Monday, March 22, 2010

CREA president thinks you are too stupid to understand

Wow, Dale, just wow. The outgoing president of the CREA is having a bad time in the media lately. And today he made things worse.

Long story short, CREA opens MLS up to allow flat-fee listings by licensed realtors if the local member boards approve the changes locally. The Canadian Competition Bureau responds with "that's a step in the wrong direction" and argues it makes the marketplace less competitive not more (a position I agree with).

Picture this: Dale's having a press conference. The first question gets asked by a reporter about how the changes will affect the members of the CREA (individual agents and member boards like the VREB), Dale responds: “too complicated for anyone but a real estate agent to understand” and then storms out refusing to answer further questions. But not before getting in one last quip: "There's no point in me trying to explain, when in actual fact they make no difference in the way realtors operate their business and no difference to consumers."

And there it is in a nutshell: the CREA just doesn't get it. Consumers want change. The Competition Bureau is advocating for change. And even the outgoing president of the CREA says that the "changes" voted in today aren't really changes at all.

Tribunal here we come.

Tuesday, March 16, 2010

Yep, it's different here alright

Hat Tip to Rob Reynolds for links in comments of last post.

I'll just post the pictures. You should definitely read the full post here by Jonathan Tonge at

I'm still scratching my head at anyone who thinks this is A) sustainable and B) not a credit bubble. Buy houses people. Buy houses.

Sunday, March 14, 2010


I write fairly frequently here and usually fairly generally. I bring the perspective of a first time waiting to buy in a buyers' market to any discussion of the housing market. Many readers here already have or currently do own(ed) homes. I'm turning to all of you today for this discussion.

Recently I've been receiving e-mails asking for advice on specific situations related to home buying and selling. I'm very reluctant to comment on these, I'm not a pro, have very little in the way of "real world" buying and selling experience, and I'm not a financial professional either. To put it bluntly, you should immediately dismiss anything with the appearance of advice on this blog as biased, unprofessional and unsolicited.

But it's fun to play with scenarios, no?

So let's do some of that now. Here's the situation:

Condo owner (family, 1 school-age child) with no mortgage and a current market value nearing $300K.

Pros: paid off, very convenient location to work and school

Cons: Getting small for family, want to be in a house, see the market falling soon

The question: should we sell our condo and rent our next home while waiting for the market to correct and then buy a house?

This is the classic sell high, buy low strategy question.

My initial thoughts were sure, why not? Put your money where your "mouth" is and act according to your beliefs/convictions about the market. But that is terrible advice. We need to crunch some numbers, right?

Now it gets really complicated. Where to rent, what to rent, how much to pay, for how long - these factors all eat into the sell high, buy low "profit."

The owners mentioned they'd be OK with renting a townhouse. I've made some assumptions here: namely that renting a 3 bedroom townhouse will cost about $1700/month, the owners would prefer to maintain their location or move to a neighbourhood where they maintain similar proximity to work/school and that if they are OK with renting a townhouse for a couple or three years, they will be OK with owning and living in it for 7 or 10.

There are a few townhouses for rent in Victoria right now. Not many, but I suspect the new demand isn't high for these kinds of rentals. There are also a few townhouses for sale in Victoria right now. Again not many, but enough to know that these folks won't likely get caught having to spend more than they'd want on one. I capped my search at $400K.

I'm assuming that the owned condo sells in the next 30 days and nets the family a minimum $250K after all fees etc are paid.

In the interest of brevity, let's say the family's options are:
  1. Sell the condo and rent a townhouse ($1700/month) while waiting for a buyer's market (let's say 20% price correction in median SFH home price $561K - 20% = $448K)
  2. Sell the condo and buy the townhouse (let's say $400K purchase price, $150K mortgage at 3.8% 5-year fixed 25 year amortization = $782 + $200 strata + $125 ppt = rounded up to $1200 to get an even number and include some maintenance $)
  3. Stay in the condo, wait until they feel the market has dropped far enough then sell the condo and buy their house [25% condo price drop ($210K), 20% SFH price drop ($448K) new mortgage of $225K]
What would you do? We don't know if prices will drop to 20% or 40% or not at all. We don't know how long it will take prices to fall to these levels either. We don't know what the cost of borrowing money then will be. It gets very hard to calculate hard and opportunity costs in this scenario because of the unknown variables.

When we get specific, we see exactly why there isn't a flood of listings by sellers looking to cash out at the peak and waiting to buy in the next trough. Personally, I'd be thinking about cashing out and moving to a city with a median house price of $250K so that I could pay cash for my "forever home." But that's just me. What would you do in this situation?

Saturday, March 13, 2010

Hey Mayor Dean, 2 words for you

Ed Stelmach


Prediction: Victoria city council will not learn the hard way, not because the lesson won't be served, but because Victoria city councilors just refuse to listen and learn.

Monday, March 8, 2010

Getting serious, 20% change ahead

For all the talk from industry types, the government and the CMHC about no bubble, it seems the government and CMHC aren't walking the talk. I can't keep up with all the little announcements that on the surface look like business as usual, but for the mortgage consumer mean massive changes and massively less money available to them to overextend themselves on a home purchase.

Yesterday, you could walk into a mortgage broker's office and get the following:

Income: $85,000
Down payment: $25,000
Other debts: 0
Taxes: $2000

Interest rate used for qualifying: 3.5%
Amortization length: 35 years

Amount qualified for: $510,000

What it gets you: This beauty rotting away in the Swan Lake area.

As of today (or April 19, whichever comes sooner), using the same inputs as above, and following the restrictions, er, common sense guidelines of the CMHC/DoF, you poor lemmings who still want to buy a soon-to-be rapidly-depreciating asset will only be able to get this:

Interest rate used for qualifying: 5.4%
Amortization length: 35 years

Amount qualified for: $410,000 (yes that's a whopping $100K or roughly 20% LESS)

In which case, grease up your nails for this tired old condo sized house.

Yep, the times they have a changed. A twenty percent decline in prices is now just the beginning, not the end of near-term house price devaluation.

Monday, March 1, 2010

February 2010 stats

Via @timayres on Twitter:

Year over year numbers

Feb 2010 (2009 #'s)
Sales: 621 (403)
New listings: 1460 (1081)
Total active listings: 3280 (3844)

Sales to new listings ratio: 42.5% (37%)
Sales to active listings ratio: 19% (10%)

Month over month numbers

Feb 2010 (January 2010 #'s)
Sales: 621 (418)
New listings: 1460 (1205)
Total active listings: 3280 (2793)

Sales to new listings ratio: 42.5% (34.6%)
Sales to active listings ratio: 19% (15%)

Graphics courtesy of Double Agent (click for full size):

February sales to new listings ratio over past 5 years
Weekly sales to new listings ratios

Numbers are borderline bearish, but they didn't get more bearish in February, they got less so. There was supposed to be a collective pause in the market during the Olympics. We won't see if this was the case until next week or later (given the delay in reporting sales), but I suspect it didn't really happen. Until May, I see more of the same in this market. The numbers I will be carefully watching are listings, not sales. We won't see a slowdown in sales. We need a flood of listings; it looks like the waters are starting to run high, will the flood gates open?