If you use a Mac, you'll understand this post's title. When that little spinning wheel of death appears and just spins and spins, you end up having to shut down your system to make it end. Who would have thought it such an apt metaphor for the MSM and real estate reporting?
CanWest stock closed today at a measly dime. That's down 99.4% since its 2005 peak of $15/share, and almost not worth calculating its drop from its 10 year high of $21.35. There's all kinds of theories out there that suggest advertising revenues are down because the Internet is eating into earnings, and so on. I call bullsh&t. Ad revenue is down because no one wants to pay for the crap passed off as news these days. If I can get the press release faster directly from the VREB online (and for the record I do, and I beat the TC to publishing it consistently because I don't have editors who need to "sign off" on my ability to regurgitate it) why the hell would I pay the TC to get it for me if all they are going to do is repeat its content word for word?
Here's my theory:
Media laid off a lot of quality writers in favour of a lean and mean content generating machine and dropped any semblance of quality investigative journalism because it cost too much. Many good writers opted to join PR firms or start their own and sell their insider knowledge of media and how to generate stories. And then the quality of writing and editorial ability degenerated into what we've witnessed over the past week: 3 separate regurgitation's of real estate "news," each of them barely newsworthy to provide 3 days worth of crappy "everyone is buying now, the recession is over, you're an idiot for not buying last year, boy you should feel stupid for not taking advantage of lower prices and interest rates sooner" spin. No balance, no news, no investigation into the credibility of the sources, no quotes from arms length economists, no nothing, just republished press releases.
The VREB has a director of communications, heck, they even have a communications task force who meet monthly (if not more frequently) to craft ways to influence the consumer to consume their products and services. The VREB is a member organization of the BCREA which in turn has more communications officers and likely a provincial communications task force who meet together solely for the purpose of crafting strategies to influence consumers to consume their products and services. The BCREA is a member organization of the CREA who has even more communications staff and likely a national communications task force who get together to craft, you named it, strategies to influence consumers to consume their products and services.
And the MSM publishes their press releases on a weekly basis, verbatim, as news without any fact checking, without any investigative journalism, without any arms length expert opinion and without any consistency of balance. Why no stories of how the real estate industry works to influence the consumer to consume services and products? Is that not news? Should the consumer not be made aware of the systems and coordinated efforts, not to mention the amount of money spent, to influence them with numbers and statistics which no one can quality control nor idependently verify? Why no stories about what an average sales price truly is, and what it truly reflects?
I'm no cheerleader of doom, but the sooner the market presses the off button on this spinning wheel of death that is the "reporting" of real estate market "news" and ends it, the better.
There are no winners in this situation, just a bunch of losers, and I fear the whole sh&tshow can be traced right back to the consumers who just buy anyway--well, at least they used to buy the news when it was news, now, not even the advertisers are willing to pay for the paper.
I've given credit where credit is due in the past, but not this week. CanWest, TorStar, G&M (even though you're private) and CBC (even though you cost me money), you deserve to get hammered by the market. Someone please, end the spinning wheel of death, and soon.
95 comments:
Great post HHV. The onslaught of real estate pump this past week is the most disgusting display of negligent reporting ever without one single word of caution. Nothing about the potential pitfalls if things go the other way. But as far as the MSM and industry ho's are concerned there is no "other way", it's only up and up and up and that is the most pathetic part of it all.
It was only a mere few months ago the world was standing at the edge staring into the abyss and now the recession is suddenly over becasue of a couple of predictable months ? good time Charlie is back again but with one too many hoots off the ole pipe.
Deleted to re-comment and edit the comment - there was no other way!
"The VREB has a director of communications, heck, they even have a communications task force who meet monthly (if not more frequently) to craft ways to influence the consumer to consume their products and services."
HHV, I'm glad you follow what I put out on Twitter, but I wish you'd ask for clarification before writing stuff like the above - perhaps your investigative journalism skills need a little tune-up too... ;-)
I happen to chair the Communications Task Force (as an elected Director of the VREB) and our mandate is to examine ways of more effectively and efficiently disseminating communications from the Board to our members, and to examine new ways that the board might communicate our public messages to the public (ie, a blog, Twitter, Facebook, YouTube, etc).
Our goal is not to "craft ways to influence the consumer" as you put it above.
Yes, we do have a manager of communications who writes our press releases. Yes, what he writes may be considered spin by some, but I don't think he'd be in his job very long if he were to report doom and gloom every month, and lately, there has been a lot of positive (and very surprising) news in the real estate market.
Numbers are numbers, and like it or not, the Board's numbers are the most accurate and relevant real estate numbers for our marketplace. I don't disagree that average and median might not be the best measures, but other measures like Housing Price Index have severe problems when calculated for a small and very diverse marketplace such as Victoria.
I can understand market-watchers' frustration at the same statistics being reported in the media day after day - but that's their doing, not the real estate profession.
Please don't take offense - I'm not trying to be mean or call you out or anything - I read you all the time and rarely comment because I don't want to get into an argument on the Internet - there are plenty of other agents that will do so happily. I was just taken a little aback about the comment about my task force.
Keep up the good work on the blog.
-Tim Ayres
Royal LePage Coast Capital Realty
TimAyres.ca
642Blog.ca
Twitter.com/TimAyres
Tim,
You know I have great respect for you as I've said so here and in other places numerous times. I wish you would participate in discussions here more frequently than you do--I think you'd be surprised that you won't get much pointless argument from me (though I can't speak for all commenters of course). A healthy debate, however, could benefit all of us, watchers, agents, bloggers, MSM etc.
The essence of my rant in this post is the lack of journalistic integrity engaged in the MSM, specifically in BC, mainly in the Sun and the TC, but also swelling out to include much of the national media. I'm not taking swipes at the VREB, your task force, or anyone involved in the industry. The communications efforts of real estate associations should be held up amongst the communications profession as an example of quality work: clearly they've been very effective at shaping the public discourse.
When you read the press releases issued by the boards etc, and then you see the "stories" written by the reporters, they do tend to repeat the key messages (and often times word for word) woven into the press releases. That proves my point about the whole task force/communications efforts and the lack of quality journalism. There was a time when journalists would dig deeper, find the real stories, act as skeptics etc... are they doing this today? I say no.
I know many businesses that would kill to receive the kind of blatant free advertising the local real estate industry receives. Of course, none of those businesses spend the kind of money on regular real estate print advertising that the boards and their members do.
I commend you for working with your colleagues to engage with new media, Web 2.0 or whatever it's being called these days, and all online tools, but can you honestly say that those efforts are not to "influence consumers to consume the products and services" REALTORS® offer? Is that not what you mean by "communicate our public messages to the public"? What other public message could real estate associations have for us other than "use a REALTOR® to buy or sell a home"?
Furthermore, the stories we are reading are generated by a coordinated effort by the real estate industry players to create news. That is why the boards release their information in a manner that generates an ongoing storyline: local boards at the beginning of each month, BCREA, CREA, LePage and Re/Max towards the middle. Banks and mortgage companies fill in the days in between.
Obviously the media feels the consumers want real estate stories, or they wouldn't bother; that said, I know enough about marketing and public relations to understand that in most cases the media dog is truly being wagged by the real estate tail. I can't remember the last time a real estate news story was published that didn't originate with a press release. Of course, I'll be happy to admit that I could be wrong.
Thanks for the follow-up and the kind words. I can't disagree that our message at the organized real estate level is to encourage consumers to buy or sell through a REALTOR®. Obviously I would argue that we provide a valuable service and that people should use us - why else would I be in the business? I believe in what I do and I'm proud to be a member of the profession.
You make a good point about the main stream media and their lack of investigative integrity - there are few secondary market papers (like the TC) that do any sort of real investigative reporting anymore. I cancelled my TC subscription when it became evident that there was nothing of value there for me anymore - the important bits I was reading online the day before they were published. Even (what I would consider) a major market paper like the Sun has less investigative reporting than in years past. You make some good points in your original post and in your comment.
One thing about real estate stories in newspapers, though - it works both ways. Many members of the real estate community were pretty mad at the TC and other media outlets reporting the one-sided negative news about real estate in the late fall and winter past.
The media seems to latch on one way or the other (positive or negative) without much in the way of balance.
If you think the real estate market is going to be interesting in the next few years, I'd bet that the traditional newspaper/old media industry is going to be even more interesting!
Tim,
Agreed, you do provide a valuable service. Thanks for participating tonight, I really do hope you'll continue to do so. I think you can add a lot to the discussions that take place here.
*unlurk*
Slightly off topic, but remember, we could always leave this idiotic real estate market to the Sheikh of Dubai, or whoever else Barrie is hoping will cough up 10 million by Friday.
I mean, there are hundreds of houses for sale in Charlottetown, Halifax, Fredericton etc for less than $200,000.
Really, there might not be all the great jobs, but how great does your job have to be if you pay cash outright, or put down 20, 30, 40, 50% etc?
I counted on a recession restoring sanity in these parts, but rather than rail against it, bailing is starting to sound a lot more appealing.
Someone refused an offer I made a few weeks ago of $475,000, on a Fernwood Bungalow that would have been the same price as a Charlottetown special ten years ago.
Why am I wasting time making offers for this overpriced crap?
Gee, maybe I'm reaching a breaking point when I see even the biggest recession of my lifetime can't take down the Victoria market thanks to suckers and ultra low rate life preservers courtesy of Mark Carney.
Seriously, why keep waiting for the enigma that is the Victoria real estate correction (its coming, but not when anybody expects it...)?
Blaming the messenger is easy to do, but its not the whole story. The banks still have to think it makes sense to lend hundreds of grand on thousands of houses. Something is wrong with this picture, I just can't wait for demographics to do the heavy lifting or I'll be retired.
*relurk*
greg said:
"The banks still have to think it makes sense to lend hundreds of grand on thousands of houses."
With the majority using minimum down payment, what do the banks care. It is we, the tax payer, that is on the hook through the CMHC. The banks get their money one way or another. My bet is if the banks were on the hook we would never have seen 0/40 or even 5/35 for that matter, and they likely wouldn't be lending 6 times income either.
"Many members of the real estate community were pretty mad at the TC and other media outlets reporting the one-sided negative news about real estate in the late fall and winter past. "
The ratio of good to bad stories the last 6 months were still 10-1 in favor of buying real estate. How many times did we see TC-Carla or the Sun pump out all these positive spin stories while the numbers showed the complete opposite. Give me a friggin break, the RE industry got off so light considering the worlds financial system almost went in the tank for good and it is still so far from over.
That is the problem we have with your industry Tim,they support your numbers alright,but there is never a word of caution,it's all about sales only. I wouldn't know how to sleep at night saying I feel proud about what I do when people are overleveraging on a false and uproven assumption that prices will go up forever.
Tell us Tim, if prices go up another say 10-15% then who is left to qualify for a mortgage ? And what will happen IF interest rates go up even a point or two in the next year ? Or is your thinking only in the "now" moment when dealing with clients ?
July 15, 2009 7:27 AM
A Former Real Estate Bull Admits..."I Spun"
http://www.greaterfool.ca/
This is typical....Tim is full of crap! To suggest that the "information" coming out from his organization and others with a vested interest in this pump job continuing, isn't one - sided and skewed is an insult to all of our intelligence.
As for realtors "providing a valuable service" LOL.....I'm not even going to touch that one.
Well Gollllleeeee.....here's a realtor with a little common sense. Anyone see anything like this in Victoria from any of our local real estate professionals? (sarcasm)
http://www.bobtruman.com/blogs/bob_truman/archive/2009/06/28/it-s-all-down-from-here.aspx
I'm now telling buyers to wait a couple months. We're at the peak price for this year, there's a very poor and limited selection, and there's not much downside to waiting it out. Many buyers with pre-approvals have a guaranteed interest rate that will still be valid in August. Sure, there's 3500 SFH listed for sale, but 90% of them are un-sellable at their present price. That's why there's such a panic when an attractive new listing shows up. A sales-to-new-listings ratio of 80% is the sign of an overheated market.
We'll let things settle down for a while. History tells us the average and median prices will start to drop in July, and more listings will be available soon.
Relax and enjoy the summer.
On the other hand, if you're a seller, your window of opportunity is quickly going to evaporate. You've still got some time, but don't dilly-dally.
At least he is somewhat in touch with reality. Good on him!
Why no stories of how the real estate industry works to influence the consumer to consume services and products? Is that not news?.
Uh, no. It's called SALESMANSHIP. And it's been around for as long as man has walked upright. And so has biased media that sells out to its largest advertisers.
Honestly, my 10-year-old niece has a less naive view of the world.
"Sure, there's 3500 SFH listed for sale, but 90% of them are un-sellable at their present price. That's why there's such a panic when an attractive new listing shows up. A sales-to-new-listings ratio of 80% is the sign of an overheated market."
Exactly what is happening here,the 90% are either crap,overpriced or both. New listings are like a new "hot" stock that all the brokers pump the other brokers as the RE agents do when they have their showings before the public sees it.
Old listings are like old news stocks,everyones been there and evaluated and the excitement is over with,thus the over bidding on any new listing that has some curb appeal with some hardwoood thrown in. "Distribution" is all we have here,just like Nortel at $100.
10 Things Your Realtor Won't Say
From smartmoney.com
http://finance.yahoo.com/real-estate/article/107302/10-things-your-real-estate-broker-wont-say.html?mod=realestate-buy
1. "Your open house is really just a networking party for me."
2. "My fees are negotiable."
3. "Think you've had no offers?
Actually, there've been several."
4. "I'm not obligated to keep my mouth shut for you."
5. "Sometimes I forget whose side I'm on."
6. "I know zilch about zoning."
7. "I won't let termites -- or pesky inspectors -- kill a deal."
8. "I sometimes forget I'm not a lawyer."
9. "My website is a dead end."
10. "You can probably do this without me."
The VREB is a private entity made up of realtors to promote realtors. Governed by committees the VREB continues along a known path of promoting real estate. The message rarely changes "it's a good time to buy". Well, frankly any time is a good time to buy it depends on your personal circumstances and what you are willing to give up in the future to have what you want today.
What the VREB does not do, is counsel prospective purchasers whether buying a home is good for that individual. Loans officers for the major lenders used to do this, but with people trying to shave a quarter point here or there by bouncing from one lender to the other, most loans officers no longer give counsel and simply push the paper.
This means that the consumer of the mortgage must educate themselves. Since, high schools do not teach mortgages, declining balances, teaser rates, equity loans etc, this leaves only the school of expierence. And since we have not had a bad market since the mid 1990's there are few people that have graduated from the "school of hard knocks".
Can we really blame the VREB, agents and lenders for giving us what we want?
Yes we can! by making them accountable and responsible for their actions. Imagine a court case where the bank loses to the home owner for not explaining the risk of the loan? Or an agent has to reimburse the client for not explaining that past performance does not equate to future earnings.
Perhaps a class action suit against CMHC for predatory lending practises.
Accountability and responsibility is what makes a professional. Not a Lexus or big hair.
In defense of Tim, if you read his blog, you'll see that his commentary on the local market is both informative and fair. When he talks about the "deals" that exist because of low interest rates, he also talks about the potential payment changes that will occur when interest rates rise. This is one example where he rises above others in his profession for balanced comment.
Sicking the dogs on Tim simply because he is a REALTOR® is equally as bad as what we accuse his industry associations of doing through the media and the media for enabling them to do so. Clearly he has acknowledged bias in his discussion on this post. I for one don't fault him or his industry's association for bias--every single one of us can be equally accused of bias based on our positions regarding real estate and likely our professions as well.
Art, I don't even know where to begin. You call me naive because I expect some kind of story around what you call "salesmanship?" Olsen on Your Side exists only to do stories on this kind of practice, why is he news? Aren't you being just a little simplistic in your dismissal of my criticism of the MSM?
I'm hardly being naive or unbalanced in this current discussion.
I'm happy that Tim engaged in this discussion, I hope other commentary doesn't include baseless accusations and outright name calling--or is it the hope of some commentators to drive him (and other industry types) away altogether? If that is the case, I think it makes us all losers for more reasons than the obvious.
hhv,
When you plant a seed like that post,then you have to accept what comes along with it. No one is trying to drive Tim away,but to say the MSM was too hard on his industry for 6 months is a total joke. The TC never even printed their first real negative articles til March when they had no choice when the markets everywhere were petrified. And those articles were very short lived and went very easy on them when most in the real world told it like it was for a change.
Bias is expected in any industry,irresponsibility with peoples largest financial decision in a lifetime is not.
Great post HHV. I no longer get 'paper content' as I find that I get a much more balanced perspective turning to electronic sources.
I disagree with Tim, that numbers are numbers. It's true with a caveat - you must be numerically literate in order to understand when somebody is trying to lie with statistics and context is everything. What is not said by the RE boards is as important as what they do say, and that is the end that has disappeared from most of what is written in papers. It used to be that you'd read a story, and there would be a few sources and even some quotes to put things into perspective...
Now you need to go hunting to gain a sense of the diverse perspectives that actually exist (something journalists used to do for us, for which we would buy the paper and enjoy reading it!).
Here is a concrete example of deliberate spin and misinformation by the real estate industry. The BCREA released this report today:
New BC Survey Suggests Real Estate Purchase Confidence Improving..
“We’ve had five consecutive months of increasing home sales, which may suggest that the optimism uncovered in this survey is being reflected in provincial home sales,” explains BCREA president John Tillie.
Real estate sales are seasonal and always have a rising trend from January to June as shown in this graph.
Victoria Sales by Month..
It is clear from this example how stats are twisted by these realtor organizations in order to pump the market.
Just Janice said:
Now you need to go hunting to gain a sense of the diverse perspectives that actually exist (something journalists used to do for us, for which we would buy the paper and enjoy reading it!).
Last week the job loss numbers were released by StatsCan. Many media outlets, especially TV, only reported the bottom line job loss of 7400 which sounded good. What they didn't say was that 48,000 full time jobs were lost and replaced by part-time and self employment.
After the "doom and gloom" headlines got old to their readers the MSM started on a feel good campaign and now slant the news in this direction. Thankfully we now have the Internet as a source of real news.
So, if your 35 years old and making $100,000 a year and you buy a home with a $600,000 mortgage - what are you giving up in the future to get that home today?
When I look at these numbers and what I have to give up, the price is too high. As it is extremely unlikely to significantly make any large paydown on the mortgage and it is more likely to add to the mortgage for unseen expenditures and future economic shocks. I am looking at 35 years of living on a tight budjet.
Over the last 10 years what I have put into my RRSP and how it has grown is about the same amount as the gain in house prices. But at the end, I will have an income stream in retirement and live in a rental. If I bought a house, I would have a house, but no income stream except for what the government gives me.
So, my choices
No house and an income stream
or
house rich and income poor.
mmmmmm
or, in otherwords a choice between
Mission Hill red wine
or
Sherry wood finish single malt Glenmorangie
Okee Dokee, made my choice off to the liqour store
Real estate "Numbers" have to be taken into context with everything else going on in the (global) economy. It is this lack of context that makes the articles "dishonest" - unethical?
There has been plenty of speculation about job cuts in the public sector. One of the largest employers on the Island is VIHA and this news just came out on the TC Web site.
Vancouver Island Health Authority to cut jobs, sell assets, hike fees to balance budget..
I imagine this will come as a shock to many in the health care industry that thought they were immune to the recession. I hope the cuts are not severe and are done through attrition and early retirement.
A seven year run and a couple months of negative press seems like thin skin by inexperienced agents who have never been through a recession before. The VREB and the rest need to open up their minds that this recession is far from over. California is going bankrupt and CIT will send a few NHL and NBA teams into bankruptcy along with 300,000 US small and medium sized businesses. And lets not get into the commercial real estate,and derivatives,thats another massive bomb still awaiting us.
roger,
Just another example of why this RE drug fest is like something out of a Hunter S Thompson book. Campbell's P3 programs are causing wage losses as well as decertification of union employees in the health care field. I have a few friends who fell victim to this,10-20 years lost seniority and holidays etc, all in order for Gordie to fund the building of these projects. This is just the beginning.
Vic,
I don't disagree with your assertion that the amount of negative press or as Tim calls it "doom and gloom" headlines was vastly outweighed by the spin cycle headlines of buy now or be priced out forever. I seem to recall from links I posted that many of the "doom and gloom" headlines were unbalanced to the content of the stories published. This happened precisely because the story generating actions were press releases from industry. I doubt very much if editorial bodies sit around thinking "hey I know, let's do a real estate market story, we haven't done one in a while."
The MSM has allowed themselves to be an echo chamber for the real estate industry, and simply slap on a hed and dek to get you and I to read the story... it's relevance to the actual story content has proven minimal at worst and "pumped" at best.
It's clear the industry has a commercial need to spin positive news. I think it's expected and understood that real estate associations have an inherent bias to generate sales for their members and push private ownership of real estate and land (by protecting home valuations).
What isn't clear is why the MSM has simply allowed them to dictate the story of the day. But in doing so, they've marginalized themselves and are putting themselves out of work. And the sad thing is, they still don't get it.
Obviously the marketers in the VREB and elsewhere must be held accountable for their actions. Tim wrote about exploring new tools to spread their public messages above... I hope they are also exploring establishing credibility in their messages because I'm sure they will find that when the MSM is no longer the primary source of information, that the messages they currently spread there will inevitably marginalize them in new media circles too.
That said, the balance of credibility is still firmly in favour of the industry "experts," all you need to do to confirm that is ask the people around you if they believe the message: given the sales rates, I'd say they've bought the baby with the bathwater. I'm still not sure what will trigger the perception of a credibility gap with the public beyond a significant price correction.
As far as realtors and the real estate board goes, these people have the right to market their services and present information as long as it is not misleading. We market our company’s products hard in order to generate sales and that is part of business, but we never mislead as this will kill us long term.
The MSM is another story, they should ideally help educate the public and provide a balanced perspective which clearly has not been the case. This is likely related to the advertising dollars real estate generates for the media. This is too bad as things have gotten a lot worse.
The real responsibility lies with the individual to educate themselves especially when one is spending six to seven time their pre-tax income on a house. This is where the real problem lies. The real estate market is driven by the masses and the masses are financially illiterate. We on this blog who are in the minority get frustrated by their behavior and foolishness, but ideally we would find a way to educate the masses and then their behavior might change.
The thing that I find most intriguing is that today my wife and I feel we need to save so much more for retirement than a few years ago as we can no longer rely on double digit returns on our investments and the global economy will be very slow to recovery. So I am far more concerned about how I am going to fund that retirement than paying for a house. I can tell you our monthly cost required to support that retirement goal far exceeds the costs of a standard mortgage on an average Victoria SFH. We can easily afford to buy a house at today’s prices, but it is the retirement program that has been our barrier, yet I am sure this issue is rarely considered by most buyers today.
As an aside, this is an excellent account of the fundamental problem facing newspapers in the digital age. The bottom line is that the business model based on the competitive advantage of large printing presses is dead. And furthermore, society doesn't need newspapers, what we need are journalists. For a while newpapers provided journalists, but there is no natural law stating that you can't have journalists without newspaers.
The media problem isn't contained to paper... it also crosses onto the web and on TV. The problem is journalism itself, and the seeming inability of many journalists to stand up to money-driven interests and get back to what they do best: writing stories. As long as they allow those with vested interests to tell the story, it won't matter the medium they choose to regurgitate it.
"What isn't clear is why the MSM has simply allowed them to dictate the story of the day. But in doing so, they've marginalized themselves and are putting themselves out of work. And the sad thing is, they still don't get it."
hhv,
points well taken, and this is the most pathetic part the TC doesn't get is they alienate themselves from the intelligent readership and is why people are cancelling their subscriptions "in droves" as Carla would say.
When one opens up the TC website since July 1st to catch a bit of basic news,sports etc,you are bombarded with a headline and the same picture of multiple for sale signs. Even if I was a homeowner I would be disgusted with the over-reporting of this subject. When I used to own homes did I drool over every article that stated prices or sales were up ? Barely, I lived life knowing it could all come crashing down on any given number of world events. And this is where this over-reporting causes a lack of credibility.
If this was articles on cars and how car sales were up HUGE, and we saw it every single friggin day as the main headline over and over would not even the car owners eventually say "who gives a crap ? ".
The TC and MSM are only pacifying the over-leveraged and the advertisers who had to be having some very sleepless nights the last few months. We will see how long this pandemonium lasts,I say another month or so tops when the Swine Flu becomes our number one concern.
The end of the world must really be near - I just found out an acquaintance of mine (one of the last people in the world that should be buying a house ie. high debt, unsteady job, very little savings, etc.) is looking into a rent-to-own situation - and with a basement suite of course because they will need that income. Ugh.
that got a reaction HHV. Must have hit a bit of a sore spot.
interesting story in the TC today about commercial real estate construction booming in BC. Too bad the authors didn't state the obvious that CRE lags residential construction by around 18 months and that the bust is happening big-time in the US.
Give BC another year, and there will be a lot of empty office space as government and others downsize. Sure, there will be infrastructure projects, but not much like the new Walmart development, the BC ferries headquarters, or excavation of holes in the ground opposite the arena.
Weird things will continue to happen, there's still a lot of reckoning to be had.
I imagine much of the CRE construction, is the result of the tight CRE market in Victoria that was apparent a year to two years ago. Unfortunately by the time the projects got off the drawing board, the economy had already sputtered, and so it is likely that CRE will overshoot the need as it was planning for demand that will now not materialize for many years. As a result, expect falling CRE rents once these projects complete due to an oversupply.
I'm personally waiting for September when the new budgets come down. I'm anticipating about 10% cuts to gov. staff, and a 1.5 billion dollar deficit. It's not going to be pretty. Our insulation was Government - and government tends to lag the rest of the economy, as it takes a while for taxes to fall and demands for government services to rise.
Canadian Business article:
Is it better to rent than own?..
On several occasions I have posted that a young family should consider leaving Victoria if they want to have a financial future and not be mortgage poor. If you are thinking of moving take a look at these slideshows and see the average price of a home in other Canadian cities.
Canada's 10 most struggling housing markets..
Canada's 10 healthiest housing markets..
We've already made up our minds on the Nanaimo/Qualicum area in a couple years. Even if prices did or did not correct you get way more home for your dollar up there with all the same shopping,beaches etc. The same home here is an easy $200,000 difference.
And in a couple of years, it will be the same difference, plus an additional $200,000 drop in both markets.
I've past the point of caring if I buy a home or not. I don't even bother looking up the prices of homes that come up for sale in my neighbourhood. I'm just finding real estate --- boring.
And if the general populace is finding real estate boring, then the cache, the excitement is gone.
I think the excitement going is the most telling and important step yet. Like Jack and it seems other, I'm still check this board daily but aren't interested in looking at real estate.
If some life event put pressure on my housing situation (a child or two), then I'd would be looking at options. That would be the only event that would make me start weighing the unbalanced numbers and I'm sure I'd come up with renting a bigger place.
Real estate for stability, investment, and pride is just too expensive to even pay attention to.
Supply and Demand in the Garden City
Last numbers I have are for 2006, which should be quite similar today as Victoria City is almost fully built up land.
Population 2006 78,659
# of detached homes 10,484
# of strata homes 10,101
Current number of homes for sale is 78.
78/10,484x100= 0.75% (less than 1%) of the total stock of detached homes in Victoria City are for sale.
Median price for the last 6 months $497,000 (221 sales or 37 sales per month).
Average household size is around 2.75 which equates to about 100 people each month buying a home in Victoria City or 100/78,659x100= 0.13% (one-tenth of 1 percent)of the total Victoria population
is driving this market each month.
When so few households are driving prices to one of the highest price levels in Canada is Victoria City a risky place to buy real estate? Is there a way that we can measure that risk - say price per capita like for example
Victorians pay $6.39 per person
while
Vancouverites pay $1.04
would that make buying in Victoria 6 times more risky than Vancouver.
Another sheep lead to slaughter...what a total flip flop this guy did.
http://victoriastruth.blogspot.com/2009/07/vested.html
And as long as there are sheep this joke will continue. Of course when the music stops (musical chairs reference) who is going to be left? All the stupid people have already bought.
Oh my it's going to get interesting when the bottom drops out of this bloated pig.
The sad part is that this guy just had a baby and is starting out. How will he and his new family feel when the value of their house goes into the shitter and stays there???
I continue to smile and yes laugh a little when I say good morning to my neighbour....knowing that I pay exactly half of what he pays per month to live in the same place.
Mark said...
Another sheep lead to slaughter...what a total flip flop this guy did.
http://victoriastruth.blogspot.com/2009/07/vested.html
PB has been in a buying mode since LittlePrarieGirl came along. I can't blame him, all of us here want to buy a home, we all want to be in exactly the position PB is in, he found a home, at a price he was comfortable with. I say congratulations to him. Roger, HHV and the rest of the "moderates" here have always agreed that if you can find a place you like, at a price you are comfortable with, then buy.
Congratulations PB!
When is the housewarming party?
I agree with Robert. We're all in a position tomake our own decisions, but I don't think anyone is in a position to criticize PB. His blog provided an invaluable service. At the very least, he bought at a time when prices were below peak and interest rates at an all time low. While this could be a recipe fordisaster for some people, somehow I doubt PB is one of them.
Well, here's what I sent to PB, posted here since he is now moderating all comments:
PB,
I've been following your blog since early 2007. I discovered it when I began to become interested in buying a house, and began to suspect that something was seriously wrong with the local market. Following this blog has been an exceptional education for me. Most importantly, I realized that I was not crazy, at least not alone in my craziness, and that many others felt similarly to me about RE. Though you're leaving the local blogosphere, at least we have HHV's and Greg's blogs around for local discussions.
Thank you for providing this blog over the time you have maintained it.
I can begin to understand the reasons for your capitulation. (I myself lived in a 1 bedroom apt. with my wife and toddler daughter for almost three years before I moved to Victoria, and frankly a better situation.) Hopefully, you have found something reasonable for your own situation, and that you have not overextended yourself and put your family at risk.
Your comments about becoming "vested" are somewhat unfortunate, however. Of course, many of us are still not in the situation where buying is a reasonable proposition, and you telling us that you are "cheering on the economy, believing that this will stabilize the housing market," is rubbing the noses of us "have-nots" in it a little, don't you think? At least you have been honest with us to the end.
Good bye.
- StargazerXL
There ARE some very good POS deals out there. I sincerely hope PB got one of those!
And already wished him and his family the best!
If you can comfortably afford it and can stomach a major loss on paper over many years then go for it,if you can't, or you think the prices are a joke as I do then wait it out. The other shoe may drop in the coming months and it will not be pretty. September will be the key month to get through,many derivatives problems still being covered up IMO.
My only point in posting my thoughts about his decision to buy at this time is that you have to be insane to believe this is a good time to buy (whether you can afford it or not)
* the only people that aren't going to get burned are those selling in this crazy market and then buying another house (because it's all relative) Now let's just pray they don't bit off more than they can chew by moving up too much and trying to compete with the Jones' cuz that's going to hurt big time!
The bottom line is buying now (as a first time buyer)YOU WILL LOSE A WHACK OF $$$$$ and to suggest that some of these sheep are better positioned to deal with that is utterly ludicrous!
Paper loss....ya sure but how is he going to feel when 2 years from now his neighbour buys an identical house on his block for 40% less? You think he is going to be cheer leading then? How is it going to work when he goes to refinance and the bank says your house ain't worth close to your new mortgage amount??? AND BY THE WAY YOU ARE NOW GOING TO BE PAYING 6-7% AND NOT 3.75!!!!!!!!
He flip flopped, he caved, he made a terrible mistake IMO.....there are lots and lots of beautiful rentals in this city and he should have waited it out.
I'd love it if he could do a follow up in 2 years time.....I would bet the farm that it won't be as positive as his last dumbass post!
NOBODY, NOT ANYBODY CAN AFFORD TO LOSE 40% + ON ANYTHING. It messes with your head and unless this guy has a ton of dough to put down, his payments are going to hurt every month when the rates go up (and they will). IF he had a ton of dough to put down then he just lost the investment potential on that $ and that in itself is a stupid move.
Buying to the top is never good and never justifiable so I am bewildered when I read the posts suggesting he did what was right for himself and his family.
What he did what put his family behind the eight ball early in the game and that is plain irresponsible. The guy needs financial counseling not pats on the back....geeeeesh!
Robert said:
Roger, HHV and the rest of the "moderates" here have always agreed that if you can find a place you like, at a price you are comfortable with, then buy.
Let me be clear about what I have said in the past and still continue to believe. Anyone that buys now needs to recognize the following and be prepared to deal with them when they occur.
1. You need to get a very good deal on a property located in a desirable area. When the market cools the least desirable areas will have the worst price drops.
2. Interest rates are at record lows. There is only one reason for this - the economy and credit markets are in a mess. When things improve fixed mortgage rates will rise quickly. Variable rates will follow. If you can't afford 5.5 to 6.2% mortgage rates in 5 years then you shouldn't be buying now. Here is what you will pay on 500K mortgage. Click Here.. That is an additional 6K to 8K of after tax income. With a marginal tax rate of 33% that means a salary increase of 9K to 12K just to pay the increased payments. Inflation wage increases won't cover that and all the other related housing costs (utilities, taxes, maintenance).
3. Real estate runs in price cycles. It peaked last April and was dropping at 1% a month until the recent low interest buying madness drove prices up 4%. If the economy gets worse consumer confidence will drop and so will the real estate sales. If the economy improves interest rates will rise, affordability will get worse and sales will drop again. Either way demand will be down in a few months and then prices will resume their downward trend.
Anyone buying now needs to realize that they are buying near the peak and that their carrying costs will only increase in the future when they go to renew. Those with a long term view (10+ years) that can stand to watch their property drop in value over the next few years and are comfortable with increased payments might consider buying now.
But to buy now, hoping the economy will improve to the point that Victoria houses will keep on climbing in price is just rationalization or wishful thinking.
There has been a lot of chat about mortgage payments and what a buyer can afford. On several occasions I have asked friends and colleagues if they use a personal budget planning tool to track expenses. Most have said no. This makes me wonder how folks can take on massive mortgage debt with little idea of monthly expenses and cash flow.
I sent some financial planning links to HHV and see that he has now posted them under Resource Links on the right hand side of the blog page. The one marked "Maxed Out budget worksheet" is an Excel spreadsheet which will help readers with tracking their income and expenses. Just plug in your numbers and see how much of a mortgage payment you can afford (not what the bank tells you).
How many readers are interested in spreadsheet tools like this one? I have developed a "Buy Now vs. Wait" spreadsheet and will prepare some documentation and release it for free if enough readers are interested. This tool allows the user to enter current and predicted mortgage rates and house prices; current rent; property taxes; maintenance; current savings; predicted investment rates and inflation estimates. The results show expenditures for renting and buying and if there is a benefit to buying later.
I totally agree with you Mark.
I don't understand why someone has a baby and believes they must then buy a house. Why not just rent a house? (if you were in an apartment or a suite before). What is the freaking difference?????
Olives, yup you nailed it and like I said, there are some very nice, reasonably priced (relative to buying) rentals out there....some even have yards and a garage! can you imagine that??? (sarcasm)
The other thing is and obviously this dude has never had a new baby or done any real homework on the subject but guess what! Babies are all consuming and ya know waht? They continue to be until they reach school age! So pray tell, when are you going to have the time to do all those labour of loves renos, or work on the car in that garage, or all that landscaping???? He is dillusional.
Guess what....it ain't gonna happen! He is going to wish he was a renter again without all the responsibilities (spelled headaches) that come from home ownership. it isn't all fun and game dude! and neither is parenting....this guy really just irks me with his justification for finally biting the bullet and buying a house.
Not one of his reasons makes any sense! I rent a beautiful place (not because I can't afford to buy) But because I WILL NOT OVERPAY FOR A HOUSE.....and my neighbours that bought recently are literally paying double what I pay!
I put money into my child's RESP, we have our own RRSP's, a sizeable savings account, investments (that are doing much better lately, - thankfully),We take family vacations, have very little debt and our quality of life is very very good. The same cannot be said for my neighbours. (we've talked)
What the hell is wrong with renting? What does having a child change? Why the hell didn't he just wait?
Just wait until those Olympics come and go and the bill comes in....this province is going wake up real fast!
Personally I can wait. been an owner and it was overrated. Renting (the right place) is so much better. Will we buy? Maybe if the prices correct as much as I think they will/should. If not, as soon as my boy ships off to University, we are getting out of Dodge. The world is a big amazing place and the cost of living is a lot better in a HUGE part of it.
As a parent myself, I guess he just really pisses me off with his lame reasoning for finally buying. All that time spent on his BLOG....he has lost all credibility and respect IMO. I mean stick to your guns for crying out loud!
BTW he didn't bother posting my reply to him on his site....surprise!
Wow, I'm a little surprised at the venom in the comments towards PB. We all have our priorities and pressures in life. His have moved away from getting a good deal on housing to paying todays prices. In no way do I have the right to lamb bast him for it. What ever moves he made were with his eyes wide open, and no where does he say for others to do the same.
I'm a bear. But venting market frustrations on one guy only makes us look petty. I hope all goes well for PB and his family and I hope housing prices come down by a whole bunch. Most of all I hope when prices come down all still goes smooth.
Venom???
PB just made the biggest mistake of his young life dude! And after preaching for soooo long that others not make the same mistake! A little suspect and totally weird, don't you think?
My post are meant to awaken others to his obvious lunacy, nothing more. Thus my reference to sheep being lead to slaughter. I f I can save just one sheep and his family, then I've done my job!
As far as venting....I don't care what the market does. I don't feel at all compelled to ever buy a home in Victoria again. been there, done that....got the grey hair to prove it.
My opinion is that prices will correct 35-45% in the next 3 years and then go sideways for a very long time. I've always felt that RE was not an investment so much as a place to call home, forced savings etc. (not including revenue properties that produced cash flow or at the very least carried themselves)
The last 5 years are an anomaly and IF you cashed out treat it as a windfall, a bit of wonderful luck cuz it will never ever happen again in your lifetime.
My big issue was that PB preached the gospel for ever and then flip flopped big time. No conviction and as such - no credibility!
S2 here (not Just Jack)
After having a baby the urge to nest can be HUGE for some.
If both parties are not on the same page with regards to renting/buying the pressure can be hard.
Just after our baby was born my sister told us we would need a bigger house (we are in a 3 bedroom). No rational thought just a feeling. She's amazed that the 3 of us are doing so well in our "small" rental.
Now if my husband was pressuring me or I was pressuring my husband would we still be in our rental?
Mark,
In PB's defense, I'd hardly categorize him as a "preacher" of the bear persuasion. His blog started out as commentary on a crazy market--which was an accurate description of them time. He's definitely been a bear, but his commentary was hardly persuasive or preachy. He kept score and called it like it was, more impartially than I ever did.
Personally, I wish him nothing but the best. When Mohican bought a house, he demonstrated the numbers openly of why it made sense for his family when he did it. I get the sense from PB's last post that he's taking a bit of a leap of faith, or maybe he just doesn't want to share his numbers with us. That's his right.
Same as it's the right of others to suggest he has somehow flipped. Personally I don't see it that way, but I can understand how some might.
I think there are a lot of people out there who truly feel secure in their employment, and future employment growth. If that is true, and it's affordable today, and five years from now based on their assumptions, then why not own a home long term? The speculating we sometimes do here re: job loss etc, is still speculation, in the same sense that counting on higher prices for houses in the future is speculation.
HHV said:
When Mohican bought a house, he demonstrated the numbers openly of why it made sense for his family when he did it.
Readers might not be familiar with Mohican.. He was a housing bear in Vancouver that got a smoking deal on house and so he bought. His deal enabled him to buy for less than it was costing him to rent. He shared his logic with everyone and recognized that the market value would probably drop but he was prepared for that. He did not change his bear philosophy and become a cheerleader for rising prices and reduced affordability for others. Here is his story...
Why Mohican bought a house..
He still runs his blog and publishes stats, articles and good insight.
Housing Analysis..
Let’s play speculate on which house PB bought.
so i checked my PCS this morning, and there were 6 sales reported over the weekend. I bet one of them is PB’s new home. Based on what we know of PB, I think I can guess which house he bought. PB was looking for a good neighbourhood to raise his growing family, so 543 Burnside Rd. and 655 Sumas St. Are out.
Little Prairie Girl needs her own room and with another bundle of joy on the way that means PB is looking for a 3 bedroom place. Bye bye 3025 Jackson St., 2510 Asquith St. and 1434 Lang St.
By process of elimination the only option left is 2226 Oregon St. listed at $364,500 and a selling price of $355,000 a reduction of $9,500 so there is obviously a shrewd buyer at work. The evidence is starting to mount.
2226 Oregon St. is on the nicer side of Fernwood, on a quiet street, close to a park and schools. While a little outdated with 70’s shag and wallpaper, thats nothing a little elbow grease and effort can’t fix. There is a lovely fireplace for the family to gather round, a clawfoot tub for Mrs. PB to relax in. A big kitchen and connected dining area, the heart of the home. The upstairs is wide and open, a perfect playroom and nursery for the kids, I can see it littered with toys already. A lovely semi-covered deck for BBQ’s in the summer and a fully fenced back yard with veggie garden supports a healthy squirrel hunting zone ;)
With a decent down payment of 20% which I expect PB has, the mortgage would be 285,000. With a 4 year mortgage at 4.09%, and 25 year amortization monthly payments are a hair over $1500 per month. Add in some taxes and other expenses and call it $2000 a month.
It is hard to find an equivalent rental for $2K a month. Even if one could be found, the added bonus of security and being able to paint the walls any color you want is a huge factor. Having a home for your tiny spawn will blow the whole equation out of the water.
Sure mortgage rates might rise, values might fall, but PB is a smart guy, he knows all that stuff. He may have made a huge mistake as some have said, but it will probably be the happiest mistake of his life. He has a home, a family and after writing his blog for the last few years he knows exactly what he is getting into.
Good job PB!
Some eight years ago Victorians started into the cycle of lower interest rates and expansion of developable land with the extension of the sewer lines.
This triggered a change in Victoria's traditional market pattern of being one of retirement to that of younger workers immigrating from rural BC towns and other parts of Canada for well paying housing related jobs.
The new workers bought homes and by doing so increased demand for more homes, which made for more immigration. This affect happened year after year. Interestingly though that about two years ago we started to see a significant increase in rents. What was happening was the new workers were having a difficult time in purchasing a home and were putting a demand on new condos and houses for rental purposes.
The affect of interest rates while important was not the primary or necessarily the secondary cause of the home price increases. One could call this initial stage the "build it and they will come" stage of the market. I say interest rates played a small role becauses as they vascilated demand and house prices kept increasing. Speculation, also played a significant role by reducing the turn over rate of real estate from 7 years down to 3 years.
Eventually, house prices peaked in the spring of 2008 and began to decline. Interest rates were steady as was employment and migration. So, Victorias market maxed out at $600,000 at 5.25 percent interest rate.
However this spring was different. This spring had our unemployment rate increasing from 4.3 to 6.4 percent and I have seen weaking in our rental market. The difference this time is one dominated by interest rates and NOT demand.
What has happened is that Victoria's prices have gone from $600,000 at 5.25 percent ($596 per $100,000 or a conventional montly mortgage payment of $$2,860) to $550,000 at 3.75 percent ($513 per $100,000 or $2,255 per month). My opinion is that because our market is now one of finance rather than demand our market has declined, but the affect has been masked by the low interest rate as today's buyer is now tapped out at a lower monthly payment than a year ago.
What we know this time is what that our price maximum price ceiling was $2,860 per month in April of 2008 and has now declined to $2,255 per month. A difference of $605 per month on the typical mortgage.
If anyone understands this logic, or lack of, I'd be surprised, because even after I re-read it I went "Huh". But its my opinion and its free including the typos.
I agree with Mark and Olives. Amazing now that he made a stupid (IMO) move and bought an overpriced box he NOW doesn't want a market correction. Now he thinks that things won't go down. What a tool. He is basically wishing for things to keep being stupidly overpriced and unaffordable for the rest of us because he made a stupid move. Not cool at all.
Chickinvic
I hope at the very least PB isn't surprised when he's underwater on his mortgage in three years, because of all the people buying into this spring bounce he truly can't say he didn't see it coming. It's sad that someone would knowingly mortgage his future like that, for what can only be emotional reasons.
Sure, money isn't everything, but we're not talking about overpaying for coffee or getting a new iPhone when your old one still works. This is the kind of money that affects everything else in your life from when you can retire to where you can go on vacation to whether your children have to take out loans for university. It boggles my mind that he could do that, knowing what he knows.
For me, this underscores the affect of the "bear trap", "dead cat bounce", or "right shoulder of the graph". The nesting urge being so strong. So, is the need to conform with your peer group.
This drop in monthly payments is what some people have been waiting years to happen. You can now buy and save "face" amongst your home owning peers. You can buy at less than peak prices and at an ultra low interest rate.
The preasure to buy is extreme and it started when you were a toddler and mommy read you bed time stories and told you nursery rhymes.
When you grow up, you will fall in love, live in a castle and have babies.
Sometimes, we mix up the order, but the message is clear. Your not an adult until you have a home.
When bulls taunt us with phrases such as forever renter, or scribling in your parent's basement. They tend to make us lash out and defend our choice, once more re-inforcing our insecurity.
And, when one of our own comrades falls in battle what do we do?
One by one, each of us will fall upon our own sword as the war ends and each of us purchases a home.
But I say let us congratulate, nay let us rejoice in PB's choice, wish him and his family well and vow to continue the battle, so that he may buy his second investment home with positive cash flow.
PS, did I tell anyone that I had a couple of wisdom teeth taken out - and the drugs they gave me - well, can be inspiring at times as I have always wanted to use the word nay.
"It boggles my mind that he could do that, knowing what he knows."
He doesn't "know what he knows" anymore. He is now in denial and brain washed. He actually thinks the economy will pick up and keep this thing sailing indefinitely. Riiight. That's what he is hoping for. I just lost all respect for him when he said he now hopes for no correction. Gee thanks, those of us who actually want an average person to be able to one day own a home appreciate the sentiment - NOT.
Chickinvic
You do seem a little drugged out JustJack...
The dead-cat bounce is also called wave 2 in elliot wave terms. once complete, wave 3 should be dramatic.
I wish PB well (and anyone for that matter), I just don't understand the choice - then again even most of you bears aren't nearly as bearish as I am.
The thing about the market is that it doesn't care what anyone wants. PB can wish for a return to irrationality if he wants, but he's only deluding himself. The market will do what it always does: revert to the long-term trendline.
The elliott wave
I was asked once if I thought the recovery would be "U", "V" or "W" shaped.
I said two back to back "V"s.
Anyway the elliott wave isn't that what they do at hockey games. I've also been listening to animal spirits lately. Right now my understanding is at the cricket level but hope to reach bipedals by next month.
At university I was one of those radical Freidmanites, what can I say - I was young and it got you chicks. Afterall it not the demand but how big your supply is.
Lately, I've gone back to Keynes, but my heart belongs to Galbraith.
By process of elimination the only option left is 2226 Oregon St.
So when will the dwindling group of remaining bears show up with flaming pitchforks?
He actually thinks the economy will pick up and keep this thing sailing indefinitely. Riiight. That's what he is hoping for.
Er, most sensible thinking people would hope the same thing. Do you really want the economy to crash and see your job go poof? Riiight.
PB's decision was clearly based on emotion not fundementals. But once he signed on the dotted line it all reverted to fundementals.
Justjack - HHV has links to two elliott wave followers on this same site - Mish and Futronomics - check them out! Laugh all you like, but it's really fascinating stuff.
Actually, I like the elliott wave, animal spirits, water cooler talk theories. I agree with Schiller that there seems to be a collective thought process in being a human.
For example, Victoria and Vancouver separated by a body of water so much so that I would call them geographically separate markets that should behave in a slightly different way. Yet when you look at the data, there is no lag between the two cities or even the level of increases and decreases appear to be locked together.
To me the Elliott Wave is like Feng Shui, a lot of it can be explained in western terms without going into the spirt world or that there is a mystical mathematical pattern. I think human beings are pessimistic by nature and believe that things can not always be good. Real estate cycles are vamped and re-vamped made new and improved. The power of the media is exceptionally strong as it re-inforces the common belief. However, people become suspicious if all they hear is good news and rebel against what they hear in the news. Or superstitiuous about certain times of the market. October stock market is one, Friday the 13th, etc. Or simply, they get desensitized to the up and down swings and get bored with the market.
It like George in a Seinfeld episode said. "you gotta rock the coke machine before it falls over".
Do I actually have a follower in Just Jack? Wow.
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?
Roger, HHV or anyone else:
Any mid-month stats available?
BNN speaks with Brian Ripley, CEO of consulting group Oakes Ripley & Associates Inc and Pascal Gauthier, TD Bank economist.
*Ripley basically suggests that the Govt is "enabling" a new bubble and things are going to change in the Fall...(spelled POP)
*He also suggests prices for homes will return (not overnight of course) to early 2000's levels...OUCH! That is inline with my 40-45% drop in Victoria.
Do yourself a favour and listen....
http://watch.bnn.ca/headline/july-2009/headline-july-20-2009/#clip195520
Concentrating on the condominium market in the core municipalities of Victoria.
I find that the condominium median for the first two weeks of July increased from $285,000 to $295,000 (3.5 percent) and the number of purchases also increased from a year ago from 75 to 85 or 13 percent. With the lower interest rates, today's high ratio condominium buyer is paying a lower monthly payment of about $350 per month than last year. Which also means that a prospective buyer with a lower income than a year ago now qualifies for financing.
The typcial condominium is around 925 square feet and would be a two-bedroom second or third floor suite, located in the middle units of a 1990's built complex in the West Saanich area.
(note: just like the typcial Canadian family household size is 2.7, the typical condominium does not exist, its just the mid-point of the sorted data) The typical condominion description is to assist the reader in visualization.
The typical monthly payment including strata fees and taxes would be around $1,500 per month. This style of condominium would rent (if vacant) for $1,300 per month.
If your new to Victoria and are caught paying $1,300 per month in rent, then it would be hard to resist purchasing with such a small difference between rent and mortgage payment.
A combined income without debts of $48,000 gets you a typical condominium. At 6 times gross income there is a low expectation that you will pay the mortgage off in less than 30 years with just your wages. Most likely you will end up selling the condominium after three years, effectively having paid rent to the bank of $1,200 per month (due to the tiny amount of mortgage paydown).
In summary, the numbers look good to buy, but the long term opportunity costs (the things you have to give up ie. vacations, a new car, education, RRSP, children?) are high.
Mid-month stats from Tim Ayres on Twitter are:
"Available listings continue to shrink - Month to date Victoria real estate stats: New sales 528. New listings 811. Total listings 3657."
Just Jack are you factoring in the realtors commiss. and legal fees attached to the sale of that unit after 3 years? That would change the total per month "rental" cost.
Also, the buyers should be prepared for a special assessment as most of these buildings in Vic are not prepared to deal with large cost items (repairs, updating etc) cuz their contingency funds are underfunded.
Rents for these units are ridiculous at present but are coming down. The reason......way too many condos bought on spec over the last 5 years. Nothing but new condos for rent on craigslist and owners are getting desperate so prices are quickly becoming negotiable.
A condo is the worst real estate purchase to make right now. But I see your thought process here. Funny how all people (sheeple) see is the monthly payment.
Well said Mark.
When you ask people about making money in real estate, they tend to work on a very simple level.
"I bought it in 2005 for $400,000
and sold in 2007 for $500,000. I made $100,000." Closing costs, rent/mortgage costs, taxes, repairs, commission, insurance are excluded in their thoughts. They simply "made" a $100,000.
My thought was to keep it simple. So, yes I have over simplified and the example I gave actually shows a worse "not so wise" purchase in relation to renting.
Also, I think a three year turn over rate for the high ratio buyer of a condominium today is not realistic. Re-considering the low appreciation in properties, I think a high ratio buyer will be locked into that property for at least six years under the assumption that prices will continue to rise at a marginal rate of 3 percent. If prices decline slightly then high ratio condo buyer will have to wait for morgage paydown which could be 15 years on a 35 year mortage. If prices drop sharply, then its just simply 7 years of bankruptcy.
As a post script. I think the worst real estate purchase today - would be vacant land, next would be properties that are heavily weighted in the land component. Properties like acreage and waterfront.
Just Jack,
I have taken a look at your condo example from two perspectives: as a buyer and and as an investor.
What happens if someone buys the condo in your example an rents it out. Will they make money over 5 years or are they better off leaving their money in the bank?
It turns out that after five years they have to sell the 295K condo for 320K just to break even. Even then they are 7.4K worse off than investing their down payment at 5%.
Click here for details ..
If you want to own this condo is it better to buy now or wait for prices to fall? One has to factor in rising interest rates and possible saving by continuing to rent. This involves several tradeoffs and here is one example that shows if prices are down by 8K after one year or 12K after two years it is better to rent.
Buy Now or Wait - Click here..
Note: Previous examples require several predictions which are entered as user parameters in the spreadsheets.
In many of my posts, I often get frustrated with FTB’s who do little research, put down 5%, amortize over 35 years and do not understand the market. For me, these people are at high risk of losing their homes in 3 to 5 years when interest rates reset. Many will sacrifice their retirement savings for the sake of owning a house in Victoria. These people in my opinion are fools mainly because they did not bother to do the necessary research before spending a half million dollars and this decision could well haunt them for the rest of their lives.
But in the case of PB, there is no need to criticize his decision to buy as he is fully aware of the real estate market, impact of interest rates, amortization periods, etc as any of us. There is value in owning a home if it is in the neighborhood you desire and you plan on staying there A LONG time, especially if you want your kids in a stable environment. How much value you place on that is a personal decision. I am sure PB knows that his house is not going to appreciate over the next few years and he did not make the decision to buy on the assumption of capital appreciation like many FTB’s do today.
I am sure he is putting at least 10% down and is going with a 25 year amortization. If so, he will have paid off at 25% or more of his place in five years (assuming he has one of the low rate pre-approvals and went for a five year fixed term). So even if prices do come off, he has options to keep his family in the house.
Roger,
Earlier you generously offered to share your "Buy Now Vs. Later" spreadsheet. I would be happy to use such a tool if it were made widely available. Thank you very much for offering it to us all.
Could HHV please host this tooll or can you make it downloadable from your "Needs Analysis" website?
Roger,
Thanks for the link to the maxed out spreadsheet - I've just been playing with it - nice and convenient how it automatically calculates the percentage you're spending on various categories.
I'd be interested in having a copy of your buy now vs. wait spreadsheet.
Interesting how there has been no real estate pump jobs in the TC for almost a week now. Methinks the local MSM reads the HHV opinions more than we could imagine. Infact I think a week has to be a new record for them.
StargazerXL & Muriel,
I hope to release the Buy Now vs. Wait spreadsheet as a downloadable link before two long. I sent a copy to HHV for review and am waiting for his comments. In the interim I am adding some documentation to make it easier to use.
Here is a sample printout showing the trade-offs associated with buying a 500K house. One can see that with a rent of $1700 per month, and rising mortgage rates, it only takes a small drop in house prices to make waiting the better option.
500K House Buy or Wait..
Vic said:
Interesting how there has been no real estate pump jobs in the TC for almost a week now.
The reason is that Remax, VREB, Royal Lepage and CMHC have not written any stories for them (i.e. news releases). You don't expect them to actually do any investigative journalism, do you?
They should look into the foreclosures and court ordered sales over the Malahat where the supply of greater fools has run out. The numbers on my tracking reports really been picking up steam lately. Currently at 74 active listings with prices ranging from 42K to 1.2M.
The reason is that Remax, VREB, Royal Lepage and CMHC have not written any stories for them (i.e. news releases). You don't expect them to actually do any investigative journalism, do you?"
Very true roger, but I expected more regurgitation by CW as that seems to be her forte. I understand there are actually a few really good reporters there but the advertising industry has a stranglehold on things. Can't bite the hands that feeds you.
Did you see the article today about all the senior inflow and low paying jobs dilema this town faces ? No mention of real estate costs coming back down to earth,just that the new $8 an hour workforce will have to live in Duncan and travel here to work the entry level jobs. Do they not get no young worker coming from a position of strength will say screw you, pay half my rent or I will go elsewhere ?
Just saw some breaking news, no more CHEK TV. I guess with Canwest in trouble something had to happen but to have only A Channel left will mean the quality of reporting will be knocked down many notches.
"The reason is that Remax, VREB, Royal Lepage and CMHC have not written any stories for them (i.e. news releases)."
Rumor has it there's a lot of work being done on a couple of TV shows shot locally to attract buyers to Vic. It's all very hush-hush, no details beyond that just yet.
First Chek TV then more Govt jobs, Tourism, construction crapping the bed as we speak......uh huh, pretty easy to justify the ridiculous prices in old Vic hey!
Soooooo.....without the means to afford the 500K crack shacks what is going to happen to RE in sleepy town???
What goes up, comes down.....just give it a little time. We are just getting started. No jobs, lack of affordability, etc etc etc and I would venture to guess that we will start to see a mass exodus very soon.
Might take some time for the bag holders to come to terms with their paper losses but ultimately reality will set in and many wil be forced to sell at whatever the market will bare (only now the paper loss becomes REAL)......and it ain't gonna bare much by then.
Decline of 40 - 45% in 2 - 3 years is my call. Right back to where this silliness started 7 years ago....and ya know what? RE was too expensive back then!!!!!!
I'm getting giddy just thinking about it :o)
Blogger Vic said...
Just saw some breaking news, no more CHEK TV. I guess with Canwest in trouble something had to happen but to have only A Channel left will mean the quality of reporting will be knocked down many notches.
Any one care to wager that the Times Communist is next???? How many people work there? How many of those people own their homes?
To pretend that this isn't happening is insane! Wake the F*ck up sheeple!
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