Friday, February 20, 2009

Credit crisis visualized


The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

H/T to Tim Ayers for the video link.

Canadians like to say this didn't happen here. We especially like to claim that our banks are the best in the world. And we love, especially if we make money in the real estate industry, to spread the myth that our banks didn't play this game in Canada, that Canadians didn't buy properties they can't afford and that because of these two "facts" we are somehow immune to a Canadian version of these events.

Hogwash. There is absolutely no proof that Canadian banks didn't engage in these behaviours. In fact, there is proof that they did. The difference, it would seem on the surface, is scale.

A friend of mine bought a house last week. She's self employed. She had a down payment, albeit a small one, so she trucked off to a mortgage broker to get a loan. The house she wanted was outside of her qualification range. Because she is self employed, she was using a stated income loan application (no proof of income required). No problem says the broker, we'll just up your income.

Of course she had some misgivings. Enter the REALTOR who explains it's only a temporary miss-statement of income because your income really will go up when you start collecting the rent from the basement suite you're going to build. Fair enough, says my friend.

The broker, the REALTOR and my friend all were complicit in this little work-around to get the deal done. But sole responsibility for the deal rests with my friend. She wanted the house and was willing to do anything to get it. She's aware of the market conditions, but after having just lost her previous house to a relationship breakup, she just couldn't "go back to renting." And the mortgage she bought is not considered a sub-prime product. In fact, it's available, only through a mortgage broker, but is a product underwritten by a Big 5 bank.

We've seen estimates of so called sub-prime lending in Canada at 5%. We're starting to see all kinds of ads for low-interest, interest only and subsidized monthly payments as builders try to liquidate their inventory without dropping sales prices. All of these incentives, incite people to spend money they don't have, to take on debts that leave them hyper-extended, and contribute to Canada's homegrown version of sub-prime. The disease may be called something different, but the symptoms are the same.

Last year the government recognized the toxic nature of 0 down 40 year amortization loans. After a year or so where pretty much 50% of all mortgages sold were "low-down and extended amortization products" the government got rid of only the most toxic. And then promptly bought them from the banks transferring the risk to the taxpayer.

The problem isn't solved in Canada. The same products that existed in the US are still being used today. The big difference here is CMHC insurance. Because the banks have insurance on these deals, they don't typically turn around and sell them. But over the past 6 months, they have. The Government of Canada bought $125 Billion of these toxic debt products from the banks. And the banks in turn have lent out more in the form of credit card debt, low-down mortgages and HELOCs.

All Canadians are on the hook. All of us who pay taxes anyway. Home prices are falling. People are losing their jobs. Some will lose their homes (granted our walk-away laws are very different than the US which should prevent voluntary walk-aways up here).

Any way you try to explain it away, Canada did engage in this same credit swap scheme. The players involved are slightly different and so are the products. But to make the claim that people didn't buy what they couldn't afford using products that leave them perilously close to default is misleading.

Time will tell how bad our credit unwinding will be. But as long as prices continue to plummet, and plummet they are, credit will have to tighten. The scale will be less, but the damage may end up being just as bad. I fear the only true measure of the real problem will be the number of "motivated" sellers we see over the coming years. And like our US cousins, this correction will be played out over years, not months.

188 comments:

roger said...

Great post. Crisp and to the point.

Anonymous said...

It's a desperate race to the bottom to find the Greatest Fools of all to usher in the GreatEST Depression of all.

roger said...

Interesting article in Today's TC.

House starts 'to slump 29%'

The number of new homes starting construction in Greater Victoria is forecast to fall by 29 per cent to 1,350 this year from last, the Canada Mortgage and Housing Corporation said yesterday.

On top of that, housing sales and average prices are both expected to slide by double-digits this year compared with 2008, CMHC said in its first-quarter Housing Market Outlook.

In Greater Victoria, 800 new condominium units are available and another 2,200 are in the midst of construction, said Travis Archibald, CMHC senior market analyst.

Average prices, for all types of housing, are also expected to drop in the region to $427,000, down 12 per cent this year compared with 2008. A further decline to $420,000 is forecast by CMHC for 2010.


Condos are already at a very low sales to active listings ratio of 6%. Pile on all this new inventory and you have a disaster in this market segment.

Anonymous said...

Activity is REALY picking up.

I went to a RE office this morning and found out what they are saying is right.

The RE office usually opens before 10:00 am and have about 25 photos of realtors on their window.

Today, the office is still closed at 10:30. The photos in the window suddenly left only 8. The property displayed on the window suddenly reduced to about less than half.

Reduced office hours and staff are certainly seeing a picking up of activities, with the cost of 60% realtor out of the picture.

Anonymous said...

CanWest shares tumble

Media company continues to meet with potential partners as it seeks to stave off possible filing for creditor protection

Now TC needs more RE ad to survive. Expect more spin. i can only feel sorry for it.

roger said...

Anon 10:30,

Please try and post something that is believable. Real estate is still selling and people buy even in down markets. Prices drop or rise gradually in response to market demand. Talk of 50% drops is just nonsense.

Sure some realtors are leaving to pursue another line of work due to market conditions but many are still doing OK. Those that treat clients fairly, market properties well and are good negotiators will continue to make a good living.

Lets try and stick to the facts on this blog. Many people come here for alternative points of view and bears need to be reasonable or they will just laughed at and discredited.

hhv said...

"Lets try and stick to the facts on this blog. Many people come here for alternative points of view and bears need to be reasonable or they will just laughed at and discredited."

Agreed 100%. Increasing sales in a falling market are good. They add to declining prices. When people buy in a falling market, they seek to get a better deal than the next person.

Sales volumes picking up is a good thing for bears as long as inventory climbs relative or disproportionately, which we are seeing right now.

phil said...

Great post HHV, always appreciate the reminder that our taxes are going to bailout the banks in the end. The whole system is F'ed.

Anonymous said...

HHV said "But to make the claim that people didn't buy what they couldn't afford using products that leave them perilously close to default is misleading."

But they did buy what they could afford.

Well, at least with the income from the basement suite they could afford it (or were they just told they could afford it?). Oh, it gets so foggy. :-)

S2

phil said...

You have to examine the whole psychology of "Being able to afford" something. Many people won't buy a brand new car because they "can't afford" the depreciation. It's a state of mind as much as an ability to pay. Anyone that has bought real estate in the last few years has swallowed the bitter affordability pill because they believe they have an appreciating asset.

As soon as they are underwater and sinking we'll see how many people "can afford" their homes, regardless of being able to make the payments.

Ryan said...

Phil,

I agree. Because of bubble psychology the idea of what real estate was worth got dissociated from what everything else is worth. People generally have a gut feeling about how much something ought to cost, whether it's a car or a plane ticket or a dinner table. You have a general idea of what things cost in relation to each other.

Real estate used to fit into that, and rent still does. But because of the relentless media coverage of the "new reality" people started to believe that unreasonable prices were normal. Paying twice as much to buy a place as to rent it became acceptable, even expected. Real estate seemed to opperate under a different set of rules.

It will be nice when it falls back in line with everything else, and common sense applies again. When earning an above average salary is actually enough to buy a house, and I don't need to rent out a suite or marry someone with an equal salary to afford it.

Anonymous said...

I went to the RE office i went this morning again in the fternood. The door is open. As soon as i entered in someone came up. i asked why so many realtor photos and listings were off the window. hew told me that realtors moved with their listings.

is there any reasonable reason for this dramatic change? i don't know. but something is sure going on in the RE business.

roger said...

Just when you thought things were getting better...

Credit crunch may only have just begun, S&P warns

The credit crunch may only be in its early stages and a bigger contraction in lending in coming months could have "serious implications" for the U.S. economy, Standard & Poor's Rating Services said Friday.

Banks are replacing loans as they mature, but there's little net new loan growth, she noted.
"That could mean that the slowdown in lending is just an opening act, and a true credit crunch may yet take the stage," Azarchs warned.

roger said...

Just Jack

Well another weak has drifted by. Listings have been coming in at a good clip but lots of properties going off market (discouraged or re-listed). Sales on PCS have been slim all week.

Are you sticking by your prediction?? Any updates??

Just Jack said...

Guesstimating 200 house sales with a median of $485,000. Which is 25 percent fewer sales and 10 percent lower prices from February 2008.

Condominiums, as expected, are really taking a beating. I'm estimating sales volume down by 40 percent to 100 sales and prices down 17 percent to $250,000 from Feb/08.

And finally townhomes which I'm estimating at 45 sales for the month and the median at $360,000. Sales activity having dropped 35 percent from last year and prices 5 percent.

roger said...

Just Jack,

Thanks for the update. Looks like sales are starting to pick up in single family homes.

mln said...

Just finished watching the credit crisis video--good stuff, thanks for posting that.

Just Jack said...

Sales will definitely pick up over the next few months. We may even see prices rebound from one month to the next. However, the trend is down. A trend that will continue until consumer confidence returns.

In the municipalities where I am considering purchasing a home, it has been the same listings for months with very little new stuff to get excited about. Those homes under 400K are just waisting electrons on my computer, for Gods sake where are those greater fools when you really need them.

Victoria's financial landscape has changed from one where people have been buying second homes to one where the public is meeting with their financial institutions to lower their debt obligations and prepare for a long recession. Unfortunately, most are doing this by extending their mortgage to 35 years.

Anonymous said...

Prices ARE going to end up 50% down, and possibly lower. It's called a

D - E - P - R - E - S - S - I - O - N

for a reason, folks.

Plan accordingly. You'll know when the REAL bottom is in, and don't be caught up in any dead cat bounces.

Any rally will have to show consistent gains for at least three months.

Otherwise, STAY OUT.

hhv said...

Interesting piece in househunting.ca today.

"Bill Clark, senior economist at CMHC, said it was impossible in the last quarter to predict the current economic decline and the impact it would have on the economy."

Sure Bill. Really. Hard. To. See. This. Coming.

""There has been some issues that have come up in the economy that were not foreseen, that's been the case for much of the forecasting," Mr. Clark said."

Emphasis mine. At least he admits they haven't been accurate in "much" of their predictions.

"The resale market is basically paralyzed," said Mr. Tal, referring to the fact that year-over-year sales are down as much as 50% in some markets, such as Vancouver. "The market is in a state of shock. Nothing is happening. The prices we are getting now are just a rough proxy. It's not an accurate reading."

Mr. Tal said that as the unemployment rate rises, house prices will fall as people are forced to sell."

hhv said...

Low ball away.

patriotz said...

"The resale market is basically paralyzed," said Mr. Tal, referring to the fact that year-over-year sales are down as much as 50% in some markets, such as Vancouver.

That's because the sellers are asking too much. There is no other reason why a property won't sell.

Anonymous said...

I've given up with people I know who are delusional. One is about to try and flip again, others are just barely making it.

It's so sad and these people have no clue. The one couple I know who rents actually feels left out but little do they know that they're the most financially sound of the bunch.

I know one family where the wife lost her job, the hubby says work is slow, they can only make the mortgage on the rent from the suite and they're planning some big vacations. Delusion abounds in this town folks. This is going to hurt a lot of fools.

Just Jack said...

This almost universal drop in sale volumes of 40 to 50 percent may be related to the level of speculation in the marketplace. In other words 4 out 10 properties purchased over the last few years would have been for short term speculation rather than long term home ownership.

What we see today, is that the volume of sales has decreased to the levels of the late 1990's which was a period of flat prices. So, this current level of sales may be the norm, or baseline, for Victoria, as people are always buying and selling in the marketplace.

This may mean that demand can not be significantly stimulated, by lowering prices.

Anonymous said...

You mean without giving away the farm, which owners that understand the value of their homes are unwilling to do.

Mr.4AM said...

Great video HHV. I've watched a whole whack of them on youtube, but this one is very well done for the average person to understand. Also, this is one of your best posts yet. Well done.

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

RBC Bank President Gordon Nixon - Salary $11.73 Million


$100,000 - MISTAKE (FISHERMEN'S LOAN)


I'm a commercial fisherman fighting the Royal Bank of Canada (RBC Bank) over a $100,000 loan mistake. I lost my home, fishing vessel and equipment. Help me fight this corporate bully by closing your RBC Bank account.


There was no monthly interest payment date or amount of interest payable per month on my loan agreement. Date of first installment payment (Principal + interest) is approximately 1 year from the signing of my contract.
Demand loan agreements signed by other fishermen around the same time disclosed monthly interest payment dates and interest amounts payable per month.The lending policy for fishermen did change at RBC from one payment (principal + interest) per year for fishing loans to principal paid yearly with interest paid monthly. This lending practice was in place when I approached RBC.
Only problem is the loans officer was a replacement who wasn't familiar with these type of loans. She never informed me verbally or in writing about this new criteria.

Phone or e-mail:
RBC President, Gordon Nixon, Toronto (416)974-6415
RBC Vice President, Sales, Anne Lockie, Toronto (416)974-6821
RBC President, Atlantic Provinces, Greg Grice (902)421-8112 mail to:greg.grice@rbc.com
RBC Manager, Cape Breton/Eastern Nova Scotia, Jerry Rankin (902)567-8600
RBC Vice President, Atlantic Provinces, Brian Conway (902)491-4302 mail to:brian.conway@rbc.com
RBC Vice President, Halifax Region, Tammy Holland (902)421-8112 mail to:tammy.holland@rbc.com
RBC Senior Manager, Media & Public Relations, Beja Rodeck (416)974-5506 mail to:beja.rodeck@rbc.com
RBC Ombudsman, Wendy Knight, Toronto, Ontario 1-800-769-2542 mail to:ombudsman@rbc.com
Ombudsman for Banking Services & Investments, JoAnne Olafson, Toronto, 1-888-451-4519 mail to:ombudsman@obsi.ca

http://www.pfraser.blogspot.com

http://www.corporatebully.ca

http://www.youtube.com/CORPORATEBULLY

http://www.p2pnet.net/story/17877

"Fighting the Royal Bank of Canada (RBC Bank) one customer at a time"

Anonymous said...

^^SPAM SPAM - HHV - PLEASE DELETE^^

Nick said...

That video is great, the link has been making the rounds on the net and it's extremely well done.

Anonymous said...

My neighbour, a carpenter, has just applied for unemployment benifits. Last month his basement tenant moved out.

This market is going to get rough.

Mr.4AM said...

If you thought the US housing prices couldn't got any lower or lower any faster, well, they very well may, and it may eventually be the US government doing it by getting banks to slash the sizes of each mortgage so home owners don't claim bankrupcy due to being upside down.

This accelelerated price drop of millions of homes (if it happens) is something very similar to what was done during the great depression, and apparently (I haven't studied the facts) helped put a bottom in housing prices.

Video here. This is a (39 min)Charlie Rose interview. Nouriel Roubini speaks to the above in the first few minutes though.

patriotz said...

You mean without giving away the farm, which owners that understand the value of their homes are unwilling to do.

That's backwards. The problem is that people don't understand the value of their homes.

A house will sell only for what a member of the public is willing to pay for it. That's not "giving it away", that's the market price. Take it or leave it.

norwester said...

Great blog. I've found this blog to be very useful in shaping my decision-making. I've been a sideline voyeur for many months. I particularly appreciate the balanced reminders of the likes of roger and just jack. Thx guys, much appreciated! Many people will indeed buy in a falling market and people are frequently operating under any number of delusions. What counts is trends, not monthly gyrations. As a returning exile (20 looong years) who had the great fortune to buy at the bottom ('95) and then cash out of the Alberta boom in the spring of '08, I think I can speak to a number of things that may be of interest to readers of this blog. There is no substitute for homework or tempered, emotionless calculation. I am on the sidelines with cash and renting for a reason. This recession is coming to the Island and it will have a significant impact on house prices. That much should be obvious. The difficulty is exercising the necessary patience. There is nothing my wife in particular would like more than to get the nest and make it our own. However, the decision to buy now would mean paying a real premium for something that is trending down, with no realistic hope of bouncing back for years. How far down and how quickly is a matter of speculation subject to a great many variables. What is certain is that this recession is going to be painful and long, years long. Anyone who tells you otherwise is not paying attention or is acting out of self interest. A meaningful recovery in 2010, which is frequently spouted by economists, is just not realistic. Also, we are not going back to the way it was pre-recession, period. The American consumer is and will remain unable to carry the ball and there is simply no substitute for consumer spending. The Obama stimulus package is a temporary boost to keep things from completely unraveling. Needless to say, government spending can never replace consumer spending over time. The traditional sources of well heeled incoming purchasers to Victoria (lower mainland, Alberta, Ontario) are hard hit and will not provide the same numbers or dollars they so generously supplied until the spring of '08. I think that group has been the primary driver of prices well above the traditional revenue-based measure many bloggers cite as the appropriate pricing mechanism. Having said that, there are still going to be people who seek to relocate here (try living thru six solid months of snow on the ground). I know a few and I suspect they are still willing to pay a premium to escape the worst of winter. What I can't say is how much this crash has affected their individual situations. I believe that as the full effects of this recession make themselves felt (e.g. job loss, foreclosure, bankruptcy etc.) in those areas we are going to see a stronger slide in confidence and a greater reluctance to pay the Victoria premium. Certainly, Calgary is very hard hit. I understand the figure for layoffs in oil exploration is actually 30,000 not 15,000, as mentioned by the Alta Treasurer. Engineers and lawyers, who were getting wooed and paid staggering premiums only a few short months ago are now getting pink slips (Six major law firms have cut so far). I understand that at least one of the major oil and gas operators is set to announce layoffs that go beyond "deadwood" (e.g. double digits). Similarly, in Edmonton, I know that at least one major commercial electrical outfit has essentially ground to a halt. Machinists, who were previously impossible to recruit, are now seeking UI. The major international IT firm operating in Canada that has three initials is not backfilling vacant positions. In short, main street in Alberta is just now tasting the bitter fruit of this market meltdown. Victoria has yet to feel its real effects because it is just now slamming into main street Alberta. Government is not going to insulate Victoria for long. Edmonton can attest to that. It too has government, a much larger university and the largest military base in Western Canada. You can buy now in Victoria. I understand why people want to get settled. However, I don't understand why people are so willing to take such financial blows. If you buy now you are going to pay more than what the property will be worth three years from now, even if you lowball. The market is certainly going to see an increase in sales. It is going to be tempting to get in. But make no mistake, you will pay a premium if you buy this year and it will take years to get back to this year's pricing. Buying a house is the biggest financial decision most of us are going to make and it pays to be patient. I've done it twice and I'm proof you can time the real estate market and do extremely well (it is not comparable to trying to time equity markets because of the timeframes involved). You just have to bloody-minded; it also helps to be Scots Presbyterian (a bear by nature).:)

NanHousing said...

speaking of "not wanting to give it away", I have some Bre-X stock that I want to sell for $100/share. I have some Enron stocks that are a bargain at $10/share. Take it or leave it. I don't want to "give them away"

roger said...

norwester,

Great post. I hope you become a regular poster. My story is getting old and we need fresh perspectives.

IC4 said...

My PCS is showing sales picking up. The selling prices go from $42K off asking to the actual asking price (!). I can't get a handle on the buying psychology.

Here are 2 examples of SFH which have been on and off the market since last year and have just sold:

The apparent lowball and accepted offer ($42K reduction) is still way overpriced at 688K for a very ordinary Gordon Heads SFH. You may be surprised to learn that it was originally listed in May 2008 for 839.9K.

A Queenswood SFH went for 5K less than asking but had been steadily reducing since last year---listed at 699K in June 2008 and sold this month for 585K.

I've been watching the Victoria market for the last 2 years. I agree with what others say on this blog, that we are only on the cusp of big price reductions. Patience is indeed a virtue. The only drawback is that quality listings will begin to dry up, that's just a fear of mine and not a fact. I wonder if other people will be leaping onto the Spring listings with the same thought.

On the other hand, even a real dog of a house is just fine at the right price.

Anonymous said...

"That's backwards. The problem is that people don't understand the value of their homes.

A house will sell only for what a member of the public is willing to pay for it. That's not "giving it away", that's the market price. Take it or leave it."

You're continued insistence that the market is strickly one sided is getting old. But you're right people will simply leave it. Prices will only fall just so far and then the listings will dry up. That's also the market place - SUPPLY and demand.

Nanhousing: "Bre-X stock that I want to sell for $100/share. I have some Enron stocks that are a bargain at $10/share."

The Bre-X etc comparison to RE is
interesting but not surprising coming from Nanaimo. You couldn't give me a home there to raise my family in let alone rent one.

Anonymous said...

"Prices will only fall just so far and then the listings will dry up."

Just like in Florida and California right? Oh, wait...

dub said...

But you're right people will simply leave it. Prices will only fall just so far and then the listings will dry up. That's also the market place - SUPPLY and demand.

Yeah, except in any market, there will always be people that have to sell.

norwester said...

IC4,

No worries. Quality listings will continue to flow notwithstanding the price decline. However, you will hear that mantra constantly from realtors. I have in all three instances in which I spoke with a realtor this past couple of weeks. This ignores the large inventory and natural turnover. A good many listings, especially here, are driven by necessity. Many quality listings belong to seniors. Oak Bay is full of them. If their beneficiaries are out of town then they are also more likely to be realistic about pricing, given what is happening in their own backyards. At the same time, you are going to be competing with a much smaller pool of potential purchasers. House flippers still exist, but they are going to be severely chastened (if not ruined) by this downturn and are much less likely to enter the market again any time soon. Other regular folks are hunkering down and paying off debt. In the meantime, you can be assured that vendors and realtors are currently counting on a strong spring season. As the momentum of this recession builds, this market will bleed out. It is important to remind ourselves of the basic facts: we have just come off the biggest residential RE boom ever (200k national starts per year! & 100% price jump '02 to '08)) and we are entering a recession that is in danger of becoming a full blown depression. No amount of wishful thinking is going to change this trend. Most people who still want to move here are going to come with less money and diminished expectations. Many are holding off retirement and relocation altogether. The real bump in rentals on Craigslist is telltale. Wait for the condo discounts to come (purchase incentives are not going to cut it). There is going to be alot less money and considerable pessimism for years to come. To suggest a 10% "correction" and then stabilization following the 100% climb is specious. The upper market (over 1m) especially is going to get hammered along with condos. Just look at the growing inventory and what is happening in West Vancouver (the premium pitstop in the lower mainland). As an aside, I know of one guy in Calgary who bought a fractional interest at Bear Mountain for 120 k; he sold a couple of weeks ago for 72k. Now that is truly a buzz cut. Our challenge is to not allow the trees to blur our view of the forest. I understand and share your frustration with impulsive/imprudent purchasers. However, they are going to be cut out of the larger equation. The forest will prevail.
thx to roger for the vote of confidence!

vg said...

Incredible story HHV. 7 years ago a mortgage broker working through LePage would not give me a mortgage with 30% down and a beautiful suite I could have rented for 3/4 mortgage payment. Great job, great credit, but back then they operated on super strict rules of suites had to have a signed one year tennant agreement and the suite had to be legal which this one wasn't. The brokers worked on THEIR risk if you messed up.

They also worked on the rules of could you afford the payment if no one rented it. I could easily but their percentage rule of income no more than 30% kicked in.

I couldn't believe it myself so I told them to stuff it and walked instead of coming up with another $15,000 I didn't have. Now they give houses away like candy...unreal. Only goes to show this credit market is totally effed up and there is a long way down to go.

msr said...

norwester,

I love your posts, but could you throw in a few line breaks here and there? It would make them so much more readable.

msr said...

You're continued insistence that the market is strickly one sided is getting old. But you're right people will simply leave it. Prices will only fall just so far and then the listings will dry up. That's also the market place - SUPPLY and demand.


An amusing idea, but not valid anymore. It's a new economy, where real estate is not some magical ladder to riches. Homes will only sell for what people can afford to pay for them, not last year + 15%.

Sure, as prices drop some listings will be pulled. Anyone going on a fishing trip for a buyer will probably be sent home and anyone underwater will likely decide to tough it out. But otherwise, lower prices mean quicker sales for sellers and more commission for realtors. I think most people will agree that lower home prices will be better in the long run.

roger said...

Want to see something real scary??

Click here

hhv said...

Roger, interesting to see it laid out like that. Considering consensus is that we have at least another year of pain before we start seeing gains, are we GDx2? We live in very interesting times indeed.

Fooder said...

Thank you for that graph Roger. The part I find so interesting is that Victoria hasn't progressed very far along that path yet. It's pretty clear that the entire globe is sliding along that downward curve but friends are still looking at me like I'm just a doom and gloomist.

It's an odd sensation reading Mish's blog and getting the feeling what he's seeing is a year away for us still. Then Rob's Vancouver blog seems 3-4 months ahead of us. Still most people don't think it's going to really affect us here.

Anonymous said...

Although that graph is interesting for time lines of the recent crashes, they should have used the Nasdaq for the tech meltdown. It went from 5100 to 1100 points or almost 80% from its peak.

Another fact that I often do not hear discussed is how parabolic the dow rose in the 1920s. In mid 20s bear market the dow hit a low of 60 points then rallied to a 1929 peak of 391 points only to fall to 40 points at depression low. So the depression low was only 1/3 lower than where the dow had traded a decade earlier.

What I wonder about is now that people are truly fleeing paper currencies and just starting to flock to Gold as a hard assett to place their money into. Isn't real estate also a hard assett too?

roger said...

Fooder said:

It's pretty clear that the entire globe is sliding along that downward curve but friends are still looking at me like I'm just a doom and gloomist.....

.. Still most people don't think it's going to really affect us here.


When it finally hits here later this year and people start losing jobs and homes they will say "Why didn't somebody warn me that this was going to happen."

greg said...

Norwester said:

To suggest a 10% "correction" and then stabilization following the 100% climb is specious. The upper market (over 1m) especially is going to get hammered along with condos.

I've been tracking this market for some time (March 2008, February 2009), and I would have to say this market has already been absorbing body blows for a year or more. The last few months have seen sales so low compared to inventory that there are presently more than 40 months of high priced inventory.

I fully expect to see a collapse of prices for this high priced inventory, the same as a collapse of condo prices at the lower end of the market.

Question is, what is going to happen to the intro level single family homes? I mean the langford homes from $300 k to $450 K and the core homes for $350 k to $500 k?

Personally, I think these prices are also coming on the market lower this year. If you manage to lowball one of these, I think it will be too much relative to the price in three years - but not sure the difference will be anywhere near as bad as for those buying $500 k plus properties.

Just my opinion.

Mr.4AM said...

"Isn't real estate also a hard assett too?"

Yes it is; however:
a) As we all know it is still in bubble territory for pricing
b) Credit is harder to get / Banks aren't lending as easily.
c) Nobody wants to buy a depreciating assett that quickly wipes out all your equity.
d) Unemployment is slowly rising & economic crisis is in their faces on TV every single night, so people are scared to lose their jobs and don't want to comit to large debts.
e) Parents of would be new buyers lost some 40-50% of their RRSPs/investments in the stockmarket, so the bank of mom and pop is all but shut down.
f) Very young buyers with no equity are cut off due to no more 0%/40yr mortgages. They should be thankful.

roger said...

I saw a couple more sales on my PCS account this morning; mostly under 500K. This got me thinking about the mindset of today's first time or entry level buyer.

If you watch TV or read the newspaper there are reports from real estate cheerleaders (CREA, BCREA, CMHC) calling for 10-12% price drops in BC and Victoria real estate in 2009. The economists at the banks and credit unions are also echoing the same story.

So what motivates buyers to put all their savings down as a 5-10% down payment only to see that equity disappear over the next year?

To say that they are fools is a sweeping statement that does not reveal the underlying reasons for their decisions. Perhaps those of you that know recent buyers can shed some light on this question.

HHV - How about you start. Does your friend not understand what is happening in the market?

norwester said...

I think you've pegged it greg. The entry level sfh's will be more resilient because of lower interest rates, relaxed RRSP rules and the lesser risks inherent in lower pricing and meeting a basic need. However, I agree that these too will experience a sufficient hit that most lowballs now will not cover the gap created by falling values over three years.

What will be particularly interesting is the effect that the bloated inventory of the carriage trade you've identified will have this year and next. There is a general reluctance to admit the crash will have any significant effect here and a general conviction that some areas, notably Oak Bay, are less susceptible to slippage.

The moment of truth is nearly upon us. You can almost hear the market holding its breath. By June we should have a better picture of things to come. Vendors are praying for a spring bounce. However, I think they're dreaming. People surviving in that snack bracket are especially jealous of their wallets and I do not see Oak Bay as that different from West Van. Can demographics alone overcome devastated equity markets and a global recession? I think not. They may soften the landing, but the "landing" will be rough and one worth waiting for.

For interest sake, check out mls 258967. Bought last year for 1.4; cut down some overgrowth, pop in a new kitchen and wiring, slap on some paint and voila: 2.2. Watch this flip flop. When does it sell and for how much?

norwester said...

roger,

I think what motivates buyers is primarily emotion. It takes some doing to get the upper cortex to override that part of the brain governed by feelings/desires. People now seem to get the idea that if they wait they are in for some great deals on autos. That script seems to be winning over "think how you'll feel behind the wheel of this car!"

The general population here does not yet have that same sense about housing. How well informed is the average consumer? The local/regional MSM lazily recycles spin offered up freely by the real estate industry. Local print media is certainly better than the occasional spot on TV, but it is still pretty shallow.

You are expecting a measure of calculation and foresight that is not as common as one might think. The credit bubble is a pretty powerful testament to that fact. It's too much to expect a sea change just yet. It's seems that every generation has to relearn what its predecessors learned the hard way - thru experience.

hhv said...

"HHV - How about you start. Does your friend not understand what is happening in the market?"

Roger, spent some time with this friend this past weekend. Friend was making statements like: "don't worry, you'll be able to get in too" and "when you're able to afford it, you'll understand why it's better to own."

I don't engage in these conversations anymore. It really is a "status" thing now. We were in Vancouver this weekend, hanging out with Ms HHV and walking the neighbourhood, seeing the sites. Popped into a couple of open house condos in the west end. The only other people we saw were FTBer types: young yuppie urban professionals etc.

I can't think of any other reason other than "status" for anyone to throw rationality out the window.

To be honest, that Tweet from Tim on Friday, the one that went: "People still want to buy homes, get over it!" really is an accurate description of the mentality of some people.

I don't think anyone bothers with math anymore. There is a psychology of "ownership" at play here that prevents people from even thinking about renting as a smart alternative. Trouble is, the people making these choices don't understand who really owns the house.

It's why more and more kids are leasing better cars than they can afford to own, using one CC to pay off another CC, eating out all the time, not thinking twice about $10 door fees and $12 drinks at the hip clubs.

We went out for dinner and drinks on Saturday, not even to a "hip" place. For 5 of us, the bill was over $200. On Sunday am, when we adjusted our budget, Ms HHV and I looked at each other and realized that one night "ate" 3/4 of our monthly allotted "play" money.

It wasn't worth it, we would have preferred to cook for our friends and everyone just pitch in a decent bottle of wine. Except, they'd rather "see and be seen" when they go to the big city.

The pain isn't visible on the streets or at the parties, yet. Until we start seeing our friends suffering, and not individually, I think that psychology will continue.

Interestingly enough though, another friend of the friend that just bought said to Ms HHV this weekend: "(friend who bought) is in for a very rude shock when Friend must start making the mortgage payment." That, to me anyway, is a positive sign that people are starting to question rather than congratulate.

Reid said...

I am not sure that credit is tightening in Canada as much as I would like. My wife and I applied for a mortgage last week just in case something came along. I asked for $x mortgage based on the amount of cash we have saved what we are comfortable taking on in terms of debt. Our bank came back and approved us for $4x and indicated that we did not have to invest our cash savings into the house. Let me tell you $4x is an insane amount of money; a number that should never be offered to anyone.

I am not stupid enough to use any more debt than what I originally asked for, but I have to assume that if FTB’s are getting similar mortgage approval feedback, then the market today is not being held back by a lack of credit.

My assumption for Victoria is that most FTB’s are generally impatient, now have access to lots of government programs, appear to be able to get easy credit and more focused on mortgage payments rather than the level of debt they are taking on. If this is all true, then I have to agree with the original post that it will likely take years and not months to see prices come down to more reasonable levels.

Anonymous said...

hhv:

"The pain isn't visible on the streets or at the parties, yet."

We just had a topic "good people are hurting".

hhv said...

"the market today is not being held back by a lack of credit."

It's not. Canadian bank mortgage lending increased by up to 13% during the reported "credit crunch" time.

Credit crunch isn't happening on the streets. Only business appears to be affected thus far.

"We just had a topic "good people are hurting"."

We did. It's starting to creep in. But it isn't a big enough problem, yet, to make a lot of people see housing as the over-priced commodity it is right now.

People targeting the low-end units available on the market today aren't just FTBers. The $250K-$550K properties are the only "affordable" products available today. So competition is naturally tighter in this segment. It's still looser than it has been in 3-4 years though.

Anonymous said...

Patient, I agree with Reid.

You saw price is coming down and cheaper than before, you get approved for mortgage, your partner did not ready blog like this one, you are tired of renting and moving, your are pushed by your realtor, you are imaging the excitement of moving into your house,
How can someone resist all these?

If you find a good place to rent, calculate the money you will save, get your partner read what you are reading, just like what I am doing, then right decision will be made.

By the way, welcome “norwester”, good post.

Anonymous said...

Would real estate agents consider this a lowball? Do you?

Seller pulls ejection lever

boomer said...

hi bearettes;
interesting conversation re buyer logic and emotion... the general tone on this blog has been that everybody knows what the market is doing and should wait it out for lower prices-or else they are fools….. fair enough-so much for logic-and the "right" thing to do..

unfortunately-or maybe not---human aspirations don’t necessarily work that way, and even norwester in his recent post mentioned that he was having to keep his wifes enthusiasm for “nest” building under control.

John Lennon said that life is what happens while you’re busy making plans-or words to that effect-and certainly some current buyers are taking that to heart. They may REGRET that buying decision in the months to come, but for now,hell,springs in the air, and they have the comfort of knowing that they are getting a much better deal price wise, and carrying cost wise than a year ago.- and that can be a powerful motivator….

Mr.4AM said...

"If this is all true, then I have to agree with the original post that it will likely take years and not months to see prices come down to more reasonable levels."

I give it max 2 years, before we reach "2011 Global Meltdown" and Victoria homes reach 50 to 75% decline from peak.

- The credit crunch is about to get much worse, especially after MSM realizes the Stimulous package failed to halt the downturn (Q4 2009/Q1 2010).
- The stock markets are about to dive to new lows. Bad news, after bad news.
- 1st world nations such as UK and Ireland are on the verge of defaulting on their national debts. Japan isn't that far behind.
- The BRICs (Brazil, Russia, India, China) are all but bricked!
- Oil remaining low in 2009 will severely impact Arabic nations (Dubai already near bankrupcy), Iran will become more instable. Iraq will lack $ to reorganize. Russia may collapse by end of 2010
-Major Alberta Oil projects already on the verge of shut down. Over 30,000 lay-offs may occur by Q2 2009 in Alberta.
- China has threatened multiple times to stop buying US treasuries (why do you think Hilary went there in person this weekend?).
- There's now in excess of 60% probability of USA going into Hyperinflation by 2012 (a conservative estimate). At the very least severe inflation will start to be seen by then.
- The IMF (the bailer of last resort) is itself already in a need of more money (bail out the bailee??).
- If AIG explodes, the 5 canadian banks will turn into 3 at the most due to derivative exposures. If AIG gets nationalized in the US, their taxpayers will pay even more taxes.
- As the stock market dives another 15-30%+ in 2009, the buy and hold investors will get massacred.
- Real estate in USA is still nowhere near a bottom.


....And people think Victoria real estate market won't be impacted?

LOL!

roger said...

The real story about the Canadian recession is finally coming out..

Made-in-Canada recession

No longer can Canadians point the finger at the global downturn as the sole source of their economic woe - recession is now also a made-in-Canada problem.

New figures from Statistics Canada show the domestic economy took a beating in December, with retail sales plunging a Scrooge-like 5.4 per cent, the largest such fall in 15 years as consumers stayed away from stores - especially car dealerships - during the traditional high-spending month.

Economists are now unanimous in predicting Canada's gross domestic product will come in weaker than America's for all of 2008 when the fourth-quarter gross domestic product figures are released next Monday.

They are predicting fourth-quarter GDP in Canada shrank between three and four per cent, about the same as the 3.8 per cent contraction south of the border and far worse than the Bank of Canada's recent prediction of negative 2.3 per cent growth.

Nick said...

roger said: "So what motivates buyers to put all their savings down as a 5-10% down payment only to see that equity disappear over the next year?"

That's a very good question. I thing emotion is a huge part of it. I'm 29 and my friends have almost all gotten into the real estate market at prices that I think are somewhat outrageous. The friends who are still renting are unwilling renters and are looking for the first chance to get into the market. They very much bought into the "priced out forever" mantra and see this as their only chance. They also unfortunately look at realtors, VREB and economists like Phil Soper as unbiased experts.

Frankly, I wouldn't buy anything right now because I'm not even sure I'll be employed this time next year. At around 400k, even a Victoria "starter home" relies on two steady incomes and I certainly don't want to find myself in a situation where I can't make mortgage payments.

My personal outlook is likely very different than many of my friends. I grew up in a trailer park in the Interior during the 80s recession. My dad was a young tradesman who had trouble finding a steady job in a tough economic climate. While we certainly didn't starve and we always had the essentials, my formative years were shaped by the recognition that times are not always good. Most of my friends have no experience having to make tough financial choices.

Everyone I talk to seems to think that current events are a blip on the road to every increasing prosperity, which leads me to believe that things are going to get even worse. When people start getting badly underwater, the love affair with real estate is going to turn into a messy, painful divorce with prices overshooting on the down side.

All just my opinions though...

Mr.4AM said...

A few links to backup my comments:

- AIG Wants another $60 Billion. Already 80% gov owned.
- Latvia Government collapses!
- Credit Crunch only just begun, warns S&P
-Volcker & Soros see no bottom for World Financial Collapse Volcker is one of Obamas top financial aids!
-Hilary begs China to keep buying US Treasuries Meanwhile, Civil unrest clampdown preperations in China begin
-UK decline is the world's second worst! So Gordon Brown wants to throw 500 Billion Pounds at problem
-US Hyperinflation now a real probability within 2-3 years.
-Switzerland could be the next Iceland
-Hundreds of thousands protest in Ireland.
- Bonds reflect European Union in Crisis: Spain, Portugal, Italy, Ireland and Greece.
- IMF emergency fund is doubled Don't ask where that money came from!

But hey don't worry, Victoria real estate can only go UP in value!

Mr.4AM

greg said...

Boomer said...
...they have the comfort of knowing that they are getting a much better deal price wise, and carrying cost wise than a year ago.- and that can be a powerful motivator….

I have to agree with boomer on this. I also try to weigh lower prices against the exposure of leaving my downpayment in a potentially collapsing banking syste. That's one reason I would plug my money into a property without waiting for an ultimate bottom.

I'm looking pretty actively right now, but with a pretty picky set of criteria, looking at the cheaper single family homes in Fernwood etc.

I don't think the cheaper places are going to see 50% drops the same way I think properties in the 1 million plus market may end up correcting.

I also plan on holding back enough of my downpayment to deal with contingies, in case things do go sideways. We'll see if I'm being too hasty, I guess.

greg said...

Whoops!

syste = system
contingies = contingencies

roger said...

Great posts everyone. Thanks to all the regular and new posters for their efforts.

Why not send a link to this blog and this thread, in particular to anyone you think might benefit. Don't bother with property owners as we don't need denial posts.

roger said...

Stock market tanked today. All North American stock exchanges down over 3%.

U.S. Stocks Fall, Sending Market Below Lowest Close Since 1997

Canadian Stocks Slide to 5-Year Low as Crude Oil, Gold Decline

roger said...

Greg,

Please don't go the dark side now. You have been patient so far and prices are dropping. I am seeing more houses under 400K and some nice lowballs. By June when owners and realtors see that the spring season was a fizzle look out below.

HHV we may need to do an intervention at the local pub for Greg. :>)

greg said...

Thanks for that Roger,

I'm not saying I wouldn't be making low offers. Its just that, if you make those offers, somebody may see the writing on the wall and accept them. I'd rather lead the way down than follow. Necessarily, that means I won't be timing the bottom. But everyone is in a different situation.

Anything I buy at this point forward won't be much more than my rent - of course, opportunity cost is given up (ie GIC interest), but since GIC interest is tanking and the banking system is unstable, I'm not sure trying to time the bottom is a good idea for me.

Mind you, I will be looking for a bottom to buy a revenue property (ie condo), so I'm still going to stay interested in the market, no matter what I do this spring.

Either way, I'm happy to go for a beer if bears will still associate with me....

hhv said...

Roger,

I'm game for beers anytime.

As for interventions, I don't think Greg needs one.

Remember the Mohican buys a house post? I honestly believe that for some people, given their personal situations, job security etc, buying is advantageous, even in today's overpriced market.

Greg may get lucky with a low-ball offer. If he gets a place he can afford at a price he thinks is fair, even when he knows prices are going to continue to decline, who are we to intervene?

I don't buy the 50%-70% price decline claims that some people are, I'm looking for 35% from April 2008. Even that may prove a stretch when all is said and done.

I'll tell you this much, if Ms HHV and I were both gainfully employed in stable positions in the same city, and a product we liked came on the market in a neighbourhood we liked for around $300K, we'd jump fast. That to us is a reasonable price to pay over the long term.

Personally, I'm starting to think that as this market unfolds and we see the regular bears take the plunge and buy themselves a home at a reasonable price for their families, we should begin applauding their patience. We should do it loudly too. Rather than grudgingly congratulate the people who are still stretching to overpay for products they have no business owning because it may be deemed impolite to do so at a dinner party.

On second thought: Greg are you free next week for a beer or three? Roger's buying.

Anonymous said...

The world is about to go on sale, and people are contemplating spending their money now on a house? With unemployment rates about to skyrocket? With BoC not even being at 0% yet?

The timing to be worried about your money not being worth didley squat is when we start to transition from deflation to severe inflation, that's not gonna happen just yet. The housing prices will not change overnight when this massive event occurs. There will be a 3 to 6++ month period where you can jump in and get the best bang for your buck. Trade your devaluing dollars for a house whose price hasn't increased due to severe inflation because the owner must sell at any cost.

At the earliest this would be spring 2010. We have way more downside to go people. Hang on to those dollars, and that patience.

Just Jack said...

Properties with the majority of value in the land will be the hardest hit.

That would be your starter 2 bedroom ranchers and your homes on water front or acreage.

In all recessions, its the first time home owner that suffers the worst financially. If you are going to buy a home, you should try to buy as much house as possible but with the least land cost.

In otherwords a near new home on a 3,000 square foot lot, is a much better property to buy than a 50 year old home on a 7,000 square foot lot. Stay within close proximity to the downtown core, but not too close to the downtown core. Always think the worst case scenario. "If I had to rent the home could I still make the mortgage payments while living somewhere else?"

It is the land component that is the most volatile with the major up and down swing in value.

This may be contrary thinking from what you have heard before. But most of those peals of wisdom given to would be purchaser are from rising markets. IE "buy the worst house on the best street" - good in a rising market - bad in a falling market.

hhv said...

Just Jack,

"In other words a near new home on a 3,000 square foot lot, is a much better property to buy than a 50 year old home on a 7,000 square foot lot."

Funny you should say this. I stated the obvious to my recent buyer friend who did the exact opposite (old small house big lot, central location). I thought you'd be better off getting the most house for the money. My line of thinking was "too busy to take care of land etc." That small lot homes were becoming the norm etc.

REALTOR told friend the opposite... all value is land value, stay away from small lots, condos etc...

Now I'm just confused.

Anonymous said...

In my own case, a co-worker and her husband are dead set on buying a house in the next few weeks. The strong motivation here is possibly primal; she is due in mid-May. I have tried to explain to her that prices will very likely to continue to decline but she is not listening. I am concerned that she and her husband will lose all the equity (~$180K) they have gained by recently selling his condo. (They are looking at properties currently in the $500-600K range.) I want them to succeed as a family and not get bogged down in possible money issues in the short term. Ugh.

- StargazerXL

roger said...

Stargazer,

Do I understand you correctly? They plan to buy soon and move in within a month of childbirth. Then they will start paying their mortgage and other new homeowner expenses on a reduced household income (maternity leave EI benefits).

I hope she works for the government. When downsizing comes to town it is tempting for employers to layoff the employees that are new to the company or away on sick or maternity leave. High tech companies are particularly ruthless.

olives said...

I never understand the reasoning that if you're having a baby you need to buy a house. In fact, the opposite makes more sense (currently at least) in that why would you want that type of financial burden when you may be off work for a few years?

A friend of a friend is in that same position and suffering financial now due to the additional pressure of a job loss. I keep asking "Why don't they just sell their house and rent?" - thus eliminating their biggest financial problem (mortgage) - they will have money in the bank, not have to panic about the unemployment and enjoy their baby in their nice rental property.

Anonymous said...

It's a possession thing. A baby is the ultimate dream fairy tale possession, and it tarnishes somewhat in the cheap place setting of someone else's rental house.

In a culture where happiness can be purchased on credit, a baby and new family can only be happy in the family's very own brand new house.

It's not true, heck, it doesn't even make sense, but it's all part of the North American dream folks have been sold since the 1940's.

In reality, a nightmare. On so many levels.

greg said...

Just to be clear, I did the "Let's have a family" thing in rental accommodations. If I did buy in the near future, one positive outcome for working/middle class families is our nice rent controlled CRD townhouse will come back on the market after quite a few years of very convenient and affordable living for us.

As far as beer is concerned, yes let's do that again sometime soon. Hasn't it been almost a year since the last beerfest? Sorry, my math is suspect....

I do agree with StargazerXL. If one of the parents who feel the primal urge to buy is going to be on maternity/parental leave, they have hopefully budgeted or adjusted their lifestyles in preparation for the pending loss of income.

On the other hand, I know couples who had to get all their material possessions in a row before having kids, buying the best house, the best car, the best clothes etc etc, sometimes delaying for years. I won't even mention the cases where infertility devastated those plans (oops, okay I will).

Sure your kids have more material surroundings - but do they benefit from that? You may lose years if not decades of time to spend with your kids by waiting, and you'll be older, crankier and more overtired dealing with those pesky teenagers.

Materialism is not all its cracked up to be, when it comes to family life, time and attention are a lot more important. IMHO.

greg said...

Greg may get lucky with a low-ball offer. If he gets a place he can afford at a price he thinks is fair, even when he knows prices are going to continue to decline, who are we to intervene?

Thanks for that HHV. I remember Mohican's post. Can't say I am being as rigorous mathematically as Mohican, but I'll give a real world example.

Looked at a house last spring. Listed $475,000 in Fernwood, sold for around $450,000.

Looked at a practically identical place this spring. Listed around $50,000 less. Assessed value around $70,000 less than house sold for last year.

If I can get that house for $70,000 less than last year, I gained around $58000 (nominal) by not buying last year, and I would be able to lock into a five year mortgage at around 2% less than last year.

Also, unlike the other house, this one meets a criteria of mine (Garage) which is surprisingly hard to get in the core areas of Victoria, at least in my price range. I'm prepared to pay a bit extra for that.

Lot and location meet my criteria? Check and check.

Is that crazy? Maybe. The seller would have to drop their price. Do they know what's going on? If not, I can wait.

hhv said...

Greg,

you missed the most important part of my post: on second thought. Roger and me are gonna get you drunk and talk you out of it... :-)

hhv said...

308 sales in the VREB so far this month, says a REALTOR on Twitter. Compared to 316 in Feb 2008. We might actually see an uptick in sales volume YOY. Imagine the outpouring of positivity over that?

Anonymous said...

Sales figures are completely meaningless without looking at prices and inventory.

roger said...

HHV,

You made a mistake on the stats. Total unconditional sales in February 2008 was 619.

In the first two weeks of February 195 total sales reported by Stephanie and Just Jack. This Monday 308 total unconditional sales were reported.

Based on these reports I am projecting 430 sales for February which is down 33% YOY.

See the graph, with estimate, here

roger said...

Here is another interesting chart of the S&P 500 in previous recessions. Click the buttons at the top for details on each recessionary period.

Recession analysis by Dshort

After looking at the charts do you think this will blow over in the second half of 2009 as suggested by BOC governor Carney?

Anonymous said...

There's only one way this will "blow over" in the second half of 2009; a whole lotta Chinese and Russian nukes down south when Obama nukes Iran like the idiot puppet he is.

To discount the possibility is to be woefully ignorant of human nature and TRUE US history.

greg said...

Nice one HHV, it might help if you and Roger get me drunk. Of course, the seller might not take a lower offer and save me all the trouble....

roger said...

MacLeans magazine has just published an article on the future of Canadian Real Estate with comments by leading experts like Shiller. The article also has a discussion about Vancouver pre-sales and how buyers are being sued.

MacLeans Article

If you want to pass the article to your friends or post it in other forums/blogs here is the URL:

http://victoriacrash.notlong.com

hhv said...

Not sure what happened there Roger, I must have confused all properties with SFH or something... macleans article is great cheers for the link

Anonymous said...

Thanks to everyone for your comments. To answer Roger about the employment of my pregnant, house-hunting colleague, we both work for the government (this is Victoria after all, so not that surprising). A downside for her and her husband is that she is not in a long-term position, and may be let go in ~2 years. (I hope she is able to stay but I don't make these decisions.) Weirdly, they were pre-approved by the bank for a ~$650K loan, and are looking at properties with listed prices just a little below that (they have a ~$200K down payment from the sale of the condo).

- StargazerXL

omc said...

I just heard that bank of montreal was starting the dreaded phone calls locally to people under water with risky professions. To have 24 hours to come up with $70k to get yourself back into the agreed upon mortgage ratio would be scary. I think we will see some more distressed sales this summer.

roger said...

OMC,

How about some more details. Are we talking about demand loans or mortgages. Under what loan terms are they calling and asking for cash?

roger said...

EI recipients on the rise

The number of regular beneficiaries were up in all provinces and territories compared with the same month a year earlier, with the largest increases occurring in British Columbia (33.2 per cent more), Alberta (30.3) and Ontario (29.6).

What happens when the EI benefits run out?

Anonymous said...

So what do you suggest for someone like me? ~$50k/year in a fairly stable job, FTB, around 10% down, looking at 2bd/2bath condos with purchase price under $225k. For a decent building with good management, it may end up being the same or cheaper than renting a similar condo. So is buying in the summer/fall still a good idea, or do you see prices dropping even more? My problem is even for a 1bd apartment, I'd be paying ~$850/month in rent, so it's not a huge jump to buy...

Opinions?

Anonymous said...

If you do buy a condo go for something built in the 70s or early 80s. The wood frame low rises with good histories of no leaks.

hhv said...

"My problem is even for a 1bd apartment, I'd be paying ~$850/month in rent, so it's not a huge jump to buy..."

Why should it be a jump at all. Given supply demand ratios in condos these days, I'd say it's highly likely that in the next year or two you'll see rent and mortgage by pretty much the same, instead of not "a huge jump."

If you don't have to move, why do it, why buy now instead of waiting it out a year? The market isn't going to suddenly spring back up anytime soon.

roger said...

anon 10:09

Take a look at this graph. When it stops dropping it will be time to buy.

Victoria Condo Prices

Just Jack said...

Your not necessarily safe with condos built in the 1970's and 1980's.

All buildings leak and have since the pyramids were built. And especially those buildings constructed in a rain forest.

When purchasing in a strata building read through the last two years of the strata council's minutes and ask the strata chair if there has been any water problems in the building AND ask if there is any "SPECIAL ASSESSMENT" for upcoming repairs. Nothing is going to shock you more when you finance 90 percent of 225K purchase and then find your on the hook for a special levy of $25,000 for garage repairs.

Anonymous said...

Roger asked: "What happens when the EI benefits run out?"

Answer: You get a 5 week extension, thanks to BC budget going into deficit.

Anon asked: "So is buying in the summer/fall still a good idea, or do you see prices dropping even more? "

Answer: I see it dropping for at least 2 years. At least 25% drop from here. In the case of a $200K condo, that's $50K. Of course the calculations are a bit more complex than that, but basically it adds up to this: The longer you wait, the more you save.

Ryan said...

"I also try to weigh lower prices against the exposure of leaving my downpayment in a potentially collapsing banking syste. That's one reason I would plug my money into a property without waiting for an ultimate bottom."

I understand your fear, but if banks fail to the extent that CDIC can't cover the losses, the housing market is going to be the least of our concerns. If things get that bad, you won't be buying a house and neither will anyone else, so prices will sink to ridiculous lows. Anyone who bought now will be so far underwater that the down payment will be a mere fraction of their losses.

If you're seriously worried about the security of leaving money in a savings account, cash out and bury it in a box in the back yard. If things really go that sideways, your 25% down payment will buy you the same house outright.

Anonymous said...

So is buying in the summer/fall still a good idea, or do you see prices dropping even more?

Who ever said that was a good idea? Your Realtor?

omc said...

Hi Roger,

My understanding is that it is mortgages. I guess this is second hand as it was my wife talking to the bank employee doing the calling, and she didn't ask quite the same questions I would have. The example I was given was not in arears or late payments, but the dreaded mortgage being worth more than the property and feared to be dropping in value. The owner in this instance was phoned and given 24hrs to come up with $70k. The context was that this person was not comfortable doing this, and it was not the only call she was making. My wife doesn't know the person that well and wasn't the only other person there.

This was dished up with a whole bunch of other extremely bearish things on the banks and the economy. Rising bankrupcies for realtors and developers and such.

I looked this up in one of our books on local real estate investing and it is legal and did happen in the 80s.

omc said...

btw, I used to be a class A gasfitter and often did work on the heating systems on some of the 70s and 80s condos. You can end up with special assesments just as easy with one of these units as any others. The price of a torch on roof is staggering, 40 year old plumbing, a new boiler.....it just goes on and on.

roger said...

The rumour mill over at Vibrant Victoria is discussing the Hudson Bay project.

olives said...

The Bay looks FAR WORSE than a hole in the ground (like the Radius beside it). A heritage building and a valuable parkade are destroyed for no good reason.

I'm interested in the Walmart complex - last rumour (on here - B2B?) was that only the parkade was getting built now. Anyone?

Anonymous said...

"Answer: I see it dropping for at least 2 years. At least 25% drop from here. In the case of a $200K condo, that's $50K. Of course the calculations are a bit more complex than that, but basically it adds up to this: The longer you wait, the more you save."

Really depends on how much you're paying for rent and what happens to interest rates in the near future. Rent plus a 2% change up on interest rates will wipe out any saving you've had on waiting 2 years. Buying is a good idea if buying is a good idea for you.

Anonymous said...

Nothing is going to shock you more when you finance 90 percent of 225K purchase and then find your on the hook for a special levy of $25,000 for garage repairs.

Good post. A little aside, I have a friend who bought into a condo "post remediation" and subsequently received over $6,000 back through the strata corp on settlement of the damage - as the previous owner was nowhere to be found and hadn't made contingent receipt a part of the purchase the funds went to the current owners.

patriotz said...

I understand your fear, but if banks fail to the extent that CDIC can't cover the losses, the housing market is going to be the least of our concerns.

There is absolutely no way that any CDIC-insured depositor will fail to get his money back. They don't call it fiat money for nothing, you know.

NanHousing said...

Just had a chance to check out the January package stats for areas north of Vic. Let me tell you it is a complete bloodbath. In a few of the VIREB areas, there were ZERO condo sales. There was also some 24-30 MOI too. Prices will continue to plummet through the 'spring rush'. It is going to get ugly. Looks like all the FTB and retirees are completely tapped out. But Vancouver Island is the best place in the world so it is completely insulated from any downturn!

roger said...

Nanhousing,

I have been tracking February sales and listings North of the Malahat. Things are marginally better than January.

With the collapse in forestry and the mill slowdowns the economy is not doing well. I suspect there were fewer snowbirds buying this year as well. The weather (snow) has not been a big selling point.

Art Vandelay said...

I agree with patriotz: transactions are down because sellers aren't being realistic about prices. Many still think they can get 125% premium on assessed value, which was true in the bubble. But the range these days is as low as 85% and (in very rare cases) as high as 110%. But the norm for sales prices right now is roughly 100% of assessed value. Many sellers aren't willing to accept this reality.

Also, to the original post. That realtor is complicit in a fraud if s/he counselled lying on a mortgage app.

hp said...

Another haircut:

3937 Lauder Rd, MLS 258204
BC Assessment $641k (2008 & 9)

May 5/08 $679k listed
June 10/08 $649 reduced
Aug. 7/08 $619 relisted
Oct. 14/08 $575k reduced
Dec. 29/08 taken off market
Feb. 2/09 $559k relisted
Feb. 21/09 $525k SOLD!

The sale price was 23% less than original list price, 18% less than BC Assessment, and 6% below the last list price.

The seller followed the market down and probably had offers last summer that were better than the final selling price.

roger said...

Today's News Headlines

Victoria Police Crackdown on Downtown Crime

EI benefits soar in Greater Victoria

December figures show an increase of 49.1 per cent

A total of 2,490 capital region residents were on regular EI benefits in December, compared with 1,170 in December 2007, Statistics Canada said yesterday.

The number of people working in retail and wholesale trade in Victoria was down by 2,900 from last January on a seasonally adjusted basis from January 2007, said Vincent Ferrao of Statistics Canada. Accommodation and food services numbers are down by 3,400 for the same period.


BCAA chops 38 jobs

The B.C. Automobile Association is cutting 38 jobs in its travel services division across the province, including seven Victoria employees in three offices and another five staff members in Courtenay.

"The travel business has not been profitable for BCAA for several years. The last eight months have been particularly challenging," Urquhart said . "Travel began softening last summer with the dollar, rising gas prices and airlines charging surcharges. Then October hit. The economy going into decline resulted in a significant drop in business for us."

roger said...

Now the Globe & Mail is covering Victoria unemployment:

Soaring unemployment marks sea change for Victoria

The city has long claimed one of the lowest unemployment rates in the country, but Statistics Canada yesterday reported the number of people claiming employment insurance benefits in Victoria is up nearly 50 per cent over the past year.

At the Spectrum Job Search Centre, the change is evident: There are lineups for computers and counsellors. The mood is more intense, too, as job opportunities at all levels dry up.

Since the fall, the number of first-time employment-insurance claimants walking into her agency has doubled. At the same time, the number of new job postings has dropped. From an average of 30 or 40 new postings each month, the centre had just eight calls from employers looking for workers in January.

The clients coming in are from all sectors of the work force, from investment bankers to construction workers. Ms. Walker's office averaged 1,550 visits each month for the last 18 months. In January, 2,600 visitors showed up looking for work.

The biggest change she has tracked is in the construction industry, where a long-running boom has turned to bust. That's being felt in the building-supplies business, too. Service industry and manufacturing jobs are down as well.

Anonymous said...

Nortel cutting 3,200 jobs worldwide

Cancels all bonuses due from last year; says laid off employees, representing about 10 per cent of its work force, will get no severance

roger said...

Buyers in BC who bought in the last few years and want to refinance may be disappointed.

B.C.'s Plummeting Home Values Affect Eligibility for Lower Interest Rates


With interest rates at an all time low,
mortgage brokers are being inundated with calls from optimistic homeowners
looking to refinance at lower rates. Unfortunately a 10 to 15 per cent plunge
in B.C.'s real estate market over the past year means refinancing to take
advantage of lower interest rates is impossible for some. A recent study by
independent broker firm Averbach Mortgages found only two out of 10 clients
actually qualified for refinancing.

mln said...

Vancouver condo sold to developer against owner's will

Articles like that are exactly the reason why I won't be buying into a strata property. There are so many horror stories from the states right now, I think it will become the norm up here as well.

From the article:

"We will be dealing with developments of several hundred units each that are incapable of doing the repairs, have no money, the debt loads are excessive, the buildings can't be occupied because of structural failures," Gioventu predicted.

"We're facing some much greater problems. And a lot of it is attributable to deferment of obligations."

Gioventu cited a 300-unit complex at Nanaimo and Broadway in Vancouver where the owners can't afford or agree on repairs. He believes the estimated cost of repairs has soared by 1,000 per cent while the fight has raged on.

roger said...

The Business News Network is covering real estate this week. This clip is about 10 minutes long and is well worth watching. Predictions look ugly for 2009.

There is a 30 second commercial before the show starts.

BNN Real Estate Report

roger said...

CMHC has released their Housing Outlook for 1st Qtr. 2009. You can get a pdf copy here:

CMHC Free Reports

Here is an excerpt showing the predictions for Victoria and Vancouver.

CMHC Predictions - BC

Readers will note that housing starts will be way down for the next two years. This will have a big impact on the Victoria economy. For every construction worker analysts say 2-3 other jobs are created. MLS sales are also predicted to drop and the annual average price (mix of condos, towns & SFH) will drop to 420K from the 485K seen in 2008.

beagle said...

A good laugh for the bears. I really like the paragraphs below.


Housing market pins hope on new buyers

And even though most first-time home buyers — generally in their late 20s or early 30s — tend to have much more debt than their parents did, Mr. Soper said they're also much more “real-estate savvy” than the generations that came before them.

“If you think of the traditionalists, the older people who went through very different economic times, they're very, very conservative about mortgages and debt as it relates to housing,” Mr. Soper said. “Today's first-time buyer views this as just a natural way to get into the market.”

He added that young prospective buyers also tend to be much more confident about their future, less financially dependent on one job and one company, and less concerned about the recession than their parents.

This confidence has combined with lower housing prices, better government incentives and less risk to make the real estate market more appealing to first-time buyers, Mr. Soper said.

roger said...

Thanks Beagle. Sometimes the spin gets so ridiculous it is actually funny.

roger said...

No problem here folks - move along.

Canada's Debt Clock is back!

hhv said...

Can I just cut them a check for my share and be done with the burden from now on?

roger said...

Bank of Nova Scotia jumps on the bandwagon....

Home sales, prices to continue slide: economist

TORONTO — Homeowners should brace for another year of sliding real estate sales and prices across Canada, warns Bank of Nova Scotia senior economist Adrienne Warren.

Ms. Warren is forecasting a drop of 15 to 20 per cent in the volume of existing-home sales in 2009 compared with 2008.

The average resale price will fall 10 per cent, Ms. Warren predicted at the bank's annual real estate outlook conference.


Nobody wants to looks stupid now that it is painfully obvious what is happening.

B2B said...


I'm interested in the Walmart complex - last rumour (on here - B2B?) was that only the parkade was getting built now. Anyone?


Hi Olives! The last I've heard is just that there was going to be far more residential in the T&C Walmart development, but that now due to lack of sales (of the residential) they are making commercial tenants a higher % of the overall development. Good luck with that, I figure, if it's true, but that's just a rumour.

Anonymous said...

Are first time buyers getting choosy? Why are they passing up this deal?

MLS 258348

Anonymous said...

Canadian Press reports B.C.'s public service to shrink up to 30 per cent as baby boom busts: premier

Wait till the election is over and they have another four years in power. Around June there will be an update to this news release.

Anonymous said...

FYI, the Silkwind Condo development (Sooke area) has shut down its sales office located on Tyee rd. Their sales office was near the Dockside Green developments. No word as to why they did this, but it's not hard to speculate. Their website is still working. When I was there 5 months ago and asked how sales were going, they said that sales were very slow, and more than their words, their faces told the story.

Anonymous said...

Sorry, Silkwind = Colwood, not Sooke.

roger said...

CHEK news had a segment on Americans coming to Victoria. It appears that there has been a large drop off and this may result in layoffs if it continues this year. Here is a CBC story with the actual stats.

U.S. trips to Canada hit 36-year low

The number of Americans travelling to Canada and staying overnight hit its lowest point on record for a July-to-September period, according to figures released Wednesday.

Statistics Canada says visitors from the United States made 5.2 million overnight trips during the third quarter of 2008, a drop of 6.9 per cent compared with the same period one year earlier.

The state-by-state reductions were large for key states such as New York, down 8.4 per cent, Washington, off by 16.8 per cent and California, reduced by 12.9 per cent.

Anonymous said...

Catalyst Paper is shutting down pulp mills in Crofton and Campbell River for an indefinite period and laying off more than 750 workers.

Anonymous said...

That's not news, but too bad for the workers. Hopefully they have been able to sock away some of those high salaries over the years.

NanHousing said...

Roger:

What % would you say prices are down north of the Malahat? From what I can see from sales and listing prices, I'd say prices have gone down 10%+ since only Sep/Oct and 15%+ since May/July. There are a lot of reductions lately and people having to take low offers.

Of course there are a ton of properties out there that sat/are sitting on the market for 3 months without a single reduction. Talk about money being thrown away. I wonder how sales figures will come in this month too.

roger said...

NanHousing,

It depends on the area. Campbell River & Courtney-Comox have had the biggest drops. Nanaimo is doing better than anywhere else but prices are dropping there too. I don't track Duncan but Mill Bay is down as well. Ladysmith and Chemainus are having difficulty selling now and prices are falling.

I track the Parksville-Qualicum area and prices there are back to spring 2007 levels. They only sold 14 houses there last month and there are 400 to choose from!

roger said...

Anyone else notice that listings have been increasing this week and sales have slowed down from last week? Or is it just in the areas I am looking at?

omc said...

Nope, not just your area. I am seeing the same. Lots of the new listing are very poorly priced mind you.

dub said...

I've actually only been seeing a handful of listing and quite a few sales (condos, all areas, under $320,000).

What I find shocking is that many of the sales are pretty close to the asking price... and for units that have been sitting there for a quite a long time. Given the selection available, I find it rather shocking. But what do I know?

Anonymous said...

dub said:

What I find shocking is that many of the sales are pretty close to the asking price...

FTB's with little experience or help from their agent.

Reid said...

People buying homes today close to asking are either serious idiots or have been manipulated. When you look at a the long term decline in the price of stocks, houses or most other assets it is not lineal, but rather there are flattening out periods and upticks, but the trend over time is down (look at some of the stock charts Roger has posted to see this). This is likely what is going to happen with Victoria real estate. Do not get fooled by any uptick in activity as it is simply unsustainable.

Getting some activity in the market may be good as it will get a bunch of the sellers to list their houses over the coming months and inventory will start to climb. There are only so many dumb FTB’s so it will slow again. The reality of this recession should start to be felt in Victoria by summer and then we should start to see more downward pressure on pricing.

Unfortunately I think it is still at least a year too early to be buying anything.

omc said...

I can't believe people are actually still buying condos in this market! A failure of the public school system for sure.

NanHousing said...

It is quite easy for people to get sucked in an not know whats happening. Some people don't watch any news or read any papers. They will simply believe everything the realtor tells them and voila...good time to buy....

There are a lot of people that know all about the slow market and what is happening, however, they feel the need for the status of home ownership. What an expensive status that is.

Anonymous said...

The curling tournament on right now at the Save on Foods memorial arena will be a huge boom for condos in Victoria. I was standing in line for a hotdog and I overheard a couple talking about buying a condo. Looks like it's going to be a long, tough wait for the bears. Time to get out the meat slicer and slice up some bear meat.

patriotz said...

Ladysmith and Chemainus are having difficulty selling now and prices are falling.

Nobody is having difficulty selling, they are unwilling to price to sell, which is something else entirely.

NanHousing said...

That brings up an interesting point Patriotz, for sales and months of inventory to be at normal levels, I wonder how much prices would have to be slashed across the board? 20%? 25%? It is anyones guess.

roger said...

Nobody is having difficulty selling, they are unwilling to price to sell, which is something else entirely.

Patriotz we know your viewpoint. We got it after the fifth time you told us six months ago. This beating of the same old drum is getting old.

Anonymous said...

I have a feeling common sense in financial responsibility is not very common, hence peop.. er.. fools keep on buying.

It's going to take a major event or series of events in Victoria, beyond the declining prices before joe6pack clues in that in fact it's not a good time to buy.

Events such as losing your job, credit really starts tightening, higher credit scores are required to qualify, inflation kicks in, interest rates finally start going up, etc.

Until then, it seems as if FTB fools think they just got a second chance... "Before They Are Priced Out Forever!!!!"

I say we all put on one of these.

patriotz said...

Patriotz we know your viewpoint.

That's not a viewpoint, that's a fact. Anyone can sell at any time. It's just a matter of price.

The reason you are hearing this drumbeat is that I am tired of hearing people complaining about their houses not selling, as though it was due to something like sunspots instead of their own unreasonable asking prices.

NanHousing said...

Imagine all the realtors' time and money the sellers are wasting. If I was a realtor, I wouldnt even bother taking on a listing unless it was priced competitively and knew that the sellers were motivated and willing to reduce to competitive prices.

Even though realtors love to pump all the time, it is a hard sales job when you know what the market price is and someone brings in interested buyers but there is an obstacle (seller) in the way telling you the price it will sell for. Many of them have no chance in hell of selling some of these places and putting food on the table and that is the sad part.

boomer said...

Ironic about the Catalyst plant shut down in Crofton.

Last summer the smart real estate money (oxymoron fer sure)was saying that the only thing that was holding down real estate values in and around Crofton was the ugly smoke spewing pulp plant, in fact Randy Bachman (BTO guy) and other Saltspringers (not canines) were busy protesting the place.

so------ I guess its BOOM time for Crofton Real Estate.

get it while it's still cheap..

-its a funny little world

hhv said...

"Imagine all the realtors' time and money the sellers are wasting. If I was a realtor, I wouldnt even bother taking on a listing unless it was priced competitively and knew that the sellers were motivated and willing to reduce to competitive prices.

Even though realtors love to pump all the time, it is a hard sales job when you know what the market price is and someone brings in interested buyers but there is an obstacle (seller) in the way telling you the price it will sell for. Many of them have no chance in hell of selling some of these places and putting food on the table and that is the sad part."


please don't misconstrue this as an anti-REALTOR rant, as it is not. REALTORS live in a name recognition marketing world. Very few make it as pure buyer agents. Therefore, in order to make a long-term career out of selling houses, REALTORS must strike a balance between listings and sales: that is, they have to take on a certain amount of listings believing they can either sell at that price or advise their clients to sell at a lower price.

Secondly, some REALTORS are ignorant of market pricing. That's not to say they are stupid or ill-informed. It's to say they aren't concerned with market pricing. They are concerned with being a successful sales agent who gets their client a premium which they willingly pay for. Suzy Hahn is a perfect example of this type of REALTOR. You pay me more because I get you a better price for your property.

Thirdly, some REALTORS just don't have the experience or expertise to "know" what market price is. Patriotz is right when he says that all well priced homes sell. Trouble is, who knows what a well priced home is? Which REALTOR has a long career ahead of them who "well prices" at 30% below market value? If a REALTOR undershoots a market price, I'm guessing that will have a more negative career impact than over shooting a price.

IC4 said...

My Ladysmith/Duncan/Mill Bay PCS has shown maybe a total of 10 sales since Christmas (just an estimate). Day after day goes by without any sales.

Now I thought I was shocked when sales started popping up on the Victoria PCS for the asking price; in the last 3 days there has been 2 sales for thousands MORE than asking. Must be some canny REALTORS out there.

Many of the new listings are asking more now than the listings which came on the market 4 months ago. That's my impression. Overall I have to conclude that there will indeed be a dead cat bounce this Spring market.

The RE spin article that Beagle put up is an example of how manipulative invested parties will become. New homebuyers must be extremely wary of the pandering sales pitch. It is always hard to resist something that appeals to one's vanity, such as in that Globe and Mail article.
So when people are ramping up the argument as to how clever it is to BUY NOW, especially with the ever-attractive Spring buying season almost upon us, I can sympathize with anyone who has been waiting a long time to own a house (or in my case, own a house in Victoria). I am waiting until at least next Spring.

Anonymous said...

HHV: Suzy Hahn? You're kidding, right? Last listing I watched of hers' was a certain very classic 70's house in Broadmead (with a huge chopped down tree in the backyard) that endured no less than four price reductions in two separate listings before being pulled off the market in desperation. Still unsold.

I don't care who you are; you can't sell overprice in this market.

Start at 50% off; you'll end up there anyway, sooner or later. Beat the crowd. If you wait until everyone else catches up, you'll have to list at 60% off to beat them.

patriotz said...

If a REALTOR undershoots a market price

It will attract multiple offers, If it doesn't attract multiple offers, it wasn't listed below market, by definition.

Anonymous said...

I think what we're seeing in Victoria is the extension of The Messiah Effect. I'm not kidding, he's got a Halo and everything! hehe

Too bad the stock markets aren't buying in. We could see the Dow break into 6000 territory by next week... heck, maybe even today.

Got gold?

B2B said...


Patriotz we know your viewpoint.

That's not a viewpoint, that's a fact. Anyone can sell at any time. It's just a matter of price.

The reason you are hearing this drumbeat is that I am tired of hearing people complaining about their houses not selling, as though it was due to something like sunspots instead of their own unreasonable asking prices.



I for one welcome Patriotz's reminders (as well as your posts Roger!). Plenty of people come to this blog new every month, who may have never viewed it before. His(?) simple reminders as to how sane markets function might well help to give an uncertain FTB that "aha!" moment and help them to see that the emperor has no clothes.

roger said...

Posters on this blog have often said that this development was in trouble and would have to dump the units eventually. Well it has now happened.

Reflections Liquidation Auction

This is a closed auction where you make your best bid on three units. There are 40 units to choose from.

You will note that the developer stated they have a number of these units because speculative investors walked away and left their 10% deposits on the table.

Now - who is next?

roger said...

B2B said,

I for one welcome Patriotz's reminders (as well as your posts Roger!). Plenty of people come to this blog new every month, who may have never viewed it before. His(?) simple reminders as to how sane markets function might well help to give an uncertain FTB that "aha!" moment and help them to see that the emperor has no clothes.

B2B you may appreciate Patriotz comments but as one of the posters that are subject to his pejorative remarks I am a little tired of it. His opinion is usually stated as facts and other viewpoints are dismissed outright.

Many of the regular posters on this and other RE blogs try to bring fresh and topical material for others to read. Constructive, respectful debate is useful but it is a bit discouraging to have "drive by" criticism from someone who never posts his own original material. Perhaps Patriotz should try posting some RE news, stats or original topics of his own for a change. Criticizing others does little to make people want to contribute and may discourage others from posting any longer.

Anonymous said...

Seller finally unloads...

Oak Bay

dub said...

Roger said, Posters on this blog have often said that this development was in trouble and would have to dump the units eventually. Well it has now happened.

Reflections Liquidation Auction


wow, I had no idea that there were that many left for sale in that place. \

I wonder how the current residence feel about this auction!? You'd have to think that those 0/40y purchasers can't be too thrilled - instant negative equity.

Wenna said...

Can anyone tell me the history of MLS 259188 in Oak Bay? I know it was $629,000 in the fall and has dropped a lot since then. Just wondering if it's a flip?

Anonymous said...

"Can anyone tell me the history of MLS 259188 in Oak Bay?"

It was not sold anytime in the last two years. House is furnished and was listed last October @ 629K.

So it appears not to be a quick flip.

But it is way over assessed value. You should check with Oak Bay city hall to see if they had any building permits. You don't want any nasty surprises if you are serious about the property.

omc said...

Re: Seller finally unloads... in Oak Bay

We know that house quite well as it is 1 block from us. It has been flipped 3x in the last few years as it is a piece of crap. A painted up, spruced up to sell piece of crap. The orriginal flipper made a killing on it, and everyone else unloaded it to try not to take a huge loss. It is what I describe as a painted turd, and still requires the expensive work (electric, heating, insulation, etc). The flipper didn't even replace the kitchen cabinets, just painted them.

The last owner paid $670k about 2 years ago and has been stuck with paying for a new roof and other repairs and fix ups. Add in the realty fees and she lost quite a bit of money.

The buyer didn't get a good deal at $620 as a nicer home, though not painted up, sold on deal street (also a nicer street) for $540.

Anonymous said...

OMC,

So in essence you are saying that the buyer and the seller both got hosed on this deal. But... the RE agents made out like bandits.

You gotta luv this market!

Anonymous said...

The new deal, coming soon to a city near you (i.e. Victoria). Here's your 3 page guide onHow to buy 1 house in and get the second one (maybe 3rd and 4th) for "free"!

Anonymous said...

For those of you who have a little more spare cash, you can participate in the Canadian Liquidation sale of Hotels.

Check it out. WWW.HOTELBLOWOUT.COM

B2B said...

Hey folks,

Here's two interesting stories from Calculated Risk.

1. New Homes Sales in US lowest since '63 - I wonder if there are similar stats for Canada and whether the peak in the last couple years would be as pronounced?

2. What if rents cliff dive? discusses rents plummeting in the UK. The FT also reported the other day that house prices in the country that's "running out of land" have now dropped 18% YOY.

Anonymous said...

US stock market report for February 2009. Bad - real bad.

http://tinyurl.com/cu2xjt

Anonymous said...

Is there a bottom to the US stock market?
Not in sight

What about the Canadian stock market?
Not really

What about real estate in Victoria? Move along folks - nothing to see here. Now is the time to buy.

Anonymous said...

Ever wonder why the high end real estate market has slowed down? Maybe the boomers and retirees are not as rich as they were a year ago.

North American Markets

Anonymous said...

"If a REALTOR undershoots a market price

It will attract multiple offers, If it doesn't attract multiple offers, it wasn't listed below market, by definition."

Are you writing you're own book? Definitians by Patriotz.

"How to miss the mark in one easy paragraph."

Anonymous said...

Roger: I only WISH Patriotz could chase off the paper-pushers.

Anonymous said...

People who think their stock market portfolios are going to get them their house are folks who think robbing Peter to pay Paul works.

The crash is systemic, real estate was the first tier, and all paper will absolutely follow it.

But by all means, rally away, suckers.

Anonymous said...

Check out the future of the Vancouver Olympics real estate binge.

patriotz said...

Are you writing you're own book? Definitians by Patriotz.

The market price is the highest price a member of the public is willing to pay. The person willing to pay this price is the high bidder who completes the purchase if the seller accepts.

If a property is listed below market price, more than one buyer will be willing to pay this price. Downward sloping demand curve. The seller can then go back to the buyers and ask for more, until only one buyer is left. Bidding war.

Anonymous said...

Are you having a dream or maybe a nightmare?

patriotz said...

Plenty of people are having nightmares about RE right now but certainly not me.

As for dreaming, I don't have to dream about RE being reasonably priced any more than I have to dream about summer coming. It's gonna happen.

Reid said...

I originally felt that a major price correction would happen by this summer. But I have been amazed by the resilience/ignorance of both sellers and buyers (recently) in this market. My current thinking is that the recession will hit Victoria by summer, but it will take a number of months for this reality settles in. We also need to flesh out these FTB’s that obviously think today is a great time to buy. Sellers are too headstrong right now and it will likely take another really slow winter combined with foreclosure volumes rising and significant job losses before reality kicks in for the seller population at large. As a result I do anticipate buying for a year and possibly quite longer.

I travel the province extensively and I always assumed the younger generation in Victoria was better read and educated that the rest of the province. I am now challenging that assumption as you would think anyone well read and educated would not be jumping into real estate at these prices given what is coming down the pipeline in the economy.

omc said...

Unfortunately I agree with Reid. The chances of us buying this fall are, well, falling off.

phil said...

It took at least 5 years to get to the top, it could easily take that long to get to the bottom - especially with the powers that be doing everything possible to keep the drunken debt-fest going.

See you guys at the courthouse auctions in '13!

Anonymous said...

So let's just hope that rental rates drop to match the price drops. It's disgusting to see rental rates the same or barely 5% lower than a mortgage payment...

hhv said...

"So let's just hope that rental rates drop to match the price drops. It's disgusting to see rental rates the same or barely 5% lower than a mortgage payment..."

I suggest you redo your math. This is hardly the case across the market. Sure there may be a very few properties that fit this description, but rents at 5% below mortgage payments are hardly wide-spread.

Anonymous said...

I'm also dumbfounded by the obvious lack of awareness out there about what's coming. Restaurants are busy, costco is packed, everyone's still buying junk they don't need. It's bizaro land. I only figured out what was going to happen last spring I must admit but once I did I sprung into action.

I've heard recession denial all over the place in this town. These people are completely nuts.

Anonymous said...

Victoria will catch up. No worries.

Reid said...

“It's disgusting to see rental rates the same or barely 5% lower than a mortgage payment...”

The most successful real estate investor I ever met told over 20 years ago to always buy real estate when interest rates were at peak levels. He went onto explain that initially you will have to cover part of the mortgage and taxes as rents will not do that. But if you are patient interest rates will drop and so will the cost of holding your property. He then told me that the value of real estate generally increases as the cost of carrying the home decreases (because most buyers focus on the payments). When interest rates are at low levels he always sold because he found this is how you maximized the capital gain. His focus was always on the real estate profit and not the initial payments.

I would strongly recommend that anyone looking to purchase a home not get too caught up in comparing the cost of a today’s mortgage against current rents. If all these trillions of dollars that have been thrown into the financial system are successful there is a high likelihood that interest rates will increase in the years thereafter.

In five years time when the standard mortgage term is up you are left to deal with whatever mortgage rates exists in the market. In those first five years of a mortgage you do not pay off a lot of principal (unless you accelerate payments) so it could be painful. If mortgage rates have risen, you can also assume that it will be unlikely that real estate prices have surged as the cost of ownership will have increased.

I would recommend using a 7% or higher mortgage rate when comparing costs with rents to be safe. Interest rates today are at the lowest levels in decades and are not necessarily a proxy for the future.

Anonymous said...

This guy chased the market down and got a nice haircut

Anonymous said...

Yeah and it took him 4 months to have any sort of clue that his house was way overpriced too! Then a week later became even more desparate and added a little 15k treat in....still was 20k+ off...

Anonymous said...

I don't know about houses, but for condos/apartments the pricing for buying (something in the low $200k range) vs renting is very close.

Unless anyone can suggest a place that has rental listings other than craigslist/kijiji/usedvictoria/TC, as all the rentals I've seen are usually $900+ for anything nice.