Wednesday, December 15, 2010

Mortgage smackdown

Ben, over at Financial Insights takes on the McListers over at Canadian Mortgage Trends for their thoughts around CMHC regulation.

In one corner, CMT says changes to CMHC amortization policies
"handicap hundreds of thousands of well-qualified homeowners and lessors. These people may have very legitimate needs for the cash-flow flexibility that extended amortizations provide. Forcing strong borrowers to make less-optimal budgeting decisions serves few interests, and is not what government was intended for."
But the knockout punch is delivered in one swift motion by Ben:
"I’m curious how these well-qualified borrowers overcame that ‘handicap’ and the ‘legitimate need for flexibility’ for the 60 plus years prior to the rule changes in 2005.  And as for the last sentence, exactly what should the role of government be when it comes to insuring the profits of private, profit-seeking financial institutions using taxpayer money?"
If you're not already reading Financial Insights every day, add it to your list. I generally appreciate the insights offered at CMT, so this post isn't a poke at them, only on their offside argument that all-but-claims the taxpayer funded insurance schemes of the CMHC are "free market."

73 comments:

Just Jack said...

I think the government may have a duty to those who purchased after 2005 with 40 year amortization. CMHC's policy change drew in purchasers and caused prices to rise. Only to have the rules reversed on them in April 2009, which caused prices to stagnate and fall in some areas and types of properties.

I think all mortgages insured during this time period, should be made non recourse, as CMHC contributed to the borrowers financial distress.

I also think that home equity lines of credit should not be permitted on mortgages with over 25 years remaining.

That CMHC insurance should not be given on secondary homes.

And Flaherty should be hung upside down for 15 minutes each morning in the foyer of the parliament buildings while people pelt him with tomatoes.

Jonathan said...

Just Jack,

I like the latter part of your post far more than the "non-recourse loan" suggestion mentioned in the first half. You are correct that poor CMHC policy (and the sudden reversal there of) may have affected market values in some locals.

To suggest the tax dollars of the more saavy renters (like many on this blog) are somehow responsible to provide a safety net to overzealous buyers does not sit well with me. We all have silver dollars...some choose to play the machine, others to feed the piggy bank.

Leo S said...

Robert from mortgagetrends likes to talk about 35 year ams and CMHC insurance being a great option for highly qualified buyers. I see that as an oxymoron, since if they were actually highly qualified they would have no problem saving a proper down payment, or handling a 25 year amort. By definition, they are less well qualified than those borrowers that don't require CMHC.

The problem is that CMHC distorts the market by dragging less qualified borrowers to the same level as more qualified borrowers. Now we're at the top of the mountain that that created and suddenly feeling the vertigo.

HouseHuntVictoria said...

I don't have a problem with a 35 or even a 40 year amortization.

I do have a problem with a greater than 80% LTV 35 or 40 year amortization being subsidized/guaranteed by taxpayers through the CMHC.

A smart financial person can use a 35 year AMS to their advantage by lessening the amount of each monthly payment that goes to interest and increasing principle only lump sum payments.

Here's what I mean: let's say in the 5 year term your mortgage payment is $1500/month if it's amortized over 25 years. You have no problem affording this. Hypothetically the $1500 works out to be $1100 interest payment and $400 principle.

Alternative is you take out a 35 year amortized mortgage that drops your payment down to $1300/month. Now you're paying $1000 in interest and $300 on principle. You add an additional $200/month lump sum payment in.

So you've gone from making $400 principle payments to making $500 principle payments and saved yourself $100/month in interest too.

The key here is not to think of the amortization as the time it takes to pay off the debt, rather the way you choose to structure your debt reduction strategy.

I've worked out a 35 year amortization system that has me paying off the debt in 16 years. But it doesn't work like that using a 25 year amortization.

I think this is what Rob's trying to defend over at CMT.

Leo S said...

HHV, No time to check now, but that doesn't sound right at all. There's no way that keeping the same payment on a 35 year amort vs a 25 year will save you $100/month in interest. Something else is at play here.

Rob at CMT likes 35 year ams because they give people more choices and flexibility in times of low income. I agree, and while it is nice to have that benefit at very low direct cost via CMHC, the negative effect of not letting the market price in the higher risk is much worse than the benefit to the borrower.

commuter12 said...

Yeah I don't think your math is right there hhv. There should be no difference between a 25 and 35 when you accelerate in the way you say. That's the case for my mortgage anyway. I'm on a 25 amortization but I pay like it's 13 and hoping for 10 but we'll see.

Leo S said...

Here:
25 year am, monthly payment of $1667.

35 year am, monthly payment of $1419 + 248 additional principal = $1667/month

The total interest paid is exactly the same, and the term for both ends up at 25 years. Not surprising in retrospect. Paying the same as a 25 year mortgage on a 35 year mortgage will end up being the same deal.

HouseHuntVictoria said...

Leo, it doesn't work that way when you break it into 5 year terms.

My numbers weren't real, they were made up as an example.

Here's an example using a 5 year term, amortized over 25 years with no extra payments. It takes 25 years to pay off.

Here's an example using a five year term, amortized over 30 years, with extra payments of $200 per month. It takes just over 15 years to pay off.

These are just examples, but you can see how this works in principle.

DavidL said...

HHV ...
If it sounds too good to be true - it probably is ...

I suggest you read: A Guide to Mortgage Interest Calculations in Canada

Keep in mind that interest is applied according to your payment frequency. A mortgage with biweekly payments has interest applied biweekly. Monthly payments have interest applied monthly, etc. Mortgage interest is compounded semi-annually.

Whenever a payment is made, it is first applied to the accrued interest, and then the balance applied to the outstanding principal. Extra payments reduce the principal and thus (marginally) reduce the interest that will be calculated at the next payment date. This is why increased payment frequencies reduce the overall interest to be paid. Thus, accelerated weekly payments (52 per year) are your best option for reducing accrued interest.

Extra payments won't avoid having to pay interest - they just reduce the remaining principal on which interest accrues.

DavidL said...

@HHV wrote: Here's an example using a five year term, amortized over 30 years, with extra payments of $200 per month. It takes just over 15 years to pay off.

If you adjust the amortization for the second calculation so that it also has a 25-year amortization (the same as your first example), you should find that with the extra $200/month payment that the mortgage will still be paid off in 15.333 years.

All that matters is the amount of the payment and how much is applied to reduce the principal. The amortization period is inconsequential if the mortgage is paid off early.

HouseHuntVictoria said...

OK, clearly I'm confused, thanks for the link David.

Then what's the fuss being kicked up by CMT all about then?

DavidL said...

HHV, I think that the fuss is that the introduction of extended amortizations (30+ years) allowed many people to buy real estate who would not have otherwise been qualified. They did not have enough income to afford the higher payments needed with a 25-year amortization. With the inevitable/eventual increase in interest rates, these people will be "royally screwed", possibly declaring bankruptcy - leaving the CHMC to sort out the mess.

As I posted yesterday, an 3% increase in interest rates (from 2% to 5%) adds another ~$1000/month to a 600K mortgage -- which is another $300,000 of interest to be paid over 25 years. With a longer amortization - even more interest will need to be paid!

kunwak said...

"Then what's the fuss being kicked up by CMT all about then?"

As one commenter suggests: You may choose to make smaller payments to allow yourself to invest in something else (e.g., your own business). There are scenarios (in particular for those of us who don't work 9-5 jobs) where a longer amortization may be useful.

Personally I would not chose that option and rather pay down faster, but I can see the value for some. I doubt it's a large percentage of people affected in this way though. Sounds to me that Rob is concerned from a business point of view. Hard to argue with the common sense point Carney makes though (there IS risk in having a large mortgage since the asset value can fluctuate).

DavidL said...

I should correct a mistake in one of my above postings ... I stated: Thus, accelerated weekly payments (52 per year) are your best option for reducing accrued interest.

I forgot that accelerated weekly payments are based on ¼ of the monthly payment paid each week. Thus 13 payments (1 extra) are made every 3 months - with more money being applied to the principal. A 25-year mortgage with accelerated weekly payments can be paid off in about 23½ years.

Leo S said...

The primary use of a 35 year amort for a qualified buyer is as a fallback if there are unexpected lean times. So you can set your payments to pay it off in 25 years or even less, but if you suddenly need extra money or lose your job you can fall back to the 35 year payments, which might give you enough leeway to prevent a default.

happy renter said...

I'd like to follow up on something Marko brought up in the comments on the last post...

What do you all think of buying a car with 0% financing for 36 months, say, for $20,000, versus buying a car in cash for $19,000? I'm trying to make this decision right now. I have the cash, but if I use it to buy the car then it's obviously all tied up in the car. I'm not planning on buying a house/townhouse in the next year, but I may buy one in the next three years depending on what the market does. Would the bank be less willing to give me a mortgage if I have $20,000 worth of car debt (I have no other debt to speak of)? Also, if I paid cash, that cash would be coming out of the sum I have saved for a future down payment. I'd love to hear what you all think.

Leo S said...

What do you all think of buying a car with 0% financing for 36 months, say, for $20,000, versus buying a car in cash for $19,000?

First of all, use the real numbers instead of Marko's made up ones. In all but very rare cases, that car will be cheaper in cash.
Negotiate first, then talk about how you're paying.

Would the bank be less willing to give me a mortgage if I have $20,000 worth of car debt

It gets taken into account, yes. But think about it, you have 20k of car debt, but you also have an extra 20k of down payment. So they might approve you for slightly less, but you'll need less

Marko said...

"First of all, use the real numbers instead of Marko's made up ones. In all but very rare cases, that car will be cheaper in cash.
Negotiate first, then talk about how you're paying."

My numbers are actually really close for most imports, obviously totally different for dosmetics.

Leo S said...

My numbers are actually really close for most imports, obviously totally different for dosmetics.

From where? You said 0% for 60 months or $1000 cash back on a 20k car.

Looks like the average is more like 0% for 36months and over $1000 cash incentive amongst the big imports.

Toyota helpfully calculates the Finance Effective Rate for you, to demonstrate the scam that is 0% financing.

DavidL said...

@happy renter wrote: What do you all think of buying a car with 0% financing for 36 months, say, for $20,000, versus buying a car in cash for $19,000? I'm trying to make this decision right now.

Another option is to put part of the money down and get the remainder financed by a third party (bank, credit union, etc.). This way you can take advantage of any cash discounts from the car vendor, keep you payments low and minimize the amount "actually" spent on interest.

If you can still find a 2010 model for sale, on average you should be able to negotiate about $3000 per $20,000 for a cash discount. Of course, it depends how much the vendor artificially inflates the price so that they can offer 0% financing. You may want to use a service such as CarCostCanada to approximate the real cost of the car, and to negotiate the lowest price possible.

Leo S said...

Cmhc protects us, thus high debt levels ain't our problem - Ed Clark

omc said...

happy renter,

Do use a service like carcostcanada or the APA (automobile protection agency) to find the true wholesale cost of the car and any applicable rebates. Never pay more than $700 over wholesale minus rebates for a current (2011) model. It is rarely worth your time to buy a stale dated car. The difference in price is almost nothing. Be informed and go in saying you can buy that day, and don't be afraid to walk. You can even do it on the phone if you want. Don't be afraid to phone dealers on the mainland.

The difference between wholesale and retail can be as little as $3k for a base model Japanese car to incredible amounts on German luxury cars. Don't worry about the dealer, they make lots of money even at wholesale; they get kickbacks from the manufacturer and that freight PDI scam thing.

Just Jack said...

To finance or not to finance - that is the question.


Financing a depreciating asset, like a car, over 60 months (5 years) is too long. 5 years is a long time to make payments of about $350 a month on a vehicle that may be worth 10 percent of the original price in five years from now.

$350 a month in mortgage payments is roughly a $100,000 in financing.

If you bought the house first with a bigger down payment, then you could roll the car cost into the home and the car would only be $60 or so a month over 35 years.

So you can have your cake AND eat it too! Both the house and the car are now affordable!

Of course a decade or so from now, you'll still be making payments on a hunk of tin that's sitting in a junk yard rusting away. But anyway that's not your question.

----------------------
I would probably finance the car and keep the 20K making money in investments in a TFSA. Maybe you'll get lucky and make enough in your TFSA to pay off the car and keep your 20K down payment in a couple of years.

The interest rates are low - take advantage of them. But, reduce your risk by having cash or investments that could be used to pay off the debt or reduce it substantially.

happy renter said...

Thanks, everyone -- I appreciate your collective input.

The "real" numbers are 0% financing for 36 months on a $21,000 car, or buying that car for cash for $19,500. I'm interested in a 2011 model (it came out in July, though, and so has been around for a while.)

I'm inclined to bargain like crazy and then finance the car. I've never done this before, though, and wonder if any of you have further tips on negotiating? I know a lot about the car in question and so can sound intelligent/informed. Do I just give the dealer the amount I'm willing to spend and say take it or leave it?

Just Jack said...

The only time, I have been "successful" with a car dealer is when I have been honest myself. No tricks, no lies, no bull.

I went to several dealers that sold the same car, I got them to give me their best price and I wrote that number on the back of their business cards. I told them that I would be buying this model of car and that I will be making my choice solely on the lowest price and I told them what quotes I was getting.

Of course this was in Vancouver, where there was a lot more choice in dealers.

Probably, because I had honesty on my side, I was more confident in dealing with the salesmen.

In my experience, car salesman use time as a tool to get you to buy. They will wear you down by long discussions, and by leaving their office to talk with the manager. Eventually, you give in and just sign the papers.

And everyone of them have said to me, after I've signed.

"You know we're not making much money on this deal"

As if that is true, and if I care that it is. I just know that I paid a little bit more than I wanted to. But, I got me some new wheels and I ground them down to include the powder coating?

What the heck is powder coating"
Rent the movie "Fargo" its a hoot.

Reid said...

Happy renter, I do a lot of driving (50,000+/- km year) and consequently go through a lot of cars. Like you, I also have cash to pay for the vehicle. What I have found is that the new car market is primarily based on the assumption you will finance the vehicle. If you have cash then it is far cheaper in the long run to buy a 3-4 year old car (often off lease) and pay cash. I always buy good Japanese vehicles with 55k to 75k in mileage for 40% to 50% of the original price and no PDI. I drive these cars until they are at 275-300k and then dump the car for 7-10% of its original value. This makes for low cost driving which is critical to my life.

Just Jack said...

From trough to peak. A review of home prices in the core municipalities. The typical Victoria core home being a 1,500 to 2,500 square foot home on a 5,000 to 9,000 square foot lot. Sales used are for the last 90 days up until December 9 of each year.


Year Median Price Number of Sales
1998 230,500 and 120 sales
1999 224,000 and 136 sales
2000 216,000 and 131 sales
2001 232,750 and 162 sales

For the first 4 years the market was fairly flat and the same for sale volumes. For most of this time people were fixated on dot.com companies and the coming of the year 2000 when all our computers were to explode and gold will be used to buy butter.

The stock market and dot.com companies fell. Greenspan stimulated consumer demand by lowering interest rate. People were looking for Bin Laden in their garden sheds.

2002 $262,750 and 158 sales
2003 $312,000 and 187 sales
2004 $353,000 and 182 sales

Real estate was the new dot.com
$50,000 a year increases in prices. Falling interest rates. Buy now or never own a home. Which was probably true at that time, because people who have bought a home after 2005 are unlikely to ever "own" it.

2005 $437,000 and 144 sales
The first stumble in the market place. Buyers pull back, startled by the rise in prices. However changes in CMHC policies, reduce the down payment and allow insurance to investors pushes the market on.

2006 $460,500 and 196 sales.
2007 $519,900 and 153 sales

The world has discovered Victoria, yet George Bush still can't find Bin Laden. Prices will always go up. Parents are painting fake moustaches and putting bolt on boobs on their kids - then dragging them to the bank to buy homes. You can't lose on real estate. Put a deposit on your credit card and buy a pre-construction condo.

2008 $495,000 and 93 sales

An old guy who spent a couple of years in a Vietnamese bamboo cage (that's gotta frig anyone up) runs for president along with a gun totting milf who believes Jesus walked with the dinosaurs. They get 50% of the popular vote. We laugh at them - yet we still re-elect Harper because he gives us a 100 bucks to send our kids to hockey camp. And the world is in economic turmoil, caused by real estate. Who would have thought that could happen?

Meanwhile back in Canada.

Flaherty having learned from the American's mistake has decided to replicate it in Canada with zero down, 40 year mortgages.

2009 $545,000 and 172 sales.
Nope not here in Canada. We're smarter and better looking than the rest of the World.

2010 536,000 and 136 sales.

Carney tells us that we owe too much and real estate is to blame.
So we're not smarter than Americans, but we're still better looking - right?

2011 - Bin Laden is found. He has been working as a real estate agent in Orange County and has appeared on several reality TV shows like Survivor, Who wants to be a millionaire, the Property Ladder, and Desperate Housewives. Sold George Bush his house in Houston.

DavidL said...

@ happy renter wrote: I'm interested in a 2011 model (it came out in July, though, and so has been around for a while.)

Hmmmm ... there weren't a lot of 2011 models available then - are you looking at a Kia Sorrento?

I strongly suggest you use a service like CarCostCanada for getting insider pricing information and for negotiation tips.

DavidL said...

@Just Jack ... I'm looking forward to your predictions for 2011! :-)

Russ said...

I agree with Reid. Why buy brand new when its going to lose 30% of its value the minute you drive it off the lot?

For me, I never understood people who buy nice cars before they own a place. Whether you pay cash or finance it, ultimately its $20,000 you don't have in your jeans, and $20,000 more you're going to have to add to your mortgage.


I've never paid more than $5,000 for a vehicle but I did recently make my last mortgage payment. The choice was easy.

Robert Reynolds - GBA said...

@ happy renter

Any chance you are self employed or a commissioned sales person? If so you can probably write off a large chunk of the car cost. I bought a "new" used car about a year ago and chose to finance as I get a bigger write off that way.

Leases of new cars tend to work out better if you can write them off, and financing rather than buying a used car also tends to work better, assuming it is for work.

happy renter said...

Yep, the Kia Sorrento.

Unfortunately, I'm not self-employed. The tax write offs would be nice...

I'm buying new because the last two vehicles I've had have been used and I've ended up spending a fortune on repairs. I'm opting for the initially more expensive option with a warranty this time. I plan to drive the thing into the ground, though.

Doug said...

I imported my last two cars from the U.S.
Bought slightly used, brokered it in myself since I live near the border and saved a bunch.
Both were high end German cars and you have to be able to pay cash.
I'm going to do it again with my next car.
For what they want for cars in Canada now with the dollar at par it doesn't make sense to buy here.

omc said...

I second the buying from the states thing. I bought new in late 2007 and I couldn't have bought the same car 5 years old for the same price. They (the manufactures) made it much harder to buy new cars in the states now. It is very easy to import yourself though.

Leo S said...

@Just Jack
Where do you get your data from?

DavidL said...

@ happy renter

The Kia Sorrento is a nicely built and finished SUV ... Unfortunately, I find I'm too tall to comfortably fit into it - particularly the models with a sunroof.

I've been searching for a second vehicle for a few months now. Although I could save substantially by buying a 2 or 3 year old vehicle - vehicle technology has been changing rapidly over the past few years. Safety features, fuel efficiency and onboard electronics are rapidly changing. Some of the new vehicles are pretty appealing ...

Marko said...

The Nissan Juke is fugly, but a sweet deal for 20k given the features and the turbo engine.

kabloona said...

Yeah, that "Juke" is ugggghhhhly, it's like the new "Aztek".....

Probably a better car than the Pontiac, but sheesh....

And I am seriously off-topic.....

;-)

HouseHuntVictoria said...

HappyRenter, if you're not committed to buying that Kia, and you're not committed to buying brand new, I'd recommend you check out National Used Car Sales out by the Juan de Fuca rec centre.

The deals they offer on ex-lease and ex-rentals are pretty good and they aren't a pushy sales crew.

Nearly bought a 2009 Mazda3 from them until we decided to spend 1/3rd of the money. Their prices are usually around $3K-5K less than the other dealers, most of their cars are under 40,000 kilometers and still under full warranty for at least a year and power train for another 3.

Aaron said...

I'll second National Car sales. We test drove 4 or 5 different cars from their lot and drove away with a nice Hyundai (Lemon Guide top rated).

No pressure sales staff and good service but don't plan on haggling. They don't haggle.

I have to say we also test drove 5 other private sales and dealer used cars and nothing was even comparable.

Just Jack said...

Let us look at prices of 775 to 1,175 square feet condominiums without views in the core municipalities for the last quarter of each of the following years

1998 118,750 and 80 sales
1999 126,250 and 58 sales
2000 99,900 and 67 sales
2001 113,750 and 100 sales

For most of the first 4 years of the market, condominiums were not high on the agenda to buy. Probably because detached homes didn't consume a high percentage of one's income. The condominium is a life choice, not an investment to be levered into a detached home.

2002 124,500 and 111 sales
2003 149,800 and 123 sales
2004 175,000 and 147 sales.

The interest in condominiums is rising as home prices are increasing, some people are moving to condos as the first home as they have been price out of a detached house. Yet condos are not perceived as a way to build equity quickly and as a stepping stone to a detached home - yet.

2005 217,000 and 125 sales
2006 235,000 and 120 sales
2007 263,000 and 121 sales

Condo prices have now doubled in 5 years. Condos are now being used to build equity that will be used to buy a home. Condos are now seen as the best way or to some the only way of getting the down payment to buy a detached home.

2008 256,000 and 58 sales
The world is in turmoil and people are busy watching CNN rather than reading real estate adds.

2009 283,000 and 135 sales.
Better buy now before CMHC rules are changed and the HST arrives. This seems to bring demand forward and raise prices.

2010 258,450 and 88 sales
Condos are no longer building sufficient equity to leap to the detached home. Appreciation in prices has been fairly flat for the last five years, so the only way to build equity is to pay down the mortgage. However, the consumer is maxed out at their high debt ratio, so there is very little money left to make an extra payment.

2011 - ????
Debts are catching up to people and there is no equity in condominiums to role other debts into the mortgage. Home insurance companies have a big drop in business, cablevision companies experience quarterly losses as people disconnect from the HGTV channel, strata fees are left unpaid raising the costs to other condo owners in the complexes, and jingle mail hits the bankers desk.

The Olympic Village is turned into rentals to provide cash flow to the city.

Waiting said...

Marko,
Can you tell me what ML# 283018
sold for?
Thanks

omc said...

283018 sold for $920k

happy renter said...

Thanks for all of the advice, everyone!

I'll definitely check out National Car Sales, HHV.

I thought about the Juke when it was first released, but it's just too ugly for me. The Kia Soul is appealing, though. It too is on the odd looking side, but in a much, much better way.

happy renter said...

Interesting article on Canadians' spending habits and the recent decline in household spending:

"Household Spending Makes 1st Decline"

Marko said...

One more thing regarding cars before we get back on real estate....lease takeovers can be a great way to secure a newer vehicle mostly because people don't understand the process and skim over leases on craigslist and usedvictoria.

Earlier this year I picked up a 2008 Civic Si, 10,500 km, 18 months into a 48 month lease. The seller was desperate to get out of it and we negotiated $3,700 cash for me to take over the lease and he paid the $505 transfer fee.

Lease payments are $332 and like my previous Honda product the buyout is going to be less than the value of the car at the time. My last Honda product I bought out for $15,200, drove it for a year and sold it for $15,500.

For example, good deal on a 2009 Acura TSX Tech Package on usedvictoria. 6 months left on lease at $389 and buyout is $21,000.00

If you can get the owner to pay the transfer fee pretty good deal (The cheapest 09 TSX Tech I can find is 27k).

In this case it would be hard to negotiate a cash incentive since the owner only has $2,300 left in lease payments.

Marko said...

Just to be clear, $3,700 as in the seller paid me this amount to take the lease over.

Alexandrahere said...

Can anyone tell me....what did 345 Linden sell for -- or was it taken off the market. They were originally asking around $800K. Thanks.

omc said...

That one shows as off market.

Marko said...

Yea, off market...

Sold in 1979 for $71,000
Sold in 1992 for $273,000
Sold in 1994 for $305,000

Cheers, Marko

Alexandrahere said...

Thanks OMC and Marko: I couldn't believe they could get anywhere near $800K for it. There had been no updates since maybe the 50's or 60's. I know their realtor held open houses for them pretty well every weekend.

happy renter said...

Thanks for the info, Marko. I'll look into that option.

a simple man said...

A tale of two houses in Oak Bay:

2407 Estevan Ave:

Original asking price: $940K
After numerous reductions: $699K
Assessment: $595K
Reduction so far: $340,000

1955 St. Ann St:

Sold Nov 2009: $560K (too much money then - we looked at it and ran away)
In the past year renos done - paint in house, some new flooring on main but mostly old flooring, new kitchen (removed a bedroom to expand it - thus only 1 bedroom upstairs - BIG mistake), 1.5 new bathrooms up, original windows, new outside paint, basement gutted and 2 new bedrooms and new bathroom installed, removed furnace and replaced ducting with electric baseboards all around (another mistake) - a lot of work is so-so craftsmanship - good drywall work in basement, but much of the other finishing lacking the professional standard. For instance the new deck posts look like they were cut by a beaver they are so ragged, tiling is passable but not professional.

New asking price: $869K
Assessment: $532K (before renos I am sure)

That's right - about a $300,000 premium. Now for a NEW 1162 sq ft bungalow with basement, how much would that cost? well, at $200 sq ft you are looking at $232K and add another 40K for the basement.

Someone wants to gouge. Maybe they should talk to their friends on Estevan to see what happens when you vastly overprice in this market.

omc said...

Those are some of the big losers on the market simple man. That house on estevan looks like a shack just driving by. Another big POS on the market is 2710 Musgrave. I should say off the market, while they do a cheapo/min fix to the drain tiles. It will need to be done properly again though. It needs everything and the realtor had an open house every weekend. When I looked at it they has painted all the concrete in the basement to hide the water coming in. This only worked in the dry months. $850k for a house in teardown condition? I hate people who are so obviously dishonest and greedy.

Catherine said...

Article about ghost towns in China. http://www.dailymail.co.uk/news/article-1339536/Ghost-towns-China-Satellite-images-cities-lying-completely-deserted.html

Catherine said...

A simple man: why do you think it is big mistake to switch from furnace to bb heaters? A few of my observations: 1)You can heat only the rooms you are currently sitting in. 2)If you have a suite, you can separate theirs off easily and let them pay for the privilege of walking around in shorts and tshirt in January and 3)(most important) heating ducts act as a conduit for disgusting food smells and for noise.
But perhaps there are compelling arguments against BB heaters...

omc said...

BB heaters are very expensive to run. If you have a furnace you can put in a heat pump. A furnace system gives you a lot of ventilation which prevents mold. Simpleman and I are not interested in houses with suites.

omc said...

In the next few years it is highly likely that energy costs are going to skyrocket. All types of energy is going up, and hydro already has a two tiered system where the more you use, the higher the rate goes up. I wouldn't be surprised it they push it even higher. Baseboards leave you with no alternatives and are not what I would want going into the future.

I used to be in this industry.

a simple man said...

Hi Catherine;

Thanks for the question - as omc has stated, it is based on energy efficiency - BB heaters are about the worst there is and provide no fresh air ventilation, which is important. But they are cheap to install as compared to a heat pump or NG furnace, which is why you see them in flips.

Also, in the St Anne house I think they ripped out the ducting to make the basement ceiling height higher. When I toured the house pre-flip, the walls caused me pause. My conclusion was to lift the house and pour a new basement if the price was right.

a simple man said...

and, when using forced air, turn off or turn down the ducts leading to the rooms not in use - but not in the room with the thermostat.

Introvert said...

Article about ghost towns in China. http://www.dailymail.co.uk/news/article-1339536/Ghost-towns-China-Satellite-images-cities-lying-completely-deserted.html

Yup, this is what Victoria is sure to look like if prices don't fall back to the good ol' days of $250k per house.

Marko said...

These work well, no ducts required ->

http://www.airlux.ca/air-conditioners-and-heat-pumps/ductless-split-inverter-air-conditioners-and-heat-pumps/multi-zone-ductless-split-air-conditioners-and-heat-pumps/4-zone-inverter-air-conditioner-and-heat-pump-4-x-9000-btu

A nice little upgrade over baseboards is in-wall fan heaters, more efficient and look way better.

commuter12 said...

To give you an example I used to pay about $200 a month to heat a small 900 sq ft house with electric baseboards. I moved to a 2200 sq ft place that uses geothermal and now pay about $75 a month. Now there are significant insulation differences between both dwellings of course. The old house was built in the 1950s and had no vapour barrier and a very thin layer of insulation both in the walls and attic like most 1950s houses. My new place is very well insulated. But I do have a huge hot water tank (120 gallons) and in my old place I only had a 60 gallon tank. Anyway yeah elecctric baseboards are very expensive if you see them run away quickly especially since they will soon be 30% more expensive.

Marko said...

Monday, December 20, 2010 8:30am:

MTD December
2010 2009
Net Unconditional Sales: 243 453
New Listings: 408 480
Active Listings: 3,308 2,557

Please Note

•Left Column: stats so far this month
•Right Column: stats for the entire month from last year

Just Jack said...

Your biggest energy pigs are the electric dryer and the hot water tank. If you're unlucky enough to have electric baseboard heating, then the only time you'll see first tier financing is when you're away on holidays.

Check your hot water tank and wrap it in a thermal blanket to save some energy. Check and or replace the worn weather stripping on the doors. Wash your clothes in cold water and put a dry towel in the dryer with your wet clothes. A lot of the time the clothes are dryer but the dryer is still on. So think about cutting down the timer on your dryer.

Very cheap fixes to costly heating bills.

Alexandrahere said...

Morning all. Some stats: Week of 13 Dec - 19 Dec. In the four core municipalities the average selling price for SFH's with min 3 bedroom & 2 baths asking between $375K and $775K was $582,882. The Median price was $572K. Three homes went for under BC assessment value.

The average selling price of a 2 bed 2 bath apartment in these core areas was $285K and a median price of $281K.

DavidL said...

@ a simple man wrote: BB heaters are very expensive to run. If you have a furnace you can put in a heat pump.

I agree that a heat pump is by far the most efficient (plus the bonus of added ventilation) - however baseboard heaters are not as bad as you make out.

My 1979 built 2400 sq. ft. house is 100% baseboard heated. Over the past 8 years, heat for my house has cost ~ $500/year. (My total electrical bill averages $1700.) The house is well insulated, so I only have the heat turned on from October through April. I use programmable thermostats so that when we are home, the temperature is set 18 C. At night, bedrooms are set to 16.5 C and other rooms are set to 13 C.

So it is a little cooler than other peoples homes. Occasionally, my wife or kids wear a sweater - so what! Each year, I've managed to reduce my power usage (CF lights, energy efficient washer/dryer, better hot water tank) - and been able to get the corresponding Team Power Smart rebate.)

If my house already had ducting built-in, I would seriously consider installing a heat pump.

@ Just Jack wrote: If you're unlucky enough to have electric baseboard heating, then the only time you'll see first tier financing is when you're away on holidays.

Even with the heating turned off, I never see just first tier pricing!

Alexandrahere said...

DavidL: When owning my home, I also never saw only the first tier billing but now that I am in a condo, maybe only two months out of the year do I pay for the 2nd tier.

DavidL said...

@Alexandrahere

Makes sense ... with three adults and two children in the house - there's too much hot water and laundry being done. Queue the solar water heater ... :-)

A few years ago, I was conversing with a woman from Texas. She said that if the electricity usage exceeds about 1500 KWh/month - customers get a break on the pricing. Apparently the price would drop from about 15¢/KWh to about 12¢/KWh - for the entire amount of electricity used! She said that she did her best to conserve while her neighbours would leave on the air conditioning 24/7 in the summer, so that their electrical usage exceeded the usage threshold, and they actually saved money on their electricity bill (by wasting power). Keep in mind that a lot of electricity in Texas is from coal-fired power plants ...

Al said...

Our house was moved and rebuilt in 2008 by the sellers and it has no ducting, uses only baseboard heating as well. Didn't track expenses in 2009. But this year total hydro bill is just under $1300.

2700 sg. ft, 4 people, use programmable thermostats, with settings one degree higher, and one month longer usage than DavidL's.

We do use cloth-line in the summer, not only it needs no electricity, the cloth smells fresher too.

DavidL said...

The nice thing about having baseboard heat combined with programmable thermostats is that you can set a different temperature in each room. This is not easily accomplished with a forced air furnace or heat pump.

Now mind you ... things can go wrong with baseboards as well. Three years ago I came home on a November evening to find the indoor temperature in my living room at 33°C! The heat for the kitchen, dining and living rooms are controlled by a single 24V thermostat that switches the 4800W (240V, 20A) circuit. The old 1970's Honeywell mechanical relay used to switch the circuit was stuck in the "on" position.

After switching off the circuit breaker, I did a little research. Honeywell issues a recall for the exact relay that I had - but it only applied to schools and commercial buildings in British Columbia. The recall never extended to domestic installations. Needless to say - I was shocked. Although baseboards are pretty safe, I've sometimes wondered what it takes for a fire to get started. (How much dust, debris, or tissues stuffed into one by a toddler does it take?) In any case, a Aube electronic relay was the solution.

a simple man said...

I apologize to baseboards heaters everywhere...

but they are more expensive than other forms of heaters - and no ventilation.

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