Saturday, December 13, 2008

Canada's sub-prime

Interesting analysis in the G&M today regarding low-down extended amortization products. Here's some low-lights:
In the first half of this year [2008], as the subprime mortgage crisis was exploding in the United States, a contagion of U.S.-style lending practices quietly crossed the border and infected Canada's previously prudent mortgage regime.

New mortgage borrowers signed up for an estimated $56-billion of risky 40-year mortgages, more than half of the total new mortgages approved by banks, trust companies and other lenders during that time, according to banking and insurance sources. Those sources estimated that 10 per cent of the mortgages, worth about $10-billion, were taken out with no money down.


Virtually unavailable in Canada two years ago, high-risk mortgages proliferated in 2007 and early 2008 and must now be shouldered by thousands of consumers at a time when the economy is sinking quickly and real-estate prices are swooning. Long-term mortgages – designed to help newcomers get into the housing market sooner – are the most expensive in terms of interest costs, and least flexible when mortgage-holders cannot meet their payments and need extensions.

The Bank of Canada this week warned that the perilous economy could lead to a doubling of so-called “vulnerable households” – those unable to meet their debts – and perhaps cost thousands of Canadians their homes. The central bank, which is always cautious with its words, said in a report that there is the potential for “a substantial increase in default rates on household debt.”

Banking and insurance officials were so concerned about the alarming rush to 40-year mortgages at the beginning of 2008 that one bank executive warned the Bank of Canada's chief financial stability officer, Mark Zelmer, in a meeting that “the government has got to put an end to this.”

Critics, including former Bank of Canada governor David Dodge, say the lax mortgage policies only further stoked soaring house prices.
I remember those days very clearly. I was shocked to learn we could stretch our mortgage payments out to 35 years. I was equally awed when we next learned we no longer needed a minimum 10% down. Imagine my response when we were told we could put 5% down, extend the amortization out over 40 years and even qualify for a 7% cashback option that would give us our downpayment and closing costs; it was almost as heart attack-inducing as when I learned we could skip the cashback and put nothing down, thus "saving" ourselves an interest "penalty."

I wrote about this last September. I even did a radio show on CBC last summer when this was considered a new and innovative market designed to "help" people like me. I called the 0 down 40 year products a "life sentence to the poor house." I'd like to re-name the now defunct products and their still-proliferating brothers and sisters--5% down 35 year amortizations and the cashback options--to something more indicative of what more and more experts are starting to recognize them for: "a quick trip to foreclosure."

So much for Canadian consumers being different.

185 comments:

Anonymous said...

Welcome to Canada's Hawaii..oh all you RE agents and pumpers...see you at the golf course (or for the ex-RE agents, at the camp site in Beacon Hill Park)

vg said...

"An adviser to one of the U.S. insurers, who declined to be identified, summed it up this way: “It's a failed experiment.”"




Incredible, sounds just like when the Chicago mafia greases some palms. Glad to know our government is so in tune with the real economy to want to keep the bubble alive in 2006 when it was already maxing out the average Canadian.



It will be interesting to see how many Canadian entities got sucked into the ex-Nasdaq head honcho's $50 billion ponzi scheme in the news last week. Apparently there are some very naive people out there that were running university endowment funds. The mention of a Toronto lawyer impersonation makes me wary some Canucks may be sucked in big time.

vg said...

I am hearing rumours pertaining to the BM rumour of the second condo project shutdown(or soon to be) that they are attempting to persuade presalers to flip into the unsold stock of condos. If this is true then watch for the condo sales to possibly increase and the MSM to run with it and tout the condo market is on solid footing, sales through the roof etc etc.




Funny to see the "happy landlords" showing up on the previous thread, beats counting monthly losses on all those paper profits I guess. What would 6 months of steady losses be on $1 million paper assets ? at $40,000 last month alone all I could come up with is one big OUCH !

roger said...

vg said:

I am hearing rumours pertaining to the BM rumour of the second condo project shutdown(or soon to be) that they are attempting to persuade presalers to flip into the unsold stock of condos.

I bet most presale buyers of condos anywhere in Victoria would rather have their deposit back.

It is interesting to see all the new 2 bedroom condos up for rent (over 2K) in the TC and Craigslist. At those prices I don't think the phones are ringing off the hook.

Anonymous said...

$1400 / 2br - semi daylight basement suite (Rockland/Fairfield) (map)

It would appear that the new benchmarks are sticking. I guess owners aren't that interesting in renting out a $300 - $600k property for $650 per month.

vg said...

From my occasional looks at Craigslist since the beginning of the month, there seems like there are way more rentals available than previous Decemebers when most people are usually not moving. Maybe they mean "affordable" rentals are not available cause all I see are total ripoff prices.

Anonymous said...

I like to look at the older asking rents. Like the 2 bedroom in Rockland listed in November for $1,150 per month and hasn't rented yet.

vg said...

Another eye opening segment on 60 Minutes on the next and biggest wave of US mortgage defaults coming, the Alt A's and the Option ARM's, over $2.5 trillion coming versus $1 trillion for current subprime damage. This is going to be very nasty for housing going forward.

As a side note they liked the stock markets as opposed to buying real estate as stocks have been chopped in half and real estate is still way overvalued.

Anonymous said...

This is not scientific but I have been casually observing the rental market in Victoria for some time now. (I am a two year new Victorian who rents as I wait to buy.)

Anyways, each morning I read the the TC and if I remember I check out the rentals.

A year ago the number of rental columns were 6 half page columns, now there are 8 to 10. For pure comedy/tragedy I check out Craig's List. Rental availability is climbing people.

I read with wry amusement the recent articles on the 'tight' rental market in Victoria as describes in the Times Columist.

I'll give the TIme Colonist this much, they are at least consistent in being as wrong in describing what is actually going on in the rental market as what is went on in the buyers market.

The first thing I'm going to do if I become a billionaire is start a local newspaper in Victoria. It will have a great sports section, great local coverage of the arts and politics, with really well paid investigative reporters who are given the time to research and write articles of value.

My paper of course will lose millions of dollars a year but that will be my gift to the community.

Futura

hhv said...

Futura,

it won't be any different than the TC, which is part of Canwest, which is losing millions each year.

patriotz said...

The first thing I'm going to do if I become a billionaire is start a local newspaper in Victoria....etc

Kinda sounds like Monday Magazine. Which is free BTW.

womp said...

If the rental stock keeps getting better and better, my wife and I have been discussing upgrading rentals rather than buying if prices don't fall far enough by next summer. Bring them on :)

vg said...

"Kinda sounds like Monday Magazine. Which is free BTW."


I haven't seen an decent investigative article in the Monday rag in many years and sports is non existant.

Great idea Futura,this town needs something like this.

patriotz said...

'He warned the UK was only "halfway" through the slump with house prices set for even greater falls.

He said: "Our view was that from the top to the bottom, you would see a fall of something like 25 to 30%.'

UK house prices 'to fall by 30%'

Not to worry, house prices in Victoria can't fall that much because it's on an island and... oh never mind.

Anonymous said...

vg 11:50: Sounds like an apt way to describe the United States of America:

"It's a failed experiment."

Anonymous said...

"If the rental stock keeps getting better and better, my wife and I have been discussing upgrading rentals rather than buying if prices don't fall far enough by next summer. Bring them on :)"

Now that's what I like to hear. You see this works for all of us.

Anonymous said...

IT'S COLD OUTSIDE. KEEP WARM MY FELLOW READERS.

Existing home sales drop 12%

The number of existing homes sold in November fell 12.3 per cent from October, marking the second consecutive steep decline in a weakening economy, the Canadian Real Estate Association reported Monday.

Seasonally adjusted, 27,743 units were sold in November, “the lowest level for monthly activity since January 2001,” CREA said.

On a year-over-year basis, “sales are down a more dramatic 42.2 per cent,” Toronto-Dominion Bank economist Millan Mulraine said in a research note.

CREA reported that the national average price of homes sold was down 9.8 per cent from November last year. Declines in average prices “were limited to a handful of higher-priced major markets” – Greater Vancouver, Victoria, Calgary, Edmonton, Oshawa and Toronto, CREA said.

Anonymous said...

“Price protection guaranteed”

I see more developers are using this strategy. Be careful buyers, I think it is a trap.

How let’s do it in another way, “purchase guaranteed” – buyers pay 40% lower than today’s price, if in 3 years the price only drop 30%, the buyer pay the balance at that time.

-20degree.

mln said...

If the rental stock keeps getting better and better, my wife and I have been discussing upgrading rentals rather than buying if prices don't fall far enough by next summer. Bring them on :)

Womp, us too. If only the "houses for rent" section of UsedVic would stop getting mucked up with suite rentals!

Just Jack said...

So, is it time for you to sell that condominium and move up to a house?


Our home prices have rewound back to the begining months of 2007. So, is it a good time to buy?

For the last few years, the starter home has been a condominium which can be bought with little down payment and almost reasonable monthly payments in relation to your income. The idea was simply to build up enough equity in the condo for a down payment on a home.

Today, the typical home is around $500,000. Conventional financing at 80% would mean that you would have to build up at least $100,000 in equity from the time you bought your condominium in order to buy that single family home and have a reasonable monthly payment near $2,000.

This would mean that you had to have bought your condominium BEFORE the second quarter of 2004 or at least 4 1/2 years ago in order to build up a conventional down payment and still keep the payments reasonable.

vg said...

Vancouver October 2009 average around $410,000 ? where does that leave Victoria ? I think at least $310,000 or lower ?

http://network.nationalpost.com/np/blogs/fpmagazinedaily/realtygraphic.jpg

-----------------------------------

How low could they go?

If Canadian prices follow U.S. trends, certain cities will experience a major slide in house prices.


Some experts are predicting a U.S. style housing crash here in Canada, saying that we're only a year or so behind them. So what would that mean for us?


We decided to take a look at how much the average U.S. housing prices rose in the last ten years, and discovered that prices in October 2008 were 54% higher than in October 1998.

Since U.S. prices peaked in April 2007 and Canadian prices peaked roughly a year later, we’ve calculated what a 10-year, 54% increase would add up to here — 18 months past our peak.

That would mean that most Canadian cities are headed for a fall in housing prices, especially those out west.






http://tinyurl.com/66lztf

Anonymous said...

I absolutely agree. It takes the better part of 5 years to recover from property purchase tax, closing costs moving costs, new furniture, appliances etc. I personally wouldn't make that move unless I was going into the new property with at least 25% down and all of that was out of the way (your second home should not include costs for CMHC fees.)

We need to live within our means.

Anonymous said...

I'm less concerned about the 0%/40yr mortgages then I am of the math done to those who used it. If they qualified at their real ability to pay, no big deal.

Unfortunately, I don't believe that is the case.

-Village

Anonymous said...

When you approached most of the chartered banks with a low or no down payment with a variable rate they would qualify you at the five year rate.

Not so true, when you went to a broker who shopped your mortgage around and sold it to the lender that gave him the best commission. You could qualify for an an extra hundred grand at the variable rate rather than the five year.

Guess we do have a sub prime market afterall.

vg said...

52 new rental listings on a Monday mid month on Craigslist, that is alot for this time period right before Christmas. Must be all those new "happy landlords" where the renters walked out due to rent gouging.

Anonymous said...

I see a great many of those are with property management companies (Devon Properties.) Certainly skews the numbers but an indication that they are stretching as well.

Looks like average rent is up at the typical $1,200 for a reasonable suite.

Anonymous said...

Another thought, places like Devon are not typically rent gouging because they know it's not good business - turnover is a drag.

So likely it's the time of year. The pop of Victoria is certainly not getting any smaller.

Anonymous said...

It use to be that when construction slowed in Victoria/Vancouver laid off construction workers left to work back east or up north or wherever.

Where are they going to go if construction is slowing/taking everywhere?

S2

Anonymous said...

taking = tanking.

S2

vg said...

If places like Devon still can't rent by mid month and are resorting to Craigslist then I am thinking this could be another sign the rental market is turning. Most decently priced rentals are gone in the first few days of the month or the tennant pool is not credit worthy.


The 1 bedroom with a den for $1300 is a gouge and it's in someones basement. The den usually means a closet too. Not the warmest places either in a deep chill like we are having.

hhv said...

you'll notice too that the 1-bed places are quietly creeping up to 2-bed in terms of rent comparables. you can rent a two bed for a similar price as a one bed, probably because two people will live in both... i wonder hoe many two beds have three or more people living in them? landlords have figured this out for the most part... if they only want one person they'll have to be a bit more reasonable.

roger said...

Today I dropped by the BC assessment site to see if the new assessments were available. No luck but I did find some interesting stats:

The following charts are based on BC Assessment data for the categories Single Family Residential and Strata Residential. The charts highlight the median sale price and sale volumes by quarter from January 1, 2007 through September 30, 2008 for each category.

The median is the middle of a distribution or range of sale prices: half the sale prices in the distribution are above the median and half the sale prices in the distribution are below the median. The median is less sensitive to extreme sale prices within the distribution than the mean or average.

These graphs will give property owners a clear picture of province-wide real estate sales activities and trends from January 1, 2007 through October 31, 2008, including values as at July 1, 2007 (the start of Quarter 3), which is BC Assessment's market valuation date.


And now for the shocking details!

Single Family Median Prices & Sales

I think the RE ship is listing badly.

talus said...

Here is Pemberton Holmes rental listings...

http://www.pembertonpm.com/Metchosin.Commercial.html

Check out the number of "Juliet" rentals now available, not to mention Bare Mountain units. Now look at all the units under construction in Victoria.

How anyone can call a rental shortage is beyond me.

Anonymous said...

Listened to Tony Joe on CFAX this afternoon, what a character.

Paraphrasing Tony, the correction in prices was obvious and they saw it coming for 5 years. Now is the best time to buy since it is not as hectic as it was before. Realtors hated it when it was busy and would much rather do business now when they can take their time to properly look after their clients.

Oh and housing prices have only come down 3-5%, the numbers are all skewed because of high priced units.

vg said...

"Paraphrasing Tony, the correction in prices was obvious and they saw it coming for 5 years."


5 years ? Amazing, what happened to his recent printed words that the current world financial turmoil is overdone and to be ignored ? Tony has only lowered the credibility of real estate agents and himself to the lowest level possible with that flip flop BS.

talus said...

Good for a laugh...

Fred Thompson explains bailouts

Fred Thompson = American politician, actor, attorney, and lobbyist.

HT - to Mish

roger said...

CBC National carried a report tonight on the housing slump. The prediction is for a national price drop of 10% in 2009 and for BC to fall 15-20% next year.

The Globe and Mail has just printed this story:

Housing sales hit 20-year low as real estate slump widens


The selloff in real estate has morphed beyond a correction of overheated individual markets into a broad national slump, with prices posting their worst decline in nearly 20 years in November.

In the face of a collapse in consumer confidence, the number of resale homes sold in Canada plummeted by 42 per cent year-to-year to 27,743, the lowest level since January, 2001.

Between May and November, the average price of an existing home in Canada fell by 11 per cent, matching the drop in 1990 that coincided with the onset of a painful recession. Housing prices would go on to fall by about 20 per cent and it would be another decade before they managed to make new highs.

All markets across Canada will likely fall further in the coming months as confidence continues to fade, said Benjamin Tal, economist at CIBC World Markets.

“This is clearly a market that is extremely risk averse, and this is not the ninth inning of this game, this is just the beginning. I think that any hope of a quick turnaround … is misguided.”

Across Canada, the average price of a resale home now sits at $280,880, compared with $316,896 at the peak in May, according to data from the Canadian Real Estate Association.

Mr. Tal said he expects average house prices to fall by another 10 per cent over the next 12 months, and to remain relatively flat after that. This levelling out would be similar to what happened in the mid- to late 1990s, he said.

greg said...

Roger, if you read this, do you have a link to the full November VREB report? I'd like to confirm how many million dollar plus sales there were last month. The rumour I heard was 4, which would be something like 70 monhts of inventory....

Anyone else have that link? Thanks.

patriotz said...

The prediction is for a national price drop of 10% in 2009 and for BC to fall 15-20% next year

I think that's about right actually. Remember in Canada only BC, Alberta and Toronto are overpriced to any great extent.

Remember also that BC will already be down 15% or so from the peak by the end of 2008. Add 15-20% and that means down 30-35% by the end of 2009, which is approaching the size of the 80's bust. That's a return to 2004 prices.

And there will be still more declines in 2010.

BTW when Tal is comparing the situation to the 90's, he is talking about the Toronto bust of that decade. Not BC.

Also a year ago Tal was as bullish as anyone else, but it appears he has jumped on the bear bandwagon to try to make a name for himself.

roger said...

Greg,

The full November report is not available yet. I will post it on your blog when I get a copy.

greg said...

Thanks for that Roger, appreciate the help,

Mr.4AM said...

Roger,

Re: BC Assessment.

Wow, an $85,000 drop in median real estate prices in BC from Q1 2008 to Q3 2008.

Let's see Tony Joke spin that one! Sadly, I'm sure he could.

Mr.4AM said...

Talus, that video was awesome! I saw that the other day and laughed just as much today.

Cheers,
Mr.4AM

PS. All this -7 degree weather in the California of Canada (aka. Victoria) has got to be wonderful for December Real Estate Sales... or lack thereof.

roger said...

By now the subprime story is old news and many think things will get better in the US next year. Well .... there is a second wave coming: Alt-A and ARM resets.

You can learn about it in this recent 60 Minutes Video. It's abut 10 minutes long so grab a coffee before you start.

What does this have to do with Canada??

- When the US goes further into recession what happens to a country that has 75% of its exports destined for the US?

- Owners of properties that were purchased with zero down and 40 year amortizations have no skin in the game just like US subprime mortgagees. Will they walk away once they are upside down on a mortgage in the unfolding Canadian recession?

- The last few minutes of the video talks about the third wave which is defaults on credit card and auto loans. We have lots of that debt to deal with in this country as well.

greg said...

Talus - what amazes me about those Juliet listings is they actually have the gall to charge extra for parking. Every apartment I've ever rented with parking, parking was included.

Are specuvestors renting out parking spots to make the payments?

vg said...

"Every apartment I've ever rented with parking, parking was included."


My apartment charges me for parking,which I was shocked when I moved in. I believe it is a new money making venture for them to help pay the hired help. Any condo will charge as ridiculous as it is.

patriotz said...

Will they walk away once they are upside down on a mortgage in the unfolding Canadian recession?

Mortgages in Canada are recourse which means the lender can and will go after the borrower's other assets. This means borrowers are less likely to walk if they have more to lose than "their" house.

However I think the 0/40 twentysomething crowd will walk and declare bankruptcy in droves, and of course those losing their jobs are not going to be able to hang on.

Just Jack said...

The City of Victoria desires to discourage the use of cars downtown. The planning department does this by reducing the number of underground parking spaces the newer condominium builders had to provide. The downtown condominiums are typically sold without an underground parking stall. As a buyer in the complex you may be able to purchase a parking stall, if available, or rent one from the strata corporation (possible waiting list). Any stalls left over may, at the strata council's discretion, be offered for rent to the public.


So yup, your landlord can ask for extra money for your car. But, you may want to use this in future rent negotiations if the rental market slips.


As a note to the above. If you are thinking of buying one of these condominiums parking stalls from the developer make sure you have documentation to show what you own and that it is transferable to the next owner, if they want it. Generally, these stalls do not appear on your property's title. And draw your lawyers attention to this matter so that he/she can save you future grief when it comes time to sell.

In a hot real estate market, you may have to pay $25,000 for the parking stall. However, when you go to sell your suite, the next owner may not want a stall. That leaves you trying to sell a stall to some other owner in the complex or throwing the stall in for free to the next buyer.

For me, this is a condo killer. I refuse to give up my 1980 Ford Pinto - its gonna be worth something - someday?

roger said...

Patriotz said:

Mortgages in Canada are recourse which means the lender can and will go after the borrower's other assets. This means borrowers are less likely to walk if they have more to lose than "their" house.

Yes there is recourse in Canada with the exception of initial purchase mortgages in Saskatchewan.

However if you bought with zero down what assets do you have? TV, car, furniture clothes? RRSP's are exempt from bankruptcy judgments. So walking away (i.e. jingle mail) is a route many will take when their mortgage exceeds the market value of their home and things get worse every month.

We can only hope that any future prospective buyers will carefully consider the long term implications of buying now. The lure of low interest rates can end in financial disaster. This is especially true if you take a 5 year closed variable mortgage at the bottom of the interest rate cycle. Another trap is "cashback" mortgages with their higher interest rates and early termination penalties.

Ryan said...

From talking to my current landlord, I would say that in addition to the glut of rentals there is also a shortage of good tenants. My landlord said 85-95% of the replies he gets are people he would not rent to, period, because they have no income or are obvious drug users. My new landlord didn't specifically say that she hadn't gotten any good applicants, but she did repost the ad after a month and she agreed to lower the rent by $100, and another place I looked at wanted to rent to me without even asking for references or proof of employment. That seems to me almost bordering on desperation.

dub said...

Despite the overall decrease in avg & med sales, I can't say I've seen a lot movement on listing prices at the lower end (that I've noticed, anyways) of $350 and less for condos & townhomes.

However, here's a couple that I noticed will have lost a little if they manage to sell:

mls# 253587
Current price: $205,000
Original price: $229,900
DOM so far: 74

Bought for: $221,100 on January 2008



mls# 255981
Current price: $315,000
Original price: $329,900
DOM so far: 35

Bought for: $312,500 on Feb 2008

B2B said...


From talking to my current landlord, I would say that in addition to the glut of rentals there is also a shortage of good tenants. My landlord said 85-95% of the replies he gets are people he would not rent to, period, because they have no income or are obvious drug users.


This is my experience too, but this blog may be an unusual sample of renters. Renters who are a little older, with good income, as many posters presumably are, are going to be pretty hard to find, since most folks who are mature and have a good income will already have bought a house.

After all, most bears on here, myself included, have until recently had to fend off constant questions from friends and relatives as to why we hadn't bought yet!

Ryan said...

Yeah, it's nice to not have to answer that question anymore. Or maybe now it's our turn to bring it up. "Remember when you were asking why I hadn't bought a condo? This is why."

OMC said...

Things are much different on the mid range prices as compared to the bottom end.

MLS# 252552 Started out listed at $895k. It sold recently for $725k. We have been on the look out for a couple of years and this much house for the money was unheard of, I would have expected over 1mill in the spring. We are now seeing 3000+ sqft south oak bay homes (in need of updating) with 8700 sqft lots in prime neighbourhoods listing for $595 (MLS# 256808). Overall I would say that the prices are very near what they were 3 years ago.

Keep your chins up, this time the downward pressure is coming from the upper end!

vg said...

Where's the "happy landlord" from the other thread ? I am sure he can enlighten us on the joys of renting to those unqualified types cause the pickings are slim and the mortgage is overdue.

Dumb Canuck said...

Roger, Greg and Womp,

Another good stat to follow will be the number of foreclosures on the market at any time. Anonymous posted on some Schedule A foreclosures starting to show up in listings. Is it possible to extract this from the MLS/PCS/Matrix data?

My suspicion is that right now some lower end houses are selling as people try to get into the market, keeping these listings stable, but then very few mid- and upper-range houses are selling, so the listing prices on these is dropping fast.

When a sufficient number of foreclosures enters the mix, watch out below on all ranges - the banks will want to get what they can as soon as they can, and don't have the emotional attachment to a certain price.

Anonymous said...

Our "leaders" have for years touted low rental/lease vacancy rates and high real estate prices as some sort of statistic we should all be proud of - makes Victoria sound exclusive.

The reality of course is that secondary suites never get counted nor do commercial properties that do not wish to play the "Colliers" game.

In all of my years in Victoria I have never had a difficult time finding a reasonably priced rental unit and I suspect that most decent tenants have no problems either.

Anonymous said...

Where's the "happy landlord" from the other thread ? I am sure he can enlighten us on the joys of renting to those unqualified types cause the pickings are slim and the mortgage is overdue.

I'm still here VG, glad to see you're missing me:-)

For starters, we don't gouge on rent and we keep the places in good repair - therefore turnover is low.

Secondly the rents from one actually cover costs on both, so no mortgage issue here. They will provide a very good income in our retirement.

Thirdly they are both in a very sought after area; in most cases when there is turnover the tenants themselves find us new renters.

You know for ever $100 we receive in rents we only actually pocket $60 after taxes, so rises and falls are not as great as they appear to stable landlords.

We may not be receiving the absolute top rents out of them but have few typical slum-lord problems. It's really in what you want out of the property.

patriotz said...

Secondly the rents from one actually cover costs on both, so no mortgage issue here.

Which means you paid a reasonable price for the properties, which is exactly what people on this board are saying you should do.

Only difference is you bought before the bubble and we're buying after.

We're not saying that buying RE is a dumb idea. Just paying too much.

vg said...

Good to know you have perfect tennants even in the sought after areas,you must be a rarity in a sea of unhappy landlords who have to sift through countless uncredit worthy tennants.


As long as you look at it as taxable income then you go for it but housing is a fast declining asset and anyone hoping to make money in real estate will be waiting a very long time this time around. 10 years would not suprise me with the credit market in a distress never seen before as well as the demographic cycle.

Anonymous said...

"Good to know you have perfect tennants even in the sought after areas,you must be a rarity in a sea of unhappy landlords who have to sift through countless uncredit worthy tennants."

I think you're overestimating the numbers of bad tenants and maybe not understanding what constitutes a good tenant. The vast majority of tenants are awesome in good times and bad. They pay the rent, they do not damage the place, and they let you know if something goes wrong or has to be fixed.

You do at times have to wade through a sea at turnover time (particularily in the past year or two where the situation has been desperate.) However, the good tenants are pretty easy to spot; I pretty much know in the first 30 seconds whether or not I'll be renting to you.

B2B said...

As Patriotz has said, nobody on here argues with the soundness of a scenario whereby someone bought property pre-bubble, and the rental income is sufficient to cover the mortgage and expenses and then some, and the enterprise therefore turns a profit. Indeed, this ought to provide a decent income in retirement. It's simply a decent business decision, and is common sense.

But such a situation is irrelevant to the discussions here. We are discussing the current property market here, which long ago stopped yielding any income from rents. As Patriotz stated, many of us might make Victoria property a component of our portfolio if it were 1998 and the yield was attractive. But the yield is negative on property NOW, and so we invest elsewhere.

Does this clear things up, anonymous happy landlord? It's not that we don't want you participating, but please contribute something meaningful to the discussion rather than simply crowing about how you bought property pre-bubble, and thus how well-feathered your nest is.

vg said...

"Does this clear things up, anonymous happy landlord? It's not that we don't want you participating, but please contribute something meaningful to the discussion rather than simply crowing about how you bought property pre-bubble, and thus how well-feathered your nest is."



Well said B2B. It's like someone buying RIM stock at $1 in 1998 and coming back 10 years later to boast what a savy investor he is and how come we are all so angry we have lost money on the markets when he is rolling in the dough ? The word "anal" comes to mind.

Mr.4AM said...

On Housing
"As Patriotz has said, nobody on here argues with the soundness of a scenario whereby someone bought property pre-bubble, and the rental income is sufficient to cover the mortgage and expenses and then some, and the enterprise therefore turns a profit. Indeed, this ought to provide a decent income in retirement."

In most decades this would be true, but I think a couple of years down the road, and we'll be seeing if rents rising a max of 2%+CPI/Yr will be able to keep up with the severe inflation that'll eventually rear its ugly head, coupled with another 1-2 years (at least) of housing asset depreciation, and even a normally decent strategy like making retirement income off a pre-bubble house via rent becomes a questionable endeavour. I strongly suggest people start diversifying their retirement income plans. I too eventually plan to make some money from rental income (after I buy a house near the bottom), but it won't be my only source of income.

On 2009 Market Events
We've got some very "interesting" times ahead people.

In the short-mid term ahead (2009), expect a Supply Side Shock, not in real estate but in purchasable goods.

After Christmas, US retailers will be failing left right and centre because Banks aren't lending to them and are cutting off their lines of credit, unemployed consumers aren't spending, US dollar is going down making Chinese imports more expensive... it's a perfect storm that will lead to a massive over supply of goods.

Liquidation sales will be abundant, and if we're lucky our Canadian dollar will continue to rise gain against the US for a few more months, long enough to justify some trips to the US of A, to purchase necessities at dirt cheap prices to survive our own demise in 2010-2012.

The liquidation sales won't last forever people, and eventually a massive reversal will occur. That is:

All excess inventory will eventually be sold and dry up. We'll be left with less retail competitors which will automatically result in price increase of goods. Couple this with lower volumes of manufacturing due to less demand and cost of production goes up. Oil will eventually go back up as well, adding to transportation costs. Add to this that eventually the BoC will also be at ZIRP (0% interest or close to it), and the Canadian dollar will also start losing value. Then, last and most important, I'm expecting some severe inflation to rear its ugly head.

When that happens, your rental income won't be able to keep up with the rising cost of day-to-day goods....

... So take advantage of the good times to purchase *necessities* (not crap), for the next year or two, because you'll likely save a bundle and feel better during the chaos that 2010-2012 will be.

Merry Christmas, and Happy New Shopping!

Anonymous said...

Do you want to meet new people? Like to show your possessions to strangers? Why not help some one in trouble...

Rent this home

Anonymous said...

B2B, VG, Patriotz, Mr. 4AM...

Why wait for that bottom of the RE market when you can be a landlord now.

Opportunity is knocking!

vg said...

Anonymous,

isn't that one of the infamous Irma St crack houses ? I hear everyone wants out of that neighbourhood.

Looks like it's overpriced by $200,000 plus being built in 1912.

Anonymous said...

Can you count on crackheads who'll take one room in a 1912 ten room house to pay rent on time?

As good as gold...

B2B said...

Look at it this way! You can get a GROSS income of a princely $48k a year for a full-time job of running around after 10 cracky tenants. After expenses, you might make minimum wage! Oh, and you have to go into debt for nearly half a mill for the privilege.

Given the choice, I think I would rather work for KFC for $12 an hour!

Tony Danza said...

They will provide a very good income in our retirement.

I remember a friend of the family talking this way back in the 80's, turns out "retired landlord" is an oxymoron!

If you love RE so much why not dump the houses at (or close to) the peak and go all in on some REIT's, let someone else collect your rent.

Just Jack said...

Went browsing through the homes up for sale - and a funny thing happened - I started to feel greedy!

With the lower prices, I started to pass up neighbourhoods that I would have bought in just a couple of months ago.

Say good by to:

arterial roads

corner lots

homes with handyman additions

laminate floors

homes under 1,000 square feet

lots less than 4,000 square feet

Esquimalt, View Royal, Vic West and Burnside


I'm liking the lower prices and more selection. But, I'll wait for spring as I want more to chose from and lower prices.

Greed is Good

Anonymous said...

Since we are on the subject of landlords and tenants....

Here is a Craigslist rant:

***PRICES ARE DROPPING***

Anonymous said...

VG said....

Looks like it's overpriced by $200,000 plus being built in 1912.

VG - Yep it was up for 439K for awhile and didn't sell. In 2004 it was assessed at 200K

BC Assessment

With sales tumbling and prices falling anyone want to guess when it will be back to the 2004 assessed value?

roger said...

Anon's BC Assessment link on the Irma property made me realize once again how big a speculative bubble we had in Victoria.

A property assessed in 2002 at 154K went to 380K in 6 years! It was interesting to see that the land value increased from 108K to 302K while the buildings went from 46K to 79K.

The Real Estate Believers® drove the market to dizzy heights with the "RE only goes up" mantra. Now that credit requirements have tightened, a recession has arrived and sales have plummeted it is highly probable that prices will fall as fast or faster than they rose.

Anonymous said...

I agree with part of that Roger. I haven't put the time aside for this yet but if someone wanted to show me a graph of the RE market starting from say 1965 and projected through to say 2115 I would accept almost anything that a "best fit" line reflects.

I accept that RE goes up on average 5% per year (not 20% as the last 4 years has seen) and that it is highly cyclical; I also accept that it must correct for 2-3 years. It should be easy enough to extrapolate where we will be in 4 years.

Anonymous said...

Sorry, I can't count. 7 years.

Anonymous said...

VG said: "Well said B2B. It's like someone buying RIM stock at $1 in 1998 and coming back 10 years later to boast what a savy investor he is and how come we are all so angry we have lost money on the markets when he is rolling in the dough ? The word "anal" comes to mind."

Really VG, I only joined in because you invited me. You croaked about how badly landlords have it and I gave you an example of how that is completely untrue - complete with cudos to tenants.

If this is off topic and not useful discussion don't have it.

B2B: It's got nothing to do with fluffing my feathers. I still have a long road ahead and a lot of work to do. We choose which road we travel. Life is friggin awesome, enjoy it a little!

Anonymous said...

Tony Dansa: "They will provide a very good income in our retirement.
I remember a friend of the family talking this way back in the 80's, turns out "retired landlord" is an oxymoron! If you love RE so much why not dump the houses at (or close to) the peak and go all in on some REIT's, let someone else collect your rent."

I don't do the work now... it's all hired out (not that that hasn't been a challenge in the past couple years.) However, I could see myself puttering on projects in retirement just to keep busy.

As per REITs, I don't value management fees on RE as it's something I can do professionaly for myself - and under my control.

Anonymous said...

Just Jack... wait long enough and you can get Broadmead for $300,000.

Count on it.

But NO TENANTS!!

Anonymous said...

Anonymous 5:03:

Interesting, but that same person has definitely gone WAY overboard and posted ten other rants and fake posts in the section about "what a great landlord they are" and "how to get a good tennant" with dirt cheap rents.

They overplayed their hand. Bigtime. No one is listening.

Most landlords would rather not rent than not make enough for it to be worth the trouble.

Fake posts aren't going to get landlords to lower rates. Market reality, perhaps.

Just Jack said...

Just goofing around again with some Case Shiller style analysis on condominiums.

What I'm doing is looking at the latest condominium sales and their prior sale price. In otherwords, I am looking at the leading edge of the sales to see where the market is going. An imperfect analysis, but given the low low sales volume, probably the only thing left to get a feel of the market.

It appears that condominium prices have rolled back to Q1-Q2 2007 prices.

But if you really want to sell the condominum quick and make the listing stand out. You will have to roll back the price to Q1 2006. This is about a 15 percent discount from what condos are selling for today. Which is about the cost savings of a new 3 series BMW (with minor upgrades) or about a savings of $250 per month in mortgage payments.


Putting it another way. Say you found a condomium that you liked and it was reasonably price with other condominiums. If you wanted to put in a "low ball" offer, then you would go in at 20 to 25 percent under list. If the offer was counterd - you walk. Better yet, tell them that you will leave your original offer on the table for 48 hours, if it is not accepted then you walk.

mln said...

But NO TENANTS!!

Yep. I was sort of resigned to needing a suite in order to afford a house--not any more.

It's too bad that so many places have been ruined with terrible homebrew suite renos. I'd rather have the unimproved basement, thanks. It's not a selling feature anymore.

B2B said...

Yep. I was sort of resigned to needing a suite in order to afford a house--not any more.


This whole basement suite thing was a product of the bubble, nothing more or less. People in the UK wouldn't even consider putting a suite in the house (granted they are much smaller) - they would just not buy, or buy a flat instead. Putting a suite in a house is because you can't afford the house - and the primary feature of the bubble is people buying houses they can't afford.

If everyone resigned to buying a house with a suite just decided instead that they couldn't afford that house, we wouldn't have had a bubble.



P.S. congratulations Trevor Linden!! That was a great ceremony (and game!) eh.

roger said...

What might happen to those FTB's that recently bought a house with a suite?

As noted in previous posts many buyers bought a house that they could not afford without the rental income from a basement suite. If rental income falls these folks are in real trouble. There are several reasons why this might happen in 2009.

- The condo and townhouse markets have high inventory and developers will soon have to lower prices in order to unload. With the low interest rates some tenants may take the bait and move out.

- Speculators, flippers and someday retirees bought condos recently and many more are on the hook for pre-sales. When they find out that they can't sell at the price they want they will rent it out in order to offset their high monthly expenses. You can see this on Craigslist. This glut of condo rentals means prices are poised to fall. Basement renters will decide that moving to a new 2 bedroom condo for the same price as a basement suite is a no brainer.

- The recession will hit Victoria soon and many of the service sector employees will unfortunately get laid off (think retail & tourism after Xmas). Many of these folks are suite renters and it is hard to pay your rent and expenses on EI.

Anonymous said...

From today's TC

"Expect 'frozen' property assessments next month

Legislation holds values for a year while red-hot real estate cools off"

http://www.timescolonist.com/business/Expect+frozen+property+assessments+next+month/1089966/story.html

S2

Anonymous said...

Try this one

http://www.timescolonist.com/business/Expect+frozen+property+assessments+next+month/1089966/story.html

S2

Me said...

Anon 6:42,

I posted one of the rants on Craigslist yesterday and I have no clue who wrote the other ones So no, it wasn't the same person writing all of them. I just saw one of the posts and it got me fired up so I had to rant too. lol.

vg said...

"Really VG, I only joined in because you invited me. You croaked about how badly landlords have it and I gave you an example of how that is completely untrue - complete with cudos to tenants. "


Really Anonymous landlord ? I am sure you would have piped up without my help by the looks of the last thread it was just a matter of time.

You gave us no such "example" as you provided no info on size of your properties,how much they rent for and what neighborhood they are in.

In your mind you don't gouge but there are desperate renters out there according to the MSM and thats what we were debating. Your lack of facts and details is all a general comment and only your interpertation. That goes for your "non boasting" claims how much your property is valued at $1 million . Is it worth a million ? was it worth $1.5 a few months back and you are down $500,000 ? I believe that was part of the previous discussion which carried over to this one. Denying you weren't fluffing your financial feathers about how much net worth you have is pretty transparent.

roger said...

Globe and Mail reports:

Warnings about risky mortgages ignored -
Federal officials told CMHC it could burden borrowers


Canada Mortgage and Housing Corp. officials ignored warnings from senior Finance Department and Bank of Canada officials during the past two years that its active business in high-risk mortgage insurance could overburden consumers.

According to sources familiar with the discussions, CMHC executives did not heed the warnings and continued to underwrite larger volumes of insurance policies for risky home loans with 40-year amortizations and minimal down payments.

msr said...

Actually VG, his property could be worth $1 million. That's assuming he's grossing $10,000 - $15,000 per month. In which case, it's probably a 8-12 unit property.

On the other hand, if it's just a suite in the guy's house then no, it's not worth a million dollars and it never was.

mln said...

From the article Roger posted (thanks Roger):

In February of 2006, several months before four U.S. insurance giants were allowed into Canada, CMHC introduced the country's first 30-year mortgage insurance product. What followed was a ferocious battle for market share between CMHC, Genworth and American International Group, the first of the new insurance entrants.

I know I'm preaching to the choir, but this is EXACTLY what happened in the USA as well. Fanny and Freddy fighting for market share by insuring increasingly ridiculous mortgages.

dub said...

Check out the post on craigslist by Aaron Hall (some realtor).

He mentions There has been a great deal of conflicting information that has been presented to the public over this past year

and goes on to say yet sold prices for houses have risen by 4% this year

What a clown... potentially blowing his reputation and credibility (assuming he has any) with such a misleading post. But I guess times are tough...

olives said...

Wow! I just went on Craigslist to read the rants (I normally never go there) and I can't believe the number of rentals (albeit many at ridiculous prices). There are also tons on Usedvic lately.

Doesn't appear to be a rental shortage in Victoria.

mln said...

There's an astonishing number of landlords allowing cats or dogs, too. When I was looking for a place to rent last year, almost every single rental we looked at had NP in the title.

vg said...

I never knew they had penthouses in Glanford. This one looks like about a whole 2 stories high. Guess it's the new "in vogue" neighborhood. ;)



http://victoria.en.craigslist.ca/apa/962000725.html

talus said...

"Mr.4AM Said ...Liquidation sales will be abundant..."

Has anyone noted the pre-Boxing Day sales at the malls right now?

We spend the day checking out Mayfair Mall and almost every store had some sort of discount. 20% off seemed the norm but 50% off was visible in many.

I didn't expect that before Christmas and I can't say I've noted it before (but I might just be a little more dialed in right now).

Anonymous said...

Boxing sales have become somewhat of a joke IMO. With a few exceptions that involve block long lineups (no thanks,) the prices are typically no better after Xmas than they were the week or two just before.

The real sales will be in January / February.

roger said...

Will there be a sucker rally in Victoria Real Estate in early 2009?

We are only a few weeks away from the start of 2009. You can expect a lot of spin and hyperbole from the RE industry in early January.

- Annual SFH prices for 2008 will be 3-4% higher than the 2007 SFH average. This is due to the rise in price during January to April. However median and average prices have been falling since May.

- Mortgage rates have dropped considerably This is true but there is now a requirement for 5% down and 35 year amortization. Cashback mortgage traps are still available.

- Inventory is high and buyers have lots to choose from. A true statement which overlooks why there is so much inventory.

- Prices have dropped, sellers are motivated and buyers should take advantage of the situation and buy now. Implies prices will go up soon.

- Victoria is insulated from the recession due to our diverse economy. This is a ridiculous statement but you hear it all the time.

The first three or four months of 2009 will set the tone for the rest of the year. What do readers think will happen? Will FTB's pile into the market clutching their mortgage pre-approval letters? Will there be lots of listings starting in January? Do you think some sellers will price realistically or will they ask for last year's price?

womp said...

Will FTB's pile into the market clutching their mortgage pre-approval letters?

I'm going to have to predict "no" on this one just based on anecdotal evidence. My sister-in-law and her fiance, despite making a decent family income on one high salary, got rejected last week for a "modest" mortgage by today's current standards - and this was in Salmon Arm, where prices are about 60% of what they are in Victoria.

I also think it's going to take at least four months for sellers in Victoria to figure it out, but they will. I predict we crest 6000 listings by the end of February.

Anonymous said...

Oil: Pop, pop, pop

The more the price of crude oil falls, the more the previous highs look like a bubble. Oil traded at just over $34 a barrel on Friday morning, down about 76 per cent from its high in the summer, when some analysts believed it was headed for $200.


Bespoke also pointed out that bubbles tend to deflate a lot faster than they inflate, noting that it took 1600 trading days for oil to hit its peak but only 100 trading days to move back down close to its lows.

patriotz said...

this was in Salmon Arm, where prices are about 60% of what they are in Victoria

In other words, more expensive than any city east of Alberta except Toronto.

The Okanagan/Shuswap area is headed for the biggest meltdown in Canada (Florida proportions). Seems like the banks are finally catching on.

Just Jack said...

My vote for a spring rally is no.

Every year for the past half dozen years, property values had a big increase after the BC Assessments came out.

I attribute this to the thought that home owners have, that their property is always worth more than the assessed value. And that realtors mistakenly use the assessments as a means of placing a value on the home. For example: adding $50,000 to the assessed value. And this is why there is a spike in prices as may be seen by looking at prices before and after the assessments arrive. The BC assessments have for the last half dozen years been inflationary. The assessments were therefore not only reporting value but also creating value.

This year the assessment are to be frozen at July 1, 2007 level. Hence no increase. And the myth about the assessments being lower than market value is being shown as false in the recent sales, as a goodly portion of homes are now selling below assessed value.

What we lost in 2008 was the speculators. I believe that they accounted for almost 40 percent of the sales. Inventory will continue to rise as more projects are completed. Victoria has a glut of condominiums and homes which at 1 percent per year (3,500)increase in population can not be absorbed.

By mid 2009, we will start to see the population of Victoria decrease as people return to rural BC as the well paying jobs here end, and a combination of the lower birth rate (recession) and higher death rate (because its Victoria) than most other BC cities.

Here is a mental picture for you. Imagine seeing boarded up and incomplete houses in Bear Mountain as builders walk away. And those big holes in the ground in downtown Victoria, there going to be here for the next decade or two or three.

This is all part of the cycle of boom and bust.

Anonymous said...

Happy holidays everyone and wishing you all a great 2009.

Keep up the good work hhv.

S2

roger said...

Just Jack said:

This year the assessment are to be frozen at July 1, 2007 level. Hence no increase.

It is my understanding that the BC Assessment notices to be mailed out in January will still contain the 2009 assessment calculated as of July 31, 2008. However, it will also show the 2008 assessment and the lower of the two will be used for 2009 property tax purposes.

BC Assessment site

However, I suspect there will be little difference between the two after looking at this BC Assessment median price graph (pdf) for Q3 2007 & 2008

So Mr. Owner will see that his house did not "go up" last year and may decide to list at a more realistic price.

P.S. - Just Jack - I have been following your posts here and on Womp's site and find them very informative. Thanks for taking the time to share your real estate industry experience.

Ryan said...

"Here is a mental picture for you. Imagine seeing boarded up and incomplete houses in Bear Mountain as builders walk away. And those big holes in the ground in downtown Victoria, there going to be here for the next decade or two or three."

I look forward to it. There was a hole in downtown Vancouver for years that filled with water and became a small, square lake. I always thought it would make a great picture to have someone canoeing in it. Maybe now I'll get the chance here, where I actually have a car and know people with canoes.

Dumb Canuck said...

Ryan - Radius could make a great Scuba Diving and kayaking center.

I've always envisioned a multi-level series of trailers on scaffolding around the center lake - a waterfront homeless center..

Could probably do geothermal heat from how far they've gone down too.

Anonymous said...

Absolutely right Roger, my mistake. I read that both years assessment will be shown and the lower of the two used.

Why, would they do this?

just jack

roger said...

Just Jack said:

Why, would they do this?

IMHO this was a bit of political grandstanding by the Liberal government to demonstrate that they were doing something for the average homeowner during the economic downturn.

Here is an article which explains what will really happen:

Expect 'frozen' property assessments next month

Assessment notices coming to British Columbia property owners in early January will look a little different this year to reflect the provincial government's decision to freeze values for one year.

The province's aim is to give B.C.'s housing markets time to cool off during a turbulent economic time. Victoria, Vancouver and Okanagan real estate markets boomed for several years but have started to trail off record highs.

"The vast majority of people are not going to see a change," John Barry, B.C. Assessment spokesman, said in an interview yesterday.

Barry said the 2009 notices will show two assessed values -- for July 2007 and July 2008. The lower amount will be the official assessment, he said.

About 94 per cent of property owners will receive an identical or lower assessment this year than last, BC Assessment said. Of that, 82 per cent of properties will have the same assessment, 12 per cent will be lower, and the rest applies to less common property classes.


So 12% of the owners will have a lower assessment which means their house was considered to have a lower market value in July 2008 vs. July 2007. I expect the higher 2008 market value for the other 82% will be minimal.

The bottom line... When folks get those assessments they won't be thinking that their house is shooting up in value any more.

Anonymous said...

MY GOSH - What will all this snow and cold do to our PROPERTY VALUES?

Anonymous said...

VICTORIA REAL ESTATE IS A BIG PONZI SCHEME
Madoff, who was arrested on December 11, is accused in a criminal complaint of one count of securities fraud. In the complaint Madoff is quoted as saying his investment business was a fraud, "basically, a giant Ponzi scheme" whereby earlier investors are paid off with the investments of newer clients.

Sounds like Vancouver/Victoria RE?

Anonymous said...

Sounds like bitterness to me.

Anonymous said...

Speaking of bitterness, what's with this damn cold?

Our real estate agent told us Victoria had a mediterranean climate! BASTARD!

Anonymous said...

He didn't lie. He said "mediterranean climate", and he MEANT "Mediterranean climate"!!










*(during the last Ice Age...)

patriotz said...

Sounds like Vancouver/Victoria RE?

Correct. Because if ownership costs are higher than rental value, RE investors are losing money while they own the property and can only make money from selling at a higher price to the next investor (the greater fool). Who loses even more money while he owns it, etc.

Like all Ponzi schemes this must collapse when not enough fools can be found. This is why ownership costs cannot remain above rental value indefinitely, or broadly speaking the price of all investments must revert to fundamental value.

Anonymous said...

Fundamental value...Uug...

In the meantime rents increase to meet the willingness of owners to supply the property. There will be a meeting point somewhere in the middle.

vg said...

"In the meantime rents increase to meet the willingness of owners to supply the property. There will be a meeting point somewhere in the middle."


Wishful thinking, rentals on Craigslist are off the charts,people must be leaving this town in droves right at Christmas like never seen before.
94 listings on Friday at mid month ? Something is clearly changing here in the rental landscape.


The "meeting point" will be the landlord meeting with the banker trying to renogotiate his flipper loan. Parabolic rises always end ugly,even for the landlords.

vg said...

"Like all Ponzi schemes this must collapse when not enough fools can be found. This is why ownership costs cannot remain above rental value indefinitely, or broadly speaking the price of all investments must revert to fundamental value."



This is when the smart money says " it's overvalued, I'm selling" and the rental money say "I'm leaving to somewhere cheaper cause my average wage job can't afford $1500 a month for a one bedroom box".


The so called "rental demand" drops off the cliff as people change their living lifestyles to accomodate their financial lifestyles. Seen it happen many a time in this town.

patriotz said...

"In the meantime rents increase to meet the willingness of owners to supply the property."

You mean like this?

$1050 / 3br - NEW PRICE! AVAIL JAN 1 GORGE VALE Golf Course

I would substitute "necessity" for "willingness" in your comment.

vg said...

"Sounds like bitterness to me."


Sounds like bitter owners pissed off at losing their leveraging power in huge increments. A house is a house,four walls and a roof,not a gauranteed bank account.


Not to mention the bitterness out of Toronto and New York media cause they lost out on the Sundin sweepstakes. Printing false stories of "done deals" is as bad as the VREB telling us to ignore all the world financial conditions and keep on buying.

Anonymous said...

NOW someone on Craigslist is on a campaign to try to reduce rents by posting a slew of phony properties that don't really exist at bargain basement prices. I admire the ingenuity, but all a landlord has to do is e-mail each of these phony ads, and when they get no reply, cross them off the list as bogus.

Nice bit of ingenuity, but I don't think it will work.

Rents aren't going to fall significantly until sales and asking prices fall. The landlords asking super-high rents now are the ones who really don't need to rent, obviously, and can afford to wait for the greater fools among renters.

And all this person is going to accomplish is piss off other renters looking for a bargain, when they get no replies from these "deals" that don't exist.

olives said...

Besides the high volume of vacant condos, as incomes drop rents will also have to drop to keep in line.

patriotz said...

The landlords asking super-high rents now are the ones who really don't need to rent, obviously,

Nope you've got it backwards. The landlords asking the super-high rents are the ones who most need to rent, because they have the highest ownership costs.

Unfortunately for them the rental market doesn't care that landlord A paid twice as much as landlord B for a similar property. They are going to rent for the same amount of money.

The wishing rents will have to capitulate to get a tenant in the property and that's exactly what's starting to happen.

roger said...

anon said:

The landlords asking super-high rents now are the ones who really don't need to rent, obviously, and can afford to wait for the greater fools among renters.

I agree they don't need to rent. What they need to do is sell NOW at less than they paid or things will only get worse financially.

Those who recently bought newly constructed condos as an "investment" have made three mistakes already:

- They bought an asset with no land value (i.e. box in the sky) and these properties are the first to lose money in a falling market. There is a glut of condos on the market now and more are in the way (i.e. developments near completion).

- They didn't sell after taking possession and now their property is worth less every month that they hold on to it. They guessed wrong about the RE market - prices are dropping.

- They are wasting time and money every month (mortgage, taxes, condo fees) trying to rent at anywhere near their carrying costs. Asking for high rents in Victoria on Craigslist is not going to get you tenants. This isn't Manhattan. If they lower the rent to a realistic level they will lose money every month until they throw in the towel.

The real estate boom is over. Time to wake up and smell the coffee.

Anonymous said...

WANT A OOOD LAUGH. Check out this listing mls# 255594. Asking $490K for 1 bedroom box next to the homeless shelter and streets littered with syringes. Something like shouldn't get more than $50K. After all with less than $75K you can buy some nice properties in Florida.

Anonymous said...

Here are the details on MLS 255594

Looks like they have a tenant in there now. The taxes and condo fees total $453 per month. This 8 year old shoebox will be sitting around on MLS for a long time. On the bright side you are allowed a dog for protection.

Anonymous said...

They have got to be friggin kidding. Even if RE was still climbing from April 08, that property wouldn't be worth more than $300K (have to give something for the water view.) It's small and the area is hideous and scary.

You would have difficulty renting it and there's no way you would cover the cost of ownership. WOW, eh.

Anonymous said...

"NOW someone on Craigslist is on a campaign to try to reduce rents by posting a slew of phony properties that don't really exist at bargain basement prices. I admire the ingenuity, but all a landlord has to do is e-mail each of these phony ads, and when they get no reply, cross them off the list as bogus."

I had a look at a few of those adds. It's unlikely that a landlord will be calling them and even less likely that it will affect how much they charge. It's actually more likely (IMO) that a renter will be calling only to find dissapointment and yet even more frustration with the real rents people are paying.

I think it's a disservice to renters and somewhat cruel.

phil said...

So you could probably rent it for $1000 a month, or buy it (rent from the bank) for $3000 a month.

A good example of how silly everything has become. I guess no one told them the party is over...

roger said...

Phil said:

A good example of how silly everything has become. I guess no one told them the party is over..

But for some this is only a temporary setback because they are long term investors

roger said...

There are quite a few of these condo investors around. Here is one example of how they might consider their purchase a smart investment.

--------------

The condo was recently purchased for 400K with a 200K downpayment. The 200K balance is at 5% for 35 years.

Mortgage payment - $1002
Property taxes - $208
Condo fees - $240

Total monthly outlay - $1450

Currently rented at $1450

Sooo.... "My renter is paying off the mortgage and all my expenses while I wait for prices to go up."


There might be a flaw or two in this logic.

patriotz said...

Like that 200K down payment is dead money?
Like the building will inevitably require major maintenance?
Like there is no land value?
Like interest rates might go up?
Like taxes and strata fees will go up?

If it rents for 1450, it's worth 145K.

Even if RE was still climbing from April 08, that property wouldn't be worth more than $300K (have to give something for the water view.)

Condos are worth 100x monthly rent. So what would that place rent for? 1500/month or so?

Nobody "owns" a condo. You have the choice of renting it from the bank/strata/city or renting it from a fool. Which way is cheaper?

Anonymous said...

The problem is rents have not kept up to the equity value of condos or SFH for years. This is changing albeit slowly. How many 2 bedroom condos can you find in Victoria proper at $150,000 or less?... 2? Would you want to live there?

$1,500 per month for a high(er) end $400,000 condo or $2,000 for a $600,000 SFH is not realistic. The landlords must be simply keeping them warm and not concerned with ROI.

Anonymous said...

"If it rents for 1450, it's worth 145K.
Condos are worth 100x monthly rent. So what would that place rent for? 1500/month or so?"

I would suggest you are over-simplifying just a little.

patriotz said...

The problem is rents have not kept up to the equity value of condos or SFH for years.

You've got it backwards. The problem is that sale prices have gotten out of whack with rents. It's earnings that drive asset prices, not the other way around.

It "price", not "value", BTW. The value of the asset is the earnings which it returns to the owner, which in the case of RE is the market rent.

The present situation is called a "bubble".

roger said...
This comment has been removed by the author.
Anonymous said...

I haven't got anything backwards (BTW this appears to be how you start about 30% of your posts and this comes off as arrogant.)

I agree we are in a bubble and that RE is coming back from the sky. But it will settle well above $100 X rent value.

Your oversimplification and committment to prove your "fundamental value" claim leaves the discussion a bit wet.

roger said...

anon said:

$1,500 per month for a high(er) end $400,000 condo or $2,000 for a $600,000 SFH is not realistic. The landlords must be simply keeping them warm and not concerned with ROI.

There are lots of places around town being rented at these levels right now and at the market prices that you stated. So something has to give in order for a realistic ratio between rents and market value to be re-established.

Owners think it will be rents and that is why they keep trying, with little success, to get tenants to sign up for much higher rents than they are used to paying. Few renters are biting so what do you think will happen to the price of condos or rental houses?

Inventory is at high levels and house prices have fallen over 10% in 6 months. More inventory will be piling on starting in January. Investor owners have two choices: keep renting and lose money every month or sell now before the market price goes lower. Denial in a falling market is a sure-fired way to lose lots of money.

Anonymous said...

"But it will settle well above $100 X rent value."

Patriotz is talking about condos, and that is where they will end up - just wait.

roger said...

Canada usually follows the US economy with a time lag. Here is what we can expect down the road:

Developers Ask U.S. for Bailout as Massive Debt Looms

With a record amount of commercial real-estate debt coming due, some of the country's biggest property developers have become the latest to go hat-in-hand to the government for assistance.

Credit crunch strikes again!

greg said...

According to Nicholas Meyer, who runs a property management firm in Coal Harbour, Vancouver, luxury suites in Vancouver go for around $2 sq/ft - and prices are falling.

So in Victoria, we shouldn't expect to see anything higher than that - regardless of what the condo cost or what it is "worth".

800 sq ft 2 bedroom condo = $1600, max.

Renters can't pay what they don't earn, and there are fewer fabulously wealthy renters than fabulously expensive suites in this city.

Ergo, rents will not make sudden moves upward without incomes doing the same.

Which is not happening.

talus said...

Speaking of price and income...

UK house prices won't recover for a decade.

In what ranks as the gloomiest forecast for the UK property market to date, LGIM economist Tim Drayson has predicted that house prices will "fall another 10pc-15pc next year followed by four to five years of stagnation as incomes catch up with house prices".

"It will be at least 10 years before we see prices return to their 2007 peak levels," he said. LGIM, part of the insurance giant Legal & General, has been remarkably accurate with other economic predictions in the past year.

The crash in prices he is forecasting will take the total fall from the August 2007 peak to 30pc. Although his prediction is among the bleaker of economists' outlooks, the market – through property derivatives – is pricing a 50pc fall from peak to trough.

Anonymous said...

The difference still in Canada versus the US is that for one to QUALIFY for a zero down mortgage you need really excellent credit. A mortgage broker once told me you need a god like beacon score to get one of the zero down mortgages from CMHC.
So once again we are safer than the pick a payment regime from down south IMHO.

hhv said...

"The difference still in Canada versus the US is that for one to QUALIFY for a zero down mortgage you need really excellent credit. A mortgage broker once told me you need a god like beacon score to get one of the zero down mortgages from CMHC.
So once again we are safer than the pick a payment regime from down south IMHO."


This may have been the case for some, but it certainly wasn't the case for all. It is also completely irrelevant to the issue of real estate prices moving forward.

greg said...

hhv -

I wouldn't say the qualification for zero down in the past is completely irrelevant going forward - its part of what supported prices getting where they were and pumping the demand side in the past, and its part of why prices are falling now.

Without this option, the rise and fall would have been moderated to some degree.

Can't quantify that statement of course....

roger said...

anon said:

A mortgage broker once told me you need a god like beacon score to get one of the zero down mortgages from CMHC.

Clarification: CMHC does not provide mortgages; they insure mortgage loans from accredited institutions.

It is up to the lender (bank, trust company etc.) to evaluate borrowers (requiring insurance) according to CMHC criteria. The upfront work is done by a mortgage broker if the borrower goes that route.

So... Can you see how lending over the last few years might not have been as restrictive as many are led to believe??

roger said...

HHV started this thread with a post on Canada's subprime. Here is a recent Macleans article on the same subject.

Real estate prices are falling, and a U.S.-style collapse could cost taxpayers plenty

Yet there’s growing evidence that CMHC’s lax policies in recent years ignited a housing bubble in this country in much the same way Fannie and Freddie did in the U.S. The Canadian mortgage industry may not have gone to the same extremes as in the States, and the subprime market was not as big, but experts say lending practices here were far more liberal than first thought.

In Canada, anyone buying a house with a down payment of less than 20 per cent must purchase mortgage insurance, which protects lenders in the event of a default. But starting in 2006 the CMHC, along with smaller private insurers, raced to loosen their standards. CMHC, with roughly 70 per cent of the market, kicked things off by offering to back mortgages with 30-year amortizations, instead of the traditional 25 years. As rivals like Genworth Financial fought back, amortizations quickly grew to 35, then 40 years. Meanwhile, mortgages could be had with no down payment whatsoever. At the time many in the real estate industry welcomed this competitive tit-for-tat, since it helped thousands of young Canadian families who would otherwise have been shut out of the market. To others, it was a sign Canada was headed down the zany path America’s mortgage lenders had taken.

As of last month, mortgage amortizations were limited to 35 years, while buyers must now cough up a down payment of at least five per cent. The flip-flop, which CMHC said it supports, is aimed at preventing a real estate crisis here. But critics say the clampdown came too late. In October the average resale price of a home in Canada’s major markets fell 9.9 per cent to $281,133 from a year ago, the fifth straight month of falling prices. “Given the highly leveraged situation of many homeowners, it is quite clear to me that we are not immune to what has happened in the U.S.,” says Moshe Milevsky, a professor of finance at York University. He says a five to 10 per cent price decline over 12 to 24 months could wipe out the equity of hundreds of thousands of Canadians who rushed to buy homes in the last few years. “Bottom line is, there are many Canadians today who own homes they should have rented instead. I’m afraid CMHC was responding to politics as opposed to prudence when they loosened their standards a few years ago.”

The agency says its qualification criteria ensure that “only borrowers with the ability to manage their debts can access our products.” The agency didn’t reply to specific follow up-questions. But interviews with real estate agents, mortgage professionals and economists suggest many homeowners were able to qualify for large mortgages they might have trouble managing in the event of a downturn.

Take, for example, so-called liar’s loans. The term refers to mortgages given to people who can’t document their income. In America the practice was widely abused, since many borrowers simply lied when asked how much they earned. But such loans were available here, too. Last year CMHC trumpeted its new Self-Employed Simplified program, allowing those with no documented proof of income to obtain mortgages, provided they make a down payment of five per cent and have good credit. The result was that in some cases those borrowers with proof of income were at a disadvantage to self-employed workers in the same industry who had no documents at all, since the latter could overstate their earnings. “It got to the point that we could actually get a larger mortgage for somebody who couldn’t prove their income than somebody who could,” says Ajay Soni, a senior mortgage broker with Invis in Vancouver. “On the whole, Canada’s borrowing culture is more responsible than in the U.S., but in some cases risk assessment was thrown out the window.”

talus said...

Great Macleans article.

I just finished listening to a Victoria homeowner tell me how "HIS" property will not decline because it has been upgraded over the years and his Quadra-Topaz neighborhood is insulated. No longer do we have the argument "Victoria is different" --- now it's "MY HOUSE is different".

Lately I've been able to shut-up (since the MSM has picked up the ball) but the delusional people are still out there force.

That of course leads me to think that we have much farther to fall.

greg said...

"...his Quadra-Topaz neighborhood is insulated."

Is that some kind of joke?

hhv said...

greg,

how does the credit rating of a borrower impact:

a) their ongoing ability to pay a mortgage during a recession?

b) their psychological imperative to "jump ship" when it's sinking?

c) etc...

I agree that prices continued to climb because of 0 down and 40 year ams, but I don't see how an individual credit rating has anything to do with prices going forward. We don't have the same foreclosure practices up here as the US, so we won't see the same kinds of foreclosure auctions (unlikely anyway). But clearly that doesn't make us "insulated."

I don't buy the we no longer have 0 down 40 year ams and that is why prices are falling argument either.

Prices are falling because people couldn't pay the prices anymore, regardless of mortgage types, or if they could, they started refusing to.

Anonymous said...

"The difference still in Canada versus the US is that for one to QUALIFY for a zero down mortgage you need really excellent credit. A mortgage broker once told me you need a god like beacon score to get one of the zero down mortgages from CMHC."

This can't possibly be true. I've read multiple articles now that state that since 40yr/0% was introduced somewhere between 40% to 60% (depending on whom was reporting on the stats) of all mortgages were of this flavour. Given it was mostly young people that were previously unable to come up with the down payment (and likely with less than stellar credit scores). Further, since Oct 15th, sales have walked off a cliff (down by 40+ % depending the type of housing), this seems to co-relate well with my sources and
makes yours questionable.

Anonymous said...

I should add (I'm same anon as previous post), that I also agree with HHV - Regardless of the 40yr/0%, prices are falling because they reached a point where no more fools could afford them, and now we're in a reverse spiral... where it's cheap today, and even cheaper tomorrow, so why buy today?

Anonymous said...

One more thing/correction... it's NOT actually cheap today, but you get my drift.

talus said...

"...his Quadra-Topaz neighborhood is insulated."

Is that some kind of joke?


I thought so at first. Then he cited his close proximity to the city core as it's benefits.

While I believe this bubble is collapsing from the rim inwards (i.e. Sooke will fall faster and sooner than the core) -- I sure don't think of Quadra-Topaz as a Safehaven! Ha!

olives said...

Quadra-Topaz is part of "Quadra Village" :)

talus said...

Nothing against Quadra Village --- I love the Roxy : )

And I'll even go out on a limb and says that Quadra-Topaz will be more insulated than Quadra-Bay (I'm thinking about the multiplex on the corner).

patriotz said...

Then he cited his close proximity to the city core as it's benefits.

Yet more non-quantitative BS. Only rents support prices. If the price/rent in the neighbourhood is as out of whack as everywhere else, it will fall just like everywhere else.

Rent is the only objective measure of the desirability of any neighbourhood.

Just Jack said...

Patriotz said:

"Yet more non-quantitative BS. Only rents support prices. If the price/rent in the neighbourhood is as out of whack as everywhere else, it will fall just like everywhere else."



I see that your back on your rant about fundamental value once more.
Do I have to point out, again, that you have never, ever shown how you have come up with the 100 or 150 multiplier or whatever number you have chosen.

This is simply because you can't quantify that BS

Anonymous said...

It's probably already been said, just don't want to read all 157 comments. Snow will be this months excuse for low home sales volumes.

-Village

roger said...

Just Jack said:

Do I have to point out, again, that you have never, ever shown how you have come up with the 100 or 150 multiplier or whatever number you have chosen.

I recall Ozzie Jurock used to say in his seminars that an investor needed a purchase price to monthly rent ratio of 100:1 in order for a property to be considered a good investment. This was only used as a rule of thumb and was dependent on the interest rate at the time.

How does this relate to the general subject of rents and house prices in the overall market? There is a relationship between the two but no concrete numbers IMHO. I have only seen vague studies in the US and nothing on Canada.

If Patriotz can provide some links or solid facts on this price/rent ratio or fundamental value based on Canadian stats or studies then his argument has some merit. Otherwise, I hope he realizes that we heard his theory and it doesn't need to be repeated.

roger said...

Globe and Mail article .... The upside to the bubble bursting: Sanity returns

The bloggers had it right - B.C.'s real estate market was due for a correction.

The bubble has now burst. And in B.C. real estate, it's almost certainly not finished deflating. In a December, 2008, economic update, Royal Bank of Canada described the B.C. real estate market as being in "full-blown correction mode" and "unravelling fast."

Meanwhile, bloggers are gloating.

The sarcasm is perhaps a little undignified, but you can hardly blame them for feeling satisfied. They diagnosed market madness. And, with varying degrees of insight and eloquence, they were correct. That bull market really had distorted our view of certain things. It had changed us, or at the very least it had changed the way we relate to the places where we live.

greg said...

I don't mind patriotz' theory on price/rents ratio. It may just be a matter of faith, like religion.

One thing I am certain of is - not whether rents should be at a particular ratio - but rather that rents at whatever ratio set the yardstick for home values as a cash flow proposition. Equivalent rent = potential cash flow - expenses = investment value.

At certain times I would add asset appreciation to that equation, but not lately.

BTW, Roger, have you run across a more detailed source for November stats yet?

greg said...

I know nothing about math, please excuse my imitation of a formula.

patriotz said...

If Patriotz can provide some links or solid facts on this price/rent ratio or fundamental value based on Canadian stats or studies

You asked for it, you got it:

Price to Rent Ratio Stinks in Vancouver

Note that the data shown is for houses. Condos must have a lower price/rent because:

1. They have no land value. All of the asset depreciates.
2. Owner has no control over major expenses.
3. Rentals may be restricted by strata.

Note that this blog entry was over a year ago when the bulls were still assuring us that price/rent didn't matter and a bust was impossible. Well guess what happened? You want evidence that price/rent matters - the bust is the evidence.

roger said...
This comment has been removed by the author.
roger said...

Update to deleted post...

Patriotz said:

Condos are worth 100x monthly rent.

Looking at your link we see the following:

The average price / rent ratio over the data period has been 19.9 and currently sits at an all time high of over 27 as of June 2007.

These are price to annual rent ratios so if we multiply by 12 the price to monthly rent ratio is around 240 over the 15 year period.

Patriotz stated that 100:1 was the correct ratio for condos and the evidence shows 240 as a 15 year average for houses. (BTW, the poster in that blog did not provide a source for the data.)

That is quite a difference. Looks like using actual numbers for the ratios requires prudence.

patriotz said...

I wasn't talking about the average price/rent over market cycles, I was talking about price/rent at market bottoms. I am saying that the price/rent for condos will go down to 100 at the market bottom. I have already given the reasons why price/rent for condos must be lower than for houses.

And I have better things to do than to spend more time digging up data to show to people who don't think price/rent matters in the first place. The bust itself is the evidence that price/rent matters, and you will see the multiple go down to 100 for condos. Just you wait.

Anonymous said...

I call BS

roger said...

Patriotz said:

And I have better things to do than to spend more time digging up data to show to people who don't think price/rent matters in the first place. The bust itself is the evidence that price/rent matters, and you will see the multiple go down to 100 for condos. Just you wait.

No one, including me, has said that price/rent ratios don't matter. Quite the contrary. I have made several posts in the past where I said that rents act like an anchor on RE prices. When they get too far out of whack prices have to drop. Most folks would consider that a reasonable assumption.

What I disagree with is stating that a ratio of a 100:1 for price/rent ratios is based in fact. In the link you provided the SFH price to monthly rent ratio was never lower than 200:1 over the last 15 years. There was nothing in that link about condos and it is a stretch to believe that they are so much different than SFH that their ratio is only 100:1.

Most bears in this blog want to read the facts and actual stats in order to understand the market. If you don't feel like digging them up that is fine. Just don't expect readers to accept your price/rent ratio of 100 without anything to back it up.

patriotz said...

it is a stretch to believe that they are so much different than SFH that their ratio is only 100:1.

1. They have no land value. All of the asset depreciates. MAJOR factor. Purchase price and all expenses must be recovered by rent over lifetime of structure or investor loses money.
2. Owner has no control over major expenses. Maintenance decisions are in hands of strata and owner has no opportunity to use own labour or cheaper options.
3. Rentals may be restricted by strata. Owner has no control over undesirable neighbouring owners or tenants who may decrease value of property.
4.Unlimited future supply of condos at all distances from centre of city.

The last time we had a real bust, in the mid-80's, houses went down to 100x rent. I don't expect houses to go down that far this time, because interest rates are lower now. But condos, yes.

The reason prices for condos will have to come down to 100x rent is above that multiple investors will collectively lose money long run, and that's not possible.

If you think a condo is a good investment at a higher multiple, go ahead and buy one. There are plenty for sale.

roger said...

TD Bank Financial released their Provincial Economic Outlook (pdf) today.

As highlighted in many of our commentary and research pieces, we are also forecasting significant declines in housing starts activity, along with much lower sales and prices from existing homes. Here again, and not coincidentally to overall economic performance, B.C. and Alberta are expected to face the harshest environments. After responding strongly to price signals on the upside, builders have already pared back construction activity in those provinces significantly. A further leg down is likely for those markets, with the most significant yet to come in B.C. However, double-digit per cent declines in housing starts from the levels estimated for 2008 will spare no region.

Given how weak sales volumes have been entering into this recession, we also continue to expect resale home prices to pull back, by about 10% nationally. Ontario (-9.1%), Qu├ębec (-7.1%), and Saskatchewan (-8.0%) resale home price declines will not be very far off this national average. Alberta and B.C. resale home price corrections are pegged at around 15% each in 2009. On an annual average basis, resale home prices, particularly in these provinces, are unlikely to pick up significantly before 2011.


TD Price Predictions

roger said...

Patriotz said:

The last time we had a real bust, in the mid-80's, houses went down to 100x rent. I don't expect houses to go down that far this time, because interest rates are lower now. But condos, yes.

I don't disagree with your view that condos have less intrinsic value than houses and will drop further in price. And I don't want to buy one at any price.

What I take exception to is your "arm waving" about a condo price-rent ratio of 100 with no links to actual facts or stats to support this specific number.

The last time we had a real bust, in the mid-80's, houses went down to 100x rent. I don't expect houses to go down that far this time, because interest rates are lower now.

It is hard to believe RE bulls or bears when they make nsubstantiated claims about the market. So... once again, provide a link or source of data to back up this claim if you really want to make a compelling argument.

patriotz said...

The information is in the link I have already provided. To save you the trouble of looking it up, I will copy it for you. The italics are what someone else said, the plain type is what I said:

"Once that myth is well and truly busted I think it only makes sense for prices to revert to inflation adjusted mid '80s levels or 10-12 price/rent

Back in those days you could buy a house for 125K, rent out the main for 750 and the suite for 500 (give or take). That's a monthly price/rent of 100 or 8 (!) annually.

Do keep in mind interest rates are lower now, so yes I think 10-12 is in the ballpark once the reality check arrives."

Those are the real numbers from the mid-80's, Now I'm not expecting houses to go back down to 100 because of lower interest rates, as I've already said. But condos, yes 100.

Now if you think "this time it's different" and something will stop multiples from going back down to mid-80's levels, adjusted for interest rates, that's your privilege. I think this time will be different myself - a lot worse.

Mr.4AM said...

patriotz,
I think 100x - 150x rent is entirely possible, but how long it sticks around depends...

It's been mostly the fake boom of the FIRE (FInance/REal estate) economy that's allowed prices to climb into the stratosphere. Going forward, like the rest of the world, our Canadian government will be busily engaged in trying to spend our way out of debt (huge oxymoron) regardless of the party(ies) in power , and after that eventually fails, like the USA, we'll have a large deficit and more importantly we'll have severe inflation that will nominally be on par or worse than the 80's.

By the time that happens (2011?), 100x - 150x rent is entirely possible, but only after all the deleveraging (hedgefunds & derivatives) is finished in the stock markets, real estate has bottomed or close to it, Bretton Woods III is introduced and accepted internationally.


How long we remain at 100-150x rent, will be greatly dependant on how debt is financed and easy to get post the financial armageddon era of 2008-2012.


I hope that Brettonwoods III and whatever new flavour(s) of SOX come out to minimize financial leveraging loopholes, will be structured so as to minimize economies that can only survive by creating bigger and bigger bubbles.

If this takes place and we also go back to minimum of 15-20% downpayments for housing purchases, 100x - 150x may be sustainable for a the long-term, but not otherwise. Responsible financial policy need exist first.

So long as debt is easily available to shop-a-holic consumers, I won't be too convinced of any long term 100x-150x rent to home value ratios.

Lastly, there is also the tinfoil-hat lower probability but high risk possibility that some major catastrophe will take place (global warming flooding Vancouver Island, HN5 virus outbreak, world war 3, civil unrest, hyperinflation, etc) that could take the 100x ratio into double digit territory for a short while.

mln said...

Bubble Blindness - Paul Krugman

The big mystery is the failure to see the housing bubble. The data screamed “bubble”, even in real time. And there was no excuse for believing that such things don’t happen in efficient markets, not with the dead body of the dot-com bubble still warm.

So why did so few people point out the obvious? One answer may be that macroeconomists, in particular, didn’t want to go up against bubble denier Alan Greenspan, which might get them blackballed from Jackson Hole and all that. But overall, the failure to see the most obvious bubble of my lifetime remains a puzzle.


There was a thread on Vibrant Victoria where some people got all offended when someone used the phrase "bubble denier"--turns out Paul Krugman uses it to describe Alan Greenspan, so don't get TOO offended. :)

B2B said...

Even if we can't agree on 100× rent or 150 or whatever, I'm sure we all agree that price to rent ratios matter in general. It's a lot like the income ratio - not everyone will believe, like me, that BC will come down to 3×average income (the UK standard until recently) for an average house. But we can all agree that incomes relative to prices matter.

In this all us bears agree (nearly): the rules have not been suspended that say that it matters how much money you make and have, in terms of how much house you can afford. We just differ on details.

Anonymous said...

In Detroit you can buy houses for about 50X rent so its not out of the question.

It's all a matter of how dismal our economy gets. Detroit is gonna get bailed out. Our local construction based economy isn't...

roger said...

I just got a copy of the detailed November report for Greater Victoria real estate transactions.

Some interesting tidbits:

Nov. 2007 stats shown in ()

Number of sales over $1 Million: 2
- one of them in the Gulf Islands.

Number of SFH sales excluding waterfront and acreage: 126 (276)
- active listings at month end: 1285 (708)
- units listed: 329 (312)
- sell/list ratio: 38% (88%)
- average price was 512K (559k)
- sold/list price ratio: 96% (98%)
- Days to sell 54 (46)

Number of Condo sales: 77 (179)
- active listings at month end: 1220 (900)
- units listed: 175 (259)
- sell/list ratio: 44% (69%)
- average price was 274K (312K)
- sold/list price ratio: 96% (98%)
- Days to sell 63 (51)

Number of Townhouse sales: 20 (63)
- active listings at month end: 399 (260)
- units listed: 69 (97)
- sell/list ratio: 29% (65%)
- average price was 447K (474K)
- sold/list price ratio: 95% (98%)
- Days to sell 52 (44)

Nick said...

Happy holidays to all! Here's to a nice weekend with friends and family. And may our real estate price dreams come true in the new year. :)

Mr.4AM said...

I know Dec is usually bad for sales, but wow Roger, inventory going up at the same time prices & sales both decline is a new trend. Unquestionably a bearish trend. Let's see what Jan brings.

Thanks for sharing, as usual. Much appreciated Roger!

Merry Xmas to all! :-)

Mr.4AM said...

Here's some charts some of you might find interesting that sum up what happened in 2008 in North American markets:

1. 2008 International Long Term Interest Rates

2. 2008 Snapshot per Industry Sector

3. 2008 Comodities Snapshot

4. The sector "winners" in 2008 (You know it was a bad year when the winner 'only' lost 19.4%!)

5. Last, but not least, the X-mas Tree Card for the 2004-2008 Stock Market

vg said...

Merry Christmas to all !


Thanks for the numbers Roger,things are looking mighty bearish.

roger said...

I hope everyone reading and posting to this blog is having a Merry Christmas!! Wishing all of you the best for 2009.

Roger

womp said...

Happy pagan and religious holiday mashup to everyone!

mln - next time I call G-Man a bubble denier on that thread, I'll link that article ;) He's STILL denying it over there!

Also, I want to clarify my comment from last week regarding Salmon Arm... I was checking out real estate papers here, and it's definitely not as low as I thought - tons of room to fall. It's more like... 75-80% of Victoria's prices, not 60%. For the same price as in Victoria, you can add about 500 extra square feet of house and some extra backyard space.

patriotz said...

Oh well, I guess anyone can afford a house in Salmon Arm them.

Er... just what kind of jobs do they have up there?

roger said...

VG - Garth is using your line!

2009 - Look out below

Look out below, part 2

The price decline in Canadian real estate in 2009 will at least match that of 2008, and sales volumes will continue to erode.

And while we’re in the crazy prediction business:

* The biggest house price drops will be in early summer. This will happen after tens of thousands of wanna-be sellers dump their houses on the market in late February and March, hoping to catch the Spring market. But, there won’t be one. When that sinks in, prices will crumble.