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.


Marko said...

I was just pondering, if real estate fees were lower or non existent would the home renovation industry benefit?

For example, right now it doesn't make sense for me to stop my new home construction business and go into renos.

Why? Let’s say I want to buy a 60s Gordon Head home for $600,000 to renovate. On the initial purchase the realtors will take $21,000 + HST = $23,520

I renovate the home for $60,000 and now the home is worth $700,000, to sell the home the realtors will take $26,880.00

Obviously, under these circumstances I would never renovate.

However, take the $50,400 in commission away and this all of a sudden becomes very feasible. The house could theoretically be bought for $577,000 + $60,000 = $637,000. If I can now sell the home without a commission I will sell for $687,000 and make a $50,000 profit.

The original seller doesn't lose anything.

I stimulate the economy by hiring trades people and buying goods.

I make some money.

Buyer of the renovated home pays less.

Anonymous said...

HHV said:

April 2008 was the peak of that year. Will April 2010 be the peak for this market cycle?

No it won't... Peak of this cycle was December 2009. Average prices dropped for the last 2 months. I see this downward trend continuing due to new mortgage rules and rising interest rates. Now that the economy has improved the Feds have stopped pumping the market. There may be some months that bounce back a bit but look for a repeat of 2008.

As I keep saying:

Stick a fork in the Victoria real estate market. Its almost done!

BTW - sales in the outlying areas have slowed down. You can really see it north of the Malahat from Mill Bay to Comox.

CD said...

Double Agent: I think this was answered before but I couldnt find it. When is a house classified as sold on vreb? Completion? Or when conditions are removed? It has been about 5 weeks since they announced the new mortgage rules. It may be ramping up for a slight spring surge. The sales this week are pretty high. Thanks again.

Robert Reynolds - GBA said...

I didn't see this question answered yet
since 1% agent work on a fee for service arangement do they still get paid if the property doesn't sell?

Normal realtors will spend money marketing the property with hopes of selling it, should it not sell they are out of pocket. One of the reasons for justifying high commissions.

jesse said...

The CREA is asking for a whole boatload of trouble taking this path. Unfortunately with a member base who has vested interest in keeping a 90% market share -- a monopoly -- the status quo, they may have little choice but to fight to the bitter end.

MLS has a monopoly on the marketplace. People not wanting to employ a Realtor are blocked from fairly accessing the marketplace. Until that fundamental fact is changed the Competition Bureau's hounds won't abate.

Anonymous said...

Why are government mandated monopolies acceptable to the competition bureau but not private ones?

Anonymous said...


A house is considered "sold" when the offer (purchase and sale agreement) becomes unconditional. This happens when all subjects have been removed in writing by the buyer. The VREB & VIREB stats you see every month are based on these unconditional sales.

Agents are supposed to update the database shortly after this happens so that the property is removed from MLS and in user PCS accounts. This is a VREB rule but some agents are tardy. Up island VIREB agents are not nearly so quick to update the database and I have seen sold properties take months to be updated and removed from MLS. Not very professional in my opinion.

The date when money changes hands and title is actually transferred is recorded but not used for stats purposes.

Anonymous said...

CD said:

It may be ramping up for a slight spring surge. The sales this week are pretty high. Thanks again.

One should not place too much importance on one week of sales or new listings. There may have been a bump due to one office updating their files late. A better way is to look at the trend as HHV has pointed out in previous posts. Take a look at these two charts using the same data.

Sales & New Listings - Actual

Sales & New Listings - 4 week rolling average

You can clearly see the recent flat trend in the second chart.


Anonymous said...

Further to the last post.

VREB publicly reports stats once a month. What would the stats look like if the preceding 4 weeks of activity was reported every Monday?

Here it is: 4 Week Totals

Looks like sales and new listings have a flat trend while active listings are rising.

c said...

Double Agent--could you clarify--you said that 2010 is different then 2008 in that the current cycle peaked in December, as opposed to April in 2008. You then say of 2010, "look for a repeat of 2008."

I'm not necessarily saying there is a contradiction there, I just want to check and make sure I understand which part of 2010, will look like which part of 2008.

Anonymous said...


I believe 2010 will be similar to 2008 with one exception:
- Average prices peaked in April 2008 and began a downward trend for the remainder of the year. In December 2009 average prices peaked and have dropped for the last two months. Click here for pdf. So we started early in 2010 and I believe the overall trend is down for 2010 with the odd uptick month.

Similarities 2010 to 2008:
- There were 621 sales last month which is very close to the 619 in Feb. 2008. click here for pdf
- The # of MLS active listings at the end of February was 3280 versus 3311 in Feb. 2008. The trajectory of active listings is looking like 2008 as shown in the previous pdf link. My guess is that we will peak at 4900 in September.
- There were 1460 new listings last month. In February 2008 there were 1263 which is considerably lower. This means active listings have even more momentum this year.

When you add in the new mortgage rules (refinancing, rental income, qualification), predictions of rising interest rates and HST arriving in the next few months you can see buyers moving to the sidelines just like they did in 2008.

omc said...

It should be noted that a few prominent economists have linked the slowing trend of this year to 2008. I think one was scotia bank.

What I am seeing is price corrections, lots of them. It is almost like the market has slipped back to last year where the price and the house had to be right to sell; not like the winter where any old piece at any price sold. Can any of the realtors comment if this is their experience.

Just Janice said...

Maniac 78 -
The difference between private monopolies and public monopolies is that usually (but not always), there is a market failure that justifies the government having a monopoly in the area in question.

Classic market failures are as follows:
1. Asymetric information - one party has more knowledge than the other party.
2. Externalities - either positive or negative externalities occur when the benefits or costs of a decision do not all accrue to the person making the decision.
3. Barriers to entry - high costs to enter a market might prevent the market from being competitive. This might be the case for ferry service or highways, hydro-electric power, etc.
4. Public goods - these are things where my consuming it does not prevent another person from consuming the same good. A good example is a sunset or a public park.

In short a market failure occurs when the private production of a good or service is not at what would be considered the socially optimal rate.

Anonymous said...

Just Janice I think that really there is just a double standard like everything else in Canadian society. The fact of the matter is that Canada's socialism is a grand scheme to dupe the poor and stupid into giving their money to rich and powerful. Thankfully and ironically it benefits me in many ways.

allaboutme said...

Maniac78 et al

I think there is one common misunderstanding about competition law in the private sector. It is not illegal to achieve a monopoly per se. The laws are concerned with how you wield that monopolistic power. If the behaviour of a monopoly engauges in anti-competitive behaviour then the competition bureau may step in.

Anonymous said...

Carla at the TC prints her pumper article of the week..

Record home prices predicted, Victoria will outperform market

"It's time to reset price expectations for the Canadian housing market," Adrienne Warren, senior economist with Scotiabank, said at a conference in Toronto. "This was an exceptional decade for pricing."

However, urban areas such as Victoria, which attracts retirees, and Vancouver, a destination for immigration, will "probably be outperforming markets over the next few decades, just based on those demographic trends," Warren said.

Same old "boomers are coming in droves" line which has been disproven by VREB surveys many times.

Just got back from a trip to the prairies and all people are talking about is buying winter homes in Arizona. Not one mentioned BC.

Just Jack said...

Retirees may want to come here, however the stats show that buildings that have age restrictions sell for less than buildings without.

One could therefore assume that retirees do no want to live around other retirees OR the retirees explanation is bull manure.

Where does this Scotia Bank economist get her stats??? Because I want to get them too!

The neighborhoods such as Oak Bay, Brentwood Bay and Sidney which are the major retirement areas have had zero or negative population increase. While Langford and Colwood have exploded in population - but these are young family neighborhoods.

If you're going to retire in Victoria - you better have deep pockets and no arthritis. I guess this leaves the rich asthmatics. We should change the name from the Garden City to the Pacific Bone Yard. Condo towers should have names like the Wheezer and the Geezer.

From 1970's hippie town to the city of the hip replacement in 30 years. Yes, I will leave my car signal light blinking for the next 10 KM along the Pat Bay Highway in support of our new city status.

Vic said...

Carla fell off the wagon again,too much RE agent/banker pumper talk has gone to her head. Three decades out too ? Wow, Nostradamus works for Scotiabank now. Such a quality rag trying to put lipstick on the pig.

I predict in three decades that Victoria will be the capital of the world and Pamela Anderson will be premier. ;)

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

Buying houses out of fear they will never be able to buy. What a concept. How come Carla misses this important article from the front page list of the Sun to steal quotes from ? Fear is not allowed in the TC, only the blind and brainless.

Canadians worried about home prices, mortgage rates

OTTAWA — A pair of surveys on housing prices released Wednesday show that many Canadians are worried about rising prices and interest rates, but that is not stopping many from entering the housing market sooner, or taking on more debt than they want to.

According to a new BMO survey conducted by Harris-Decima, 71 per cent of current and future homeowners think house prices are too high and 33 per cent complained they have lost sleep due to the stress of trying to buy a new home. However, it was exactly this feeling that housing prices might spiral out of reach that has led first-time homebuyers to feel pressure to buy homes sooner, with one-third saying talk of rising house prices and rising interest rates have influenced their decision to enter the market. The online poll of 1,000 Canadians aged 25 to 45, who are either current homeowners or are planning on purchasing their first home in the next 12 months, was conducted from Feb. 16 to 22.

Anonymous said...

Get ready folks... Carney hinting that rates may rise before the summer due to inflation concerns.

Higher interest rates could be coming: Carney

OTTAWA—Bank of Canada Governor Mark Carney hinted today that it might be necessary for the central bank to drive up borrowing costs sooner than expected in an effort to cool inflation.

“The bank has an unwavering commitment to price stability,” he said in a speech to the Ottawa Economics Association.

And today Carney left the door open to revise his low-rate policy, reminding Canadians that the pledge to keep rates at rock bottom was always contingent on tame inflation trends.

That commitment “is expressly conditional on the outlook for inflation,” he reiterated in his speech.

Vic said...

If March numbers come in flat there will be no record prices as reported via Scotia's crystal ball. Any further inflation increase signs in the next 30 days could cook the goose for good.

The headline today should have said "Market headed lower after July interest rate hikes", but that would have meant responsible & honest journalism.

Robert Reynolds - GBA said...

I think come July we will see a quarter point rate bump if only to say "see look we kept our promise not to increase rates"

Then the BoC rate will sit at 0.50% until the cows come home. We have already had a ZIRP for over a year, I see no major change coming in the future. Then again I have no basis for this other than rampant speculation ;)

omc said...

Well, here are a few more of my observations on the oak bay market. It is definitly going down.

There is a small street called runnymede place where 3 similar homes sold recently (1950s ranchers with baasements). The first one was orriginal, washing machine in the kitchen type of orriginal, and sold for $720 in Jan. The agent admitted it was well over priced and it really needed absolutly everything.

The second had been updated, but not recently. It had a larger lot {11k vs 9.8k sgft} and sold for $739 in late FEb. The house was miles better than the other one, it would have cost more for just the elec upgrades.

Well the third similar house just got lowered to asking of $748, but it is in far superior condition to either of the other 2. Windows, insulation, roof, elec....all done.

People I know who are selling are telling me it has got very quiet

Vic said...


Do you know how close to assessment those places are listed for ?

Animal Spirit said...

Interesting - SFH listed in Victoria up from 38 on March 1 to 68 March 24. A 70% gain in listings at the (current) lower end of the market. Very little listings gain at the higher end.

Too early to tell a trend, however this could be an early indicator of the FTB moving to the sidelines (or there only being a few economics wonks like me left as potential buyers who refuse to buy based on emotion and instead look at the facts).

Animal Spirit said...

post above should have read SFH between 450 and 500K listed...

Anonymous said...

OMC & Animal Spirit,

I am seeing a lot of listings coming on the market in the areas outside Central Victoria - Sooke, Sidney & Malahat. In the last few weeks there have been quite a few price reductions.

I have also heard from agents about some deals collapsing due to financing issues. I wonder if the banks are already using the new mortgage rules to qualify buyers.

Robert Reynolds - GBA said...

I've been seeing lots of itty bitty price changes on my PCS lately.

MLS 273232
Feb 12 - $599,900
March 25 - 594,900
down 0.83% pft!

MLS® 274433
March 8 - $535,000
March 23 - $525,000
down 1.8%

MLS® 275006
march 15 - $614,900
march 22 - $599,900
down 2.4%

MLS® 274670
march 11 - $620,000
march 22 - $599,900
down 3.2%

Also, is it just me or is everything under $600K junk?

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

anyone know the story on this place

1942 Birch St.

It looks like a crack/squater house but the lot looks huge and the land has to be valuable. Why is it just rotting?

Same thing with the abandoned "Ians Coffee Shop" building next door.

What gives?

mln said...

CDN 5-year bonds just hit a 17-month high. Link

omc said...


Those houses aren't really near assesment. The first one that sold had an assesment of $650k and the other 2 are $675k. They are prime 1/4 acre lots in south OB though.

I am not pointing out a buying opportunity, but I am not doing a good job in making a point. The first house to sell at $720 was essentially a POS where someone passed away. It needed absolutely everything (the clothes washer was in the kitchen). It was shabby, run down and the next door larger house loomed over it in a way that you would get no privacy. i would have seriously looked at a bull dozer. The market was so over heated at that time that the owner held out for $720k and got it.

The house that sold only a month later had a bigger lot and many of the expensive updates done. It isn't modern, but very livable. They got only $19k despite the structure being worth considerably more than the other one (which was right across the street). The house didn't sell right away.

The one on the market now is one door down from the $720k house, and is easilly the nicest of them. It has been on the market 23 days and they are making large price corrections. The house is easilly worth over $100k more than the first house that sold on that street, yet will probably sell for the same or less.

Look at the other listings in south oak bay and there is a definite down trend. Look at the house at 722 Island; it started at $925 and it looks like they won't get $800k now. There is just so much more on the market.

i personally know of 2 houses where the financing collapsed the deal.

c said...


I believe that shack on Birch is owned by the same person who owns Ian's coffee shop/Turners. Apparently they are of that classic breed of Victoria commercial property owners who refuses to sell--holding out for who knows what. A shame too, I think that the Turner building could be made into something quite interesting...

Anonymous said...

mln said:

CDN 5-year bonds just hit a 17-month high

Carney went out of his way to remind people that the days of emergency low rates are almost over. Markets are reacting. Bankers Acceptances (short term rate) are on the move too.

Graph BA rates

Full story on rates and how they will affect mortgages here..

Carney Moves Rates

Bob leftcoaster said...

Have any of those 4 lots on Runnymede Ave (and Foul Bay Ave) sold yet? I remember the sign listing each for $593k. ...what a deal!

While they were tearing down the original house, we were debating if 2 or 3 houses would replace it. How foolish of us!

Robert Reynolds - GBA said...

Bob, I drove by that lot this morning, 2 have sold.

The lots are postage stamps!

@C I also think that the "Turners" building could be a great place. Wither hipster lofts, or funky little restaurant catering to the hospital or any number of other ideas. I remember when I was little probably going into Ian's Coffee Shop and getting a sandwich. I still have fond memories of that little place. I think I also saw an article in Uvic's Martlet newspaper a few years back on the building.

kabloona said...

Meanwhile, in other news.....

HSBC Bank takes control of Bear Mountain

By Edward Hill - Goldstream News Gazette

Published: March 25, 2010 3:00 PM
Updated: March 25, 2010 6:12 PM

Bear Mountain Master Partnership announced today that it is under creditor protection while it seeks a repayment deal with its major lender, HSBC Bank Canada.

HSBC was granted its petition for creditor protection today in B.C. Supreme Court in Vancouver. Creditor protection allows HSBC to hold off other creditors from taking action against Bear Mountain.

"After careful consideration, the Bear Mountain Partnership agreed to not oppose the application of HSBC to place the resort under (creditor protection), whose support is required to allow operations to continue,” Bear Mountain president Len Barrie said in a written release Thursday. “We remain optimistic that our present negotiations will allow us to reach satisfactory arrangements with HSBC and move forward with the remainder of the development at Bear Mountain.”

Court documents show Bear Mountain – which includes the Bear Mountain Master Partnership, Bear Mountain Development Holdings, 18 on 18 Developments and Bear Mountain Resort Management Corp., among others – owes HSBC more than $250 million.

In its petition, HSBC said it also loaned Bear Mountain $25 million since it started defaulting on payments.

“It is now clear that the Bear Mountain Respondents are not capable of paying (HSBC Bank) or managing themselves out of the difficult situation they are in,” the petition says. “(HSBC) has lost confidence in the ability of the Bear Mountain Respondents to successfully run the business ...”

Anonymous said...

More on the saga at Bare Mountain...

Times Colonist article:

Barrie ousted as Bear Mountain CEO; partnership placed under creditor protection

The Bear Mountain Master Partnership has been placed under creditor protection and Len Barrie removed as its CEO.

Vermette said that Barrie can’t be part of the restructuring. “He no longer has the role of CEO. That’s court sanctioned,” he said.

The interests of Bear Mountain will be represented by Robert Holmes of business restructuring firm Prowis Inc. Holmes was appointed chief restructuring officer.

“It’s a court-imposed role that essentially replaces executory powers of the company, including the roles held by Len Barrie,” said Vermette. The Bear Mountain Master Partnership executive committee that acted like a board of directors is also gone.


Robert Reynolds - GBA said...

Just heard the bear mt. Story on CBC radio

Vic said...

Barrie ousted as CEO has got to be a major stinger to his ego. Something was coming with the never ending delays. You have also to wonder what else will come out of this with the reports of shady money transfers.

The spinmeisters are out in full force to paint this pig as a "good thing". Creditor protection is never a good thing, it means major problems. They even have some junior RE agent on there spinning it as a positive. What a joke.

I believe I called it back when he borrowed the $100 million plus for the Lightning that HSBC would come back to bite him in the end. Way too much greed going on there but all bubbles end with disasters like these.

I see the Radius has to downsize their project,couldn't be the effect of big money boys feeling the pinch ? nah, never.

Anonymous said...


Here is an update on the Radius and Hudson Bay condo projects.

Times Colonist Article - click here

Townline Ventures has a new plan for the Radius site-- the large hole at Blanshard Street and Caledonia Avenue -- featuring a lower-density mixed use development than earlier planned.

"We are going to be meeting with the [city of Victoria] planning department next week with some new thoughts about our plans for that site," he [Pearce] said yesterday.

At the same time, Townline is gearing up to finish the 152-unit Hudson condominium at Douglas, Fisgard and Herald streets in five months, and to resume marketing in late April.

Townline is aiming for an occupancy permit by August, when the first owners will move in.

One wonders if they will have the same fate as the Bayview in Vic West. High priced units that have been on the market for years.

The big hurdle for condo sales now is the new CMHC requirement for financing non-owner occupied properties. After April 19th the buyer must put down 20% cash instead of 5%. This will kill the speculator and investor market for these units.

Vic said...

Thanks Double Agent. I have to agree on the Bayview angle, and those places are in the prime part of Victoria on the harbor.

This project is on the edge of junkie town with no grocery stores within a few miles in either direction. They still have to go through City Hall for changes too,that will be a treat.

Vic said...

As predicted, BM is in some serious doo doo.

Bear Mountain debt exceeds $300 million

Lenders paint bleak financial picture

HSBC claims Bear Mountain has been defaulting on payments since 2008 and the bank no longer has confidence the partnership can make good on its outstanding debts

In an affidavit, CareVest Capital CEO Richard DeGroat noted his company lent Bear Mountain more than $41 million, which was secured by a first mortgage on 74 lots within the development.

DeGroat said he had been in discussions with Bear Mountain about CareVest taking back the lots to satisfy its claims against Bear Mountain

In his affidavit, Wesley Roitman, managing partner of Romspen Investment Corp., said his company lent Bear Mountain

$16 million, half of which was to be used to build an office building at 1330 Bear Mountain Parkway, with the rest for operating funds, including $5 million to pay debts owed to HSBC.

Roitman said the loan is in default, since no payments have been received since April 2009.

He said the company was about to begin proceedings to recoup its losses six months ago, but was persuaded by Barrie and other Bear Mountain representatives that a refinancing or sale of the development was imminent.

The company held off until about a month ago, Roitman said, "as we are of the view that no refinancing is forthcoming."

Just Jack said...

In Canada, one of the largest countries in the world and a population of only 34 million people, housing is now for the wealthy only.

In Victoria, an average home now costs $600,000. And that home is a 40 year old basement entry house in a middle income neighbourhood like Gordon Head.

If you were to save 10 percent annually of the median income of the typical Victoria family it would take a family 70 to 100 years to buy that home. To put in another way, by savings alone it is not possible to purchase a home in the 50 to 60 years of a typical persons working life.

In contrast, one decade ago it only required 25 years of typical savings to buy a home.

As only 3 percent of the Victoria housing inventory is sold each year, homes have become a commodity to be traded by the wealthy in a bizarre game of monopoly. A game where to be invited to play, you must mortgage your future at the cost of all other future opportunities that present themselves over the next 35 years.

The price is high - the cost is even higher.

mln said...

Check out this post from VREAA:

Cliffnotes: Buyers with $43K incomes who could qualify for a $460K mortgage based on $1000 on suite income will only qualify for $230K under the new rules.

Olives said...

Interesting video.

I've never understood why suite income is allowed at all to be used for qualification if the suite is illegal (ie. Saanich).

Vic said...


It never used to be unless it was:

a. legal

b. you had a signed one year tenant lease with their employment history.

And it would still be up to the broker's/bankers discretion wether he liked your risk profile as to wether you could cover it if the renter walked.

Along with sketchy self employment history and other weak employment track records, all the key ingredients to responsible lending and borrowing rules were chucked out the window as the market peaked. The lenders knew the sales numbers would tank 3 years ago if they did not quietly slack off the requirements.

Now they are only making rules for rules that were already there in the first place. That's what makes this Flaherty bubble such a complete joke. It was/is all about sales and political bragging points, to hell with lending responsibility.

Vic said...

Good article in the Globe. Same goes for the local media pumpers.

Tone down the real estate speeches

Too often, the industry fuels a false sense of urgency
But there is something awfully dangerous about a market that rises so steadily for so long with so few sustained bumps. The recession-induced housing slump of 2008-09 was too short to have a lasting impact on the Canadian view of real estate; it was only a year before average prices were again breaking records. Now, it's like the correction never happened.

Nationally, it has been 15 years since annual home prices took a meaningful hit. Victoria hasn't had a sustained correction in 25 years. In Ottawa, any dips have been so modest that it feels like an unbroken streak of rising prices going back at least three decades.

A funny thing happens to people when an economic or financial trend holds in place for a very long time. They begin to assume that “a long time” equals “forever.” You can see this clearly in the U.S. Its home prices hadn't declined on a national level since the Great Depression, so buyers and rating agencies assumed they could never go down – until they did.

And though the case for a real estate bubble here is not clear cut, one can't help but wonder if Canadians are falling into a similar complacency trap. How do agents play into that? Too often, by fuelling a false sense of urgency.

PainInThe said...

Sorry if this has been posted, but it's fantastic! The days of suites ruining big houses are OVER.

Good-bye Suites!

Watch for HUGE price drops on ruined houses and big houses in general.

Just Janice said...

What - you mean the big houses will be desireable for those who actually need a big house (ie. families with kids???)?

Great news! When we buy we'd like at least 5 br (3 kids, our room plus a guestroom/den)...and I'm guessing it'll be a couple years yet before we do...

jesse said...

"housing is now for the wealthy only."

OWNING is for the wealthy (and recently the not-so-wealthy who aren't afraid of massive debt).

Housing is for everyone -- even the poor -- if you don't mind renting.

Just Jack said...

My understanding of the brokers video is this:

The old CMHC rules encouraged speculation. People were being qualified by offsetting the mortgage payment which had an affect of artifically lowering the interest rate Hence, the person would qualify for a staggering mortgage.

Under the new rules 50% of the rent is "added to" the applicant's income. Which places the person buying a home with a suite on more level playing field than a person buying a home without a suite.

The reason most people can not see this titanic financial iceberg is that they are too close to it, and are blinded by the white landscape.

To me this is a major and probably the singular most important piece in the puzzle, that I was missing in understanding "where are these people getting the money". And how brokers could get applicants more money than the major banks?

Anonymous said...

These new rental income rules are really going to affect buyers looking for a house with a suite. They will qualify for a much smaller mortgage under these new rules. Add in the requirement to qualify using a five year fixed rate instead of 3 yr. rates and the buyer pool will be shrinking for sure.

What about condos? In recent years many of these have been bought for speculative or investment purposes. Now the buyer will have to pony up 20% down instead of 5%. On a 300K condo that means having to come up with 45K more cash after April 19th. Developers with current inventory and projects underway must be concerned.

BTW - The new rules are already in effect with many lenders and brokers. They have to have all their computer and paper systems ready to go April 19th so many are already making the changes now in order to avoid transition problems. And after April 19th all those pre-approval letters will be subject to revised CMHC mortgage loan qualification. Only the rate hold will be honoured by the bank.

Anonymous said...

Len Barrie should have talked to this developer last year...

TC Article on Savvy BC Developer

Langford's Bear Mountain Resort is one of several large B.C. projects to face financial woes in the recession, said Nielsen, also president of Landcor Data Corp. Bear Mountain Master Partnership was placed under creditor protection this week, a move that also unseated Len Barrie as CEO.

"My suggestion to any developer is to sit tight until things start picking up a bit. All my subdivisions -- I put everything on hold ... I'm just hunkering down," Nielsen said.

Despite indications of an improving economy, Nielson is not doing any development until the market is stronger.

Nielsen says credit is hard to find and fewer Albertans are buying.

"The financing on most of these projects is very, very expensive. Pretty soon, you've got no more credit line."

The Edmonton and Calgary markets, which used to bring $2 billion annually in sales to B.C., has dropped off to probably $500 million, Nielson said.

Vic said...

That video just goes to show how two people working at McDonalds could own a $460,000 shack with a suite and explains how the mania the last few years has pushed prices to the brink of collapse.

Now we have the catalyst this town needed with a dose of "developers on roids" tossed in to make people use some brains for a moment. BM will be considered toxic for a long time as lawsuits could drag on forever and that is a serious deterent for most buyers and supposed saviors. Smart businessmen will wait til the vultures are circling the carcas before making a move.

jesse said...

"These new rental income rules are really going to affect buyers looking for a house with a suite."

Are you sure? This rule only affects CMHC loans, which add secondary suite income only if the suite is legal. If the suite is illegal, even under current rules, they will not use it. I don't know what the private mortgage insurers do currently.

If CMHC insurance is not required, lenders will most likely continue to use suite income at around 70% offset, same as before.

Anonymous said...

Jesse said:

If CMHC insurance is not required, lenders will most likely continue to use suite income at around 70% offset, same as before.

This is not necessarily true. According to this mortgage professional

So many would ask, why does this matter anyways if after April 19th we will now need to put down 20 per cent when buying a rental property? Doesn’t CMHC insurance no longer apply once we put 20 per cent down?

The answer is not that straight forward. In Canada mortgage insurance is mandatory if less then 20 per cent of the property value is being provided by the borrower. However, many lenders still insure rental properties, and even owner occupied homes, with CMHC even when applicants provide 20 per cent down payment. Often times this goes on behind the scenes and the borrowers may not even be aware of this because the lender will pick up the tab for the insurance.

So why would they do this? It comes back to the liquidity issues facing lenders these days. It is considerably easier for investors to get on board with insured mortgages then uninsured mortgages, so many lenders now insure behind the scenes in spite of the size of down payment provided to keep investors happy and money flowing.

PainInThe said...

It comes down to this: just like in the US, banks are no longer going to be in the business of lending.

They're going to be in the business of SURVIVING.

K. Shawn said...
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K. Shawn said...
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Mr.4AM said...

RBC, TD mortgage rise link here

Mr.4AM said...

and here

Just Janice said...

That 0.6% on the 5 year posted rate just decreased the amount one could qualify for by about 5.5% and increased the amount per $100,000 borrowed (35 year am) by 7.4%...

Add the HST and the new rules...I would hate to have just bought into this market last month as it doesn't look good going forward.

Anonymous said...

Just Janice,

Interesting point about reduced qualification limit. I ran the new numbers through the TD mortgage calculator.

Assume 100K household income, 2500 in property taxes and 1500 annually in heat. We get the following as max. mortgage limits starting tomorrow.

Posted rate of 5.85% - 420K
Old posted of 5.25% - 451K

New 5 yr. disc. rate 4.35% - 505K
Old 5 yr. disc. rate 3.75% - 555K

Starting April 19th any term under 5 years must use the 5 year posted rate for qualification purposes. This will force most buyers in Victoria to take a 5 year discounted rate and they will have 50K less to spend if they were basing their purchase on the maximum loan they could get.

I wonder how VREB and the Times Colonist are going to spin this into now is the time to buy...

Anonymous said...

Follow up to last post. Let's say you are one of the happy owners with a variable rate mortgage around 2%. When fixed rates started rising you were planning to switch. Big shock when your mortgage broker calls today.

Lets assume the fine print in the mortgage allows the owner to switch to a discounted 5 year. On a 500K mortgage here is the bad news.

Current variable at 2.25% - $1721

New 5 yr. disc. rate 4.35% - $2308
Old 5 yr. disc. rate 3.75% - $2130

I imagine most people won't switch because they can't afford the increased payments and will live in denial about rising bank rates. When Carney pulls the trigger in June the lender will call with the first of many increases to the variable mortgage payments. Expect more listings in the fall than usual.

Vic said...

"I wonder how VREB and the Times Colonist are going to spin this into now is the time to buy..."

They have an unauthored dogs breakfast/cut and paste article using old quotes from the Scotia person with an underlining heading of "higher prices expected" mixed with varying opinions from mortgage brokers as well a one cut and paste quote cut off two words into the sentence. Just the usual low quality TC journalism.

Reid said...

For the first time in my life we are about to experience the combination of a policy change that will restrict mortgage capacity and higher interest rates which also restrict mortgage capacity. Bears do not have to wait until July 20th (BoC meeting) to celebrate higher interest rates as most FTB will be forced into the five year rate (now at 4.35%) which are now 260 basis points or 150% higher than the typical variable mortgage rate of 1.75%.

My research over the years shows a 95% correlation between mortgage credit capacity and BC home prices. Mortgage credit is about to see a major reduction, especially at the entry level and this will negatively impact the real estate market in Victoria. We may see a buying frenzy here over the coming 30-60 days, but then it will turn. My guess is that we will see a slow downward trend, but it will be a downward trend. I suspect reality will start to settle in this fall, when listings hit seasonal highs, sales are way down from 2009 on a month to month comparison and we are about the enter into the very slow winter sales season. Next winter may the first time low balls will start to work again, but I suspect you would be prudent to wait a few more years as I see little to bring prices back up once this trend has become obvious to the masses.

Vic said...

After reading the Condo Cowboy story on Garth's blog, you have to wonder how long til the media here picks up on similar stories of the sheeple who are now underwater on a condo pre-buys from two years back. There has to be some out there in Victoria in the same boat. Then again the media here would not want to print a story on reality.

Vic said...


If we see the March prices come in flat or down on similar sales then this pig is about to pop now, not in a few months. There is no way you can suck in all the sheep with a three month price decline and saying to the masses "get in now while you can". Sooner or later the slowest of the bunch will back off and decide to wait.

CD said...

2010 2009
Net Unconditional Sales: 690 602
New Listings: 1,504 1,216
Active Listings: 3,617 3,859

Impressive increase in sales this week. Is this the rush we have been waiting for? Over two hundred sales from last week. Could it be all the winter hunters finally winning bids since the inventory is increasing.

omc said...

Boy what a day, it's kind of like waking up when you are ten and it's your birthday, but you didn't know it. If you look up the 2008 data you see that it took a 1.2% increase to pop the bubble. WE ARE 1/2 WAY THERE! Add in the new rules and we might be done.

I was reading that cobbled together TC article and what really stuck out to me was how people are so worried that the FTBs cannot buy houses with suites. You mean you can't buy it if you can't afford it?

Anonymous said...

Vic said:

They have an unauthored dogs breakfast/cut and paste article using old quotes from the Scotia person with an underlining heading of "higher prices expected" mixed with varying opinions from mortgage brokers as well a one cut and paste quote cut off two words into the sentence. Just the usual low quality TC journalism.

I went looking for the TC article you referenced. Here it is - what a cobbled together piece of shoddy reporting. I am sure they will patch it up before print time with a few local realtor quotes and a bit more local RE pumping.

Mortgage rates on upswing, five-year rate up to 5.85 per cent

Reid said...

Vic, it is hard to assess exactly what will happen month by month, but my experience has shown that unsure buyers panic and buy when interest rates rise as they want to lock in before their pre-approvals are toast. The fact that these same buyers are being forced to lock into five year mortgages leads me to think the coming weeks are going to be busy. I may be wrong, but that is what history would suggest.

But it will just be a matter of time before sales volumes do slow. After six months of slower sales reality will start to present itself and then the TC spinning will start to get much harder to pull off.

omc said...

There is one thing different about this time though; it is my understanding that preaprovals are not honored if they don't meet post April 19 criteria.

CD said...

When it comes to a sense of urgency. Everybody that is trying to beat rate increases, HST, mortgage deadlines should be out in force looking now. Who is left? We have been in a real estate boom for 8 years. We even had a second wind which triggered a bunch of fence sitters to jump.

How many urgent times have we had? Removal of the 0/40 mortgage, increasing rates of 2008 - at that time generation low rates, current generation low rates, new mortgage rules, HST?, olympics.

Reid said...

omc, most of the April 19th buying is over now as people have to close on their home by April 19th (little more than three weeks from now) and most transactions have more than three weeks from offer to close.

I still think there is going to be a seperate buying spree related to this recent interest rate rise. Five year rates just jumped 17% at the discounted level and that will likely get some fence sitters to jump in.

Either way it really does not matter that much. If you are a true bear you are waiting this out for another two years or more, so if late March and April 2010 sales are stronger or weaker will be irrelevant in two years time as things are going to be a lot different then.

Anonymous said...

Reid said:

omc, most of the April 19th buying is over now as people have to close on their home by April 19th (little more than three weeks from now) and most transactions have more than three weeks from offer to close.

This is not correct according to the Finance Department news release

These adjustments to the mortgage insurance guarantee framework are intended to come into force on April 19, 2010. Exceptions would be allowed after April 19 where they are needed to satisfy a binding purchase and sale, financing, or refinancing agreement entered into before April 19, 2010.

Se there will be a scramble for the next few weeks. After April 19th all those pre-approval letters will be subject to re-qualification under the new rules. Watch for collapsing deals by buyers who find this out at the bank after they make an offer. The rate hold specified in the pre-approval will still be valid.

CD said...

Just Waiting:

Pre-approval does not count as a financing agreement as it doesn’t represent a binding agreement to advance funds. So even if the borrower gets pre-approved before April 19, given that he/she would sign the purchase agreement after the cut-off date, the new rules would apply.

CD said...

Just waiting... so the scramble you are referring to has already been done. Since it takes a couple weeks for conditions to be removed. We will see how it went. Since our stats are delayed.

Rhino said...

You have to have a contract of sale before April 19th. Standard subject removal period is a week to 10 days. So buyers have until around April 9th to use the old rules.

These changes are pretty minor, so if we do see a rush it will tell you something about the credit quality of todays buyers.

Anonymous said...


I agree with you. If you take another look at my post you will see that I said that pre-approval letters using the old qualifications were not valid after April 19th. Only the rate hold is still valid.

Rhino & CD,

The scramble is still on and some FTB's will be frantic. By April 9th it will be over for most buyers because they will need the 10 days you mentioned to lift conditions. But there will be fools that take their agent's advice to go in unconditional without a building inspection or title search. There will be even more pressure to do this as we get closer to April 19. Take a look at PCS - there are lots of unconditional deals being made, especially in multiple offer situations.

mln said...

Regarding the increase in fixed rates, Canadian Mortgage Trends said that it's the "biggest one-day jump in posted rates since 1996."

That's a quote that should be in the paper, IMO.

Rhino said...

Good Point JustWaiting. If your buying an old house without a proper inspection because you can't afford to carry a 4% mortgage, you truly are the greatest fool.

Anonymous said...

Lets summarize the factors that make for a Victoria RE market downturn.

1. Fixed mortgage rates had a big jump today and variable rates will probably go up starting July.

2. New CMHC qualification rules push down the max loan limits by up to 10% (see my example above) so FTB's will have less buying power. The 5 year fixed mortgage with higher payments will be the only option for most buyers. Buyers that were trying to buy with 35 year amortization, variable rate loans in order to get low monthly payments will vanish in Victoria.

3. Those buying a home with a legal suite will qualify for smaller loans under the new April 19th rules.

4. Investors or speculators buying non-owner occupied properties will now have to put down 20% instead of 5% starting April 19th. They will also be eligible for smaller loans because the 80% rental income may no longer used to reduce expenses. Instead 50% of rental income is added to their annual income to qualify for a loan.

5. Refinancing is now limited to 90% under the new rules vs. 95% before April 19th. Hard to use the house as an ATM now.

6. There is another CMHC rule which kicks in April 9th and will affect the self-employed in Victoria. Basically they are significantly tightening up on "stated income" or liar loans.
Insured Stated Income Programs Tighten Up

Its downhill from here - just a few more lemmings going over the cliff in the next couple of months.

CD said...

Just waiting: I do not think you will get an exception from CMHC if you go unconditional. I believe the binding contract they are referring to is the contract between you and the bank. Not you and the seller.

Vic said...


What we really need to see is just a couple of hundred more listings on the low end. It will suck up the last of the sheep while killing the bidding war BS. I recall selling my second place at this time of year in 90 thinking I beat the rush, and then a sudden surge in listings over a few days cost me 15% and a 4 month wait. It doesn't take much to push an overheated market over the edge, especially one that has gone on for far too long.

Vic said...

Wow, the MSM is really cranking it up. Now the rate increase is "fear mongering" according to a mortgage broker on CHEK. What a crock.

Skeptic said...

Wow!! It has been a couple of months since I posted here and the tone of the blog has sure changed. I guess the recent CMHC changes have brought the bears out of hibernation.

HHV - looks like the Victoria real estate market is going to really tank this year. Your blog will be getting busier and we can expect nervous, defensive homeowners to start posting gain.

Vic said...

Funny how the Sun and Province post headlines and statements saying the market is cooling off but the out-to-lunch TC keeps hanging on for record prices. CW needs a reality check.

"Canadian mortgage rates on the rise amid signs housing market cooling off"

Grasshopper said...

Thank you SO much for creating this blog. It's provided my wife and me with lots of inspiring Bearish insight. We are wishful FTB's closely watching the market over the past 2 years and have no problem waiting for the right time to buy even if it means renting while we start our family.

I'll have to admit 3 years ago I didn't think prices would go higher but they have and now you get even less for your hard earned dollars than you did back when I was just dreaming of owning. I hope we see a market correction that provides affordable housing for all hard working people. I love Victoria and I would love to raise my family here.

Again thanks to everyone for contributing and I'm sure you see me posting on a regular basis.

Grasshopper said...

2 days ago I received an unsolicited email from a Lending Broker and I want to share...

"URGENT.  If you, or anyone you know, is contemplating purchase of a new home, or refinancing to expand a business, or to pay off existing debts - I assure you that now is the time to make your move.  Pending changes in the market will have a drastic effect on how much money you are eligible for.  These changes will also make a difference in how much money you are required to put down to get your loan.  AND - if you, or your friends, are currently counting suite rentals received as part of your income - after mid APRIL 2010 - for purposes of eligibility, that money is no longer allowable income. 

These are major changes which WILL affect the amount of money you can access. Call me. Putting your application forward ASAP will help you make the most of existing market conditions.

It's your future, let me help you bring your dreams to reality.

 Your money, your terms, call me."

PainInThe said...

Pity the poor fool who bought that big house in Broadmead that had been on the market (overpriced) for FOUR+ years and through at least TWELVE different realtors. Bought at the VERY height of the peak of the market (last December) they can't even suite it out because of the Broadmead rules and reporting neighbours. The owners before the previous owner sold the place at a huge loss because she'd bought it and suited from her kids and they were discovered and reported. Good luck heating that place too... it's all single paned glass walls. And no curb appeal whatsoever.

Looks like it will be back on the market any day now at a huge loss, and forever this time, too.

Just Janice said...

In the globe and mail today there's a story about how 1 in 5 Canadian families can't afford the cost of their homes and are sacrificing things like nutrition. I bet the numbers are even further out of whack in places like Victoria and Vancouver. There's no way this is a normal market!

Reid said...

Vic, I think the important point here is that fundamental changes are in place that will result in a downturn of the real estate market in 2010. Exactly when the correction begins IMO is not that important. A few more days, weeks or even months of buying activity is not going to change the fact that the market will correct this year because at some point buyers will no longer have the financing behind then to afford the current prices. A number of posters here appear obsessed with weekly stats and trends, yet I hope they have no plans to buy anytime soon.

It may be more productive to put that energy into deciding when you will actually buy. People that are obsessed with the market details may find it very frustrating to wait month after month if the market corrects slowly which is what is likely to happen. IMO it will take at least two years before a price correction of the magnitude most bears desire to be in place in Victoria. I think the first 10% (and possibly 15%) may come out of the market reasonably quickly (by the end of 2010), but beyond that, it may be a long downward trend in the market. I doubt many bears will be happy with a 10 to 15% reduction and most I suspect will not be happy with a 20% reduction. I am unsure how many bears have the patient to wait two or more years and even more importantly how many bear’s spouses will continue to support delaying a home purchase once prices do start to drop. For those bears that may have an impatient spouse, this may become your greatest barrier after we see a market correction and I would focus your energy on getting an agreement on your mutual expectations now before the market has fully corrected.

reasonfirst said...

This Len Barrie thing brings new meaning to the name: "Bear" Mountain

Just Janice said...

Reid -
I think you've partially hit the nail on the head. So perhaps thought needs to turn on thinking about 'when the right time to buy is'. This will vary (potentially quite substantially) among bears. Some bears won't buy until they feel things have 'bottomed'. Other bears will have a standard of 'fair value'...maybe not market bottom, but inline with some sense of fundamentals (ie. historical multiple of income, or relation to rent, etc.). Other bears will need a sense of likelihood of future price appreciation to justify jumping in.

Overall though I think RE bears are logical creatures who try to objectively assess the specific reality they find themselves in. If buying makes sense to the individual bear - then that bear buys...some bears might never buy (perma-renting bear) - this bear will still make the best choice for him based on his own individual circumstance.

A great thing about being a bear is the continual reassessment of whether or not a given decision to buy or not to buy is right at that moment in time.

However, I don't know if a preset - "I will buy when..." is a great thing, because other factors might change that might make buying when that specific circumstance prevails a bad choice. Unless that's a "I will buy when under the circumstances at that time buying is likely to be a good choice..."

Anonymous said...

CIBC jumps on the bandwagon today and raises posted rates:

Three-year closed 4.35 per cent, up 0.20 per cent

Four-year closed 5.34 per cent, up 0.40 per cent

Five-year closed 5.85 per cent, up 0.60 per cent

The others won't be far behind.

Skeptic said...

I find it shocking that Canadian bankers or mortgage brokers would do this. Why would professionals in the real estate industry actively engage in fraudulent activities?

Tighter mortgage rules may lead to more cheating

"There's going to be a dramatic increase in mortgage fraud again," says Don Campbell, president of the Real Estate Investing Network, a Calgary-based association of investors who collectively own more than $3 billion in property. "You watch this thing start to take off."

Skeptic said...

Times Colonist decides to carry Financial Post story on rising rates instead of doing their own...

Mortgage rates creep up today

Expert says the housing market appears finally poised to cool off

Rates are officially on the upswing, an indication the country's housing market is finally poised to cool off and it's the beginning of the end to historically low rates.

In addition, in mid-April new rules come into effect that tighten lending requirements, making first-time buyers meet an income test that says they can make payments based on the five-year fixed rate.

The two effects combined are certain to price some prospective buyers out of the market, said Gregory Klump, chief economist with the Canadian Real Estate Association.

"Certainly at the margins, this will have an impact," he said.

Grasshopper said...

How can I tell if a listing changes its price on MLS? Do they track historical prices changes? If not, is there a place to find this?

I've noticed several homes in my neighborhood that have lowered their price but I'm following too many to keep up and I sometimes can't remember the old price.


omc said...


You need what is called "private client service" to track changes. Just do a google for PCS and real estate victoria, and you will come up with a bunch of agents who will sign you up for free. Yes, you will need an agent to sign you up.

It isn't the be all, tell all though. You can track if they relist within the same year, assesed value, price changes etc, but you won't be able to tell last time it was sold, how many times on the market or how much the owner paid.

Grasshopper said...

Thank you omc.

PainInThe said...

40%, and it will happen sooner than anyone thinks. Panic takes time to take hold, but once it does, it's a race to the bottom.

It happened in Florida; happened in Nevada; happened in Arizona; happened in California, and it will happen here. In fact, it will be a miracle if it doesn't stop at 40%.

And all those places didn't have to contend with the sudden collapse of their narco-economy due to California legalizing pot. When we follow suit, as we will have to, the days of grow-ops in houses and driving up house prices will be over.

Vic said...

Market tops take much longer to form than market bottoms which can happen quickly and violently. We are at the critical juncture where the possibility exists. 10-15% may be the beginning for a few months but as Pain says, 40 plus is not out of the question when a market on roids went on for far too long.

As it has been said so many times, this bubble has been psychologicaly and emotional driven and what is now happening will breed new media stories that CW and her RE buds won't be able to stop. There are no more "good time" RE stories to tell, they're all bad.

Anonymous said...

It took a jump in interest rates before this got reported...

More Canadians could struggle to pay for home ownership as mortgage rates rise

One-fifth of Canadians are struggling to keep a roof over their heads and could have to make drastic cuts to even the basics - food and other necessities - as the costs of home ownership increase, according to a report by the Conference Board of Canada.

Mortgage rates are marching higher after a period of historic lows, rock-bottom rates that allowed many into the market who might not otherwise have been able to afford a home, with some taking on dangerously high debt loads.

"However, about one-fifth of Canadian households do not have the resources to afford both good-quality homes and other health-enhancing expenditures, such as nutritious food or access to recreational activities."

Who would have guessed??

Among those likely to suffer as rates rise are new homebuyers who pushed their finances to the limit to get into a house - they may soon find it difficult to pay for their purchases, said Tom Carter, a University of Winnipeg professor and the Canada research chair in Urban Change and Adaptation.

"There's a lot of people who didn't have to put very much down," Carter said.

"Mortgage rate lending has been fairly flexible in recent years but they still have very high mortgages and when the rates go up, we are going to have more people with a serious affordability problem."

Robert Reynolds - GBA said...

Question about the new rules for rental income.

Is the new 50% added to income rule going to apply to refinancing?

Skeptic said...

Is the new 50% added to income rule going to apply to refinancing?

I have read that this will be the case if refinancing with another lender. You have to re-apply and qualify anytime you switch to another lender.

If you renew the term with the same lender in most cases there is no need to re-apply at renewal time. You just sign off the renewal letter that comes in the mail. However, the lender is under no legal obligation to renew and can demand payment in full when the mortgage term ends.

Just Jack said...

If your re-financing with the same lender, then the lender will most likely roll the mortgage over into a new term. So the 50% add to, would not be a problem for refinancing.

The problem is going to a different lender. Or, if your lender does not wish to renew your mortgage. Which is not really a problem with the big 5 Canuck banks. It may be a problem if you went with the lowest interest rate your broker got you at Bob's Bank of Nevada.

Anyway, there's no free lunch. Now that the banks have the level of market share they want, these lenders can start to crank up the interest rate to make more profit.

mln said...

Wow, I could see this becoming a huge issue:

1) Homeowner unable to switch lenders because they can't qualify under the new rules (or the higher rates, for that matter)

2) Lender has no reason to offer the homeowner a discounted rate, just sticks them with the higher posted rate.

3) Lender doesn't really care if the homeowner defaults due to CMHC insurance. Very little reason to try and "make things work".

This story is getting more and more familiar every day.

Robert Reynolds - GBA said...

Anyone remember what this place was priced at a year or 18 months ago. It looks like the new owners did some work, painted it an ugly color at at rate. If I recall it had flooding/drain tile issues.

MLS® 275740