Friday, January 29, 2010

The looming fire

Every day the fire conditions worsen. It's getting bigger, closer and faster people. And the useful idiots in the offices of industry associations and mainstream media outlets keep proclaiming that the tree on the edge of the fire is still growing.

If you buy a house today, you are either economically ignorant or a fool. And you know what they say about fools and money. (H/T to many of you readers for the links and tips in comments lately).

Just because folks seem to be picking on Cameron Muir's inability to look in the mirror and predict what he'll see, I figured I'd make it easier with a little help from the fine folks over at

Some of my personal favourites include:
“There is no indication, at this point, of any kind of substantial decline in prices,” July 2008

"Muir said home prices have been declining since their peak in the first quarter of 2008, but on balanced over the year, he expects the $453,000 average price to remain three per cent above the overall average home price of 2007.

Muir expects the average home price to decline nine per cent to $413,000 in 2009, but downward pressure on prices to ease by the second quarter of next year as homes become more affordable and inventories decline. Source. October 2008
Read more here.


HouseHuntVictoria said...

Bumping comment up for discussion from Just Jack:

"Since we are kinda on the topic (at least I am) of ethics. I would be interested in peoples thoughts if the following scenario would be unethical. This is an actual case but with no names.

An executor hired a company to clean out the home of a recently deceased person. The executor has not contacted any realtor to sell the home. A day or two later, a realtor calls the executor to tell them that he wants to present an offer on their property. It turns out that its the owner of the cleaning company that wants to purchase the home.

The agent presents to the executor a professional market evaluation that he has done showing the home to have a market value of $385,000.

The executor is suspicious and calls in another professional who estimates the property 15 percent higher than the first agent.

So, you be the judge. Is this unethical? And if you think its unethical what would be the damages."

HouseHuntVictoria said...

I'll answer this question with a question.

Is it unethical for me to demand my agent to take a low ball offer of 15% below "subjective market value" to the owner and tell them that my offer is "true market value"?

I say no.

omc said...
This comment has been removed by the author.
Just Jack said...

Once more Cameron Muir has rattled the bones and thrown chicken entrails against the wall to come up with his BC's real estate forecast.

How can you forecast a 2 percent increase 2 years out, when most economist can't figure out the affect the 12% HST will have on new home sales or prices.

Hey here's a question for you about the HST and market value.

If one homes sells for $600,000 not including HST and another home sells for $672,000 including HST. What is the properties market value?

And remember CMHC is going to lend 95% on your answer.

patriotz said...

and tell them that my offer is "true market value"?

"True market value" can only be known when the property sells (and equals what the property sells for, barring irregularities). Until then, it's just an opinion.

It's not like the stock market where stocks are continuously trading and you have a known bid, ask, and latest sale.

IMHO both buyers, sellers, and their agents can make any representations they want about the "market value". But misrepresenting facts, such as the sale price of similar properties, is another matter.

Note though that in a recent court case in the US, the buyer sued the seller's agent for not disclosing sale prices of similar properties, and lost. Silence is not the same as lying.

patriotz said...

What is the properties market value?

The market value is what the buyer is willing to pay, including HST if any.

Look at it this way. If I paid $X for a house, I should be able to turn around and sell it for $X tomorrow. The first sale would be subject to HST and the second wouldn't.

Note also that present sales include PST on the materials which is embedded in the sale price. With HST these inputs are taxed at the final sale.

IMHO anyway. I don't know what the lenders would use.

Just Jack said...

Patriotz, I follow your argument that the combined taxes might be part of market value.

Then by extension should not the property purchase tax also be included?

Vic said...

"How can you forecast a 2 percent increase 2 years out, when most economist can't figure out the affect the 12% HST will have on new home sales or prices. "

You didn't hear about Muir the Magician ? Amazing abilities to forsee the future. It's called the "The Theory of Pent Up Demand". Just keep repeating it over and over til you believe your own bullshit that it will never end.

Most pros can't even pick 2 weeks out let alone two years. Guy's a joke.

patriotz said...

Then by extension should not the property purchase tax also be included?

That's a tax on the transfer of the title, not on the production of the asset, so I would say no. It cannot be recovered from the next buyer.

Robert Reynolds - GBA said...


I'm going to say not unethical, there is enough subjective room between any property and its comparable for a 15% spread.

Also, the $385,000 offer isn't "market value" as one offer does not a market make. The seller has the responsibility to know what his property is worth, best way to do that is price it on an open market (IE list it for sale). or get it professionally appraised.

Furthermore, some buyers might be willing to take less than top dollar to sell the house quick and easy, think rather than have it sit on the market, pay Realtor fee's and have punters walk through their home.

I can offer you a dollar for your home, doesn't mean it is fair market value, a fair value, or anything other than an offer.

Now, if it could be proven that the agent intentionally excluded comparable properties, then it'd a different story.

Anonymous said...

In my last post I mentioned that BC's real estate oracle, Cameron Muir, has made some more predictions for 2010.

The Vancouver Sun reprinted the press release a few minutes ago. You can read it by clicking here.

How does this guy do it? The predictions are extremely precise - within a few hundred dollars. So lets take a closer look...

January 29 2010 prediction

The average annual MLS® residential price** in BC is forecast to increase 5 per cent to $490,900 this year and then rise by 1 per cent to $494,800 in 2011. The table shows Victoria rising by 8% to 515K

Looking back - November 13, 2009 prediction

The average annual MLS® residential price** in the province is expected to post a new record this year, rising 2 per cent to $463,200 and is forecast to climb an additional 4 per cent to $482,800 in 2010. The table shows Victoria increasing 6% in 2010 to 505K


So in 70 days the predictions for Victoria are revised up by another 2% or 10K. The provincial average is up an additional 8k over the earlier forecast. What has happened in the last few months to justify this increase?

A skeptic might think that he is just using straight line extrapolation of the last few months of sales. In essence it is not done with a complex model factoring in supply/demand, economic conditions, interest rates, affordability, HST, unemployment etc.

On the other hand a true cynic would think it is was time for more pump talk to get the new sales season rolling. After all this guys salary comes from real estate boards across BC that get their dues from commissioned agents.

** Average residential price is calculated by dividing the total residential sales $ volume(condos, towns & houses) by the total number of sales. In essence it is the blended average price of condos, towns and houses.

Anonymous said...

When I make an erroneous prediction I like to admit my mistake. A few hours ago I said that Carla would be rehashing the BCREA press release in Saturday's Times Colonist.

I underestimated her writing skills. It is online now, with only minor changes from the Official press release.

Greater Victoria house prices expected to rise this year then ease in 2011

“That gold medal finish will give way to a silver medal performance in 2010.”

This metaphor gave a nice pre-Olympic spin to the article.

My friends at the board will be thrilled. Should be on the front page of the Business section tomorrow. The cautionary stuff always goes on B7.

Just Jack said...

Well they are HIS predictions and I think a lot personal thoughts are involved.

Having had to set budgets myself, I realize how incredibly off predictions can be. I think if your predictions are within 5 percent to what happens at the end of the year - your a really lucky genius.

So when I hear a prediction of 2 percent, I also consider the source. Since Mr Muir's best interest is to pump the market, I would interpret the 2 percent increase means that prices will be lower but he uses a low 2 percent figure to keep the masses happy. And it also gives the impression that a lot of thought and analysis went into determining the rate of increase.

If he had said zero increase or minus 2 percent, he would be looking for a new job on Monday.

think said...

what were their predictions in January 2008?

patriotz said...

Now, if it could be proven that the agent intentionally excluded comparable properties, then it'd a different story.


It is not the responsibility of the buyer, or his agent, to supply the seller with any information. They can make any case they want for what the property is worth and use any criteria they want. In particular, it is up to the buyer to decide which properties are comparables for the purpose of his offer. They make an offer and the seller can take it or leave it. Period.

patriotz said...

what were their predictions in January 2008?

Buckle up for more house price increases, study says

"Greater Victoria's average housing price is expected to rise by five per cent next year, says a new report by a Canadian real estate firm.

Re/Max predicted in its 2008 Housing Market Forecast yesterday that increasing numbers of properties for sale may cool the market, but that the average price increase will still move up to $485,000 for all types of housing."

That's just Re/Max, but I'm sure the GVREB wouldn't have said anything at odds with its largest member.

Roger said...

Think said:

what were their predictions in January 2008?

If you visit the BCREA Website you will not be able to find the forecast from a year ago. It has conveniently vanished from the news release list. But once it got on the Internet it will float around forever.

Here it is... Feb. 2, 2009 Forecast

A year ago the "oracle" was making these predictions for Victoria.

End of 2009 - 435K (actual 476K)
End of 2010 - 428K

Today he says.

End of 2010 - 515K
End of 2011 - 525K

Now that we have pulled back the curtain we see that this guy doesn't know what he is talking about. No one can make accurate predictions of prices at a certain date in the future.

However that does not stop the foolish reporters like Carla from writing articles about this guy and his organization. If the MSM had any integrity they would not be printing this drivel without caveats as to the accuracy.

Roger said...

I lurk here from time to time and enjoy reading everyone's posts. The BCREA release today was too much and I had to respond. I had the link to the old forecast saved away.

Thanks to Double-Agent for crowning Cameron as the "oracle". Great title.

Hope all is well with everyone. And no I have not bought a house - still renting. I will post here once in awhile if I have something to add.

HouseHuntVictoria said...

^ *cracks beer*

Thank goodness Roger is still around. You've been missed friend. Though I had a feeling you wouldn't be far.

Just Jack said...

A 5 percent increase?

You see that's a nice number. Just large enough to make someone buy a home before prices increase (fear). And just low enough for a seller to list his home because prices are leveling out (greed).

And if Flaherty is reading these reports then he might not make changes to CMHC's regulations.

Forecasting isn't that tough when you tell the people want they want to hear.

Has anyone else noticed that Jim Flaherty looks like Ernest Angely.

Animal Spirit said...

As hacked from the BCREA computer system, here is the official Cameron Muir oracle house price model:



Anonymous said...

Talk about looming fire. Just saw this in the Globe and Mail

Recovery points to summer rate hike

Canadians should be preparing for higher interest rates sooner rather than later.

With the North American economy growing significantly faster than expected at the end of 2009, and with mounting evidence that Canada is pulling clear of recession, economists are increasingly of the view that central bank Governor Mark Carney will pull the trigger on an interest-rate hike this summer, rather than wait until later in the year.

The 0.4-per-cent increase in gross domestic product in November, combined with the one tenth of percentage point upward revisions in each of the previous two months, suggests GDP advanced at an annual rate of at least 4 per cent over the final three months of 2009. That might not be enough to push Mr. Carney off his intention to leave the benchmark rate alone until June, but it strengths the case to raise borrowing costs soon after.

“With the revisions, it's a bit of a game changer,” said Derek Holt, chief economist at Scotia Capital in Toronto, who predicts Mr. Carney will begin lifting the benchmark rate in the third quarter, perhaps in July.

Inglishmagor said...

Double-Agent, regarding the rate hikes coming. That article talks about Canadas quick recovery from recession... I have a hard time believing we have seen the tip of the recession ice berg. As much as I'd love to see rates go up I don't see this as a short term game.

Governments around the world are spreading good news in the form of a recovery. Anything I read looking under the cover looks like lies and confusion.

If recovery leads to rate increases, it looks like status quo for a long time.

patriotz said...

IMHO it's not rising interest rates which are going to bring on the bust, but the Cons being forced to put the brakes on CMHC when the bond markets force them to stop the spiraling mortgage obligations. If the FP can open call a RE bubble in today's paper, what do you think is being said privately? A downgrade of the GoC's debt rating would be a catastrophe. And remember we're not "too big to fail", like the USG.

All it would take is for CMHC to require a 10% DP or 25 year amort, and it's over.

HouseHuntVictoria said...

Patriotz, I'm inclined to agree with you. I'd even say that it won't require anything that drastic. Either of a higher down payment or a shorter amortization (even 30 years) will be enough to stop this madness.

The pundits love to toss pent-up-demand in all their commentary, the reality is it's borrowed demand. Take the ability to borrow enough out of the equation and prices will begin to recede.

Reid said...

If the conservatives reduce amortization to 30 years they will reduce borrowing capacity and thus prices by about 5-7% which is something the "market" can afford. This would be a prudent approach to a "soft landing". Increasing down payment requirements will likely be more negative to the market

The right approach IMO would be to reduce borrowing capacity to say four times family income regardless of interest rates to set a maximum borrowing limit. This should have been done ahead of these recent rates, but now it may be too late as the impact of such legislation now would be too drastic.

If you really want to see house prices drop over the longer term, hope the Conservatives do nothing and let this madness continue as so many more people will get trapped into massive borrowing at unrealistic interest rates. When things do turn for whatever reason, so many more people will be in trouble and guess what will happen to the supply/demand equation. It could get ugly, but it may take a few more years to unfold.

patriotz said...

This would be a prudent approach to a "soft landing".

You cannot have a "soft landing" from the kind of bubble we have today. Once the prospects of price appreciation are lost, the specuvestors head for the exits to cut their losses. It doesn't matter if everyone else stays in, they can and do crater the market all by themselves. It only takes the loss of a fraction of demand to bring on a bust.

Just Jack said...

I agree with Patriotz, its too late in the game to think that that real estate prices will just deflate in Vancouver and Victoria.

Looking to the south, we see that those cities that were the most unaffordable were hit the hardest.

As a side note.

I was thinking of the comments that I hear from new arrivals to our city. These people describe Victoria in terms of the places they have left. When I ask them what do think of the rain, they say well its better than snow.

So, I think we should change the BC and Olympic motto from:

The Best Place on Earth


At Least It Doesn't Snow Here

kabloona said...

That reminds me of the time the British Government held a contest for a new "National Motto" for the UK....and a lot of the public submissions were hilarious. My favourite:

"Great Britain: at least we're not French"


By the way, anybody else notice that the National Ads promoting BC Tourism to the rest of Canada ("You've gotta be here") seem to be missing the obnoxious "Best Place on Earth" slogan...?

Just Jack said...

It seems like I'm doing a lot of questioning these days. So here is another one -that people could help me with.

Which is better to have?

$250,000 in an RRSP
$250,000 in home equity

HouseHuntVictoria said...

@Just Jack,

Neither is perfect. One is taxable in the future, the other may not be. Both have tax benefits today and tomorrow.

One will let you eat and provide a roof over your head in the future. One will grow at a compounded rate (realistically of 8-9%) the other will likely grow somewhere around 5%. One is liquid, one is very much not.

Both cost you a ridiculous amount of fees to maintain and "transact."

If I had to choose based on market conditions of both right now, I'd pick the RRSP in a heartbeat.

Reid said...

Patriotz, the "soft landing" is the term government has been throwing around now for weeks in talking about real estate. The only hope they have to achieve it is to "slowly" lower borrowing capacities, but I did not mean to state that I think it can or will happen, just provide the only solution that may allow govenment any chance to meeting it.

Just Janice said...

Hmmm...I'd sell the house and go rent and put the $10,000 of the $250,000 into a TFSA then put the rest into some other relatively liquid, relatively safe class.

Given the $250,000 in home equity isn't taxable, whereas the $250,000 in an RRSP is when you start cashing it in - I'd say the $250,000 is better - but I'd be wanting to 'cash out' and go liquid as it isn't really money until its in the bank and spendable.

Just Jack said...

I could take out $10,000 from the RRSP and pay taxes of a $1,000. So I would net $9,000.

or I could put $9,000 on the line of credit and pay interest.

but I could also borrow $9,000 on a personal loan.

Which is better?

Panza said...

I agree that current lending practices and the unwitting risk posed to the taxpayer by the CMHC are criminal, but the only bubble of significance seems to be in BC. RE in the most of the country is pretty reasonable and downright cheap outside of major urban centres. This government will not move to curb it and take the blame for a correction - they are already in an increasingly heated popularity contest.

I would rather have my 250k in giant wheels of parmesan. It gains more value than bonds as it matures and if the economy gets really bad, it can be eaten.

patriotz said...

$250,000 in an RRSP
$250,000 in home equity

Bogus comparison on several fronts:

(1) Money in RRSP is before tax. Income going in is tax deductible, income coming out is taxable. So $X versus $X is not correct. You have to adjust the amount in the RRSP up. And RRSP's are for retirement, not current consumption. Apples to oranges.

You can compare $X versus $X in a TFSA, that's after tax. Or a cash account.

(2) No description of the assets in the RRSP. You can have anything from CSB's to the riskiest stocks.

Both cost you a ridiculous amount of fees to maintain and "transact."

Not true at all, my RRSP has no annual fees and a stock trade is just $9.99 (as in my cash account), for example.

Anyway I have no assets in RE at the present time and it's going to stay that way until prices make sense.

Buy low, sell high.

think said...

Anybody know this months stats yet? Double-agent?

HouseHuntVictoria said...

"The optimism that consumers felt heading into this year was short-lived, and has been overcome by nagging concerns over their debt loads."

HouseHuntVictoria said...

net unconditional sales: 418, New Listings: 1211, Active Listings: 2793

think said...

interesting...that is a sell/list ratio of 34.5%, a change from the last year, too early to tell but if this trend continues a change could be coming...

HouseHuntVictoria said...


I see negative price pressure forming now. If this continues for 3 months, I can see listings getting above 3500 and prices dropping about 1%/month for the rest of the year after May, very similar to 2008.

HouseHuntVictoria said...

VREB is spinning as usual in their press release.

This is the first time since I started tracking sales when January had less sales than the December preceding it, which is typically the worst sales month of the year.

think said...

I agree with you househuntvictoria, I'm just a bit nervous to get too excited until I see the trend for a couple more months. It certainly does look like the start of 2008. Time for a change bears! Time to get the beer in the fridge to chill!!! Can't believe sales were down from December either - very surprising - and very telling!

patriotz said...

I can see listings getting above 3500 and prices dropping about 1%/month for the rest of the year after May, very similar to 2008.

And this time the gun is out of bullets.

stuart said...

Caution should be something every potential buyer should be thinking about before jumping into the Canadian real estate market. For example, realty in Calgary is predicted to grow this year, but only modestly. While this modest growth is a good sign, it might be better to do your research before thinking about entering the real estate market.