Friday, September 11, 2009

This buying boom makes no sense

Even to some of Canada's so-called real estate experts. An interesting article appeared yesterday in the Financial Post that quoted a survey of some real estate agents. I question the validity of the agents equals experts assumptions being made here, but none-the-less it provides some interesting insights into the opinion formation of one group of so-called real estate experts.

As always with national surveys, it's difficult to glean any local relevance, in terms of hard data or fact for those of us who place import on such things. But that said, from knowledge of past national surveys and hard local data, I'd say its safe to assume that applied in Victoria, the answers to these questions become more firm. As in more agents would believe these statements than in other parts of the nation--as a group, they've drunk deep from the fountain of real estate "truth" and therefore have more firm belief; if real estate were a religion, and agents were its prophets, Victoria's agents would likely be classified as fundamentalists. Of course, there are exceptions to that rule.

Here's the highlights (emphasis mine, paraphrased etc):
  • Even the real estate industry in Canada is having a hard time swallowing the complete turnaround in the housing market (a dubious claim based not on hard evidence)
  • A new survey from Royal LePage Real Estate Services Ltd. found more than a quarter of its agents do not believe the housing market's current strength is sustainable
  • 61% of agents surveyed believe the market is sustainable
  • 28% don't and another 11% didn't know
  • 36% of agents who believe the market is unsustainable say the recovery will end with interest rates climbing, which they say is inevitable
  • Another 20% of that group says there is no job/income growth to sustain prices
  • Overall, 66% of those surveyed said low interest rates were the number one reason behind the recent strength of the housing market. No other category even got a double digit response.
  • Of course, Phil Soper sees sustainability, as he's ever the eternal optimist
Those numbers really are remarkable given the headline "Even Canada's real estate industry questions housing turnaround."

What I read was few agents cared enough to understand the reason why the market shifted so dramatically so swiftly. After all, the majority feel the market is sustainable. Only 28% don't. I'd wager the 11% of "don't knows" are really the 11% of agents making 60% of the commissions--they don't care, because they sell houses in all market conditions and make lots of money doing it too.

I don't think we should give any weight to this kind of survey. To quote Jim Sutherland in BC Business magazine:
Anyone who’s read a real estate article or two will be familiar with the oft-quoted usual suspects: developers, realtors, condo marketers, economists working for banks, real estate companies and government agencies. Undeniably these are well-qualified people who know a great deal about the subject. Most of them even work in the field, and of course anyone who’s ever held a job knows what “work” means. Between reports, secondments, committee meetings, ancillary projects, emails, phone calls, lunch dates and farewell gatherings in the boardroom, if these experts spend two or three hours a week thinking and writing about real estate, they’re performing some kind of magic. No wonder so many of them were caught flat-footed by last year’s sudden downturn, then blindsided again when things picked up this spring.
In other words, for all their so-called expert status, they really don't spend much time establishing credibility for their opinions.


Vic said...

I think as long as the RE people hear of insane bidding wars they will continue to pump the usual drivel out. But when they stop hearing it will they report it ? Not a chance.

Hearing some anecdotal stories from some dear friends who have been very successful their whole lives in the legal as well as high end business arenas and they are struggling bigtime. Any hints of cash flow problems and suppliers are cutting off product with fears you won't be able to repay.

As well the legal field is no bed of roses these days either,competition for fewer business deals happening is fierce. These same friends a year ago were totally immune from the economy downturn but today they know it better than anyone I have met and are making lifestyle changes in spades,something they previously never would have imagined.

Amazing how the recession was never going to hit the best place on earth,but it's here,like a big bag of dung on our door step someone lit on fire.

Robert Reynolds - GBA said...

So a survey by a RE company which is probably biased indicates that 61% of realtors think the current boom is sustainable but at the same time the only overwhelming reason it exists in the first place is record low interest rates?

So are real estate agents taking over for the bank of Canada now? I knew Carney was going to be out of a job but come on now...

I don't think rates are going up any time soon so this boom will end one of two ways

1 we run out of momentum created by cheap money and buyers will eventually dry up.
2 rates can go lower and we once again bump our heads on the financing ceiling and sheer unafordability and high price will cause it to come crashing down like in the US.

Remember high prices caused subprime, it wasn't unroll after prices started to fall did it create a crisis

Dave said...


I don't think the 'boom' will necessarily end in a crash scenario. The history of real estate in BC is bull markets, followed by a quick correction followed by a long period of stagnation.

I think history will probably repeat itself here. We had the boom and we had the correction. Going forward, I expect a number of stagnant years. Affordability would improve as incomes grow, setting the stage for the next bull market.

msr said...


I suppose it depends what you mean by soon. The Bank of Canada has said it will probably be a year before they move rates higher. Of course, it is appended with a caveat of 'unless the economy improves sooner'. I've also heard that once the BoC starts raising rates they will do it aggressively at up to 1% at a time.

I think if interest rates went up 3% in a year it would have a fairly profound impact on the market as a whole.

Robert Reynolds - GBA said...

I spoke to a mortgage broker friend of mine today he said td bank economist just forcast that they don't expect rates to increase more than 1.5% before 2012.

Heresay but so is ebertything else

Robert Reynolds - GBA said...


if you look at my last few posts you will see I also expect that there will be stagnation rather than a crash

so that would be my option #1

Roger said...

Sure the Bank of Canada will keep the bank rate low for some time. Probably at .25% until next summer unless inflation takes off (unlikely). As a consequence bank prime will stay at 2.25% and variable rate loans won't rise until mid 2010. But how many home buyers are taking on variable rate mortgages?

The bread and butter mortgage is the 5 year fixed. Most people like the peace of mind they get by locking into a five year fixed rate. As I outlined in several previous posts the fixed rate is tied to the bond market and those rates will be rising before year end unless we go into a double dip recession.

Most Canadians have no idea how the short and long term bond and mortgage rates are set. There are going to be a lot of folks, especially real estate agents, wondering what's going on when the fixed rates start rising well before the variable rates.

PainInThe said...

It takes at least two people to create a crime; a victim and a perpetrator.

And that's not a chicken and the egg question when it comes to the blame game.

In crime, the perpetrator always comes first.

Robert Reynolds - GBA said...

Human nature Roger

As the spread between fixed and variable increases more people will gravitate to the cheaper variable.

Even though there is obvious risk that the variable "should" move toward the fixed rate over time.

Roger said...

In the last thread there was a discussion about new housing prices. Some of us said prices would drop in the future. Here is what happened over the last year in Victoria...

New house prices hammered during July. Slow market conditions force capital region builders to ask less

New home prices were hammered in Greater Victoria in July as the current cost-conscious marketplace continued to put pressure on builders.

New home prices in the capital region slid by 3.5 per cent in July from June, the highest figure among major centres surveyed by Statistics Canada.

"In response to slow market conditions, some Victoria builders reduced their prices in order to finalize sales," the agency said yesterday.

Between June 2008 and July 2009, new home prices dropped by 10.5 per cent in Victoria.

Housing sales are strong in Victoria, but that strength is seen in existing homes, rather than new, Edge said.

Roger said...

More news. From the Financial Post..

Debt becomes us..

The enormous debt levels in Canada, now 140% of personal disposable income, do not even include all the financial commitments and contracts we have from cellphones to car leases, says Doug Porter, deputy chief economist with Bank of Montreal.

"Most of the traditional measures are the classic borrowing on credit cards, consumer loans and mortgages," says Mr. Porter. "In the early 1990s, debt was underestimated because it did not take into account the leasing of cars."

Scott Hannah is president of the Vancouver-based Credit Counselling Society, a non-profit group that helps consumers find their way out of debt. He notes a strong surge in demand for its services. "Compared to a year ago, the demand for our services is up 118% from last September," says Mr. Hannah.

Yep - the debt is piling up. I am now seeing foreclosures and court ordered sales all over Vancouver Island, including Victoria. Here is a list of some of the foreclosures north on the Malahat..

Foreclosure list (pdf) - click here.

As you can see the range of properties is extensive in terms of price and quality. Developers, builders, homeowners, flippers are all having financial problems.

NanHousing said...


I looked at the January 2009 edition of the foreclosures and I only counted about 35. The current September edition has about 100 foreclosures in it.

I wonder if every single foreclosure gets put in the pdf file each month or if he is able to find more to put in it? I also notice in many of the descriptions there is no mention of court ordered sale/being in foreclosure, maybe it doesn't have to be mentioned?

It makes you wonder how many of these people were the 0 down or 5%ers who bought in the last year or two and have been hit hard with the economic situation. I can hardly be sympathetic to those who are extremely or infinity leveraged.

There really are some nice properties in foreclosure, in upscale areas or top of the line strata units. The middle and upper class are being affected as well.

NanHousing said...


The "Free phone" marketing strategy is quite an interesting one.

It is amazing how many people can get sucked in to promotions and not think about the future.

If the phone has a cost of say $100for the cell phone company, it is pretty much guaranteed they would charge $3 a month (bulit in to the price or others who subsidize) to recoop those costs.

And how many are savvy enough to save up the money for the total remaning payments so they are in a sense "free and clear" and have no worries about coming up with the money to pay each month? Very few I would imagine.

The financers of the "do not pay till xxxx" must be raking in massive dollars. If somebody doesn't have the money now, what makes them think they will be able to pay later? If you are 1 day late, I beleive it is 25~30% interest on the entire purchase. It would be financially savvy to already have the money in hand, put it in the bank and earn interest, then pay it off, in effect getting a discount on your purchase and defeating inflation, a big win-win.

Animal Spirit said...

Courtesy of Calculated Risk, here is exactly why I am not buying a house now:

Credit Score Impact of Mortgage Choices

"One of the tragedies of the housing / credit bubble was that many people bought homes before they were financially ready - or bought homes they could not afford. Now many of these people will be soured on the home buying experience, and their credit scarred for years.

And there will also be another group of people who make their payments, and keep their "excellent" credit scores, but will be stuck with their underwater homes for years."

Do I want to permanently indebt my family? Instead, what I choose is to live with freedom.

patriotz said...

We had the boom and we had the correction.

I don't call ownership costs higher than rent even with record low interest rates a correction. You want to look at a real correction, check out the early 80's or late 90's. Or the US markets that have been falling for 3 years now.

And the real correction is coming here, just as surely as anywhere else.

Roger said...

In the last few weeks I have noticed that some bears are starting to be influenced by all the spin and the burst in summer sales. In the spring everyone was cheering the downward slide in prices while some were disappointed in the pace of the correction. No one anticipated that the Cdn. government would deliver a black swan interest rate policy. So sales took off and prices started to go up again.

But you can only bring so much demand forward and the usual seasonal slowdown will take hold for all the normal reasons. This is clearly seen in the following two slides (updated today)...

August MLS Sales Dive..

MLS Sales - 4 Week Totals..

MLS Sales - 4 Week Listings..

What about prices? When market conditions improve more high end homes will be sold, especially waterfront and acreage properties. This has a drastic effect on average prices which is what VREB pumps in their press releases and uses in their published graphs. Median prices are also affected but they provide a better gauge of market conditions. There is a 3rd metric which is calculated by VREB and published by CMHC. This is the price of a typical house and does not include waterfront, acreage, duplex and triplex properties. The following is a graph of all three averages with three smoothing (averaging) applied. You can clearly see that even with all the hype and record low rates prices have moderated.

Victoria Single Family Home Prices..

Cheer up folks - the fall will be interesting

HouseHuntVictoria said...

From Tim Ayres: Month-to-Date Victoria Real Estate Board stats: New sales - 304. New listings - 471. Total Active listings - 3412

HouseHuntVictoria said...

There were 485 total sales in September last year, we'll likely beat that this year.

A better comparison would be 2007, at 583. Will we beat that? Looks like we may.

Roger said...

HHV said,

A better comparison would be 2007, at 583. Will we beat that? Looks like we may.

The charts I posted were updated this morning. Projections show total Sept. 2009 MLS sales will be better than 2006, 2007 and 2008 but less than 2005. But year to date sales will only be better than 2007 as shown be clicking here.

But sales are only part of the story. The price for typical single family homes (non waterfront, acreage) now has a flat trend line which is good news for bears.

Just Janice said...

The last time first time home buyers saw anything like a break on prices, many of them were still in high-school (anybody born around 1985)....they simply have no context in which to put the present circumstances. All they have ever known is increasing prices. Their older siblings made tremendous amounts of wealth, quite simply by owning a home. Compared to those who bought last year, they are doing relatively better (lower interest rates, same price). The wake up call is going to be interesting....

talus said...

Tick tock, tick tock...

Marko said...

"Compared to those who bought last year, they are doing relatively better (lower interest rates, same price)."

A lot of people I know who bought last year or before have ridiculously low variable morgage rates like Prime minus .8% My friend is paying 1.75% on his morgage right now. You can't get those kind of rates now.

Also, why do people go for 5 year morgages? I've never understood that. Sure you get the security for those 5 years, but what makes people think they will be able to afford their morgage after 5 years if rates do go up?

talus said...


Saw an apartment for rent and checked it out on line.

I don't know if David Burr keeps up on his webpage but it looks to me like there is quite a lot of availability going into the next month --- and with College/University already up and running for the semester.

Of the 37 available units (or soon to be available) 8 are rented and 9 are available right now.

While I'm sure that is a small percentage of his total rental pool, it doesn't seem like a "tight" rental market to me.

patriotz said...

Also, why do people go for 5 year morgages?

Because there is a huge interest rate premium for going beyond 5 years. One reason for this is since GIC's are not insured past 5 years, the banks have to go to the bond market for longer term money (bank bonds are not insured) and they have to pass on the interest rate premium to the buyer. The other reason is interest rate risk which grows with duration for any debt instrument (yield curve).

Rather than taking on a longer term, a buyer is always better off taking a 5 year term and making the same payments as though the term were 7 or 10 years - that will pay the principal down much more quickly and reduce risk at renewal time.

If you can't afford the extra amount, you can't afford to buy. If rates go up at renewal time, you're toast.

talus said...

Good video on the situation in China due to the slowing of consumerism in the Western World...

Outsourcing Unemployment: Vanguard

--- tip from Mish's blog

Marko said...

"Rather than taking on a longer term, a buyer is always better off taking a 5 year term and making the same payments as though the term were 7 or 10 years - that will pay the principal down much more quickly and reduce risk at renewal time."

My point being...always go variable, I wasn't arguing for longer, I was arguing for variable.

Vic said...

chop chop...Gordo drops the axe. With his track record of misleading the masses, somethin tells me there will be more turfed down the road.

203 civil servants laid off

September 16, 2009

The B.C. government laid off 203 employees as part of budget cutbacks Wednesday.

Jessica McDonald, head of the civil service, said in a government memo that the layoffs include 102 members of the B.C. Government and Service Employees Union, four members of the Professional Employees Association and 97 non-union employees.

The province had estimated around 300 layoffs as part of its September budget, as government ministries tighten their belts and find ways to cut their budgets.

patriotz said...

My point being...always go variable, I wasn't arguing for longer, I was arguing for variable.

OK, sorry I got the wrong impression.

Of course, the shorter the term of loan, the cheaper it is (in aggregate in the long run) for the borrower because borrower assumes more risk, and the lender less.

But taking on a 5 year term on a 35 year amort is very risky anyway (because so little principal has been paid down at renewal time), so I can see your point that you had might as well go variable. But you have to be able to handle a rate hike in the very short term.

Robert Reynolds - GBA said...

Garths latest post says 95% of FTB are using 95% financing and 35year ams

he didn't cite a source but if true that's terrifying.

Dave said...

Garth is full of it. Garth sells fear.

I call BS on his numbers.

talus said...

If you liked that other Vanguard Video (it was part 2 of 3) here are the other two parts...

Part 1: Lost Vegas: Vanguard

Part 3: Thank You, Recession: Vanguard

The whole Vanguard series is pretty good and can be found here...

... can you tell I don't have cable?

Vic said...

"Garth is full of it. Garth sells fear.

I call BS on his numbers."

Who else would be stupid enough to get into bidding wars paying 10-20% above list ? When it's someone elses money things change,thats how all bubbles end in a nasty way. Just put it on the tab, I got 35 years to worry about it. ;)

Just Jack said...

Vic Said:

"Who else would be stupid enough to get into bidding wars paying 10-20% above list ? When it's someone elses money things change,thats how all bubbles end in a nasty way. Just put it on the tab, I got 35 years to worry about it."

So, so true. When money is this CHEAP, its like your spending someone elses money.

Why be frugal
Why worry about the future,
Spend today,
At this low rates, the monthly payment is close to renting anyway

The worst that could happen is you declare bankruptcy and walk away. Your 25 years old, by the time your an old person at 30 or 35, your credit rating will be just as good as it is now. Afterall, it was the boomers who screwed you in the first place, what do you care? Just say yes to supersizing those granite countertops in your Mcmansion.

memo to Patriotz - this is sarcasim
-glad to see you posting again

Anonymous said...

I don't buy into the stagnation of the real estate market that some bears are now calling for. Yes we had a stagnant decade before but this time it's really different. You have a huge group of owners who have 35 year amortization and huge mortgages. The psychology involved when the housing market stagnates will be something else to see. Once these people sit down and figure out that they may have a huge mortgage for the rest of their natural lives I think they'll panic.

I'm assuming here that a 35 year amortization person thinks that they won't really take 35 years to pay it off and instead they'll just sell or be making way more money or some magical fairy will save them. When all they're left with is the magical fairy to save them then watch out. I think dumping nearly all your paycheques into a house for the next 35 years will look a lot like hell once this happens.

Just Jack said...

Absolutely Maniac78,

When your buying a home at 8 times your gross income, then you are giving up the ability to repay the loan in less than 35 years. As opposed to buying at 4 times your income when it was possible to pay down the mortgage in 15 years. Simply because you do not have any extra cash to put down on the mortgage each year.

At 8 times gross income a prospective purchaser, in my opinion, is giving up too much of his/her future income for the benifit of purchasing a house today.

Reid said...

My advice to those that choose to buy on this market is to accept you cannot afford the house unless you can afford the 25 year amortization period.

For those highly levered I do suggest the five year mortgage even though I rarely use it myself only because if provides five years security a very low medium term rates. Variable rates could easily be over 6% in a couple years which will make these 3.6% to 4.0% five year mortgages look good.

The other thing is that you will pay off almost 14% of your mortgage in the first five years if you stick with the 5 year term. I suggest to those buying, find a way to pre-pay 1% of the mortgage annually in each of those first five years. This will get those buyers to pay off about 20% of their mortgage in the first five years which will reduce long term interest costs, provide a significant buffer against interest rising rates and force the buyer to save.

Most have resisted initially, but I sit down a explain it to them on paper, they get it.

Robert Reynolds - GBA said...

Tired of apartment life?
Want to own your own home?
Now you too can realize the American dreeem.

Most people can't afford real estate, so I am here to sell you unreal estate at a fraction of the price

NSFW and just in incredibly poor taste

Dave said...

That squirrel sounds like Ian Watt.

Just Janice said...

There are interesting changes to the Bankcruptcy laws....apparently it's going to get harder to go Bankrupt. As a result, expect the numbers of bankruptcies to suddenly decline. Do not be fooled, it will not be a sign of improvements on the economic front, but rather a critter of a policy change.

Apparently the limit for making a proposal will go from $70,000 of debt to $250,000...and the amount of time to be discharged will go from 9 months to 21 months or more...

Robert Reynolds - GBA said...

I have heard one other change to the bankruptcy laws of note

RRSPs will no longer be vulnerable to creditors if you declare bankruptcy

cooliecat said...

Is it just me or does there seem to be more vacant houses on the market. Are more people moving out of Victoria or are people getting out of being a landlord?

PainInThe said...

Both. People are moving where it's cheaper, AND more people are being FORCED out of being landlords.

Except for Broadmead, where suites are not allowed and the neighbors WILL turn you in and you will end up selling at a loss if you were depending on that income, something like only 2 out of every 20 Victoria houses doesn't have a suite. There is NOWHERE near that amount of renters, nor will there ever be. Between greed and the diminishing pool of renters (some renting empty flipper and "investment"condos that can't be sold at any kind of profit) there are going to be a ton of vacancies in the near and far future.

Rents will be crashing soon along with everything else as landlords compete for the diminishing pool.

Vic said...

The rents I am seeing on Craigslist are getting worse by the day. It seems every "home" for 2000 is a main floor and not an entire house. Whoever is paying these prices is either desperate or stupid. Even the majority of one bedrooms seem to be in the $1000 range,totally ridiculous for someone making average money in this town. I would leave this place if forced to pay these highway robbery prices.

PainInThe said...

Big noise today over at Garth's over the coming tax hikes. Leading up to July 1st 2010, people will be leaving Canada in droves, not just Victoria and Vancouver.

Just about the dumbest thing the gov could have done at the worst time.

Marko said...

"people will be leaving Canada in droves, not just Victoria and Vancouver."

I highly doubt this. I have had relatives from both France and Germany visit me and my family here in Victoria. Both were extremely impressed with our standard of living (i.e. 2500 sq/ft home in Fernwood and two cars). Two nurses can afford the same or greater standard of living here than two doctors can in Germany. My cousin is a mechanic at a BMW dealership in Nancy, France and his salary is $1400 Euros per month while his rent is $700. Here he would be far better off, probably around $4000/month salary and rent of $1000/month.

In a lot of European countries generations of family live in the same home, and it may take generations to pay of a morgage. The grass is not always greener on the other side!

Robert Reynolds - GBA said...

from Twitter @TimAyres

Just got an e-mail from a mortgage broker. It appears that variable rate mortgages are back at prime + 0.0

Vic said...

"The grass is not always greener on the other side!"

Our grass is looking a little brown these days. The Euro comparison has been overused for years,we might as well compare us with Manhattan.

Just read that Barrie's window for coming up with cash for the Lightening has now closed. Silence from BM.

Vic said...

"Just got an e-mail from a mortgage broker. It appears that variable rate mortgages are back at prime + 0.0 "

When do they start paying us interest to borrow ? ;)

Robert Reynolds - GBA said...

Vic, next they take your money if you don't borrow

Vic said...

Anyone hear the rumour of CHEK moving into BM ? I'll believe it when I see it but it was best one I have heard in awhile.

Anonymous said...

Vic asked: "When do they start paying us interest to borrow ? ;)"

Apprently they already do... if you live in Switzerland that is.

I'm starting to think it may take a massive uprising to end the global financial insanity... that or a war / hyperinflation.

[insert twilight zone music here]
2012 anyone?
[/end music]

Marko said...

"The Euro comparison has been overused for years,we might as well compare us with Manhattan."

So where is everyone going to emmigrate to?

PainInThe said...

Dude, you know what those lovely Fernwood houses are going for in Las Vegas? Oh WAIT, they don't HAVE any pre-war hovels in Las Vegas because they were all torn down. In the 1960's! So what does that same amount get you? A two-story three-car garage 5 bedroom 4000 sq. ft. house with separate living room and family room off the huge 20x20' stainless and granite kitchen, with a huge pool and waterfall out back. Less than a two year-old foreclosure.

With HALF the taxes to boot, for the rest of your life, and no rain. And tile roofs that NEVER leak.

And the Strip 15 minutes away on a freeway.

And that's Vegas. If you like rain, there's Phoenix. And cool and fog with your sun, San Francisco.

And the perfect Mediterranean climate, miles and miles of San Diego on up the coast and for miles inland. ALL for the same giveaway prices. Tens of millions of foreclosures as far as the eye can see.

And Obamacare around the corner.

Where is everyone going to emigrate to? Are you out of your mind?

Anonymous said...

A co-worker of mine was in Vegas last month and was very tempted to purchase a water front, brand new 3 bedroom house (~2000 sqft) for $32,000 USD and just hold it for 5 to 10 years to flip... but he decided to come back and think more about it.

There is no comparison.

However, I would not bite in the USD just yet. Between the USD dollar likely to collapse at least 20% in the next 3 years, a new wave of mortgage defaults due in May 2010 which is some 3/4 the size of sub-prime, plus interest rates likely to jump in the next year... it'll be at least 5 years before any kind of recovery even begins.


PainInThe said...

"it'll be at least 5 years before any kind of recovery even begins."

Yes, but when you factor in that what happens there eventually happens here (only worse with our higher taxes) and that we lag the US from at least 2 to 5 years, when are we getting a recovery?

That's right... after they are.

And those occasional nuts who pop up every now and then hawking various spots in Latin America being even better... sure, if you happen to like living through or dying in CIA-backed revolutions and peasant pitchfork, axe, and torch parties where the rich foreigners are the main course.

Marko said...

Las Vegas sounds great. Think of all the high-paying jobs being offered on the strip as well!!

Vic said...

"Las Vegas sounds great. Think of all the high-paying jobs being offered on the strip as well!!"

They pay the same as the service jobs here but I am sure they tip a hell of alot more !

On the other hand at $32,000 for a home, who needs to work ?

c said...

The Vegas comparisons don't really add much to the debate. First of all, you can't just pop on down to Vegas (or anywhere in the U.S.)and start working--in the service industry or any other industry. It's been discussed before the lengthy visa requirements that exist and that would provide opportunity to a very very small percentage of those who even wish to emigrate.

Second of all--as a former Vegas resident--I have to ask-- "waterfont property"? Now that's a stretch--means either Lake Las Vegas--which is like living in nowhere--or "The Lakes" in summerland, which is just a big artificial canal--either way, a joke.

Just check zillow--the housing market has been absolutely hammered there--but any house you want to live in is not $32,000--that just perpetuates a myth.

Obamacare? it won't look anything like universal health care.

My point is--that a very privileged few may be able to emigrate to the U.S. to try and take advantage of house price differentials. But why you would invest yourself in one of the hardest places to find work right now, and one of the most volatile/fragile housing markets in North America makes my head spin. If you are waiting for such an exodus to be the trigger to lower housing prices here, you're in for a long wait.

PS--it was fun living and working there for 5 years, but it is in the end, Vegas--which is the same almost as saying Phoenix. Depressing, endlessly suburban, and hot. But, if you really are interested and are either independantly wealthy, have a job waiting for you there, or qualify as a person of exceptional artistic talent, cruise zillow and comment here on "finds" and I can always advise on neighbourhood livability.

Robert Reynolds - GBA said...

From a mortgage broker friend of mine

I may not be a good example because I deal mostly with sophisticated repeat buyers mostly.  I have rarely dealt with first time home buyers.  So perhaps only 5%.
No change for me.
I would guess 99% of first time home buyers will go for 35-year amortization because that's the only likely way they can qualify.
I also suspect 95% of first time home buyers will go with a fixed rate because of their usual risk profile.
Again, my educated guess is that over 95% of 1st time home buyers (especially in the Victoria market) will only have 5% down at most.  There is really no real 100% financing.
FYI, lenders use the 3-yr fixed rate to qualify borrowers for variable rate mortgages.  So theoretically speaking, that provides the margin of risk in the event of rising interest rates.  Most lenders actually use the 3-year posted rate for qualifying purposes.  That in fact may be higher than the discounted 5-year rate.  Personally, I am an advocate for variable rate mortgages regardless of where interest rates may go (see attached).  For a "biting perspective", first time home buyers who have maxed out on their debt servicing ratio to qualify to begin with faces the same risk exposure in the future for a variety of reasons, not just interest rate risk - mostly because of life style choices and the lack of income stability.

Sorry for the crap formatting I'm posting from my phone

Robert Reynolds - GBA said...

Robably would make more sense if I posted the original questions eh?

What percentage of your clients are First Time Buyers?
Is this higher or lower than years gone by?
What percentage of First Time Buyers are financing over 35years?
What percentage of First Time Buyers are using Variable rates vs. Fixed rates?
What percentage of First Time Buyers are using greater than or equal to 95% financing?
Lastly, in your opinion, do you think the current trends in 35 year amortizations, 95% financing and variable rate mortgages might come back and bite people in the a$$ in 5 years if rates rise, home values fall, unemployment rates increase etc...?

Robert Reynolds - GBA said...

Since I know a lot of you are interested in GIC's and other safe investments to save up your down payment I thought this might be interesting.

GIC rates for all insurance companies across Canada. (it might ask you to open an attachment, it's safe I promise.)

Standard Life has the best 1 year rates at

1.225% for amounts between $1,000-$24,999
1.375% for amount between $25,000-$49,999

I also have Non-Registered and Short Term (less then 1 year) rates on my company website

Muriel said...

Had insomnia last night, so was watching TV - saw a couple interesting promos on HGTV:

House Poor

The Unsellables

Vic said...

Just a heads up for any of the financially naive about someone operating in Victoria who just made it into the Vancouver Sun's David Baines Hall of Shame column.

Seems this guy is connected to what looks to be Canada's Bernie Madoff scam/ponzi scheme. If you do some digging into the names it is appalling how these guys are out there in our community ready to take your hard earned cash.

'Wealth coach' serves up gold bars and snake oil"

This one lays out all the cast of players and worker bees with fraudulent pasts. Disgusting but not unexpected and something I warned about on my blog with the price of gold heading above $1000 and the scams that will be out there to suck the newbies in.

Here's another link to another site that lays it all out.

Roger said...

Coldwell Banker releases annual list of most expensive and affordable housing markets in Canada & US..

Differing from most housing reports which compare median prices, the annual Coldwell Banker HPCI, provides an apples-to-apples comparison of similar 2,200 square foot, four-bedroom, two-and-a-half bath homes in Canada, the U.S. and Puerto Rico, and a sampling of 56 countries/territories outside of North America where Coldwell Banker Real Estate has a presence.

"While Canadian home prices have been on the rise again following a brief market downturn, today's historically low interest rates have kept the dream of homeownership within reach for most of today's homebuyers," says John Geha, president of Coldwell Banker Canada Operations ULC. "It is particularly interesting to compare the affordability levels now seen across North America and other global centers. Compared to many major markets throughout the world, Canadian real estate looks like a bargain."

Robert Reynolds - GBA said...

Regarding my post earlier about GIC rates, Roger astutely twittered me asking if they were in fact GIAs not GICs

The rates I linked are products sold by insurance companies, so they are in fact GIAs, GIO or Term Deposits. I use the term GIC for simplicity because not everyone know what a GIA/GIO is.

In a nut shell they are the same as a GIC, but they are sold by insurance companies instead of banks. This means they have advantages such as Beneficiary Designations, they bypass Probate, and are guaranteed by Assuris rather than CDIC.

Assuris is the organization that guarantees life insurance companies, just like CDIC guarantees banks.

PainInThe said...

"If you are waiting for such an exodus to be the trigger to lower housing prices here, you're in for a long wait."

Heck no, why the Olympic Bust come April 1st and the July tax hike will be MORE than enough to tumble the prices at least 30-40%.

To AFFORDABILITY without bank hocus pocus or mortgaging into your 70's.

c said...

Agreed Paininthe--my point is that there are plenty of other reasons why prices may fall--but Victorians packing up the mule train for Las Vegas ain't one of them.

Meanwhile, on the other end of the spectrum, I'm guessing none of us will be headed to Vancouver, Shanghai, Bucharest, or Dublin to look for a deal anytime soon--interesting read Roger.

I was surprised to see us come in as 50% discount from Vancouver...but hey, if you want a deal--my vote is for Halifax--nice town if you have work there.

Robert Reynolds - GBA said...


I gotta disagree, Olympics hangover might hurt Van a little, Victoria only a tiny bit. Higher taxes are also gonna hurt but it's only a few percentage points, not 30-40%. We might have another little drop of about 10% but then flatline.

If the lost of 30-50% of all RRSP's in Canada last October didn't drop prices neither will HST.

PainInThe said...

Time will tell. It always does.

Just Janice said...

Last year the RE market turned in May 2008 - you could practically sense the change in attitude. Unemployment hadn't changed (it was still at a low), interest rates hadn't changed, the financial market hadn't collapsed. The only thing that changed was that people finally began to think that maybe real estate was overpriced and that it wasn't a good time to buy. It was a gut feel. And the thing about gut feelings is that they just happen....

Vic said...

Will the buyer pool ever run dry here ? That has been to me the biggest surprise,where do these people come from that can qualify to pay $2000 plus taxes and maintenance on average Victoria incomes ? Somethin has to give soon in the so called "pent up demand" department.

Animal Spirit said...

I side with Just Janice on this one.

Here is what I am going on operatively:

"Metaldwarf said...
I had lunch with a Realtor and mortgage broker today. The mortgage broker told me about the rate increase, and the Realtor told me that she expects 120 days of brisk business then the market will be dead.

June 9, 2009 5:22 PM"

Disagreed with the 120 days at that point, but 120 days would make Oct. 9 from the posting date. Let's how Roger's stats bear out the original prediction.

msr said...

Will the buyer pool ever run dry here ? That has been to me the biggest surprise,where do these people come from that can qualify to pay $2000 plus taxes and maintenance on average Victoria incomes ? Somethin has to give soon in the so called "pent up demand" department.

Well, if the average family income in Victoria is around $70K-$80K that translates to about $6000 per month. Paying around $2000 puts you in the acceptable range for housing payments.

The problem is that you can borrow around $600K on 80K/year if you take a 35 year amort with a 2.35% variable rate. If rates rise to 6%, then your limited to around $350K. Which is quite a drop.

I made a graph a little while ago which charted purchasing of various amortizations against interest rates. Here it is. Simply put, at low interest rates, extended terms allow you to borrow significantly more than shorter terms, but as rates rise their appeal rapidly falls away.

Robert Reynolds - GBA said...

Animal Spirits,

Rates have dropped since then as banks have reduced their spreads. Variables of Prime +0.0% are available. so really affordability hasn't changed after all.

Once rates do start to rise considerably, which as I have said before probably won't be for a long time. (check Mish's recent post on fed rate increases.) Things will slow down, maybe even decrease in price a bit, but I no longer see any crash in sight, as much as I would like it to happen for my own personal gain.

Vic said...


Great chart. As far as take home pay goes you have to drop it down to around mid $4000 range with an $85,000 gross family take home and one person paying into a pension plan of a couple hundred a month. Thats a $1500 difference. Toss in those with aspirations of kids(not myself) and daycare costs plus the usual car loan and typical credit card payment and there isn't a hell of alot left for anything else on the average Victoria take home. One layoff and watch panic set in.

As your chart shows any increase in interest rate will be a killer on qualifying for a mortgage. But then again there's always that "funny" math the brokers use to wheel and deal.

HcoRealEstate said...
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