Wednesday, February 3, 2010

Home sweet home


I grew up in Victoria. When I was a kid, think the 80s, none, and I mean absolutely none of the people I knew had a suite in their home. Sure there were a few suites around. But no one had to have one and certainly no families I knew relied on one to afford their home.

Times have obviously changed and it's almost as common to find a home with a suite in it as it is to find one that doesn't.

I won't write a long post about the trouble of tenants or the folly of purchasing a house that has been renovated sans permit to create an illegal suite. Or the financial insecurity caused through owning a home your family can't afford without rental income in a time of falling rents and rapidly increasing vacancy rates.

I will simply ask a question:

Will we see a time again in the coming years when a house with a suite is not the preferred choice of Victoria buyers?

BTW, this is post number 401 at HHV. On February 9, this little blog will have its 3rd birthday. Thank you readers for making it what it has become. I've enjoyed these last few years and look forward to whatever doors it opens next.

69 comments:

Just Jack said...

Happy birthday HHV's blog. The bears should buy you the beer this time HHV. Thanks for keeping the flame alive.
S2

Marko said...

"Will we see a time again in the coming years when a house with a suite is not the preferred choice of Victoria buyers?"

I would prefer a waterfront home in Uplands, at least 10,000 sq/ft, on 2 acres.

These days, people who can comfortably afford a home without a suite want a suite. It offers a lot of flexibility, you can use it as is or as a home office, you can let your teenager/young adult use it, you can let your parents or in-laws use it, or you can rent it out, and it improves resale value dramatically. They are now legal in the majority of municipalities and have their own electrical panel, heating, fire protectin etc. (New construction suites).

I think it is a great way of keeping rental prices affordable and at the same time helping home owners generate extra income. It also helps public services by providing a source of tax revenue for the government.

omc said...

I grew up in an area that was full of basement suites, surrey. They ruin neighbourhoods. Cars are all over the roads, schools are overcrowded and underfunded. You never know your neighbours and you can never enjoy you house. They force the prices up.

Vic said...

Agreed omc, they lead to a transient neighborhood where riff raff come and go. Same on the cars plugging up the street, try visiting someone in these areas and you have to park blocks away. How many actually claim the income ? Not many I would think.

Most people enjoy their own company and don't think of basement space as money. I think I would like my own basement to have a shop, rec room, etc for my own purposes not for some stranger. Landlords don't do criminal/psychological record checks.

Vic said...

Do we have a disconnect coming here ? I never looked too close at the numbers the other day in Vancouver but see Garth posted that "Listings last month up 40% from a year ago, and 139% from December."

Now ole V Town listings are down 24 per cent from January of last year and up only just over 9% from December.

Once the Olympics are over and reality sinks in, then any similar increase in listings here will start the meltdown no problemo. Batten down the hatches.

think said...

real estate in Vancouver is starting to fall apart now (no more predictions it is really happening) - I spoke with a real estate agent and he said sellers are piling on the listings at a rapid pace and the buyers are disappearing... he thinks the market is about to tank - big time! He said a lot of the owners from China are selling - due to credit issues etc... and the Canadians are selling due to debt loads and job losses.
The end is here, I can smell it.

Vic said...

thanks think, you can't have a monthly listing increase over 100% and not have a serious fallout. The China loan call effect will have a huge impact on Vancouver which will filter over here faster than you can say "happy owner".

caveat emptor said...

I was a long time basement suite dweller and now own a house with a basement suite, currently rented. From my own pretty positive experience I think the horrors of renting out your basement suite are overstated.

There have been a few hassles with fixing things for the tenant and a few times where she has made more noise than I would like. The noise ceased when I asked and was never obnoxious. So yes there are SOME hassles with renting. However the income from my day job also comes with hassles such as having to get on my bike rain and shine and ride to the office, having to spend 8 hours a day in front of a computer. If anyone knows of a reliable source of income that is totally worry and hassle free please let me know :-)

Th extra income from our suite is helpful, though not critical to our financial survival. In the future I might not rent out the suite, but rather use it for extended visitors (out of town friends and family).

P.S. some folks on this blog think Victoria is a very mediocre place to live. The constant stream of friends and family we have visiting from out of town, summer and winter would suggest that many don't share that view

Just Jack said...

Real estate as a means to an individuals financial success only started in the 1970's. Before, that what your great grandfather bought the home for was the same as what your grand father paid.

In the 1970's inflation made it necessary for the other spouse to take a job. Now the average family (and especially in cities) had two incomes and could afford more in payments and home prices went up.

Now we have basement suites which in affect makes the average city home owner have triple incomes, hence the prices have gone up.

And if it weren't for those damn child labour laws are prices might even be higher. (why can't a five year old operate heavy machinery)

The need for a basement suite could shift - if the vacancy rate were to increase significantly or if the economy tanked.

Windsor is an example of this. The tenants are gone and the spouse is unemployed. Real house prices are back to one income levels not seen since the 1970's.

A shift in our society from city dwellers to rural towns would do it. Also, an epidemic like the world wide influenza in 1918 that emptied the cities and real estate prices collapsed, the great depression of the 1930's, world war of the 1940's the oil embargo of the 1970's, interest rates of the 1980's; bird flu?, tidal wave? terrorism (ie Olympic snowboarder with a firecracker in his shorts), or the collapse of the financial system in the 2010's when people stopped paying back their bank loans (starting to happen in the USA).


Thank God, my office is on the ground level, if I had to jump the most I would do is sprain an ankle.

Just Jack said...

Caveat Emptor said:

"P.S. some folks on this blog think Victoria is a very mediocre place to live. The constant stream of friends and family we have visiting from out of town, summer and winter would suggest that many don't share that view"


Charge them rent - see if they will come then!

msr said...

Caveat,

Maybe you're just that awesome of a host :P

patriotz said...

In the 1970's inflation made it necessary for the other spouse to take a job.

Wages outpaced inflation until the early 80's. Married women started working because they wanted more disposable income or personal fulfillment. Essentially it was a boomer phenomenon and the first boomers started getting married in the late 60's.

The problem was that, as you said, once a substantial number of households had two incomes, they drive up house prices to the extent that only two-income households could afford them.

HouseHuntVictoria said...

^ Patriotz, does the mass adoption of suites then drive prices up to the point where only 3 income families can afford a house?

Have we established a "bottom" to the market based on a mortgage helper enhanced income much like a two income family bottom that was established in the early 80s?

PainInThe said...

Anyone who buys a house with a suite in Broadmead with an eye to renting it is in for a rude surprise when the neighbours turn them into the BCS and they have every right to eject the tenant or lien the house.

PainInThe said...

Suites happen to suck. As someone rich enough to afford a home without one, any large house with one is ruined as far as I am concerned, and I turned down hundreds when looking a few years ago. I do not need my live in maid to have her own kitchen or laundry, and the last thing I want to do after purchasing a home for three-quarters of a million or more is tear out a postage-stamp kitchen.

Which is why we eventually confined our search to Broadmead, as illegal suites are quickly reported and dealt with.

Prairieboy said...

Congrats HHV on your tenacity and longevity!

We may perhaps see the day when 2 incomes, not 3, are required to pay the mortgage. Beside, those 2 incomes may be one family member and the suite - allowing the other family member to be at home and raise the children. I kinda like this idea and know of friends who have done this.

The other required way would be rising wage inflation and stagnant or falling home prices. Future inflation is the buzz word these days. But how will this inflation be manifested? In everything but real estate? If real estate rises as well, we may not see the day of 2 incomes being sufficient - for a very long time.

Marko said...

"any large house with one is ruined as far as I am concerned"

That is not the feedback I am getting from any of my clients. Right now I am building a 4700 sq/ft home (worth approx 1 million) and buyer wanted a suite. Building another 3500 sq/ft home (value approx $900,000) and the customer designed his home with a suite.

I would say the majority of new homes which are on lots large enough for a legal suite are putting in suites or at the minimum leaving plumbing and electrical in. (I.e. in Langford if you have over 5900 sq/ft lot you can put in a legal suite up to 963 sq/ft)

I know by Echo Valley, homes with suites by far sold the fastest.

If you have a two-story home it is difficult to integrate a suite properly, but if you are on a bit of a slope and you can have three levels a suite is a no-brainer.

If you have an $800,000 with a suite your house is suddenly affordable to people who could only afford $600,000 without a suite.

Unless I was building a 2 million dollar home and had 2 million cash in the bank I would definitely put in a suite into my own house. $1000/month = not working 3-4 days a month, lease on a porsche, etc.

HouseHuntVictoria said...

Nice to see you around Prairie Boy.

Inflation and house prices rarely track one another over the short term. Just from rudimentary observation, inflation usually knocks down home prices over the short term because of interest rate pressure on prices. No?

olives said...

Happy Birthday HHV Blog!

Please continue to stay away from those common-sense-be-gone pills HHV :)

Basement suites suck. I work hard for my money AT WORK - my home is my sanctuary.

Vic said...

"If you have an $800,000 with a suite your house is suddenly affordable to people who could only afford $600,000 without a suite."


Under standard mortgage broker/banker lending rules they would need to qualify for $800,000 value with a signed lease in hand. The bank or mortgage broker would want you to be able to pay the mortgage if you got stung by the renter or the rental market went in the tank which by the looks of the adds these days there are plenty for rent.

My apartment has 4 units for rent for over two months now when it used to be a waiting list the last 5 years. The tide is changing fast.

PS If you have 4700 sq ft and had to rent a suite I would say they are over-leveraged or out of their head. Once I could afford a place that size it would defeat the whole purpose if I have to give up a third of it to a stranger. Might as well buy a 3500 sq ft and pocket the difference in house size. Makes no financial sense to me.

Vic said...

"$1000/month = not working 3-4 days a month, lease on a porsche, etc."


PPS Take the hundred and fifty grand difference and invest smartly at 10% and make $15,000 per year or just buy the Porche outright while saving your privacy and hassle.

Inglishmagor said...

Vic... I'm a bear sitting on my money until things return to reasonable. I have an issue with the counter argument to buying being putting your money to work for a 10% return. The best of the best financial funds can not return 5% over a long run. I'd be happy to give you my savings for a guaranteed 7% and you can keep the extra 3% you earn on it.

The 10% investment myth is just as false as the housing always goes up myth.

Inglishmagor said...

I knew I'd run across an article on realistic returns. Hopefully not too far off topic.


here

Vic said...

Inglish, sorry I'm not a paid pro but I would if I was and I'm not cheap,lol. I did say "smartly" not just dump in some useless index fund and pray, like most do. Funds rip you off 3% right off the top so no wonder 5's the best you can do. Most decent brokers will help you time your investments or help you do it yourself for a reasonable fee.


If you got the nuts to risk a million on a house in a bubble market then what's $150,000 in the market playing blue chips with tight stop losses ? I see less in the latter. I wouldn't have a ton in the market right now but there is always opportunity wether bear or bull. With a house you can only go one way.

Animal Spirit said...

any bets on the over/under for tomorrow's unemployement stats in the Labour Force Survey?

Last month's increase could be wonky data, or it could be an increasing trend. If it goes up much further I'd be getting quite worried for consumer confidence out here. The interesting data point will be when all of the post-Olympic layoffs (non-Gov't) and home renovation credit staff reductions occur.

S2/Just Jack - that picture is giving me the willies.

Starting to hear of a considerable number of permanent staff layoffs in Ministry of Forests - with bumping by more senior staff affecting other ministries.

Vic said...

"S2/Just Jack - that picture is giving me the willies."

I second it, self portraits should be banned,lol.



US jobs should be up on census hiring but could be some readjustment of past months,those are the ones I am concerned with.

Panza said...

JJ - you forgot about: the everpresent threat of an earthquake, destruction from outer space (meteor and/ or aliens) and the rapture.

Apparently it will not be caused by governor mark carney though, quoted in winnepeg yesterday:
"we don't see a need for structural change in the mortgage market."

http://www.reuters.com/article/idUSN0419521020100204?type=marketsNews

At the same time he reiterates that canadians should not to borrow beyond their means because rates are clearly going to rise.

Here kids! You can look at and smell the carmel apples, but doooon`t eat them......

Mr.4AM said...

Just in case the end of the Olympics, the current 3 income requirement to buy a house in Vancouver, the pending interest rate rises potentially slotted for Q3 2010 and a recent increase in sellers doesn't spark a real estate sell off, then here's a few other lingering possibilities:

* The current Global stimulus by G20's 'round the world will run out in 2010. Expect more stimulus at the cost of more government/tax payer debt to pile up. Massive stimulus now are no longer emergency enacted events; they are in fact required to keep the economies barely limping along.

* All the trillions in stimulus haven't done squat to address the jobless factor of this so called recovery, so more stimulus at best would only temporarily address any job concerns, but at the cost of a decade+ in higher taxes & higher interest for all.

* Venezuela & North Korea recently bit the dust with overnight currency devaluations in excess of 50%... not to mention the 60 Billion Dubai default that will resurface 'around April/May... These have turned out to be drops in the bucket, but still evenident headlner grabbing signals that all is NOT well.

* Greece's 250+ Billions of Debt of which huge percentages are held by foreign governments would be recipe for a massive sovereign debt default that would take the globe with it, if it were not for the likelihood of the European Union will bail them out (at the cost of Germany's own savings & a devaluation of the Euro by some 5-10%+ within a week)... tick tock, tick tock.

* Next add in the Summer 2010 ALT-ARM US Real Estate crash that is some 3/4 the size of the sub-prime fiasco, and watch the US real estate dive to all time new lows well into 2011 if not 2012. This will also translate to even more bankrupcies, less government tax receipts, and an even lower US dollar (that is unless the rest of the world falls and people run to the 'safety' of the US dollar that is about as valuable as Canadian Tire money.

* The big Kahuna event of 2010 though may very well be a credit withdrawl/collapse in China accelerating what will become a massive real estate POP there that will rob the US of successful T-bill auction funding to support their own ridiculous deficits... Well, unless the UK steps in again for China to pump up the US of A, though God only knows where the UK will find the extra few hundred billion this time around.

I think if we don't see another Global Financial Meltdown a la 2008 in 2010, then the probability only increases of this happening with an even worse impact in 2011.

All is not well my friends, not by a looong shot. The longer the government pumping, printing and pretending goes on, the bigger the global collapse will be... and at present it is on course to be a phenomal event ... 2008 was mere foreshadowing of what is to come.

And no Victoria real estate will not make it past 2011 without the beginning of a severe correction.

Mr.4AM

patriotz said...

inflation usually knocks down home prices over the short term because of interest rate pressure on prices. No?

The only kind of inflation that supports house prices is wage inflation. It should be self-evident that if wages are stagnant and consumer prices go up, house prices must go down, but not to everyone apparently.

Robert Reynolds - GBA said...

hey PB glad to see you around. hows things? I think we all owe HHV a birthday beer, you should come this time.

Dave said...

People build suites for all sorts of reason beyond just a typical rental. Some people have a live in nanny, want a guest suite for family, want a separate suite for their kids in the future, want a suite for their aging parents, or they just want to add value to the property.

As far as large house without suites... I bet more large houses have suites than small ones.

CD said...

Suites bring down neighborhoods. Before you needed to have a certain wealth to live in a certain neighborhood. Now, you roll up bear mountain/oak bay/broadmead in your falling apart Honda and part time job and live with the wealthy.

Just Jack said...

If you build it - they will come.

Vancouver is in some cases now allowing homes to have two (2) suites in the basements, and the City is contemplating to allow some of the new condo complexes to allow suites inside the individual suites.

Ironically, this is to make housing more affordable. What the city officials do not understand is human greed.

Robert Reynolds - GBA said...

via Garth,

avoid taxes. Stuff money into RRSPs and collect the massive deduction that does along with that. I can help you with that Slide all your investment assets inside the shelter of a TFSA this too so you avoid paying any more. Make your mortgage tax-deductible by selling assets, paying off the home loan, then reborrowing to buy the portfolio back Nope, can't help here, sorry. Stop collecting interest and start paying 80% less tax with the same amount of dividend income. Create a tax-free pension using universal life. I can do this too Use the homebuyer’s plan to leverage up a downpayment with tax money. Income split with your kids and recycle capital gains to them with a tax-free savings account. Use leverage to get money out of a RRIF free of tax.

All good ideas depending on your risk tolerance.

/end self pimp... its been a slow month so far.

Vic said...

"Now, you roll up bear mountain/oak bay/broadmead in your falling apart Honda and part time job and live with the wealthy."


So true. Would this not be a social status negative for the BM types who have spent millions just to own a lot ? Not something most wealthy people would want to endure when the trailer park renters invade paradise.


Speaking of BM,looks like Barrie has a buyer for the Lightning but he is somehow still a bit owner. Saved his bacon for now.

Vic said...

JJ,

your new pic just killed any hopes of some extra income on the side. ;)

Leo S said...

@Vic

Most people put it into some fund and forget about it, and then are surprised when they get mediocre returns (and are still carrying a lot of risk).

Basically, either you trust a fund and over the long term might do slightly better than a GIC strategy, or you pay an advisor (need to be lucky and smart to pick the right one. There is plenty of evidence that most advisors don't even outperform the market). Or you do it yourself, but the only way you have a chance there is if you're lucky, smart, and spend a ton of time on it. Even then there are no guarantees.

I don't know about you, but I have better things to do with my time than spend hours researching and worrying about my investments just to possibly have a shot at a few percent more return.

I just read Money Road, by Garth Turner, and he's obviously a big proponent of investing in the stock market. While I liked the book, there is nothing in there that the big companies aren't already doing, and doing 100x smarter than you will ever manage. It just fools people into thinking they can outsmart the market.

Now I'm almost through "Enough Bull" by David Trahair, who basically advocates only guaranteed investments. He makes a lot more sense. Right now GIC rates are low, but over the last 25 years they haven't trailed the average market returns by more than a couple percent (and fees eat into your market returns). Pretty good deal for 100% safe, and something you don't have to spend more than a couple hours thinking about every year.

Vic said...

"don't know about you, but I have better things to do with my time than spend hours researching and worrying about my investments just to possibly have a shot at a few percent more return. "


I totally agree, if I was looking to make 3% more or 10% annually, I wouldn't even be in the market. Thats why I play high risk stocks with less money on the table that can potentially return up to 400%. But you have to have the stomach for it and be able to know when to buy dirt cheap and have a system.


Working for that big payout takes time like doing any large business deal. If you would rather do something else than study the markets then by all means park it in a GIC and go golfing.

For me I love the hunt and the kill, with all the gut wrenching emotions chucked in but I only have to do it part of the year then I can sit back and golf. What I do is not for everyone by any means but I know many that make a killing at it when you are careful to buy it undervalued and unknown.



"While I liked the book, there is nothing in there that the big companies aren't already doing, and doing 100x smarter than you will ever manage. "


I beg to differ on that one. Infact that is why the big boys got killed a year ago. RBC was loading up on US stocks at DOW 14,000, the head financial guy told me that. I knew the game was over that summer/08 and proved to me once and for all the banks are as useless as crap on a stick. I even questioned the guy saying aren't you concerned the market is so overvalued ? and he said "they get paid big money to make smart decisions, they are the best in the business". Real smart alright,lol.

Large companies ( I assume you mean brokerages/banks) use the same charts and tools I do to predict new trends or discovering the next junior success story.

You never win on all of them but if you can bat 60% than they pay off much better than a GIC or bank fund by a long shot.


Now signing a mortgage for $300-600,000, is something it seems everyone is doing with nary a thought and that is one scary deal I would never make.

think said...

Vancouver market still appears to be shifting - tons of new listings and not much selling...I think same is happening here - I see TONS of for sale signs popping up all over Victoria.

Vancouver Stats...

Vancouver East & West*
Attached & Detached
as of: 02/04/2010
New Listings – 85
Sold Listings – 27
Back On Market Listings – 2
Price Changes – 15
Vancouver All Areas*
Attached & Detached
as of:02/04/2010
New Listings – 272
Sold Listings – 78
Back On Market Listings -12
Price Changes – 53
*Courtesy REBGV

Leo S said...

@Vic
"Thats why I play high risk stocks with less money on the table that can potentially return up to 400%"

Or lose 100% :)
But I realize I don't have the temperament for it. I wonder how long you can keep that up though. Of course 2009 was a great year to make awesome returns, but over the long run? Well if it works for you, all the best.

I wouldn't discount the large brokerages as stupid though. That smells like the statistic that 93% of drivers think they're better than the average. Like you said, they have the same tools and information as you.

Just Jack said...

Just for laughs.

I think that people thinking of buying a home should have to spend two nights a month at Lunds or Kilshaws auctions. And learn how to bid on items. Case in point.

A home in Fernwood was listed for 3 days at $600,000 and sold for $735,000. WOW you say, the market is hot hot hot. $135,000 over list price!

Well you've just be conned. The agent caused an auction environment by under listing the property to develop interest. Just like the auctioneer does.

Then by skillfully building excitement and increasing the price in increments the auctioneer is able to get the maximum price for the property or item. The main difference is in real estate you don't get to hear the bidding or how the bidding tapers off until you have two people punching it out at the end.

So, if your faced with this circumstance how do you beat the auction.

Well, in the case of real estate you simply - cheat.

You don't let the bids go up in small increments - you go high baby and I mean all the way to the moon!

Auctions starts at 600,000
first bid 625,000

second bid 650,000

your bid 850,000

You win!

Next day, you go to the bank and insist on an appraisal (your deal is subject to financing). The deal collapses and you go in with a new offer of $700,000.

The realtor trys to stir up action again, but the momentum is gone and usually the bidders are pissed at the agent.

If your going to swim with sharks your going to have to learn to bite back.

Animal Spirit said...

JJ/S2 that picture is more my style

Vic said...

"Or lose 100% :)"

Never happened to me, stop losses/pre-set loss limits take me out long before then, and is a rarity unless you did some bad homework. Remember you only need to lose 25% or so negative equity on a house and you risk losing everything.

Not saying all the brokerages are stupid,just the banks that used yours and mines money with no regard for overall risk. Last half of last year was great and the first half of 2008 and the previous 5 years too. You just need to know when the market sector or your investment is overvalued and get the hell out,just like real estate. The next fool will only pay so much. Valuation is the key to all.

Just Janice said...

From the Globe and Mail this morning had a story about how the big 6 bank want tighter rules on mortgages. Mostly out of fear for what might be done to other consumer credit products (ie. all the uninsured stuff like cars, credit cards and unsecured lines of credit) should a large housing downturn occur. I'd say if the banks are awake to the need for 10% down and 30 year mortgages - then its already too little too late. I would also guess that if given the choice between losing my house and losing my car, I know which would be going first...

They want the government to do the heavy lifting though with the rule change as there's too many small players who would still be willing to offer the less than stellar products to consumers.

Vic said...

Agreed Jancie, when do banks ever look out for anyone's interest but their own ? As well as trying to stop something they say isn't even a bubble ?

They have to be seeing serious signs of potential monthly defaults or credit increase denials to people with large mortgages/debt on their way down to Bankrupt St. which would not be public info.




"Mr. Carney, who said again this week that he too believes there's no bubble"


Carney wants to go down in history as Canada's Greenspan. Not a lable I would want on my career.

Just Jack said...

This certainly put Flaherty between a rock and a hard place.

The market eventually will tank, that's a given. It's a matter of when.

If Flaherty does nothing, which is going against the "big 6" advice, then when the market implodes he will be burned at the stake and indeed will labeled as the one who destroyed the housing industry.

Make a change to the down payment and risk stagnating real estate sales with a potential fall in prices and he will be the one most likely to be shuffled into a new cabinet position.

In my opinion, the best way to do this is try to deflate the bubble without popping it. First move would be to raise the down payment for owner occupied homes and put more restrictions on financing second homes.

I also think, that the market has to be slowed down in the processing of the mortgages. The ability to be approved for half a million dollars in financing while sitting across the table from a broker in under an hour is causing most of the problems. People need time to think. If Flaherty instructed that there was to be a mandatory "cooling off" period of 14 days between the time the offer is accepted until the financing is approved, this would allow the banks to do a proper due diligence and allow a prospective purchaser a way out of a deal that they may have felt pressured. No longer would the Realtor get the buyer to waive the building inspection or financing clauses and go into the deal with a no subject offer. This might be a winner for Flaherty and he would come across as a hero to the little people and would be battling the perceived bad guys.

You have 30 days to return a toaster - why not give 14 days for buying a home.

Vic said...

"If Flaherty instructed that there was to be a mandatory "cooling off" period of 14 days between the time the offer is accepted until the financing is approved, this would allow the banks to do a proper due diligence and allow a prospective purchaser a way out of a deal that they may have felt pressured. "


Great idea JJ, it would also stem the flow of these rigged bidding wars and see a few agents get their ass handed to them when the deal falls through and they have to relist it to reality while losing valuable time.

The previous bidding war losers would suddenly realize WTF was I thinking and back off on other bidding wars. I am sure there are many who have come out after losing out thinking that.

Scutinization of the quality bidder to qualify would be just like the old days, which was like 5-7 years ago ?

Marko said...

" half a million dollars in financing while sitting across the table from a broker in under an hour is causing most of the problems."

Have you gone recently to get $500,000? Things have changed dramatically in the last 2 years as far as lending practices go. I take out multiple mortgages per year and it has changed. I just took out a mortgage to finish a home in which I have over 50% equity and it took more then 2 weeks to get everything processed. Bank even wanted proof of purchase for 2 doors that were required for the lock-up stage of construction.

Your 1 hour thing is a complete myth, and than there is reality.

patriotz said...

As well as trying to stop something they (the banks) say isn't even a bubble ?

The economists at Scotia Capital have come right out and called a bubble in Canada. It was reported in the Financial Post.

Further confirmation of Canada's housing bubble

Call it what you want, but economists at Scotia Capital think the Canadian housing market is a bubble that faces downsides into next year – and the numbers continue to prove it.

[external link] Teranet’s measure of Canadian housing prices, the closest equivalent to the U.S. S&P/Cash Shiller Home Price Index, was just 0.1% off its all-time record high in November 2009.

“The gains are accelerating in recent months, and the December print is likely to firmly set a nationwide all-time record high,” Derek Holt and Karen Cordes said Wednesday."
----------------
I would not be surprised if Scotia is acting as the "designated hitter" for the other banks in going public.

omc said...

Marko,

I have heard that the banks are being harder towards builders, and in fact that regular mortgage customers are taking a bit longer to get approved. However they are just as reckless as ever when it comes to ratios. A co-worker was just told he could go as high as a $750k mortgage with a $90k income, as long as the house has a suite. i don't have to do the math to show that there is no room what so ever when the rates go up. The chances that the rates going up is pretty well 100%.

There is a new panic in the market now from people I know who are selling. They are being told from realtors they have to list now, or risk the bubble popping. Kind of the opposite from the "buy now or be priced out" BS we were dealing with.

msr said...

I like the idea of imposing a waiting period to slow down a growing bubble but I'm not sure that it would work to deflate an existing bubble.

Now, I think that a bubble can be deflated with some judicious use of market restrictions. But I wonder if any changes can be made fast enough to prevent a US-style implosion.

patriotz said...

But I wonder if any changes can be made fast enough to prevent a US-style implosion.

When Vancouver and Victoria are already among the top 10 least affordable markets in the world? Not a chance.

We may well see a 40% drop in 2 years a la 1982-83.

Vic said...

"We may well see a 40% drop in 2 years a la 1982-83."


Would be perfect timing in my books and very much probable under the circumstances. The post Olympic debt surprises are going to be brutal. Denial ain't a river in Egypt.

Vic said...

"I take out multiple mortgages per year and it has changed. I just took out a mortgage to finish a home in which I have over 50% equity and it took more then 2 weeks to get everything processed."



You can probably thank Len Barrie for that, looks like he and his group just dropped a cool $45 million on the low ball sale of the Lightning. I imagine the local banks aren't too warm and cozy with any builder/developer about now.



tampabay.com reports :

"Vinik on Friday signed a purchase agreement to buy the National Hockey League's Lightning, the St. Pete Times Forum lease and 5 1/2 acres around the arena for what is believed to be about $110 million. Exiting owner OK Hockey paid about $200 million in June 2008. "

Marko said...

"You can probably thank Len Barrie for that, looks like he and his group just dropped a cool $45 million on the low ball sale of the Lightning. I imagine the local banks aren't too warm and cozy with any builder/developer about now."

What does this have to do with any other builder/developer? I am positive next time Abstract Developments, Chard Developments or WestHill Developments goes to apply for a multi-million loan they'll say, "I am sorry, Len lost a bunch of money on his hockey team, we don't think your project will make it." Where is the rational in that?

olives said...

Just Jack - I'm not totally understanding the "over-bidding" thing - wouldn't your realtor let you know (before you put in the $850,000 bid) that the house would likely only appraise for $700,000? I assume that's part the "expertise" you are paying for....

patriotz said...

I assume that's part the "expertise" you are paying for....

The buyer isn't paying the "buyer's agent", the seller is. And therein lies the answer to your question.

Just Jack said...

Well Olives;

From time to time I drop in to the auction to bid on an item. It's quite an education watching the bids.

You can get an idea of how someone could over pay for an item, just because of the excitement in the room. The auctioneer, brings up the price of the item in small increments and this gets the bidders used to the newer price. If the auctioneer can keep the excitement high he can get people to overpay. It is not uncommon for someone to pay MORE at an auction than if they had bought it at a retail store. People just get caught up in the emotion.

But, what I've also seen in some of the regular bidders is that they know how much they are going to bid. Say $700 for a Beanie Baby. The auctioneer starts the bidding at a low low amount say $100 to attract a lot of bidders attention. However, the smart bidder jumps the bid from $100 to $600. Which scares the other bidders and stops the emotion being built up. He/she walks away with an item worth $700 for $600.

Take for example the property in Fernwood that was intentionally under listed for $599,000 to attract attention. All bids were to be presented in three days time at 6:00 PM.

The first bidder might start at $590,000 and the subsequent bids would incrementally increase the price. The emotion is running high and the agents are pushing the buyers. "Its only another 10K thats only $30 for the home you want - don't let someone else get your home!"

The smart bidder would have done their home work and figured out the market value. When the bidding began the smart bidder would immediately go high on the bid say to $700k
Which demoralizes the other bidders who just simply will not bid against a "crazy" guy.

Now, I don't like agents who create these auctions, I think their lower than a snake's belly in a wagon rut. But if your going to deal with them, you are going to even get lower than that - and I mean you have to cheat them.

The property say has a market value of $700,000. You intentionally over bid to $850,000 knowing full well that your bank will not approve the mortgage. What this has done is killed the auction before it had time to build excitement.

The next day you inform the agent that you can not get financing from your bank for $850,000 and can only get $700,000. Remember your offer was subject to financing.

The realtor is left with calling the other bidders back, saying that the deal collapsed and would they like to bid again. This time the agent is calling them to bid - the excitement is gone and cooler heads prevail. Some of these past bidders may not want to bid. The others who want to build are told that they have to start at over $700K when the day before is was $599K.

The realtor can not build excitement with other bidders if the opening bid is at full or near full price of $700K.

The end result is you don't end up over bidding on the property.
It's a dirty way to do business and best left to the Trumps of the world. Because, the only time that you can get a deal on price is when your the only bidder!

Vic said...

"Where is the rational in that?"


Let's see marko,if the banks think the market is at the top and their risk may increase bigtime then just maybe they will scrutinize builders incase they have any skeletons in the closet.

You think these big boys you named might not have other real estate/business investments that are problematic and might not be totally upfront about ? Don't be so naive man.

And the smaller guy like yourself gets the same treatment because past market crashes take guys like you out in a heartbeat if you are carrying too much cash at the wrong time.

Builders/developers are painted with the same brush in times of tight credit and risk of a crash. I'm shocked you don't get such a basic element.

Seems to me the Bay development almost went tits up til they downsized it and begged and borrowed much less because they couldn't cut the requirements. Where there's smoke there's fire marko, and you might end up being both pretending a crash can't happen here.

Marko said...

I said:

"What does this have to do with any other builder/developer? I am positive next time Abstract Developments, Chard Developments or WestHill Developments goes to apply for a multi-million loan they'll say, "I am sorry, Len lost a bunch of money on his hockey team, we don't think your project will make it." Where is the rational in that?"

You paraphrased this into

"Where is the rational in that?"

Solid arugement.

olives said...

Thanks for the explanation Just Jack. How common is that?

Just Jack said...

The real estate part is not common at all, Canadians are generally nice people and would not behave in such a manner.

However, when I worked in Vancouver, the boss I worked for bid on a apartment building on West 7th in this manner. And everyone in the office thought he was nuts. He got the building. But he did things like this. Another time he was leasing a lumberyard and the owner put the property up for sale and would not accept his offer. He called his trucks in on Saturday and vacated the property and broke the lease. The owner called him up screaming at him. He just told the owner - try and sell an industrial property without a tenant - now lets talk about my offer! And he got that property too!

Very few of us would ever think of doing such things, most of us would just be passive-aggressive and not bid. Years later I realized that my boss was a sociopath and paranoid but I think that most of the successful business people are.

He understood fear and greed and always worked these emotions in his favour.

HachiRoku said...

I was talking with a long time friend this morning and they mentioned that they along with 431 other employees were laid off from Shared Services last week.

I'm thinking we're seeing some more holes in the dike...which means it's only a matter of time.

Robert Reynolds - GBA said...

http://www.theglobeandmail.com/report-on-business/big-six-banks-urge-ottawa-to-tighten-mortgage-rules/article1458585/

HachiRoku said...

Anyone catch Murray Langdon's ad-torial on CFAX this morning?

I could not believe my ears. He's questioning how anyone could think we're in a bubble.

We're seeing signs of the economy recovering he says (with part time job creation replacing all the old full time ones). Canada has some of the most stringent lending practices in the world he says. We're not like the USA he says because we don't see people walking away from their houses. The CMHC says housing starts are up and how could that be if consumers could not afford it he says. Finally he says unemployment is moderate(?!?).

And since we're no where near bubble territory that's why the big banks are trying to persuade the government to pull us back from the brink...because We're Different Here ™

Double-Agent said...

Breaking News!!

There are a lot of upset people down at the board today. Most feel the government has no right to tell realtors how to run their MLS database.

Competition Bureau Seeks to Prohibit Anti-competitive Real Estate Rules

Double-Agent said...

This quote from the press release above sums up the government position.

BTW - Some agents think that this will allow more flexible pricing and that top tier agents will do well while the order takers will wither on the vine.

“Selling a home is one of the largest financial transactions that most Canadians make in their lifetime,” said Melanie Aitken, Commissioner of Competition. “Consumers should be able to choose which services they want to buy in order to facilitate that transaction, including lower-cost options. While the Bureau would have preferred to resolve this matter amicably, CREA’s leadership was unwilling to agree to changes that would have opened up competition, and offered options for consumers and real estate agents.”

Bob leftcoaster said...

Double Agent: Some agents think that this will allow more flexible pricing and that top tier agents will do well while the order takers will wither on the vine.

Fine by me if the Competition Bureau wants to cull the herd.

Mr.4AM said...

HachiRoku said: "I was talking with a long time friend this morning and they mentioned that they along with 431 other employees were laid off from Shared Services last week."

Yep, 'Shared Services' which provides IT, Real estate space, accounting, payroll and purchasing services for the government of BC will be consolidating 6 divisions into 4.

The question is, what percentage of these "431" jobs were in Victoria?

Mr4.AM