Tuesday, September 13, 2011

Stupid is as stupid does

EagerBuyer(Not) pointed us to a most interesting survey released recently by Manulife Financial. It contains some startling, OK, not really, let's call them confirming, results about just how crazy and ignorant debtors really are in Canada:
  • More than 1 in 3 Canadian homeowners aged 30-39 are unaware interest rates are near historic low

This just happens to be my age cohort. How in the name of all that is good in this world could anyone of my generation not know that interest rates have been on the steady decline for almost 30 years? Even if they've been smoking too much herb, they'd have to be completely oblivious to not know that rates dropped drastically just over the past few years.
  • When asked how today's interest rates compared to historical norms, more than one in three Canadians aged 30-39 incorrectly responded that today's rates were about average or relatively high.
Emphasis mine. I think the only thing "relatively high" are 1/3rd of Canadian homeowners between the ages of 30 and 39, which, coincidentally happens to be the age range of the bulk of first time home buyers in Victoria. Coincidence? I'll let you decide.
  • While there is no expectation we'll see rates like those of the 1980s, a rise of even a few percentage points could have a significant financial impact on this younger generation of Canadians.
The effect of a "few percentage points" rise in interest rates will very likely be catastrophic considering more than one in two Canadians are living pay cheque to pay cheque.

The rest of the release reads like an advertisement for a Manulife One account, if you know what that is, and odds are at least 1:3 that readers don't. Regardless, I'd like to say these results are shocking, except they're not. The evidence of stupid consumers is all around us. I guess the message that Canadian lenders are prudent and conservative has had the unintended consequence for one-third of us believing that means they'll take care of us and we don't need to learn anything basic about money ourselves.     

Further reading: Ben, over at The Economic Analyst linked to this Irish Times article: Canada's Northern Tiger looks very like a bubble. Not that Ireland would know anything about real estate bubbles.


jesse said...

Something to watch: are banks plowing people into VRMs, and what qualification rate are they using when calculating DSRs? For low ratio loans who knows but high ratio loans with CMHC MI require the 5 year rate.

If prices fall, and low ratio loans become high ratio, there is a disconnect, and not a pleasant one for the government to deal with, as they may have to either foreclose on people who cannot meet the DSR requirements with 5 year rate, or relax the entrance criteria and have huge risk on CMHC's books.

Not looking good, and it's exacerbated by a steep yield curve.

EagerBuyer(Not) said...

Blogger Mish is posting about real estate in Australia. Seems people there thought that the RE market was not like the US but it is now crashing.

Agents are dropping owners that have unrealistic price expectations. I bet this happens in Victoria soon. Perhaps Marko or Sweetrealtor can tell us what they and their colleagues think.

Dreamland (or Nightmare) Real Estate Agents Dump Homeowners Asking Too Much; Housing Shills Still Cheerlead Others to Doom

Unknown said...

I wonder what the costs are in Australia for realtors to list houses. Here there are realtors who purposely take on listings and someday hope the seller reduces their price or perhaps they can get other business by having more listings.

relativelyspeakin said...

I'm seeing a ton of price changes this week on the market I'm watching (<$400k, core, house townhouse, duplex).

Anyone else seeing them in the areas you're watching?

JustWatching said...


I see lots of price changes this week - just like last week.

Serious sellers are trying to bail..

All MLS in period Sept. 4-11
- 77 pending sales
- 316 new listings
- 239 price changes

3 price changes for every sale and a 25% sale/new listing ratio.

Alexandrahere said...

So far this week, i.e. 2 1/2 days; for SFH within my criteria in the four core municipalities, I have only two sales (between $375K & $775k) ..... both considerably under the BC assessment. New listings:25 and Price Changes: 15. So yes, if this scenario continues throughout the week, I would say the weather will be feeling particularly gloomy for the majority of real estate agents.

neo said...
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neo said...

Updated to a clickable link.

"Meltdown" in the headlines...pretty strong language but I don't know if the stupids will pay attention.

Global uncertainty, European crisis fuel Canadian meltdown fears

Mindset said...

Neo: The headlines language is getting stronger, more frequent, and more negative. Even on the so-called immune economies like Canada and Australia. Lots of credible folks pushing gold now.... all pointing towards interesting times ahead.

For all those that just pop by here for a read now and again because they are interested in making an RE purchase, if your decision is in any way based on historic 'all housing makes money' investment trends, or some raw 'I just gotta have a house' emotion, or some skewed 'I'd better buy while the rates are low' type of logic, I would suggest holding off a bit and waiting for the smoke to clear out there.

Marko said...

On the flip side you can get a 5 year fixed as low as 3.24% or variable 2.1%....

One of my buyers recently bought a home for 495k, renting out the 2 bedroom suite for $1050, mortgage under $1,800....yes, I know there are maintenance cost, property taxes, etc...but with rates so low it is not that much more to own as people make it out to be on the blog.

My feeling is that September will pick up towards the end but we will see...

Marko said...

My prediction is flat market for next 5 years....we will see...

a simple man said...

I agree - flat for five years, but after a 30% drop.

christa said...

Does anyone have any info on 2150 Windsor? Fairly priced? Looks like a new renovation?

Mindset said...

Marko/Simple Man, you are really predicting flat pricing for 5 years?

I would say that we are seeing drops already across the market, and in outlying areas (the canary in the coal mine), the changes appear to be significant.

I'm not smelling what you are cooking here boys....

Care to elaborate on where the positivity is going to come from that will hold housing at it's current levels? Sure interest rates may stay low, but unemployment looks like it is heading up, and consumer confidence is well on its way down.

Flat pricing would also imply that whatever made the prices what they are today is going to remain, and I'm just not seeing business as usual over the next year or two. What about all of the stimulus running out? And how about the fact that flat prices kill investment, which takes yet another RE driver out of the mix.

Of course, I am more than interested in your thoughts, having these discussions is the purpose of this blog.

Mindset said...

Oh, sorry simple man. Missed your 'after a 30% drop comment', at least you are factoring in the rapidly changing markets.

My apologies for including you in my mini rant.

Mindset said...

Marko Said: One of my buyers recently bought a home for 495k, renting out the 2 bedroom suite for $1050, mortgage under $1,800

What if the resale price drops even 50K (10%)? Even at $1050 pure profit a month, that means having two people in your basement, 100% of the year, for over 4 years just to break even.

Now I'm not arguing against putting a two bedroom suite in your existing home to increase your cash flow by any means, but using rental income alone to justify an RE investment in todays market is a not without its hidden risks.

TC-Parrot said...

The bloom is off the rose.

Victoria, Island house market takes a hit - Sales, prices decline; inventory up; trend expected to last through '12

Home sales in Victoria and Vancouver Island are down so far this year, average selling prices have slipped, and inventory levels are up.

And none of that is about to change anytime soon, according to the B.C. Real Estate Association.

Cameron Muir, chief economist with the association, said what the Island has seen so far this year is likely to continue through 2012. "There are no significant changes expected for Victoria and the Island," Muir said.

patriotz said...

"Seems people there thought that the RE market (in Oz) was not like the US"

Well they were right. There were some major regions and cities (Texas, much of the South and Midwest) in the US that the bubble hardly touched, but every major city in Oz (and Oz has the largest % of people living in big cities of any large country) is significantly overvalued.

So take a bow Oz. You're #1. :-)

Mindset said...

There were some major regions and cities (Texas, much of the South and Midwest) in the US that the bubble hardly touched,

Texas is an interesting case study. Housing inventories were never at shortage 'bidding war' craziness levels due to a steady stream of new construction. The inventory levels were so reasonable, that sub-prime mortgages were not seen as anything but what they were, predatory lending. Why take a crazy mortgage in a sane affordable market with adequate inventory? A regular mortgage is just fine, thanks.

Here is a great post that outlines how Texas avoided the national housing craziness that is now putting a hurt on so many middle class families in the 'hotter' RE boom states.

Understanding Texas RE

Watching and waiting said...

another 4k price drop on 1627 Hybury (last drop was a meager $1000) now down to 674,990. How low can this guy go? Based on the photos and the 6 or so months he took to fix it up, what do you estimate it cost him to do the renos (sweat equity) and at the end of the day, how much will he stand to gain given his expenses, carrying costs and commission?

DavidL said...

Keep in mind that a "flat market" for five years is essentially a 22% drop in value if inflation averages 4% per year. So that means that a $500K home would be worth $390K (in todays' money) five years from now.

Let's examine a scenario where the resale price of a modest $500K drops by 30% over the next three years, but where inflation continues at 4% per year:

Year - Current Value - 2011 Value
2011        $500K           $500K
2012        $450K           $433K ($500K - 10% / 1.04)
2013        $400K           $375K ($433K - 10% / 1.04)
2014        $350K           $325K ($375K - 10% / 1.04)
2015        $350K           $313K ($325K / 1.04)
2016        $350K           $301K ($313K / 1.04)
2017        $350K           $289K ($301K / 1.04)
2018        $350K           $278K ($289K / 1.04)
2019        $350K           $267K ($278K / 1.04)

Hmmm ... that looks a lot like price returning to 2003 prices. If this does happen - it will be catastophic to anyone who has recently purchased real estate.

DavidL said...

IMF chief warns global recovery in danger

The head of the International Monetary Fund repeated Thursday her warning that the global economy is in a "dangerous new phase," and called for coordinated action by governments in the face of a slowing global economy and a deepening European debt crisis.

a simple man said...

Mindset - forgiven.

In the deep southern US right now - depressing.

Marko said...

""Keep in mind that a "flat market" for five years is essentially a 22% drop in value if inflation averages 4% per year.""

I never understand this argument - so is one better off renting for those 5 years and then buying at 22% less inflation adjusted?

DavidL said...


Renting makes sense when resale value are stagnant or declining and when the monthly cost is less than the mortgage, property tax and insurance for the same property.

If someone purchased my $500K home with 10% down, the $450K mortgage amortized over 25 years @ 5% would cost $2617 per month. Property taxes and insurance cost $275 per month - so the cost of ownership (not including maintenance or repairs) is almost $2900/month. The same house could be rented for ~$2100 per month. Renting the same house saves of $800/month, $7200/year, or $180,000 over 25 years.

If the house appreciates in value, then perhaps it does make financial sense to purchase. If the house value remains stagnant or depreciates, then it does not.

As I purchased my house in 2002, my weekly mortgage payment is $380.18, or $1635/month. Add in the $275 for property tax and insurance, add another $200/month for basic maintenance (replace roof, appliances, hot water tank, flooring, etc. as needed) for a total of ~$2100 ... I am basically breaking even.

omc said...

I am all for renting when it makes sense, but I calculate things a bit differently. If the market is stagnant, you should be comparing only the interest part of the mortgage payment plus taxes and maintenance to the cost of rent. If you are truly to be ahead in 5 years of a stagnant market your rent would have to be lower than the interest, taxes and maintenance costs at a 30 yr term. After 5 years of renting you have no equity paid down.

The other thing to think about is that when the market starts to appreciate again selection and value drops significantly. We all know this as we watched what we could buy with the same amount of money at the peak. Someone once told me that you can't get a good deal in RE unless it is unfashionable to buy RE. I would much sooner buy earlier in the 5 flat years and get to be very selective. Leave the busy roads and mold boxes to the peak buying lemmings.

Just being a contrarion again.

omc said...


Your mortgage calcs are way off. The going rate right now on a variable is 2.1%, and at a 30 yr term that works out to be $1,683.81 a month. Of this $778 is interest, the rest goes to principle. Why would anyone one pay 5% for a fixed? There is no real savings to renting right now due to the ultra low rates.

Phil said...

"There is no real savings to renting right now due to the ultra low rates."

The key being "right now" of course.
If rates go up OR the CMHC is forced to tighten it's regulations because they are starting to pay out to banks the game is over.

Then Canada will join in the pain the rest of the world is feeling with the unwinding of asset bubbles.

EagerBuyer(Not) said...


Here is current mortgage rate info.

Variable Discounts Quickly Evaporating

Scotia Leads Posted Rates Lower & Launches 2-Year Special

Banks are keeoing 5 year posted rates over 5% to keep qualifications high. However, they are lowering 2-4 year fixed rates and raising variable rates. This way they steer buyers into the more profitable fixed rates.

Animal Spirit said...

Following up on Alexandrahere's comment: on my matrix account (SFH<575 and >1000 sq ft and everything between View Royal and Central Saanich, there have been a grand total of 0 sales from Monday to Thursday this week. Not one.

This could be either:
(a) VREB pulling pending sales from Matrix notification
(b) VREB having a software bug and nothing showing up on-line
(c) No sales have occured in this (quite broad) range this week.

If (c), wow.

Can someone confirm that they have / haven't seen sales come up this week? Thanks.

think said...


2150 windsor - no not fairly priced. That house sold 2 years ago for 645,000 and it has had a renovated kitchen but that is it. The market has been flat since it sold, so 645,000 plus the cost of the kitchen (40,000 max) brings you to about 685,000 and 15,000 for not saving you the trouble of doing it yourself. So... I'd say it is only worth about 700,000 to 725,000 MAX in todays market, and less if the market continues to soften. Look at some comparable sales too - other homes that are renoed sell in the low 700,000 range in that area. A house just sold at 752 Monterey for 680,000 and it was totally renoed (a bit smaller, but better location and really unique and interesting house). Remember the house on Windsor is a really small house with very low basement height, and that road is busy and has a bus route on it - do your homework, don't fall for "staging".

AandJ said...

"There is no real savings to renting right now due to the ultra low rates."

I disagree with this as well. The question isn't price it's value. I just don't see any value in the current bubble market.

I could be "wrong" being a renter and possibly loosing equity. However I am not at risk being a renter.

DavidL said...

@omc wrote: If you are truly to be ahead in 5 years of a stagnant market your rent would have to be lower than the interest, taxes and maintenance costs at a 30 yr term.
I would also factor in depreciation of the property and any net loss in potential resale value. I would also not base the calculation over a 30-year term. I would suggest 20 or less. For most people, - if you are still in you late 50's and paying off your mortgage - retirement is going to be a considerable challenge!

Just being a contrarion again.
Me too! ;-)

Your mortgage calcs are way off. The going rate right now on a variable is 2.1%, and at a 30 yr term ... Why would anyone one pay 5% for a fixed?
Over the past 10 years, we have experienced the lowest interest rates for many generations. No bank, finance minister nor BOC governor expects rates to remain so low. A 5% rate seems pretty low compared with the 25-year average. As for being able to shop around and currently get 2.1% VRM - most people won't qualify for such a low rate VRM: 2.5% is more typical. However, the majority of Canadians still opt for fixed rate mortgages as they prefer the "security" of fixed payments.

There is no real savings to renting right now due to the ultra low rates.
A few links that make more convincing arguments than I can:
> House Prices and Rents ... the rest of the picture
> Examining house prices and rents in major Canadian cities

EagerBuyer(Not) said...

animal spirit,

The answer is (c). I have several PCS accounts and have only seen 12 sales out of 700 listings so far this week.

Looks like this is going to be another disastrous week for RE sales.

Turmoil in the stock markets, recession talk and falling prices have spooked the last few buyers left out there. We are also entering the historically slow fall season.

Jay said...

"There is no real savings to renting right now due to the ultra low rates."

I can't let that one pass without commenting. Same condo down the street's taxes and strata alone are very close to my rent. If I incude only a 5% annual depreciation, bank interest, and opportunity cost, I figure they're paying 250% more per month to live. Not only that, I hear they have a leaky window issue that their condo fund can't cover.

Jay said...

I just checked my figures again - $1100 me to rent, $3800 them to own - that's about 250%. Sorry, but I see that as big savings to keep renting, regardless if rates fall further.

Mindset said...

Tripped across this on MSN this morning. Based on these cherry picked statistics, it looks like our market went up 13.7% since last year, with an increase of 32.2% in sales?

August '11: $536,631
Change from August '10: + 13.7%
Number of units sold: 522
Change from August '10: + 32.2%
Source: CREA

It's no wonder people are confused. This article makes it look like RE was a great investment here in the last year when the market has been slowly falling in prices, and inventory is bouncing of record high levels.

Fluff piece article here: MSN Article

Mindset said...
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Mindset said...

"There is no real savings to renting right now due to the ultra low rates."

To some extent this is true. Money is cheap right now.

But lets put this into a different context.

What if you could rent a car for $399 a month and the rental company took all of the risks and additional costs of ownership, or you could lease a car for 5 years for $399 a month and you took all the risks and additional costs of ownership (no warranty in this example by the way).

But wait, there's more, what if it was very likely that cars would be worth less than the amount you had paid off in the 5 years, and that payments were very likely to go up when your 5 years were up due to interest rate increases?

Oh, and what if you could walk away from the rental car with minimal notice, but getting out of the lease had big significant costs (i.e. RE sales fees)?

What would you do?

Same payment, very different options. When you put the current environment into context, for those that care about their money and freedom, now is a great time to rent. And life is better with money and freedom.

omc said...

Wow, lets just compare apples to oranges shall we. DavidL gave an example of buying and holding a gordon head home for 5 years in a flat market. He used a ficticiously high 5% mortgage rate. I used a true (I have approval at 2.05% for a 5 yr convertible) 2.1% variable. I don't care what the big banks tried to do a couple of weeks ago, lots of smaller lenders destroyed it. I used a 30yr amort because you would have no capital at the end of a 5 yr rental.

At 2.1% you end up paying $1053 for taxes and interest. At 2.5% you end up paying $922.98 in interest per month, so $1198 per month with taxes. This is way cheaper than the $2100 you quote as rent. Yes you do have to pay the $852 in principal repayment, but in the given example of a flat market you would have that in equity in 5 yrs.

So at the end of 5 years at a flat market you would have $53,759.97 paid off at 2.5%. It is likely that the variable would go up, but most are expecting only 1% in the next 5 years. Your return for the same period renting is Nelson, the kid from the Simpsons, coming and giving you a big HAHA.

I am NOT saying this is what will happen, just showing what the #s are for the given example. No one knows the future. No maintenance costs used etc, but at 2.5% interest you are paying about $50 less for mortgages and taxes than renting. You would also have over $50k in equity; very few home owners will do $50k of maintenance in 5 years.

Of course there is a very real down side risk at present valuations and world economy.

Also, anyone looking at a condo in this market is sure to lose. History has shown again and again that condos keep dropping in a flat market. This is even ignoring the extremely high inventory with more inventory in the works.

This is the risk of renting the same house in a flat market. With the current ultra low interest rates a flat market favours buying. This is just part of knowing the risks, so you can make a decision.

AandJ said...

We are just about to move into a new rental and have found the recent shopping interesting.

Having been a local renter for over 5 yrs, in three different places, I am certain (without proof) that rents have risen locally. However, there is also a very large rental inventory and this is beginning to have some effect on landlord attitudes.

For instance, we just negotiated a month-to-month rental and delayed our move-in by one month with no objection from our new landlord. In the mean time we have had calls back from 2 landlords (of the approx 20 houses we viewed) with unsolicited offers to reduce the rent (only 5% but we never even asked). Of the 20 houses viewed over half were completely vacant. I was also surprised by the number of houses that had owners living in the suit while renting out the main floor of their houses (approx 25%).

My overwhelming feeling is that rents are starting to slip (if only slightly) and that rental inventory is way up. There is a slight whiff of concern among landlords.

Friends of ours are downsizing (selling their house w/ suite) and moving into their condo. They tell me that two years ago they felt their house was worth about 540K and are now at about 480-490K. They paid 350K for the condo and would feel lucky to get 280K for it today.

As an aside, we were former home owners for 7 years and did quite well. However, when I added up all the interest and property taxes paid it was easy to see that we could have rented "risk free" for that time and banked the excess for the same net gain, possibly more if invested wisely. I'm not saying it would have been better - in fact I think our quality of home would likely have been worse but there is no denying that we could have reduced our risk.

Jump ahead to our move to Victoria and it was obvious that the quality of home we were used to in a "normal" market was completely unaffordable. I use the term unaffordable loosely since the bank was more that happy to lend - we just were not ready to accept the enormous loan and the lower quality house. Again, most of Victoria lacks "value" compared to other parts of the country.

Mindset said...
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Mindset said...

Buying favours renting in a flat market?

Let's put the calcuators aside and bring human lives into this for a moment. Has anyone here owned a home in a flat market and then done all of the work to sell it?

I have, and it's depressing.

It's like running a business in a downturn, or fighting just to keep a mediocre job in a recession. You work, and invest, and work, and invest, and don't get ahead.

To me, buying a house at a market peak is like paying a premium for the first iPad on eBay. Sure, you get to feel special in the moment, but pretty soon everyone else can get a better one cheaper.

Do you think some of the recent condo purchasers feel good about their monthly payments ratios, when the price of nicer units is now less than what they paid, or there is more to choose from and they see something they like better?

Again, I suggest people wait until the smoke clears. And what do you do while you are looking for a great deal on a house or condo you love? You rent.

EagerBuyer(Not) said...

Mindset said "Do you think some of the recent condo purchasers feel good about their monthly payments ratios, when the price of nicer units is now less than what they paid,"

You mean someone like a Hudson condo owner that comes home every night to the developers sign in the window that says units are now on sale at 189K off original price.

Ben said...


Thanks for the mentions. Thought you might like to check out the latest graphs showing real estate-related contributions to GDP and employment growth in Victoria. It's not pretty, and it argues strongly that the current real estate malaise on the Island will have major economic implications.


Keep up the great work!

JustWatching said...

Big money buyers move to the sidelines this month.

In August there were 25 single family homes over $1M sold in the Greater Victoria area. Half way through September only 6 sales. This will push down the average SFH sale price.

Marko said...

SFH average right now is 617k so it is not too far off the 6 month average.

JustWatching said...

Marko said "SFH average right now is 617k so it is not too far off the 6 month average."

But down from the 653K last month.

Alexandrahere said...

Could someone tell me what 324 Linden sold for? What was the asking price and what year was it built in? Would have loved to have viewed that home. Thanks again.

Marko said...

Built in 2006, sold for 1.55 Million.

chris said...

The quirkiest thing with house owners, myself included, is their naivety of the costs. I find the two to receive the most blank stares are always opportunity and maintenance costs. I have yet to meet a knowledgeable owner in these two areas. For the 2% who are even aware of opportunity costs, all believe the opposite of what history shows. And that is, houses are among the worst performing assets over long periods. In fact, to an economist or accountant, they are considered liabilities. As for the maintenance costs, I find the best exercise is to attempt to keep an expense record for a few months. I tried this for 3 months, right down to a $3.35 entry for screws (not including the starbucks stop next to Home Hardware). Even though, I knew I had missed a few things, it was jaw-dropping when I added up the total. In other words, the amount I had budgeted for maintenance wasn’t even close. I think these two ‘hidden’ costs are two of the most dangerous to new buyers. Repeat buyers ‘should’ know better, but they don’t.

Alexandrahere said...

Chris and all: Life is a gamble with nearly every decision....whether its getting married, taking a trip, starting a new business, or purchasing stocks, bonds, gold or real estate. And so a little music from "The Gambler:.....everybody now.....

If you're gonna play the game boy, ya gotta learn to play it right.

You've got to know when to hold em, know when to fold them, know when to walk away and know when to run.

You never count your money when you're sittin' at the table, there'll be time enough for countin when the dealins done.

Every gambler knows the secret to survinvin', is known' what to throw away & known' what to keep. Cause every hands a winner & every hands a loser, And the best that you can hope for is to die in your sleep!

Just Jack said...

I feel a Kenny Rogers saw coming...

jesse said...

LOL investing is like gambling? My account statement seems a tad odd; I always count my money at the table but maybe I'm doing it wrong, because it keeps winning.

Disclosure: I'm an anonymous blogger so don't have to.

patriotz said...

Alexandra: you are confusing gambling with risk taking.

Gambling is just putting a bunch of money in a pool and using some entertaining scheme to divide it up and give a cut to the house. On average players must come out behind.

Risk taking means undertaking a productive activity with some possibility of failure. All activities in life carry some possibility of failure, but we undertake them because on average players come out ahead. Whether it be personal relationships, employment, investing, or what have you.

Alexandrahere said...

patriotz: I was simply trying to brighten up a somewhat gloomy fall day.

Phil said...

Speaking of Kenny Rogers - his massive estate is up for grabs if you have a cool $20mil.

Kenny's place

Just Jack said...

My chubby fat little fingers keep hitting the wrong keys.

I tried to say that I felt a Kenny Rogers song coming after Alexandrahere's comment.

Too bad for Kenny, he should have known went to walk away.

JustWatching said...

Things aren't looking good for sellers...

MLS in period Sept. 11-18

- 104 pending sales
- 308 new listings
- 212 price changes

2 price changes for every sale and a 34% sale/new listing ratio.

Month to date sales around 230. At this rate it will be hard to reach 450 for the month. Well below the 542 last month but greater than Sept. 2010 which had a paltry 395.

However, on this blog we like to put things in context so check this out..

MLS September Sales - 10 Year History

Yep - 2011 will have the 2nd worst sales level in 10 years.

patriotz said...

"is one better off renting for those 5 years (while nominal prices stay flat) and then buying at 22% less inflation adjusted?"

If renting is cheaper than ownership costs (interest, taxes, etc) over those 5 years, absolutely.

How hard is that to figure out?

patriotz said...

"Texas is an interesting case study. Housing inventories were never at shortage 'bidding war' craziness levels due to a steady stream of new construction."

Like there wasn't a steady stream of new construction elsewhere in the US? All those empty houses and ghost towns - even in places like California where supply was supposedly restricted - are evidence of that. There was never an actual shortage of housing anywhere in the US.

The article you gave a link to is blaming planning restrictions for bubbles. It's wrong. There were bubbles in parts of the US with no restrictions to speak of, such as Florida. In Europe you had a bubble in Ireland with next to no restrictions and no bubble in Germany with severe restrictions.

Bubbles are caused by easy credit and speculation, and areas that lacked bubbles lacked one of both of these factors.

Mindset said...

Patriotz said on Texas: Bubbles are caused by easy credit and speculation, and areas that lacked bubbles lacked one of both of these factors.

Ok, easy credit was available in Texas, which to your point leaves only a lack of speculation.

Saying that Texas lacked the amount of speculation of so much of the rest of the US begs the question, 'why so little speculation in Texas?' Texas household income - better than average. Disposable cash flow – great. Unemployment - low. Access to RE marketing hype through Fox news and HGTV shows like 'flip this house' - normal.

So why no speculation in Texas in a country gone crazy for RE? I would say it has to be supply, and let me explain why. When there is only one person interested in a house, you might get your asking price, but definitely not asking plus $100K. And when there are ample houses to choose from, sellers are forced to set asking prices at a reasonable level, or nobody makes an offer.

I’ve talked to quite a few people that bought RE here in Victoria during the pre 2008 'buying panic'. When the newfound credit grew the market of buyers and speculators here and they went to buy, they all ended up bumping elbows in the same small number of available units. Due to lack of supply, the selling Realtors enjoyed 'gotta have it' bid wars very reminiscent of store owners of strawberry shortcake dolls and Pokeman cards at Christmas. You didn’t have time to go home and think about the biggest purchase of your life, or to compare available properties based on your specific needs, you only had time for a quick huddle with your buying realtor on the lawn or their SUV to come up with a maximum ‘over-asking’ offer, often at the limits of available financing (please note the extremely bad golden handcuffs financial limit decision).

Supply shortages drive the investment of speculators, and speculative investing drives even greater supply shortages. Then it all runs out of steam and collapses under its own weight. Welcome to bubble economics.

As a relevant example, let’s flash forward to today. I know of a couple that just sold their pre-build condo purchase (2008) in Vancouver, and they lost big. Why? Because now there is supply again, and in all of the excitement of standing in a pre-purchase sales office with other speculators buzzing about all the money they were going to make, they paid too much for a mediocre unit in a poor location. Sadly, they lost a big chunk of their much needed and hard earned retirement savings.

Marko said...

Monday, September 19, 2011 8:00am:

MTD September
2011 2010
Net Unconditional Sales: 237 395
New Listings: 810 1,211
Active Listings: 4,738 4,323

Please Note

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

Just Jack said...

Urban living got a little less expensive over the weekend. At least if you were thinking of living in the Astoria on Fairfield.

Described as one of the truly best locations back in 2006 when this 12th floor suite sold for $285,000. Now 5 years later it yours for $279,900.

I don't blame this on zoning regulations but more likely on the lack of young professionals such as waiters and new real estate agents, etc.

commuter12 said...

Maybe I've been lucky or something but I don't find maintenance costs to be all that expensive.
Is it because lots of people pay for someone to do this stuff for them or something?

I do my own electrical and plumbing (properly). I mean most building materials are pretty cheap and most things that go wrong tend to be very inexpensive things. Like say a tap starts leaking well it's like maybe $20 worth of parts to fix it usually. Same deal with the preverbial leaking toilet. I know the big stuff like a roof or furnace adds up but they last a long time so you're amortizing the costs of those over a long period of time.

Just Jack said...

While the property taxes for a typical half million dollar home in Victoria maybe $3,000. A home of half the price in Texas may have property taxes of $13,000 a year. So, instead of someone's disposable income going to larger and larger mortgages it goes to the city.

Kinda of like the manufactured home parks here. They did not rise as fast as other homes partly because the pad rental rates also went up.

Which is one of the reasons why condominium prices stalled before detached homes. The monthly strata fees take a chunk out of disposable income, leaving only so much for a mortgage.

And we are going the way of Houston. Cities like Victoria will learn how to manage the housing inventory. If prices are rising, the cities will just tax it away. After all, who created the rise in prices? It was the government by building parks and roads, schools and tennis courts. And its the government that is entitled to skim off the cream. Not some firefighter who built a home on his off hours.

A well managed city would have a stable real estate market, where price increases would be taxed away.

If you had to pay $13,000 a year in property taxes - how much home could you afford to buy?

Alexandrahere said...

Some good points for sure Just Jack.

My monthly condo assessment is $298 per month. This pays for Management Fees, water, building insurance, grounds and building maintenance, building electricity and hot water.

The routine costs difference between my former house and my condo:

Water: $18 (had a huge garden)
Insurance: $75
Garden $100 (had to have every plant available)
Gas: $50
Electricity: $75
Maintenance: $200

Totals for house $518
Totals for condo: $357 (includes condo fees,hydro & condo content ins.)

Of course the taxes were nearly four times as much, but then the house was worth much more than the condo.

Last weeks stats:

SFH min 2 beds & 2 baths, in Vic,OB,ESQ,SE &SW priced between $375 & $775.

New: 44
Sold: 8
P/C: 41
OM: 25

Out of the 8 homes sold, 6 or 75% of them went for below BC assessment.

The average & med prices are up from last week. The avg price was $593K & the med $604K. This is because the quality of homes that sold last week was much superior than usual.

This same week last year there were 9 homes sold at an avg price of $578K.

Condos' & townhouses fared better than SFH last week with 12 units selling; 6 of each. Half of the townhomes went for below assessment.