Friday, October 24, 2008

Grab yer Helmut, crash ahead

March 17, 2008:
B.C.’s unprecedented housing market expansion will continue into 2009, as economic fundamentals and market conditions remain conducive to high sales volumes and rising prices
October 23, 2008:
Housing prices will continue falling from their March 2008 high into next year, bringing the provincial median sales price down 13 per cent to $310,000 in 2009 and by a further five per cent in 2010.
Oh Helmut, it is hard being a dismal scientist. I wonder when the Sun plans to revise this piece for accuracy.

57 comments:

roger said...

The Vancouver Sun had coverage of Helmut's report on the front page today

The story headline was Housing may dip until 2010

There was a history refresher course for those who forgot the past:

Vancouver is no stranger to real estate booms and busts. Given the uninterrupted advance in prices since the third quarter of 2002, it's easy to forget that house prices rise and fall in tandem with the economy.

....See story for detailed stats

Vancouver's housing history suggests prices can drop sharply and suddenly and take many years to rebound.

roger said...

HHV,

I don't understand that professional REALTOR® in your video. He describes the current conditions as a "classic move up market". But in the areas described in the video there were only 68 sales out of 2011 listings.

In a "classic move up market" are there only a few people moving every month?

beagle said...

Roger , I think that is a the new Realtor talking point for the new lousy market. Move up! There was a Realtor on KIV today advising this was a good time to move up to a larger house.

Ryan said...

Now is a great time to move up. Just make sure there's a two-year gap between when you sell and when you buy and you can get a better house for the same money!

roger said...

HHV,

On several other blogs there has been some denial about falling prices in Victoria. So I am reposting these two graphics:

SFH prices since April 08 tinyurl.com/vic-down

Per cent drop in SFH prices tinyurl.com/vic-pcd

I think it is important that people have the facts prior to any buying decision. There will be increased pressure on buyers and sellers by those in the RE industry faced with smaller commission paychecks.

Anonymous said...

Certainly, you can move up the property ladder. Just make sure that your house is sold first. Otherwise, you will be paying a mortgage on two homes.

Always, always put subject to financing in your offer to purchase and do not be talked into short closings, unless you want a short closing.

For example, you insist on the subject to financing clause. Your agent reluctantly agrees. However, the agent puts in a time limit of 7 days for you to remove the subject clause.

If you have not been approved from your bank, it is going to be really tight for all the bank checks to be completed in 7 days. You might not even get an appointment for three days. You may find that you will have to lift the financing clause before you get bank confirmation. In other words, by the agent putting in a short time clause the agent has negated your financing clause.

If you feel pressured by the agent, be ready to walk and to squawk if you feel been unfairly treated.

roger said...

Well ... CHEK news confirmed my guess about a slowdown at The Oak Bay Beach Hotel redevelopment.

Seems like they only have 50% of the pre-sales they need in order to meet financing requirements. The developer figures at least six months until they start. Will they really be able to sell high-end units under current market conditions??

roger said...

Often on this blog we talk about the tradeoffs with renting vs. owning. In a falling market I would rather be a renter but if I had bought for the long term I would sit tight and enjoy my home.

Many folks in Victoria have resorted to renting a room or a suite in their house in order to offset the mortgage costs on their house. Some developers like Sunriver Estates even push this concept in their real estate ads.

I wonder how many of these owners are aware that this rental income must be declared on their income tax every year? They can offset this income with part of the mortgage interest and utilities that they have paid. There is also the issue of paying capital gains tax on part of the profit they make when they sell the property.

I hope most of these folks are not hiding the income. All it takes is one call by an unhappy tenant or neighbour and CRA will claim income tax evasion (big fine). Who needs that with all the economic uncertainty these days.

vg said...

Gloabl TV tonite had a radio interviewer Tom Jefffries who had talked with Shiller recently who maintains Vancouver as the bubbliest city left in North America and that the consensus was there is a long way down to go. Not that we didn't know it but incomes versuse prices were the number one reason.

Global seems to be really running with the reality now we all knew was coming, about frigging time.

Anonymous said...

What are your opinions about the sinking dollar which should ultimately bring INFLATION due to rising prices of goods and services (purchased in $US)? What impact will it have on housing?

Nick said...

I guess with the falling dollar, all those rich Americans itching to buy Victoria real estate will come in and prop up housing prices. [/snark]

I don't know if they're as clueless as most TV analysts are, but I heard a couple of economists on CTV saying that they didn't project much of an effect on Canadian prices over the next few months because some retailers didn't even bother to pass on the Canadian dollar savings over the past year and many companies are already experiencing declining sales, increasing prices would send them into a further tailspin. Not sure if they'll be right, but thought it was interesting.

Anonymous said...

Roger said "Many folks in Victoria have resorted to renting a room or a suite in their house in order to offset the mortgage costs on their house. Some developers like Sunriver Estates even push this concept in their real estate ads.

I wonder how many of these owners are aware that this rental income must be declared on their income tax every year? They can offset this income with part of the mortgage interest and utilities that they have paid. There is also the issue of paying capital gains tax on part of the profit they make when they sell the property.

I hope most of these folks are not hiding the income. All it takes is one call by an unhappy tenant or neighbour and CRA will claim income tax evasion (big fine). Who needs that with all the economic uncertainty these days."

For starters, I'm sure we do not need more tax money wasted with useless and likely false calls to CRA regarding unreported income from suites.

As for the tax:
People renting homes get to deduct a reasonable portion (reasonable depends on the circumstance, typically proportional) of their home cost including property tax, interest expense, and various utilities. In most cases this amounts to a loss or at best a break-even situation.

People putting in a suite to offset mortgage costs etc are almost certainly still losing money for income tax purposes.

With that said, certainly if you have a positive income from rental it must be reported. Look at a form T776 for an idea of some of the categories considered for deduction.

As for capital gains, it remains principle residence and tax-exempted as long as the use of the home is primarily (50% or more) personal in nature. Therefore no capital gain.

Anonymous said...

Added to the above, make sure you satisfy yourself though the CRA public website or a call to your accountant regarding the reportability of suite revenue and potential principle residence exemptions. It always depends on your personal circumstances.

patriotz said...

Took another look at the VV RE forum. Are these people clueless or what? "Well people don't have to sell".

Don't these guys understand that RE markets are driven on the margin by investors who are only interested in returns, not owner-occupiers? That an investor who is bleeding cash on a property (or one who isn't for that matter) is going to head to the exit, pronto, when prices start falling? That no new investors will buy in a declining market?

Muriel said...

If you follow this link, you can hear a great interview with the famous Ben Jones in a radio interview, commenting on Allan Greenspan's testimony and other topics.

Anonymous said...

Roger and JJ: "The 8% only sets the rate of payments into the RRSP. You still need to invest the money that comes into the RRSP every month in order to get that $3M. I chose a pretty conservative, minimum risk 5%."

To continue this discussion a little. The example you guys are using is of a homebuyer with $375K in their RRSP and probably taking a 1st. This is not my circumstance and likely not too many others.

What I am investigating is starting with $50,000 in a HEL or a 2nd mortgage set up as a "running account." As I make the monthly mortgage payment to the RRSP, or possibly on an annual basis if this is the only logistical way of making this work, the RRSP in turn invests more in my 1st mortgage. Over time the RRSP mortgage grows and the bank mortgage shrinks to the point that I will only owe to myself.

I might instead put this SDRSP against my rental so that the interest paid is tax deductible to me (not to be confused with non-deductible interest on money borrowed to invest in an RRSP.)

We use 5% as a benchmark for investing the RRSP but my concern is more the possibility of 12%+ interest rates in 5-10 years. Owing this to my own RRSP gives me a lot of flexibility to manage this possibility.

All financial considerations aside, what I will have in about 8-10 years is full control of my income and full control of my financial independance. This is my goal.

vk said...

Times Colonist says - Provincial real estate sliding into recession

Metaldwarf said...

LOL at the new mascot

here is a question regarding some of the talk about rental suites.

does it make any sense to incorporate a company when buying your principle residence if you have the intention of renting out a suite? taxation would be preffered as pretty much all expenses would be deductible, mortgage interest would also be deductible since it is on a loan used with the intention of earning an income.

the only downsides i can see are two; banks usually require a larger down payment for business loans 25% etc. (not a problem for me) and that at the time of sale you may have to pay capital gains tax. however, the small business capital gains exemption of $750,000 should take care of that.

so does it make sense is there something I'm missing?

hhv said...

MetalDwarf,

Unless your corporation pulls in $60K/year, the basic costs of administering the corporation are prohibitive.

Say you're a IT consultant and you bring in $75K in fees, it may make sense to incorporate to save on income taxes, and then have that business also own your home. But should the consulting fees dry up, you may expose your home to creditors if you have a high overhead.

I'm guessing most wouldn't find themselves in this kind of a scenario, but if you're only taking in $12,000/year in rent, does it make sense to spend $2-3K of that on fees?

roger said...

anon 8:03 said:

The example you guys are using is of a homebuyer with $375K in their RRSP and probably taking a 1st. This is not my circumstance and likely not too many others.

What I am investigating is starting with $50,000 in a HEL or a 2nd mortgage set up as a "running account."


In my earlier post I mentioned that mortgages may be set up using a self-directed RRSP but you must follow CRA rules. They require that the mortgage be CMHC insured and be at current market rates. Furthermore they must be administered by a financial institution.

Your scheme does not meet these requirements. Check out the CRA site for details. If you visit any of the main branches of a major bank you will find that they are only interested in setting up fixed rate, 1st mortgages.

Anonymous said...

At a first glance you would miss out on the principle residence exemption if the corp owns the home (unless your claiming a beneficial ownership in which case you may have a shareholder loan issue.)

If the corp's main "business" is owning your home there would be no capital gain exemption on the sale of the corp as it would be considered passive income and not eligible for the CGE.

As you would be living in the home you would be considered to be renting the home from the corp and be taxed on the fair market value of the rent.

Anonymous said...

Roger:
There's nothing about the "scheme" that doesn't fit the CRA requirements. Insured mortgage (no 1st requirement), standard rates, managed by trustee etc.

You are right on the banks not wanting to do anything beyond 1st mortgages but there are some institions out there that do (B2B Trust.)

I was recently told at TD that they will allow NAL SDRSPs on: 1st, 2nd, 3rd, home equity lines, pooled HEL etc. The fees I was quoted were quite favorable as well.

I'm sure to find restrictions on this when I get down to the downtown office, but it's worth the time.

vg said...

The TC does it again, more of the "we are insulated" crap.

When are these people going to quit destroying their long term credibility ? They are saying this is nowhere near 1982 because of interest rates ? This so beyond that, did you have the Canadian government pouring billions every day into the credit market ? how about threats of stock market closures ? how about a massive loss in wealth in like less than 2 months that has taken 20 years to build ?

These so called spokesmen are a disgrace and so is the TC to not even counter some of the comments with their own. Whores to the industry once again as they try to save the Victoria housing pump job. Too late,it's already started down the slope along with their credibility.

Anonymous said...

MetalDwarf,
On a second read it looks like you may be talking about sharing the ownership with the corp - still the same basic issues and the corp's portion will not qualify for the prin res exemption.

If your primary concern on the rental suite is taxable net income, put the "net income" directly into an RRSP. You still get all of the deductions.

beagle said...

The RE pumpers always say Victoria has rich people buying/investing in our real estate. If that was true and helped accelerate our boom, then wouldn't it be true on the way down. As the mass deleverage takes place and assets like that house or condo in Victoria now need to be liquidated?

roger said...

The RE advertisers must be unhappy that the Business section had this glaring headline in the Saturday edition.

The tired "old boomers are coming" line was trotted out again in the main article.

Ken Stratford, Business Victoria CEO, said we are going to see that the average price will decline but not significantly.

Baby boomers are continuing to move to Victoria, many coming here to work, he said. "I think they are going to keep us out of a lot of trouble in terms of Victoria."


This guy should read VREB's news release on this subject:

Joe adds that out-of-town town buyers have not had a significant impact on the overall market. "With such a large percentage of buyers originating in the Greater Victoria area it’s clear that the market is primarily being driven by local people who are moving up or down in the market to meet their changing needs or who are entering the market for the first time."

Victoria Real Estate Board President Tony Joe says the pattern of buyer origins has remained very consistent over the past few years. "Over 74 per cent of all home buyers were from the Greater Victoria area last year - up less than one per cent compared to 2006 and down slightly from the 76 per cent in 2005." Joe added that 14 per cent of all buyers were from elsewhere in British Columbia including 2.4 per cent from the Southern Gulf Islands; less than one per cent from the Malahat and Area; just under three per cent from the rest of Vancouver Island; just under six per cent from the Lower Mainland and two per cent from the rest of the province.


Many of these out of town buyers were condo purchasers securing an investment property or second residence. How many retirees want to buy an older home with all the maintenance and remodelling issues?

Here is another great quote from a REALTOR®.

Dallas Chapple, a real estate agent for 20 years, said, "The problem now is fear and everybody is just sitting on the fence not knowing which way to jump."

Once the U.S. election is over and the bail-out following the American sub-prime mortgage crisis is further away, "people will start to get on with their lives" and the market will improve, she said.


Victoria buyers are sitting on the fence waiting for the US election to be over?? The bailout isn't further away - there seems to be a new one every few days. And sub-prime is far from over in the US.

But there is one article in the paper about REALTORS® that rings true.

Crisis likely to thin Realtor ranks

Anonymous said...

So a lot of the big name realtors survived the last real estate bust of the 1990s. Anyone have any bets on the same thing happening again? Also anyone have any anecdotal stories of doom and gloom out there?

roger said...

anon said:

There's nothing about the "scheme" that doesn't fit the CRA requirements. Insured mortgage (no 1st requirement), standard rates, managed by trustee etc.

You are right on the banks not wanting to do anything beyond 1st mortgages but there are some institions out there that do (B2B Trust.)


Interesting feedback. This topic has come up a few times in the past. Please post again after you meet with the banks. I am curious as to what they are prepared to do and what the fees will be for something other than a standard fixed, CMHC insured first mortgage.

vg said...

"Baby boomers are continuing to move to Victoria, many coming here to work, he said. "I think they are going to keep us out of a lot of trouble in terms of Victoria."


The massive fault with this spin story is who is to say this so called influx of baby boomers is actually still happening and will continue to ? And where are these jobs so to be ? Things change fast in times like this. And where are these people with all these real estate bucks supposed to be coming from ? There are zero facts to back up this BS statement.


And how about the declining jobs in real estate as per roger's article. I can imagine there will be many agents tossing in the towel in the next few months, and how many construction jobs have been lost on all these cancelled projects ? there has to be a major surplus starting to show.


Not to mention all the related industries that have to be feeling it. There is still some serious denial going on out there in my opinion, wait til winter doldrums set in and we start to see job layoffs.


Anecdotally I know of two couples that are in the divorce process for several months now and the guy has to live in the basement cause he can't afford to move and the house is not selling. One of them is an underwater mortgage too with not one buyer in sight and the LOC's etc all maxed out.

vg said...

"Once the U.S. election is over and the bail-out following the American sub-prime mortgage crisis is further away, "people will start to get on with their lives" and the market will improve, she said."




This one is even more pathetic. We will just get on with our lives and all will be peachy ? We are in a world recession for cripes sake,is this woman brain dead ? talk about DUH.

Anonymous said...

Roger:
I hope to meet with them sometime in November, I'll post back on it when I get closer to the details.

vg said...

Just keep the rose colored glasses on folks, we're "insulated".

From the Globe today:


"Where that bottom is, no one really knows. As country after country announces it is expecting, or already experiencing, a recession, it is becoming clear that this is no fleeting panic.

"This is a once-in-a-lifetime crisis, and possibly the largest financial crisis of its kind in human history," said Bank of England deputy governor Charles Bean. "In terms of impact on the real economy we are still early days."

With a speed that is taking everyone's breath away, the world has gone in a few short weeks from credit crunch to credit crisis to global financial meltdown and now to full-blown economic emergency."

roger said...

VG said:

Just keep the rose colored glasses on folks, we're "insulated".

I heard that VREB has a new theme song and have started distributing it to their REALTORS®.

roger said...

Now that real estate in Victoria has gone negative YOY the RE sales folks will talk less about a home as an "investment" and more about a lifestyle choice. Already I am hearing the old throwing your money away on rent line popping up more often.

You don't often hear someone say to a mortgage holder that they are throwing their money away on interest. Instead the positive statement about building equity is made.

Buyers can get online mortgage calculators to help them make a mortgage decision. However, most of these do not show the range of options in an easy to understand format. So using a spreadsheet I prepared the following tables which I thought readers might find interesting.

25 year amortization at different interest rates

6% interest at various amortizations

Fixed payment interest & term options

As you go through these tables you will note how little equity is built up after five years when a FTB opts for a 35 year mortgage. The interest payments to the bank are quite considerable during the early years and over the entire term. In a flat market the holder of a 35 or 40 year mortgage is in effect paying "rent" to the bank if they sell in the first five years.

If you want the collection of annotated charts as a pdf they are available here

The version without comments is here

Any comments or requests for additional charts welcomed.

Yve said...

The day of reckoning has come at last for the Realtors. Dallas Chapple's smiling face has appeared on more than one listing that I have seen. It seems that she doesn't get out of bed for anything much under a million $. I think there is going to have to be a re-tuning in attitudes for her and probably just about everyone. One wonders how much of their own Koolaid they have drunk when they come out with comments like this. Times they are a-changin'.

patriotz said...

Instead the positive statement about building equity is made.

The reality, of course, is that the "owner" have been losing equity for the last six months and will continue to do so for at least two years.

But being a realtot means never letting the facts get in the way of a good argument.

Nick said...

Nice graphs Roger, it's interesting to see all of that information laid out like that. While I knew the fundamentals of what you showed, it really is amazing to see how much more interest you pay with a 35 year mortgage.

Anonymous said...

Speaking for rich Americans, we WILL come in and buy houses on the island... in droves.

Uh... when prices hit 50% of what they are now.

And not a SECOND before.

Promise.

roger said...

Nick,

Thanks for the feedback.
I have prepared another spreadsheet that analyzes whether it is better to buy now or rent with the intention of buying later. It is interesting to see what happens in a falling market.

I made some basic assumptions:
- renter pays $2500 per month rent
- owner pays $2500 as mortgage payment during entire mortgage
- both have saved 100K
- renter pays rent out of 100k savings until property purchased
- savings interest, property maintenance, taxes and utilities are not considered

Here is what happens when the market drops by 10% a year.

- Former renter ends up mortgage free two years earlier
- In 2015 & 2020 former renter owes much less on outstanding mortgage


The renter is much better off than my model suggests if you consider interest on the savings and that the buy now owner was paying property taxes and maintenance for one or two years as well.

Other scenarios with market drops of 5, 8 and 12 percent are in this pdf file

If you want to verify my calculations you can use the RBC mortgage calculator

vg said...

Now weren't they just telling us that we didn't use our homes as ATM's like the US did ?



Bankruptcies climb in B.C.

Drop in real-estate values is sending homeowners to the poor house


Vancouver Sun
Published: Sunday, October 26, 2008

VANCOUVER - Dropping real-estate values are sending more British Columbians into financial crisis and causing a spike in personal bankruptcies, according to professional debt counsellors.

Federal Industry Ministry data show that B.C. consumer bankruptcy filings for August were up more than 10 per cent over the same period last year.

August also saw a 16.3-per-cent increase in proposal filings,And that was an improvement over July, when B.C. consumer bankruptcy filings were up 14 per cent over the same period last year and proposal filings were up 20 per cent.


"It's a big jump," said B.C. Association of Insolvency and Restructuring Professionals director Lana Gilbertson. "We don't know if it will continue upwards, but during the recessions of 1981 and 1990-91 there were rapid increases in insolvency rates.


"Our professional community is seeing more and more individuals who can't sell their property for what they thought it was worth and who can't refinance or borrow more money against their property. They're stuck," she said.



http://www.canada.com/vancouversun/story.html?id=d170cd8b-5196-41e2-88b8-d5ed1aed4aca

Anonymous said...

"Speaking for rich Americans, we WILL come in and buy houses on the island... in droves.

Uh... when prices hit 50% of what they are now."

Just another good reason to keep prices high. You should probably stay home and clean your own house for the time being.

Anonymous said...

"Just another good reason to keep prices high. You should probably stay home and clean your own house for the time being."

Be VERY careful what you wish for, Xenophobe.

patriotz said...

Just another good reason to keep prices high.

There's only one way to "keep prices high", and that's to buy now at current asking prices.

Put your money where your mouth is.

Anonymous said...

"Just another good reason to keep prices high. You should probably stay home and clean your own house for the time being."

And when your neighbors on all sides with upside-down mortgages can't sell their houses for 50% of today's asking prices, you'll be eating cat food right along with them... and begging God for rich Americans, orientals, or ANYONES to take the worst business decision of your miserable life off your hands.

Cause your neighbors won't be willing OR able to do it.

Anonymous said...

As you have read on this blog and in the newspapers things are going to get a lot worse for home owners over the next few years.

If you are comfortable with your payments, then things are most likely going to be fine.

If your over extended on the payments or you own multiple properties. Well your about to become an evening news statistic.

Property values have been dropping at a rate of 2 percent a month since April. For the typical home thats $10,000 per month. There appears to be some preliminary data showing this rate of decline is increasing. The downward trend is well established and will not be able to be reversed for several years. In terms of real dollars, property values will never be this high again.

People are still buying homes in Victoria, but the number of sales is dropping substantially each month.

Anonymous said...

I have to say I LOVE the bear in the helmet....

B2B said...

Canadians don't have any more money to buy houses with. We have less than no money on average. And forget about stock market holdings!

FP: Have Canadians Forgotten How to Save?"

"...But we can forget about dipping into our credit cards to spend. Consumer credit represented 40% of personal disposable income at the end of the second quarter, according to CIBC World Markets. Mortgage credit, meanwhile, was 90.6% of personal disposal income. When those numbers add up to more than 100%, it means we have more debt than income.

"Canadians, like the Americans, have had a ferocious appetite for debt and credit and as a result we are sitting in this situation [for] good reason. We shouldn't be saying we are nothing like the Americans," says Ms. Campbell."

VicREBear said...

Wow... inventory has now hit 5201, with a steady drumbeat of bad RE news in all the local media. Should we rename this blog VictoriaPanic?

Mr.4AM said...

TSX broke 9,000 into 8K territory today for the first time in 4 years. That means, on average, all gains for the past 4 years in the Canadian Stock market are gone, like *Poof*. It'll be 15+ years before we see anything remotely close to 15,000 again.

The loonie is trading just below 80
cents, and oil at $63/barrel.

The G20 meeting in a week or so will be a meeting to establish more meetings. Don't expect any miracles to come out of there. In the mean time the stock markets shall burn, while the Feds and BoC equivalents give out 'liquidity' billions to banks that continue not to lend and trust each other. Additional interest rates also won't work.

This spiral is about to go deeper... much deeper, so good luck everyone!

Let's just hope 6 months from now Canada is not on the IMF bail-out list.

Ryan said...

"Consumer credit represented 40% of personal disposable income at the end of the second quarter, according to CIBC World Markets. Mortgage credit, meanwhile, was 90.6% of personal disposal income. When those numbers add up to more than 100%, it means we have more debt than income."

That's a little misleading, though, because one is an annual figure and the other is a lump sum. For example, I expect to buy a home for ~4x annual salary with 25% down, which means a mortgage of 3x annual salary. That means my debt : income ratio will be 300%. However, my mortgage payments will be less than I'm currently paying in rent. Having tens of thousands of dollars in consumer debt is bad any way you look at it, but total debt greater than your income is no big deal.

Ryan said...

Unless you're a "retiring" baby boomer, in which case you're an idiot and deserve to die poor.

patriotz said...

They really ought to keep the MLS listings up to date (and use a spell checker):

"Seller offers Bonus - Samsung 42" Plasma HDTV with uncondirtional sale by October 15."

Well I guess that didn't work did it? Now it's time to drop the price, Mr. Seller.

asking 430K

Let me know when you get down to 300K.

Muriel said...

Actually, according to my PCS account, that one did sell, for $420,000 on Oct. 20.
Go figure.

Anonymous said...

Then I guess the new owner can call patriotz in about a year.

beagle said...

"Consumer credit represented 40% of personal disposable income at the end of the second quarter, according to CIBC World Markets."

What does that mean? If I run 40% of my purchases each month on Visa and then pay in full at the end of the grace period taking advantage of bonus rewards and the grace period am I lumped into this stat?

I hate these vague statements and stories with little facts to back them up and no link to the report they cite.

vg said...

"And when your neighbors on all sides with upside-down mortgages can't sell their houses for 50% of today's asking prices, you'll be eating cat food right along with them... and begging God for rich Americans, orientals, or ANYONES to take the worst business decision of your miserable life off your hands."




Sounds like something Sitting Pretty used to post, wouldn't be suprised she couldn't stay away.


So who needs to sell ? Weren't they in for the long haul ?
Actually in 1982 when house prices had hit 30-50% declines, life was good. I had a good paying job,the girls were pretty and life went on. There was no bread and soup line ups,and only those who got greedy and never sold or those who bought at the top cause they weren't making houses or land anymore paid the price. The people working at the stores said "thank you" and they kissed your ass for your business instead of sloughing you off like they do now. Those days will return soon enough.

Cat food is a little extreme there bud,those with a basic education will do just fine, they just have to learn how to not spend there cash on useless crap and save for once in their lives.

greg said...

VG -

as someone living in a town that was devastated in '82, I wouldn't paint such a rosy picture.

The correction was necessary, but they weren't easy circumstances.

The main problem also was forced sales, not by those who bought, as we weren't seeing massive price jumps relative to incomes, rather it was the mortgage renewals that caused a flood of inventory to hit the markets. Price/income ratio at the time was much lower, even at the top of the early 80s market- something like 3-5 times family income - not 8-9 times like now.

What really killed was mortgage renewals - people couldn't absorb the jumps to 18% and so they tried to sell - and look out below.

But since the prices then were not so out of whack compared to incomes, things turned around fairly quickly once rates went back down to 12% or so and started edging ever lower.

The real problem now is that the actual prices paid are so high relative to current wages that a movement of even 1% on a remortgage makes a huge difference to the payment.

Without price drops of 20% plus, even lower rates short term are not going to cushion the market enough to prevent the inevitable.

Meanwhile, despite cash injections and lowering of central bank rates, the medium and long term closed mortgage rates have not followed down - they are up. This will prevent buyers from qualifying for the same places they could get last spring.

The general sentiment? Look for continued problems going forward.