Victoria, BC real estate blog - "because we never know when interest rates will be increased to stimulate the economy" ~ VREB
Thursday, March 14, 2013
Time for some feedback
Unless you've been living under the proverbial rock, you'll know what to do here...
163 comments:
Anonymous
said...
I voted "more posts" just because I'm greedy, but really I think Leo S. is doing a fantastic job as host, and I am very happy to have found this place.
I'll add that, as a would-be buyer, my favourite comments are the ones about specific properties in the region, whether interesting or outrageous.
@info The article is talking about home equity, not down payments.
Right, and average home equity for mortgage holders is something like 60%. So clearly the only way it could be 6% is if it was home equity (aka down payment) for first time buyers. So what is it? What measure was 48% in 2003 and 6% is 2007?
If people borrowed 100's of 1000's of $$$$ in 2012 our economy would be booming like crazy... I'm not a big believer in the accuracy of these stats but sheesh, they are reasonable estimates based on data collected and math. I can't condone just making sh*t up! Sorry Canadians do not only hold an average of 6% equity in their homes. The statement is irresponsible and even idiotic.
"The only way this could have happened is that homeowners who had bought at lower prices have massively borrowed against their properties."
A lot of people I know in OB are off in Disneyland or Hawaii right now and I know that many LOCs are getting hit for the expense. It is truly unbelievable to me.
From Statscan "According to the 2008 Survey of Household Spending, there were 13 million households in Canada, of which about 65% owned a home. Among homeowners, 57% made a mortgage payment in 2008 and the remaining 43% were mortgage-free."
As pointed out above mathematically impossible for there to be 6% average home equity in Canada unless you are talking about some very limited subset of recent buyers.
I think LeoS is doing a great job with the blog. I look forward to each post.
My question is: are there any bears left in Victoria?
I know if I was here in 2009 and everything rebounded like it did, I would be gone for sure. This also implies that if the same thing happens now, I'll be leaving also.
Anyway the decline is here, the wait is over.
Leo, I was thinking about our conversation about betting that interest rates are going to remain low.
I'm making a different bet. I'm betting the housing market in Canada will experience a US style housing collapse. Except worse.
I like the range of views, the interesting anecdotes and the data.
That said I wouldn't mind some guest author posts from time to time or some different topics - but the focus should stay on Victoria and surrounding RE.
For every dollar of disposable income they make, Canadians owe almost two-thirds more than that in consumer debt, new data out of Statistics Canada showed Friday.
The statistics agency reported Friday that Canadian debt loads were higher in all categories at the end of 2012, with mortgage debt hitting $1.1 trillion and consumer debt at $477 billion.
New listing in OB. Check out the grammar and caps usage (Introvert, enough to keep you busy for a spell). I love the end "Price to Please" - I get to set the price? Awesome! And "elcove" - what exactly is that?
Is this why we pay "professional" realtors tens of thousands of dollars?
"Quaint and Sunny Estevan. First Time on the Market in about 40 years. This Character Home Offers 3/4 bedrooms 2 bathrooms & just over 3000 sq. ft. of Comfortable Living. Spacious & Elegant Livingroom w/ Wood Fireplace. Oversized Formal Diningroom. Oak Country Kitchen with Laundry elcove. Sunny Entertainment -Size Deck. Hard Wood Floors in both upstairs bdrms, hall & under carpet in LR. Updated Main Bath. Fabulous Space Downstairs with Another Bdrm, Den & Bath. Huge Family Room with wet bar and or 2nd Kitchen. Easily Suited for the Extended Family. Cozy Woodstove. Separate Single Garage w/Workshop/hobby Area. Mature and Well Maintained Lanscaping. Stroll to Estevan Village or Willows Beach. A Home to Hang your Heart... Price to Please"
@Leo 49k is 10's of 1000's not 100's.... I have friends that borrowed about that much and renovated a suite and consolidated credit card debt. The have more cash flow each month as a result....
@kooz, you never know, the lust can take over. One half has a cool head and I'm giving my assessments much to the estate agents chagrin. I nailed it with what the last two they looked at sold for! I think they will be fine. As we all know, sellers can be a sticky bunch on price and tend to over value based on sentiment. In the end they have set their price threshold and are sticking to it...
I agree with your formula simple man. Your formula represents tomorrows prices but that house might sell close to asking. Still some house hornies out there.
Yes, subprime, there are still some people that will buy almost no matter the price and that is certainly their choice.
Interesting that the last four sales on Dunlevy have been for below assessment (this house is up for $729,900 and assessment in $717,000). And some of those other houses have been either completely upgraded (flip) to very good condition - and this was last year when the prices were a bit higher. There are still no pictures up on the listing, but unless it is completely upgraded (new kitchen, plumbing, wiring, etc) then it has no right to be over assessed.
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Just as I pushed publish - the pictures are finally up - looks pretty original to me (I don't think you can still buy carpet like that), so the minus $100,000 estimate from earlier may have been optimistic.
Re: "My question is: are there any bears left in Victoria?"
In response I will repost what was the last comment on the last thread, which was in response to Introvert's remark that despite the 2008 financial crisis we have seen the "slowest correction ever."
But it's correcting.
So who wants to buy within 8% of the peak in a correcting market, with a 30 or 40% downside potential?
The correction has been slow because folks have been slow to perceive that a correction has begun.
And there is a logical connection between the financial crisis and a slow correction. The financial crisis gave rise to record-low, emergency real interest rates.
Many first-time buyers were seduced by the zero real interest rate policy to take a huge leveraged gamble on real estate. What many are playing with is their life-time disposable incomes.
That is why RE promotion is so critical. Unless the crazed hope of an ever inflating RE market can be maintained, prices will subside.
Once a negative price trend is clear to all, a collapse will be inevitable.
To some, a 40% correction is inconceivable, but it seems readily conceivable if you consider particular cases. For instance, this was listed today at 21% over the BC Assessment Authority evaluation.
Well it's a nice house, but it's not exactly pristine. And it likely has single-glazed windows throughout, and a huge heating bill. Much of the 4000 plus feet of finished space is in the basement. The bedroom color schemes would not suite everyone. And the garden is not exactly a work of landscape art.
So what's so unlikely about the price of such a property falling to say 21% below the current BC Assessment Authority valuation?
And, of course, anyone with the means to buy such a house would most likely spend a hundred thousand or so on fixing it up, without greatly affecting the resale price several years into the future.
Yep just saw the pics. I was looking at the wrong house. Should sell around 700K unless there's multiple offers then maybe more. Young familes with kids are lining up to get into Estevan.
I'm making a different bet. I'm betting the housing market in Canada will experience a US style housing collapse. Except worse.
While I can't see that happening, I gotta say I can't explain the differential in house prices between the two countries. I think the US is still significantly undervalued, but the mind boggles at how cheap real estate there is. Reading forums there about people buying houses it's like they're talking about toy houses given the prices. Then again I don't understand why beer is half the price there either. Canadians get shafted on just about everything.
I have friends that borrowed about that much and renovated a suite and consolidated credit card debt. The have more cash flow each month as a result..
Good example of people living beyond their means. They have credit card debt because they spend more than then make. The only reason they got away with it is because of house price appreciation.
Yep just saw the pics. I was looking at the wrong house. Should sell around 700K unless there's multiple offers then maybe more. Young familes with kids are lining up to get into Estevan.
I wish they would stop lining up. Just go buy in Sooke for a while.
Good example of people living beyond their means. They have credit card debt because they spend more than then make. The only reason they got away with it is because of house price appreciation..
This is the Oak Bay Way for 50% of the people here, IMO.
is the developer also going to throw in a lifetime of cleaning services for all of the eggs that will be thrown at the most hated house in Oak Bay as well?
"Good example of people living beyond their means. They have credit card debt because they spend more than then make. The only reason they got away with it is because of house price appreciation."
False. They live within their means. Getting a masters degree can be expensive as can changing careers. These moves have resulted in greater income and, like i said, greater monthly cash flow. Hardly living beyond ones means. You really do see the world through bitter tinted glasses...
As for bitter tinted glasses, not sure why I'm supposed to be bitter. I'm not the one having to amortize my credit cards into a lifetime mortgage to stay afloat.
You can live your entire life like a miser without incurring an ounce of debt and by most standards you would probably come out the loser in this game of life. There are times when living in squalor and without debt is necessary and times when it is not. I did so when going to university to minimize my DEBT. I also did so when saving to leave my job and start my own business, paying off my student loans and credit card debts. This paved the way for me to eventually go into DEBT to buy a house etc....
..."If you can make one heap of all your winnings And risk it on one turn of pitch-and-toss, And lose, and start again at your beginnings And never breathe a word about your loss;"..."Yours is the Earth and everything that's in it, And - which is more - you'll be a Man, my son!" So man up and borrow ;-)
There are a variet of reasons that explain the severe drop in the ratio of equity to house value over the past 10 years.
Many boomers have sold their properties to move up to a newer, bigger house. Many pushed the limits and bought as much house as possible, eliminating their strong equity position and putting themselves back in the position of many new buyers with little to no equity. This, of course, was due to cheap and easy credit.
The 0-down mortgages became policy which, of course, decreased the average equity as well.
The article talks about the ratio of equity to house value. The fact that house values more than doubled would have caused this ratio to drop significantly as Canadians obviously chose to siphon off much of that home equity to pay the bills as the economy became weaker and jobs were lost.
"About 30% of properties in Canada are mortgage free which means that the owner has 100% equity."
If 30% is accurate then obviously 6% is too low.
However there has been a dramatic decrease in the equity to home value ratio in Canada over the last 10 years. This is exactly what happened in the U.S. before their market crashed.
I have the opportunity to buy an O/B home privately. 1910 3 bedroom bungalow needs updating and new roof. I realize it may be better to wait untill prices drop further but I've got to look at this. I like simple man's formula {assessed value - update expense) * .8 but I think that may be too aggressive for today's market especially in o/b. Any thoughts besides "DON'T DO IT!!!" would be appreciated.
You can live your entire life like a miser without incurring an ounce of debt and by most standards you would probably come out the loser in this game of life. There are times when living in squalor and without debt is necessary and times when it is not. I did so when going to university to minimize my DEBT. I also did so when saving to leave my job and start my own business, paying off my student loans and credit card debts. This paved the way for me to eventually go into DEBT to buy a house etc....
Credit card debt != mortgage debt. Credit card debt is not part of any sound financial strategy.
"Credit card debt != mortgage debt. Credit card debt is not part of any sound financial strategy."
False again. Credit card debt can be advantages because it is most flexible from a cash flow perspective since you have control over the payments you make.
Credit card debt does not equal mortgage debt. A mortgage is usually half the interest rate and is paying for an asset that over the long run will appreciate... If you don't own a home your credit card rate is probably even higher. My CC rate is 7%. My HELOC is 3.5%...
However there has been a dramatic decrease in the equity to home value ratio in Canada over the last 10 years. This is exactly what happened in the U.S. before their market crashed.
The decline has not been dramatic. I'll post a chart in the next article. Same for the US, the dramatic decline did not start until after they corrected.
@subprime11 assessed value - update expense* .8 isn't a bad formula as a starting point IMO. This will at least give you a realistic number that you can evaluate against how much more you are willing to pay to actually get the place ;-)
Another way to calculate is non waterfront, decent location, 5000+ lot, OB = $75 -100/sqft depending on exact location and features. Then evaluate the value of the building. If it's a cruncher then consider the demo cost. If it's a reno candidate then consider the depreciated value of the building.
I don't think assessed value, less updating x .80 is going to cut it in OB. People can get more than that for their place.
I think assessed value less updating might get you closer to a deal. Then again, it would have to be property that was a difficult sell for some reason for that to fly.
Finally, 1910 is old. I don't buy past 1950 myself just because of the significant issues in those older homes. If you are really handy it might not be as big a deal.
It depends, I like old places. They are built from better materials a lot of times. If you get one that had already had its utilities upgrade you are laughing. Those old places were built to last! My place has original windows and isn't a fortune to heat. Plus my windows will never lose their seal like those 70s windows....
Thanks for the feedback you guys. It's a solid place but I'm starting to think it's a teardown. Leaky roof let go too long with water in a couple exterior walls. Soffits showing some rotting. Gutters not working well and some fascia boards rotting. I'm handy and will add sweat equity but at a certain point you might as well tear it down and start over. I don't think the owner is ready to accept this reality and simple man's formula will not sit well with her. Assessed at 641K land value at 517. She wants 650K...too far from reality. I was thinking to gut it and try to keep the bones...new exterior siding, new roof, new heating and electrical. So actual value is....????
The value is finding a sucker like you to pay this ridiculous amount.
The reason prices are so high is because we have been experiencing a real estate mania. People were willing to pay whatever price the sellers wanted just to get the coveted commodity. It's the thing to own.
Now that the mania is wearing off, people are not willing to pay such high prices for the same product.
Not sure if you guys have seen this. It's a documentary about tulips.
Don't hold back kooz just say what you feel man! I know about the tulips. That's when some rich guys realized how much they could make if they created bubbles like the tulips. Same guys are running the Fed and BoC today and they control the supply of money, create asset bubbles and insure their losses through cmhc, fannie and freddie. The only way for us mere mortals to win (if we should choose to play their game) is to learn the rules.
Oh it's been dramatic all right. Any decline in homeowner's equity at all during a period in which prices have more than doubled is dramatic.
Agreed. Just not dramatic in % terms like info seems to think. Although the data is pretty interesting actually. Up until Q1 2007 it seems the increasing prices actually led to increasing equity. Then it suddenly dropped precipitously. Wonder what the change was...
subprime I wonder if it is better to pass at this point. Particularly if you have a personal relationship that might be impacted by your differing views on value. She will likely get closer to her asking than is worth it for you to pay even with a discount for no use of realtor.
I agree with JJ that if you are really interested you should hire an appraiser. This will take out the room to disagree. It costs about $400 and you'll get a market estimate which you can discount by half of what the realtor's commission would have been.
Also, a house with water damage is a project house. Once you open walls in a 1910 home your costs are going to rise.
As for eras to buy, my preference is 1940-1968. OB has a lot of these. I dislike 70s houses because of quality issues.
So hard to know what decade would be best, though presumably a well-maintained house of any decade would beat a poorly maintained house of even the best decade. So maybe that is the key if you don't plan to build.
Yes, you can find well-built 70s houses - particularly the ones that used a lot of wood/cedar.
I'm not the expert on Asbestos but until the late 80s this was used in house materials.
The one that seems to cause a lot of concern is vermeculite - the loose insulation. I have not had a home with this but I have had ducts wrapped in insulation that contained asbestos.
This is not a problem unless you renovate and need to move this material. You then need to hire someone to make sure you don't release the asbestos into your home.
I: Aren't million dollar homes only for millionaires?
B: They used to be. The government is making it possible for anybody to buy in at pretty much any price.
I: Ok, I'll bite, how can I get a million dollar home.
B: All you have to have is fifty thousand dollars. Whether you made it form selling your existing property and made some money off of appreciation or you just borrowed from he bank of mom and dad (also another financial institution is possible also).
I: Ok, I've managed to scrounge up fifty thousand. What now?
B: Don't be shocked by this number but there is going to be a little bit of a fee because you are only putting 5% down. The CMHC is offering to make a promise on your behalf to the bank that you will make your payments. They will only require 2.75% of the loan amount.
So, one million minus fifty thousand at 2.75%.. we get $26,125.
I: 26,000 dollars?!?! that's a lot of money! I just spent a whole bunch of time gather the fifty thousand you told me to find.
B: Don't panic. Instead of paying the insurance what we can do is roll the insurance into the mortgage.
I: So you mean I don't have to pay it?
B: If you look at your monthly payments it will only be minuscule amount more.
I: Oh well that's not that bad I guess. Does that mean I'll be paying interest on the insurance payment also?
B: Yeah, but again it's all rolled into your monthly payment so don't worry about. At these interest rates you don't really need to worry about any total amounts.
I: You mean I can finally realize my dreams of living like a millionaire?
B: Absolutely. It gets better though. If your house appreciates over the next couple of years, we can talk about extending you a line of credit when you refinance.
I: Wow, thank you. This is just such an amazing deal. Where do I sign?
Aside from the aluminum wiring issue, what else is wrong with 70s places? Windows are one of the first things to get upgraded anyway so I wouldn't be too concerned. Usually I see the 80s places that still have original windows with blown seals.
We started looking at 50s/60s places but now we've moved sights to the more above ground 70s places.
I like the system they have on vancouvercondoinfo. Anonymous voting. People don't have to log in to express their opinion on comments. Too many down votes and a comment needs to be expanded to be viewed.
A system like that really lets you know who your readers are.
"You can live your entire life like a miser without incurring an ounce of debt and by most standards you would probably come out the loser in this game of life."
That is a great statement and one I do get bitter over. I have respect for anyone who sees an opportunity and risks their capital to gain a reward. That's not where we are. We're in a game where the people making the rules just tweak them so the consequences of today's earnings are paid for by someone else.
I know it's a far away place, but take a look at the headlines of what the IMF just imposed on the citizens of Cyprus. For the comfort of a few years of feeling rich the average Canadian will have a generation of consequences.
I would recommend not playing their rigged game if I could think of a way around it. The system forces us to use their currency in exchange for the basic right to have shelter and food so I guess we need to play. If you choose the blue pill then the first question to answer is who are these rule makers and what is their agenda? I started 20 years ago with reading David Icke's book "biggest secret"...but that's just me.
"The decline has not been dramatic. I'll post a chart in the next article. Same for the US, the dramatic decline did not start until after they corrected."
Murray Dobbin didn't pull those numbers out of thin air.
This is only the start. Once these flippers realize that there will be no emergency intervention this time, panic will set in and the sell-off will begin. This will contribute greatly to major price declines as house prices push down to the level where incomes are able to provide support. This, of course, is what happened in the U.S.
The Economist rates U.S. real estate as undervalued. Their market actually overcorrected which is normal in a major housing correction. Canada's housing market will overcorrect as well.
"Murray Dobbin didn't pull those numbers out of thin air.
Unless he cites a source he might as well have."
As I have said, if what patriotz wrote about 30% of mortgages being in the clear, then I don't agree with the 6% that Dobbins wrote about.
This isn't about proving info wrong, is it?
Dobbins has a ton of really good information that sheds a lot of light on the whole Canadian housing market bubble.
Instead of picking one small number and going on and on about it, why don't more regulars on this blog comment about the main message in the posts that I wrote where I quoted Dobbins? That is one complaint I have always had about this blog - some regulars here tend to ignore the big picture and focus on the small picture instead.
It would be intersting to see a chart showing the 3-month median vs the MOI for Victoria, going back to the time where the big price run-up occurred. The MOI (in bars) could be put on the bottom of your earlier 3-month median chart.
usually those offers are for balance transfers and purchases. You are getting them for cash advances? I'm a big proponent on investing but Sheesh, I can't condone borrowing on ones credit cards to invest in the stock market for short term gain. That's just plain sick...
Instead of picking one small number and going on and on about it, why don't more regulars on this blog comment about the main message in the posts that I wrote where I quoted Dobbins? That is one complaint I have always had about this blog - some regulars here tend to ignore the big picture and focus on the small picture instead.
Because big pictures are made of small pictures. And if the small pictures aren't correct then the big picture is weakened. A statement like equity collapsing would be a very strong support for the big picture, so it better be correct. Putting out numbers that aren't defendable doesn't help.
It would be intersting to see a chart showing the 3-month median vs the MOI for Victoria, going back to the time where the big price run-up occurred. The MOI (in bars) could be put on the bottom of your earlier 3-month median chart.
Just one outside photo and limited showings: "Tuesday's 12-1PM & 6-7PM, Thursdays ONLY 12-1PM, Saturday's 2-4PM. Please say within this strict timeline."
Working around renters, I guess.
P.S. I left the realtor's apostrophes in there to keep everyone busy. :)
Marko, I noticed that the super-expensive house on Providence Place, in Gordon Head, that has been on the market forever, has finally sold. Can you please tell us the asking price, sale price, and days on market?
My quick personal take on age of home from least favorite to most favorite.
5/ 1930-1950; you don't get the character of the turn of the century homes; however, you can get all the problems including knob & tube wiring, asbestos, and sometimes questionable foundations. Layouts often difficult to renovate or live with.
4/ 1880-1930; same as above plus more questionable foundations, but at least you get the true character. Layouts actually sometimes better than 1930-1950.
3/ 1950-1970; solid bones, at least you don't have to deal with knob and tube for the most part. Insulation stills sucks, basement ceilings heights are poor, etc. Asbestos ++
2/ 1970-1985; ugly for the most part but have a number of things going for them such as often 8' basement ceilings and engineered trusses. Engineered trusses mean you can modernize the layout upstairs by opening up the kitchen in most homes. Also everything for the most part is square making renovation easier. Watch out for aluminium wiring.
1/ 1986-1995. My favorite especially if 2''x6'' framing. If you can find one that is well maintained, but horribly dated, for a good price they are easy to renovate - almost all cosmetics. Plumbing, electrical, foundations, PVC drain tiles should all be in half decent shape on this vintage if maintained. For example, most of the panels I see in this vintage are 200 amps whereas 1950-1970 you are stuck footing a $3,500 bill just to upgrade the service from 100 amps. Lots of other factors make this vintage my favorite. Yes, they can be ugly.
All of the above still don't compare to 2000+ and many things you can't change. Most newer homes have 9' ceilings - can't add that to 1930-1995 homes.
"Instead of picking one small number and going on and on about it, why don't more regulars on this blog comment about the main message in the posts that I wrote where I quoted Dobbins?"
OK I took the challenge and actually read the Dobbin articles (the 2009 one and the 2013 one). The arguments he makes won't exactly be new to anyone that reads this blog. He seizes every opportunity to make things look as bad as possible. Example 1 Economist says we are either 78 or 34% overvalued depending on the metric. He runs with 78%. Example 2 - says that 27% of Canadain economy is "housing". Note that not all of "finance" is for housing and not all "construction" is housing.
So a few biased examples (there were more), some questionable factoids (the 48 to 6% equity) and it adds up to an article with minimal credibility.
That's not to say housing prices aren't falling and won't continue to fall. It's just that arguements as weak and biased as Dobbin's shouldn't make any informed person change their mind from whatever they believed before.
66 days? This house was on the market for so much longer than 66 days--seems more like 660 days.
Resetting the days on market after a listing expires--and doing this multiple times--is a very questionable practice, as many on this blog have pointed out.
I think (but am not sure) that relistings occur when switching agents or when the listing has expired for more than three days.
A quick search on the Web (using the address) usually shows previous MLS numbers. PDF documents are particularly useful, as contents are not typically updated - unlike a Web page.
I think (but am not sure) that relistings occur when switching agents or when the listing has expired for more than three days.
You can re-list with the same agent multiple times. Listing doesn't have to expire, you can cancel and re-list right away or it can expire and you can re-list right away. There is no three day rule.
You can search the web or you can just ask a realtor and he or she can give you the history on any particular home.
I would find it useful to have some regularly updated plots that are easily accessible on the main page: For example:
1) monthly prices & inventory 2) inflation adjusted prices & inventory 3) cost of ownership (maybe hack it and just use something based off posted primes and property tax rates)
I would find it useful to have some regularly updated plots that are easily accessible on the main page: For example:
1) monthly prices & inventory 2) inflation adjusted prices & inventory 3) cost of ownership (maybe hack it and just use something based off posted primes and property tax rates
That would be handy. I pretty much make these graphs anyway, so posting them wouldn't be much extra. Unfortunately I can't change/add anything on the side. HHV?
usually those offers are for balance transfers and purchases. You are getting them for cash advances? I'm a big proponent on investing but Sheesh, I can't condone borrowing on ones credit cards to invest in the stock market for short term gain. That's just plain sick... _______________
I thought you were the great investment guru? You borrow to invest and write off the costs - I would presume? But I don't call you sick...still upset at my last post a few days ago are we? You will still have to learn what "pop" means I guess...
Wrote an offer last night on a property with a suite and got outbid in a multiple offer situation by an investor making an unconditional offer. I thought that was a bit interesting that someone is looking for a rental property with all the doom and gloom out there.
Working with a lot of buyers right now - I showed 15 properties in total yesterday and not seeing any deals out there despite the poor market conditions.
So the record will forever say sold in 66 days but, in actuality, it was sold in something like 488 days.
Hmmmm. I find this common practice to be very shady, and it gives realtors and the industry a bad name.
The record will show it was listed a lot of different times with the days on market for each listing and that it sold on the last listing at 66 days on market for that particular listing.
The public doesn't have access to the 66 days nor the full record of all the listings so the people technically looking at it are realtors/appraisers and they are looking at the full record not the 66 days...if that makes sense?
Marko said I thought that was a bit interesting that someone is looking for a rental property
A fool and their money soon parted. Show me a property here with a 7+% cap rate and I'll consider it. I'm guessing it was ~3%. Otherwise I'll keep my US REITs yielding 8-15% cap, which are rising in value (not falling, like here).
When government becomes that arbitrary, and the Cyprus action was approved by ministers of other EU countries, hoarding cash in a 0.01% interest deposit account no longer looks like such a great bet.
And between stuffing cash under the mattress or buying a rental and deriving some income from it, RE doesn't look such a crazy bet.
Here we think our government is less psychopathic. But the Federal government must face an election within two and a half years. A US style RE crash could very well deliver a Trudeau-led liberal government.
So what are the Tories gonna do? Whatever it takes to prop up the market?
"So what are the Tories gonna do? Whatever it takes to prop up the market?"
I've been thinking about this also.
Here is what I would suggest they do.
Crash the housing market hard. Bring it to the bottom in one year. Drive the dollar down and focus on export sector again. In one and a half years start printing money again right before the election to begin the "recovery".
"We have done well fellow Canadians, the recovery is at hand. Vote for the most responsible government to lead Canada out of our current situation. Prosperity is just around the corner." -Stephen Harper 2015
Looking at Leo S's latest chart, it looks as though the decline in median price is going hyperbolic, but it would surely be unprecedented for the collapse to be over in a year.
Anyhow, Garth Turner, in his latest, assures us that our cash in the bank is safer here than in Cyprus — maybe.
From Leo's chart, I would guess that MOI will remain flattish near 8.5 through June and then begin an ascent that will mark the beginning of a period of substantial price decline.
I would hardly call myself an investment guru lol. Im very meat and potatoes, never borrowed a dime to invest and have mostly played the long game. The most advanced moves I've made is selling all my mutual funds for a $1000 loss, buying RIMM with the money and selling half when they doubled to recoup my loss (pretty proud of that move).
Borrowing on your credit cards to invest is sick IMO. If you were my best friend I would say it to your face lol. If you are having success at it good for you! If I was I still wouldn't suggest it to anyone else....
Not very often you can take the banks money to make money.
I prefer to use free money to make money unfortunately most people can't control their borrowing and credit card debt is their downfall.
And to bring this back into the realm of real estate. 6/9 months of interest free money on a flip two years ago added 10% to our bottom line, not bad IMO.
Look what happened in Cyprus. The government snatched 9.9% of all bank deposits.
Cyprus is just a cut above Greece and their banking system is essentially a conduit for Russian money laundering, which is why bank deposits were hit. Their banks hold a large amount of Greek government debt (surprise) which is the main reason why they're in trouble.
You can put the paranoid fantasies for Canada to bed. If the federal government needs more money it can just put the GST back to 7%. Or more likely just keep borrowing, until after the next election anyway.
With regards to Marko's comment, there are always fools who think that RE is a safe investment no matter what.
I spent some time with an economist this weekend and he has some interesting things to say.
1)The high Canadian dollar has allowed the government to not raise interest rates. The high dollar makes it more expensive for us to purchase goods, giving the same effect as a higher interest rate. That being said, if our dollar, relative to the US stays around $0.93 or lower it could give way to a rate hike. This is something that could happen very quickly despite what the government has said about keeping it low for the next year.
2)Fundamentals and the market always come together! But sometimes this movement takes glacier like speed. In other words don’t be surprised if housing price vs. income stays out of whack for a while (also don’t be surprized if they align fast, no one knows when fundamentals and the market will align). As Peter Lynch once said "I can't recall ever once having seen the name of a market timer on Forbes' annual list of the richest people in the world. If it were truly possible to predict corrections, you'd think somebody would have made billions by doing it."
As a real estate fool, I do think RE is a pretty good bet if you have a long-term locked in rate, no intention to sell and rental income to support payments.
I do think; however, there are much better markets to be an investor than Victoria. Victoria you need rental income on your primary residence if you want any kind of reasonable investment numbers if you are looking at it as an investment.
I've looked into Texas a bit for RE. People are buying 3 bed 2 bath places for $60K. Renovating for about $20K-$25K, and then renting them out for $1400-$1500 a month. US Reits might be worth a closer look right now.
People are buying 3 bed 2 bath places for $60K. Renovating for about $20K-$25K, and then renting them out for $1400-$1500 a month. US Reits might be worth a closer look right now.
Therein lies the insanity. 'Investors' here are trying to rent 250k condos for $1200. After interest, tax, marketing, strata, MnR, mngt fee, vacancies, etc - they are not only negative cash flow, but falling in value. If they sold the 250k condo and used it to buy 3 of totoro's Texan houses (or Reits), they would be rolling in the dough$$ - gaining on both ends.
What I find so mind boggling about the 'condo rental' market is, for example, I have a friend in Vancouver who purchased a condo 1.5 years ago and wants to sell because she's getting married 9and just bought a new townhouse).
Because she was going to lose a fair bit because of condo declines her solution is to 'rent it out until the market recovers'. She doesn't realize that a market recovery is actually the market going down another 20%.
She is screwed and what makes it most tragic is it's all her fault. The information is all there she just has to get it through her thick skull.
Cyprus is just a cut above Greece and their banking system is essentially a conduit for Russian money laundering, which is why bank deposits were hit.
That is a facile and highly misleading representation of the situation in Cyprus.
The proposed decimation tax, a heist of 10% of bank deposits by the government, is not a case of one bunch of bandits sticking up another bunch of bandits.
The cost to UK citizens alone has been estimated at around $200 million Euros.
And you cannot consider the tax as some weird thing going on in an insignificant backwater. This plan was approved by the Euro-zone finance ministers.
No one has suggested that Canada is likely to adopt a comparable tax. But what the action by EU Ministers indicates is that the Western commitment to property rights is under serious threat. That is no paranoid fantasy.
I'm guessing there will be little complaining from foreign account holders in Cyprus since they are tax evaders using Cyprus as a haven and prefer not to draw attention.
Causing a loss to insured deposit holders (those under 100,000 euro) seems like the worst thing they could do in terms of destroying confidence in European banks. If you are a Spaniard, Italian or Greek do you let your money sit in a local bank trusting that your government will honor deposit insurance? or do you you try to move it somewhere safer (the mattress??).
The "tax" on the sub 100,000 accounts seem to have been done purely so they could keep the "tax" on larger accounts in the single digits (barely).
Not a very likely occurrence here, but it does point to need for diversification and the risk of all your eggs in one basket - even a very safe appearing asset like bank deposits or Oak Bay real estate.
I'm guessing there will be little complaining from foreign account holders in Cyprus since they are tax evaders using Cyprus as a haven and prefer not to draw attention.
Probably a bad guess.
The British have a military base in Cyprus and a total of around 16,000 forces personnel and public servants. The UK government has already announced that it will compensate these people.
Another forty of fifty thousand Brits reside in the Island. Mostly pensioners.
As for tax evaders, you find them everywhere. But folks putting their money on deposit in a Cyprus bank are more likely simple-minded retirees than big-time tax evaders. And insofar as Cyprus serves as a tax haven, many using its facilities will be honest citizens making perfectly legal arrangements to avoid, not evade, tax.
As for there being little complaint, Putin is already complaining loudly on behalf of Russians being fleeced in the Island, and Russia just provided Cyprus with a multi-billion Euro bailout facility. Hence the urgent consultations among EU-zone finance ministers this AM.
Cyprus has an enormous banking sector swelled with the deposits of wealthy foreigners many of which are Russian. Maybe just tax evaders but more lurid possibilities come to mind. Maybe Putin is complaining because he has accounts in Cyprus to hide the proceeds of corruption.
But what the action by EU Ministers indicates is that the Western commitment to property rights is under serious threat.
There is no such thing as absolute property rights when governments have the power to tax.
Government can levy any tax on anything at any time. They can also effect major changes to the market price of something you own (i.e. your house) by raising interest rates.
SFH: Vic,OB,Esq,SE & SW with a min of 2 beds & 2 baths, priced between $375K-$775K:
Sold : 22 Avg Sale Price: $550K Med Sale Price: $517K
12 of the 22 Sales went for below BC Assm't & five had secondary suites.
Since I began tracking in Oct of 2012, the average sale price for Saanich East homes in the areas of Gordon Head, Lambrick Park and Mount Doug is $570K.
For Condos and Townhomes in pretty much the same areas priced between $250K and $550K with a min of 2 beds & 2 baths:
Sold: 10 Apartments & one Townhouse
The Avg sale price for apartments was $283K and med sale price was $268K. The lone townhome went for $358K. The townhouse and 8 of the 10 apartments went for below BC Assm't.
years of stagnation may follow, but no crash is likely because demographic trends will support demand in the medium term, a report by Scotiabank said on Monday.
Canada will experience significant 'secular,' or long-term, decline in house prices starting around 2015, when the population ratio is about to turn upward based on Statistics Canada projections.
I wonder who's less biased - the bank or the university?
looked at 3501 Richmond this weekend. $440,000 1930s house. HUGE deferred maintenance. Needs a new roof, new electrical, new sewer/plumbing, new drain tiles, massive cosmetic updates inside.
It needs probably another $60,000 of work to be done to it.
Apparently there are multiple offers. Insanity still abounds.
There is no such thing as absolute property rights when governments have the power to tax.
No one is talking of an absolute right. And few people would argue that all taxation constitutes theft, i.e, an attack on the right to own property.
However, if governments, without debate or electoral mandate, help themselves to large chunks of citizens bank deposits, whatever rights to property citizens may have had before, will be greatly diminished.
And the Cyprus decimation tax was approved not only by some rubbish island in the Mediterranean but by Angela Merkel.
This confirms that across a large section of the Western World, the commitment to property rights, such as they have until recently been understood, is under serious threat.
I've always been a fan of taxation. If you have ever looked at the costs associated with providing minimum services that keep a civil society in some sort of balance, and then visited a country where this does not happen, you might agree too.
I view taxation as the opportunity to contribute to systems that I have benefited from (education/health/etc) at a time when I can. The fact that we have health care and cpp and maintained communities is not something I take for granted.
This is ridiculous and you are the worst kind of Socialist.
Price is what you pay, value is what you get. I don't think anyone would argue that the Cypriots are suffering from a massive case of buyers remorse at the moment.
Taxation has it's place and that is to provide a pool of resources so that non-profit motivated entities can have resources to draw from to provide superior social value than a purely capitalist system can.
Needless to say, there are very few (if any) areas in the economy where this is a valid observation and covering bank losses and supporting the bad decisions of corrupt politicians is certainly not one of them.
If that means that countries have to default on loans, the Euro is destroyed and interest rates skyrocket, well so be it - capitalism at work.
If you didn't plan accordingly, well you might lose it all but that is the beauty of capitalism - if you work hard, there is always an opportunity to get it all back and then some. Not so in a socialist environment where everywhere you turn there is a bureaucrat stealing your money.
An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that Obama's socialism worked and that no one would be poor and no one would be rich, a great equalizer.
The professor then said, "OK, we will have an experiment in this class on Obama's plan".. All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive an A.... (substituting grades for dollars - something closer to home and more readily understood by all).
After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.
The second test average was a D! No one was happy. When the 3rd test rolled around, the average was an F.
As the tests proceeded, the scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.
To their great surprise, ALL FAILED and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed. Could not be any simpler than that. (Please pass this on) These are possibly the 5 best sentences you'll ever read and all applicable to this experiment:
1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.
2. What one person receives without working for, another person must work for without receiving.
3. The government cannot give to anybody anything that the government does not first take from somebody else.
4. You cannot multiply wealth by dividing it!
5. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that is the beginning of the end of any nation.
What a truly ridiculous statement! Despite being a darling of "progressives" worldwide, Obama is well to the right of Harper on many if not most issues. Few accuse Harper of being a socialist.
Funny story. My generation (X) frequently kvetches that CPP will be dead and gone by the time we retire. But you know who I heard saying exactly the same thing 25-30 years ago? My parents. Who begin to qualify for CPP next year.
163 comments:
I voted "more posts" just because I'm greedy, but really I think Leo S. is doing a fantastic job as host, and I am very happy to have found this place.
I'll add that, as a would-be buyer, my favourite comments are the ones about specific properties in the region, whether interesting or outrageous.
(Oops, and thanks to HouseHuntVictoria, who I now see actually posted the poll.)
@info The article is talking about home equity, not down payments.
Right, and average home equity for mortgage holders is something like 60%. So clearly the only way it could be 6% is if it was home equity (aka down payment) for first time buyers. So what is it? What measure was 48% in 2003 and 6% is 2007?
I'd like to vote all of the above
But since I can't I'll say more stories. HHV, some of the drafts you have on blogger seem almost ready to post...
About 30% of properties in Canada are mortgage free which means that the owner has 100% equity.
So obviously the average equity for all properties could not be 6%, even if the remaining 70% of homeowners had zero equity.
A quick google search puts us at 67% equity in 2011 via Statscan via a doom article in Macleans
http://www2.macleans.ca/wp-content/uploads/2012/08/Owners-equity-position-Canada-and-US2.png
Note that homeowners' equity in Canada is slightly lower today than in 2000 despite prices having more than doubled since then.
The only way this could have happened is that homeowners who had bought at lower prices have massively borrowed against their properties.
Which of course is just where the US was in 2005.
If people borrowed 100's of 1000's of $$$$ in 2012 our economy would be booming like crazy...
I'm not a big believer in the accuracy of these stats but sheesh, they are reasonable estimates based on data collected and math. I can't condone just making sh*t up! Sorry Canadians do not only hold an average of 6% equity in their homes. The statement is irresponsible and even idiotic.
If people borrowed 100's of 1000's of $$$$ in 2012 our economy would be booming like crazy...
They did exactly that. 600,000 people extracted equity from their homes in 2012, and they took out an average of $49,000.
CAAMP Fall 2012 Mortgage report
"The only way this could have happened is that homeowners who had bought at lower prices have massively borrowed against their properties."
A lot of people I know in OB are off in Disneyland or Hawaii right now and I know that many LOCs are getting hit for the expense. It is truly unbelievable to me.
re the 6% average home equity that info suggests
From Statscan
"According to the 2008 Survey of Household Spending, there were 13 million households in Canada, of which about 65% owned a home. Among homeowners, 57% made a mortgage payment in 2008 and the remaining 43% were mortgage-free."
http://www.statcan.gc.ca/pub/75-001-x/2011002/article/11429-eng.htm#a3.
As pointed out above mathematically impossible for there to be 6% average home equity in Canada unless you are talking about some very limited subset of recent buyers.
I think LeoS is doing a great job with the blog. I look forward to each post.
My question is: are there any bears left in Victoria?
I know if I was here in 2009 and everything rebounded like it did, I would be gone for sure. This also implies that if the same thing happens now, I'll be leaving also.
Anyway the decline is here, the wait is over.
Leo, I was thinking about our conversation about betting that interest rates are going to remain low.
I'm making a different bet. I'm betting the housing market in Canada will experience a US style housing collapse. Except worse.
Re the poll:
I voted for "keep it as it is"
I like the range of views, the interesting anecdotes and the data.
That said I wouldn't mind some guest author posts from time to time or some different topics - but the focus should stay on Victoria and surrounding RE.
from cbc.ca today:
For every dollar of disposable income they make, Canadians owe almost two-thirds more than that in consumer debt, new data out of Statistics Canada showed Friday.
The statistics agency reported Friday that Canadian debt loads were higher in all categories at the end of 2012, with mortgage debt hitting $1.1 trillion and consumer debt at $477 billion.
http://www.cbc.ca/news/business/story/2013/03/15/business-debt-worth-canada.html
What happened to real estate being local? Why are sales slowing all over the country at the same time?
Certainly people haven't been relying on the CMHC for affordability.
I mean rates are still low, right?
Dasmo, will your friends lose patients and buy in at the current prices? Is that what sellers are waiting for?
The "stand off" continues...
Home prices flat as sales drop 16%
Are there any bears left in Victoria?
Everyone who contributed a prediction on that thread predicted declines ranging from very small to quite severe.
If it seems like there are less bears maybe it is because people who expect a smaller decline have been redefined as "bulls"
New listing in OB. Check out the grammar and caps usage (Introvert, enough to keep you busy for a spell). I love the end "Price to Please" - I get to set the price? Awesome! And "elcove" - what exactly is that?
Is this why we pay "professional" realtors tens of thousands of dollars?
"Quaint and Sunny Estevan. First Time on the Market in about 40 years. This Character Home Offers 3/4 bedrooms 2 bathrooms & just over 3000 sq. ft. of Comfortable Living. Spacious & Elegant Livingroom w/ Wood Fireplace. Oversized Formal Diningroom. Oak Country Kitchen with Laundry elcove. Sunny Entertainment -Size Deck. Hard Wood Floors in both upstairs bdrms, hall & under carpet in LR. Updated Main Bath. Fabulous Space Downstairs with Another Bdrm, Den & Bath. Huge Family Room with wet bar and or 2nd Kitchen. Easily Suited for the Extended Family. Cozy Woodstove. Separate Single Garage w/Workshop/hobby Area. Mature and Well Maintained Lanscaping. Stroll to Estevan Village or Willows Beach. A Home to Hang your Heart... Price to Please"
and since I get to price the above OB house then I will be fair and adhere to the following formula:
(assessment price - upgrades needed) * 0.8
So, ($717,000-$100,000) * 0.8 = $493,6000
Where do I send the cheque?
I always like have an elcove to hang my heart.
Elcove
@Leo 49k is 10's of 1000's not 100's....
I have friends that borrowed about that much and renovated a suite and consolidated credit card debt. The have more cash flow each month as a result....
@kooz, you never know, the lust can take over. One half has a cool head and I'm giving my assessments much to the estate agents chagrin. I nailed it with what the last two they looked at sold for! I think they will be fine. As we all know, sellers can be a sticky bunch on price and tend to over value based on sentiment. In the end they have set their price threshold and are sticking to it...
koozdra - thanks - urban dictionary? I think she meant alcove.
I agree with your formula simple man. Your formula represents tomorrows prices but that house might sell close to asking. Still some house hornies out there.
Yes, subprime, there are still some people that will buy almost no matter the price and that is certainly their choice.
Interesting that the last four sales on Dunlevy have been for below assessment (this house is up for $729,900 and assessment in $717,000). And some of those other houses have been either completely upgraded (flip) to very good condition - and this was last year when the prices were a bit higher. There are still no pictures up on the listing, but unless it is completely upgraded (new kitchen, plumbing, wiring, etc) then it has no right to be over assessed.
My simple opinion.
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Just as I pushed publish - the pictures are finally up - looks pretty original to me (I don't think you can still buy carpet like that), so the minus $100,000 estimate from earlier may have been optimistic.
Link? I'd like to give the dasmo appraisal.
@dasmo - pictures are still not up on the realtor website and the listing number 320638 is not up on realtor.ca yet. Sorry.
Re: "My question is: are there any bears left in Victoria?"
In response I will repost what was the last comment on the last thread, which was in response to Introvert's remark that despite the 2008 financial crisis we have seen the "slowest correction ever."
But it's correcting.
So who wants to buy within 8% of the peak in a correcting market, with a 30 or 40% downside potential?
The correction has been slow because folks have been slow to perceive that a correction has begun.
And there is a logical connection between the financial crisis and a slow correction. The financial crisis gave rise to record-low, emergency real interest rates.
Many first-time buyers were seduced by the zero real interest rate policy to take a huge leveraged gamble on real estate. What many are playing with is their life-time disposable incomes.
That is why RE promotion is so critical. Unless the crazed hope of an ever inflating RE market can be maintained, prices will subside.
Once a negative price trend is clear to all, a collapse will be inevitable.
To some, a 40% correction is inconceivable, but it seems readily conceivable if you consider particular cases. For instance, this was listed today at 21% over the BC Assessment Authority evaluation.
Well it's a nice house, but it's not exactly pristine. And it likely has single-glazed windows throughout, and a huge heating bill. Much of the 4000 plus feet of finished space is in the basement. The bedroom color schemes would not suite everyone. And the garden is not exactly a work of landscape art.
So what's so unlikely about the price of such a property falling to say 21% below the current BC Assessment Authority valuation?
And, of course, anyone with the means to buy such a house would most likely spend a hundred thousand or so on fixing it up, without greatly affecting the resale price several years into the future.
So
Yep just saw the pics. I was looking at the wrong house. Should sell around 700K unless there's multiple offers then maybe more. Young familes with kids are lining up to get into Estevan.
I'm making a different bet. I'm betting the housing market in Canada will experience a US style housing collapse. Except worse.
While I can't see that happening, I gotta say I can't explain the differential in house prices between the two countries. I think the US is still significantly undervalued, but the mind boggles at how cheap real estate there is. Reading forums there about people buying houses it's like they're talking about toy houses given the prices.
Then again I don't understand why beer is half the price there either. Canadians get shafted on just about everything.
CS, you're right. I meant to say that bears are few and far between.
I have friends that borrowed about that much and renovated a suite and consolidated credit card debt. The have more cash flow each month as a result..
Good example of people living beyond their means. They have credit card debt because they spend more than then make. The only reason they got away with it is because of house price appreciation.
Yep just saw the pics. I was looking at the wrong house. Should sell around 700K unless there's multiple offers then maybe more. Young familes with kids are lining up to get into Estevan.
I wish they would stop lining up. Just go buy in Sooke for a while.
Good example of people living beyond their means. They have credit card debt because they spend more than then make. The only reason they got away with it is because of house price appreciation..
This is the Oak Bay Way for 50% of the people here, IMO.
"YOUR PATIENCE HAS PAID-OFF! Due to the recent elimination of the HST "Oak Lanes" is now being offered at this reduced price inclusive of sales tax."
Ah, that must have been the problem. People were waiting for the HST to go.
http://www.realtor.ca/propertyDetails.aspx?propertyId=12733289&PidKey=-1668115038
is the developer also going to throw in a lifetime of cleaning services for all of the eggs that will be thrown at the most hated house in Oak Bay as well?
"Good example of people living beyond their means. They have credit card debt because they spend more than then make. The only reason they got away with it is because of house price appreciation."
False. They live within their means. Getting a masters degree can be expensive as can changing careers. These moves have resulted in greater income and, like i said, greater monthly cash flow. Hardly living beyond ones means. You really do see the world through bitter tinted glasses...
If you carry credit card debt you are living beyond your means. Maybe it's temporary, but doesn't change the fact.
*temporary unforseeable emergencies excepted of course.
As for bitter tinted glasses, not sure why I'm supposed to be bitter. I'm not the one having to amortize my credit cards into a lifetime mortgage to stay afloat.
Then again I don't understand why beer is half the price there either. Canadians get shafted on just about everything.
And how do Canadians afford both more expensive beer and more expensive houses on lower incomes than those in the US?
Our culture of debt no longer sees credit card debt as that bad.
The next barrier to cross is removing the stigma from services like Money mart.
I keep seeing signs all over town that they'll give you $200 for $20.
What an amazing deal!
You can live your entire life like a miser without incurring an ounce of debt and by most standards you would probably come out the loser in this game of life. There are times when living in squalor and without debt is necessary and times when it is not. I did so when going to university to minimize my DEBT. I also did so when saving to leave my job and start my own business, paying off my student loans and credit card debts. This paved the way for me to eventually go into DEBT to buy a house etc....
..."If you can make one heap of all your winnings
And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breathe a word about your loss;"..."Yours is the Earth and everything that's in it,
And - which is more - you'll be a Man, my son!"
So man up and borrow ;-)
I just don't get people who want to live in those ultra modern sterile homes like "oak lanes" or those abstract development homes.
Only problem dasmo is all that borrowing is going to end badly. Canadians now at 165% debt/income.
subprime - I like the ultra-modern homes. I have lived in too many character homes, I guess.
There are a variet of reasons that explain the severe drop in the ratio of equity to house value over the past 10 years.
Many boomers have sold their properties to move up to a newer, bigger house. Many pushed the limits and bought as much house as possible, eliminating their strong equity position and putting themselves back in the position of many new buyers with little to no equity. This, of course, was due to cheap and easy credit.
The 0-down mortgages became policy which, of course, decreased the average equity as well.
The article talks about the ratio of equity to house value. The fact that house values more than doubled would have caused this ratio to drop significantly as Canadians obviously chose to siphon off much of that home equity to pay the bills as the economy became weaker and jobs were lost.
"About 30% of properties in Canada are mortgage free which means that the owner has 100% equity."
If 30% is accurate then obviously 6% is too low.
However there has been a dramatic decrease in the equity to home value ratio in Canada over the last 10 years. This is exactly what happened in the U.S. before their market crashed.
Canary in the coalmine.
I think the US is still significantly undervalued, but the mind boggles at how cheap real estate there is.
The US is just back to late 1990's real prices, which were above the norm historically.
What's mind boggling is how expensive Canada is.
IMHO you are doing a great job. Variety is good and open. Articles are current and interesting.
If I could add one thing it would be maybe a look up island once and a while although I know this is HHV - just a suggestion.
Keep up your good work. These posts show your work is appreciated.
Cheers,
I have the opportunity to buy an O/B home privately. 1910 3 bedroom bungalow needs updating and new roof. I realize it may be better to wait untill prices drop further but I've got to look at this. I like simple man's formula {assessed value - update expense) * .8 but I think that may be too aggressive for today's market especially in o/b. Any thoughts besides "DON'T DO IT!!!" would be appreciated.
You can live your entire life like a miser without incurring an ounce of debt and by most standards you would probably come out the loser in this game of life. There are times when living in squalor and without debt is necessary and times when it is not. I did so when going to university to minimize my DEBT. I also did so when saving to leave my job and start my own business, paying off my student loans and credit card debts. This paved the way for me to eventually go into DEBT to buy a house etc....
Credit card debt != mortgage debt.
Credit card debt is not part of any sound financial strategy.
"Credit card debt != mortgage debt.
Credit card debt is not part of any sound financial strategy."
False again. Credit card debt can be advantages because it is most flexible from a cash flow perspective since you have control over the payments you make.
Credit card debt does not equal mortgage debt. A mortgage is usually half the interest rate and is paying for an asset that over the long run will appreciate... If you don't own a home your credit card rate is probably even higher. My CC rate is 7%. My HELOC is 3.5%...
However there has been a dramatic decrease in the equity to home value ratio in Canada over the last 10 years. This is exactly what happened in the U.S. before their market crashed.
The decline has not been dramatic. I'll post a chart in the next article. Same for the US, the dramatic decline did not start until after they corrected.
Credit card debt does not equal mortgage debt
I thought you were in a technical field. I assumed you knew that != means "not equal"
@subprime11
assessed value - update expense* .8 isn't a bad formula as a starting point IMO. This will at least give you a realistic number that you can evaluate against how much more you are willing to pay to actually get the place ;-)
Another way to calculate is non waterfront, decent location, 5000+ lot, OB = $75 -100/sqft depending on exact location and features. Then evaluate the value of the building. If it's a cruncher then consider the demo cost. If it's a reno candidate then consider the depreciated value of the building.
@Leo, lol, I'm not a programmer so I missed that ;-)
Half way done the month....
SFH Average = $599k
SFH Median = $523.3k
I don't think assessed value, less updating x .80 is going to cut it in OB. People can get more than that for their place.
I think assessed value less updating might get you closer to a deal. Then again, it would have to be property that was a difficult sell for some reason for that to fly.
Finally, 1910 is old. I don't buy past 1950 myself just because of the significant issues in those older homes. If you are really handy it might not be as big a deal.
Well subprime11, more info would help.
House size
lot size
and what hood in Oak Bay
Nice if you knew the sales history too.
If you're serious about buying the home - then call an appraiser.
If you just curious - post the address and we'll do some crunching for you.
I think assessed value less updating might get you closer to a deal.
Totoro - I agree for right now. My 0.8 correction factors in the loss that I think will occur from this point until the eventual bottom.
I agree with totoro - I won't touch any house in OB older than the 50s - too much work.
It depends, I like old places. They are built from better materials a lot of times. If you get one that had already had its utilities upgrade you are laughing. Those old places were built to last! My place has original windows and isn't a fortune to heat. Plus my windows will never lose their seal like those 70s windows....
the 50s and 60 materials were still quality...it is the 80s that really start to hurt. And those 70s windows - nothing worse!
yep, 50's and 60's are good too. 70's get's bad...
Thanks for the feedback you guys. It's a solid place but I'm starting to think it's a teardown. Leaky roof let go too long with water in a couple exterior walls. Soffits showing some rotting. Gutters not working well and some fascia boards rotting. I'm handy and will add sweat equity but at a certain point you might as well tear it down and start over. I don't think the owner is ready to accept this reality and simple man's formula will not sit well with her. Assessed at 641K land value at 517. She wants 650K...too far from reality. I was thinking to gut it and try to keep the bones...new exterior siding, new roof, new heating and electrical. So actual value is....????
The decline has not been dramatic
Oh it's been dramatic all right. Any decline in homeowner's equity at all during a period in which prices have more than doubled is dramatic.
"So actual value is....???? "
The value is finding a sucker like you to pay this ridiculous amount.
The reason prices are so high is because we have been experiencing a real estate mania. People were willing to pay whatever price the sellers wanted just to get the coveted commodity. It's the thing to own.
Now that the mania is wearing off, people are not willing to pay such high prices for the same product.
Not sure if you guys have seen this. It's a documentary about tulips.
Tulip mania
Don't hold back kooz just say what you feel man! I know about the tulips. That's when some rich guys realized how much they could make if they created bubbles like the tulips. Same guys are running the Fed and BoC today and they control the supply of money, create asset bubbles and insure their losses through cmhc, fannie and freddie. The only way for us mere mortals to win (if we should choose to play their game) is to learn the rules.
@Leo, lol, I'm not a programmer so I missed that ;-)
Sorry, my bad. Too much time spent on stackoverflow.
Oh it's been dramatic all right. Any decline in homeowner's equity at all during a period in which prices have more than doubled is dramatic.
Agreed. Just not dramatic in % terms like info seems to think. Although the data is pretty interesting actually. Up until Q1 2007 it seems the increasing prices actually led to increasing equity. Then it suddenly dropped precipitously. Wonder what the change was...
What did we ever do before stackexchange?
subprime I wonder if it is better to pass at this point. Particularly if you have a personal relationship that might be impacted by your differing views on value. She will likely get closer to her asking than is worth it for you to pay even with a discount for no use of realtor.
I agree with JJ that if you are really interested you should hire an appraiser. This will take out the room to disagree. It costs about $400 and you'll get a market estimate which you can discount by half of what the realtor's commission would have been.
Also, a house with water damage is a project house. Once you open walls in a 1910 home your costs are going to rise.
As for eras to buy, my preference is 1940-1968. OB has a lot of these. I dislike 70s houses because of quality issues.
Aren't there asbestos problems in pre-80s houses?
So hard to know what decade would be best, though presumably a well-maintained house of any decade would beat a poorly maintained house of even the best decade. So maybe that is the key if you don't plan to build.
Thanks totoro. I'll suggest a private appraisal. Good to have a mediator of some sort especially in a private sale.
Yes, you can find well-built 70s houses - particularly the ones that used a lot of wood/cedar.
I'm not the expert on Asbestos but until the late 80s this was used in house materials.
The one that seems to cause a lot of concern is vermeculite - the loose insulation. I have not had a home with this but I have had ducts wrapped in insulation that contained asbestos.
This is not a problem unless you renovate and need to move this material. You then need to hire someone to make sure you don't release the asbestos into your home.
The million dollar home plan.
I:
Aren't million dollar homes only for millionaires?
B:
They used to be. The government is making it possible for anybody to buy in at pretty much any price.
I:
Ok, I'll bite, how can I get a million dollar home.
B:
All you have to have is fifty thousand dollars. Whether you made it form selling your existing property and made some money off of appreciation or you just borrowed from he bank of mom and dad (also another financial institution is possible also).
I:
Ok, I've managed to scrounge up fifty thousand. What now?
B:
Don't be shocked by this number but there is going to be a little bit of a fee because you are only putting 5% down. The CMHC is offering to make a promise on your behalf to the bank that you will make your payments. They will only require 2.75% of the loan amount.
So, one million minus fifty thousand at 2.75%.. we get $26,125.
I:
26,000 dollars?!?! that's a lot of money! I just spent a whole bunch of time gather the fifty thousand you told me to find.
B:
Don't panic. Instead of paying the insurance what we can do is roll the insurance into the mortgage.
I:
So you mean I don't have to pay it?
B:
If you look at your monthly payments it will only be minuscule amount more.
I:
Oh well that's not that bad I guess. Does that mean I'll be paying interest on the insurance payment also?
B:
Yeah, but again it's all rolled into your monthly payment so don't worry about. At these interest rates you don't really need to worry about any total amounts.
I:
You mean I can finally realize my dreams of living like a millionaire?
B:
Absolutely. It gets better though. If your house appreciates over the next couple of years, we can talk about extending you a line of credit when you refinance.
I:
Wow, thank you. This is just such an amazing deal. Where do I sign?
Aside from the aluminum wiring issue, what else is wrong with 70s places? Windows are one of the first things to get upgraded anyway so I wouldn't be too concerned. Usually I see the 80s places that still have original windows with blown seals.
We started looking at 50s/60s places but now we've moved sights to the more above ground 70s places.
"The only way for us mere mortals to win (if we should choose to play their game) is to learn the rules."
Rules? Go on. What are these rules?
Good article: How comments color comprehension
I like the system they have on vancouvercondoinfo. Anonymous voting. People don't have to log in to express their opinion on comments. Too many down votes and a comment needs to be expanded to be viewed.
A system like that really lets you know who your readers are.
"You can live your entire life like a miser without incurring an ounce of debt and by most standards you would probably come out the loser in this game of life."
That is a great statement and one I do get bitter over. I have respect for anyone who sees an opportunity and risks their capital to gain a reward. That's not where we are. We're in a game where the people making the rules just tweak them so the consequences of today's earnings are paid for by someone else.
I know it's a far away place, but take a look at the headlines of what the IMF just imposed on the citizens of Cyprus. For the comfort of a few years of feeling rich the average Canadian will have a generation of consequences.
I would recommend not playing their rigged game if I could think of a way around it. The system forces us to use their currency in exchange for the basic right to have shelter and food so I guess we need to play. If you choose the blue pill then the first question to answer is who are these rule makers and what is their agenda? I started 20 years ago with reading David Icke's book "biggest secret"...but that's just me.
"The decline has not been dramatic. I'll post a chart in the next article. Same for the US, the dramatic decline did not start until after they corrected."
Murray Dobbin didn't pull those numbers out of thin air.
Vancouver house flippers are taking huge losses. I'm sure the same can be said for Victoria flippers.
This is only the start. Once these flippers realize that there will be no emergency intervention this time, panic will set in and the sell-off will begin. This will contribute greatly to major price declines as house prices push down to the level where incomes are able to provide support. This, of course, is what happened in the U.S.
The Economist rates U.S. real estate as undervalued. Their market actually overcorrected which is normal in a major housing correction. Canada's housing market will overcorrect as well.
Murray Dobbin didn't pull those numbers out of thin air.
Unless he cites a source he might as well have.
Like this 70s place: MLS 319983
Seems like pretty good value for today's market. Needs a new roof but otherwise good.
@ Leo
"Murray Dobbin didn't pull those numbers out of thin air.
Unless he cites a source he might as well have."
As I have said, if what patriotz wrote about 30% of mortgages being in the clear, then I don't agree with the 6% that Dobbins wrote about.
This isn't about proving info wrong, is it?
Dobbins has a ton of really good information that sheds a lot of light on the whole Canadian housing market bubble.
Instead of picking one small number and going on and on about it, why don't more regulars on this blog comment about the main message in the posts that I wrote where I quoted Dobbins? That is one complaint I have always had about this blog - some regulars here tend to ignore the big picture and focus on the small picture instead.
@ Leo
It would be intersting to see a chart showing the 3-month median vs the MOI for Victoria, going back to the time where the big price run-up occurred. The MOI (in bars) could be put on the bottom of your earlier 3-month median chart.
Leo S says -
Credit card debt != mortgage debt.
Credit card debt is not part of any sound financial strategy.
__________
I don't know Leo. I keep getting these 0% or .99% for 6/9 month offers from my credit cards.
I use the funds to invest in short term investments and get the uptick income plus claim the minimal interest on my year end taxes.
Yes I pay them off before they end or the bank, like this month, makes another offer and I will use it again.
Just sayin', not all Credit Card debt is bad.
usually those offers are for balance transfers and purchases. You are getting them for cash advances?
I'm a big proponent on investing but Sheesh, I can't condone borrowing on ones credit cards to invest in the stock market for short term gain. That's just plain sick...
Instead of picking one small number and going on and on about it, why don't more regulars on this blog comment about the main message in the posts that I wrote where I quoted Dobbins? That is one complaint I have always had about this blog - some regulars here tend to ignore the big picture and focus on the small picture instead.
Because big pictures are made of small pictures. And if the small pictures aren't correct then the big picture is weakened. A statement like equity collapsing would be a very strong support for the big picture, so it better be correct. Putting out numbers that aren't defendable doesn't help.
It would be intersting to see a chart showing the 3-month median vs the MOI for Victoria, going back to the time where the big price run-up occurred. The MOI (in bars) could be put on the bottom of your earlier 3-month median chart.
Sort of like this I posted in Oct?
I like the Halibut ;-)
Here's an update of that chart to the current month
Dasmo the halibut.
Our average MOI in this correction is currently 16% higher than in the 90s (which had no significant nominal declines)
Has anyone seen inside 1159 Jolivet Cres (MLS 319574)?
Just one outside photo and limited showings: "Tuesday's 12-1PM & 6-7PM, Thursdays ONLY 12-1PM, Saturday's 2-4PM. Please say within this strict timeline."
Working around renters, I guess.
P.S. I left the realtor's apostrophes in there to keep everyone busy. :)
^ Ehh, never mind. The realtor just e-mailed me to say the Jolivet place has sold.
Marko, I noticed that the super-expensive house on Providence Place, in Gordon Head, that has been on the market forever, has finally sold. Can you please tell us the asking price, sale price, and days on market?
Thanks!
$899,888, $868,000 and 66 days on market.
My quick personal take on age of home from least favorite to most favorite.
5/ 1930-1950; you don't get the character of the turn of the century homes; however, you can get all the problems including knob & tube wiring, asbestos, and sometimes questionable foundations. Layouts often difficult to renovate or live with.
4/ 1880-1930; same as above plus more questionable foundations, but at least you get the true character. Layouts actually sometimes better than 1930-1950.
3/ 1950-1970; solid bones, at least you don't have to deal with knob and tube for the most part. Insulation stills sucks, basement ceilings heights are poor, etc. Asbestos ++
2/ 1970-1985; ugly for the most part but have a number of things going for them such as often 8' basement ceilings and engineered trusses. Engineered trusses mean you can modernize the layout upstairs by opening up the kitchen in most homes. Also everything for the most part is square making renovation easier. Watch out for aluminium wiring.
1/ 1986-1995. My favorite especially if 2''x6'' framing. If you can find one that is well maintained, but horribly dated, for a good price they are easy to renovate - almost all cosmetics. Plumbing, electrical, foundations, PVC drain tiles should all be in half decent shape on this vintage if maintained. For example, most of the panels I see in this vintage are 200 amps whereas 1950-1970 you are stuck footing a $3,500 bill just to upgrade the service from 100 amps. Lots of other factors make this vintage my favorite. Yes, they can be ugly.
All of the above still don't compare to 2000+ and many things you can't change. Most newer homes have 9' ceilings - can't add that to 1930-1995 homes.
"Instead of picking one small number and going on and on about it, why don't more regulars on this blog comment about the main message in the posts that I wrote where I quoted Dobbins?"
OK I took the challenge and actually read the Dobbin articles (the 2009 one and the 2013 one). The arguments he makes won't exactly be new to anyone that reads this blog. He seizes every opportunity to make things look as bad as possible.
Example 1 Economist says we are either 78 or 34% overvalued depending on the metric. He runs with 78%.
Example 2 - says that 27% of Canadain economy is "housing". Note that not all of "finance" is for housing and not all "construction" is housing.
So a few biased examples (there were more), some questionable factoids (the 48 to 6% equity) and it adds up to an article with minimal credibility.
That's not to say housing prices aren't falling and won't continue to fall. It's just that arguements as weak and biased as Dobbin's shouldn't make any informed person change their mind from whatever they believed before.
Thanks Marko, very interesting.
$899,888, $868,000 and 66 days on market.
Thanks, Marko.
66 days? This house was on the market for so much longer than 66 days--seems more like 660 days.
Resetting the days on market after a listing expires--and doing this multiple times--is a very questionable practice, as many on this blog have pointed out.
They should just prohibit relists. If you want to go to the top of the PCS lists, change your price.
I think (but am not sure) that relistings occur when switching agents or when the listing has expired for more than three days.
A quick search on the Web (using the address) usually shows previous MLS numbers. PDF documents are particularly useful, as contents are not typically updated - unlike a Web page.
If you include all the re-lists it had been on the market since November 2011.
It had been listed at 899k since last summer.
Sale price doesn't surprise me - there is just very little inventory of newer homes under $1,000,000 million in the core.
Building lot prices from my analysis in the core are at an all time high or close to which doesn't leave buyers many options.
Tear downs have become too complicated for the average Joe due to a million and one regulations introduced in the last 5-10 years.
Therefore, for someone who wants new or newer it doesn't leave many options if building your own home is not feasible.
Look at the new place on Stockton, sold quickly at near asking.
Supply is not there for newer homes; however, demand is there.
I think (but am not sure) that relistings occur when switching agents or when the listing has expired for more than three days.
You can re-list with the same agent multiple times. Listing doesn't have to expire, you can cancel and re-list right away or it can expire and you can re-list right away. There is no three day rule.
You can search the web or you can just ask a realtor and he or she can give you the history on any particular home.
I would find it useful to have some regularly updated plots that are easily accessible on the main page: For example:
1) monthly prices & inventory
2) inflation adjusted prices & inventory
3) cost of ownership (maybe hack it and just use something based off posted primes and property tax rates)
I know that's work. Thanks for the blog. Cheers.
I would find it useful to have some regularly updated plots that are easily accessible on the main page: For example:
1) monthly prices & inventory
2) inflation adjusted prices & inventory
3) cost of ownership (maybe hack it and just use something based off posted primes and property tax rates
That would be handy. I pretty much make these graphs anyway, so posting them wouldn't be much extra. Unfortunately I can't change/add anything on the side. HHV?
dasmo says - dasmo said...
usually those offers are for balance transfers and purchases. You are getting them for cash advances?
I'm a big proponent on investing but Sheesh, I can't condone borrowing on ones credit cards to invest in the stock market for short term gain. That's just plain sick...
_______________
I thought you were the great investment guru? You borrow to invest and write off the costs - I would presume? But I don't call you sick...still upset at my last post a few days ago are we? You will still have to learn what "pop" means I guess...
If you include all the re-lists it had been on the market since November 2011.
So the record will forever say sold in 66 days but, in actuality, it was sold in something like 488 days.
Hmmmm. I find this common practice to be very shady, and it gives realtors and the industry a bad name.
Wrote an offer last night on a property with a suite and got outbid in a multiple offer situation by an investor making an unconditional offer. I thought that was a bit interesting that someone is looking for a rental property with all the doom and gloom out there.
Working with a lot of buyers right now - I showed 15 properties in total yesterday and not seeing any deals out there despite the poor market conditions.
So the record will forever say sold in 66 days but, in actuality, it was sold in something like 488 days.
Hmmmm. I find this common practice to be very shady, and it gives realtors and the industry a bad name.
The record will show it was listed a lot of different times with the days on market for each listing and that it sold on the last listing at 66 days on market for that particular listing.
The public doesn't have access to the 66 days nor the full record of all the listings so the people technically looking at it are realtors/appraisers and they are looking at the full record not the 66 days...if that makes sense?
Marko said
I thought that was a bit interesting that someone is looking for a rental property
A fool and their money soon parted. Show me a property here with a 7+% cap rate and I'll consider it. I'm guessing it was ~3%. Otherwise I'll keep my US REITs yielding 8-15% cap, which are rising in value (not falling, like here).
I thought that was a bit interesting that someone is looking for a rental property with all the doom and gloom out there.
Look what happened in Cyprus. The government snatched 9.9% of all bank deposits.
When government becomes that arbitrary, and the Cyprus action was approved by ministers of other EU countries, hoarding cash in a 0.01% interest deposit account no longer looks like such a great bet.
And between stuffing cash under the mattress or buying a rental and deriving some income from it, RE doesn't look such a crazy bet.
Here we think our government is less psychopathic. But the Federal government must face an election within two and a half years. A US style RE crash could very well deliver a Trudeau-led liberal government.
So what are the Tories gonna do? Whatever it takes to prop up the market?
"So what are the Tories gonna do? Whatever it takes to prop up the market?"
I've been thinking about this also.
Here is what I would suggest they do.
Crash the housing market hard. Bring it to the bottom in one year. Drive the dollar down and focus on export sector again. In one and a half years start printing money again right before the election to begin the "recovery".
"We have done well fellow Canadians, the recovery is at hand. Vote for the most responsible government to lead Canada out of our current situation. Prosperity is just around the corner." -Stephen Harper 2015
Here is what I would suggest they do. ....
I'm not sure Harper's lot are that dynamic.
Looking at Leo S's latest chart, it looks as though the decline in median price is going hyperbolic, but it would surely be unprecedented for the collapse to be over in a year.
Anyhow, Garth Turner, in his latest, assures us that our cash in the bank is safer here than in Cyprus — maybe.
From Leo's chart, I would guess that MOI will remain flattish near 8.5 through June and then begin an ascent that will mark the beginning of a period of substantial price decline.
I would hardly call myself an investment guru lol. Im very meat and potatoes, never borrowed a dime to invest and have mostly played the long game. The most advanced moves I've made is selling all my mutual funds for a $1000 loss, buying RIMM with the money and selling half when they doubled to recoup my loss (pretty proud of that move).
Borrowing on your credit cards to invest is sick IMO. If you were my best friend I would say it to your face lol. If you are having success at it good for you! If I was I still wouldn't suggest it to anyone else....
Bubble Alert
To see where the bottom will be we can try to imagine a scenario where the bubble did not occur.
In 2002 the median house price in Victoria for single family dwelling was 280.
If houses moved with inflation:
280*(1.02)^11
=348
In 2012 the median prices was 536.
(348/536) is 65%
That means another 35% to go to reach the bottom.
This is of course if we don't over correct. Which I think we will.
I like meat and potatoes.
Not very often you can take the banks money to make money.
I prefer to use free money to make money unfortunately most people can't control their borrowing and credit card debt is their downfall.
And to bring this back into the realm of real estate. 6/9 months of interest free money on a flip two years ago added 10% to our bottom line, not bad IMO.
And now credit card arbitrage to fund house flipping! Even sicker!!
Look what happened in Cyprus. The government snatched 9.9% of all bank deposits.
Cyprus is just a cut above Greece and their banking system is essentially a conduit for Russian money laundering, which is why bank deposits were hit. Their banks hold a large amount of Greek government debt (surprise) which is the main reason why they're in trouble.
You can put the paranoid fantasies for Canada to bed. If the federal government needs more money it can just put the GST back to 7%. Or more likely just keep borrowing, until after the next election anyway.
With regards to Marko's comment, there are always fools who think that RE is a safe investment no matter what.
I spent some time with an economist this weekend and he has some interesting things to say.
1)The high Canadian dollar has allowed the government to not raise interest rates. The high dollar makes it more expensive for us to purchase goods, giving the same effect as a higher interest rate. That being said, if our dollar, relative to the US stays around $0.93 or lower it could give way to a rate hike. This is something that could happen very quickly despite what the government has said about keeping it low for the next year.
2)Fundamentals and the market always come together! But sometimes this movement takes glacier like speed. In other words don’t be surprised if housing price vs. income stays out of whack for a while (also don’t be surprized if they align fast, no one knows when fundamentals and the market will align). As Peter Lynch once said "I can't recall ever once having seen the name of a market timer on Forbes' annual list of the richest people in the world. If it were truly possible to predict corrections, you'd think somebody would have made billions by doing it."
As a real estate fool, I do think RE is a pretty good bet if you have a long-term locked in rate, no intention to sell and rental income to support payments.
I do think; however, there are much better markets to be an investor than Victoria. Victoria you need rental income on your primary residence if you want any kind of reasonable investment numbers if you are looking at it as an investment.
I've looked into Texas a bit for RE. People are buying 3 bed 2 bath places for $60K. Renovating for about $20K-$25K, and then renting them out for $1400-$1500 a month. US Reits might be worth a closer look right now.
"That’s 70,000 lost jobs in the new build market and 120,000 in the resale market, in just three years."
Economic growth based on an ever appreciating housing sector.
Housing market stalls, economy stalls.
At least we have low interest rates!
CAAMP: Major Job Losses From Amortization Change
People are buying 3 bed 2 bath places for $60K. Renovating for about $20K-$25K, and then renting them out for $1400-$1500 a month. US Reits might be worth a closer look right now.
Therein lies the insanity. 'Investors' here are trying to rent 250k condos for $1200. After interest, tax, marketing, strata, MnR, mngt fee, vacancies, etc - they are not only negative cash flow, but falling in value. If they sold the 250k condo and used it to buy 3 of totoro's Texan houses (or Reits), they would be rolling in the dough$$ - gaining on both ends.
What I find so mind boggling about the 'condo rental' market is, for example, I have a friend in Vancouver who purchased a condo 1.5 years ago and wants to sell because she's getting married 9and just bought a new townhouse).
Because she was going to lose a fair bit because of condo declines her solution is to 'rent it out until the market recovers'. She doesn't realize that a market recovery is actually the market going down another 20%.
She is screwed and what makes it most tragic is it's all her fault. The information is all there she just has to get it through her thick skull.
Cyprus is just a cut above Greece and their banking system is essentially a conduit for Russian money laundering, which is why bank deposits were hit.
That is a facile and highly misleading representation of the situation in Cyprus.
The proposed decimation tax, a heist of 10% of bank deposits by the government, is not a case of one bunch of bandits sticking up another bunch of bandits.
The cost to UK citizens alone has been estimated at around $200 million Euros.
And you cannot consider the tax as some weird thing going on in an insignificant backwater. This plan was approved by the Euro-zone finance ministers.
No one has suggested that Canada is likely to adopt a comparable tax. But what the action by EU Ministers indicates is that the Western commitment to property rights is under serious threat. That is no paranoid fantasy.
US REITS sound interesting. Does anyone have a comment on which REITS are well managed and in promising sectors of the US property market?
I'm guessing there will be little complaining from foreign account holders in Cyprus since they are tax evaders using Cyprus as a haven and prefer not to draw attention.
re Cyprus
Causing a loss to insured deposit holders (those under 100,000 euro) seems like the worst thing they could do in terms of destroying confidence in European banks. If you are a Spaniard, Italian or Greek do you let your money sit in a local bank trusting that your government will honor deposit insurance? or do you you try to move it somewhere safer (the mattress??).
The "tax" on the sub 100,000 accounts seem to have been done purely so they could keep the "tax" on larger accounts in the single digits (barely).
Not a very likely occurrence here, but it does point to need for diversification and the risk of all your eggs in one basket - even a very safe appearing asset like bank deposits or Oak Bay real estate.
I'm guessing there will be little complaining from foreign account holders in Cyprus since they are tax evaders using Cyprus as a haven and prefer not to draw attention.
Probably a bad guess.
The British have a military base in Cyprus and a total of around 16,000 forces personnel and public servants. The UK government has already announced that it will compensate these people.
Another forty of fifty thousand Brits reside in the Island. Mostly pensioners.
As for tax evaders, you find them everywhere. But folks putting their money on deposit in a Cyprus bank are more likely simple-minded retirees than big-time tax evaders. And insofar as Cyprus serves as a tax haven, many using its facilities will be honest citizens making perfectly legal arrangements to avoid, not evade, tax.
As for there being little complaint, Putin is already complaining loudly on behalf of Russians being fleeced in the Island, and Russia just provided Cyprus with a multi-billion Euro bailout facility. Hence the urgent consultations among EU-zone finance ministers this AM.
Cyprus has an enormous banking sector swelled with the deposits of wealthy foreigners many of which are Russian. Maybe just tax evaders but more lurid possibilities come to mind. Maybe Putin is complaining because he has accounts in Cyprus to hide the proceeds of corruption.
Back to Victoria - Marko - how are the stats for this morning?
But what the action by EU Ministers indicates is that the Western commitment to property rights is under serious threat.
There is no such thing as absolute property rights when governments have the power to tax.
Government can levy any tax on anything at any time. They can also effect major changes to the market price of something you own (i.e. your house) by raising interest rates.
Here are my stats for 11-17 March:
SFH: Vic,OB,Esq,SE & SW with a min of 2 beds & 2 baths, priced between $375K-$775K:
Sold : 22
Avg Sale Price: $550K
Med Sale Price: $517K
12 of the 22 Sales went for below BC Assm't & five had secondary suites.
Since I began tracking in Oct of 2012, the average sale price for Saanich East homes in the areas of Gordon Head, Lambrick Park and Mount Doug is $570K.
For Condos and Townhomes in pretty much the same areas priced between $250K and $550K with a min of 2 beds & 2 baths:
Sold: 10 Apartments & one Townhouse
The Avg sale price for apartments was $283K and med sale price was $268K. The lone townhome went for $358K. The townhouse and 8 of the 10 apartments went for below BC Assm't.
Interesting read: "Canada housing to slow, stanate, but not crash." Scotiabank.
sorry "stagnate"
Sorry for the delay, crazy busy - don't think I'll be posting much for the next few weeks.
Monday, March 18, 2013 8:45am
MTD March
2013 2012
Net Unconditional Sales: 259 570
New Listings: 732 1,385
Active Listings: 4,215 4,274
Please Note
•Left Column: stats so far this month
•Right Column: stats for the entire month from last year
Who to believe?
From Alexandrahere's bank report:
years of stagnation may follow, but no crash is likely because demographic trends will support demand in the medium term, a report by Scotiabank said on Monday.
From professor of finance at Ivey School of Business:
Canada will experience significant 'secular,' or long-term, decline in house prices starting around 2015, when the population ratio is about to turn upward based on Statistics Canada projections.
I wonder who's less biased - the bank or the university?
looked at 3501 Richmond this weekend. $440,000 1930s house. HUGE deferred maintenance. Needs a new roof, new electrical, new sewer/plumbing, new drain tiles, massive cosmetic updates inside.
It needs probably another $60,000 of work to be done to it.
Apparently there are multiple offers. Insanity still abounds.
There is no such thing as absolute property rights when governments have the power to tax.
No one is talking of an absolute right. And few people would argue that all taxation constitutes theft, i.e, an attack on the right to own property.
However, if governments, without debate or electoral mandate, help themselves to large chunks of citizens bank deposits, whatever rights to property citizens may have had before, will be greatly diminished.
And the Cyprus decimation tax was approved not only by some rubbish island in the Mediterranean but by Angela Merkel.
This confirms that across a large section of the Western World, the commitment to property rights, such as they have until recently been understood, is under serious threat.
Thanks for the article Dave.
Another good read---Google:
"Global House Prices Home Truths The Economist"
Some good side bar topics too as well as "The Economists House Price Indicators"
And few people would argue that all taxation constitutes theft...
I see that it's Glenn Beck time again.
In fact, most Canadians do not view all taxation as tantamount to theft. Sorry.
I've always been a fan of taxation. If you have ever looked at the costs associated with providing minimum services that keep a civil society in some sort of balance, and then visited a country where this does not happen, you might agree too.
I view taxation as the opportunity to contribute to systems that I have benefited from (education/health/etc) at a time when I can. The fact that we have health care and cpp and maintained communities is not something I take for granted.
By the time I retire I expect CPP to be either abolished or pushed back to 75 or older. But hey at least I've paid the way for the boomers
Is CPP an income tax?
You're rate is dependant on your income. It's not optional. You derive some benefit from it being collected from you.
Does someone see it any differently than an additional income tax?
"I've always been a fan of taxation."
This is ridiculous and you are the worst kind of Socialist.
Price is what you pay, value is what you get. I don't think anyone would argue that the Cypriots are suffering from a massive case of buyers remorse at the moment.
Taxation has it's place and that is to provide a pool of resources so that non-profit motivated entities can have resources to draw from to provide superior social value than a purely capitalist system can.
Needless to say, there are very few (if any) areas in the economy where this is a valid observation and covering bank losses and supporting the bad decisions of corrupt politicians is certainly not one of them.
If that means that countries have to default on loans, the Euro is destroyed and interest rates skyrocket, well so be it - capitalism at work.
If you didn't plan accordingly, well you might lose it all but that is the beauty of capitalism - if you work hard, there is always an opportunity to get it all back and then some. Not so in a socialist environment where everywhere you turn there is a bureaucrat stealing your money.
You probably voted for the HST too...
An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that Obama's socialism worked and that no one would be poor and no one would be rich, a great equalizer.
The professor then said, "OK, we will have an experiment in this class on Obama's plan".. All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive an A.... (substituting grades for dollars - something closer to home and more readily understood by all).
After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.
The second test average was a D! No one was happy.
When the 3rd test rolled around, the average was an F.
As the tests proceeded, the scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.
To their great surprise, ALL FAILED and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed. Could not be any simpler than that. (Please pass this on) These are possibly the 5 best sentences you'll ever read and all applicable to this experiment:
1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.
2. What one person receives without working for, another person must work for without receiving.
3. The government cannot give to anybody anything that the government does not first take from somebody else.
4. You cannot multiply wealth by dividing it!
5. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that is the beginning of the end of any nation.
An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class.
Ahh, right wing bullshit story time. Tell another one!
and then the college closed down and the professor lost his job because the college lost all it's government funding...
zzzzz
Old chain letter copy paste
"Obama's socialism"
What a truly ridiculous statement! Despite being a darling of "progressives" worldwide, Obama is well to the right of Harper on many if not most issues. Few accuse Harper of being a socialist.
PS remind me not to go to nan's for this year's Thanksgiving Dinner. Yikes.
Dave3
Re: CPP
Funny story. My generation (X) frequently kvetches that CPP will be dead and gone by the time we retire. But you know who I heard saying exactly the same thing 25-30 years ago? My parents. Who begin to qualify for CPP next year.
As the worst kind of socialist :) I did vote for the HST. Ridiculous that it is being reversed.
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