Tuesday, December 22, 2009

Questioning the CMHC

Canadian Mortgage Trends has an interesting interview with Pierre Serré, CMHC's Vice-President of Insurance Products and Business Development. There's a bit of discussion though not too much analysis of the interview over at Vancouver Condo. There's also a link to a really great piece on CMHC done by the America Canada blogger.

In the interview, Pierre doesn't really tell us anything too specific, and CMT seems to let him off a tad bit too easy IMO. Here's an example of what I mean:
CMT asks "What percentage of mortgagors put down only 5%, and how has this percentage changed in the past two years?"

Pierre responds: "While the recent CAAMP survey did not ask that question..."
CAAMP isn't CMHC. They're the Canadian Association of Accredited Mortgage Professionals. They sell CMHC backed products, but they aren't the CMHC. So Pierre doesn't answer the question but goes on to say the following:
"Their statistics show that only 9% of them have equity positions of less than 10%."
Here's my question, which is really CMT's question: What do CMHC's statistics show? Pierre never answers this question and what he does offer is just a bunch of spin.
"we have found that 73% of first-time purchasers used their own resources for a down payment"
So 27% don't. Is Pierre indirectly telling us that 27% of home buyers get their down payments as gifts or cash-backs? Sure looks like it. Is that statistic high? Seems like it to me. And it has absolutely nothing to do with equity position.
"75% of purchasers have a goal to be mortgage free sooner than their original amortization and 20% of recent purchasers report having made a lump sum payment to their mortgage. These results indicate that Canadians are astute mortgage consumers and manage their mortgages prudently"
I have a goal to win the lottery every Wednesday and Saturday. Whoop dee do. What Pierre is really telling us is only 26% of people with the "goal to be mortgage free sooner" are actually doing anything about it right now. That's not a good number and shouldn't be misconstrued as "astute mortgage consumers who manage their mortgages prudently." What this really indicates is 74% of mortgage consumers can't or won't pay down their mortgages faster at a time when interest rates allow them to. When interest rates jump by 1% or more, even if they want to, many mortgage payers won't be able to pay down faster. And again, the answer has nothing to do with true equity position.

The real trend is down on home equity in Canada, and remarkably so, over a period of maniacal home value appreciation, which probably explains why Pierre doesn't want to answer the question.

Let's look at another issue Pierre responds to. CMT asks: "What third parties oversee and regulate CMHC to ensure CMHC is insuring strong mortgages and not taking undue risk?"

Here's Pierre's response (excerpted):
"CMHC maintains capital reserves and premium reserves for future losses in accordance with guidelines set out by the Office of the Superintendent of Financial Institutions (OSFI), Canada’s mortgage insurance regulator. In fact, CMHC maintains capital reserves that are twice the minimum required by OSFI."
Coincidentally, CMHC is not actually regulated by the OSFI. They really only answer to cabinet and the Auditor General of Canada. So what does this really mean? Here we should be looking for ratios. How much asset reserve does CMHC hold to backstop it's growing portfolio of mortgage insurance liabilities? Here's their annual report. I've been reading it most of the night but haven't been able to make enough sense of it to quantify their capital reserve ratio. The best I've come up with is 1:33.5, but if that's accurate, and I'm certain it isn't, it actually exceeds the bank reserve ratio maximum of around 1:18. Perhaps one of you more financially literate readers will be able to nail the true number down in the comments?

The bottom line is this: CMHC only insures mortgages that banks wouldn't write if mortgage insurance didn't exist. By their very nature, CMHC only insures sub-prime mortgages despite the fact that they claim to have "stringent requirements at all levels of down payments to ensure borrowers are able to manage their debts prudently." What's more, CMHC has bought back almost all of the loans they've underwritten over the past 18 months allowing banks to double up on the number of sub-prime mortgages they've written and effectively doubled down on the insurance risk to CMHC. Take a look at this graphic and notice the changes from 2006 to 2008 and then the drastic jump to 2009:

They claim to be well capitalized, but what I want to see clarified is how. 2008 and 2009 were not good years for capital markets worldwide, so we know they didn't make good returns on their investments. 2008 saw roughly 75% of 2007 and 2009 sales volumes of homes, so we know they weren't collecting higher than usual premiums. Where did the capital come from that's necessary to back stop 180% compounded growth in exposure over 4 years? How does an insurance business maintain such growth (2006-2007 was 17%; 2007-2008 was 28%; and 2008-2009 is projected to be 41%)?

Perhaps the only move forward post-housing market meltdown will be to subject borrowers to the same strident restrictions as insurers are: that is, stress test lending. If a borrower wants $400K at 4% interest, they shouldn't get it unless they can handle the payments on $400K at 7% interest.

55 comments:

omc said...

It seems like theMSM is more bearish than most of us now.

Just Jack said...

You might want to pick up a copy of Focus Magazine January 2010 edition (found in a one of those distribution boxes on the street).

Page 12

"The sound of sprawl hitting the wall - Bear Mountain is facing the music - and it's sounding like a dirge. We offer a brief review."

Interesting.

S2

Olives said...

Merry Christmas HHV (and everyone)- thanks for your work on the blog :)

Vic said...

omc,

Thanks for that article. Rubin's last words couldn't have said it better.

Merry Christmas all !



"So heed Governor Carney’s caution when you decide how big a mortgage you can really afford to carry.

Because once the Bank of Canada starts raising your mortgage rate, it will be a very long time before they stop. "

hachiroku said...

Merry Christmas all! Thanks to HHV, Reid and all the contributors on the blog that help my wife and I stay sane in this insane market.

Skeptic said...

So who is Jeff Rubin and why should we care what he says?

Until recently, Jeff Rubin was chief economist at CIBC and has been named Canada's top economist on 10 occasions. He is well known for his prediction of the last Canadian housing crash in 1989.

Economist warns homeowners of bubble trouble

Well-known in Canada for his often contrarian calls, Rubin gained fame after a 1989 prediction that the Toronto housing market was about to fall by 25 per cent. The call angered many in the property sector, who derided him as outrageous and irresponsible.

Vindication came when John Crow, one of the most hawkish governors in the Bank of Canada’s history, caught borrowers off guard by jacking up rates in his campaign to crush inflation. Toronto housing prices took years to regain previous highs.


So what is he saying now?

Economist and author Jeff Rubin, who predicted the bursting of Canada’s last major housing bubble, warns many Canadians will soon regret the hefty prices they’re paying to enter the property market.

The often controversial former chief economist of CIBC World Markets says there’s another bubble building — in interest rates -— which could be on the rise by the end of next year. That will squeeze homeowners who took out variable-rate mortgages, betting they would stay at rock-bottom for a long time.

“Mortgage rates and debt loads aren’t particularly onerous at today’s interest rates,” he said.

“Where concern comes into the equation is that people strap on record debt levels at today’s unsustainably low interest rates to find out that, two years from now, when interest rates are 300 to 400 basis points higher than they are today, that those housing purchases are no longer affordable.”

StargazerXL said...

Merry Christmas to HHV and everyone else on this blog! I hope each of you has a wonderful time with your respective families!

- StargazerXL

Mr.4AM said...

Have a Merry Xmas everyone! :-)

Mr.4AM

PS. And yes, thanks HHV for keeping up this blog, and for all the regulars who keep us up to date :)

HouseHuntVictoria said...

Happy Holidays folks. Whatever you do to celebrate this time of year I hope it is full of love, warmth and glad tidings for the coming year ahead.

Skeptic said...

Wishing HHV and all the blog readers and posters a Merry Xmas and a Happy New Year!!

Skeptic said...

Last week I posted this graph showing that Canadian bond rates were rising and mortgage rates were bound to follow. Canada also tends to track the US when it comes to interest rates. Take a look at this news article from Reuters...

Freddie Mac sees rates headed to 6 percent by end of 2010

After hitting an all-time low in early December, the average rate on a 30-year, fixed-rate mortgage rose to 5.05 percent this week and could climb to 6 percent by the end of 2010, the Washington Post reported on Saturday, citing U.S. mortgage financier Freddie Mac's latest survey.

Double-Agent said...

Bank of Montreal issues press release advising current and future homeowners to exercise caution. Of course this will fall on deaf ears!

BMO: Time for Homeowners/Prospective Buyers to Stress Test their Budget

However, BMO experts are predicting that interest rates will rise in 2010.

"We expect the Bank of Canada's overnight rate target to climb from 0.25 per cent beginning in July 2010, to 4.25 per cent in mid-2012. In turn, consumers can also expect mortgage rates to increase," said Sal Guatieri, Senior Economist, BMO Capital Markets. "While today's ultra-low borrowing costs represent a unique opportunity to purchase a property, home buyers need to proceed with caution and keep in mind that renewal rates will likely be substantially higher in coming years."

"Stretching the limits of your budget by choosing the maximum amortization period and a minimum downpayment leaves you little wiggle room to deal with an unexpected financial challenge," said Jane Yuen, Senior Manager, Mortgages, BMO Bank of Montreal.

In today's heated market, do not get locked into a bidding war that pushes your mortgage payments outside your comfort zone.


---------------------------------
Note - This article not intended for KIV readers

jesse said...

CMHC makes its money by selling insurance and it has done VERY well for itself having a de facto monopoly over the mortgage insurance business. I find the recent talk of CMHC's impending demise more geared towards confirmation bias than what the numbers say.

CMHC is a bad thing but it's not CMHC's executives or the government who will really feel the pain. It will be the poor saps who naively took risks with their families' futures by believing their government knows what's best for them.

Skeptic said...

As we give thanks this holiday season we should remember that many of our fellow BC citizens are unemployed. Please support your local food bank.

When one is working you tend to underestimate the effect of this recession. I have heard comments by some that think the unemployment rate of 8.3% in BC and 7.8% on Vancouver Island is low. This is patently false as shown by this graph from BC Stats. We are now back to the levels last seen after the tech crash.

The amazing thing is while unemployment was rapidly rising in 2009 people were buying real estate in droves and mortgaging themselves to the hilt. This will turn out badly when interest rates rise.

BTW - The unemployment rate only considers those actively seeking employment in the calculation. Those that have given up, students, disabled etc. are not counted. There is a popular misconception that you subtract the unemployment rate from 100% in order to get the employment rate. This is also incorrect as shown in the report above. The employment rate is officially calculated as the percent of working age population that is currently employed. This is around 61% in BC.

Double-Agent said...

CMHC and the banks know how to sucker homebuyers and the taxpayer. Lots of homebuyers don't even know that they have been taken and think the mortgage insurance protects them if they default on the mortgage.

Here's how it works. The buyer pays a big insurance premium at the time of purchase to protect the bank in the event the property goes into foreclosure. CMHC gets the premium and uses it to pay the salaries of a lot of bureaucrats and overpaid executives. The bank issues a mortgage, securitizes it with CMHC and gets more money so that they can issue more risk free mortgages. Both pump the RE market, resulting in more mortgages and premiums. And so on...

If the housing market goes bust the banks are covered. The federal gov't tops up the CMHC coffers to cover any shortfall. The federal deficit goes up and the taxpayer watches income tax go through the roof.

What a scam...

Just Jack said...

CMHC has never said that it makes home ownership cheaper for us, just more "affordable". And today, "affordable" is determined by the monthly payment.

But, is that the only or even the best way to determine affordability. When businesses consider purchasing new plant equipment, the business considers the monthly payment, but also the "pay back" time. So, can we apply this business practice to real estate?

The pay back time is not the length of the mortgage, but the length of time that it takes that newly bought asset to pay for itself due to the additional economic benefit of purchasing that equipment. For real estate that would be the price of the asset in relation to the rent it produces. This would require rents to be higher than the mortgage payment to cover the period of time that rents were lower than the mortgage payment.


mmmmmmmm. too difficult. need more coffee

But without doing the calculations, I would say that the pay back period for real estate has super extended over this last decade. Especially with 35 year amortization or the never ever plan to own real estate.

In the year 2000, it was possible to purchase the typical home for $200,000 and pay that loan off in under 15 years. Today, this is no longer possible, the dollars required are too large for the typical family's income.

Today's home owner has more than doubled their pay back time and are far more exposed to "shocks" in the economy over the period that it takes to pay off the debt. Consequently, their exposure to risk is also far greater than a purchaser of 10 years ago, even though their monthly payments are the same and CMHC considers their property "affordable".


Buying real estate today is like hurtling down an icy highway with a choice of either a 50 year old or 25 year old driver behind the wheel.


The real answer is not to get into the car at all.

Just Janice said...

Just Jack -
I agree with you on so many levels. The real estate market now bears more resemblance to a stock market than at any time in the past. As a result, I expect it to be increasingly volatile. Except unlike stocks, real estate is relatively illiquid...

I think that changes to CMHC will be forthcoming. The government can't raise interest rates for the sake of an overheated housing market - interest rates as set by the BoC were never meant to control house prices. Rather they are meant to control inflation. That being said the present situation presents real risks to achieving a meaningful economic recovery. So the only solution is to maintain low rates and change the policies of the CMHC.

If buying real estate in Victoria was like buying a stock, it would be like buying a share of Bre-X at the peak. It might seem like a good idea at the time, but in hindsight one of the worse 'investments' that could be made.

I notice the discussion on CMHC over at KIV is ugly...(predictable but ugly)

Just Jack said...

Just Janice said "I notice the discussion on CMHC over at KIV is ugly...(predictable but ugly".

I agree.

S2

Just Jack said...

I posted this quite a while on this site but I think it is apropos.

The Five Stages of Grief:

1) Denial
2) Anger
3) Bargaining
4) Depression
5) Acceptance

S2

Mr.4AM said...

Yes, they call it the investor sentiment chart.

Mr.4AM

Double-Agent said...

VREB just released the December sales-to-date to member Realtors®.

Victoria BC Real Estate Month-to-Date Statistics as of December 29:
MLS Unconditional Sales: 420
New Listings: 445
Total Active Listings: 2603

Total MLS sales for December should hit around 470. This is a big drop from November's 604. But you can expect the VREB spinmeister to point out that in December 2008 (during the credit meltdown) there were 239 MLS sales.

I will post some year end numbers as soon as VREB releases them to me.

Skeptic said...

Last week I posted a graph showing bond rates climbing in Canada and predicted a fixed mortgage rate increase. Well... mortgage rates have increased this week.

Bond Yields Approaching 1-year Highs

Government bond yields have rebounded sharply since their November plunge. Discounted fixed mortgage rates should climb this week as a result. A few lenders have already raised rates in the last few business days.

The 5-year yield, which helps determine 5-year mortgage rates, is just 8 basis points below it’s 14 month closing high.

Stronger than expected economic news and ascending U.S. bond yields are driving Canada’s market.


Disclaimer: This info is intended for HHV blog readers interested in financial planning. It is not suitable for KIV audiences.

Reid said...

I have been away skiing for past couple weeks and just getting caught up again. There has been some interesting developments in recent weeks. As I laid out in my April 23rd post, historically there has been a VERY high correlation between the price of housing in BC and the level of mortgages credit made available to the public. The maximum mortgage a family can secure is primarily driven by three factors:
1. the families income
2. mortgage interest rates
3. maximum amortization allowed

Putting aside crisis times, the above three factors have and will continue to drive real estate prices in this province. Interest rates are so low now that in conjunction with minimal down payment legislation it has allowed families with more modest incomes to enter the real estate market. The result today is that home prices and home ownership are at all time record highs.

The Bank of Canada lowered interest rates after the economic crisis in order to free up credit, stimulate business and capital investment. As a business person, I can tell you the economy still needs these lower interest rates, but the housing market does not. I think the government has finally figured that out, so Just Janice is correct is suggesting that they will use shorter amortizations and high down payment requirement as a way to slow the overheating housing market without hurting business or hammering existing homeowners.

But here is the interesting thing, if we see these down payment and amortization changes which I think we will this spring (when I foresee housing heating up once again) it will only be the first hammer on reducing the mortgage credit. An average family will see their mortgage availability drop by about 7% to 8% with a move to 30 year amortization. This may not seem like a lot but it is only the first step in the mortgage credit contraction equation.

The second step will be mortgage interest rates which I think will remain at these historical low levels until the third quarter of 2010 when they will start to rise. IMO, we will see a minimum rise of 2% in long term rates and much higher for short term rates by the end of 2012. A 2% rise in five year mortgage rates will further reduce mortgage credit of that family such that their borrowing capacity (with the 30 year amortization) will have dropped by 26% and this is only just getting us back to where rates were before the economic crisis. A 26% drop in mortgage credit will have a MATERIAL impact on housing prices.

Another key factor that will hurt housing over the coming years is that taxes are going up. We have all seen taxes drop along with interest rates over the past 20 years, but that trend is about to change. Call it carbon tax, HST or whatever you want, but we will pay more in taxes. Expect residential property taxes to rise as the current system penalizes business and government will be looking to help business. Expect health care premiums to rise as baby boomers age. Expect EI and possibly CPP rates to rise. Expect liquor taxes to rise. There is also a good chance GST will increase. I also would not be surprised to see municipalities taxing home purchases like we have in Toronto (Vancouver could well go down this road after their Olympic economic nightmare comes to light).

I have never been more convinced that housing prices will drop in BC, but I actually sense that prices will increase this spring and early summer as interest rates stay low and people feel we are pulling out of the recession. But come fall, that price trend should change and then we will see a couple years of decling prices before they likely stabilize. Price will take time to soften as the average Victoria seller is not going to accept lower prices for some time. My gut call is for a 25% decline by the end of 2012.

If I see things get crazy this spring, I will consider selling my house even though I have no interest in moving.

omc said...

Nice to hear from you again Reid. All things being equal, I would agree with your hypothesis 100%. Maybe things aren't quite so equal as I feal i have to play the devil's advocate on one point; Flahery and the threat to change the CMHC rules. There is a big chance that it is just a threat, not much different than the BoC's "jaw boning" to deal with currency speculation. I wonder if Faherty actually had the intention of raising the min down payment, that he would just up and change it. Talk is cheap.

Some one else pointed out to me where the conservatives have their support base, and it isn't in Victoria. I don't know if they would care about overpriced cities where they have no suport. Small towns and Alberta are benefitting from the low interest rates and lax lending standards.

Reid said...

omc, I have talked to a few economists on this and my sense from this is that Ottawa realizes the damage that an overheated housing market will have on the economy and now want to slow it down (not kill it but slow it down).

So they are watching. If real estate prices continue to climb this spring, then I sense they will change the rules as they do not want prices to get any further out of control. They could generate the same impact by raising interest rates, but that would impact other parts of the economy that are still fragile.

If real estate prices stabilze or come off in the coming months, then you are right I doubt they will implement the changes.

Long term if they do reduce maxmimum amortizations it may be best as they can slowly bring the market under control. When interest rates rise, they are likely to rise faster than most people expect and the impact will be more significant, so why not cool things off a bit now. It would be a prudent move as the timing IMO is still not right for raising interest rates.

As far the Conservatives not caring about Victoria, this is a problem right across the country. I was in Ontario recently for business and I can tell you parts of downtown Toronto (Younge and Eglinton for example) have gotten more out of control than here and well lets face it Vancouver is simply insane.

msr said...

One idea I had to limit the housing market would be to put a tax on mortgages. A 10-25 bps tax on mortgages would cool the market by hiking rates, but would leave the rest of the economy unaffected.

What does everyone else think?

HouseHuntVictoria said...

msr,

There already is a tax on mortgages, it's run by the CMHC, and is applied on all mortgages with less than 20% down payments. It hasn't been a deterrent at all for the last 4 to 5 years.

Village said...

If I was to make an uneducated guess and the government does intend to slow but not kill off housing. It will only raise the down payment requirement or lower the amortization period. Not both. Personally, I would bet on the latter. It's easier to stomach then suddenly requiring doubling your down payment requirement, provided they go to 10%. They could as easily make it 6% or 7%. Lowering the amortization period effectively removes buyers from the pool while being slightly stealth about it. The buyer doesn't see his down payment suddenly become useless. Might even be masked enough to slow down the 5%/35yr pre-approved mortgage stampede as people rush in.

Skeptic said...

In an earlier post I mentioned that fixed mortgage rates were rising in Canada. US and Canadian rates are correlated and move in tandem.

So....

Mortgage Rates in U.S. Rise to Highest in Four Months

Mortgage rates in the U.S. rose to the highest since August, raising the prospect that the budding housing recovery will stall as home buying becomes more costly.

The rate for 30-year fixed U.S. home loans rose to 5.14 percent for the week ended today from 5.05 percent, mortgage finance company Freddie Mac said. That’s the fourth consecutive weekly increase. A record low of 4.71 percent was reached in the week ended Dec. 3.


Wishing all readers a Happy New Year. 2010 will be interesting!!

Reid said...

I saw a realtor offering in a bank window today which showed a potential buyer what it would cost to acquire the listed entry level home. The assumptions were all based on a 2.25% floating rate mortgage and a 35 year amortization with varying downpayments from 5% to 20%.

I was a bit horrifed as to me this implied it was reasonable to lock into a floating rate mortgage without mentioning the risk of materially higher mortgage payments if interest rates rise.

This made me think that maybe the CMHC/Bank of Canada solution here is to force low down payment buyers in Canada (under 20%) to take out 30 year mortgages like one can in the US. This way the buyer has to qualify at the 30 year interest rate and most importantly these buyers are not subject to huge payment increase when interest rates rise.

This would seriously mitigate the foreclosure damage that will result in Canada if mortgage rates get above 6% which has to be expected at some point over the next 2-5 years.

Wishing all a great new year.

msr said...

HHV,

While CMHC insurance could be considered a tax I doubt the way it is structured could ever work to limit price.

Premiums. They're just too low. The highest premium I've seen is a bit over 3% and it can be rolled into a mortgage. The premium also falls off pretty quickly as your DP increases.

So a 3% pullback is small enough to be lost in the noise.

Just Jack said...

Happy New Year everyone!!!

Here's to a great 2010.

May we all get what we wish for 2010 although my husband tells me to be careful what I wish for.

S2

Animal Spirit said...

195 1 BR + listed on Craigslist for rent in the past two days.

Lot's of the bigger buildings listing rent higher than character houses - the ROI on expected rent for the commercial guys is going to get hammered.

I'll give the over under at 130 listings tomorrow (Jan. 1)

boomer said...

hi-y'all. happy new year!
-haven't looked here for over 6 months, since we bought,but starting to feel real bearish again--so here's to an even more affordable Victoria (Vancouver Island-Vancouver etc.) in the new decade..led again by way overpriced (now rental) condos and goofy, boring, sterile, Bare Mountain type mega shacks)

IMHO-Should track the bond market pretty closely. ie. yields up-prices down.

Double-Agent said...

boomer,

Did you buy in Victoria and use the services of a professional Realtor®? As a recent buyer why are you feeling bearish? Surely you want your real estate investment to go up in price. Most new owners just believe that prices are going onwards and upwards.

boomer said...

dbl agent-
its a home (and we've owned many previously) - not an investment.

"investments" are second or third homes

the problem is many buyers don't differentiate-and thats encouraged by the vested interests

Double-Agent said...

boomer said,

dbl agent-
its a home (and we've owned many previously) - not an investment.

"investments" are second or third homes

the problem is many buyers don't differentiate-and thats encouraged by the vested interests


But on June 2, 2009 boomer said

Owning a home (or 2) is considered an "investment" by most. On that basis its almost a proxy for the stock market-but considered safer.
They're both leading indicators of anticipated economic activity and will move in the same direction price-wise.


Hmmm.. Looks like a change of perspective?

Double-Agent said...

Happy New Year to all the bears on the blog.

This is the time of the year when there is a leadership change over at VREB. Chris Markham has passed the torch to Randi Masters of Newport Realty. Here is a little background on the new President - About Randi Masters. In her first press release she had this to say about the Victoria market...

Strong and Stable Real Estate Market Predicted for 2010

Randi Masters, 2010 President of the Victoria Real Estate Board, says the Victoria area housing market should continue to be strong and stable in the coming year. Masters notes that the market rebounded ahead of expectations throughout most of 2009 and the steady economic recovery should add to growing consumer confidence. "The Victoria area has been fortunate in escaping the worst effects of the recession and we believe that in 2010 we can look forward to a continuation of the strong sales and a balanced market," said Masters.

Masters added that there has been a substantial reduction in the number of properties available for sale over the last year and this may lead to some upward pressure on prices though continued low interest rates remain good news for buyers. "Given the Victoria area’s strong economy and growing population, we can foresee continued healthy demand for home ownership," she added.


This is great news for buyers!! They can buy at peak prices with little down and a low interest rate (especially with a variable rate mortgage). Interest rates will stay this low for years and after only 35 years they will own the place.

I expect Monday's press release will continue to be a glowing endorsement of the Victoria market. Even though sales were down considerably from November they were so much better than December 2008.

BTW - The press releases issued by Tony Joe, Chris Markham and Randi Masters all seem to have a similar writing style. Is it possible their is a spinmeister on the staff at the VREB headquarters?

Just Janice said...

Hmmm, lets see - 2010 -
My prediction is that the decline that began in May 2008-March 2009 (on pause since then due to low, low interest rates) will resume, but at a much faster pace.

I also predict further government cutbacks as government tries to get the deficit under control and begins the financial clean up after the olympics.

I wish all the HHVers a happy and successful new year.

msr said...

DoubleAgent,

A house can be considered an investment but there is a significant caveat. Houses depreciate. Their net value *has* to drop over time.

Think about it. Pile a few tons of lumber and plumbing in a field and let it sit in the rain for a decade or two. Will it's value increase or decrease? Sure, the field might be worth more in nominal dollars but your building supplies will have lost a significant amount of real value.

Marko said...

I put my suite up on craigslist for Feb 1st today ($110/month more than current tenant is paying who I have had for 3 years) not expecting much interest....7 emails, 3 phone calls, 3 appointments to look at the suite Monday in a matter of 6 hours.

Olives said...

I found out tonite that it took friends of ours 3 months to rent out their newish basement suite, and they had to drop the rent....

Double-Agent said...

BC Assessment put the 2010 property assessments online today.

You can check out any property in BC and see all the sales in the surrounding area.

BC Assessment Web site

Click the orange box that contains the house picture

Reid said...

Dec stats are out. It appears the verbage has been toned down to talk about prices being down from 2008 and market being balanced. The market today is far from balanced at the price levels most buyers are able to afford.

I assume people in the real estate industry are worried about possible changes to CMHC and mortgage financing legislation as they understand the impact this could have on the market, so best to present a picture that things are not that overheated.

kabloona said...

Double-Agent: thanks for the link to BC Assessment site...

Just Jack: any chance you could give us more of the Bear Mountain article? I have links to most of the Globe & Mail articles about Bear Mountain, but I can't find Focus Magazine online....

Thanks, guys.

Double-Agent said...

Buried deep in The VREB historical stats page are some graphs of prices since 1978. They were updated today to include 2009 data. You can see that annual prices peaked in 2008 and all categories were lower in 2009. I suspect this will continue in 2010 due to inevitably higher mortgage rates.

VREB price graph - pdf

BTW - You will not see this reported in the local media. It requires investigative journalism and it is easier to just parrot the VREB news releases.

Double-Agent said...

Well the local press is already commenting on the BC Assessment stats. Vic News, unlike the TC, does not pump the market (few advertisers?)

Property assessments take a 3% jump

Rick McMahon, deputy assessor for B.C. Assessment, said numbers paint a picture of what the market looked like last summer.

In order to reflect declining property values in 2009, the provincial government brought in legislation to protect property owners. In a one-year-only change, the 2009 assessment was the lower figure from valuations done in 2008 and 2007.

For most homeowners, the 2007 level was the lower.

What you’re looking at now might be increases from the summer of 2007 or 2008,” McMahon said.

The average value of a single-family house in Victoria is $536,000, up almost $18,000 from last year. In Esquimalt, house values increased about seven per cent, sitting at $474,000.

The average house in Oak Bay dropped about two per cent to $845,000 from $826,000.


Here is the Times Colonist version of the story.

Greater Victoria 2010 property assessments up $4 billion, totals $89 billion

Skeptic said...

Kabloona,

You can download the entire Focus Magazine by clicking here

The sad story about Bear Mountain and Len Barrie is in the January edition, starting on page 12.

Question Where is everybody? Only 47 comments in two weeks? What happened to HHV - no new post since Dec.22?

omc said...

I too have noticed the toned down reports from vreb, but again i believe them to be misleading. the lower averages and medians have to do with the neighbourhoods in which the houses are being sold in, not true lower prices. My experience is that the market is taking on a new level of irrational frenzy.

I know of 2 houses that have recently sold in south oak bay that are in need of major repairs due to extreme water damage that sold for very high prices. Mls #270564 had a flooding crawl space that was never repaired, causing around $200k of structural damage. MLS # 268968 is full of mold and structural damge due to a roof that was left leaking for many, many years. You couldn't miss the smell walking in. Both of these sold in the $800k range and is above assesment.

My realtor told me about the first, so I never went to see it. The second I saw within 2 minutes, without even walking in. Walking in, I had to leave due to the mold. You would have had to be blind and stupid to miss the damage.

As my realtor told me again; it is a good time to rent for a while. There are few quality listings and a frenzied group of buyers. The prices for homes in my range (8-900k) has never been higher, and almost all are garbage.

Reid said...

omc, you are correct poor time to buy. Prices are up more than suggested because of the heavy entry level buying. Listings are really low and the interest rate freenzy will likely heat up this spring and early summer before rates start to rise.

If one choose to buy in 2009 it should have been before July as at least back then there was a huge inventory to choose from and prices had not gotten totally rediculous.

Wait it out two years.

Just Jack said...

Well, that article about the new assessments is interesting. According to them, depending on where you live your property value may be 2 percent lower or 9 percent higher.


mmmmmm, something not right here. That's an 11 percent variation. Imagine if that trend continued. Esquimalt would be more expensive than Oak Bay in a few years.

The problem with Victoria is that it is just too small to break down into areas.

Lets take Oak Bay and Esquimalt for example
in the four week (1 month) period bracketing July 1, 2009 there were

25 house sales in Oak Bay
and 7 in Esquimalt. That is a tiny, tiny data pool to make a meaningful observation.

And its worse for condo's
9 in Oak Bay and 7 in Esquimalt.


What has happened is that prices in core municipalities for the period of July 1, 2008 to July 1, 2009 have changed so slightly (0.4 percent) to be considered unchanged. And this is based on a sample of 389 sales for the core municipalities in 2008 and 489 sales in 2009.

What it does tell me, is that anyone in disagreement with BC Assessment should launch an appeal, because BC Assessment can be off by 9 percent or $50,000 or a tax savings of approximatly $335 on the typical Victoria home.

If your in doubt, launch the appeal, there is no cost. Go to the assessment office and talk with one of the assessors. I have known assessors to drop a property's assessed value by 5 percent right on the spot.

Now, you have to have a good reason why your home is not worth the assessed value. I remember one time a fellow was explaining that he had a large tree in his front yard that blocked the sunlight and the assessor knocked off 5 percent right on the spot.


Nothing Ventured - Nothing Gained

Robert Reynolds - GBA said...

Happy New Year everyone.

I had a great vacation down in Palm Desert California, and as promised here before I left, I wanted to report what I saw in the California RE market.

First off, Palm Desert is a weird place, I saw zero children, and on one day, SEVEN purse poodles in baby carriages, strange place. There is obviously still a lot of incredibly wealthy people down there as there are fancy cars and huge homes everywhere, as well as many super high end stores which appear to be doing fine. That being said outside of this super wealthy bunch I would say the average consumer is probably suffering a little, or at least cutting back. For sale signs were everywhere, one of the interesting things is the extra size, and flash they put into letting you know it is NOT bank owned.
One of the things that I did not expect was the number of commercial vacancies, I have read on some blogs, most notably Mish, about the pending commercial real estate crisis, and while there are a few for rent signs in Victoria, nearly every building has a for rent sign or billboard. The vacant commercial space was staggering. Also the Mall Sprawl is ridiculous there are dozens and dozens of nearly identical strip malls all with the same stores, just a few blocks down the road. Do you really need three McD’s, 4 El Pollo Loco and a half dozen Starbucks in a 5 block radius?
Nice country club style homes abound in the $200-$300K range. Pools, spas, golf course all at your front door. Ready to go building lots start at about 50K. There are huge Real Estate billboards aimed at Canadian Snowbirds. I swear there are more Canadians in the country club I stayed in than there were Americans, or anyone else for that matter. Several from Victoria too.
It is warm all year round, HOT in the summer, food is half what we pay, gas is half what we pay, booze is almost criminally cheap and their taxes are lower. If you can get a job with healthcare, and a green card the value and quality of life to be had is just mind-blowing compared to Victoria.

Who knows what is going to happen with Obamacare and the looming California bankruptcy, but if those things sort themselves out and you don’t have roots in Victoria you should seriously give the Coachella Valley some thought.

Just Janice said...

Robert -
My sentiments precisely. For anybody who thinks that there is no substitute for Victoria, they will be sadly mistaken. Many of the folks who would choose to retire to Victoria, may soon realize that this is the case and choose other destinations instead.

I agree with the realtor who said that now is a fine time to rent for a while.

think said...

omc,
was the flooding basement in the house on Margate disclosed? I went to see that house - I didn't spend much time in the basement/crawl space but it did seem damp - how do you know it would be 200,000 in repairs? I went through the other one as well - definately full of mold - I could smell in lots in that sunken room (old garage) off the kitchen. There is lots of overpriced crap out there - for sure... Are you renting while you wait or do you own?

omc said...

think,

No the basement wasn't disclosed. Another buyer working for with our realtor had paid for an inspection. That means the actual buyer must have had no inspection. There was a bunch of masonary work that needed to be done and I say a mason there for a couple of days so I assume they did a patch job on that. How do I know the price? A bit of a guess from the very quick, rough description I was given. I used to be in the trades and I am an engineer though.

We are looking at family type houses so I never bothered looking at that one, that and no overhangs on stucco.

I took a quick look at the house at 1079 Deal, and that one is probabaly worse.