, and property values correct 25% to 50%, am I really going to regret having bought?

No. I'm not.

S2

Anonymous said...

I would.

Lets's look at the car example again.

If you buy a 2008 model Honda for $20,000 and then after you drive it off the parking lot, you realize that the dealership across the street is selling it at a 50% less, i'm going to very quickly realize I didn't do my homework.

The difference with a house is that the trip out of the parking lot is not 30 seconds, but upwards of 3 years long, and the total loss is a factor of about 20.

So instead of losing 10K, in 3 years you could lose 200K.

And yes, I'd still feel like I made a bad purchase 3 years down the road.

Now if I had 2 million in the bank, I probably could care less. But if earn $45K/yr, and am only able to save 10K/yr... that's 20 years of my life! Well ok less, because I will get some raises etc.. but you get the idea.

Anonymous said...

S2,

I guess if I'm also renting for $1200 a month or close to it, then yes, I would agree it makes little difference... but ONLY if in the market place rents = mortgages, which by historic definition could be defined as the bottom of the market.

In your case, you are paying off the mortgage or bank. In the renting scenario you are paying off your landlord.

The only problem is, that **currently** rents do NOT equal mortgages. Rents are 50% less than mortgages for the same place.

Hence, if I bought even with a $1200 mortgage, it means I could rent that bachelor pad for $600... so I'd feel like I was losing from day 1.

patriotz said...

John and Jane Doe are buying a home. They are not buying an investment grade property.

But RE investors are buying investments (sorry to belabour the obvious).

Because they receive no benefit from owning other than investment returns, they are the marginal buyers and sellers - the last to buy and the first to sell. And marginal buyers and sellers are the ones who determine the market price. If the RE market becomes unattractive to investors, prices will fall until it does, because existing investors will sell and no new investors will buy.

And that's when mortgage payments become equal to or less than rents, as mr.4am pointed out.

Anonymous said...

But the discussions are not about RE investors, it's first time and repeat home-buyers. Investors would have to be a bit nuts to buy a $600,000 home for rental today.

You also won't see a mass exodous out of these homes by investors - for all kinds of reasons including personal tax issues.

A prospective homeowner will buy when they are ready and, hopefully, it makes some financial sense to their family.

As for 20-40% selling price drops, it's all speculation and personally I wouldn't bank on it.

Anonymous said...

Also, rent payments haven't equaled mortgage payments since about 1970 when they stopped building rentals.

This is not going to happen again and I agree with Jack, the fundamental value analogy is nonsense. Irrelevant to condos and SFH.

Anonymous said...

You don't win or lose on a SFH as your primary residence as others have stated. If your house price goes up or down so does everything around it.

If you want to live in a cramped little apartment for a few years and try to time the market then go for it. Most people would say that there is a quality of life issue at stake and it carries a cost as well.

Anonymous said...

"As for 20-40% selling price drops, it's all speculation and personally I wouldn't bank on it."

Considering what's going on in the world markets, and beginning to affect Canada, I don't think that's out of the question. But this is just the beginning for Canada.

There's another possibility, prices drop 20% and wages also go up to compensate for the cost of living thus justifying the higher numbers in house values. However, with way less unions than in the 70's the odds of wage increases making up 50% of the difference (between 20 and 40% house price drops) is fairly unlikely.

I think people are underestimating Sept and October in the stock markets. Things are not getting better. Now the problem with bears is that typically we see the problem coming miles ahead, and often call it way too early. So perhaps this credit crunch will drag on longer than we expect it and prices fall slowly over a long period of time... but I'm not sure about that either, because in the financial markets big companies and big banks are dissapearing pretty fast.

Most people I know who had any money in the stock market (mutual funds etc) of ages 30 to 60, have lost anywhere between 10 to 25% so far. And again, things WILL get worse before they get better... so another year or two at 20% losses, and things will get pretty nasty.

Anonymous said...

Also you might want to take a look at the list of 25+ countries in an housing bubble. Several of these countries (i.e. Australia) are not unlike Canada - lots of land, low population, high in resources, dollar coming on par with US, yet look whats happening to them?

The International Housing Bubble

What makes you think Canada will remain immune?

Do you really think Canada has a solid financial foundation? Think again, Canada has even more debt per GDP than the USA! In fact we're 19th out 126 countries! We are one of the top consumers and lowest producers/exporters. In other words, per capita, we are one the greatest debtors in the world market.

Think our banks are rock solid? Try reading today's headline.

A of drop 20% or 40% in house prices is plausible indeed. Too many years, the world (and Canada) has lived off credit. Credit now needs to be paid back.

Anonymous said...

"Also, rent payments haven't equaled mortgage payments since about 1970 when they stopped building rentals."

That's not correct. In the early 2000s,(Canadian Prime rate was as at 2.25 in 2002) with mortgage rates lower than currently and RE prices MUCH lower, most renters with decent credit could afford to buy a home for about the same as rents.
We're not talking the high end here, but apartments and basic houses were in that category.
That was a major influence on the beginnings of the 6/7 year boom cycle-and that's when many of our current "happy owners" jumped in. Of course the pendulum always swings too far-in this case, in Victoria, WAY too far..

patriotz said...

There was rent equivalence in the mid-80's too. Been there, done that.

Oh BTW, "they" didn't stop building rentals in the 70's. Individually titled properties (condo and SFH) get rented out too.

But the discussions are not about RE investors, it's first time and repeat home-buyers.

You just don't get it do you? Investors are buying and selling the same houses as owner-occupiers. There aren't two different RE markets for investors and homeowners.

Investors represent about 1/4 of individually titled RE holdings. If investors start selling and no new investors buy, prices have to go down, big time. RE prices cannot remain any higher than what investors are willing to pay.

Anonymous said...

The marketplace in the 1980's, at least in Vancouver, was one dominated by properties that were selling under duress circumstances such as foreclosure and divorce.

So, rent equivalence would only occur in a market under duress circumstances. I would not think that a rational person would consider a duressed market to be the norm, consequently rent mortgage equivalence only represents the trough in the cyle.

Continuing along the same line of logic. An investor is buying property for the income stream. A home buyer is looking for a lifestyle. As the home buyer is not limited by the inadequite income stream, he/she will tend to bidding against other potential home occupiers and the investor would have ceased bidding or not be bidding at all due to the inadequite rental income stream.

There is a difference between a home and a house. A home is where you raise your children, and have bbq's in the back yard. You paint it, carpet it, upgrade the cabinets, cut the lawns and have pride in ownership.

A house is where there is no pride of ownership. Maintenance may be lacking and the property is rented out to university students or construction workers to maximise the income stream.

So, which one of the above gets the highest price?


just jack

Anonymous said...

The whole selling point in those early 2000s was that your mortgage payment would be lower than rent. I remember that.

Chickinvic

Anonymous said...

Put another way, isn't arguing that fundamental value is now meaningless - because of an emotional rather than logical basis for purchasing - the same as arguing during the dot-com bubble that P/Es were no longer meaningful because they'd shot up over 100?

The fundamental value, in terms of income, is meaningful precisely because we know that we are so far above it (rents). It's also meaningful because it is the only rational floor to prices, once we descend from this bubble.

Simply because logic has temporarily been abandoned by many players in the market, does not mean that logic has been suspended entirely and will not once again determine prices in the future. If a stock's P/E shoots up to 100, you can either believe that the fundamental rules of investment have been permanently altered, or simply that that stock is irrationally high, and will return to a sensible multiple of its real earnings.

Anonymous said...


A house is where there is no pride of ownership. Maintenance may be lacking and the property is rented out to university students or construction workers to maximise the income stream.


This is part of a generalization that is a very popular meme right now, and indeed has helped to drive the bubble. This generalization is that renters are transients, students, and lower-income types who have (or deserve) no pride in their home. It ignores the fact that there are thousands of rented houses out there that are of a very high standard, nicely renovated, and rented to professionals and non-transients. I happen to rent one of them, and I thought you did too, Just Jack?

I find that generalization a bit offensive, especially coming from a nominal bear. As to the gist of the argument, i.e. that emotional factors have displaced logic and sound economic principles in the housing market, I couldn't agree more. But this is the very definition of a bubble, and I fully disagree with the implication that somehow the rules have forever changed, "it's different now", and fundamental economic logic no longer applies.

Are we witnessing the capitulation of a bear? BTW, I mean no disrespect and enjoy the discussion as well as your contributions.

Anonymous said...

great discussion gang. i like the fact that we have opposing view points on the same side of the market direction argument.

I agree with multiple points, and if i can sum them up, here's what I'd say:

the trough is not indicated by a return to price to rent balance. in the last two market cycles, both troughed below rent equivalence in the condo markets. in 2001, in many Victoria neighbourhoods it was in fact cheaper to buy a condo than to rent its euivalent. it was so because of market valuations and a general avoidance of the condo market by people wary of leaky buildings and a general belief that RE was not a great investment. I can't speak to SFH rents as I haven't found good sources for market wide rental prices from that time.

JJ, i too believe that market value is what a buyer is willing to pay. you can look at it based on individual buyers on individual properties or take a more market driven approach and look at segments. there is a premium to be paid to be an owner. to me, that premium is the difference between renting and ownership costs. if my mortgage equals my rent, without costing in insurance, taxes, maintanence, which likely adds 10-20% on top of rent per month, i'd say its pretty balanced and i'd have a hard time not buying.

the other reality is that the market is much better for buying in terms of product choice and how nice a place is, though I'm guessing that there will soon be, if there already isn't, a ton of rentals with granite and stainless.

but the measure of what a true value is for an investor has to be return on investment that can be measured. I'd look at rents (interest), historic capital growth (5-6%), inflation adjustment and other costs, compare them to prices and see just how close we are to a norm. Today, we are no where near the norm and I think we need some combination of income increase and asset depreciation to effectively combine to a realised 35% drop in price to bring us to normal. If we hit 40%, I'd call it, openly, a trough.

Anonymous said...

"I think people are underestimating Sept and October in the stock markets. Things are not getting better."


Bang on Mr 4 AM, looking ahead into the charts it is apparent this fall we will witness a retest of the previous market lows. There is a ton of alligators out there lurking that the rose glasses crowd is ignoring.


But hey, if you're happy where you are and you can afford your place, no problem then, kudo's to you. But I look at these $400,000/800 Sq Ft bungalows in crappy areas of town and do the math verus renting and you have to be fricking nuts to buy and not wait it out another year or two. As pointed out, $100,000 to most of us is a major chink of change and to kiss it off as nothing is abnormal thinking.


I would really like to see some facts from the bulls to prove their point that a 20% plus decline "just isn't going to happen".

To rule out what history has repeated several times before is pure denial as well as the onslaught of price reductions not seen here in 7 years. Oh right, there were just "overpriced", and I got a bridge for sale too. ;)

Anonymous said...

Another shoe drops ?


B.C. EI claims jump in June

Vancouver Sun

Published: Tuesday, August 26, 2008

VANCOUVER -- The number of British Columbians collecting Employment Insurance took a big jump in June, Statistics Canada reported Tuesday.

Statistics Canada found that 39,670 workers in the province were receiving regular benefits in June, a 6.7-per-cent increase from May, and a number that is 6.4-per-cent higher than the same month a year ago.

Anonymous said...

"The whole selling point in those early 2000s was that your mortgage payment would be lower than rent. I remember that."

Too true. The stumbling block was to come up with the 10 percent down payment. Which was reduced to 5 and lastly to 0%. You also had to be qualified by the broker. The lenders, at that time required proof of income and appraisals.


In the early 2000's the down payment would generally have been $20,000. And it would have taken the typical first time home buyer several years to save up the down payment.

Property values had remained stagnate for most of the 1995 to 2000 time period, and more people were leaving Victoria than arriving. The vacancy rate for apartments hit a staggering 1 percent. Real Estate was mostly bad news such as "leaky condo's".

In summary RE was not barely on the radar charts for most people.

Fast forward to today and you see a different world. People have seen an enormous growth in their wealth. Everyone's talking real estate. More people are arriving than leaving the Garden City (which is probably more to do with Viagra than our climate). Boomer parents are giving or lending their children the down payment as RE is perceived as a the ONLY path to wealth. And who would not want to help out their little Johnny and Janie. Johnny and Janie, no longer have to save for years, they can buy a home this Wednesday. They are now on the property ladder to wealth creation - and everyone is happy - or are they? (queue ominous music in background).

Now you have lenders that do not verify income and waive appraisals. Which frankly just got in the way of the deal, slowed down the money lending process and gave the mortgage applicant a chance to leave the lender's office and go to another lender. Far better to instantly approve the applicant and use a software programme, designed by the lender, (wolf guarding the hen house here) to replace the appraisal. Bidda Bing Bidda Bang - you own a house in under 40 minutes (Which is good, because at 41 minutes you would have changed your mind as you realized that after the Bi-monthly payments amortized over 40 years you would only have a buck and half left for groceries). And you thought you pulled one over the lender by overstating your income - you smart devil you.

The psychology of real estate can not be underestimated. Home ownership has always been emotional and at times does become irrational. And as long as we "feel good" about our decisions and feel that we are advancing in wealth we continue on this path. ie Prices went up this year - because they went up last year.

From the current low sales and high listings numbers, I think the Real Estate honeymoon is now over and the only lasting memory will be the mortgage payments on a property that you really did not want and can not afford, but felt pressured to buy at the urging of your friends, parents and that old standby - "but mum everyone else is doing it".

In Summary, if your comfortable with the property and the payment -your going to be fine.

If your not - then you are so totally screwed.


just jack

Anonymous said...

Hi. I have been reading this blog for several months, as I contemplated a move from Calgary to Victoria, decided to move, then took steps to actually move. I sold my property in Calgary (at a loss as the market there has totally tanked) but I still have a significant down payment due to equity I built up by virtue of having bought property 1 year before the big real estate boom.

I have been noticing, since April, that the number of listings keeps going up and the price changes keep bringing the prices down (barely). The same thing happened in Calgary, but I don't see this as being the same market as Calgary as prices went up here much slower than they did there.

I'm very lucky in that I am not currently renting to save money for a house, I am currently renting because I haven't found a house yet that I want and I am wary of the market. I want to hold off on purchasing, but the apartment I'm in is disgusting and 97% of my stuff is in storage. Living is not, shall we say, pleasant.

Question: what areas do you see as retaining value, even when prices go down a bit? In Calgary, for example, the suburbs lost hugely but the inner city properties have maintained a substantial amount of their value.

Anonymous said...

No brainer on this. What your asking us is what type of property will lose the least in total dollars in this correction.

You buy the best house in the worst location.

In otherwords, you want a home that will require very little in repairs over the next decade. One that is large enough to rent out rooms to give you cash flow. And a small lot in a bad location (but not to far out that it will not attract renters) so that your purchase price is low.



Think Esquimalt, Central Park or any place close to a Money Mart.


just jack

patriotz said...

So, which one of the above gets the highest price?

It's the same house.

House prices will not rise to more than investors are willing to pay, because if they did, no new investors would buy and existing investors would sell.

That's what we call marginal buyers and sellers.

rent mortgage equivalence only represents the trough in the cycle.

Yes of course it does. That's the whole point of the bear argument. Once prices start falling (like right now you know), they will keep falling until rent equivalence is reached.

Anonymous said...

Interesting. You just have it upside down.

The home occupier will outbid the investor as the home occupier gets the added benifit of not having to pay rent or a mortgage for another home unlike the investor.

So, prudent investors stop bidding when the income stream does not support the home price. However, the home occupiers continue to bid up the home as they have the perceived added benefit of the property being their residence.

Investors actually set the bottom for prices. If home buyers as a group stop purchasing properties (an example was leaky condominiums) then prices will free fall to the point where investors would begin to buy them.

So condominiums in Chelsea Green fell from $175,000 to $50,000 (including remediation costs) as the suite could be rented at $800 per month. At this point investors bought as they had a reasonable return on their investment.

Lets not forget the potential home occupiers out number investors. So its the home occupier that is the primary driver of this real estate market not the investor.

In order for your scenario to occur, one would have to "off" a lot of potential home occupiers. This, of course, would be bigger news than falling real estate prices.

And also, typically well kept homes that show pride in ownership sell for more than homes that are tenant occupied. Come on now, that was a Gimmie for me.


just jack

Robert Reynolds - HMR Insurance said...

I looked into investment properties, at current prices there is NO WAY you can run the numbers to make it profitable. Rents are simply too low when compared to prices for you to have any reasonable income stream.

This is assuming you don't count appreciation. The only investors that are buying now or in the past few years are fudging their own numbers to include way too much appreciation. The numbers just don't work when looking at residential real estate on an income only basis.

Robert Reynolds - HMR Insurance said...

Further to my post above, when I was looking at residential investment properties I had my criteria for required rate of return, (6% after expenses) expected maintenance and vacancy etc. I was confident that I had a system that fairly calculated the rate of return on a property, based on mortgage, maintenance, taxes, rents etc. most of the numbers were solid, the price i knew, the interest rate i knew, the term i knew, the taxes i knew, the rents were the main variable. When all the numbers were plugged into the system the result was always the same, there were no income producing properties, everything was cash flow negative, even after generous appreciation added in. I found I became very tempted to simply increase the rental income numbers till i found the numbers that made it work. I wanted to convince myself that as a landlord I would be able to rent the building for the amount I "needed" to make it work. The lure of making the rent fit the model, rather then realizing that it just wont work is very powerful. I was almost willing to pull the trigger on a place I knew wouldn't earn its keep. You see this a lot on craigslist etc. people asking ludicrous rents because that's what they need to get to pay their mortgage, $1500 a month for a 400sq ft. Bachelor in Bear Mountain, because the "investor" needs to get that much to pay the bills. You tell yourself that you are OK with taking a small loss each month because in the "long run" you will come out ahead, you completely ignore the fact that you are further in the hole each and every month, you are being sucked dry, but you are a long term investor, you can't sleep at night but you know one day you will be rich. I am positive there are hundreds if not thousands of people in Victoria that are in this situation. Every rental property I looked at couldn't possibly work, yet everyone of them sold. There are a lot of investors that are going to loose their shirts, and it is always the same thing, greed. They got greedy, they fudged the numbers till they saw what they wanted to see and they "invested" promising themselves they would be rich one day soon.

Anonymous said...

So true,

An erroneous assumption that most people make is that the investor knows something others don't. The knowledgable investor that has paid his/her dues in previous markets is no longer in this one.

When the time comes, I will probably dine on one of these investors, flippers or whatevers.
But at the moment I am buffing up the bank account and getting myself lean from exposure to risky investments. Eventually, I will be a contender and as God as my witness I will never be homeless again.

Ooops, meds are starting to kick in. Getting my Richard Simmons, Paul Newman and Gone with the Wind DVDs muddle up again.

Good night
just jack

Anonymous said...

Intersting RE agents blog from East Van, he tells it like it is,cut your price or you don't sell. Or you could wait a couple years like that anonymous poster and sell for even less.


http://tinyurl.com/5ajp3g




"Price Reductions

340 Listings have reduced their price. This is approximately 33.5% of the Active listings and is about 3.5% higher than last weeks West Side numbers.

Thoughts

Vancouver East is in parallel with other areas of the general Vancouver market. With one third of the listings reducing their prices and only one sale resulting indicates that a continued price reduction strategy will be required in order to attract more buyers. Affordability continues as an issue.

Recommendation

The lack of sales should be a strong wake up call to sellers. Continue sharpening your pencil to reduce your asking price."

patriotz said...

The home occupier will outbid the investor as the home occupier gets the added benifit of not having to pay rent or a mortgage for another home unlike the investor.

How many times do I have to explain this?

Investors already own about 20% of the individually titled housing stock.

They also account for a higher percentage of buyers and sellers because their holdings turn over more often.

If homeowners are willing to pay more for houses than investors think they are worth, existing investors will sell and no new investors will buy.

There are nowhere near enough potential homeowners (i.e. renters who are able and willing to buy at current prices) out there to replace investors. Prices cannot remain higher than what investors are willing to pay.

Anonymous said...

I'm wondering how often you need to hear it. Investors are not selling en-masse. They are invested for the long term and are not overly concerned with the past five years or the next five years.

I do agree that smart investors are not buying today and that they do create a floor to the market. However, the SFH market in Victoria will never get to that point again and wasn't there in 2000 (leaky condo era aside which created it's own slide, and landlords were still not making money on an equity to rental stream basis.)

The thought of selling our rental practically brings shivers. There's taxes to be paid, risk of tenancy loss, risk of not selling, closing costs, the potential of having to invest $50,000 to upgrade the place and still not know if it will sell at a decent price, costs to breaking a mortgage, and the costs associated with getting back in knowing that we enjoy owning that investment.

For now it is paying its own costs and paying down the mortgage, in say 15 years it will be mortgage free and still bringing in today's equivalent of $2,000 per month. Then if it sells it will give us today's equivalent of $600,000.

Investors that own SFH as investments will continue to do so for the foreseeable future. And don't bother with the sky is falling mantra, I'm not concerned.

Anonymous said...

"They [investors] also account for a higher percentage of buyers and sellers because their holdings turn over more often."

Where is your support for this?

Anonymous said...

"Investors that own SFH as investments will continue to do so for the foreseeable future. And don't bother with the sky is falling mantra, I'm not concerned."

That's fine, you're a bystander,and as such, have no effect whatsoever on what the market does.

you also said:
"smart investors are not buying today and that they do create a floor to the market"

so-no smart investors, less "floor", record listings.

Result??

Anonymous said...

"Investors that own SFH as investments will continue to do so for the foreseeable future. And don't bother with the sky is falling mantra, I'm not concerned."

Yes, unless of course, the sky IS falling.

(In the above link, CTRL+F or scroll down for "Global Credit Market Dislocation Watch", about 1/4th of the way down, to read recent headlines around the world.)

Canada is NOT immune, and we're already starting to witness that; but this is just the beginning.

Anonymous said...


I'm wondering how often you need to hear it. Investors are not selling en-masse. They are invested for the long term and are not overly concerned with the past five years or the next five years.


As Boomer said, any investors truly in for the long term are bystanders and therefore irrelevant to the current market. It is first-time buyers and investors who buy that, by definition, set the market at the margin.

You seem to agree that as of today, no smart investors will pile in. And we all know that first-time buyers are most assuredly not able to buy.

This means that properties for sale will not sell, except to those trading up or across in the market. You simply can't have a market without the first-time buyers to hold up the bottom end. This has been shown in the US and now even more dramatically in the UK.

Anonymous investor who owns a rental property that pays for itself - nobody is saying you made a bad decision or that it will not turn out well. Of course it makes sense to own a rental property that pays for itself. You are hardly unique. The recurring point on here, that your own situation is irrelevant to, is that no new investors nor first-time buyers will enter this market, meaning that prices will be pressured down at the margin.

Anonymous said...

That model works in the traditional marketplace, but not in this one.

The traditional marketplace is shaped like a pyramid with first time buyers being the largest and lowest level of the pyramid. Then comes middle income households and lastly at the top of the pyramid the upper income.

First time buyers that saved up the down payment for their home left this market years ago. Therefore, according to your model, prices should have fallen.

OOPS, they didn't - prices kept going up!

Because of the steady and huge year over year gains, the market lost the pyramid shape and turned circular and actually began to feed upon itself.

The middle income household's home increase 30 percent. So, the middle income household bought a starter home as a rental or to help out their children, or to flip.

This drove up the starter home prices, which drove up the price of the middle income house. The middle income household then went out and bought another starter home.

Eventually, the middle income family that was the late comer to the game and did not have a house to sell was price out of the market. But the market still did not collapse.

The market just kept feeding on itself, over and over again.


Now, we are just starting to see the circle of buyers starting to be consumed as witnessed by a drop in the volume of sales. But there still are enough consumers to keep the market going.

In order to get significantly lower prices, then we need more listing, less sales and a longer time period to affect a sale.

This changes the mix of sellers from one that does not have to sell to one of sellers under duress.

In a normal pyramid shaped market a small correction in prices would stimulate buying again.

In this shaped market, we have to fall dramatically before the cushion of the first time buyer is reached.


just jack

Anonymous said...

Anonymous investor who owns a rental property that pays for itself - nobody is saying you made a bad decision or that it will not turn out well.

These are the people that crack me up. They chime in that they bought something, like, 10 years ago and it turned out well. Thing is, most people want to know what is happening NOW, not 10 years ago. People that are just holding are irrelevant. What matters is the market NOW, ie; first time buyers and those that need to sell.

The RE bubble is like a pyramid scheme - without fresh meat coming in at the bottom, the whole thing falls apart. Prices cannot hold with sellers just sitting on their duffs and new buyers either unable, or too skittish to jump in.

The pyramid begins to collapse from the bottom.

Anonymous said...

Also, anyone that is hoping for a quick rebound will be disappointed.

What the 0%down, 40 year mortgages did was borrow from the future. Any buyers that would have held off, but didn't, because they believed the hype of 'buy now or be priced out forever' have already been absorbed into the RE market. How many fresh buyers are there to draw from now? Anybody that could get 'in' is already 'in'.

Anonymous said...

anon 11:01 said "Anybody that could get 'in' is already 'in'.

Not to mention the people who have the financial means, but chose not to pay overinflated prices. I'm pleased to see the numbers of other people on these blogs who have also shown restraint. Like many on this blog, I could go out tomorrow and buy any one of thousands of properties listed on MLS. With my household income and level of savings, banks seem perfectly willing to throw be more than enough rope to hang myself.

Despite this, I don't intend to max myself out and pay a half-million dollars for a pile of crap house. This is especially true in Victoria where many entry level houses can be as much as 100 years old and require significant expenses on maintenance, "good bones" or not.

I hope any market crash will be hastened when the only FTB's left at the bottom of the pyramid have some semblance of sanity and fiscal prudence.

Anonymous said...

Oh, come ON, for every "long-term" real estate investor, there were at least 30-50 clueless 20 and 30-something lemming flippers created by RE porn like "Flip This House" who have, are now, and will continue to lose everything they have in the chase for a quick score.

The "long-term" RE investor is a creature of the 1950's, and there aren't many of them left. Not after what happened in the 80's.

Those that managed to live through that are selling now, today, at whatever discounted price it takes to get cash out before the biggest crash in RE history. Everyone can smell it except for the truly oblivious tiny handful of greatEST fool buyers left.

The rest is more BS RE propaganda; just look at the listings. Take Broadmead for example, where most owners have been there for 20+ years; one out of every 10 homes is on the market or has been on the market in the last six months and pulled off in failure, only to be relisted and relisted again and again.

We're fully into the anger stage now and the desperation stage is only weeks ahead.

Anonymous said...

"We're fully into the anger stage now and the desperation stage is only weeks ahead."

Why are you so mad and desperate?

Anonymous said...

Not me... YOU.

Anonymous said...

the pool of greater fools is emptying out as summer ends and thoughts turn to other things besides taking on massive debt. We are still in the second inning here as far as Canada goes. Patience grasshoppers, our time is near.

Anonymous said...

"These are the people that crack me up. They chime in that they bought something, like, 10 years ago and it turned out well. Thing is, most people want to know what is happening NOW, not 10 years ago. People that are just holding are irrelevant."

The relevance is that the original post stated that investors were the driving force behind prices and turning over their properties faster than anyone else. This couldn't be further from the truth.

And I don't consider the on and off flippers as investors, the're speculators and they will get burned.

As for long term investors being dinosaurs, I can personally think of 3-4 couples that own 3-4 houses each and they are still in their mid to late 40's. They simply started one at a time through the nineties - a time considered by some on here to have reflected a bear market.

Anonymous said...

"They simply started one at a time through the nineties - a time considered by some on here to have reflected a bear market."



I can't think of any I know or work with who owns 3 or 4 houses. I assume they had higher than average incomes or came into big bucks cause you would not be able to straddle 3 or 4 houses even in the nineties and have the rents cover the mortgages and taxes without some serious down payments on each plus pay tax as rental income. Plus lending rules were much tighter til the last few years then all went out the window.

Anonymous said...

Quite the contrary actually. Two of them that I know a bit of detail about. One couple bought the homes on labour wages and lived in them, fixed them up and moved on to the next. The second couple the husband is in construction - not making much back then, although I'd bet he has for the last several years. I'm not sure how they got their original down-payment, but both couples are very thrifty. (Oh, and, no kids for either which is worth a house all by itself:-)

My point on both of these is that they are long term investors and I am not aware of them selling any of them.

I work in the accounting field and see first hand what people are or are not doing with their rental properties (or at least were doing up to the end of last year.) My general experience is that properties are typically left to an estate or sold by the kids.

Anyway, my point is that long term investors are just that and are not flooding the market.

Jason R. said...

Apparently house prices dropped the most since 1990 in UK this month:

http://snipurl.com/ukhousepricedrop

Anonymous said...

So when is Kirstie Allsopp eating her hat....???

From Wiki re Kirstie:

"Location, Location, Location has been criticised for inappropriately promoting residential property, most recently by BBC Panorama (June 2nd 2008) which identified it as one of the property programmes which has contributed to the current property bubble.[4] The New Statesman has referred to her as a "property porn queen".[5] Allsopp promised to "eat her hat" if property prices did not rise by mid September 2005 in a BBC Radio 5 interview.[6]"

Anonymous said...

Sobering article re. UK housing price crash:

http://tinyurl.com/54rpu9

"Even the (UK) government accepts that prices will fall by between 5 and 10 per cent this year alone, as the housing minister Caroline Flint's see-through cabinet briefing papers revealed recently (although, curiously, she didn't see fit to tell the country the news herself). Indeed, the government is still actively encouraging first-time buyers into a market that it knows is collapsing. Ministers should be doing precisely the reverse: warning young families not to take on mortgages for flats that will assuredly land them in negative equity.

But the government still believes that, as the property porn queen Kirstie Allsopp puts it, "house prices always go up". In other words, it believes in fairies, and that money grows on trees. Now comes the big bad wolf to the door, and the last thing anyone should think of doing right now is buying a house. At any price. Just say no. You have been warned.

Tens of thousands of relatively high-income homeowners in south-east England have placed their futures in jeopardy by taking on unsustainable jumbo mortgages. You need only look at estate agents' windows to see that the sums don't add up - London prices average £320,000 and are out of all proportion to ability to pay. Gross median full-time earnings in London last year were only £587 a week, according to government statistics. Many young families took out self-certification "liar loans" at five or six times their income as the only way to get on to the housing ladder. Now the banks are forcing them to remortgage at a higher rate and demanding large deposits. Real fear is stalking the capital's nappy valleys."

Anonymous said...

"Real fear is stalking the capital's nappy valleys"

well sure, but they're not world class Langford.



chortle

Anonymous said...

From today's TC

'Ritchie to handle auction of Pender Harbour lots'

http://www.canada.com/victoriatimescolonist/news/business/story.html?id=408b47de-6427-4191-954d-43615379a50e

S2

Anonymous said...

According to my PCS, watching all properties in Fernwood, there are currently 56 properties for sale, and no sales since August 9th (though there appear to be 2 or 3 price drops every day). That's almost 20 straight days with not a single sale.

Looking forward to the Sept 1st inventory numbers.

Anonymous said...

I posted a reply but it appears to have disappeared. So, in brief, no, two of the couples purchased these homes one at a time on labourer level wages.

I think sometimes we need to stop looking at everyone else and saying, "ya but they had help", "ya but they got lucky", or "ya but that was then."

The fact is we live in a very prosperoous time and there's enough for everyone. We just need to reach for it in a smart and financially responsible manner. If that means starting off in a small townhouse then sobeit.

There are going to be some good opportunities over the next year or two regardless of where prices go. I live in a near brand new area and there are currently at least two houses on MLS sitting vacant for about two months. At least one owner has already bought their next home - try carrying those for a few months...

Who knows what they may be willing to accept.

Anonymous said...

"Many young families took out self-certification "liar loans" at five or six times their income as the only way to get on to the housing ladder. Now the banks are forcing them to remortgage at a higher rate and demanding large deposits."

This brings to mind something I have pondered before. If I owe 75% on my home at purchase and escape CMHC fees, but then take a second in the form of a LOC bumping me up to 80% and prices drop 10%, what happens on refinance?

My guess is that I would have a hard time refinancing, be at the mercy of my existing banker for rates - and end up paying CMHC fees! Does this sound likely?