Thursday, October 4, 2012

VREB's best fail yet

"Interest rates are also holding, but should they increase by as little as 1%, that would negate a 10% drop in purchase price. People shouldn't wait for prices to drop, because we never know when interest rates will be increased to stimulate the economy." VREB 

I don't hold the outgoing Victoria Real Estate Board president accountable for the gaff in this month's market update press release even though it appeared in her voice. I know how these things work and while it's likely she approved the use of the quote it's highly unlikely she was its author. Never-the-less, it was a priceless gem that should live on in infamy so I've added it to the header of this site so we can have a little laugh every time we find ourselves visiting.


225 comments:

1 – 200 of 225   Newer›   Newest»
a simple man said...

Now we need to go after the houses selling for 96% of asking quote.

a simple man said...

I wonder if we have the data to calculate the original asking price to the eventual sale price - I do not have a wide enough net on my PCS.

Anyone?

CS said...

What she meant was that a 1% increase in interest rate would mean that a buyer's monthly payments will be the same after a 10% drop in price as if they'd bought before the interest rate increase. So if prices go down you'll still have the same monthly payments, so you might as well buy before the price goes down.

Isn't that what she meant? What else could she have meant? It almost makes sense.

hap pychucky said...

How do increase interest rates stimulate an economy???

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

CS, it's a mystery... or a lot of ignorance packed in a couple of sentences for our eternal amusement. Hey we should add this to the "what they said as the market crashed" graph.

I personally find the last part hilarious: "because we never know when interest rates will be increased to stimulate the economy".

Since when do central banks increase interest rates to stimulate an economy? Since NEVER? Oh right. What utter baffoonery!

reasonfirst said...

I'm wondering why they didn't just change it to:

"because we never know when interest rates will be increased as the economy improves" (not that I believe this)

Introvert said...

From the previous discussion:

True, but they will have to refinance, usually on 5 yr terms. They will be doing so in a different environment than they were. The house may be worth less, the LOC may be a larger proportion of their net worth, and their income qualifications may have changed due to tighter regulations from OFSI.

I seem to recall that verifying income qualifications on mortgage term renewals was a regulatory change that was under consideration but then was dispensed with, under pressure from the mortgage industry. Can anyone confirm this?

SilverSurfer said...

And therein lies the economics conundrum of our epoch. In the US, the man in charge of interest rates whom is constantly optimistically wrong in his forcasts doesn't see the US economy improving until at least 2015. On our side of the border Carney has been jaw-boning about higher interest rates coming for nearly 2 years, but the external risks are only getting worse, thus their hands are tied (to raise interest rates). It also doesn't help that the loonie is above parity with the US dollar.

A declining or crashing real estate market in Canada will only add even more pressure to keep interest rates low, as rising interest rates are the #1 killer of real estate markets.

But prolonged low interest rates can have massive unintended consequences down the road as bond market vigilantes eventually perform a mass exodus act. Beyond ZIRP (zero interest rate policies), lies only can-kicking economics in hopes of buying time to allow the economy to recover.. except there is no single sector present or in the near future that can increase GDP sufficiently to perform the miracle recovery that is needed. As such, the longerthis goes on, the bigger the bang down the road. Can kicking economics = "serenity now.... insanity later!".

koozdra said...

Raising interest rates would signal a recovery in our economy. The interest rates are low to mask the recession we are currently in. An economy can only run on consumer debt for so long.

patriotz said...

"So if prices go down you'll still have the same monthly payments, so you might as well buy before the price goes down...
It almost makes sense."

Except that someone who buys now at the higher price will also be paying those higher rates soon after they happen.

The other except is that prices are going down without an increase in rates.

Introvert said...

Does anyone understand the rules and intricacies regarding switching mortgage providers (or threatening to do so) at renewal time? Moreover, does the mortgage-holder have much leverage in the negotiations? I'd love to hear what you guys and gals know and what your experiences have been.

patriotz said...

I seem to recall that verifying income qualifications on mortgage term renewals was a regulatory change that was under consideration but then was dispensed with, under pressure from the mortgage industry. Can anyone confirm this?

It has been dropped from the upcoming OSFI regs but that doesn't mean that the banks themselves can't require this of their own volition.

a simple man said...

Introvert - if you have a good credit rating then you hold the power. You can shop around for better rates and terms and see if your bank can match it. Most banks will typically pay any administrative fees when you switch over, as least in my experience.

reasonfirst said...

Or they could have said the truth:

"because we never know when interest rates will be increased to prevent Canadians from over-extending themselves and to cool an over-heated real estate market"

Unknown said...

it is better to buy low at high rates than buy high at low rates because asset deflation is here to stay, just look at Japan

Just Jack said...

The new OSFI regulations desire less use of automated valuation programs which tend to over estimate property values especially in declining markets.

That means if you are switching lenders it's more likely than the property will have to be valued by an unbiased party and not a computer program. That means an appraisal that will cost you $300 or so for a standard home. Then, if your property has fallen in value to below 80 percent loan to value ratio you may have to get CMHC insurance with the new lender. Some exceptions do apply.

And that is expensive, so it may not be to your advantage to switch lenders over a small difference in the interest rate.

Although some people get so pissed with their bank for hosing them on the renewal rate, they will take the charges and close their accounts with that bank.

Short summary, as long as you have at least 20 percent equity and your income is still sufficient you can move your mortgage to another lender easily. -most times.

JustWatching said...

hap pychucky,

In the last post I pointed out some facts and asked "Is there any of the above you disagree with?" I was hoping that I might understand where you were coming from by laying out some observations and seeing if we had some common ground.

Unfortunately you chose to ignore the question and go off on another tangent.

I now realize that you are not here to have a serious discussion with others. That is not surprising when one considers that you own two properties and are hoping for a 50% gain in 10 or 12 years. For your sake I hope that your real estate holdings are not the lions share of your net worth.

dasmo said...

I think I am going to stop debating and start joining the chorus in hopes of a crash too. If it happens there will be money to be made...

JustWatching said...

Those bullish on real estate seem to like saying that we are all talking about a crash on this blog. Is a 10% per year decline in prices considered a crash?

Just Jack said...

There are now 32 homes in the Greater Victoria area that are listed for under $350,000

Port Renfrew is back to being the least expensive with a starter home listed at $227,000. With that you get a quarter acre of land, an ocean view and an umbrella.

After years of starter homes in Sooke Village starting at $350,000. The asking prices now begin at $230,000.

Kettle Creek garages are now offered at $290,000 including HST.

If your looking for an acre of land to grow pot, the properties in East Sooke begin around $300,000. Financing is available through your local Hell's Angels chapter. Just don't be late on your payment.

A starter home that needs TLC or it could be just lot value, or a home for a single parent. Located near the Mayfair Mall starts at $315,000. Bring your rodent traps.

Looking for that house with a suite, so you can start out on the property ladder to financial freedom. Look no farther than Sooke and an asking price of $319,000. Not hard to make this property go income positive, but you may have to factor in a very high vacancy rate, because the rental market in Sooke is ??

But there is also a home with a suite available in Esquimalt at $325,000. The house needs work - but if you want to be in with the next generation of slum lords -who cares. If they squawk, boot em out.

But if you are serious about having renters pay your mortgage how about a 5 bedroom guest house in Port Renfrew. Rent it out by the day to those rich American fisherman. Yours for $350,000.

Hurry before the interest rate goes up, or down, or even stays the same.




.

Leo S said...

@simple man I wonder if we have the data to calculate the original asking price to the eventual sale price - I do not have a wide enough net on my PCS.

Marko gave us these stats a while back. They were surprisingly high, because a lot of the places with big price drops never sell.

@CS Isn't that what she meant? What else could she have meant? It almost makes sense.

That part makes sense. Although it's still better to have a smaller mortgage at a higher rate than a bigger one at a lower rate.

@Introvert I seem to recall that verifying income qualifications on mortgage term renewals was a regulatory change that was under consideration but then was dispensed with, under pressure from the mortgage industry. Can anyone confirm this?

Yes you're right. The problem comes when someone needs to change their mortgage at renewal and no longer qualify under the new rules. Then they have very limited negotiating power.

dasmo said...

JJ, I must admit your reports are one reason I come back here all the time. they are rather humorous...

patriotz said...

They were surprisingly high, because a lot of the places with big price drops never sell.

Perhaps also because many places which do sell at a big drop have the drop obscured by relisting?

Maybe we're talking about the same places? Don't sell on the first listing, then sell near list on a subsequent one.

Leo S said...

Perhaps also because many places which do sell at a big drop have the drop obscured by relisting?

Oh right. That too of course. Funny, when I was selling my motorbike on usedvictoria I cancelled and relisted my ad to get to the first page again. The mods told me to smarten up and deleted my ad.

But somehow the professionals at MLS have lower standards than a free classifieds rag.

a simple man said...

So, did Marko give us the percentage of selling after relisting/dropped pricing or the standard deception? I can't remember.

totoro victoria said...

Darn, the place I was looking at in the Okanagan sold before we finished our renos.

Prices are down in the Okanagan. Could have bought a 2 bed 2 bath (one bedroom suite up and one bedroom suite down) lakeview place for $232,000. Needed a bit of fixing but it would have been great ROI.

As for Oak Bay, my sense is that selling prices have dropped slightly and some listing prices have dropped in the past couple of days while others remain high.

totoro victoria said...

Also, the place I was looking at had had numerous price drops on MLS (due to some layout issues that I was fine with) but when I emailed the realtor to see if it had sold because it was no longer on MLS he sent me an email back stating it had sold for "full price". I know it sold at $100,000 less than originally listed on MLS - $200 000 less than originally listed by the owner privately - although I suppose it was full price at the marked down level!

I don't know how someone can feel comfortable with statements like that.

a simple man said...

Sold! For full sale price!

Can't debate that.

Introvert said...

Thanks for some of your responses. The prospect of switching mortgage providers at renewal sounds tedious and complicated.

When the time comes I'll probably just stick with whatever Coast Capital Savings is offering. CCS is my mortgage provider, and they tend to have really low rates compared with most places out there.

I just can't see myself doing hours and hours of research in preparation for a negotiation show-down with my lender.

I'm pretty sure there are statistics out there on how few people actually bother to shop around at renewal. I can understand why.

a simple man said...

Introvert - it really is no that hard, but CCS is a really good credit union, so I can't blame you.

Leo S said...

@Introvert. Why not just ask a broker if they can find you a better rate?

totoro victoria said...

I agree with approaching a broker Introvert if you don't want to do the research or are a bit overwhelmed. If your broker finds a better rate you can switch or get CCS to match.

Here is a site which gives the some of the lower available rates: http://www.ratesupermarket.ca/best_mortgage_rates/ (2.6 for 5 years or 3.54 for 7 years). I just called the number for the lender with the best rate when I arranged my mortgage.

Sometimes brokers will buy down the rates to match low posted rates if you have good credit.

Introvert said...

Thanks, people. Maybe it ain't too bad, after all.

Still got 23 months to renewal--plenty of time.

My credit is excellent, so at least I've got that going for me...

I sure hope Canada's economy still sucks in two years, so I can get another very low rate.

Simon said...

jj, your humour is attracting all the pot growers to this discussion board. LOL.

fatjay said...

@totoro Victoria

What kind of return do you think you would have been getting on that place for $232,000?

I'm watching places in Kelowna and I still can't find anything that makes financial sense to me.

Thanks for your input.

StalJ said...

@totoro
"Could have bought a 2 bed 2 bath (one bedroom suite up and one bedroom suite down) lakeview place for $232,000. Needed a bit of fixing but it would have been great ROI."

great ROI"? Youre willing to pay ~125 per one-bdrm unit after renos? I know the rents well in Kelowna and the vacancy and headaches of keeping one-bdrms full. On a cap rate basis you'd have to never even get a vacancy to get 5%. I mean I'd probly take out a GIC over a 4-5% headache.
You can find multi's right now in the low vac cities of AB and SK at 7% cap rates. Duplexed houses to highrises for well under 100 per 2bdrm unit with much higher rents than Kelowna. Just thouhgt I'd let you know.

jesse said...

"verifying income qualifications on mortgage term renewals was a regulatory change that was under consideration but then was dispensed with"

Banks regularly update their pools' LTVs and other risk factors in part because it becomes very difficult to sell future ones when they don't. Think of it this way:
Banks A and B each sell covered bonds each backed a pool of Canadian mortgages. Bank A is known for keeping their LTV book up to date. Bank B does not.

The rational investor will assign a smaller premium (spread) on Bank A's pool because it has ongoing transparency the risks involved in the pool. Conversely the rational investor will assign a larger premium on Bank B because the pool's earnings potential is in effect a black box.

This doesn't always work out because investors are not always rational. But OSFI has shrewdly required banks to state and adhere to their risk management guidelines. Because of the incentive to generally be transparent in most markets, banks will fall into line.

I don't think people fully appreciate that OSFI got almost everything it wanted, it just didn't look like it.

jesse said...

JJ: "Short summary, as long as you have at least 20 percent equity and your income is still sufficient you can move your mortgage to another lender easily. -most times"

There's that "most" word again!

Houses dropping at least 20% in 5 years is a tangible scenario, and all of a sudden we're into the problem of "as long as you have at least 20 percent equity". I think banks are applying the game theory rather well -- you can check in which provinces CMHC's low ratio insurance has been concentrated for some clues.

totoro victoria said...
This comment has been removed by the author.
fatjay said...

Thanks totoro.

That's consistent with what I'm seeing - actually, I'm seeing even better opportunities in Kelowna (although still not interesting enough for me to bite).

Personally, I would look at that like a cap rate of less than 3%, but appreciate the info.

totoro victoria said...

I would agree that it is very difficult to find a good RE investment in Victoria and the Okanagan. Takes me ages and lots of research and probably some willingness to reno.

If you are looking for pure investments and ROI you might focus on Las Vegas or Phoenix. The markets are depreciated below replacement cost and will likely go up. Unfortunately, Canadian investors have some restrictions and tax planning issues.

I am not a pure ROI RE investor. For one, I don't have that kind of cash, and secondly, it is not fun for me. I'm more comfortable dealing in places I enjoy and want to be.

patriotz said...

Rents in winter for a 2 bed 2 bath place up would be $900/month leased...The location would have allowed for higher summer rentals bringing in an additional $3000/month over July and August."

So your business plan is to find someone who is willing to lease for 10 months at $900/month and then move out so you can rent for a higher price in the summer.

Well good luck with that. For example,

$850 / 2br - 2 bdrm House for Rent (Summerland)

totoro victoria said...

fatjay - you are correct - I think that cap rate is 4% not 8%. I am using a calculator that provides the cap rate but $10,000 net on a purchase price of $232,000 equals a cap rate of 4.3 using the simple calculations.

Cashflow is net $10,000 annually on a $65,000 intial investment not counting the benefit of principal paydown or risk/benefit of depreciation/appreciation. I currently have one property in the Okanagan that matches this and I'm happy with it.

I can't match these returns elsewhere and I am not a professional RE investor trying to max out the use of my credit and I don't feel motivated or able to do this due to financial limitations.

totoro victoria said...



Patriotz -

If you will recall, I already do this and have not had a problem with getting a lease for ten months - ever. My renters have been:

1. students who want a furnished place
2. people building a home who put their stuff in storage rather than unpack and repack again
3. people on temporary job assignment (teacher, landscape architect and engineer)
4. people relocating and needing time to decide on a location to buy
5. young couples just starting out
6. newly single folks

I have always had interest from multiple parties.

PS. Your presentation of "facts" could be perceived as annoying. Just sayin'

totoro victoria said...

fatjay - I would be interested in hearing more from you on investing in RE in Canada. Do you do this for a living? Do you enjoy it? Do you use REITs?

totoro victoria said...

Actually, since I included my mortgage payment in my expense calculations I believe the CAP rate is higher and that is why my analyzer places it at 8%.

CAP rate is NOI/Purchase Price.

NOI includes all operating expenses but does not include mortgage cost: http://realestateinvestmentsoftwareblog.com/6004/understanding-what-operating-expenses-to-include-in-your-real-estate-analysis/

The projected NOI was actually $6000/year - leaving an NOI of $18,000. $18,000/$232,000 equals a cap rate of 8% as indicated on my spreadsheet.

Not sure if I have made an error as I tend not to use CAP rates but the cash on cash returns.

PS. Hope y'all enjoy my new photo.

totoro victoria said...

Sorry, should be "projected expenses" not "projected NOI"

totoro victoria said...

Also, Patriotz, that Summerland place is old and not very nice imo. I wouldn't rent it for $850/month.

CS said...

The Next Gigantic Housing Bubble That Everyone Expects To Burst

The data emphasize how sharply the property market varies from place to place. If there's a crash, Vancouver is likely to be the epicenter, with Victoria badly hit, while most of the rest of the country experiences only a modest down-turn

Just Jack said...

Are we about to see a significant drop in the reported average and median prices?

I have been watching the median and averages and trying to relate these indicators to same home re-sales.

For the last month or two, they two could not be reconciled. What I think happened was that first time buyers were finding it more difficult to buy a home. At the same time the higher end market was still flush with cash and continued on their buying spree, like a sailor in a whore house with a two day pass. That kept the median and average indicators stable.

Yet, the re-sale data that was available was for more modest homes and this showed a significant drop.

I am thinking both the reported median and average prices are going to show a drop, as the high end market rapidly cools.

This may become a front page headline that could shock passive real estate investors.

That doesn't mean that actual prices have just magically dropped throughout the city. Just that the reported median and averages have caught up to what is happening to the typical home.

But then, I am not a highly paid analyst for the government with a team of researchers. If I ever get any of this forecasting right, its just damn luck.

Heck, I don't even have someone checking me grammar. Anyway, I have my two day pass and I'm off for the weekend.

totoro victoria said...

fatjay - now I'm wondering how 15% return on cash per year not counting principal pay down/eventual appreciation and 8% CAP rate does not make financial sense? I'm also wondering what better deals there are in Okanagan. I don't follow Kelowna but I have a good friend there who does and the numbers seem less favourable there.

koozdra said...

"THIS HOUSE MUST SELL - BRING AN OFFER!!"

How do you sell in a market with no buyers?

http://www.realtor.ca/propertyDetails.aspx?propertyId=12420096&PidKey=1534704445

koozdra said...

"A custom designed home built by Walter Allen perched strategically above the 13th fairway of the beautiful Fairwinds Golf Course."

Strategically?

http://www.realtor.ca/propertyDetails.aspx?propertyId=12478106&PidKey=-1719434422

yogurt said...

The Vancouver Real Estate Anecdote Archive now features this $6.5 million Saanichton home, down from $15 million. The owner claimed an income of about $40,000/year. He was lying.

a simple man said...

Totoro - nice locavore pic.

hap pychucky said...

"THIS HOUSE MUST SELL - BRING AN OFFER!!"

How do you sell in a market with no buyers?

http://www.realtor.ca/propertyDetails.aspx?propertyId=12420096&PidKey=1534704445"

Kooz you are joking right or is this another misfact. the last 3 years sales in Sept have 395/450/420. There are still lots of buyers for properties priced right.

koozdra said...

"There are still lots of buyers for properties priced right."

Perhaps, but I think there is a lack of properties that are priced right.

a simple man said...

But the last three Sept have been disasters in terms of sales volumes - easily the lowest three years from at least 2000, while having the highest population.

http://househuntvictoria.blogspot.ca/2010/09/sales-volume-falls-off-cliff-in.html

DavidL said...

@Introvert
Does anyone understand the rules and intricacies regarding switching mortgage providers (or threatening to do so) at renewal time? Moreover, does the mortgage-holder have much leverage in the negotiations?

You may want to read about my experiences moving my mortgage from Bank of Nova Scotia to ING Direct:
http://househuntvictoria.blogspot.ca/2012/03/mortgage-comparison-calculator.html?showComment=1331347203371#c6150251809709991990

hap pychucky said...

A simple man

Agree but to state there are no buyers is a bit much. That property seems to be begging for a low ball offer so I am sure someone will give them one.

a simple man said...

Agreed - there are buyers, and there always will be in any market. In any market there are deals to be had just as in any market you can lose your shirt with an unwise purchase.

hap pychucky said...


One thing is with realestate you just have to hold it long enough.

Moderate Inflation is your friend.

koozdra said...

"One thing is with realestate you just have to hold it long enough."

Buying now for this reason would be foolish. You would have to wait for another bubble to make money. Real estate values have appreciated much faster than inflation. When prices will return to a more sane level it will take many many years to reach the highs we are seeing today.

DavidL said...

@Introvert
I just can't see myself doing hours and hours of research in preparation for a negotiation show-down with my lender.

In my case, I spent about 10 hours and have saved ~$30,000 in interest. Well worth the time in my case! It may be worth talking to a mortgage broker, and letting them do the leg work for you.

totoro victoria said...

""One thing is with realestate you just have to hold it long enough."

Buying now for this reason would be foolish. You would have to wait for another bubble to make money. Real estate values have appreciated much faster than inflation. When prices will return to a more sane level it will take many many years to reach the highs we are seeing today."

Maybe, maybe not. Everyone has different circumstances. Perhaps one of these things apply:

1. you don't know the future and you are not convinced we are in a bubble
2. you believe interest rates will rise before a big drop will occur
3. you recognize that if interest rates rise you will pay more which may negate the price difference
4. you qualify now but are not sure you will qualify later because you want to take a sabbatical
5. you hate renting with a passion and can comfortably afford to own and have no plans to move in the next seven years
6. you realize that, while prices may drop some, over time they will go up because you recognize that it does not take a bubble to make money in real estate - patience and leverage can work too

hap pychucky said...

DavidL

Was it you or bns that said you would never have dealings with BNS again.

koozdra said...

Totoro

It's clear that you aren't convinced that we are in a bubble. Would you agree that real estate right now is over valued?

hap pychucky said...

kooz my view

In Victoria..NO

Toronto and Vancouver...yes

Victoria has not see the same moves as those markets since 2008.

DavidL said...

That was a bit ambiguous - sorry! I swore off BNS ...

They were sneaky, though. Not knowing any better, when I first got the mortgage, I had agreed to a $20K line of credit tied to a credit card, in addition to life insurance policies (for both me and my wife). About a year later, I got a alternate life insurance that paid cash (not just the remaining mortgage amount) and cost about half as much. Cancelling the life insurance with BNS was a hastle as they wanted proof that the mortgage would be covered if my wife or I died. As I never used the LOC/credit card, it was easy to cancel the card before mortgage renewal time.

I'm sure that if I were still financially entangled with BNS at renewal time, the switch would have been harder to orchestrate.

hap pychucky said...

DavidL

Interesting story. thanks for sharing

Banks hate knowledgable clients.

koozdra said...

"Victoria has not see the same moves as those markets since 2008."

What about 2003? I know of a house in oak bay that was purchased in 2003 for half the cost it was purchased for in 2010. Does that seem like a reasonable price appreciation given the time frame?

axeman said...

totoro
5. you hate renting with a passion and can comfortably afford to own and have no plans to move in the next seven years

Yes renting is very functional (saves money, no liability, no market exposure, and right now that is a good thing)
But it sucks, can't change anything, get kicked out every 2 years, property managemnt bitchs if you don't cut the grass... You suffer believe me, I rented for 20 years in this city.

I say 10 years, look at 1980-1990, the biggest drop ever, but if you held on for 10 years, you were ok, (not rich just ok)

Invest in housing right now? Are you nuts, but buy a house you like to support your family and live good? There are lots of good deals out there, make a low ball offer, and get it 10-20 below assesment? What are you waiting for?

Now we are in opposite mode. 4 years ago, everyone was buying, as it goes up forever. Now its "dont touch that crap" its going to keep going down forever...(not)

this isn't 1982, interst rates will be stuck in the low end for years, and this isn't Toronto or Vancouver. We have been in decline for 2 years now, Vancouver has added another 40%... slightly different.

Just Jack said...

It has become a lot tougher to sell a house or a condominium today. A lot of inventory and stagnated sales. If you're the lucky few who don't have to sell, you can wait the market out till next spring.

But there are those who can't wait. Cross your fingers and hope that you are not about to be transferred from Victoria. Or that you are not being forced to sell for any of a dozen other reasons.

In my opinion, if you are forced to sell your property in under 60 days, you are likely looking at a 10 percent discount from market value to effect a quick sale.

For the typical home, that's a lot of money to leave on the table.

hap pychucky said...

http://www.vreb.org/pdf/historical_statistics/YE782011.pdf

Kooz

Does it seem resonable that prices
did not move from 1994 to 2001 in Victoria. Reaslestate paterns have repeated themselves in Victoria. Nothing for long periods
than a big move than nothing.

dasmo said...

I use BNS and find them fine but I know one of the head bankers because she was a teller when I opened my first account there. I think I was 10 ha. So I tend to get the best rates and the candid advice. The insurance thing is something to watch for. I got my own life insurance as well, it's a much better thing to do. Why pay a premium that gives you nothing when your house is paid off???

Introvert said...

You may want to read about my experiences moving my mortgage from Bank of Nova Scotia to ING Direct:
http://househuntvictoria.blogspot.ca/2012/03/mortgage-comparison-calculator.html?showComment=1331347203371#c6150251809709991990


DavidL, thanks for directing me to this. BNS is evil. Got it!

Does anyone know anything about how easy or difficult Coast Capital Savings makes switching lenders at renewal time? I might have to dig up my mortgage papers and read through the fine print.

Has anyone here ever renewed a mortgage with Coast Capital?

koozdra said...

hap pychucky

I see your point. Historically real estate here has been a solid bet. No more houses for the proletariat unless your willing to double up.

hap pychucky said...

Intro

They quote their rates on the front page. They are not the blotted rates that the banks have.


Effective July 23, 2012
For residential first mortgages only. Interest rate and approval based on risk profile. Additional fees may apply. Interest rates subject to change without notice.
1 Annual Percentage Rate (APR), compounded semi-annually. If fees or charges apply, the APR could increase.
2 High ratio mortgages, non-residential mortgages and non-owner occupied properties are not eligible. Annual Percentage Rate (APR), compounded semi-annually. If fees or charges apply, the APR could increase.
3Initial interest rate and the APR on a 3-year convertible, closed mortgage, compounded monthly. This is a variable rate product which will fluctuate with the Coast Capital Savings prime rate. If fees or charges apply, the APR could increase.
4 High ratio mortgages, non-residential mortgages and non-owner occupied properties are not eligible. Initial interest rate and the APR on a 5-year Half & Half Rate™ mortgage, compounded monthly. If fees or charges apply, the APR could increase. The Half & Half Rate is a variable rate. When the Coast Capital Savings prime rate goes up or down, the Half & Half rate goes up or down by one-half of the change in the prime rate.
3-Year Fixed Rate - Closed 3.090%1
5-Year Fixed Rate - You're the Boss™ 3.250%2
5-Year Fixed Rate - Closed 3.150%1
3-Year Convertible - Closed 2.900%3
5-Year Half & Half™ Rate 3.100%

totoro victoria said...

I don't know about a bubble. I do think prices would deflate a lot if interest rates went up - but they haven't. Maybe then we could call it a burst bubble - just don't have a crystal ball.

I think prices are high and how could they not be on the higher than average trend side given the long run up. I think they will drop a bit - not sure how much.

Just Jack said...

House prices did slide after the Commonwealth Games in 1994.

And condominiums were hit harder because of the fear of "leaky" complexes.

We do have our cycles, which have followed the Baby Boomer generation. Those cycles have been pushed around a bit by recessions, but the boomers have been the driving force for price appreciation at slightly above the rate of inflation for the last 30 years.

The late 1970's and early 80's were the Boomers buying their first home. This one that began in early 2000's was the wave of Baby Boomers retiring to Victoria. That wave of retiring baby boomers has crested and is now diminishing. Which is one of the reasons why no step ranch style homes have fallen in price more than any other style of home. And why you see very little advertising for retirees, most of the ads are now targeting "young urban professionals".

And now, we are about to have another slide in values. But, unlike the 1980's boom we have robbed the market of the next generation or two of prospective buyers.

That's why this next market correction is going to be a big one. Especially in condominiums. Because there is very few reasons to buy a condominium when home prices are coming down. And we have too many of them.

Since our real estate cycles have been in tune with the baby boomers, do you want to guess what will happen to prices 15 years from now?

You don't live forever.

Leo S said...

Does it seem resonable that prices
did not move from 1994 to 2001 in Victoria. Reaslestate paterns have repeated themselves in Victoria. Nothing for long periods than a big move than nothing.


I'm certainly not about to discount the flat market possibility. Like I have said before, if you had looked at the market in 1995 you would have thought we were set up for a crash, but it didn't happen. Lots of things are different now, but no one has a full understanding of the market, so it could still be flat going forward.

For us it's about taking a look at the "risk" (not real risk, but what are the chances we will save/lose money) over the next year or two. After our offer falling through on a place we have decided to move to a rental house. If prices stay flat we're ahead by a few thousand which will compensate us for the move. If prices decline we're ahead by whatever it declines by. I project 10% decline, so we'd save about $50,000. The risk is that prices go up, but with the current market I think you'd agree that the chance of this is extremely low (< 1-2%). No one can be sure, but I'm happy with that analysis.

hap pychucky said...

Just Jack

next 15 years for Victoria

Baby boomers are not the only factor

Land availability
job growth
Immigration
interest rates
inflation

totoro victoria said...

Extremely low chance that prices would rise rise now. Contrary to historical trends. So low that it is a pretty safe bet to stay put and take your time and see what happens.

hap pychucky said...

Totoro

Historical trends suggest another 4to 5 years of nothing. Great time to be a buyer and not be pressured into a fast decision. At the same time, with everything that is known thinking Victoria will sink 30 to 40% may be wishful thinking.

koozdra said...

hap pychucky

You will not be the only one shocked by the magnitude of the decline. All the other investors will not see it coming either.

hap pychucky said...

Kooz


What investors in Victoria. Maybe in Toronto.

koozdra said...

This is only one listing, but there are many that use terms like "holding property" and "revenue property". These are much rarer these days though.

"RARE!PRIME REVENUE PROPERTY IN THE HEART OF FERNWOOD!...A pleasure to view & a great long term investment!"

http://www.realtor.ca/propertyDetails.aspx?propertyId=12242016&PidKey=1289272619

totoro victoria said...

axeman - i could see it being ten years too.

Just Jack said...

Baby Boomers may have not been the only factor, but they have been the dominate factor.

And they will continue dominate the real estate market. This time by becoming net sellers of real estate.

You can see that effect starting now, as retirement areas are not gaining population. Since 2006 the population of Oak Bay has grown by only 107 persons. And Sidney has declined by 137.

Leo S said...

Land availability
job growth
Immigration
interest rates
inflation


But these factors are constant.
Land has always been a constraint, so it's not pushing prices up more than it always has.

Immigration is not increasing. And in fact Victoria population is increasing much slower than most cities in the west.

Interest rates are at or near bottom, they only direction they're going is nowhere or up.

Inflation is low and looks to remain so.

dasmo said...

"Inflation is low and looks to remain so."
Being a fellow skeptic I wouldn't expect you to take what you are spoon fed so easily. I have long felt the cost of living was going up more than the CPI indicates. My personal index is a block of Armstrong aged white cheddar,the cost of which has doubled over ten years. (only half kidding). They change what is tracked in the CPI all the time so it's easy to manipulate.
check this out

It's American but you get the point....

koozdra said...

Cheese was brought up.

http://www.vancouverobserver.com/food/2011/11/20/mystery-behind-high-canadian-cheese-prices-revealed

DavidL said...

@dasmo

I totally agree. The methods used for calculating the CPI and GDP are rather suspect.

Here's a great video that puts it in perspective:
http://www.youtube.com/watch?v=zPkTItOXuN0

Chapter 16 (Fuzzy Numbers): Dr. Martenson explores how inflation and GDP are measured, how their measurement has changed over years, and what that means concerning the integrity of these government statistics. Substitution, Weighting, Imputations, and Hedonics and their effects on calculating inflation and GDP are each examined. Dr. Martenson traces the social impact of these shady statistics, and finishes by showing how a dishonest determination of inflation further deforms an already flawed GDP calculation.

dasmo said...

This is why I like working in nominal dollars. It's apples to apples without anyone else filtering the data with unknown parameters.
Just watch VREB will start using real dollars now in their stats.

patriotz said...

"There are still lots of buyers for properties priced right."

That is a tautology. A property is priced right if someone is willing to pay that price.

Leo S said...

CPI isn't perfect but its better than just ignoring the issue of inflation entirely. Comparing the last few years you can ignore it with little effect but over the longer term nominal values are about as useful as your grandpas stories about how a coke used to cost a nickel.

Just Jack said...

Grandpa was on Crack!

dasmo said...

That tells me a lot more than telling me a story that my Grandpa's coke cost a dollar...

It's a useful, overall, general, loose gauge to compare living standards of the past to the present, I get that.

In relation to housing it give a loose comparison of affordability over history, I see that.

As it relates to me? I have the money I make, and the price I pay in nominal dollars so I prefer to work with that.

Leo S said...

That tells me a lot more than telling me a story that my Grandpa's coke cost a dollar...


Seems the same to me. When grandpa talks about buying an oak bay house for $10,000, that's equally irrelevant to current dollars as the coke for a nickel. Any comparison to the past is just a question of degree.

dasmo said...

We aren't really arguing about anything. They both have there place. I'm just saying I prefer to hear nominal dollars especially if it's within ten years.

If I borrow money the amount borrowed will remain in nominal dollars, thankfully...

Leo S said...

Lower end of the SFH is very weak right now. Price/assessed value is at 92%, which is just about a record low (last December we saw 91.67% in this segment).

The higher end is holding up much better, with places selling on average at full assessed value.

koozdra said...

"Happy Thanksgiving - HOT NEW PRICE - $384,900 - last sale in this complex was $398,000 & was NOT an end unit! Buyers get off the fence & take advantage of this deal - it won't last!"

What the hell is wrong with you buyers? get buying!!

http://www.realtor.ca/propertyDetails.aspx?propertyId=12276562&PidKey=737933844

koozdra said...

"Retro Cool! Not a Gordon Head box. Why rent when you could live in this art deco style home which has had a makeover inside & out?"

New strategy: Throw in some youth colloquialisms and dis renting.

"Motivated Seller!"

Of course they are motivated. Nobody that uses the word "cool" has half a million dollars any more.

http://www.realtor.ca/propertyDetails.aspx?propertyId=12142254&PidKey=-1258506970

Dave said...

Someone asked,
How do increase interest rates stimulate an economy???

Increasing rates would stimulate business investment and trade, while hindering domestic consumption (esp with consumers so indebted). Rather than feebly explain how rates stimulate the economy, here’s the first and last paragraph from recent FT article. I would post the link but ?it’s not working now.

The Federal Reserve should stop trying to engineer lower long-term interest rates. Further efforts to manipulate the yield curve by driving interest rates lower runs too great a risk of leading us into a “liquidity trap” similar to the one that has plagued Japan.

But it is time to face the simple truth that, as they approach zero, lower interest rates will not automatically create more credit and more economic activity but, rather, run the significant risk of perversely discouraging the lending and investment that we need.


Essentially banks have no incentive to lend to business, and we run the risk of falling into the same trap as Japan.

Keith Sun said...

On a separate note, Marko how much did that one bed penthouse at 834 johnson finally sell for?

Marko said...

I had really good luck with my 834 listings, that was the last unit the developer had and it sold for 394,000.

Marko said...

I had really good luck with my 834 listings, that was the last unit the developer had and it sold for 394,000.

CS said...

"Increasing rates would stimulate business investment and trade, while hindering domestic consumption ... "

That is surely a misconception compounded by a self-contradiction.

How do higher rates stimulate investment? Obviously they don't if investment is made with borrowed capital. But equally, if investment is made with hoarded cash, the incentive to invest is reduced if the return on the uninvested capital, i.e., the interest rate, increases.

And the contradiction is that reduced consumption as the result of increased interest rates will not encourage, but discourage, investment. What's the point of investing in new productive capacity, if demand is falling?

As for the bit about low interest rates risking a liquidity trap, that is the reverse of accepted theory, which holds that if consumption is being postponed, causing savings to increase (or debts to decrease), prices will fall, which will further encourage saving rather than spending because the cost of purchase of any item will be lower in the future than now.

CS said...

Re: liquidity traps

The problem for Japan is that they fallen into a liquidity trap, despite low interest rates, which leaves the Bank of Japan no means to stimulate spending.

The alternative to combating the deflationary effects of debt deleverage with low interest rates is to keep rates high and let thousands of corporations and millions of individuals go bankrupt.

Then those who saved during the debt-fueled boom are able to pick up the pieces at pennies on the dollar, and restore production at a lower cost. Ideally, according to advocates of this approach, mass unemployment destroys the power of labor unions and thus allows wages to fall.

That's what the Ron Paulites in the US want to see. If you have a real secure government job or a depression proof business, like a soup kitchen, this is a solution that works well for you. Your income remains stable or even increases, and you get very rich when the value of the assets you've acquired during the crash revert to their original value during the recovery.

This is how the Kennedy family in the US became rich: Joe Kennedy bought Chicago real estate in the 30's and saw it appreciate 50 or 100-fold by the time Jack Kennedy became president.

CS said...

And the consequences of a general smash induced by sharply increased interest rates is that bankruptcies would clear most debts. Then the economy could be leveraged up again starting with a lower cost base.

So yes, eventually, higher interest rates will encourage investment, but only after a collapse such as we saw in Russia when the Soviet system ended.

There, millions of old people died from hypothermia and malnutrition before conditions necessary for economic growth were established.

Since then it's been 6% GDP growth per year.

koozdra said...

Here's one to watch:

"REDUCED TO SELL! WAY BELLOW ASSESSED VALUE!"

price: $469,900
assessed: $554,000

How far down will 'character' homes have to drop to sell? If it sold at this price (doubt it) then that would mean 85% of assessed.

http://www.realtor.ca/propertyDetails.aspx?propertyId=12179340&PidKey=-1749117058

koozdra said...

"Seller Offers $ 25,000 in Cash Back To Buyer For Improvements"

Assessed: $678,000
Asking: $735,000

After you purchase this property at this insanely inflated price. I will return to you $25,000 of your own money that you may then use however you wish.

http://www.realtor.ca/propertyDetails.aspx?propertyId=12348680&PidKey=1102293417

patriotz said...

Since then it's been 6% GDP growth per year (in Russia).

Since 1991 the price of oil (Brent) has grown from $20/bbl to $110/bbl which is 9%/year. That's where the growth came from.

If it went back down to $20 you'd see a collapse that would make 1991 look mild.

Just Jack said...

Is a cash back a kick back?

A cash back may be legal, but a kick back might not be.

I think it depends on how the purchase agreement is written up. If there is no mention of the cash back or rebate in the agreement, then the lender is being purposely mislead into believing that the purchase price is the full amount. Which forms the basis of their loan to value ratio.

Victoria said...

Anecdotal evidence, when accurate, is my "true north". My neighbours have their house for sale. It is in beautiful shape. It is priced well. 2 months into the listing they get an offer. They counter with modest changes.

They never hear from the buyer again.

And a cold freeze slowly descends deeper and deeper on the landscape.

This happened two days ago. What happens two months from now?

arfenarf said...

(quote)

"REDUCED TO SELL! WAY BELLOW ASSESSED VALUE!"

price: $469,900
assessed: $554,000

How far down will 'character' homes have to drop to sell? If it sold at this price (doubt it) then that would mean 85% of assessed.

(endquote)

That particular jewel is in teardown condition, next door to one of the nastiest rental slumhouses I've seen in a long time. Rest of the neighbourhood is pretty cool, but I wouldn't touch that one with a barge-pole, CHARACTER or not.

CS said...

"If it [oil] went back down to $20 you'd see a collapse that would make 1991 look mild."

But it surely won't. For one thing twenty 2012 dollars don't buy what twenty 1990 dollars bought (consider gold, houses, stocks, or food). And, below $80, exploration will subside, fracking will cease, new tar sands projects will be put on hold and demand will revive.

a simple man said...

@ Victoria - thanks for that. I like to form my opinion on cold hard numbers and well as the anecdotal information from those around me. the market is certainly shifted hard to a buyers market. I remember two years ago in the spring where the buyer had no power and was often buying above asking with no conditions.

I am glad things are starting to regulate so that people can make better purchasing decisions without the specter of "buy quick and with no conditions or lose it."

Dave said...

CS,

How do higher rates stimulate investment?

Higher rates will always attract money looking for higher returns. Consider how much more foreign investment capital would rush into Canada if rates doubled.

And the contradiction is that reduced consumption as the result of increased interest rates will not encourage, but discourage, investment. What's the point of investing in new productive capacity, if demand is falling?


The problem is, you’re only considering the domestic side of the economy. Our future growth is more dependent on foreign trade, especially with emerging economies. Thus it’s important we continue to attract foreign capital towards business investment, that’s directed at foreign trade. I think our only argument lies in what sectors of the economy we‘re considering, as I completely see your point on the domestic economy.

totoro victoria said...

I agree about the listing arfenarf is referring to. I would not buy a house built in 1911. Too much maintenance even if in fairly good condition.

totoro victoria said...

I agree about the listing arfenarf is referring to. I would not buy a house built in 1911. Too much maintenance even if in fairly good condition.

CS said...

"
Higher rates will always attract money looking for higher returns. Consider how much more foreign investment capital would rush into Canada if rates doubled."

If interest rates paid by those investing in Canadian mining, manufacturing, etc. were higher, less would be borrowed and less investment would result. You have cause and effect reversed.

In any case, there's no limit to how much borrowers may pay if they are unable otherwise to attract investment capital. The rates on investment capital are set by the market.

However, if rates on Government bonds and paid by banks to borrow from the BOC are raised beyond a certain point, investment capital will flow increasingly into the bond market, rather than into risky business ventures.

Dave said...

CS, you touched upon the very reasoning in your last sentence ^^ if only you had elaborated on the spreads. I’ll try one final quick way of explaining how raising rates can stimulate the economy, to do with the spreads you mentioned.

Economy shows signs of improvement -> investors sell their safe govt bonds to buy higher-yielding growth investments -> bond yields (fixed interest rates) rise -> BoC follows by raising the interbank rate (variable rates) -> which forces banks to lend to businesses (vs. govt) -> economy improves further. Rinse. Repeat. Feedback loop.

If BoC doesn’t raise variable rates, banks won’t have much incentive to lend (credit formation) as they can achieve their targeted earnings or spreads from safe govt bonds. Spreads = difference between the rate the bank borrows at (interbank rate) and the rate it earns from its investments (bonds or loans or ?)

patriotz said...

Businesses don't want to borrow, if you've been following the news you'll know that they are sitting on record amounts of cash, even Carney is complaining about this.

Corporate bond rates are currently very low for this very reason.

Dave said...

"Businesses don't want to borrow" except when they do for new start-ups, debt financing, working capital (even if they are also sitting on some cash reserves)... some corporate bond yields are low, but you neglected to mention that some are high.

pipewrench said...

CS said...

"If it [oil] went back down to $20 you'd see a collapse that would make 1991 look mild."

Totally agree. That is why the Federal reserve is printing to keep these prices elevated to stave off deflation while De-leveraging takes place.

The problem is that the middle class income in the US is dropping and wealth is becoming more and more concentrated. What masked this was more consumer debt to fuel spending and that is over.

Canada is going to go thru the same thing but we are going to face a major problem as our wages are much higher relative to the US. I hope this can be slowly worked thru without to many shocks.

LeoM said...

PCS Account ??

Some blog posters often refer to their PCS accounts. I have a vague understanding of what these accounts are, but I have no idea of how to acquire a PCS account, the cost, how it works, if you need to sign a "buyers contract" with a realtor before getting a PCS account, etc.

Can someone post some specific information about these PCS accounts? Or, if it has been previously explained, then please post a link to the explanation.

Thanks in advance.

koozdra said...

We're in for a wild ride.

From the article:
"According to the latest data from Will Dunning, Chief Economist of CAAMP, less than 4 in 10 buyers have 20% down payments."

From the comments:
"Given that many of those people get their down payments from their RRSPs (which ostensibly is debt to oneself and must be paid back), bank incentive programs, and loans from family, the number of buyers with <20% is probably in reality higher.

A 15% correction in the market is check and mate."

http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2012/10/insured-buyers-are-the-majority.html

patriotz said...

It's even worse than it appears at first glance. From the same article:

"This survey included both first-time and repeat buyers."

Less than 4 in 10 of all buyers, including those who are trading from a property they already own, put 20% down on their new property.

SuperBob said...

LeoM: PCS stands for Private Client Services and you get an account from a realtor for free. They'll need basic info like area, property type, and price range but you can also be very specific if you wish. Emails come whenever houses fall within your PCS criteria. Neat to have because you can see price changes and find out what houses actually sold for.

Victoria said...

I agree Simple Man, any time a buyer purchases in a hurry and sans conditions it becomes a crap shoot.

There have certainly been conditions like those for buyers in the past and those days will come again. Generally potential buyers know the 'opening day and time' in advance. It is wise to do as much research ahead of time as possible (neighbourhood stats, walk by property, assess roof, general condition of yard/house, neighbours vehicles, ANYTHING at all you can see). Get previous sale price, any tax info, assessment info, etc.

And then close your eyes and step off the cliff.

Todays juncture has us entering the other side of that equation. Time to be very, very patient and very, very smart.

There is money to be made in each scenario although this 'side' is much preferred for obvious reasons.

Happy Thanksgiving!

koozdra said...

from VREAA

http://business.financialpost.com/2012/10/04/everything-you-need-to-know-about-canadas-housing-bubble/

jesse said...

" I do think prices would deflate a lot if interest rates went up"

Data released today show that mortgage equity withdrawal in the US is near all-time lows even with record low interest rates.

A funny world, when negative real rates say you should be levering up on debt is the exact time when nobody wants to. Canada is different of course.

totoro victoria said...

I'm not sure what your point is Jesse.

In Canada, prices would likely fall faster if rates went up.

What does that have to do with not US citizens not maximizing home equity withdrawals?

EagerBuyer(Not) said...

Financing troubles....

“The phone is ringing off the hook from clients who are being turned down at chartered banks.”

Alexandrahere said...

Happy Thanksgiving All

Here are my stats for the past three years for SFH, in Vic, OB, ESQ, SE & SW with a min of 2 beds and 2 baths priced between $375K & $775K.

Oct 1-7 2012

Sold:23
Avg Price: $598K
Med Price: $578K

Oct 3-9 2011

Sold: 16
Avg Price: $559K

Oct 4-10 2010

Sold: 23
Avg price: $553K

Last week 10 out of the 23 sales went for below BC Assessment and 7 of them had secondary suites. Also, 16 of the sales were in Saanich East. Within this criteria, there were no sales below $450K.

I am going to start tracking the average sale price of homes in Gordon Head including Mount Doug and Lambrick Park areas, using the same criteria.

Last week in those areas of SE the average price was $649K.

Looks like people that bought at the low end i.e. ($375K - $475K)in the last few years in these areas simply will not or cannot put there homes up for sale.

Introvert said...

Alexandrahere, I would be interested in your tracking of Gordon Head homes, as that's where I live. Cheers!

JustWatching said...

Introvert,

Why are you interested in the weekly sales and price stats for Gordon Head? Didn't you say you were happy with your place and had no intention of selling? I also remember you posting that you didn't care about short term fluctuations in the market because you were there for the long term.

Maybe you are just getting nervous about your "investment".

Leo S said...

Or maybe it's just interesting to know what the neighborhood places are selling for. Makes sense to me.

Alexandrahere said...

Just Watching: The reason I am going to track Gordon Head area is that most of the homes there were built between 1970 & 1980. The homes are similar in size and floor plans. Then I can compare what they are selling for and that of similar homes built in the 60's say in Rockheights/Parklands areas of Esquimalt, Landsdowne area of Oak Bay.....and others here can compare homes that are also similiar say in View Royal, Colwood and Langford. It will give a truer picture.

And yes, I own my own place as well and probably will never move again. However, you never know, as my feet are itching and maybe one day I will purchase another investment property to be passed along to my family one day.

Introvert said...

Introvert,

Why are you interested in the weekly sales and price stats for Gordon Head? Didn't you say you were happy with your place and had no intention of selling? I also remember you posting that you didn't care about short term fluctuations in the market because you were there for the long term.

Maybe you are just getting nervous about your "investment".


Leo S took the words right out of my mouth! Statistics are just interesting to know; and I'm far too lazy to crunch the numbers myself. So I'm just glad Alexandrahere is doing it.

I obviously want the value of my house to rise, but I don't see that happening in the near future. Am I nervous? No, because I am in it for the long haul.

I'll put it this way, I like where I live so much and my long-term confidence in Victoria real estate is so strong that if my house's value dropped 40% from the peak I still wouldn't consider selling. In fact, that would be the absolute worst time to sell: it would transform a huge paper loss into an actual one.

Marko said...

Tuesday, October 9, 2012 8:00am

MTD October
2012 2011
Net Unconditional Sales: 106 483
New Listings: 276 1,086
Active Listings: 4,565 4,687

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

DavidL said...

Thanks Marco. It looks like sales have picked up a bit, but so has the sales/listing ratio. October last year had 0.44 sales per listing (483/1,086) while last week was 0.38 sales per listing (106/276). Inventory is climbing ...

koozdra said...

Another price drop hero

Assessed: $1,079,000
Asking: $874,900

Bear mountain has robbed demand for these types of properties.

http://www.realtor.ca/propertyDetails.aspx?propertyId=12145451&PidKey=-1093759824

JustWatching said...

Sales were down in September and October doesn't seem to be doing much better.

What is the reason for the downturn?

Carol Crabb President of VREB has the answer

So the question is, has the nice weather kept homes sales down? June was very busy and the weather was very poor. July was about the same as last year and the weather was marginal - getting better but not quite there yet. Then August hit and with it those lazy, hazy days of summer and home sales fell off like nobodies business! Everyone would rather be camping or swimming or holidaying than they would be buying a house. So sales slumped and we're only just now starting to see it pick up a little bit again. How much and how quickly we'll have to wait and see for another couple of weeks.

JustWatching said...

If you are a seller there is no need to panic! According to Tony Joe, former VREB president, things aren't too bad. There are even multiple offers happening.

Tony Joe on Youtube

EagerBuyer(Not) said...

hap pychucky,

Last week I said I would make you some espresso coffee. Here you go...

IMF warns about Canadian housing market, debt levels

The International Monetary Fund is warning about the housing market's threat to the broader economy, noting that the government might again need to step in if household debt levels continue to rise.

"In Canada, the key priority is to ensure that risks from the housing sector and increases in household debt remain well contained and do not create financial-sector vulnerabilities," the international body says in its twice-a-year report on the global economy that was released Tuesday.

"Thus far, mortgage credit growth has slightly decelerated in response to the measures taken by the authorities, including tighter mortgage insurance standards. If household leverage continues to rise, additional measures may need to be considered."

Ottawa has moved several times in the last few years to curb housing-related debt, stepping in to limit how long Canadians can take to pay back their mortgage debt. In June, Finance Minister Jim Flaherty set the limit for CMHC-insured mortgages at 25 years.

reasonfirst said...

"In fact, that would be the absolute worst time to sell: it would transform a huge paper loss into an actual one."

And if buy then who is better off? :-)

a simple man said...

Sales in Oak Bay seem nearly non-existent for the past week. Slower times in the high end?

totoro victoria said...

Assuming that drop actually occurs. I would prefer not to gamble on a 40% drop with no increase in interest rates. It is not a logical comparison.

There is always a situation where it would have been better, the trick is not to be able to ride out the ups and downs and live life comfortably in between.

DavidL said...

@JustWatching
So the question is, has the nice weather kept homes sales down?

According to Carol Crabb's logic, if poor weather and sales are directly proportional - sales should spike in November. ;-)

Introvert said...

And if buy then who is better off? :-)

Depends what the interest rates are. And the size of the down payment. And the condition of the property. And its location.

hap pychucky said...

EagerBuyer

Oh boy the IMF warns about housing!!! They have never been wrong! Better sell my house.


koozdra said...

"Incredible value in todays complicated real estate market."

Indeed, very complicated.

http://www.realtor.ca/propertyDetails.aspx?propertyId=12390304&PidKey=978293621

Introvert said...

There is always a situation where it would have been better, the trick is not to be able to ride out the ups and downs and live life comfortably in between.

Totoro, you're a paragon of reason.

EagerBuyer(Not) said...

Is this you?
- Want a simple answer in today's complicated RE market
- Looking for a deal
- Itching to lowball
- Need a house furnished by LazyBoy

Well... You might want to take a look at this For Sale By Owner.

Craigslist - Fernwood - WILL ABSOLUTELY CONSIDER ANY OFFER - MUST SELL NOW

Just Jack said...

Looking at the edge of our market place, shows how prices are continuing to roll back.

A 2200 square foot 1993 built home on a 1.6 ocean view acres on Salt Spring sold in June, 2004 for $540,000. The same home resold this week for $609,000. That's a 13 percent increase over 8 years. That's equivalent to almost a 40 percent drop in the median price for homes in the core district's of Victoria. - OUCH!

Or a newer home in Sooke's Sun River estates that was purchased in July 2009 for $460,000 and this week resold for $392,500. That's a 14.5 percent loss over the last three years.

Another trend that I am seeing emerge is that any property that is orientated to retirees, is getting beaten up in this market. From condo's for 55 and older to no step ranchers. The retiree market in Victoria is weak with these types, styles and locations declining faster in price than most others.

The condo market in the Western Communities has now almost rolled back to prices not seen since Christmas 2005.

Yet, the upscale home in the upscale neighborhood still seems impervious to a correction? But that stands to reason, as the buyer for these homes is typically loaded with cash and is not having a difficulty in obtaining financing - yet.

My opinion, is that the days when we thought of a mild correction are now gone. This has the potential of being a major correction and most likely the most serious correction that Victoria has ever experienced.

koozdra said...

"Builder may carry a 2nd mortgage for the first 2 sales."

'may'

http://www.realtor.ca/propertyDetails.aspx?propertyId=12488607&PidKey=328408349

koozdra said...

"Nobody needs to sell, you can just wait out the market" -all bulls

"SELLER TRANSFERRED and Motivated! FLEXIBLE POSSESSION...PRICED BELOW ASSESSED VALUE and/or replacement cost."

This could be a lie to elicit some offers but I can imagine if somebody is actually being transferred they are very screwed.


http://www.realtor.ca/propertyDetails.aspx?propertyId=12488620&PidKey=-911923766

DavidL said...

@EagerBuyer

Re: 1716 Fernwood on Craigslist

They are asking $540K, but assessed at $496K. I think that the owners "bumped up" the asking price to see if someone would make a comparative lowball offer - still hoping to get more than the assessed value. I'm guessing that they'll have a hard time selling at the asking price with only 1400 sq. ft. of finished area.

hap pychucky said...

Kooz

Cannot pay me enough to listen to those go carts all summer long.

hap pychucky said...

JJ

The outliners from Victoria. The islands, Langford, Sooke, beyond Saanich east. These area are the first to suffer in a downturn.

dasmo said...

e: 1716 Fernwood on Craigslist

Yep, they are fishing.
assessed at $496K
on a main street with no boulavard or anything as a buffer - 20k
bus stop directly in front of the house - 25k

450 should be the asking price.

koozdra said...

"ANOTHER economic mess looms on the horizon—one with a great wrinkled visage. The struggle to digest the swollen generation of ageing baby-boomers threatens to strangle economic growth. As the nature and scale of the problem become clear, a showdown between the generations may be inevitable."

http://www.economist.com/node/21563725

Alexandrahere said...

Koozdra, I'm not 100% sure, but it seems to me that if you are in the military or perhaps RCMP, and you are transferred, the government pays for your move plus any losses on the sale of your home. Anybody(question mark that is not working again).

But, they might now belong in one of these categories.

totoro victoria said...

Yes Introvert... Not. How did that word get in there?

patriotz said...

I would prefer not to gamble on a 40% drop with no increase in interest rates.

It's the person who buys who is gambling on a 40% drop (i.e. against it), not the person who decides against buying. Someone who doesn't own neither gains nor loses from price changes.

Introvert said...

Yes Introvert... Not. How did that word get in there?

That's funny. My mind removed the "not" automatically. I didn't realize it was there until just now.

DavidL said...

@koozdra
Great link to the Economist. Thanks for the humourous real estate links.

@Alexandrahere
Not sure about the RCMP, but yes - that is correct for members of the Canadian Forces.

Roger said...

Just Jack said Another trend that I am seeing emerge is that any property that is orientated to retirees, is getting beaten up in this market. From condo's for 55 and older to no step ranchers. The retiree market in Victoria is weak with these types, styles and locations declining faster in price than most others.

I track several areas north of Victoria including the Cowichan Valley and Parksville Qualicum. Sales up there are anemic to say the least with the market over 500K nearly dead. Real estate agents tell me that the number of Albertan retirees moving to the Island is way down. I suspect many of them are buying winter homes in California or Arizona.

Victoria, with its higher priced housing, must have fewer retirees moving here as well.

totoro victoria said...

patriotz - if you never plan to buy you don't gamble. if you are waiting to buy this is a gamble. as you will note, i spoke in the first person indicating my preference as i do plan to buy another property.

JustWatching said...

Totoro Victoria said if you are waiting to buy this is a gamble

Why is it gambling to sit and wait for RE prices to drop?

Do you really think prices are going up in the near future? Interest rates won't be going anywhere with Bernanke holding the US rate at zero until 2015.

totoro victoria said...

I think it is not entirely certain. How can it be? If you truly could predict the future it would not be a gamble.

I suppose it is semantics. Gamble implies signficant risk. Perhaps waiting right now has a lower degree of risk than that, but it is still a risk.

Right now if you choose not to buy and you only have 20% down you might be better off to wait, but you also could be in the same position as now for a bit.

If you turn down a house that really works for you because you think prices will drop significantly then maybe you are right, but maybe you aren't. That is the gamble.

koozdra said...

"If you turn down a house that really works for you because you think prices will drop significantly then maybe you are right, but maybe you aren't. That is the gamble."

Waiting is not a gamble. A housing decline is certain and has begun. The only 'risk' you have if you wait is if prices go up. They will not. Learn about the CMHC and how it has lead to this bubble.

The vacancy rate is about to sky rocket as people pull their houses off the market and try to rent them. They will fail because there aren't enough people left to fill them all.

totoro victoria said...

koozdra - it is great that you have a crystal ball and know what all the risks of waiting are for everyone. i don't.

what i do know is that everyone has different circumstances and numbers and emotional benefits count too.

for example, perhaps you have fairly high rent. perhaps you have just been given notice to move out because your landlord is moving in. perhaps you have a child who has developed allergies and your rental home has carpet. perhaps you are very handy and can renovate your own home.

perhaps your husband or wife is planning on taking an extended maternity leave (ie. never going back) and you would like to qualify and purchase a home now knowing that your rental suite will make owning cheaper than renting and you won't otherwise qualify.

perhaps you breed dogs and can only do this if you own. maybe you are a massage therapist who wants to work from home and does not want to have to move.

maybe you are good with numbers. perhaps you run the numbers and discover right now that renting is cheaper than owning because you have a home business and/or a suite and you can get a 10 year mortgage for a very very low rate. perhaps you run the numbers at a 1% increase in interest rates and realize what a big deal this is on a $450 000 mortgage.

maybe you are not convinced that prices are going to drastically tumble. maybe you like the fact that there is not very much competition right now for properties and you can lowball a less desirable place. maybe prices will stay flat or drop a little more but you have to spend $50,000 extra renovating the not quite perfect home you find later.

so, although it might be the right time for lots of folks to wait... maybe, just maybe, there are some other factors at play for those who do choose to buy now.

anyway, only time will tell imo.

koozdra said...

I do not have a crystal ball and I'm very good with numbers.

Your arguments remind me of stories I have heard of people that didn't want to leave their houses before Katrina. "this is my home, I can't leave", "I'm too old to go anywhere", "those forecasters don't know what they are talking about, it'll blow over".. the list goes on. When Katrina actually hit, these people had to be rescued from their homes.

The government has declared war on mortgage debt. Without buyers prices will decline. A natural conclusion derived from the available facts.

There are times when it is dangerous to buy into the housing market. This is one of those times. A major decline is eminent. I'm willing to put my reputation as an anonymous poster commenting on an obscure blog on the line.

Doug N said...

Thanks to all for the great insights. Here's a concept I haven't seen mentioned that I thought I'd throw into the fray.

In the past, myself and others I know would make extra payments on their mortgage to try to pay it down early. What occurred to me is the huge difference those extra payments made say, 20 years ago when the boomers were paying down "cheaper houses at high interest rates". Today a mortgage is an unmovable mountain compared to back then.

For example:
Mortgage A: $200,000 @ 12% / 25yr.
Mortgage B: $400,000 @ 3.8% / 25yr

Both have payments of approx. $2,060 / month.
Both have a total cost including interest of approx. $619,000 over the entire term.

Now let's suppose you receive a small inheritance, a bonus, or save some extra cash of $10,000 and apply it to the mortgage with 23 years remaining.

The net benefit of paying $10,000 on the mortgage with 23 years remaining:

Mortgage A total cost is reduced by approx. $135,500, making total cost of mortgage $483,500

Mortgage B total cost is reduced by approx $ 23,500, making total cost of mortgage $595,500

Many of that generation, myself included, made these payments multiple times and really went after the principle resulting in HUGE gains on the total cost of their homes.

Today, I believe there are many who prudently try to pay down the principle when extra funds are available, but sadly they will still be left with a mountain of debt that can't be made to disappear like it did in the past.

Leo S said...

@koozdra

Just to be devil's advocate:
The year is 1995. In the previous decade real house prices doubled and peaked in 1994. Since then we've seen some decline (~9%) and the situation looks like this. We have eclipsed the crazy bubble of 1981 by far. Clearly prices are going to drop hard...

Leo S said...

@Doug N.

This is an excellent point that hasn't been made enough. Low rates can bring the monthly within similar ranges as when prices were lower, but it's much harder to pay off the mortgage. In the end you still have to somehow come up with half a million dollars, whereas diligent savers in the past could pay off their places much faster.

dasmo said...

Another way of looking at it is:

Mortgage A: $200,000 @ 12% / 25yr.
interest paid after 10 years $222,316
Balance $174660
or 12.67% of principle paid.

Mortgage B: $400,000 @ 3.8% / 25yr
interest paid after 10 years $130,320
Balance $283,007
or %29.25% of principle paid.

Leo S said...

@Doug N. Your numbers seem to be off though. Reducing the 200k mortgage by $10k results in total mortgage cost of $588k versus $602k for the $400k mortgage reduced by $10k.

Just Jack said...
This comment has been removed by the author.
Doug N said...

@Leo S

I may be a bit off as I used a couple different methods, but if you just compare a $200k mortgage with a $190k mortgage both at 12%, then you have to reduce the amortization to 20 years on the 190k mortgage to keep the same monthly payment, and then the big savings become evident. (also I used 23 years for the 10k payment)

Maybe another way to say it is that today's houses are a "realized debt" where as yesterday's high interest rate cheaper houses where mostly a "paper debt" only realized if you went full term.

Doug N said...

@dasmo

That's a good point. Future outlook for interest rates may be the difference between then and now, but that's been discussed.

Considering how little principle was paid in the early years of a mortgage back then, I guess lump sum payments were almost a necessity!


mrmike said...

The Real Estate world in Victoria is at a grinding halt ONLY because these guys can't get a mortgage anymore.
Someone in the Fed will step in to sort this out in short order.
They rely on perpetual growth...they feed off it.

Leo S said...
This comment has been removed by the author.
ArtVandelay said...

If condos get any smaller in Victoria I think we'll start seeing more swings like this on the golf course...

Condo Owner Golf Swing

patriotz said...

The only 'risk' you have if you wait is if prices go up.

No, the only risk you have if you wait is that rents go up.

Nobody has to buy at any time so a change in prices is never a risk for those who don't own.

Marko said...

Today, I believe there are many who prudently try to pay down the principle when extra funds are available, but sadly they will still be left with a mountain of debt that can't be made to disappear like it did in the past.

When I completed on my condo last year I put down 20% even thought I had a lot more to put down. In terms of paying it off, I'll take as long as possible - no extra payments here.

My mortgage is a variable in the low 2s; over half of my FIRST payment went onto principal. I rather keep the money in my various investments including TSFA and other. All of my investments pay solid dividends, Rogers, BMO, TRP.

I don't see the hurry to rush out and pay off my mortgage in this environment.

a simple man said...

"My mortgage is a variable in the low 2s; over half of my FIRST payment went onto principal."

So, you were paying about 45% interest on that payment, while you money was making 3% after tax? I must not understand.

dasmo said...

I think what Marko is trying to illustrate is THIS

When you have a mortgage contract interest is front end loaded. So there is a benefit to starting your mortgage at a lower rate....

koozdra said...

"The reality is that people have goals and dreams."

These kinds of statements are what have led to our current predicament. People know they can't afford half a million dollars for a house. but, "It's my dream to own a home" pops into their minds and they buy outside of their affordability. It's my dream to own a Lambourghini, should I go into extreme debt to buy it?

I agree completely nobody needs to buy. Now is the worst time to buy as a first time home buyer. If you have money to waste and "don't care about a decline" then why not buy 10 houses? You can own the entire block if the CMHC will insure it and the bank is willing to lend you the money.

First time home buyers are already in a heaping shit of trouble because of their dreams to own. I know several people on the island that are already under water and this is only the beginning of the decline.

My dream is to own a house but I know I can't afford these ridiculous prices. I make the prudent decision to wait and not let my dreams influence making stupid financial decisions.

Nobody would get these crazy mortgages if it wasn't for the CMHC. Now the government is starting to agree with me. No one will now be get financing because they have a heart beat anymore.

Marko said...

"So, you were paying about 45% interest on that payment, while you money was making 3% after tax? I must not understand."

You are correct, you do not understand.

Marko said...

"45% interest on that payment" is equivalent in my situation to about $300/month. The money it would take to pay off the mortgage and hence eliminate "45% interest" generates a lot more than $300 after tax based in dividends alone.

Not to mention since I started investing in 2009 every single CND dividend paying company has raised their dividend at least once. I have shares of BMO at over 10% book dividend. Even the current yield is 4.9%.

Marko said...

^Every single company I've invested in.

Marko said...

If your mortgage is 3.5%, sure different story, need to do a bit more math in that scenario....but for those who got in on the prime minus .6 to .9 variable mortgages last year I don't see the rush to pay it off while prime sits at 3%.

dasmo said...

At 2.9% there is no rush to pay down early since so much of your payment is going to principle anyway. Better to invest and save outside so if and when the event comes that rates go up you can pay down the mortgage then, with cash that has grown.

a simple man said...

But you still pay that interest on the front end, every month. A little less as a proportion every month, but the front end is what gets you.

I am pretty sure I understand.

But I hate debt, so...

koozdra said...

Who wants to be the first?

http://www.realtor.ca/propertyDetails.aspx?propertyId=12146776&PidKey=-624067003

http://www.realtor.ca/propertyDetails.aspx?propertyId=12146777&PidKey=20918058

http://www.realtor.ca/propertyDetails.aspx?propertyId=12146778&PidKey=-1427278913

http://www.realtor.ca/propertyDetails.aspx?propertyId=12146779&PidKey=-782293852

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