Sunday, January 17, 2010

Somethings rotten in the CAAMP

I guess fear is a prime motivator after all. [sarcasm off]

I can only imagine the prospect of declining sales volumes has agents and brokers waking up in a cold sweat at night. So much so they must be calling their industry associations each morning in a panic to get them to do something, anything about any possible chance the government could reign in their ability to sell their products.

Before I continue, let me make one thing absolutely clear: I believe the Canadian government needs to reign in the CMHC on behalf of the Canadian taxpayer. I believe the CMHC has moved beyond its mandate significantly and I believe the Canadian taxpayer is at significant risk of financial loss if the real estate market were to correct beyond 15 per cent.

Of course, CAAMP and the CREA take the opposite belief--to them, it is impossible for the real estate market to correct 15 per cent.

To show you how rotten things have gotten at CAAMP, I give you this: In November of 2009, less than 3 short months ago, they published this study, with this graphic showing that 68 per cent of mortgages written in 2009 were of the "fixed rate" variety:


Now with all the pending talk of limiting CAAMP member's abilities to give you and I too much money too fast, they've decided to revise their fall 2009 report with this gem, aptly titled: Revisiting the Canadian Mortgage Market. And here's their revision:

Line extends much higher than 68 per cent doesn't it? Wow. When the numbers don't support your argument, add 20 per cent. Here's further proof they have made this 80% number up (I'm wrong about this assumption, if Rob is correct in the update below).

Their report is full of other baseless calculations and assumptions, like their so-called "stress test" that demonstrates first time home buyers have never had a safer opportunity to buy or exercised such caution when entering the market--forgive me while I puke a little in my mouth.

I won't waste my time ripping the whole report to shreds, instead I recommend that it just get shredded.

I have a very good understanding of public policy process in Canada. It is a crying shame that organizations like this are allowed to play a part in the process at all. It is a freaking tragedy though that policy makers (the public servants who work in the departments, not the politicians) are forced to give these types of reports higher credence than detailed analysis by arms-length third party organizations simply because they don't exist in Canada. This report demonstrates that truth is apparently inconsequential to their business organization and is merely something to be rewritten when it doesn't support their outcomes.

Thanks to Skeptic and Double Agent in comments for the links and tips to this mess. Edmonton Housing Bust has another similar post up, and to their credit, the McListers aren't censoring comments on this bullsh&t on their blog.

IMPORTANT UPDATE
In all fairness to the CAAMP and their members, this comment was posted on the McLister's blog by Rob (link above):
...remember that this newest study included only purchases. The November 2009 study included purchases, refis, and renewals. People are more likely to get variables when renewing or refinancing. That is largely why the fixed-to-variable ratio is different in each study.
This explains the discrepancy in reported numbers. I've added a comment above in italics, but did not change my original post, not because I stand by my assertion that the CAAMP was making something up, but because I wrote it first, and meant it at the time given the information I had, and so that you can see I'm not hiding anything. I accept Rob's statement at face value and it is a reasonable explanation for the change in fixed rate percentages.

I still stand behind the general premise of this post: CAAMP is an industry lobby group with a financial interest in seeing mortgage related policy remain unchanged, or further liberalized, so that they can continue to sell mortgage products insured by Joe Taxpayer and they are using "clever tricks" to demonstrate why they believe mortgage insurance policy should remain unchanged. They are not an impartial source of mortgage related information and should never be viewed as such by the general public or the public service.

171 comments:

Vic said...

27% of any market can bring it to it's knees.


Did you see the TC article this morning ? Tell me some more about where these "expectant wage increases" are coming from the MSM keeps saying is fact.
If the public sector is saying you get nothing then the private sector will be just as cut-throat, if not more.



'Serious threats to jobs' fuel health negotiations

Government vow of no wage hikes makes talks complex: union exec"


"About 180 collective agreements in seven sectors for more than 220,000 public-sector workers are set to expire this year, most on March 31. That number doesn't include nurses or teachers.


The government has vowed there will be no money for wage increases"

http://bit.ly/4poHoZ

Double-Agent said...

HHV,

Thanks for starting up a new post on this subject. I am going to repeat some of the quotes in the report for those just joining us. Lets start off with the most outrageous ones...

Canadian Association of Mortgage Professionals chief economist Will Dunning - “Virtually every Canadian who is in a position to buy a home and qualify for a mortgage is well-educated and capable of assessing what is in their best interests, of looking forward, and of anticipating threats to their financial well-being.”

"The bottom line from the [stress test] simulations is that even though mortgage payments will probably rise for most borrowers, the increase in their incomes will more than offset the higher payments," said CAAMP chief economist Will Dunning. “All in all, the degree of risk from rising mortgage rates appears to be small and manageable,” he writes


Here is more nonsense from his boss, Jim Murphy, president and CEO of CAAMP.

"The vast majority of Canadian mortgage borrowers are not taking on undue risks. They have factored rising interest rates in to their mortgage decisions,"

think said...

I have a friend in government - in March there are going to be MAJOR rounds of job cuts that will make the cuts we've already seen look like nothing. Wage increases...yeah right!

Skeptic said...

Vic,

Good to see you back posting. Unions will get nowhere this year in terms of wage increases.

Think,

I agree with you. March will be a double whammy.

Campbell and his henchman Hansen will be bringing in a tough budget on March 2nd. The Olympics will be over, the red ink will be spilling and the HST legislation will be finalized. Job cuts in the civil service will continue.

Flaherty will be bring in a federal budget the same week on March 4th. He has already said thet there will be no new spending initiatives and you can bet the Home Buyer tax and reno tax credits will not be renewed. There are rumblings of cuts to the federal civil service as well.

Panza said...

Even californians are talking about our bubble ....

http://www.irvinehousingblog.com/blog/comments/us-exports-housing-bubble-to-canada-2-nevada-irvine/

Average home price in san francisco is nearing half that of vancouver. San diego is well under.

Just Janice said...

I wonder what will happen when people go to renew and the remaining value of the mortgage exceeds the value of the home?

Or when they go to renew, and their income just isn't what it was?

If the market can correct when the economy wasn't facing such crisis (May of 2008 to April 2009) - then what kind of 'correction' can we expect when the larger economic environment is much weaker?

Just Jack said...

Well, if they owe more than the property value, they can't do much.

They have to stay with the lender, unless they can come up with the difference.

They have no bargaining power on the interest rate, like they had when it was a new mortgage.

They just have to take the posted rate.

Now a national lender wants to keep a perception of fairness, so if you bring your other accounts over to them, then they may give you a break on the posted rate.

However, if your dealing with a less than stellar lender, you will have to take what they offer. Also, the lender does not have to roll the mortgage over, the lender could just decline to refinance.

Then your just S.O.L.

I think most of Canada will be fine, but those areas, just as in the USA, where prices were out of line with incomes will suffer badly.

Skeptic said...

Here is another article about a bear living in a moldy basement apartment...

Should you rent or buy?

11 reasons why some people choose to rent their house

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patriotz said...

I wonder what will happen when people go to renew and the remaining value of the mortgage exceeds the value of the home?

The lender will renew because the mortgage is guaranteed by the taxpayers. They don't care if the house is underwater, they just want to keep the payments coming.

As noted above the owner will have no negotiating power on renewal, but they will get the posted rate.

Of course there are uninsured (low ratio) mortgages too but they really aren't too relevant to the current scenario because so few new buyers (which is what matters) have been getting them.

Just Jack said...

Now I have a question.

In years past if you had a CMHC insured mortgage then the loan would automatically roll over in a refinance.

However, in the last 3 years the mortgage backed securities that CMHC has issued have been increased from 200 to 600 billion dollars. With the new accounting rules, CMHC will have to operate similar to other insurance carriers with the proper amount of reserves - I'm assuming this.

That would probably mean that CMHC will have to severely cut back on the amount of available insurance to the lenders. Could this mean that it may not be an absolute guarantee that the mortgage would be rolled over?

By the way, I think any government that would do anything such as the above, should be canned. However, I do think CMHC is going to be very stressed. I think you might see Flaherty restricting CMHC by either restricting what CMHC lends on or increasing the down or reducing the amortization or all of the above.

I personally would like to see the lenders have to pay the first 5 percent of the insurance as a deductible. If they had a little skin in the game, then the lenders would not be floating so many bad loans.

Skeptic said...

Here is an interesting article which shows why a typical buyer in today's market is in for a lot of pain in the future...

Will longer amortizations be nipped in the bud?

The 32-year-old Toronto-based commercial litigation lawyer with Lerners LLP, bought his first home last year with his wife Deanna Webb. To deal with the financial strain of two children, they chose to amortize their mortgage payments over 30 years.

"When we put together our budget, we looked at it as a cash flow issue. A longer amortization rate means a lower payment. I know that means you are paying more interest but from our perspective, entry level buyers with a kid, our plan was to get ourselves settled, push through with a first mortgage and, when we renewed our mortgage, shoot for a lower amortization," said Mr. Puddister, whose wife gave birth to their second child this month.


So when rates are low he picks a long amortization and expects to renew at a shorter amortization when rates go up.

In his case, Mr. Puddister says there is no question a larger downpayment or shorter amortization requirement would have changed his buying decision dramatically. The other problem is today's rates are so low, he can't see himself trying to pay down his mortgage principal any faster.

"I'd rather dump it into an investment," says Mr. Puddister, who is borrowing at about 2.25% based on today's rates. While Mr. Puddister may have the financial discipline to save and invest the money he is saving from low interest rates, mortgage broker Vince Gaetano says he is the exception.


So he is going variable rate, leveraged his house purchase to the max and gets into the stock market with any savings. He has an 18 month old kid now and new baby. Will he be able to save at all?

"Only abut 5% of people take advantage of pre-payment privileges," says Mr. Gaetano, adding once a consumer gets used to low monthly rate, they are loath to increase the payment even if it means knocking down principal faster.

"You get a mortgage for five years and then don't think about it. Are you going to start making payments or are you going to take your vacation? I don't think it would be so bad to take the maximum amortization down to 25 years because that way you would have some buffer room for making sure people qualify."


This is one mortgage broker that gets it..

Double-Agent said...

Last week think said...

what are the listing/sales stats looking like so far for Jan? Double-Agent have you got any numbers?

Sales have dropped off dramatically!

Here are the stats for Jan. 1-17

Total MLS sales: 97
New listings: 594
Total MSL listings: 2565

Compare these #'s to Dec. 1-13

Total MLS sales: 238
New listings: 237
Total MSL listings: 2794

So what is January usually like for sales?

2009 - 247
2008 - 464
2007 - 442
2006 - 496
2005 - 472

Sales down to Jan. 2009 levels (bad) and listings increasing. UH-OH for the bulls. Bears time for a beer.

Skeptic said...

In other news..

Renovation tax credit to end, Flaherty confirms


Canadian Finance Minister Jim Flaherty said he has no plans to extend a $3-billion home renovation tax credit that expires at the end of this month.

Mr. Flaherty, speaking to reporters Monday in Miramichi, New Brunswick, said the measure was not "inexpensive" and the government's intention is to let it expire as budgeted Jan. 31.


That 3 billion tax credit generated about 20 billion in sales. There goes the sales at Rona, Home Depot, construction, renovation and landscaping industries.

Marko - Will those carpenters agree to a lower hourly rate in February when the reno business falls off a cliff?

Reid said...

Skeptic, my sources as of last Friday in Ontario who work for the Feds told me that the Conservatives are seriously looking at renewing the renovation tax credit program. Not extending the current program, but starting a second one which would allow people to double up if desired this year. They felt there was a 75% chance that it would be announced in the March 4th federal budget.

So interesting to see news to the contrary from Flaherty today. Maybe they decided to can it over the weekend.

think said...

Thanks for those interesting numbers double-agent :) You made my day!

Just Jack said...

Or maybe Flaherty wasn't invited to the meeting.....

Rhino said...

"UH-OH for the bulls. Bears time for a beer."

Not sure I agree with that. What I see happening is there is a ton of buyers going after almost no inventory of rationally priced properties. So what is happening is your not getting many sales but the ones that do happen are multiple offers.

patriotz said...

CMHC will have to operate similar to other insurance carriers with the proper amount of reserves

CMHC has lots of reserves. Remember the last RE bust in Canada was in Toronto in the early 90's. They have been bringing in a lot of premiums and covering very few defaults since then. They have also been making a lot of money on securitization.

When (not if) the bust arrives in earnest in BC and Toronto, these reserves will be tested, but rest assured the Feds will never allow a situation where CMHC will not continue insurance of existing mortgages. They have a contractual obligation to do so both to the borrowers and the banks and remember the Crown can pretty well write its own rules.

think said...

rhino,

in other words - we've reached a price ceiling - people won't go any higher on price...still good news I think.

Double-Agent said...

Rhino said:

So what is happening is your not getting many sales but the ones that do happen are multiple offers.

That is a classic definition of a bubble peak. The last of the fools buy at the peak while the crowd moves to the sidelines.

What do you think all the owners that aren't selling will do as the weeks turn into months. Those that just want to sell will drop their listing. Those that need to sell will drop their price. This ripples down and even the bottom prices will drop.

BTW - This drop in January sales is not unique to Victoria. An agent I know in Saskatoon, with much lower house prices, is reporting the same thing happening this month on his blog.

Month end numbers will be interesting. VREB will contrast them with December 2009 which was a disaster. But this spin will get more difficult as the months go by.

Reid said...

My sense is that sales have dropped this month because:
- price expectations for many new listings are far too high (sellers greed has kicked in)
- there simply are not a lot of decent properties at reasonable prices on the market today
- there has been so much press in past four weeks about a bubble or possible real estate bubble that some buyers have to be questioning their decision to buy right now

HouseHuntVictoria said...

According to TimAyres, sales are closer to 150.

I suspect we will be seeing high sales until we see an interest rate change or CMHC changes.

I spoke with someone I know recently who couldn't wait to dive in to the market for the first time. When I asked why, I kid you not, her statement was "our preapproval is a ticking time bomb. If we don't find something soon, we won't be able to afford to buy at a higher interest rate."

My response: "Don't you think higher interest rates will cause prices to come down?"

"No."

There is absolutely nothing you can say to someone who has decided to buy. I don't think any bubble talk etc in the media will have an impact. It has to be something tangible like an interest rate or qualification criteria that can't be met or actual price declines.

I suspect January 2010 will surpass January 2009 in both sales volumes and prices.

Double-Agent said...

HHV said,

According to TimAyres, sales are closer to 150.

Yes there was a problem with the 97 sales number I reported earlier. There was an issue with the boards computer stats report today and all of the member agents received an incorrect report stating 97 sales during the Jan. 1-17 period..

The 150 number that Tim reported is only an estimate and includes today's reported numbers (Jan. 1-18). If sales turn out to be around 150 that is still much lower than the 238 for the first 13 days of December.

I will update my earlier post when the board issues a revision to the stats.

mcnamara_matt said...

I think the home reno tax credit will be back. I think this is a great program for the government to collect more taxes.

This programs provides CRA with invoices to reconcile against contractor's revenue. It is logical to think that this is one of the largest grey market industries in Canada.

We'll find out soon enough if they offer a similar program.

Double-Agent said...

HHV,

Just want to clarify something.

I try to give your readers the inside track on local MLS stats. My numbers are only as accurate as the board reports.

All the other numbers I gave are accurate and verified. Only today's data was incorrect.

HouseHuntVictoria said...

Double Agent,

Thanks. I appreciate your inside scoop on the numbers.

Just Jack said...

So true HHV, unless something changes to alter the first timers ability to finance or mass perception of falling prices, just like the drug addict, they will buy as much real estate "crack" as they can.

But thats a good thing. So many are over their heads, that there will be some exceptional future deals.

StatsGuy said...

Rhino,

Looks like former VREB President Tony Joe agrees with you. He is tweeting about the 97 MLS sales the board reported today.

Tony on Twitter

71 sales in Victoria the first week of Jan; 26 the second week! Indications that there's not enough selection with Buyers in waiting

Still spinning the numbers like he did as Prez

HouseHuntVictoria said...

I like Tony Joe. But what's up with the "f" in his Twitter name?

All I can think of is F'n... as in I'm Tony F'n Joe (Picture him in a mob suit walking into the Union Club).

Robert Reynolds - GBA said...

HouseHuntVictoria said...
I suspect January 2010 will surpass January 2009 in both sales volumes and prices.


When do you think we are going to see prices fall?

March budget?

June bank rate change?

July HST?

Skeptic said...

Are those boomers we keep hearing about moving to Victoria?

Most Canadians feel "dream retirement" out of reach

Nine out of 10 Canadians say they will have enough retirement income to cover their basic needs, but three-quarters think that the retirement of their dreams is out of reach, according to a poll released on Monday by Royal Bank of Canada.

Almost half of Canadians who have not yet retired were worried about having enough savings, while 29 percent of retirees had the same concern.

About 40 percent of both groups said they were concerned about maintaining their standard of living.

HouseHuntVictoria said...

Rob,

Prices will fall when the sales to active listings ratio drops to less than 2:10. Prices will fall when sales to new listings ratio drops below 4:10. Prices will fall slowly when months of inventory rises above 6 for 3 consecutive months, and fall fast when MOI is 8 or higher.

Will it take an external event to create these conditions? Not likely. My money is on rising rates creating them before anything else. I don't think HST will have that great an impact on the negative side, if anything, it will create artificial demand until it kicks in and then restrict the growth of new supply for the rest of the year. Adding 7% on the closing costs (not 7% on purchase cost) of a resale home will not be a deal breaker, just something buyers will bitch about.

HouseHuntVictoria said...

I should add that I don't expect rates to rise soon or quickly when they do. I suspect that rates will remain artificially low into 2011 at least (BoC at less than 0.50%).

My sole play this year is going to be the dollar. With the Loonie approaching parity quickly, I'm going to buy and sell US dollars. I suspect there is 10-20% to be made in exchange rate volatility alone this year. An even dollar is a recovery killer, expect the Feds/BoC to act on this before they act on inflated housing.

patriotz said...

BoC is not going to do anything about house prices because it's not in their mandate and they've said so. Their mandate is to target consumer price inflation.

GoC will get serious about the housing bubble when the bond markets start get getting nervous about CMHC's mortgage guarantees IMHO. But it may well collapse on its own first.

HouseHuntVictoria said...

Sales numbers as of yesterday according to Chuck:

Victoria BC Real Estate Month-to-Date Statistics January 18 Net Unconditional Sales: 247 New Listings: 1055 Total Active Listing Count: 3678

Just Jack said...

I think with the new accounting standards, CMHC will be shown to have similar problems as Fannie Mae in the USA. And that the Conservative government has been using CMHC for its own political gains in order to try and get a majority government and by doing so has put the Canadian taxpayer at high risk. The government has been stimulating the economy by having the homeowner carry some of this stimulus debt in their mortgages.

The government has been intentionally inflating the housing market. These dudes are messing with a man's castle which for most Canadians is the only thing they had for their retirement.

It has to be nerve racking for Harper and Co. knowing that if this market implodes on their watch, the conservatives will be hacked to pieces by the voting public.

HouseHuntVictoria said...

And then it get's more messy. According to @TimAyres (who I think is the accurate one) stats are:

Corrected Victoria Real Estate Board month-to-date stats: Sales - 167; New listings - 635; Total active listings - 2587

kunwak said...

I have a lot more confidence in VREB stats now.

Just Jack said...

This is what I got from a friend.

Single Family Homes
Sales Listings
Core Municipalities 44 263
Westshore areas 16 282
Sannich Peninsula 5 129
Other Areas 9 343
SUB TOTAL 74 1,017


Townhomes & Condos
Core districts 55 507
Westshore 15 209
Saanich Peninsula 2 77
Other 1 45
SUBTOTAL 91 838

TOTALS 165 1,855


The difference between these and VREB is manufactured homes, vacant lots, etc.

I don't think there is anything earth shatering about these numbers as they are pretty typical for the time of the year.

But it does show you how insignificant Victoria's tally is when you compare us to Vancouver or any other major city. I bet you more properties sell in an afternoon in New York or London than all month in Victoria.

And here lies, why I think buying or investing is more risky in Victoria than any other city. We're just too damn small to have the second or third highest prices in Canada.

We have more in common with Halifax than Vancouver or Toronto.

Just Jack said...

On my screen it looked different with things in nice columns

Using the first here is the key
#of sales 44 number of listings 263

StatsGuy said...

HHV said,

Sales numbers as of yesterday according to Chuck

Victoria BC Real Estate Month-to-Date Statistics January 18 Net Unconditional Sales: 247 New Listings: 1055 Total Active Listing Count: 3678


HHV - Did you look at what you posted? All the numbers were way too high!

According to your friend Chuck the revised numbers are the same as Tim Ayres.

Victoria BC Real Estate Month-to-Date Statistics January 18 Net Unconditional Sales: 167 New Listings: 635 Total Active Listing Count: 2587

Double-Agent said...

Previous posts showed the revised numbers from other agents. That is what I received as an revision as well. Here is the update to my earlier post...

Here are the stats for Jan. 1-18

Total MLS sales: 167
New listings: 635
Total MLS listings: 2587

Now compare these #'s to Dec. 1-13

Total MLS sales: 238
New listings: 237
Total MSL listings: 2794

Sales are way down compared to last month. New listings are up bigtime

So what is January usually like for sales, active and new listings?

2009 - 247 -3678 - 1055
2008 - 464 - 3027 - 1390
2007 - 442 - 2650 -1175
2006 - 496 - 2175 - 1090
2005 - 472- 2025 - 780

I predict there will be 360 sales by month end which is better than last year (expect VREB spin) but way down from 2005-2008. New listings should come in around 1180; more than last year but comparable to other years.

I know Reid and HHV don't believe it but things are slowing down. Bears take heart - the market is softening. Prices have peaked and sales are not off to a great start. Expect lots more inventory in the coming months as sellers try to unload.

Reid said...

Double Agent as per my post of yesterday I have noticed a dramatic decrease in sales this month and gave my reasons for this. HHV did not agree with me.

I have not seen a single sale in the past week on my matrix whereas in December the sales were coming consistently. Comparing Jan 2010 to Jan 2009 is useless as half the world thought we were headed into a depression back then. The right comparison will be to Dec 2009 and my sense is sales will be way down over Dec when normally they are up slightly.

I think all the talk in the media the past month about a possible housing bubble in Canada may be resulting in some buyers questioning the logic of buying today.

HouseHuntVictoria said...

Chuck changed his numbers on me. I just cut and pasted from his twitter feed. I make no claims of accuracy. The whole thing is just odd IMO.

I'm not disagreeing with people about the decrease in sales. I'm in total agreement that sales are off to a slow start. That said, I don't see a shift yet. If January proves slower than December, and listings increase dramatically, and then the same occurs in February, it will be cause for Bear beers. Until then, I'm sitting on the sidelines watching and reserving judgment.

HouseHuntVictoria said...

^ Should read "market shift"

HouseHuntVictoria said...
This comment has been removed by the author.
Double-Agent said...

Reid said:

Comparing Jan 2010 to Jan 2009 is useless as half the world thought we were headed into a depression back then. The right comparison will be to Dec 2009 and my sense is sales will be way down over Dec when normally they are up slightly.

I agree with you but the board will undoubtedly do a YOY comparison which will be parroted by the TC.

I am predicting 360 MLS sales for January. Last month, December 2009, the board reported 453. This is a big drop which will be hard to spin hence their YOY comparison.

So... January 2010 will beat January 2009, which is nothing to brag about. Jan. 2010 will be way lower than the same month figures reported in 2005-2008. As HHV says lets see what February brings.

Reid said...

It is possible that buyers are simply waiting for more listings to hit the market. There will be thousands of new listings between now and April. Although it is counter to buyer history, maybe buyers figure it is best to wait until more supply hits the market.

If sales are down for three straight months while interest rates remain at these low levels it could indicate a major shift is taking place in the market.

Robert Reynolds - GBA said...

I've had two business meetings with Realtors in the last two weeks, both of them, were begging for any referrals of ppl looking to sell. They have buyers a plenty lined up, but the buyers all need to sell their current digs before they can buy up.

apparently the buyers are all waiting in the wings for better selection of listings.

Marko said...

"I've had two business meetings with Realtors in the last two weeks, both of them, were begging for any referrals of ppl looking to sell. They have buyers a plenty lined up, but the buyers all need to sell their current digs before they can buy up.

apparently the buyers are all waiting in the wings for better selection of listings."

I've heard this way too many times. Do you know why Realtors are looking for referrals of people looking to sell? Do you really think they have a buyer lined for a property? They might, but what are the odds of this buyer being interested in exactly what the seller has to offer? VERY LOW.

REALTORS want listing referrals because getting a listing in a good market = FREE money.

Think about it, last year less than 3% of real estate transactions were duel agency, meaning that in 97% of cases the buyer's agent showed the property.

Listing a property is 10x easier money then having to show a buyer 15 properties. You list and wait for for buyer's agents to bring customers. 15 minutes to list on MLS, 2 hours to entertain an offer from the buyer's agent, $12,000 commission.

Anyone who pays a listing agent more than 0.5% on the entire amount is burning money.

Why would anyone be stupid enough to pay 3% and 1.5% to a listing agent when 97% of homes are sold by the buyer's agent.

I really have to start a blog to educate people on how to buy (don't use a buyer's agent) and how to sell (use a discount agent; however, not something like 1% realty because of their buyer's agent comission model).

The properties I have sold in the last 4 years, between the three private sales and the discount agents I've saved over $100,000.

Whether the market goes up or down, WHY ARE PEOPLE so fullish when it comes to realtor's comissions?

omc said...

I think alot of the buyers are just like my wife and I. We started to look around again because the prices never seem to correct and we neede to move on. When we did we found the prices are higher than they were at the peak, and the houses available are just plain garbage. So, you are ending up spending WAY more than when we peaked last year.

The sellers are showing extreme greed. They are just seeing if they can find an idiot that would pay thier asking. That dump at 1079 deal street found a half wit willing to pay $765k, so there are still some around.

We walked away in disgust. I think it will be better for buyers this spring, though still a very bad time to buy.

We just signed a lease today to move into a bigger, much nicer rental. I figure it is going to take more than a year to get a proper market correction. We are going to live a bit more in the present, enjoy ourselves and not worry about the market for a while

Dave said...

Marko, good posts. Keep em coming. Can I ask the name of your company?

Marko said...

Juras Construction

Website -> www.jurasconstruction.com

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

I am just going to do a quick refresher.

When selling:

Use a discount agent, pay at most 0.5% on the entire amount to the listing realtor; however, you MUST keep the buyer's realtors commission at 3% and 1.5%. Why? Simple, do you really think any agent is going to show your home if he sees that buyer's commission is only 1% when 95% of the listings offer 3% and 1.5%. This is where business models like One Percent Realty lose effectiveness -they cut the buyer's agent comission; therefore, agents are less willing to show the property when they know they can grab money elsewhere.

Conclusion: 3.5% and 2.0% (0.5% to listing agent, rest to buying agent) will give you the exact same service as 6% and 3%. Buyer's agents sells the home 97% of the time, not your listing agent.


When Buying:

People on this blog follw the market closely and are obviously well educated when it comes to real estate, interest rates, etc. Why on earth would you ever use a buyer's agent?

Let me give you an example. You see a home listed for $600,000 you are interested in it. The commission on this home is most likely 6% and 3% which would be $21,000 + GST.

Let me put a simply question forward to you....are realtors in the real estate business because they like helping people? and money is irrelevant to them.

The minute you contact the selling agenting of this $600,000 home their eyes will light up. They are receiving an extra $10,500 for the same amount of work to make this deal happen.

Do you think they have no incentive to persuade the seller into accepting a lower offer? Is an extra $10,500 nothing?

If the deal is $8,000 apart what do you think the selling realtor will do? You guessed, I've had this happen a number of times, they will lower their commission from $21,000 to $13,000 and the deal happens.

If you have a buyer's agent involved do you think the selling realtor is going to take $8,000 off his or hers $10,500 to make the deal happen...probably not.

This is just a quickly summary. Million other tricks out there the public needs to be educated on.

Full service agent (6% and 3%) means I am not only going to put your house on MLS, I will make nice brochure too!

Buyer's agent means you will be paying 3% and 1.5% too much for this house because I have to be paid.

patriotz said...

The sellers are showing extreme greed.

Sellers don't determine the selling price of a house. Thy buyers do.

Regardless of what he would like to get or what the listing price is, if the seller wants a sale, he will have to accept the highest bid offered.

Regardless of how "greedy" the seller is, that high bid will be the same.

And remember that nobody ever has to buy, but somebody always has to sell.

Reid said...

BC governement released news this morning that 233 employees within the Ministry of Citizens’ Services and the Ministry of Forests and Range will lose their jobs.

They also clearly indictes that other jobs are at risk as government faces continued fiscal pressure.

Just Jack said...

Without a buyer you don't have a sale.

Without a seller you don't have a product/service to sell.

Both are equally important in setting a market price for the property.

At this point in time, few people "have to sell". But there are a lot more people that "want" a home. Hence prices are high.

If there is sufficient rentals that are equally desirable and provides equal benefits to home ownership, then its true that people do not need to buy a home.

However, our free market system is not built on needs but on wants. Otherwise, there would be no selection in our lives. We would all be wearing the same gray suits, driving the same gray car and living in the same gray city.

You may need water, but you want gold.
Which costs more?

patriotz said...

At this point in time, few people "have to sell". But there are a lot more people that "want" a home.

Neither "wants" nor "needs" mean anything to the market. What matters is what people are willing and able to pay.

House prices are determined by the buyers because nobody ever has to buy, but somebody always has to sell, and that sale price is the highest offer made by a buyer.

Just Jack said...

And there is sufficient demand by buyers that are willing and able to pay. So many buyers, that sellers offer their home and can choose which prospective buyer they sell to. Which could be the highest bidder, or the buyer that offers the best terms, a combination of terms and price, or they just like one person over another. In fact, the seller does not have to sell at all, even if the prospective buyer offers a full unconditional offer.

So, in this market the seller chooses the buyer. And thats why its known as a sellers market as current market conditions are in favour of the seller. The seller sets the price and chooses to sell or not to sell to the prospective buyer.

Now you might say that the person may choose not to to bid on the property. And sure, there are many people interested in a properties but don't write up an offer. However, their absence from bidding has no affect on those that do bid or which offer the seller chooses.

However, in a judicial sale, the highest offer (subject clauses are not accepted in a court ordered sale) generally sets the price. But this is only a small, small fraction of current sales. And the judge also has the right not to accept any of the offers presented.

Now, imagine you and your family have been transferred to a town with no rentals and no homes for sale. You see a home you like, and you knock on the door and ask the homeowner if he wants to sell. Who sets the price now?

Well thats simple - your wife does, otherwise your in divorce court.

Now, never is a market ever fully a buyers or a sellers market like the examples above. The marketplace is the gray area in between where both buyer and seller play a role in setting market price. Sometimes it favours the seller and sometimes it favours the buyer.

David said...

Marko, I think some of the discount brokers like 1% Realty can still be used effectively when selling. However, I think this applies most to selling a well known commodity. For example, if two identical units are listed in a condo complex, a potential buyer will expect to see both units. The buyers agent is unlikely to dissuade their client from viewing it.

I have been successful using this strategy in the past. In my case, the buyer put an offer in and his realtor added a one page sheet to the contract saying we would pay him a higher commission (an extra $5k). Of course, I wasn't going to agree to it since it was outside of his clients offer. He even tried a second time. I wish that call came directly to me...

If you are selling a SFH, then it's much harder to get potential buyers to consider it as a commodity and so I agree with your approach of offering a higher commission.

I have tried to purchase real estate in the past outside of an agent. I found that most listing agents were not very receptive and wanted 'dual agency'. I would rather pay a lawyer $1,000 to draft a contract and have it done correctly than to send $15,000 to a realtor to provide 'dual agency services'. Of course, they have an obligation to present an offer to their client so it doesn't really matter what they think.

Just Jack said...

There have been 215 homes listed for sale since January 1. There have been 71 homes sold since January 1.

The median price of a home for the last 60 days was $548,250 with a median 30 day market exposure. In contrast those homes that were listed AND sold in the last 60 days was $537,500 with 11 days on the market.

Sellers on average that waited another 19 days received $10,750 or 2 percent more. That would make this market in favour of sellers.

There have been 263 strata properties (condo, townhomes etc.) listed since Jan 1. There have been 88 sales.

The median price of strata properties that have sold in the last 60 days was $324,333 and 31 days on market.

Strata properties that were listed AND sold in the last 60 days had a median price of $321,000 and a market exposure of 13 days.

Again, a market in favour of sellers. As on average, by waiting another 18 days, results in a better offer of $3,333 or 1 percent more.


Contrast this with a time of declining prices like in June and July of 2008.

For strata properties sold, the median was $325,000 and 38 days.

For listed and sold the median was $329,750 and 16 days.

So, if the average seller had waited another 22 days for a better offer then they would have received $4,750 or 1.5 percent LESS for their property. This would be a buyers market.

I obviously have too much time on my hands. But its kind of nice to put numbers to whether its a buyers or sellers market.

StatsGuy said...

Just Jack said..

There have been 215 homes listed for sale since January 1.
There have been 263 strata properties (condo, townhomes etc.) listed since Jan 1.

---
According to VREB there were 635 new listings in the period Jan. 1-18.

Just Jack - what were the other 157 listings? (635-263-215=157)

Lots? Mobiles? Manufactured homes?

Just Jack said...

lots, manufactured homes, commerical, industrial, gulf island properties, business for sale, duncan, etc.

The homes in my stats are only the Victoria Core municipalities, Westshore Communities and properties in the Saanich Peninsula ie Sidney and North and Central Saanich.

Everything else is not included.

Vic said...

The VREB can't use the weather as an excuse this year for crappy January sales. Now they will try to milk the government layoffs as a new excuse. The party's over,get used to it, sell now or be toasted in a couple of months.

patriotz said...

Now they will try to milk the government layoffs as a new excuse.

That's not an excuse, that's a legitimate reason. It's also a legitimate reason for lower prices of course.

:-)

Bob leftcoaster said...

This is wonderful house hunting weather!!!

Of course we didn't go house hunting. Instead, we saw about a dozen rental suites and took our time to decide on one of them. The application process was a breeze since landlords and building managers are desperate.

At one appointment, the property management rep reminded me that rents are negotiable and that she was happy to pass on any lease offer to the owners of the property. The fact that I could lowball a lease blew me away.

This spring will be interesting. With the increase of mortgage-helper suites coming vacant, some landlords will be living lean or deciding to cash in their costly real estate investments.

Mr.4AM said...

Wow, Obama may have actually finally opened his eyes and listened to the right economic advisors (Volker & Dodds).

Standing at the edge of the abyss, Obama may have found the balls to open his eyes, face reality, and enact what may be "real change".

Now let's just see how long it will take Canada to wake up from the Real Estate insanity.

caveat emptor said...

OT Question:

Anyone heard any recent news on that failed "Cliffs over Maple Bay" project near Duncan. I was up walking there last fall and the site is quite surreal, Some of it is still just a big gravel pit, but in some parts they already have the streets paved and fancy lightposts installed.

Just Curious

omc said...

I was thinking about the low sales #s for the 1st 2 weeks of january, and comparing what I am seeing on my PCS. The week that had very low sales had to do with it being 3 weeks after christmas week. It is usually about 3 weeks to remove conditions, and show up as a sale.

My PCS is showing a crazy, overheated sellers market. Bidding wars to well over asking is the norm, not exception. I would love it if the market sentiment had already turned, but we still have an ample supply of "porch light" buyers. Think of your porch light on a summer's eve.

think said...

hey omc,

I've been seeing the same thing - I agree - the end of month numbers may look very different...but I've also been seeing a lot of price reductions recently too. That sale on Falkland for 50k over asking was pretty crazy!!! I'm waiting to hear the POP...just not sure how much more insane it will get first!

Skeptic said...

Caveat emptor said...

Anyone heard any recent news on that failed "Cliffs over Maple Bay" project near Duncan.

The developer has a big problem up there - water. He went ahead without securing a water source and ran into financial trouble. Last September they signed an MOU with the Cowichan Tribe to do a joint venture. But that fell through according to this article.

No Tribes deal on the table to resurrect Cliffs project

Cowichan Tribes has no stake in the stalled Cliffs Over Maple Bay golf-course subdivision after recent talks with project owners, Chief Lydia Hwitsum says.

Talks with Cliffs’ brass — headed by Alberta’s Paul Read — hinged on the Tribes possibly providing water or wastewater to the project’s parched links in return for jobs, profits, input on eco-issues and more.

But Hwitsum explained amicable discussions with Read’s numbered firm basically fizzled.

Skeptic said...

Closer to Victoria we have another big development project looking for a business partner.

TC Front Page News...

Massive Bayview Residences project for sale in "billion-dollar" deal

The Bayview Residences and Roundhouse site in Vic West is for sale. No price has been set for one of Victoria's most ambitious development projects, encompassing eight hectares overlooking the city's harbour.

Three condominium towers are planned for the Bayview site and one has been built. The 10-storey, 130-unit project has about 40 units remaining to sell, plus 10 on the market as resale units, Mariash said.


This property has been marketed for as long as I can remember. They even had a sales office downtown near the waterfront.

Years later 40 out of 130 units are still for sale and 10 owners want out. No wonder the developer wants a partner!!

StatsGuy said...

What do you think this is doing to buyer confidence?

TSX down 700 points in 11 days

Canada’s deficit soars on weak economy

Retail sales dropped 0.3% in November

Skeptic said...

Canadian Association of Mortgage Professionals (CAAMP) is back in the news today. Their chief economist Will Dunning says - Prices of existing homes in the Toronto area are likely to come down a bit in 2010

The big reason is that job creation is still slow relative to the demand experienced in the market, the economist says.

"Housing demand is hugely ahead of the key economic fundamental of job creation. The recent surge of sales and prices is due to low interest rates and fears that rates will rise," says the report, released Thursday.

"This wave has to dissipate eventually and the next nine months will be disappointing compared to the past nine."


He might get it but his masters are probably telling him that a 1.6% yearly drop in prices is as far as the organization wants to publicly admit.

Anyone with any common sense knows that once prices start falling hype and realtor pumping will not keep the bubble from deflating and prices will be dropping 1.6% a month.

patriotz said...

Housing demand is hugely ahead of the key economic fundamental of job creation

They key economic fundamentals of RE are rents and incomes. If prices are out of line with these, they must come down, regardless of job creation. Especially when most of the job creation is in RE, as it has been during this bubble.

The recent surge of sales and prices is due to low interest rates and fears that rates will rise

He's right about that one. Wait for interest rates to move closer to normal - and that's inevitable - and watch the house of cards come down.

Rhino said...

Whats with all the doom and gloom links. There is a lot of Alberta energy money flowing around this town, every noticed all the Alberta license plates?

http://www.globeinvestor.com/servlet/story/GAM.20100122.RWEST22ART1941/GIStory/

StatsGuy said...

Rhino said - Whats with all the doom and gloom links. There is a lot of Alberta energy money flowing around this town, every noticed all the Alberta license plates?

If you want feel good fantasy stories about the economy read the press releases from VREB, CREA or talk to your friendly realtor.

On this blog you will get the other side of the story. And who cares about Albertans driving around Victoria. They are probably looking for a job after all the layoffs in Alberta last year.

And if you want Alberta oil and gas links try these out for size.

Canadian oil and natural gas drilling falls to 18-year low

Aerial Perspectives on the
Alberta Tar Sands


Alberta EI claims are on the rise

Olives said...

Has the wave 3 (that will bring down everything except the U.S. Dollar) begun?

http://danericselliottwaves.blogspot.com/

Skeptic said...

Will anyone listen?

Don’t bite off more mortgage than you can chew

It shouldn’t come as any surprise that the real estate community is fighting against changes that would make it harder to buy a home.

“Absolutely,” says Mr. Dunning, about whether a change would take some consumers out of the market. “The change in the 40-year amortization just worsened the downturn in the market. In a fragile housing market you don’t want to impose too many restraints.”


More nonsense from Will Dunning, a consultant economist to CAAMP. There is nothing fragile about housing now - it is bubbling. It is the economy that is fragile.

Derek Holt, an economist with Bank of Nova Scotia, wonders whether the industry is borrowing customers from tomorrow to fuel today’s market.

“We are overheating at the expense of bringing forward future buyers. The risk here is you wind up a year or two down the round with a demand vacuum,” says Mr. Holt. “Sure, if you tighten the rules you cool demand, but you distribute demand more evenly.”

Basically, people would save a little longer or perhaps buy a little less house.


This guy gets it!!

Taking a more conservative approach to buying is not the worst thing that can happen, says Julie Jaggernath, director of education at the Vancouver-based Credit Counselling Society. More than one person has walked into her agency with credit problems caused by taking on too much house.

“They might buy a home with a smallish down payment but then they furnish it on their credit card,” said Ms. Jaggernath. “It is not unusual to see people spending 60% of their net income on housing costs.”


And lots of them live in Victoria

Skeptic said...

StatsGuy said,

And who cares about Albertans driving around Victoria. They are probably looking for a job after all the layoffs in Alberta last year.

Good luck finding one in Victoria.

TC reports.. EI numbers double in Victoria

The number of Victorians receiving employment insurance benefits in November was nearly double those of a year earlier, according to Statistics Canada figures released yesterday.

There were 4,040 people receiving EI benefits in Victoria in November 2009, a 97 per cent increase over the 2,050 in November 2008.

patriotz said...

Basically, people would save a little longer or perhaps buy a little less house.

But the amount of housing stock is unchanged. So what has to happen if people are only willing and able to buy "a little less house" at current prices due to more restrictive financing? Or higher interest rates, which are inevitable?

Prices must come down

Just Jack said...

Will rising interest rates cause prices to go down?

Mathematically, the answer should be yes. BUT, only if we have hit the affordability level for a significant amount of purchasers.

Over the last decade interest rates have gone up, and down, and up again, etc. But prices, for the most part have been on upward trajectory. Obviously, the fluctuations in the interest rate were not a contributing factor to what people could or would bid on a property.

As long as house prices had significantly increased the year before any hint of change in interest rates only fueled the market more and lead to more price increases.

And it could happen again. The problem is how do we stress test the market to find out if we have reached the "tipping" point for prospective purchasers.

Luckily, we don't have to. The marketplace has done it for us. And that test was April of 2008, when prices started declining at a quick pace.

In contrast, look to the south

For most of the last decade, our market has been following Seattle. Our government supported real estate with CMHC while in the US, Fannie Mae did not.

Result, Seattle is down some 20 percent, but our prices were stabilized over the same time period.

In order to stabilize the market, CMHC has increased the amount of mortgage backed securities from $200,000,000,000 to $600,000,000,000. And that is a lot of money for a country of 32,000,000 people.

How much more can the Canadian taxpayer be exposed to, before the purchasers of MBS's look at CMHC's books and just call "bullshit" and stop buying MBS's.

And our house prices sink, while we are screwed with a structural National debt and a castrated CMHC.

And for his next trick, Steve will get a majority government.

Double-Agent said...

We are only a few weeks away from the Olympics so you can expect a lot more real estate listings to hit the market. This is especially true in the condo segment where owners and developers are staging the units for eager buyers.

Real estate agents have been waiting for years for this big event. It is common knowledge that attendees at the games will be so enthralled with BC, the "best Place on Earth", that they will want to snap up a property during their visit.

But there is an unexpected bonus for Victoria. According to this news report 12% of people in Greater Vancouver are planning to leave town during the Olympics. Expectations are that they will come over to the Island instead of heading to tourist spots in the US, Mexico or the Caribbean.

Tourism Victoria's Rob Gialloreto says the ads they are running right now are deliberately targeting Olympic runaways. You know it's February in Victoria and you'll find some the greatest hotels here and there is plenty of them."

Rumour has it that local realtors are gearing up for the influx and some will be at the airport and ferry terminals to enthusiastically greet the visitors. However they will have a special welcome for those foreign buyers who show up before and after the games looking for a real estate deal.

Full coverage of this once in a lifetime real estate event will be in the Times Colonist.

Robert Reynolds - GBA said...

From Garth so take it with a grain of salt, but good numbers today.

US family income, on average, is $67,348. Canadian family income (in US dollars) is $68,305. Almost a dead heat there.

Household debt as a percentage of disposable income is 132% in America and 145% here. Whoops, we lose that one, but not by much. We’re all spending beyond our means.

Retirement savings in the US, as measured by the average 401k plan, is $62,900. In Canada, the average RRSP balance seems to be about $64,000, or $60,800 in US dollars – about the same.

Mortgage rates are, hmmm, similar. In the States a short-term home loan is 3.7%, while here is it 2.65%. But the Americans have the edge in being able to lock in a 30-year mortgage at 5.14%, while we have to renew at market rates every 5 or 7 years.

But what’s a very similar comparison breaks down entirely when it gets to real estate. The average US resale home costs $178,000. In Canada, the national average right now is $337,410, or in US dollars $300,294.

So, a house to the south costs 2.64 times income, and here it is 4.4 times income – which is damn close to twice the price. Not only that, but Americans are able to write off 100% of the interest on their mortgages from taxable income, as well as property taxes. They also enjoy the same capital gains-free status on their homes in essence as we do. The federal government will give new homebuyers $8,000, free, and move-up buyers can get $5,000 as a gift. Oh yeah, then they can sign up for a mortgage rate which will not change for three decades.

And still, with all those incentives – free money, interest-deductibility, rate stability – house prices in that country of 304 million are exactly half what they are here, in a land with one-tenth the people and more land mass. Makes ya wonder, doesn’t it?


I saw this when I was down in California over the holidays, housing is cheap cheap cheap, but that's all in comparison to here. While golfing with a property developer I mentioned that Victoria avg SFH prices were somewhere north of $500K, he almost dropped his cigar he was laughing so hard. (He's been here too, he cruises his yacht from San Fran to Alaska every year and stops in Van and Vic on the way. After he caught his breath I told him Vancouver was just shy of a million for the avg SFH, he didn't laugh his jaw hit the ground and he just stared. "insane" was the word he mumbled next.

All things considered, we are pretty much on par with the USA, however, they have the better deal with 30 year mortgages, and interest deductible. In the current market, if we added those two little tricks to Canada's housing bubble I can easily see it doubling in size again.

Vic said...

As Garth sums it up so well :


"The result was predictable – an explosion in demand. As a result, the average house price in Canada rose last year by 19%, or twenty times the rate of inflation and average wage gains.

This will not last. It cannot last. "



20 times the rate of inflation and average wage gains ? Total fricking insanity.

Just Jack said...

Victoria is the second most unaffordable city in Canada. Vancouver being the first.

Oh come on people, where is your civic pride. Second place! Being beat by Vancouver? I am so embarrassed! Victorians are a lot smarter that those sub prime Vancouverites. Really, which is truly the best place on earth - Victoria or East Van. Do they have a BLUE bridge - NOOOOO! They have to have a sanitary treatment system - A bunch of "poofs" I say.
Are we going to be beat out by a bunch of "girlie men". Come on Victoria, pick those testicles off the floor, grab your power scooter and lets go.

I want everyone reading this blog to drag their niece, nephew, brother or sister out of school, put them in their car seats and take them down to your local corner mortgage broker store and buy a condo, NO make that two condos TODAY.

And remember legal documents can not be signed in crayon. The wax gums up the fax machine.

Double-Agent said...

It's Monday and time to see how sales are doing in Victoria..

Here are the stats for Jan. 1-24

Total MLS sales: 267
New listings: 925
Total MLS listings: 2715

With one week to go we are heading for the 360 sales mark that I predicted in an earlier post. This will be better than the disaster last year but way down from 2005-2008.

2009 - 247
2008 - 464
2007 - 442
2006 - 496
2005 - 472

I received this graph in a document this morning. I think you will find it surprising. Take a look at what has been happening the last 3 weeks. Comments??

Weekly Sales and Listings - click here
.

CD said...

http://demographia.com/dhi.pdf


Here are the actual stats... To the recent TC article about Victoria and Vancouver being the most unaffordable in the world.

omc said...

Wow, some really high quality posts here lately. I really appreciate the info and stats, keep um coming.

I had one real estate perma bull all excited at work today with a prospective purchase. I simply showed him that the BoC is telling you to budget at a realistic interest rate, and added 2% to his mortgage. He was looking at a 3 year fixed and a 2% rise would be on the low side. He can't even come close to affording it even at that rate, but he is still buying. He did at least admit he is taking a very big chance.

StatsGuy said...

Double-Agent,

Thanks for graph. Looks like sales down - listings rising fast. I won't even ask where the graph came from :>)

CD,

Here are some clickable links to the TC article and report you posted.

TC - Victoria ranks eighth among 272 international markets for least affordable housing

Chart - Victoria & Vancouver World Ranking

6th Annual Demographia International Housing Affordability Survey (pdf)

Skeptic said...

Double-Agent

I thought you were kidding about your fellow RE agents and the Olympics until I read this.

Vancouver Sun - Cashing in on 2010 Olympics

For real-estate professionals, and anyone interested in buying or selling property in Vancouver, the billion-dollar question is what effect the Games will have on the local market.

Peter Simpson, CEO of Greater Vancouver Home Builders Association, hopes the Games will boost fortunes at a crucial time.

The year 2009 would have been the worst for housing starts since 1962, except for a surge in December, Simpson says.

"[The Games] will focus a lot of people's attention on the region," Simpson says. "With three billion eyes on Greater Vancouver, hopefully people will want to come and visit, and then they'll want to move here and buy homes and open businesses."

Condo marketing mogul Bob Rennie said there were no buyers for about 700 athletes village market condos as the credit crisis continued in 2009, so he advised bringing the units back to market following the Games.

On May 15, his team will "invite the city and the world," to the relaunch, and he's confident the strategy is golden.


But according to this UBC study...

Cities that win Olympic bids experience neither boom nor bust in their real estate prices, but gain construction jobs as they prepare for the Games, according to researchers at the Sauder School of Business at the University of British Columbia.

"Our results conclusively demonstrate that while construction employment dramatically increases in the period prior to the Games, house prices are the same as they would be in the absence of the Games," says Somerville.

Skeptic said...

OMC said:

He did at least admit he is taking a very big chance.

There is no chance involved here. No one is denying that rates are going up in the next year. In 3 years your office pal will be shocked at the renewal rate. He better go with a lender that will automatically renew (big bank). Better to get shafted at the posted rate than not get refinanced at all.

OMC - What is this guy thinking? That there will be more money coming in 3 years down the road? He better go with a 5 year mortgage and delay renewal. And what if the unthinkable happens to him - prices drop.

Rhino said...

"Take a look at what has been happening the last 3 weeks. Comments??"

I can't see the market shifting at all yet since almost all sales are OVER asking. Seems like an extreme sellers market still to me. I predict this time next year we will have prices 5-10% higher, with prime higher by .5%, and inventory 20% higher...we shall see.

Robert Reynolds - GBA said...

*spit take @ worldwide affordability numbers*

Thanks for reminding me why I'm not buying into this market. RE-GOD-DAMNED-DICULOUS

Mr.4AM said...

Thanks Statsguy,

Your "Severely Unaffordable Housing Markets" chart says it all.

Funny how Victoria's unaffordability is only a few places down from Hawaii... because you know, the weather is so awesome in Victoria, and hey there's even better shopping and culture here than New York who's 7 places below, right? LOL

The greater the insanity, the greater the crash.

Mr.4AM

Double-Agent said...

Rhino said,

I can't see the market shifting at all yet since almost all sales are OVER asking.

HUH? Sounds like pumper talk to me.

I don't see that many over asking sales in the Greater Victoria database. Maybe you are in Vancouver where the fools supply is greater.

I posted actual data for the readers. Lets see some of yours.

omc said...

I am not a pumper, but I still see most of the houses I would be interested in going over asking. Just take a look at oak bay, family type homes. If it is different in other areas of the market, I wouldn't know.

I hope the stats keep improving, and sentiment turns before the rates go up. Boy, would that be a correction.

Skeptic

My office mate is borrowing the max amount of money he can at the present rate. He is leaving no room to manouver what so ever. I quetly did the math for him, his jaw dropped ( a 2% interest rate rise is a 30% payment rise). He is still going to buy though. I dub him a "kamikazi" buyer; he is going to financially ruin himself, and bring the market down with him.

Rhino said...

Double-Agent:

MLS 272102: ASK: 779 SOLD: 782
MLS 271781: ASK: 759 SOLD: 775
MLS 271513: ASK: 589 SOLD: 620
MLS 271487: ASK: 669 SOLD: 670

That's just in the last few days, many more examples...

Maybe we are looking at different parts of the market.

Just Jack said...

Here is another one on Henderson listed for 595K and sold for $607K

Back in January 2002 this home sold for $260K

And farther back in June 1991 the home sold for $199,000.


Of course over the period of these transactions the median family income increased slightly, but more importantly, credit became easier to obtain and the interest rate fell from 9 percent. The median income to buy this home has now gone from 3.5 to over 8 times gross income.

Rents over the same time period increased 35 percent while home prices tripled.

All of the potential future appreciation in this property has been stripped away. The interest rate can not get any lower, incomes have flat lined and rents are starting to come down.

Not much point in buying in this market.

Double-Agent said...

Rhino said..

I can't see the market shifting at all yet since almost all sales are OVER asking.

Maybe we are looking at different parts of the market.


My posts are about the entire Greater Victoria market not a small area or price range.

Readers need facts! The selling prices across the region are below the asking price by 1-3% depending on the category of property. Here is the latest aggregate data for December 2009.

GV Sales Data - December

Yes it is a sellers market because last year when the entire financial system looked iffy you got 4% off the asking price. Inventory and new listings have increased in January while sales are down from 5 year historical averages. Time will tell if prices will drop in the coming months.

Why do I post this stuff? Because there is a lot of pump talk going on by those in the real estate industry and a counterbalance is necessary.

But maybe I am wasting my time. Seems like there are few bears left posting and even this blog seems to have taken on a capitulation tone as of late.

HouseHuntVictoria said...

Double Agent,

I'm as bearish as I've ever been. Just trying to "tone it down" some and focus on facts as you've said.

think said...

You're not wasting your time double-agent...I find your posts very interesting and your data to back it up is excellent. Keep the posts coming - this blog needs you.

My thoughts are that it takes time for changes to filter through the market - I watch the same houses as OMC and I also have noticed the over asking sales - also the inventory in this price range has not increased much - there is nothing good to choose from - so thats why the prices are high. But the people buying these houses are people with a large down payment - probably from the sale of their previous over-priced house - so they probably don't care if they over pay. I think now the pool of new buyers is about dried-up and that will affect the lower end of the market first - then will show its effects in the next layer later in the spring. I know 2 people trying to sell right now (one a condo, and the other a house) and neither have had any offers since listing a few weeks ago. Both are getting a bit nervous and thinking of price reductions. Both have already unconditionally bought something else and must sell. The market might be shifting. I also notice the very high end (1 million plus) is very slow - there is a ton of inventory that isn't moving. Time will tell...

Inglishmagor said...

"But maybe I am wasting my time. Seems like there are few bears left posting and even this blog seems to have taken on a capitulation tone as of late."

That statement strikes me as funny. I'd have to say I've gone the other way. I still read this blog daily, but the idea of reading to see what's going on with the market has passed. Things are so out of whack it will take at least a year from the turn until the waters will even be worth accessing.

I think the bears are still here, but we've gone to sleep for the winter.

CD said...

Double-Agent , do you think the price ratio is going to drop more since the sellers are seeing the potential dollar signs with the recent assessments?

Then again, assessments are all messed up by government actions of the 2009 assessment.

Reid said...

Inglishmagor has got it right. There will be a correction, but bears are going to have to be patient. It is going to take a least a year and more likely two or three years before you will see the prices drop materially (assuming we do not see another economic meltdown). Even with last years downturn which started in May 2008 it took almost a year and the worst economic crisis in our time to see prices come off just 10%, which was not enough for most bears to buy.

Every January I complete a big update on equity and bond markets for the pension I oversee. This year the focus was on bond rates. The simple conclusion I came to after extensive research was that the yield curve is going to flatten over the next 2-4 years. Expectations are that short term rates (prime) will rise by say 200 to 350 basis points, but longer term rates (10+ years) will only move up 50 to 100 basis.

Putting this in terms of mortgage rates we will see variable rates rise to say 5.0% (+/- 1%) but five year mortgages will likely only rise to 5% (+/- 0.5%).

If these bond people I have been talking with are correct the rise in the five year mortgage rates will not be enough to kill the real estate market alone. Those who stick with short term rates will feel the pain, but hopefully they are not so stupid as to think prime will remain at 2.25% and have accounted for rising rates.

But in conclusion, the correction is likely to be slower than many bears desire. I thought mortgage rates would get above 6% in 2012 and that would be enough to kill this market, but my sense now is that it will take a combination of things that will slowly drive the market into a multi year correction.

Robert Reynolds - GBA said...

HAHAHAHAHAHAHAHAHAH *GASP* HAHAHAHAHAHAH

Big city, small condos: 'Micro-lofts' to come to Vancouver

At approximately 270 sq. ft. — about the size of two municipal parking spaces — the units will be the smallest in the city.

Hilarious

HouseHuntVictoria said...

Reid,

I think we only need to look at the Japanese interest rate experience since 1991 to see where we're headed for the next twenty years. Low rates are here to stay. There is just far too much debt in the governments of N.A. and in their citizens to stand higher rates. Deflation of the currencies will be the only policy option in the minds of economic decision makers for decades IMO.

Double-Agent said...

CD said,

Double-Agent , do you think the price ratio is going to drop more since the sellers are seeing the potential dollar signs with the recent assessments?
---------
I think the price ratio will drop in the coming months to around 96-97%. The reason it was so high last month is that properties for sale is always at its lowest point in December and there was considerable hype and unusual sales pressure.

Moving forward to the spring we will see more listings than usual come on the market. The reason is there will be move up buyers/sellers this year and I believe more "get out at the peak" sellers. The former will figure this is their last crack at low rates and a pre-HST new home purchase. The latter will have been focusing on all the bubble talk, a sideways stock market and faltering BC economy.

The first time buyer pool has been draining and is now getting thinner. How many fools are left with even 5% down that can qualify at these prices? The first time buyer is the base of the pyramid and their actions drive the market. If they refuse to pay the ridiculous Victoria prices the effect will be felt at all price levels. The move up buyer that wants to sell or the "get out" buyer that needs to sell will be more receptive to offers. Therefore the selling price to asking price ratio will drop.

One should not forget that the local real estate market is predominately sold via MLS and member realtors. Agents make their living off commission and will do what is necessary to make sales happen.

Reid said...

HHV, you are correct most people I spoke with on rates agree that interest rates will be held down for many years as no one expects this recovery to be quick and governments understand the devastation high interest rates will have on the economy.

There also appears to be a lot of money willing to accept todays medium term interest rates as long as money is secure.

StatsGuy said...

HHV said,

Low rates are here to stay. There is just far too much debt in the governments of N.A. and in their citizens to stand higher rates.

The Canadian government has to maintain a monetary policy within an international framework. The Canadian dollar is not a reserve currency like the United States. This means we have less flexibility to take on government debt and not pay the consequences.

Sure the Bank of Canada can set the short term bank rate to whatever level they wish but they never want to see a treasury bill auction fail. So if the market refuses to buy at low rates the government has two choices. Raise rates or monetize the debt by buying the T-Bills themselves with newly printed money. You can only print so much before inflation creeps in or the currency goes into a downwards spiral. The Fed has been printing for some time but they can get away with it longer than we can because the US dollar is a reserve currency.

Fixed, longer term rates, on the other hand, are not set by the government but by open trading in an open market. Stock market volatility has kept the yields low as pension funds and others seek the relative safety of bonds. They have also been kept low by government buying which is about to stop. The US Fed has been buying billions of mortgage backed securities (MBS) every week. CMHC has been doing the same. Both have indicated that these emergency measures will be terminated by spring of this year. Even the most conservative analysts are predicting US long term mortgage rates will rise by .35-.5% once the Fed stops buying. Others believe increases of .75 to 1% are inevitable.

In summary interest rates are not dictated solely by what the Cdn. government and public want. If investors don't get the yield they want in Canada they will look elsewhere for places to invest their money. And the government has a lot of debt coming on the books in the next few years and will do what it takes to get financing.

Reid said...

Stats Guy, your thesis is correct but what I learnt in my bond research was that there is a lot of money wanting to be invested in medium term yields and that expectations are that this demand will remain for some time. In spite of recent equity market gains a LOT of money is staying on sidelines and is expected to remain there for the next 2-4 years and possibly beyond. It is this money that will keep medium and longer term rates low.

StatsGuy said...

Reid said:

In spite of recent equity market gains a LOT of money is staying on sidelines and is expected to remain there for the next 2-4 years and possibly beyond. It is this money that will keep medium and longer term rates low.

Many people dispute your "sideline theory" but lets accept it at face value for the purposes of argument.

Those that are already invested in bonds or T-Bills will have little effect on future rates if they are just sitting on the sidelines for the next 2-4 years as you suggest. Any bonds that mature in this period will just be rolled over into another issue. Most "sideline" money will be in short term (under 5 year) issues. If a significant number of these these sideline players try to sell their bonds and enter the equity market bond prices will drop and yields will rise negating your argument that yields will remain low.

Current buyers of longer term issues won't exit when the stock market stabilizes and enters the next bull phase because they would take a hammering on the price. These are typically pension funds, insurance companies etc. that buy fixed income products for the long term.

So what will cause yields to rise? New debt issuance. Governments around the world have gone into deficit to bail out banks, industry (GM) and their economies. Every week they issue more and more of these instruments looking for buyers. The billions needed is not sitting on the sidelines in a bank somewhere. It typically comes from these sources:

- Currently sitting in short term treasury bills issued by governments around the world.
- Invested in short and medium term bonds
- Invested in commodities
- In the world-wide stock markets
- Generated by GDP growth
- Money printed by governments to buy their own financial issues.

As the worldwide economy stabilizes and grows who in the list above wants to buy all this new debt issuance at today's yields?

As Carney has clearly stated get ready for higher interest rates next year or get run over.

Vic said...

What many have missed out on is the China news a couple weeks back where one of the Soverign Wealth dudes basically said China will call the shots on interest rates not the US government.

They are the ones holding all that useless paper and when they think the risk is getting too high then they want a better intrest rate.

The quote that struck me was :

“Although the dollar belongs to the U.S., China has a role to play in determining the dollar’s exchange rate.”


The cats out of the bag.

Reid said...

Stats Guy, take it for what it is worth. I spoke to some of the top bond traders in Canada over the past few weeks and I am simply sharing their view on medium and longer term interest rates.

There will be lot of theories and forecast that are contrary to the market and you can choose whatever forecast you wish.

I still think real estate prices will drop, but it may not be interest rates that kill the market over the next few years, but rather affordability, unemployment, a lack of first time buyers, etc.

Unfortunately it may take longer for real estate prices to drop than most bears wish. Patience will bear fruit, but unfortunately so many people in today's society have no patience which is one of the reasons house prices are soo high.

Robert Reynolds - GBA said...

HouseHuntVictoria said...

Reid,

I think we only need to look at the Japanese interest rate experience since 1991 to see where we're headed for the next twenty years. Low rates are here to stay. There is just far too much debt in the governments of N.A. and in their citizens to stand higher rates. Deflation of the currencies will be the only policy option in the minds of economic decision makers for decades IMO.


Isn't that just cutting off your nose to spite your face? They devalue the debt at the cost of inflation. Wages never keep up, and pressure on business to increase pay will cripple the economy again. Everyone will own a house but no one will be able to afford to live in it.

Vic said...

"Deflation of the currencies will be the only policy option in the minds of economic decision makers for decades IMO. "


So that means gold must go up bigtime.

Just Jack said...

I suppose, there must be something that gold is used for that would have an affect on my life. Except for wedding rings, I don't see much use for the stuff - ask Tiger Woods about that. So even if it went to $10,000 an ounce it would have little or no affect on my life.

It could never be used as a currency as I can't see it being weighed at the the grocery store for a carton of milk. You think the line ups are long now! Imagine that little old lady digging in the bottom of her purse for gold dust.

So, I suppose you would have to take it to the bank and exchange it for paper money and coins. Go to the grocery store and then take your change back to the bank and exchange it again. Pretty inconvenient unless you were exchanging a lot at once. But then you would have to hold the paper for at least the time it took you to spend it - kinda defeats the point.

And what if the government would only let the banks exchange the gold at a fixed rate in order to control inflation and the black market? Kinda screwed now, unless the gold was backed by its value in paper money.

Seems pretty silly, when you could just use a credit card though.

Potatoes would be good, then you could get your change in chips. Need a really big wallet though. We could be on the Mcain standard, the US on the Russet and Mexico on the Frito Lay.

Maybe, the government could design a universally accepted and easily exchangeable medium,with a printed denomination on them.

Reid said...

One bond expert's theory was that government will let inflation creep into the system, but they will report lower inflation numbers in order to keep short term interest rates low, but hoping in the background that wages will start to rise again as this will be necessary to assist people handle their "debt" loads. Once some wage inflation has crept into the system, then people would be better positioned to finally handle higher interest rates. At which point the risk to the economy is lowered and governments can let interest rates rise.

Note sure I buy it but good theory.

Skeptic said...

Reid said:

It is going to take a least a year and more likely two or three years before you will see the prices drop materially (assuming we do not see another economic meltdown).

HHV said:

Prices will fall when the sales to active listings ratio drops to less than 2:10. Prices will fall when sales to new listings ratio drops below 4:10. Prices will fall slowly when months of inventory rises above 6 for 3 consecutive months, and fall fast when MOI is 8 or higher.

Will it take an external event to create these conditions? Not likely. My money is on rising rates creating them before anything else.

I should add that I don't expect rates to rise soon or quickly when they do. I suspect that rates will remain artificially low into 2011 at least (BoC at less than 0.50%).

Low rates are here to stay.


--end of quotes--

So... Both blog authors think the high prices are here for the the next few years. No problem for Reid - he has a house. HHV says he is in Vancouver most of the time. So they aren't concerned about buying in Victoria anytime soon.

What is the point of bears reading or posting on this blog now? There are only a few of us that think that prices are going to drop sooner but we are told that we are wrong. Nope - won't happen we are told repeatedly; high prices are here for the foreseeable future. Heck we can read that in the TC or talk to a realtor if we want to hear that story. It's hard to be a bear or wish for a reasonably priced home in this town.

End of rant...

Reid said...

Skeptic, my point is that people are impatient. Some people on this blog expect that prices will drop quickly and fast yet my reseaqrch indicates it will take some time to unfold.

If you are right if it all happens this year, then great, but I doubt it. Are you going to get frustrated if at the end of this year prices are stable for the year and it requires anouther two years to see a 20% drop? Do you have the patience to wait that long?

Nobody knows for sure what is going to unflold, but I would suggest many bloggers are backing off posting here because they know this thing is going to take time.

Just Jack said...

The problem with forecasting is that people want to know when this is going to happen. If you are silly enough to give them a time and that time passes, and nothing has happened -well now your tainted as being a nut job.


So, when will prices fall.

-When the bloom is off the rose.

HouseHuntVictoria said...

Skeptic,

I understand your frustration. You only need to go back through the archives of this blog to see where I casually made predictions of 35% drops, of peaks hit and of "no where to go but down from here." I've learned to stop doing this because I wasn't right then and I now know enough to understand that I don't understand enough to know what is going to happen in the near term using one month's data set.

Wouldn't it be inappropriate for me to say that the market is turning when I can't say it clearly is?

One of my most trusted regular readers here, Roger, who unfortunately isn't around these days, used to say it takes 3 months to form (and see) a trend. I completely agree with this statement. Is it possible that a slow start to 2010 could lead to a change in the market come April? Of course it is. I want this to be the case, but I won't say it is when it hasn't happened yet.

Personally, I think anyone who buys real estate for the first time today, using a CMHC insured mortgage is an absolute idiot. I'm more bearish on the market today than I ever have been. What's happening out there is absolute insanity, driven by free money and self-serving industry players.

I hope that people who read this blog hear that message from me regularly. I have certainly not capitulated, I have not bought and I will not buy at these rent to price metrics.

I'm also unsure why I feel it necessary to pledge my allegiance to the bear nation? But I do. So I did.

Robert Reynolds - GBA said...
This comment has been removed by the author.
Robert Reynolds - GBA said...

Skeptic, personally it would be great for me if I woke up tomorrow and housing prices had come off 50%. I agree with the consensus that rates are going to stay low-ish. Over the past few years we have looked at pretty much everything there is too look at in the Victoria housing market. Aside from the occasional news headline we have been there and done that, and discussed it for 200 posts. The general consensus seems to be that the monthly payment trumps all. So unless there are changes to legislation or rates start to rise, which as I already said, most don't see happening in the near term we sit and wait and be patient. We aren't defeated we are just hibernating.

We still get over 100 comments for the average post, while the regular commenters might have dwindled (we miss you Roger)a little, but there are a LOT of lurkers. There are about 400 page views per day that can't all be just the dozen or so regular posters, or HHV furiously pressing F5. I am sure HHV can post better analytics if he wants.

I have personally backed off my housing search a little, I see nothing of value to be bought in the housing market so I have been directing my money towards what i feel is a better direction for it. I am currently in the process of using my "down payment" money to buy up more shares in the company I work for and become an equal partner. *cough* shameless self plug HMR Employee Benefits & Insurance Services located conveniently on Oak Bay Avenue.*cough*

Don't give up, your posts are great.

patriotz said...

One bond expert's theory was that government will let inflation creep into the system, but they will report lower inflation numbers in order to keep short term interest rates low

Do you think they can fool the bond market? BTW Canada is now running a current account deficit. Figure out the implications of that.

but hoping in the background that wages will start to rise again as this will be necessary to assist people handle their "debt" loads.

Would this be the same government that is going to cut their own employees? How do you get rising wages with falling demand for labour?

Mr.4AM said...

Interesting blog stats Robert. Looks like that monitoring service stopped monitoring around June 2009, and that based on the All Time chart, the number of page views is twice that of unique visitors. So roughly speaking, there's about 200 unique visitors per day and as an average, each person checks the blog twice a day. Considering there's only about a dozen or slightly more regular posters, that's a ratio of almost 1:20 of unique poster vs. unique lurker :-)

Mr.4AM

Just Jack said...

My husband and I are hibernating bears (and we have the chubby bodies to prove it).

I visit this site daily (many times daily) because when I am surrounded by real estate bulls I need constant doses of HHV's blog reality.

S2 (Just Jack's wife)

caveat emptor said...

One mostly lurker saying to the regular posters "keep up the good work". Victoria needs a reality based real estate blog.

Somewhere I can point friends too to counter the "BUY NOW BEFORE IT IS TOO LATE" meme.

Cheers

caveat emptor said...

Interesting post from someone who thinks the Canadian market is not in a bubble http://worthwhile.typepad.com/worthwhile_canadian_initi/2010/01/tennis-ball.html#more .

I think his argument is simplistic. It's not behaving like an actual physical bubble that goes pop - therefore it's not a bubble.

"Bubble" is just a freaking metaphor, buddy!

kunwak said...

I am also mostly a lurker but do enjoy links to interesting reads etc. I think that Reid is right on the money talking about patience. While many I know commit themselves to the market, I am quite happy with the fairly low rent I pay and am able to save substantial amounts for future use.

Currently, there is overwhelming evidence that I don't want anything to do with this real estate market. However, I still find it very interesting to follow the dynamics of government action, public reaction and implications such as CMHC. This blog contains many interesting (iff somewhat biased at time... but it's winter - hibernation time after all) links that I find interesting and rewarding to read.

Nice work HHV, you and contributers clearly moved beyond just housing issues and the blog has truly grown in terms of quality of content. Thanks very much for that.

patriotz said...

Interesting post from someone who thinks the Canadian market is not in a bubble

There is no "Canadian" market, only local markets. Even in BC you have Trail and Kitimat. :-)

StatsGuy said...

Reid,

I have been thinking about your discussion with top bond traders and the theory that the government is fudging the inflation numbers. You raised some very good points.

Then I read this article in the Financial Post - Bond King buys Canada

"Given enough liquidity and current yields, I would prefer to invest money in Canada," said Mr. Gross, whose company manages the world's biggest bond fund.

Recent data from Statistics Canada indicated foreign purchases of Canadian bonds in 2009, at a net $73-billion, shattered the previous $41-billion mark set in 2001. And the record total is likely to swell once December figures emerge.


I have tried to apply logic and my understanding of fundamental economics to the bond/mortgage market and realize that I came to the wrong conclusion. Basically the game is rigged and low rates look like they are here to stay as you and HHV stated in your posts.

What about house prices around Victoria? You and HHV, along with many real estate analysts, believe that prices will not be falling in the foreseeable future. This seems reasonable to me given that the government is encouraging folks to buy with low interest rates and 5% down. Looks like things will just keep marching on...

So I have decided that it is time to stop bucking the trend. Might as well buy now while rates are low and prices are flat. My wife and I will actively start looking to buy this weekend. We have a good downpayment and with a 5 year fixed we know what we will be paying for years to come. Hopefully we will have a deal in place before the busy spring season.

This will be my last post here. I don't want to argue with the bears still posting now that I have decided to take the plunge. I want to thank you and HHV for all the info on this blog.

omc said...

statsguy,

I don't think that many of us would begrudge your decision to buy. The only thing you should know is that you are following a false myth on the house prices being lower on the off season, especially now. My realtor corrected me on that one, and I have followed the sales of similar houses and found that prices are higher in the off season when inventory is low. There may be more buyers in the spring, but proportionally there are more sellers. I am sure that double agent (a realtor) will agree.

Good luck

Vic said...

I feel so confident about my job, no raise for 3, maybe 5 years...might be on strike for a couple months just to make a point. Might even get a rollback if I don't behave myself. I think I'll go buy that house for half a million that needs another $100,000 reno. Victoria real estate only goes up right ?

- hypothetical statement by post Olympic union worker, one of five major contracts up for renewal.

Double-Agent said...

OMC,

It is very hard to make generalizations about prices even during a normal year. Usually there are fewer buyers around in December & January and you can grind the seller. But we are not in normal times. There is madness in the market and you have to judge each property on its own merit.

On another subject - Last night A Channel had a report about the unafforability of housing in Canada. The study showed Victoria was #2 in Canada and #9 worldwide with an incredible house price to income ratio of 7.9. A major concern is that many people cannot afford to live here and it will be hard to attract workers in the future with our high home prices.

They interviewed Randi Masters, the new president of VREB on the show. She didn't seem to understand what was being discussed and just talked about all the record purchase months in 2009 and that buyers still keep coming here to buy. More pumper talk. Unbelievable!!

Watch the clip by clicking here and judge for yourself.

Vic said...

"They interviewed Randi Masters, the new president of VREB on the show. She didn't seem to understand what was being discussed and just talked about all the record purchase months in 2009 and that buyers still keep coming here to buy. More pumper talk. Unbelievable!!"


Not surprising, bonehead agency heads think the party will never end. When the spring rolls around she may have a different opinion. Just another shlep trying to pacify the recent FTB sheep not to dump. You think they want inventory to climb ? not a chance.

Bob leftcoaster said...

Vic,
Any strikes this year will be interesting. We'll see both landlords and renters with lowered cash flows. This gives a possibility that some mortgages will be behind in payments. This could shake the market up a bit.

I'm in a union that may strike this year but I have a feeling that we will be legislated back to work.

Vic said...

Bob,

I don't think the unions will have a leg to stand on this time around and will have to suck it up and don't go on strike or it's just lost cash. Unless the employers are really trying to screw with health benefits etc then that would be a different story.

With the economy the way it is you won't be getting any public support if it's just over wages.

Some union sectors got lucky and signed contracts at good rates a couple year ago at the peak but those are few and far between.

think said...

Prices here will fall - and it isn't going to have anything to do with interest rates. I've never thought it will. It is going to occur because of people with debt loads that they can't handle have something unexpected happen...such as losing a job (look at unemployment in Victoria already and it WILL be going up with all the March lay-offs), or not getting rental income for a suite (look at vacancy rates in Victoira - still climbing). For some reason it has become the norm to live with no savings or buffer room. I know a lot of people barely getting by and have used "home equity" a few times to "get out of other debts". Ridiculous. Victoria is NOT the best place on Earth - I've lived in better, it shouldn't be close to the most expensive - totally crazy. Almost as crazy as buying right now....

Just Jack said...

Being the president of any volunteer organization such as the VREB does not necessarily constitute competency. It just means you were standing in the wrong line when someone asked for volunteers.

Every other member believes that they can do a better job than you, but these are also the members that absent when it comes nomination time. And, the only time the members thank you is when your term is over.

Nevertheless, the rule when talking to the press, is never answer a question if you do not know the answer. If you don't know the answer - then change the question to one which you do know the answer. Always stand beside something that is really noisy -in that way you can say you did not hear the question. Then you substitute your question and answer.

If you're really good you should be able to ask and answer the question before the press are even in the same room with you.

Just Jack said...

I think the "THINK" has something here.

People have been over buying homes for the last several years, making the payments, but putting their life styles on their credit cards. The credit cards get up to 50K and they refinance the debt into their homes.

In this way they can live way above their income level, take trips, buy Glenmorangie Scotch and give the cats Perrier water.
And they can do this forever, as long as the home keeps appreciating at double digit rates.

Have a market that is only moving marginally upwards, is flat or OMG declining you are about six months away from the Sheriff knocking on your door.

And I believe, Victoria has a lot of home owner's that are or soon to be in the bidet. Enough that we could tip into a deep slide in prices.

VicITGuy said...
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VicITGuy said...
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msr said...

Congrats StatsGuy,

Best of luck with the house.

So, when's the house-warming kegger? ;)

VicITGuy said...

Received an email today from Bayview - sale on condos (is there trouble brewing here?)

SUITE/ORIGINAL LAUNCH PRICE/NEW 2010 PRICE/PSF/YOU SAVE/THAT'S...
703/$570,000/$419,000/$533/$151,000/26% savings
TH6/$1,100,000/$799,000/$451/$301,000/27% savings
105/$865,000/$599,000/$387/$266,000/31% savings
812/$885,000/$585,000/$537/$300,000/34% savings
304/$1,500,000/$875,000/$491/$625,000/42% savings
904/$2,365,714/$1,350,000/$987/$1,015,714/43% savings
1005/$1,679,518/$875,000/$821/$804,518/48% savings
901/$1,132,616/$499,000/$589/$633,616/56% savings

Mr.4AM said...

I don't know what you guys are going on about with house prices going down, haven't you heard, the Olympics will save us.

Really, there's no reason to be disappointed , we're in a Keynes economy (funny youtube economic rap anthem), all our wishes are just one printing press away. We should all just feel thankful and lucky.

Mr.4AM

Panza said...

HHV Mentioned interest rates in Japan (where i am at the moment)

"I think we only need to look at the Japanese interest rate experience since 1991 to see where we're headed for the next twenty years. Low rates are here to stay."

It could be true (though i doubt it will happen). But as proven by the Japanese real estate market, interest rates are not the only factor determining house prices. Here is a graph of Japanese home prices during the last twenty years during which the prime rate has been essentially 0% and mortgage rates have been locked at `historic lows`.

http://www.marketoracle.co.uk/images/2008/japan-house-prices--nov08.gif


Arguably a finger could be pointed at factors not extant in Canada (declining population can be blamed for some of this as can some downwards cost-pull caused by deflation). Most people in Japan blame the inflated prices (and the subsequent, painful *POP*) on speculative buying, hype and lax lending policies in the late eighties. A situation which i see as very similar to Victoria - Vancouver right now.

I agree that we are probably headed in the same direction as Japan in other ways. Incomes have been steadily decreasing here for 20 years. But on the upside, most families can afford a home and it is not viewed as an investment vehicle on which to base you life savings. There are places which are very expensive of course (i.e. Tokyo, Osaka) but these are very large, dense cities which contain sizeable portions of the world economy. On a global scale Victoria is a beautiful little farm-town. It really is a great place to live, but it is not a world player. Even Vancouver is relatively unimportant and parochial place on an international scale. Their rankings at #1 and #9 on that list is, as many others have dubbed it, insanity. I would hit the SELL button now if I were an owner in either city.

StatsGuy -
The `recovery` is fragile if it even exists. Employment recovery typically lags ecenomic recovery by several years. We are still seeing massive layoffs, huge defecits and increasing corporate and personal bankruptcies. There will be more bank failures in the US during 2010 than there were in 2009. It is not a time to be laying out half a million dollars for a small, aged house on a small lot in a city that runs on government wages and tourism. Think hard about it.... you can still buy a 4 bedroom on 2 acres in trois rivieres for less than 60k.....

patriotz said...

Just another shlep trying to pacify the recent FTB sheep not to dump.

Owner-occupiers almost never sell out of fear of price declines. It's only the occasional finance wonk who sees an opportunity to short his own house. Not even one in 100.

The people who do sell out of fear of price declines are the specuvestors. They were a major factor in the snowballing of the US bust and they will be here as well.

Double-Agent said...

Some of you may think that real estate agents are not held accountable for their actions. The Real Estate Council of BC imposes harsh penalties for transgressions. Serious violations can result in huge fines of up to $1000. However, stripping an agent of their license is rarely imposed.

Real Estate Council of British Columbia penalizes ten agents

patriotz said...

The Real Estate Council of BC imposes harsh penalties for transgressions.

Well OK, but the real issue is what constitutes a "transgression". RE agents regularly spout claims about the properties they sell that would result in a securities dealer losing his license, being fined or even sent to prison.

That's the real problem, not the rare misdeeds that actually get punished.

Leo S said...

That market values crash in Japan is just awesome. Gotta set that as a background image on my computer :)

A note though, Japan's population has not been decreasing. It increased by 3.1% in that period of bear market.
http://www.google.com/publicdata?ds=wb-wdi&met=sp_pop_totl&idim=country:JPN&dl=en&hl=en&q=japan+population

Of course our population is increasing much faster. But we also have way more land over 100times the land per person than they do.

Double-Agent said...

This guy lives in Victoria and writes this kind of article every once in a while. What do you think?

Real Savvy Housing bubble meltdown - a risk?

mln said...

So much misinformation in that article.

Homeowners who walk away from their home and mortgage in the U.S. are not subject to legal recourse.

This varies state-to-state, and last time I checked, there was negligible difference in price declines between recourse and non-recourse states.

The rest of the article isn't even worth commenting on, IMO.

omc said...

That guy is an exrealtor who is trying to sell books. He has been around a while and is a well known perma-bull. Funny he accepts that prices could "soften" as rates rise. Prices were "softening" before the financial crisis, and the government lowered the ratws through the floor.

Just Jack said...

"If a homeowner in Canada goes through a foreclosure, the lender is legally empowered to seek recovery of any loss remaining after the home is sold. This major difference ensures that Canadian homeowners do not flippantly walk out on their mortgage obligation, as has often occurred in the U.S., thereby adding fuel to its residential real estate meltdown."


Well, I'm glade he explained the difference between Americans and Canadians. It seems that the difference is that those Americans are "flippant".

Seriously, if you can't make the payment - you can't make the payment. When your signing the papers for a home, your not thinking that the loan is re-course or non re-course. You want the mortgage you accept the terms - you have no choice - there is no option.

The author is using national statistics as being representative to Victoria. Nationally Canadians are paying between 3 and 4 times their gross income for a home. In Victoria, its close to 8. So any comparison to Victoria will be substantially understated.

This is an article that should have been written in 1981. Unfortunately for the author, people now have the internet and access to facts rather than relying on the authors assumptions and personal observations that are probably only last relevant in 1981. And we all know what happened later on to our re-course real estate market.

But, maybe we are just less flippant today.

Double-Agent said...

Peter Dolezal said...

Homeowners who walk away from their home and mortgage in the U.S. are not subject to legal recourse. If a homeowner in Canada goes through a foreclosure, the lender is legally empowered to seek recovery of any loss remaining after the home is sold.

This guy needs to check his facts before he publishes an article and it gets posted on the Internet.

As mentioned earlier not all US states are non-recourse. There are some which are recourse.

He is wrong about Canada as well. Alberta and Saskatchewan have non-recourse legislation. In Saskatchewan, for example, you can walk away if the mortgage loan was issued to initially purchase the property ( non-recourse). If you refinance with another lender the loan is now recourse. So FTB's that bought during the recent boom in Sask. can take a hike if things go bad provided they stuck with the original mortgage company.

Vic said...

Just wait til the international media gets here in the next couple of weeks. They will be looking in every nook and cranny for a news story and ridiculously overpriced real estate will be in many articles I am sure.

Just Jack said...

Double-agent said "huge fines of up to $1000". Huge fines to me are $10,000 and up not "up to
$1,000". Please tell me you were as aghast as I at such measly fines.

S2

patriotz said...

Alberta and Saskatchewan have non-recourse legislation.

I believe that the mortgage insurance contract with CMHC gives them the right to recover from the borrower notwithstanding any provincial non-recourse legislation, which is not binding on a federal agency.

I have also heard that Alberta got rid of non-recourse mortgages after the 1982 bust. Does anyone know this for sure?

At any rate recourse versus non-recourse did not stop BC and Alberta from having equally massive busts in 1982 and it won't next time, either. The root cause of all RE busts is that people stop buying, not that owners start walking. That comes later.

patriotz said...

Also on the topic of recourse in the US read this post by Mish:

Beware, the Foreclosure Collection Man Cometh

When John King stopped making payments on his home in Coral Gables, Florida, two years ago, he assumed the foreclosure ended his mortgage contract, he said. Last month, a Miami-Dade County court gave collectors permission to pursue him for $44,000 stemming from the default.

King is among a rising number of borrowers who are learning that they can be on the hook for years after losing their homes. Amid a crisis that stripped $6.4 trillion, or 28 percent, from the value of U.S. residential real estate since the 2006 peak, lenders are exercising their rights to pursue unpaid mortgage balances. To get their money, they can seize wages, tap bank accounts and put liens on other assets held by debtors.

Anyone who thinks the same thing will not happen here is kidding himself, big time.

Double-Agent said...
This comment has been removed by the author.
Double-Agent said...

S2 and Patriotz,

The fines imposed on agents for violations are usually 10-20% of a typical sale commission. On top of this heavy fine they must also pay for and attend refresher courses in ethics or real estate practices. And lets not forget the teasing from their colleagues in the real estate office.

This swift action by the Real Estate Council clearly shows Realtors® what will happen if they don't follow ethical guidelines and act dishonestly

Just Jack said...

The fines are to offset the time the committee has spent investigating the complaint. The amount of the commission is not relevant to the fine. The suspension of one's ability to earn income for 30 days is more severe than a $1,000 fine. Ethic courses are a good idea, so would mandatory re-certification or a diploma program to become an agent.

I think all agents should have to present their qualifications to all prospective clients. And these qualifications should be attached to the contract with the seller along with proof of errors and omission insurance.

You know - what professionals have to do.





But heck,

Just Jack said...

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.

Double-Agent said...

StatsGuy,

Maybe you are buying at the right time. The BCREA released its housing forecast for 2010 and average residential prices in Victoria are predicted to increase by 8% in 2010 and by 2% in 2011.

BCREA 2010 forecast (PDF)

I assume this news release will be reprinted in a TC article by Carla in Saturday's paper.

I wonder how Cameron Muir of BCREA can be so precise in his predictions. Maybe HHV should do an email interview and learn his secrets.

patriotz said...

So, you be the judge. Is this unethical?

Strictly speaking it's not unethical, any more than if the cleaning company owner or you or I made the offer directly. The agent is telling the owner what he thinks the property is worth and the owner has the choice of taking it or leaving it. The market evaluation is just an opinion. The agent has no business relationship with the owner and has no fiduciary duty to him. His duty is to the person who wants to buy.

But this points out the need for statutory restrictions on what claims RE agents may make, just like for investment dealers, as I said before.

Just Jack said...

Your too smart, Patriotz.

A lot depends on how the agent has presented his market evaluation. If the agent lists a dozen sales and then says: my opinion is this XXX.
You take it for what it is.

However, if the agent misleads the executor in to believing that this evaluation is unbiased and that he/she is acting in an impartial way and not being influenced by the prospective buyer. Then I think there is a problem bordering on fraud.

However, it is very very rare that an agent is sued for fraud.
Because, the agents errors and omission insurance does not cover fraud. Hence, no deep pockets for the lawyers to go after. So your left with negligence or misrepresentation. And that's why you will never see an agents market evaluation signed, dated or any adjustments that would infer an analysis was made to their sales.

Just a little hint for you prospective purchasers when an agent trys to baffle you with a list of "comparable sales"

patriotz said...

However, if the agent misleads the executor in to believing that this evaluation is unbiased

If the evaluation is made by the agent, it is ipso facto biased because the agent is representing the purchaser, and I doubt the seller would have much of a case claiming he believed otherwise.

The point is that it's a normal bargaining strategy for the buyer of anything to try to under-represent its value, and as I said the agent has no professional obligation to the seller.

IMHO of course.

patriotz said...

One more thought - flip the situation around. The agent is representing the seller, and presents prospective buyers with an inflated evaluation of market value. Would the buyer have any case against the agent if they claimed they paid too much? Not a chance.

This has actually gone to court south of the border.