Saturday, November 29, 2008

Tony to Bob: yer turn, I think they're hearing it

Just maybe not buying it yet, me thinks...

Some "mythical" highlights, courtesy of Bob; and some debunking, courtesy of me:
  • BC's housing starts hit 39,000 units in 2007, significantly higher than our 20 year average of 30,000.
Too bad our rate of in-migration is unchanged at just under 1% per year and that in 2008, sales plummeted to a ten-year low: must suck to be a builder with units to sell right now, especially when you are overbuilding by almost 30%.
  • Home ownership in BC is high at 70%
Which means there are no first time buyers left to get into this market: must suck to be a first time owner trying to unload that crack shack/lottery ticket you thought was a "sure thing" last year.
  • BC has the lowest rate of mortgages in arrears in Canada, which already has a historically low rate. This is much different than circumstances in the US.
But not unlike the US, the debt servicing ratio is at an all-time high in BC right now; in plain language, that means more BC'ers owe more on their homes as a percentage of both their incomes and the current market value of their homes. This is a ratio that will increase, not decrease, as the market value of BC'ers homes falls leading to a higher rate of underwater homeowners, mortgages in arrears, and inevitably defaults.

Bob, your message then turns to utter bullsh$t: can someone please tell me when prices are falling at an annualized rate of 26%, how this can lead to "More potential for increased equity in the home." Bob, do you really think BC'ers are that stupid?

Now Bob, just to be fair, I do like your use of Warren Buffet's quote. Too bad it has nothing to do with real estate markets, nor is it well-timed because Warren himself always chooses to wait until everyone is "fearful" before he starts getting "greedy." He also uses easy to understand ratios of value to pick his buying opportunities: like price to earnings, or in the the land of real estate, price to rents. Considering I can rent a luxury condo or SFH in this town for less than 60% of its ownership costs, I think Warren would advise me to put the safety back on my buying gun for the time being. Clearly, you and the people you represent, and the people who sell on your behalf, are still in the "greedy" stage--though I can smell your fear starting to get stronger.

Bob, I give you an "C+" for effort, at least you got the TC to agree to run your ad without having to clearly disclose it is an advertisement.

I've purposely left a few choice garbage bombs for reader comments... have at 'er.

Monday, November 24, 2008

Hanging ten on the boomer wave

I've been looking a lot lately at demographic stats in an effort to understand future trends. I take issue when people tell me that because real estate has "doubled every ten years" over the past while in Victoria, that it will continue to do so in the future. I ask these people why? They say, because it has. I say, you need to understand why it has in the past in order to predict what it will do in the future.

Apparently I'm not the only one subscribing to the theory that the past 30 years have been an anomoly in real estate valuation cycles. Two academics in California published a paper early this year that made some news, and created some waves.
78 million Boomers are about to enter the years when people tend to become sellers rather than buyers. And as a result, they expect "many more homes (will be) available for sale than there are buyers for them."

"The Baby Boom generation was born over a period of 18 years, and once its sell-off commences, it could dominate the housing market for up to two decades," they say.
This theory is known as an age wave in economic circles. We can't argue that this won't happen. What is up for discussion is how it will impact local real estate price trends and whether or not current immigration/migration rates will replace the demand the boomers represent and the supply boomers will create.

My own thoughts, at least at this point, are they won't. I don't see a bright, expansionary future for real estate here in Victoria. I see a return to the pre-1970s eras of logical, sustainable, inflation-equaling growth (albeit cyclical); but only after we see a correction that will at least equal the one--as far as total percentage (maybe not rate of decent)--of 1982.

To me, my house, when I buy it will be a hedge against inflation, not a retirement plan in and of itself. Which is all a house should be. If you want to get rich in real estate under those conditions, you'll have to return to cash flow positive real estate investing, which means having a downpayment and a rent that exceeds your carrying costs by at least 10%.

What do you think?

Monday, November 17, 2008

coming soon

to a homeowner near you. (H/T to S2 for the link)

Saturday, November 15, 2008

Putting credibility on the line

You have to admire the attempts, really. It takes a lot of guts in a time when a growing majority of people hold a contrarian viewpoint, to put not only your personal but your professional credibility on the line. I know, when I started this blog I was confronted with the age-old bear blogger dilemma, anonymity or permanently risk personal and professional reputation?

Because I make absolutely nothing from this blog, and at the time I started it I was finishing school, seeking work in the google-age and the generally accepted belief was real estate can only go up you're crazy for thinking differently, I chose anonymity (since I have done CBC radio using my real name while referencing this blog and I'm almost positive that Tony Joe knows who I am).

Last week, we had this advertisement in the disguise of an op-ed, newspeak for opinion based editorial. It was a good attempt, and while it may give Dallas Chapple better name recognition, her factless opinions serve, in the opinion of not only HHV, but the vast majority of the commenters on the TC piece, to undermine her professional credibility. I suspect, in the longterm, this will prove not to be good for business.

This week (H/T to anonymous commentor in previous post) we have this advertisement, which despite it's professional communications release look and feel, states advertisement right on it. Perhaps the TC learned something from its experience with the comments last week and decided Tony would have to pay for his advertorial this week.

Throughout my life, I've tried to maintain composure in trying times. These are trying times. BC home sales are plummeting. Canada-wide, the real estate market is slumping faster than anytime in the past 26 years (as far back as 1982, one of the biggest housing crashes in Canadian history). I understand how hard it is for the local real estate industry players to maintain composure.

They have been drinking from the kool aid fountain so long, they actually believe the MSM is giving them an unfair shake right now. They believe this so much, they are now paying to correct the "misperceptions" the TC is "creating."

I have no doubt that Tony Joe and Dallas Chapple are ranked high amongst their peers for their ability to sell high priced homes, or volume, or both. But one's ability to sell a product does not make one a product market expert. And we are seeing evidence in their statements:
"Victoria continues to be a destination of choice with a diversified and strong economy... Given that our population is growing by thousands of people each year at a time when we have the lowest vacancy rate..."
Tony, you are right. What you fail to tell people is that these are not new factors, and had little to do with upwards price pressure to begin with. Throughout the last two decades, Victoria has had consistent population growth of just under 1% per year. This hasn't changed. The last census showed no increased rate of growth over the previous census.

The vacancy rate is a misleading statistic as it does not account for all of the new rental properties created in this past building boom as there have been few new institutional rentals added, however, I can tell you there has been an epidemic of secondary suite construction and substantial speculative buying, which led to new rental products not counted by CMHC.

Tony, you tell us that median prices haven't changed, even when you average out the the yearly growth, which is a marked difference from how you've reported VREB statistics for as long as I've been watching them. You've moved the yardsticks to hide a 8-10% downward change in median prices. Even if I accept your numbers, which are misleading, you can't hide the 3-4% decline in prices caused by inflation. If you bought a property in 2007 and find yourself in a must sell position in 2008, you will lose almost 10% of the money you tied up in the property when you account for REALTORS' fees, taxes and inflation.

Tony, your 1998 year claim of a "strong and stable market" is bunk. 1998 was not a strong and stable market, in fact, according to CBC, that period was a "crashing market," a time when construction workers were being laid off and developers weren't developing.

Tony, you talk about a ballon, it sounds like you could use a communications professional to let you know that using any kind of bubblicious word in a rapidly deflating market, completely, pardon the pun, deflates every word you wastefully paid for in your advertisement disguised as "market outlook" or whatever your group is calling it these days.

I'd love to hear REALTORS out there start speaking out (Al, you have not gone un-noticed here). In fact, if we get a Paul B type here in Victoria who starts building business from a different tune, I bet you'll have great success with the fence sitters when they start hopping back into the game in the years ahead, because it is about credibility.

Every day, more and more people are questioning the credibility of the VREB and it's spokespeople. Someone, please, jump into the credibility gap, be patient and secure a future for yourself and your family, and for the good of those of us who just want to buy a home without losing ours.

Credibility: by way of the Cappy Cap

Wednesday, November 12, 2008

Are we being duped?

The first time the Department of Finance decided to put up $25B to buy asset backed debt, I was skeptical, but did some balanced reading and decided that hey, if they're already guaranteeing mortgages through CMHC, and they hold some risk, perhaps owning those same insurance backed assets and collecting some interest payments may actually work to help out the taxpayer, if not the banks that make up a large proportion of retirement income for many Canadians.

But then I read this. Now, I do recognize the source, but considering this is a conservative writer taking a conservative finance department to task over what could be viewed as non-conservative financial dealings, I'm left scratching my head. Take this key piece of information for example:
"In a piece in yesterday’s National Post, TD Securities economist Eric Lascelles noted that there are no signs that credit has been withdrawn in Canada or the U.S. — in fact, mortgage lending has grown at 7.7% this year and personal loans are up 15.3% in this country."
That really is mindboggling. Mortgage lending grew. Personal loans are up 15.3%. And yet banks are telling Ottawa they have no cash to lend: to business. "We have to get some of these debts off our books if you want us to lend to businesses who need money," say the banks. "After all it's your government's capitalization policies that prevent us from just throwing money at them." Or at least that's what they want us to believe.

So businesses are seen as risky lending ventures right now, but lending to the people who depend on them for their income, not so much. Disconnect? Me thinks there may be.

But what is the government to do when every other capitalist nation is spending like a drunken sailor from Havanna with a no-limit credit card? Acknowledgingly, I don't have too much exposed in this game right now. But in Canada, it really doesn't matter if I have cash in the markets, or cash in my mattress, because the DoF has the ability to grab whatever it needs of whatever I do have, whenever it needs to. So I care. And I think you should to.

I'm all for universal healthcare. I'm all for universal education. But I'm not for corporate welfare for businesses that sell products that people neither want nor can afford. Nor am I for businesses holding the taxpayer hostage crying foul because their cousins in the south and east have been given the tax-slavery proceeds of a nation wrapt in fear of losing their jobs and homes.

I don't want to see people lose their homes or jobs, which is exactly why I say to my government that today is the day that will deliver the least amount of pain. Throwing more money at the same problem doesn't solve it, it delays it and makes it worse. Why should the whole street have to pay for the bad purchasing choices of a few houses? Let those houses fall, and let smart, sensible, competent houses replace them.

For all of us, I hope I am wrong and the policy wonks at the DoF are right.

As an aside, for those of you reading this who want to attack the current government because of their ideology-driven policies, I feel it necessary to remind you that policies like what we have seen today are not dreamt up in some cabinet meeting by politicians, but emerge from the inner workings of departmental policy analysts and financial professionals--they present the government with choices, and you'd be amazed at how much influence the technocrats have with government in Canada, especially with the inexperienced ones.

More good thoughts, IMHO here.

Wednesday, November 5, 2008

VREB release: you provide the analysis

The number of property sales throughout Greater Victoria declined in October while prices remained stable.

A total of 316 homes and other properties sold in October through the Victoria Real Estate Board’s Multiple Listing Service® (MLS®) down from the 512 sales in September. There were 708 sales in October of last year. The number of properties available for sale at the end of October was 4,680. That represents a 41 per cent increase compared to October of last year but a slight decline from the 4,754 properties available for sale at the end of September.

Victoria Real Estate Board President, Tony Joe, says despite the decline in the number of sales, it is important to keep the market activity in context. "The last six years have seen extraordinary growth. Last year in particular was truly exceptional both in terms of sales and prices so comparisons must be made with care. A more realistic comparison would be with 1998 -- a year in which sales and inventory levels were comparable to today and a time when the market was considered to be strong and stable." Joe noted there has been a total of 6,012 sales in the first ten months of this year compared to 4,571 in the corresponding period in 1998. There were 4,057 active listings at the end of October, 1998.

The average price of single family homes in Greater Victoria last month was $565,741, up from $549,284 in September; the six-month average was $574,848 though the median price in October was considerably lower at $495,000. There were seven single family homes that sold for over $1 million in October, including two in Oak Bay, one of which sold for between $2 million and $3 million.

The average price of all townhomes sold last month was $389,731, down from $405,287 in September; the six month average was $425,866. The median price in October was $369,500. The overall average price for condominiums at $323,028 last month was up from $319,562 in September. The average for the last six months was $316,644. The median price for condominiums in October was $280,000.

MLS® sales last month included 184 single family homes, 76 condominiums, 26 townhomes and eight manufactured homes.

H/T to Billy Corgan at VV for the link.