Thursday, July 23, 2009

Premature declarations

In probably the most famous premature declaration in modern history, W declared mission accompished in Iraq long before the war even began.

Today, Carney declared the recession is over before it even hit bottom. Of course, that's CanWest's headline. Over at Real Financial News Central (Bloomberg) the headline is a wee bit different: "Bank of Canada says Recovery Muted by Strong Dollar"

The definition of recession is two consecutive quarters (or 6 months) of negative growth. Apparently the definition of "recession over" is the prediction of one quarter of positive growth.

I'm advocating a level playing field. At HHV, you will not hear "recession is over" until we have 6 months of positive economic growth. I'll keep calling it like it is, not like you tell me to see it. Take that W, er, Carney.

Carney says: "HHV, if you don't accept my definition of 'recession is over,' I will squish your little head!"


Mark said...

BC to Harmonize sales tax

Well ya knew this was coming....there goes your cost of living folks!

Screwed over by the he pro - business Liberals again.

Mark said...

Hey sheeple, you better buy that house ASAP before July 2010 cuz the cost is going up big time thanks to the new harmonized tax.

This will put yet another nail in the nail of the housing market. of course it will suck a few boneheads into buying before it's implemented next year.

Vic said...

Incredible how it's all over just like that when Carney says "mine is bigger than yours HHV". ;)

My charts are showing the S&P so overbought all the signals have hit the top of the charts box and can't go higher. Not to say this can't continue as shorts are panic covering,but we have a whole lotta BS'ing goin on out there by the powers to be.

Tell the guys down at the EI office all about this news as well as those civil servants who will be laid off in September.

Roger said...

Here is some more info on the new BC HST...

BC Gov't News Release..

New home buyers in Victoria are screwed.
A partial rebate of the provincial portion of the single sales tax for new housing to ensure that new homes up to $400,000 will bear no more tax than under the current PST system, while homes above $400,000 will receive a flat rebate of about $20,000.

1.6 Billion Dollar Sellout..

Here is how the Liberals get money for Olympics and deficit.
The harmonized sales tax has been a goal of the federal government for some time, and that's why it sweetened the deal with a one-time transfer to B.C. $1.6 billion to cover transition costs, Campbell said.

CBC - B.C. moves to 12 per cent HST..

There many items that you are only paying 5% on now but will pay 12% next July. Fast food, restaurant meals, service fees to name a few.

So new home buyers are going to get shafted but so will resale sellers. They will now be paying 12% on the legal and realtor fees instead of 5%. Hopefully sellers will start to squeeze the agents on commission fees which are outrageous now.

Mark said...

I believe realtor fees (commissions) are exempt.

Fees for services that are charged hourly will be subject to the HST though.....pray that you don't need to do any repairs to your over priced crack shack!

This is not good for consumers....I know we will eating at home a lot more often. Your restaurant bill just went up 7% folks!

Buying a used car, motorcycle, boat I think would be charged both taxes now as well. dealers will be happy.

Welcome to "The greatest Place on Earth"

Roger said...

More on BC's new tax grab.

- In Ontario everyone is getting a cheque to cover the initial jump in HST costs. In BC no cheque announcement only an increase in the GST rebate cheque for low income earners. Middle and upper income shafted again

- Renters will be paying more once the sales tax is incorporated into goods and services previously exempt -- such as repair and property management, natural gas and utilities.

- Look out for layoffs in the BC Ministry of Finance next year. The Feds administer the new HST and send the cash to BC. All those workers dealing with the PST will be phased out.

Roger said...

Mark said:

I believe realtor fees (commissions) are exempt.

Sorry but you are incorrect on this one. Sold my house in BC two years ago and paid GST on realtor and lawyer fees. Next July sellers will pay 12% on both these fees instead of 5%.

Dave said...

I don't like this tax change. It's significant tax increase for things currently exempt from PST. This isn't good for some of us.

Vic said...

Try to tell me this tax grab wasn't all a done deal well before the election. They will use this to try and lessen the blow of a $1.5 Billion black hole and say they had no choice etc. They are already touting it will save $150 million,whatever,after blowing a billion on the conference center anything these liars and thieves say falls on deaf ears.

Roger said...

Dave said:

I don't like this tax change. It's significant tax increase for things currently exempt from PST. This isn't good for some of us.

This isn't good for any consumers. It will be OK for some businesses because they will only be filing with one agency.

If you want to see how bad this is going to be Google "Ontario HST". They have had months to research this tax and you will see how much more you are going to pay. In Ontario the government is cutting cheques of $1000 to all families with incomes under 160K to ease the initial pain. In BC only the low income families under 30K or so will get some relief with an increase on their quarterly GST rebate.

In Ontario they also have the 400K cap for full rebate of the increased HST tax on housing. In BC we have the same cap even though our housing is much more expensive and we have the dreaded Property Transfer Tax.

The howling in BC is just starting today. Those who voted for Campbell knew what they were getting as a premier and this tax grab should come as no surprise. One thing you can be sure of - the government spinmeisters will be in high gear in the coming weeks and there will be more "surprises" as we get closer to the September budget.

Olives said...

Um, is this a joke? The recession is over because Carney "believes" the economy will grow this quarter? From the article, deleveraging continues, unemployment continues to rise, the economy is "fragile"...

The "global meltdown deemed the worst since the great depression" would then also be "one of the shortest downturns on record"


Bubble 'n Fizz(le) said...

So new home buyers are going to get shafted but so will resale sellers. They will now be paying 12% on the legal and realtor fees instead of 5%.

Let's put his in perspective. A buyer of a new home will pay the new tax based on the purchase price. The buyer of a resale home will pay the new tax based on 6% or less of the purchase price. Big difference. This will drive resale home demand at the expense of new home construction.

Dave said...

Roger, in my case it is bad for business.

Taxes to my clients will more than double. That reduces demand for the services I provide.

I don't care about the paperwork involved in taxes. It's pretty unlikely my accountant will charge less. If anything, they are going to charge more because everything changes.

Not happy.

Roger said...


I had a consulting business when the dreaded GST was introduced in the 90's. Some of my clients were upset but the ones that could use the tax as an input credit to their own GST payable were OK with it. The HST will be treated the same way as the GST and will benefit some businesses, especially at the wholesale and manufacturing level.

If you are providing services to consumers or end users they will not be happy. Lawyers, accountants, hair stylists, financial planners, consultants, realtors, home renovators, BC restaurants, and other PST exempt service providers will see reduced demand for services.

Homebuilders are going to see a big effect. Consumers will see new home prices jump considerably and some will no longer be in a position to buy especially with rising interest rates.

Just Jack said...

Actually, I have not increased my fees for some time, so this will let me add a little more to the bill.

So the Feds will get 5, the province 7 and I'll get 4 percent.

Mark said...

Blogger Roger said...

Mark said:
I believe realtor fees (commissions) are exempt.

Sorry but you are incorrect on this one. Sold my house in BC two years ago and paid GST on realtor and lawyer fees. Next July sellers will pay 12% on both these fees instead of 5%.

I stand corrected some incorrect info today. I believed as you that realtor's commiss was subject to the taxes.

So what we have here is more good money spent after bad for a service that a trained monkey could perform. Maybe realtors will lower their commiss?

LMAO! Ya right!

Bob leftcoaster said...

So if a buyer paid a deposit for a new home and completion isn't until fall of 2010, will the new HST be applied?

Your new home may have already gone up in cost!

Roger said...

Bob leftcoaster,

There will be transitional rules in effect just like when the GST was introduced. There are cases where the HST will be fully applied and then offset with a partial rebate. But deals signed already will undoubtedly be "grandfathered" like they have done in Ontario. The cuttoff date for grandfathering was not announced today.

Ontario is well ahead of BC in announcing their implementation of HST. Their transitional rules, with the exception of the cutoff date, will probably be a template for BC.

Ontario Releases HST Transitional Rules for
New Home Builders

Roger said...

The Times Colonist has an article tonight on the HST

B.C.'s 12-per-cent harmonized sales tax will hit some consumers hard..

The added costs to consumers will come from the fact the new tax will apply to the same goods and services that the GST applies to, and that includes many items that were not subject to PST.

For example, restaurant meals, excluding alcohol, have not been subject to PST, but will be subject to the new HST. So, too, will the purchase of such things as bicycles, school supplies and non-prescription medicines

What gets taxed: PST-exempt goods and services to be subject to B.C.’s harmonized sales tax.


• Residential fuels (electricity, natural gas) and heating.
• Basic cable TV and residential phones.
• All food products (only basic groceries will remain exempt under new tax).
• Non-prescription medication.
• Vitamins and dietary supplements.
• Bicycles.
• School supplies (books will continue to be exempt).
• Magazines and newspapers.
• Work-related safety equipment.
• Safety helmets, life jackets, first-aid kits.
• Smoke detectors and fire extinguishers.
• Energy conservation equipment (e.g., insulation, solar power equipment).


• Personal services such as hair care.
• Dry cleaning.
• Repair services for household appliances.
• Household maintenance such as renovations and painting.
• Real estate fees.
• Membership fees for health clubs.
• Movie and theatre tickets.
• Funeral services.
• Professional services such as accounting and home care.
• Airline fares within Canada.

patriotz said...

I agree with the HST. In general our consumption taxes are too low, which is one reason why we have such a low savings rate.

I'll take a tax which discourages me from spending (HST) over a tax which discourages me from working (income tax) any day.

And no I don't support the Liberals' irresponsible spending on the Olympics, etc.

Just Jack said...

I can understand Carney's reasoning that if you keep personal consumption in Canada up, while the USA is in a recession, then the affects on Canada will not be as extreme as if both countries were in a recession at the same time. If timed right, the USA will be coming or out of its recession while Canada is going into one. Then the Canadian recession should be shallower and of short duration and Carney only has to worry about inflation in Central Canada which they will fight with higher interest rates.

However, if you get the timing wrong or Canadian consumers tighten up their spending?

But Canada is Central Canada. In BC we vote the wrong way and always seem in opposition to Central Canada's policies. Our timing is always different from Central Canada. Ontario will be out of its recession before us, and BC families will once again move to where the jobs are in Ontario, where they do not feel over taxed and over burdened by debt.

Just like what happened in the mid 1990's but under the NDP.

Recession is the cure not the ailment. The market has to be culled of inefficiancy where businesses survive on sales, not recyling debt to pay expenses and this takes more than 6 months to accomplish.

greg said...

Patriotz -

I understand your reasoning, but that only makes sense if off-setting cuts to personal income taxes are announced.

Nothing like that has happened, or seems likely to happen anytime soon.

I posted some thoughts about this over in the forums at Cheaprealty. Rather than type them twice, if anyone wants to check them out, head over there.

Main point is, with these increased HST taxes, what happens to taxes like the Property Purchase Transfer Tax?

Also, check out this basic bad math:

12% X 7% = .84%

Congratulations to the sellers, there costs just went up .84% of the value of the sale.

And on new construction, the first purchaser will now pay 12% instead of the current 5%?


Just Jack said...

While the HST seems to be a more fair system based on consumption it is unfair to young families that have little choice in being high consumers. Something that the government is trying to entice to spend even more.

Perhaps if we gave young families rebates and started to tax retirees more as well as property hoarders and flippers. An inheritance tax and fully taxable proceeds on the sale of your non principle residence. How about a tax that increases with the number of housing units you own.

Maybe, these type of taxes will scare the retirees out of BC therby lowering our heath costs and free up some supply of housing.

And a revised new slogan is in order.

BC the best place on earth*

*certain conditions do apply

Village said...

There goes my spending... Oh wait already cut back. Honestly, I don't really care I just want to taxes buried in the price. I hate doing .99 + X% math in the price. I want to know what it's going to cost me at the till.

It does seem like a good way to kick the economy when it's down/fragile though. Change is bad, even if nothing has changed for the person. I see people sucking back spending as they digest HST.

Olives said...

"Recession is the cure not the ailment"


Roger said...

Another perspective on the HST

Raeside Cartoon..

PainInThe said...

Oh god, I had to see its ugly face again.

Thanks so much for ruining my day...

Vic said...

I think this tax should be renamed to the "Holy Shit! Tax" , as I am sure those were the words echoed by Campbell and Hansen when they were handed the deficit tab from the bean counters. ;)

HouseHuntVictoria said...

I echo the sentiments of Patriotz re consumption taxes. They are definitely economically preferable to income taxes.

Interesting that the federal government used GST cuts as "stimulus" over the past couple of years and the province is using the HST in exactly the opposite manner.

I'm all for less taxes, but I'm glad that this deficit will be paid for by all today, rather than by future generations. Sure would like to see some spending cuts to go along with increased taxes too... don't believe I'll have to wait too long for those.

Animal Spirit said...

Word is that the BC gov't is doing very significant office space consolidation. Wouldn't be good for CRE in Victoria, particularly the small secondary buildings.

Animal Spirit said...
This comment has been removed by the author.
beagle said...

Interesting articles on hotel defaults at Mish's site.

If these high end hotels in very desirable locations are having problems whats in store for BC's resorts? Especially with a high dollar and now higher taxes.

Animal Spirit said...

Pick your answer:

(a) We're insulated
(b) Local visitors will pick up the slack
(c) They're screwed

Just Jack said...

Under the Travel section in the TC is an article entitled "A New Generation at Play".

It is about GenX and their buying of vacation properties.

I love this line "owning a recreation property underscores their dedication to family and balance".

Wow, the guilt and fear being pushed.

Translation is: please, buy all the condos I just built and am losing my shirt on. If you don't buy a resort condo you are a bad parent with no life.


patriotz said...

I understand your reasoning, but that only makes sense if off-setting cuts to personal income taxes are announced.

It makes sense in any case because we are running a deficit right now, and increasing tax revenue reduces the deficit. Today's deficit is tomorrow's taxes.

This province consumes way too much (hence our negative savings rate) and it's better to reduce the deficit in this way, which will improve our export competitiveness (HST like GST does not apply to exports).

Dave said...

Only if the deficit grows the debt more quickly than GDP expands. Debt to GDP is more important than the absolute value of the deficit.

The government takes up too large a portion of our economy. Government needs to shrink. More taxes means growth in government. No thanks.

I don't like HST. It means more taxes which in turn implies more government which means less production and less efficiency.

I think the Province needs more taxation flexibility. A 12% across the board tax doesn't always have the best outcomes. Our economy has shifted to a service based economy and now we are more than doubling up on such taxes. Dumb.

Vic said...

"Word is that the BC gov't is doing very significant office space consolidation. Wouldn't be good for CRE in Victoria, particularly the small secondary buildings."

Boo hoo on them,if we all knew the true exhorbitant costs that go along with every office move (which is almost like an everyday occurence) there would be total outrage and it would be front page news. The cheapest move I have heard of is around $50,000 with some totalling $200,000 or more. And we don't count the ones where they moved and they didn't like it so they moved them a second time a few months later.

Consider the costs of movers,complete renos of any new/old spaces,fire code changes,ventilation,new phone lines,data lines,electrical changes etc etc. It is mind boggling how fast it adds up.

I would really like to see the total bill on this massive waste of our tax money. Not to mention the cost of the places they just moved out of so you can double it from there.

Robert Reynolds - GBA said...

Well at least with HST at 12% when you go out to a restaurant you wont have to calculate a tip anymore...

Just Jack said...

Demand is like water in a barrell with a tap at the bottom and interest rates market along the side.

As you lower the interest rate, you allow more water (prospective purchasers) to empty the barrel thereby reducing the total buyers left to purchase.

The only way to continue this flow is to continue to lower the interest rate.

If interest rates are raised, then water (buyers) have to be poured into the barrel. This can be done by increasing migration to the city, rising employment, and by marketing to both the speculater and people at the edge of affordability to buy homes.

greg said...

Well at least with HST at 12% when you go out to a restaurant you wont have to calculate a tip anymore...

Great, now the service industry won't get tips because the government raked off 12%. And when the GST or PST go up, even more.

The fact Gordo got painted into this corner would be hilarious, if we didn't all have to pay for it.

PainInThe said...

Straight from the pages of next years' Vic Times-Colonist:

Victoria's Condo Collapse on Heels of Vancouver Collapse

Just Jack said...

Good article PainInThe,

San Diego and Victoria, seem to have some historical similarities in markets.

The difference this time, is while Fannie and Freddie are tightening up their requirements our CMHC has open the flood gates, tripling the amount of mortgage backed securities since 2007.

CMHC, has opened up the vaults and is grabbing as many first time buyers as can hold a pen to sign. Certainly looks like Harper economics at play.

The government is offloading its debt onto home owners in order to stimulate the economy. Those high ratio buyers today, are paying inflated rent to the banks for the next five years, until they lose their homes to foreclosure with as little as a 1 or 2 percent increase in interest rates.

Vic said...

Funny how the TC buries the bad news stories so quick,had to go search the Sun to find it.

BoC may have to break interest rate promise

TORONTO -- The Canadian dollar hit a 10-month high Monday amid growing risk appetite and rising expectations that inflation will ultimately force the Bank of Canada to break its promise to keep interest rates on hold until mid-2010.

PainInThe said...

One thing governments will never learn:

It is very easy to blow a bubble in any market. And that bubble, if left alone, will quietly drift slowly down to the ground, where it will pop. Probably the best result.

However, governments insist on blowing more and more air into that bubble, to do anything to keep it afloat and rising higher, until it explodes.

Makes no difference in the outcome; only the when.

Governments cannot forestall or stop a crisis assuming they want to in the first place; they can only postpone it.

And of course, whenever they want to, create another.

Happy Owner said...

With the addition of the HST and little wiggle room left to increase home owner taxes, how long will it take to introduce a renters tax, or to mirror what Thatcher did in the 80's, a HEAD tax. It would be about time that renters with subsidized rent and little else to pay, finally take the hit to pay for the services they recieve paid by others.

jazzgate said...

The excellent John Mauldin recently issued a report on how governments want to borrow $5 trillion but there is no more than $3 trillion available to borrow: Buddy, Can You Spare $5 Trillion?

This is the classic "unstoppable force hitting the immovable object"--oh, but wait: interest rates are set by the market and are thus quite movable. Consider this chart of the 10-year U.S. Treasury bill yield:

Note that the rise from 2003 lows was aborted by a global "flight to safety" and a massive intervention in the capital markets by the Federal Reserve and U.S. Treasury which caused interest rates to plummet to unprecedented lows.

But longer term, this cycle of declining interest rates is already extremely long in tooth at 28 years and counting. the average interest rates cycle has historically measured about 20 years in length, suggesting this cycle is due for a turn and the start of a 20+-year cycle of rising interest rates:

But wait: it gets worse. Surplus money looking for a home is drying up even as the demand for surplus capital skyrockets. This vicious circle can be displayed thusly:

The net result is interest rates will have to rise--and soon. While it is impossible to predict exact dates, simple laws of supply and demand dictate that rates will soon rise and will rise steeply as the shortfall between what governments want to borrow and what's available to borrow becomes visible (not to mention private demand for capital).

As interest rates rise, then the Capital Trap shuts on all equity locked in real estate. I covered this subject last year: The Housing Capital Trap Snaps Shut (May 28, 2008)

The mechanism can best be illustrated with an example. Let's say a homeowner who bought long ago has a $100,000 mortgage on a home which was once worth $450,00 at the bubble peak. Now the property has sunk to a value of $250,000. The owner still has $150,000 in equity: quite a substantial sum.

But if interest rates double, then the house would have to fall roughly in half to be affordable to buyers. Equity would shrink to a mere $25,000. Or alternatively, if the owner insisted the "true value" was still $250,000 based on other metrics, then the capital is trapped as the house cannot be sold in the marketplace.(con't)

(This is too long so I have posted in two segments)

jazzgate said...

Thus it can be argued that to the degree a house is an investment and the basis of household wealth, the owner would be wise to sell the house now in this brief "housing recovery" while rates are still low, pocket the $150,000 equity (For simplicity's sake, I leave out commissions, property taxes, etc.) and rent an equivalent home.

As interest rates rise, that equity will begin earning a decent return in a simple savings account.

I know this concept--that savings will accrue more wealth than equity in a house--is so alien as to be absurd. We have been conditioned by the past three decades of explosive rises in real estate valuations and declining interest rates to believe "real estate always rises" and cash is essentially trash. But the 28-year long orgy of ever-lower rates is ending, and may end abruptly, and soon, as the U.S. Treasury seeks not just to borrow trillions more but also roll over expiring bonds.

The key concept here is that a house is only worth what someone can afford to pay for it. Thus we must be wary of divining "the bottom" based on metrics which don't take rising interest rates into account.

Why can't the Fed just print the $2 trillion the government wants to borrow? Wouldn't that solve the problem? In theory, perhaps, but in practice, when the Fed did exactly that, announcing it was printing $300 billion to buy Treasuries, the bond market reacted violently by pushing rates up dramatically.

Printing trillons of dollars is seen as inflationary by the bond market, and if inflation is being ramped up to 4%, why buy a bond that pays 2%? To keep buying bonds which are guaranteed to lose money is simply unwise. The net result is the Fed cannot just print $3 trillion (don't forget all the bonds which have to be rolled over) and buy Treasuries--the bond market would instantly demand much higher rates to compensate for the additional risks of inflation.

Real estate industry cheerleaders counter by saying housing "always rises in inflationary eras." By that they refer to the 70s, when real estate shot up alongside rising inflation. But what they forget is that housing was rising from extreme levels of affordability, and that the Baby Boom was entering its prime homebuying decade in the 70s.

Now we have 18.7 million vacant homes, a high level of unaffordability and rising interest rates.

There are many psychological reasons to own property: the sense of security, that you can do what you want with the home and yard, and so on. These are very real and valuable. But as an investment, rising interest rates will trap whatever capital is sunk in the house. To the degree a house is not just shelter and psychological security but an investment, that matters.

jazzgate said...

I lifted the above from Nouriel Roubini's excellent RGE Monitor comments section.I apologise for the length, but felt it a worthy read.

Vic said...

Only an egghead would come up with that idea when we all pay for services to our landlord that increase our share by 3.3 % every year. I think there will be a massive tax hike coming for homeowners with little or no mortgages,since they are so well off they can help share the load so we can all be happy owners.

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

I think Gordo has forgotten that this is Canada, and labour is mobile. Seriously, you can buy and take on a massive mortgage, or you can move and save and go on vacations for the next 35 years.

Of course, you won't be able to sell your house to fund your retirement like everyone here is planning to do, 'cause your house won't be worth that much... but who cares? After 35 years of saving and going on vacations, that little detail should be covered.

Bitterbear said...

I read yesterday in the FP that the promise to keep rates low was "conditional on the outcome for inflation" (Oh sure, now you tell me...spin cycle rhetoric) and the probability of a rise in rates within the next 9 months was 90%. Somewhere else there was a debate about whether it would be a slow squeeze upward or whether the BoC would hang on until the last possible moment then leap. Anyone care to hazard a prediction?

msr said...

With the addition of the HST and little wiggle room left to increase home owner taxes, how long will it take to introduce a renters tax, or to mirror what Thatcher did in the 80's, a HEAD tax. It would be about time that renters with subsidized rent and little else to pay, finally take the hit to pay for the services they recieve paid by others.

Market renters don't have subsidized rent by definition. Rent is as high as the market will bear, the fact the market rent isn't high enough to cover costs would be considered a supply-side problem.

Futher, any renter specific tax would push down rents by an equivalent amount. The cost of renting cannot exceed people's ability to pay rent. Any increase in the cost of renting will always be born by the landlord and any drop in the cost of renting will be gained by the landlord.

This is completely ignoring the point that renters pay tax already. They pay sales tax, income tax and property tax. Yes, property tax. Part of my rent covers the property tax on the structure I live in. Why people don't understand this, I don't know. Maybe it's how people can ignore taxes/maintenance/interest when figuring out the profit on their house.

HouseHuntVictoria said...

The homeowner's inability to get a reasonable ROI is an example of the stupidity of homeowners who believe they should be given one just because they bought a home.

It's like the line stated by almost every newly minted landlord with a basement suite: "I have to charge you $1400 for this POS suite in my POS house because I paid $500K for it. Even then I'm not making any money!"

My response: "Well, I guess that makes you stupid with your money eh? Because I don't have to pay that amount because there are other suites available for less."

Just Janice said...

I've never heard a little old lady with a paid for house say 'you know I only want to cover my taxes, insurance, and utilities - so your rent is only $350 even though the market rent is $900'. The rental market is probably the most 'free' market in the housing market, there's low transaction costs and while the barriers to entry (on the supply side) are somewhat high, they certainly aren't on the demand side.

Taxes will go up, but it won't be a 'head tax' as that would be seen as being highly regressive. Income taxes and sales taxes are the most likely candidates, and an increase in the MSP premiums might also be a 'politically astute' candidate. Could also see utility rates go up for publicly provided utilities (garbage and sewer). Utility costs are probably the easiest for landlords to pass on to their tenants.

September is going to be interesting around here.....

Just Jack said...

My informant tells me that there are about 12 properties currently listed under a court ordered conduct of sale (foreclosure)in Greater Victoria.

All 12 were purchased within the last decade and range from a manufactured home listed at $119,000 to a Fairfield Character home at $1,229,000.

6 of the 12 were purchased after 2007 and are currently listed near or below the original purchase price.

One of the worst losses was a condo originally purchased for $900,000 in 2007 (pre-construction price) and now listed for sale at $550,000.

The six purchased after 2006 are most likely due to a slumping market.

The other six, because of the large spread between original purchase price and current list price, I attibute to maxed out home equity lines of credit.

It does not matter, if it is a starter home or the dream home. The distribution among income groups appear to be equal.

12 listing do not make a market. But, it is interesting to see that distressed sales are across all income groups, all having been bought in the last decade and half within the last three years.

Vic said...

12 could become many more given time. We all know the low level fruit in the coming civil service cuts will be the most vulnerable to being recent FTB's.

Ackermann Says Bad Loans Are ‘Next Wave’ of Crisis

July 31 (Bloomberg) -- Rising delinquencies among consumer and corporate borrowers are the “next wave” of the financial crisis and may affect banks that have avoided losses so far, said Deutsche Bank AG Chief Executive Officer Josef Ackermann.

“This crisis has consisted of a series of earthquakes, with changing epicenters,” Ackermann said late yesterday at an event in Zurich. “Bad loans are the next wave. Banks that have fared relatively well so far will also be affected by this.”

Deutsche Bank, Germany’s biggest lender, said this week it set aside 1 billion euros ($1.4 billion) for risky loans in the second quarter. The seven-fold increase in provisions and below- forecast revenue from trading sent the Frankfurt-based bank’s shares to the biggest decline in four months on July 28.

Just Jack said...

I suspect that it is not going to be only FTB's. Looking at this sample, it appears to be spread evenly among FTB's, middle or upper income households. The only similarity being that the properties have all been purchased within the last 10 years and half in the last three.

Happy Owner said...

It's great to see the dedication in digging out the bad news that you "think" will determine the real estate outlook here in Victoria. But sometimes "hopes & dreams" will never materialize even though you want them so bad. Just look around you. We are in the worst economic condition in 60 years...and where does the market go? Well..up. Go figure. Does that not tell you something. Perhaps the bears are gourging themselves on koolaid not realizing they are once again "missing the boat" as you did 6-7 years ago. Maybe you should follow Prarie boy and start to solidify a prosperous future rather than wait, and hope, your fruitless theories come to fruition.

Have you checked this out yet?

Animal Spirit said...

Happy Owner - good to see you here. This would be one sign that the market is slowing (see my post from HHV's spinning wheel of death thread:

" Animal Spirit said...

On a different topic, a sure sign that the market is cooling will be when the (perma-pumping, not realist) RE agents and mortgage brokers show up again. Hey, wasn't that Bubble and Fizzle that I just saw?

July 20, 2009 9:09 PM"

patriotz said...

Does that not tell you something. Perhaps the bears are gourging themselves on koolaid not realizing they are once again "missing the boat" as you did 6-7 years ago.

What boat? You mean the "MV Owning Still Much More Expensive Than Renting Even With Record Low Interest Rates"? Well I think I'll miss that boat, thank you. Sounds too much like the Queen of the North to me.

I'm waiting for the "MV Yield Higher Than Preferred Shares". Much more accomodation for your money and less downside.

BTW what was the yield on the "MV 2002"?

gucemi said...

Look at the situation in Canada:

Vic said...

How can you miss the boat 6 or 7 years ago when you weren't even looking to buy at that time ?

Buying a home is a "time of life" purchase when all your financial cards and commitments line up,not some momemnt in time that says 2002 is now the year to buy no matter what.

Did you see signs everywhere saying you will miss this boat if you do not buy now in 2002/03 ? I didn't,the country was reeling from 911 and a tech crash that destroyed billions...because the boom happened does not mean all is well in Victoria real estate.

There many holes in the ground still and leaky condos everywhere with no more government help for little old ladies in Sidney who cant access $80,000 to save their home. Gordo has bigger fish to fry,like your homeowner wallet.

Homebuying is only "in vogue" because greed overcomes common sense and those people like "happy owner" who need to come here while praying the dead cat bounce doesn't choke on it's kitty toy.

Happy Owner should read Garths blog post that clearly shows how a simple doubling of interest rates will create a CMHC qualifying income of $204,000 at 8% on a $600,000 crack shack. It's coming and you won't be so happy then I am sure.

Just Jack said...

I should point out that I have no intention of buying a home in a bull market when interest rates are at historical lows and prices at historical highs. A market where anyone with a pulse can mortgage at 6 or more time their income. Been there - done that, saw it in the 80's, and 90's busts. These markets always end very badly.

Greater Victoria has 12 properties currently under conduct of sale, last year at this time we had none. Most are due to slowing or declining appreciation. As from the previous data, it takes about 2 to 3 years after the market has slowed for duress properties to come to the market. Add in the people maxed out on the home line of credit, glut of buildings, and rapidly rising unemployment we are looking at the perfect storm.

So Happy Home Owner stop trying to sell me your house - I aint buying, if fact I aint even looking.

Vic said...

"Maybe you should follow Prarie boy and start to solidify a prosperous future rather than wait, and hope, your fruitless theories come to fruition."

Yes we should all follow the sheep off the cliff. Great advice from someone who claims to be mortgage free.

How can it be a "fruitless" theory when it hasn't even had the time to play out ? I never bought my second home til everyone and their dog didn't want to touch a home with a ten foot pole,this past winter hardly scratched the surface of what a real correction is. Just like when you buy stocks when people are puking from their losses like at the end of March and never want to see another stock.

You need to buff up the crystal ball there Nostradamus,wait til the interest rates start moving up in a couple of months and not next year,then we will see how many fools are left in the pool. I think not many,they have already been sucked in hook,line, and sinker.

Vic said...

The bubble pop must be soon, according to Garth's site houses in TO are having bidding wars of almost 25% above ask when all is said and done.

In my past home buys and with several buyers sniffing,no one ever bid over asking price. It was a battle of the wills to see who would pay within 5% of asking and paying the ask price was a rarity even in a hot market. Insanity rules the day.

Anonymous said...

At this point, I'm thinking the housing bubble will pop when interest rates rise continuously for 1 to 2 years.

The pop should be pretty hefty, and very likely I'll continue to wait it out as this is unquestionably the worst time to buy (and I agree entirely with Just Jack): highest prices & lowest mortgage rates in history!

Due to this, I'm not even looking - other than at this and a couple of other blogs now and then.

Such current circumstances mean only one thing, interest rates can only go up from here (starting at earliest aprox Q1 2010) or whenever the unemployment stats finally start to flatten out (due to stimulous, not real stand-alone-economic growth) for ~6 months and the BoC begins to take action (higher interest rates) to stave off inflationary fears - but it will be too late and it will be a fast race upwards - at least as fast as the rates came down.

If this pans out, eventually (2012 & beyond) will result in a housing asset price bubble collapse that will drag on for a minimum of 2 years (if history is any guide, it could be 5-7 years of a downturn) as the housing bubble in Victoria/Vancouver finally pops with FTBs with insufficient down payments and specifically credit qualification getting shut out and/or home owners looking to renew their mortgages to much higher rates, forced to sell due to lack of affordability.

Until then, I will happily keep on renting, will keep an eye on Roger's Vic housing charts (& this blog), and play the comodities markets without any long term investments except perhaps precious metals - until a REAL sustainable recovery appears on the horizon (2014+???).

I continue to think, more than ever that if you can economically and emotionally afford to wait it out, you will be heavily reward for many years. That said, when high inflation finally smacks us all in the face, be sure invest your savings wisely. Keeping it all in a savings account will not be the wisest thing to due, as your purchasing power against everything (except housing) will decline.


c said...

I think that sums it up brilliantly Mr. 4a.m. Hold off on buying a house for at least 5 years, and instead put your money into gold since it will be a more robust hedge on inflation over that period.

Vic? roger? don't you agree that gold will be the place to be while you wait?

patriotz said...

Keeping it all in a savings account will not be the wisest thing to due, as your purchasing power against everything (except housing) will decline.

Yes but if you're saving money to buy a house, what does it matter where the price of other things goes? If the nominal price of housing has nowhere to go but down (and it does), the most sensible thing to do with your house money is to put it in GIC's. Far less risky than any alternative.

Oh BTW, the government or BoC does not determine interest rates, the bond market does (except at the very short end), and the bond market will send rates into orbit if and when it gets any hint of consumer price inflation. Bond holders got burned going into the 70's and they are not going to get burned again.

My own opinion is that it is currently not possible for there to be substantial CPI inflation, with accompanying high (I mean high, nor normal) interest rates going forward. The reason is that people are so in debt that even a return to normal rates (say 6% or so) would reduce spending power so much inflation would be choked off.

Vic said...

"Vic? roger? don't you agree that gold will be the place to be while you wait? "

I always believe in a healthy balance across all sectors including gold and silver juniors is the smart choice. Investing in undervalued and underfollowed plays with smart, experienced management will eventually far surpass buying overpriced Victoria real estate. But I am not a financial advisor so don't listen to me, just as "C" (AKA SP) has even less of a valued opinion than myself.

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