| September 2013 | September 2012 | ||||
| Wk 1* | Wk 2 | Wk 3 | Wk 4 | ||
| Unconditional Sales | 96 |
416
| |||
| New Listings | 305 |
1210
| |||
| Active Listings | 4513 |
5025
| |||
| Sales to New Listings |
31%
|
34%
| |||
| Sales Projection | 403 | ||||
| Months of Inventory |
12.1
| ||||
Slow start but there was the long weekend in there. Hard to imagine we won't exceed last year's numbers. Should be coming in around 500 if we don't get a serious slowdown.
158 comments:
>> Some of those dotcom companies were literally an empty shell.
>>But you only know that in retrospect..<<
Not really... It was painfully obvious even then. They were literally like the tulip bubble. It was speculation fuled by what people were paying, inspired by a few real companies like eBay. People (like myself) saw the success of that stock and wished they got in. Investors were primed for the taking. Investing in a startup is fine but this wasn't that... I never invested in a sine one of those shams... I did however invest in Google and Facebook recently. Google is one that I wish I didn't think was overvalued at its IPO. I'm glad I got over that and bought in when the dipped. Facebook I still bought when I thought they were overvalued. I pegged them at 15 but bought at 17.5 ish. In the end it's what you think others will think....
The jobs trend continues...
August Full-time Jobs
BC -9800
AB +7200
ON +5500 (StalJ)
I've explained this at length. Young people continue to leave Victoria in search of greener patures elsewhere, particularly Alberta. Alberta's economy isn't booming or anything, but it has had more employment potential than Victoria for some time.
This analysis also shows how Victoria's unemployment numbers have been pushed lower for some time by unemployed worker migration (in this case, construction).
Hat tip to Housing Analysis.
Canada's housing bubble is currently bigger than the 2006 US housing bubble, based on several key factors. More on this later.
You can deny the existence of Canada's housing bubble if you want, but that will not change the facts.
They denied the existence of the 2006 housing bubble in the US, but that didn't stop it from bursting and crashing.
Alan Reynolds, Senior Fellow, Cato Institute (January 2005):
"In short, we are asked to worry about something that has never happened for reasons still to be coherently explained. 'Housing bubble' worrywarts have long been hopelessly confused. It would have been financially foolhardy to listen to them in 2002. It still is." ("No Housing Bubble Trouble", Washington Times)
Did the "not haunted" sign work? They were talking about on the radio the other day. They even interviewed Captain Mann.
She seemed annoyed.
Someone jacked the signed yesterday! Getting a ton of showings on the place but no offer yet.
"Someone jacked the signed yesterday!"
Haha, it wasn't me.
Clearly it was the ghost. It didn't like you denying its existence.
It just seems that people have accepted to pay a certain portion of their income on housing. And that doesn't matter if you live in Sooke or Tumbler Ridge. The asking prices for similar acommodation are about the same in both hoods.
People have jobs and they are estatic to give their money to other people. And that likely will not change much until the local economy sours.
But then carpenters and stone masons will retrain for high-tech jobs and landscapers will develop 99 cent apps and turn themselves into millionaires over night.
Now there is an area that is in a bubble. Millions of people making millions of useless software gimmicks and web pages.
Too busy to read the advertisment at the local bus stops. Easy - just download it to your phone!
Christ! what a society of losers we are becoming. I think I'll go out and get a tattoo of a Blackberry QR code so people can just walk up to me -pass their smart phone across my forehead and not have to ask my name.
Although - it would make dating easier. You no longer have to ask them if they have an STD, or who they know or there favorite things to do. Just swipe your smart phone across their forehead tattoo. Then you can text them "You are approved" or denied. -and you don't even have to buy them coffee.
Now if I can only geo-locate a tattoo parlour on my smart phone. Hmmmm - here's one. Won't the wife be impressed when she gets home! It's either this, a goatee, a sleeve or a soul patch.
It's a tough choice. A tattoo sleeve lost all credibility when Justin Beiber got one. There is not enough sand paper in the world to get rid of that mistake. Your only other choice is now to join the Blue Man Group.
The intrinsic value of a house is the earnings which it can bring to its owner as a business, i.e. a rental.
You can, arbitrarily, define intrinsic value that way if you want. But there is something quite bizarre in the notion that the prices at which houses change hands can be consistently different from their intrinsic values.
When sale prices consistently exceed intrinsic value as defined by rental value it is clear that people are valuing houses on the basis of something other than rental value, which makes sense, since in most cases they are buying for their own use, not to rent to a third party.
More sensibly, therefore, one would say that it is what people will pay to own a house rather than what they will pay to rent it that determines intrinsic value.
In fact, it seems to me that the notion that intrinsic value is anything other than what someone in a free market will pay for something is merely part of the flim-flam used to induce gullible investors to purchase dubious assets. If a house sits over an oil field, does the rental value still determine the intrinsic value? If it is situated on land that has the potential for future subdivision, does the current rental value still determine the intrinsic value?
Values, as measured by prices that people will pay are determined by a host of variables that can never be exactly quantified. To believe that rental value or some other thing provides a reliable measure of instrinsic value is thus a dangerous delusion.
To me, intrinsic value suggest the lowest price the item could ever be worth today.
The intrinsic value of gold jewellery is the weight of its gold. The intrinsic value for a car is its scrap value to an autowrecker.
However, the market or retail value of gold jewellery and a car are much higher.
That someone would suggest that the intrinsic value of real estate is its rental value? Doesn't provide a clear indication of its worth. A home in Esquimalt and Oak Bay may rent for the same amount but they won't have the same "intrinsic value". Nor would a house on 10 acres and a house on waterfront, that coincidentally have the same Market Value, will also have the same rental rate. Which means you would always have to be fudging the price/rent multiplier or Gross Rent Multiplier (GRM)to fit the concept of "intrinsic value".
Something you don't have to do with gold or cars.
Intrinsic asset valuation as dangerous delusion. I like it.
Would anybody care to rent this gold wafer sitting in front of me?
It all depends on your definition of "intrinsic value". If you are going with the financial worlds definition that's one thing but a more general interpretation is intrinsic value is what it's natural or core value is. So Gold is that it's a very useful element. For indtance, it is a good conductor of heat and electricity, and is unaffected by air and most reagents. So a house has value beyond what revenue it can generate (unless you are purely an investor)
So a house has value beyond what revenue it can generate (unless you are purely an investor)
It doesn't matter if you are planning to rent out a house or not. The rental value exists regardless. The utility of a house does not define its value. Yes a house is good for keeping you dry and giving you a place to live, but you can easily rent that, so it is not necessary to buy the place to access that value.
Rental value is the best measure of valuation for houses, but it is certainly not without faults. I particularly do not subscribe to the idea that there is some hard value for rental value multiplier that represents fair value. Some people are fixated on some number as if this should stay constant forever when in fact it depends on many factors.
Perhaps rent best defines a houses value as shelter but a home had more value than just that. Keeping a wife happy has value for instance...
>> Keeping a wife happy has value for instance...
yes but what is the intrinsic value of your wife?
So how do you determine what a house would rent for?
A two-bedroom shanty on Gonzales Beach?
A 10 acre farm with numerous outbuildings?
The former Len Barie's house on Bear Mountain.
A one-bedroom condominium in a complex that does not allow rentals?
Any house, anywhere?
Now how do you determine what rental factor to use. 150, 300 or 400?
Rental value is NOT the best measure for real estate valuation. In fact it is NEVER used to value single family homes or condominiums because of the aforementioned.
It's one of those things that sound simple in theory but are not practical in the real world.
Like firng 200 cruise missles aimed at the ruling government's communication and transportion centres in Syria. In theory a warning shot. But in practice that's aiding the rebels in war.
You put it up for rent....
Rental value is NOT the best measure for real estate valuation. In fact it is NEVER used to value single family homes or condominiums because of the aforementioned.
But it is a sensible measure of what a place is worth. You need a place to live, you can rent it or buy it. How a purchase price compares to the alternative (renting it) is the only sensible way to decide whether the price is fair. You can add or subtract the premium you want to pay for one scenario or the other.
The utility of a house does not define its value
So the utility of a house purchased for owner occupation determines the price but not the value, whereas the potential rent, which is of no consequence to the purchaser, does not determine the price yet it determines the value? Come on!
The value is in the eye of the beholder, or rather the eye of the purchaser and may be based on may things, but rental value is rarely one of them.
And in any case how can potential rent, when it is well below the potential yield of other assets, be the factor determining value?
If income were the objective of the investment, the purchaser would obviously buy one of those preferred share thingies yielding a guaranteed, sure-fire cast iron 7%, that GT is always on about.
You put it up for rent....
How the $@$*& can you do that when you bought the place to live in!
but what is the intrinsic value of your wife?
(Wife's Income) - (Wife's Expenditure) X the PE of the Dow = Intrinsic Value of Wife.
Depending on where you want to sleep tonight. The intrinsic value of a wife might be:
A) Her rental value
B) Her weight in Gold
In any case the concept of rental value is nebulous and thus cannot provide a practical basis for a valuation.
The potential rent of a piece of property may be estimated with accuracy, but how do you extract from that a capital value, i.e., the alleged rental value?
Does RE rate with a 10-year Treasury bond having a PE of 50, or the Dow with a PE of 16, or the shares of BP with a PE of 5?
Clearly its a matter of opinion and opinion will vary with the property, its condition, location, the prospects for capital appreciation, etc. In other words, rental value is not used to value property because it provides no reliable and generally agreed basis for establishing a capital value. On the other hand, what someone will pay, is something that can be usefully estimated based on recent comparable transactions.
In other words, rental value is not used to value property because it provides no reliable and generally agreed basis for establishing a capital value. On the other hand, what someone will pay, is something that can be usefully estimated based on recent comparable transactions.
That's a pretty empty definition of value though. That's really just the price of the property and tells you nothing at all about the value of it.
Intrinsic Value: "The actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the current market value. Value investors use a variety of analytical techniques in order to estimate the intrinsic value of securities in hopes of finding investments where the true value of the investment exceeds its current market value."
So it turns out even the financial definition of intrinsic value is actually close how I define it. So I would say JJ is misusing the term... Introvert, where are you????
">> Keeping a wife happy has value for instance...
yes but what is the intrinsic value of your wife?"
Happy wife, happy life.... that is the intrinsic value of a happy wife.... and one of the intrinsic values of owning a home....
This article is mind blowing. When I read this article, I enjoyed.
book marketing
The problem is when you try to apply that definition to real estate. It doesn't make sense.
What this definition is saying is that investors are trying to buy assets that are not at their highest and best use.
Acountants will value companies as a going concern and as a whole. Some investors see that the value of breaking up a company can be much more than the market value of the company estimated by that accountant. Even the value of the assets could be understated because of generous government allowable depreciation rates. That the book, true, actual value of the assets are not at market value.
None of the above applies to real estate.
There are hundreds of text books that are written specifically for real estate. Everything has a real estate definition. It isn't necessary to borrow definitions from the financial world to define real estate. And its just wrong to do so.
And yes I miss that little old spell checker too as I see its late, my eyes are puffy and I'm too lazy to proof read.
So here's a little head noogie for Introvert.
-noogie, noogie, noogie...
"Intrinsic value" can be applied to everything. Even a tulip has intrinsic value. If you have a good sense of this it will help you make good decisions. A tulips intrinsic value is that it's pretty to look at and brightens up a room, maybe you can eat it if desperate. Sooo maybe one bulb isn't worth 3 grand?
Intrinsic value is hard cash. The artistic beauty of the tulip is extra.
As in Gold jewelry, the intrinsic value is the weight. The artistic value is the workmaship that went into producing the jewelry and the intangible benefit you receive when appreciating it.
Real Estate only has value when it has a use. If every person in Victoria owned a house there wouldn't be a reason to buy another home. There wouldn't be a rental market and the only use you could put surplus homes to would be storage.
And you don't pay a half a million bucks for some place to store your lawn mower.
People have been hoarding real estate for the last decade. There are a lot of intentional and unintentional landlords. You don't get to 70 percent home ownership and down around 1.6 to 2.3 persons per household without a lot of the GREED factor at work.
But you can't eat door knobs and carpet tacks. A lot of that shadow inventory can come back onto the market when the economy gets tough. That would be a supply-driven downturn - a crash - a bubble burst.
However, our market is experiencing a demand-driven downturn with stable to decreasing prices. With slow sales and stable inventory of properties for sale.
in·trin·sic
/inˈtrinzik/
Adjective
Belonging naturally; essential.
Synonyms
internal - inner - interior - inward - real - intrinsical
Intrinsic value is not it's monetary value.... sorry JJ.
Gold Jewelry's intrinsic value is it's weight in gold I agree. Why is that? Because gold has intrinsic value...
That's a pretty empty definition of value though. That's really just the price of the property and tells you nothing at all about the value of it.
Value, n: the monetary worth of something.
So what's your definition of value?
I mean other than "rental value," which we have established to be a vague, indefinite and essentially useless concept.
Intrinsic value is not monetary value, it's what your financial adviser tells you it is, assuming you still have any wealth remaining to invest after you've followed advice on how to buy without regard for monetary value.
the idea that there is a real value, that can be measured in money, that is different from the actual money value as determined by the market, is an absurdity.
Shares of X Corp are trading at $40 , but I say the intrinsic value is $80, so you buy at $40 and then what. You want to take your profit. How?
Oh, you mean X Corp will trade at $80 when the market catches up with my brilliant appraisal. Yeah, sure, except that such predictions have only a random chance of proving correct. In fact the most profitable predictions about market values are based on pure randomness. So, sorry, but your theories about intrinsic asset value are rubbish.
Value, n: the monetary worth of something.
So what's your definition of value?
I'm talking about economic value.
"Note that economic value is not the same as market price"
An appraiser just estimates market price.
Which type of value you want to use depends your situation. If you have a house and want to sell it, then the value of that house is what you can get for it. If you don't have a house and want to buy one, you can evaluate whether the market price represents good value by comparing it to the rental value. It's not vague, it's dead simple to estimate rent for a type of building and then compare renting to buying.
But when Info says house prices are overvalued, she does not mean they are above the prices that houses actually realize.
What she is getting at is a moral judgement: prices are higher than they ought to be.
And there is a basis for that contention. The Federal Government has intervened extensively in the credit market, at a cost to Canadians of hundreds of billions added to the national debt. The result has been to cheapen credit and thus increase the amount of credit Canadians have taken on to purchase houses. This has certainly driven house prices higher than they would otherwise have been.
you can evaluate whether the market price represents good value by comparing it to the rental value
But I just pointed out that "rental value" is a meaningless concept. If I am wrong, tell us how you translate a rent into an unambiguous capital value.
You'll notice I said it makes no sense to stick to a fixed multiplier like 150 or 200 or 300 to get rent value. You don't need that to determine if it represents good value to yourself. Just run the rent vs buy calculator, look at the results, and decide if the intangibles are worth the difference.
and decide if the intangibles are worth the difference.
What about the tangible differences? For example, the right of an owner to future capital appreciation, to convert to a higher and better use, to exploit mineral rights, to paint the dining room walls ox-blood red (some people actually do that).
In fact, rental value, however, defined is no more relevant to someone buying for owner occupation than is scrap value from a demolition sale.
But in any case, I thought the discussion was about Canadian house prices in general (the issue raised by Info in the previous thread), which I continue to maintain are what they are, neither more nor less, and that there is no such thing as intrinsic value that differs from market value except as one explicitly defines intrinsic value as moral worth, aesthetic worth or some other form of value that can be sensibly assessed.
You can't exploit mineral rights here in Canada. The Queen owns anything under your house ;-)
If Oil is discovered on your property the Crown owns it.
If Jed Clampet had struck oil in Victoria instead of Tennessee - he wouldn't have moved to Beverly.
His land would have been expropriated by the Crown.
There are plenty of good jobs in BC, you're just not looking hard enough!
"..how you translate a rent into an unambiguous capital value."
REITs, pension funds and other investors do it every day. Unambiguous capital value = net income / cap rate. You could find out what the going cap rate is, but I am guessing it is around 7% now that interest rates have climbed.
If you think about it, US markets did not stabilize until houses reached their rental value. $12000 annual rent divided by 7% equals ~$170,000.
Can't sell in this hot summer market? Why not rent it out?
Those unpaid "jobs" should be illegal. I'm going to boycott the Fairmont.
So how about the market then.
For condos in the core the median Sale to Assessment ratio for the last 30 sales is 96.3 percent. The typical condo selling at 96.3 percent of its assessed value. The median price being $289,500 or $288 per finished square foot.
The 30 days prior to this 30 day period the A/S% was 92.6% The median was $265,000 or $272 per finished square foot.
Best to buy before that interest rate guarantee ends? - Right?
Any savings you may have had with a lower interest rate was obliterated by having to pay a higher price.
But it's often the first time home buyer that makes these errors in judgement. Because in detached homes the S/A% moved very slightly. Seems the old real estate dogs have learned not to cross the street in front of a bus.
"You can't exploit mineral rights here in Canada. The Queen owns anything under your house ;-)"
Not true. Many Albertans are hillbilly rich. About 20% of Alberta's mineral rights are held privately.
“Canadian settlers who purchased homestead lands from the Dominion Government prior to 1887, from the HBC prior to 1908, or from the CPR prior to 1902, acquired title to all mines and minerals within, upon or under their lands. The term ‘all mines and minerals’ is somewhat misleading as gold, silver and other precious minerals were reserved to the Crown and did not form part of the settlers’ title.
http://www.fhoa.ca/about-freehold-mineral-rights.html
That would make sense StatJ if there was evidence to support the 7%.
The interest rate is not a factor in determining the typical capitalization rate.
The capitalization rate is derived from the marketplace and is just the net income devided by the sale price of similar properties and then expressed as a percentage. Then reconcilling these various cap rates in relation to the property you are looking at - based on the security of the income stream and capital invested. In layman's terms the more risky the property the higher the cap rate. For example, Industrial properties have a higher cap rate than apartment buildings. Because they are riskier investments.
You could use the Ellwood formula or Mortage-Equity Concept using interest rates. But you would be insane to try that on every sale of every single family home.
Here's the link on how to derive a cap rate using interest rates.
www.youtube.com/watch?v=tQUJyrU_bbw
It's a little more difficult to use for Canadian Mortgage because you have to convert the interest rate to a Nominal Annual Canadian Rate before inputing into the Ellwood formula or Mortgage-Equity Concept. And in practice - you actually have to know some of the inputs that you are trying to derive before inputting them.
I don't use a cap rate on single family homes because - its insane to do so and it isn't accepted appraisal practice and not considered a valid method to value single family homes by any Appraisal Institute in the World.
It works very well with apartment blocks, commercial and industrial. But they are not being bought for home occupation. They are being bought for their income producing potential.
"..how you translate a rent into an unambiguous capital value."
REITs, pension funds and other investors do it every day. Unambiguous capital value = net income / cap rate.
And how does a vendor get his house listed on the exchange so I can buy it at the unabiguous capital value.
Well actually, he doesn't need to because some damn fool will pay him something like twice the capital value as determined by your valuation of a REIT
(Which REIT, by the way? Some REITS have big returns some have little returns and some have gone broke, which suggests your method of valuation is highly ambiguous.)
That's cool info on Alberta. As long as the original 1887 land grant stays with the descendants. But I understand that it isn't transferable to another individual. It reverts to the crown.
But - I could be wrong.
"The interest rate is not a factor in determining the typical capitalization rate."
Right you are sir. I just figured as rates of return on competing investments rise (interest rates rise), rental cap rates should rise to be able to compete either through higher rents or a lower price.
I agree with the both^^ of yous JJ, CS : ) ..it is a stretch to cap rate a house.
BUT ..it is how ten of thousands of houses are now being valued and sold south of the 49th.
"..rent the home out for $1,575 per month and figures, after maintenance, management and other expenses, he’ll net a 7.1% annual return on his investment of $138,500."
"Billionaires, private equity firms and hedge funds have been swooping into the hardest-hit markets across the country and snapping up single-family homes by the tens of thousands.
From 2010 through mid-2012 institutional investors’ share of home purchases there grew from an estimated 15% to 26%, according to CoreLogic. Today 22% of the Phoenix area’s single-family homes are rentals, up from 8% a decade ago, reports Michael Orr, director of the Real Estate Center at Arizona State University‘s W.P. Carey School of Business. “The people who got in early made the most money,” he says. “Those who arrived last year have done [only] okay because prices have gone up.” He figures at today’s prices the rental cap rate–the net rental income to cost–is just 5% to 6%."
Note how cap returns have fallen to "just 5-6%"^ now that prices have risen. Still much higher than the pitiful 2-3% around here : )
Buying a house at extreme bubble prices at emergency level interest rates is always a bad idea.
We've seen 5-year fixed mortgage rates rise 1% over the past two months. As mortgage rates rise, house prices sink.
The average 5-year fixed rate in Canada over the past 25 years is 7-8%. Rates will normalize.
Canada isn't immune to sudden and extreme 5-year mortgage rate spikes. In the early 1980s, 5-year rates in Canada spiked from about 10% to 22% in a matter of 1.5-2 years. Some people on this blog think that sort of activity is reserved for Spain, Greece and Portugal. Not so much.
House prices are currently at extreme bubble levels in Canada, making the Canadian housing market much more sensitive any interest rate increase compared to the 1980s, for example.
Canada's housing market will correct fully and completely even if 5-year rates remain where they are today. All national housing bubbles burst and correct back to where they started and there is no evidence suggesting that a dramatic increase in interest rates is a necessary element of the correction/crash environment.
For example, Japan's housing bubble peaked in 1991 and the ensuing crash took place in an environment of 0% interest rates. It's interesting to note that Japan's housing bubble wasn't as big as the average of Britain, the US and Australia (see bottom chart).
Canada's current housing bubble is bigger than the 1991 Japanese bubble and the 2006 US bubble. Canada's housing market is set up for an extremely big crash, based on comparisons to other countries that have experienced housing market crashes.
..it is a stretch to cap rate a house.
BUT ..it is how ten of thousands of houses are now being valued and sold south of the 49th.
It's presumably how thousands of houses are being valued by investors in Canada, who for some reason are satisfied with a cap rate lower than in the US.
What that confirms is that there is no "intrinsic value" based on rent. The price people will pay varies from place to place and from time to time.
And cap rate is irrelevant in the case of homes purchased for owner occupation, as would be, say, the amount of floor she could scrum in eight hours in determining the value of a night's company with Miss America.
House prices are currently at extreme bubble levels in Canada
But have you not been saying that for a number of years during which prices have only gone up?
I am puzzled by your dogmatism. For example,
Canada's housing market will correct fully and completely even if 5-year rates remain where they are today
I am inclined to think that is what will happen, but it is easy to envisage a scenario under which that does not happen, or at least not for a long time and not before house prices have escalated even further.
And as someone above pointed out, a prediction that is right except for the timing is wrong.
The concept of "intrinsic value" as applied to houses sounds important and thus people seek to define it.
But is this not a case of reification: the assumption that because something has a name it must have a reality.
Residential real estate has a market value that is only loosely related, if at all, to rental value, or any other financial metric that has been suggested.
Leo suggests personal utility has something to do with it. But everyone has a unique utility function, and in fact, the only person for whom the utility of a home equals its market price is the person who buys it.
Perhaps that is where the prevalent idea that current prices exceed "intrinsic value" comes from. Only one person dictates the market price, that is the buyer who values the property more highly than any other bidder. To everyone else, the place wasn't worth the money. But in fact, market price is the only quantifiable measure of the value of residential RE that we have.
These are the hardest hit neighbourhoods in the country and yet they can still rent a house for $1575 per month.
That's a fantastic rate of return for a single family home. I just wonder how strong the rental market can be when house prices are that cheap.
These are the hardest hit neighbourhoods in the country and yet they can still rent a house for $1575 per month.
That's a fantastic rate of return for a single family home. I just wonder how strong the rental market can be when house prices are that cheap.
Well, it's good to see that the conversation hasn't changed one iota since the last time I checked HHV.
I will say that I hate the "happy wife, happy life" line, which many people seem to love so much. One person is happy = all is good? That's not how my partnership rolls.
Sorry introvert but the saying is from a mans perspective so get why you don't like it ;-)
No idea how good or bad these numbers are
http://www.numbeo.com/property-investment/rankings_by_country.jsp
But they make me wonder how useful price to income or price to rent are.
Price to rent ranges among developed countries from 8 (US) to 37 (Sweden) and Price/Income ranges from 2 (US) to 12 (Italy). Japan still has a higher price income than Canada.
"Canada's current housing bubble is bigger than the 1991 Japanese bubble"
Other charts I have seen would imply the Japanese bubble was bigger.
eg: http://www.marketoracle.co.uk/images/2008/japan-house-prices--nov08.gif
But assuming the Economist graph is correct and that the Japanese bust is a good analog for the predicted Canadian bust should we expect 15 years of declining prices?
That would be a bit of a depressing thought for someone who is waiting for the market bottom....
I bet people who didn't buy Japanese real estate in the 90s are pretty happy with their decision.
Great news!!
Fewer Canadians living paycheque to paycheque
"42% say they would be in trouble if pay were delayed vs. 47% last year"
Oh, that actually sounds terrible.
What the headline should be (maybe on the longs side): Of the people polled, those that are willing to talk frankly about their financial situation, said it was on the rocks, but less than last year.
"Meanwhile, the survey also noted that a "disturbing" 47 per cent of respondents age 50 or older are still less than a quarter of the way to their retirement savings goals."
Most of these people have a savings vehicle that has appreciated greatly, their homes. Since eating your home isn't an option, or at least a bad one, they might have to sell. Too bad the young generation is broke.
Well, everyone's broke, people just feel rich because a housing crash isn't part of the mental vernacular.
Sorry introvert but the saying is from a mans perspective so get why you don't like it ;-)
It doesn't matter whose perspective it's from; I still don't agree with it or think it's positive. Sorry, but this is just one of my pet peeves. Also, is it so unlikely that I'm a man?
"I bet people who didn't buy Japanese real estate in the 90s are pretty happy with their decision."
Sure, except the Japanese version of Garth Turner told them to invest in long term growth via the Nikkei where they could be virtually assured of earning 7% annual returns.
Well... We can live a lot longer without food than without shelter.... In fact of the four survival priorities food is last on the list... Shelter is first.
@ introvert. I don't think the saying has negative meaning at all. It could simply be rephrased as "happy partner happy life." But that doesn't rhyme :-)
You could be a man but a feminine confidence seems to come through in your posts. Like a JK Rowling....
In Garth's latest post we learn that Real Estate Boards are dishonest and we should only trust audited sales figures. Only makes sense. Reminds me of my brother in law who hunts bear in Northern Ontario. He baits them over the winter to fatten them up then when hunting season arrives the bear gets a big breakfast surprise...blam! Accepting real estate board stats is the same thing.
Quarter of Canadians spend more on housing than they can afford
"Housing affordability hits young people the hardest compared to other age groups; for 25 to 44 year olds, only 26.7% are spending above the 30% threshold. The number dips to just 21.9% for 45-64 year olds, and among those over 65 years old, 23% of households dedicate more than 30% of their total income on their housing costs."
Wait, are these the people that are supposed to sustain the housing market? I'm confused who is going to buy up all the new houses we've built?
Also, I thought the CPI was all good. Why are people struggling to afford basic shelter? Oh well, it's only 1 in 4 Canadians, that's not a lot, right?
Energy Minister Bill Bennett says efforts are underway to reduce potential 26-per-cent hike
They keep piling the straw on to the camel's back.
But that doesn't rhyme :-)
The tyranny of the rhyme! (Another pet peeve of mine: how, to most people, poetry must rhyme. I patiently await someone on TV's The Bachelor/Bachelorette to write a romantic poem in blank verse.)
You could be a man but a feminine confidence seems to come through in your posts. Like a JK Rowling....
That makes me smile. I tend to think that more of the adversarial types on the Internet are men. Perhaps this is a false assumption.
Marko, can you please let me know if the vacant lot at 1313 Laurel Road in North Saanich sold? If so, what did it sell for? Thanks
The following is unsubstantiated heresay. And could be absolute BS told to me. But...
Has anyone heard that the reason BC Hydro has to raise rates is because it got caught manipulating the price of power and has to pay a massive fine?
Hydro artificially created power shortages in areas which had a dommino effect of increasing market prices and thus overcharged California on electicity. BC Hydro power brokers systematically gamed the electricity grid - and got caught.
BC Hydro's Powerex pays $750M to settle California claims
"Energy minister says settlement won't raise prices for B.C. ratepayers"
We can trust our leaders. They are the leading professionals.
I knew it... Those smart meters were a scam too... Expect a run on heat pumps...
Marko, can you please let me know if the vacant lot at 1313 Laurel Road in North Saanich sold?
Didn't sell.
In Garth's latest post we learn that Real Estate Boards are dishonest and we should only trust audited sales figures.
We also need to learn that Garth Turner has a hidden agenda. Sell your home and invest your money with him, at the same time buy a book.
Ohhh, and the fact that he hasn't been able to predict anything....I mean his timing has been off for a decade.
"We also need to learn that Garth Turner has a hidden agenda. Sell your home and invest your money with him, at the same time buy a book."
He stands to make literally hundreds of dollars.
Now what if Garth actually DID have predictive powers. He could look into the future and be correct on what would happen and WHEN!
I prefer him to be just another human. He's a lot easier to take knowing that he doesn't sit with Zeus and Apollo.
I think Garth makes more than a hundred dollars selling his books services and speaking engagements..., His blog is what's known in the social media marketing circles as TVP - thinly veiled promotion...He is not a prophet, he is a business man....
What I like is how healthy the debate about the housing bubble is in this country.
On one side we have Garth and a few others. On the other side we have EVERYONE else.
If only the future was dictated by public opinion.
Actually Garth's post about the dishonesty of real estate boards is drawn from a post from a real estate agent in Burlington, Ross Kay who is the one blowing the lid off the dishonesty in real estate boards. Real estate agents should listen to one of their own who has integrity.
I think it's more of a spectrum. Garth is closer to me than info for instance. When I say flat no one argues with me in in meat space (except one realtor friend) Plus in this case the future will be decided by the public. They need to stop buying to push the prices down to crash levels.
"Plus in this case the future will be decided by the public"
Is that how it went down in the states? People just suddenly changed their minds?
That fact that no one is even entertaining the idea that an economy one tenth the size of the United States can't suffer a tragedy worse than they did is laughable.
Of course that can't happen here, the Americans are a bunch of idiots. We're smarter, dare I say it... better.
I just read Garth's post and his analysis is piss poor.
Crazy busy today so I won't touch on all the incorrect BS but here is one quick example...
At the heart of it is a federal Competition Bureau ruling that private sales can appear co-mingled with broker sales in MLS numbers, since companies like ComFree now list on the realtor system, while PropertyGuys runs mirror listings through registered brokers. The result – a growing number of sales in Canada are classified as private transactions, but appear in real estate board numbers. That’s cool. A sale is a sale. But what’s misleading is that this year’s numbers (including private sales) are being compared with last year’s deals (that don’t)."
I have the largest market share in terms of sold mere postings in Victoria for 2013; significantly more than PropertyGuys or anyone else. I think that gives me some credibility on the topic.
Reality is the large majority of my mere posting clients cross shop a mere posting versus a full service mls listing. Very few of my mere postings would have sold privately with a FSBO sign in front of their home. If it wasn't for the mere posting most of them would end up selling via a full service listing. Garth assumes that mere posting sales would all occur privately if it wasn't for Comfree/Propertyguys....very wrong assumption.
Then he compares it to last year's numbers as if mere postings didn't exist last year? I sold a lot of mere postings last year too.
I am sorry, but this particular post by Garth is an uneducated/lack of understanding joke.
I think Garth makes more than a hundred dollars selling his books services and speaking engagements...
Not just that....
http://www.raymondjames.com/branches/custom/turnertomensonwmg/Team-Turner.htm
The horror, a blogger with a job.
The only relatively popular voice of descent should have purely altruistic intentions. How dare he make money.
He can now be dismissed, ad hominemely.
I would no more dismiss Garth because he is a financial adviser than I would dismiss Marko because he is a realtor. In both case I look at the quality of the contributions they make BUT I also bear in mind the prejudices they may have because of the way they make their living.
JJ: Do you think most of Victoria's condo complexes (not the 90's bldgs that had to have rainscreen applications), actually need to have the extensive work now being done on so many of the 70's & 80's ones? Or do you think perhaps much of it is a scam? I wonder as I walk around looking at the green nets covering so many of them. Your opinion is valued.
Is it just my accounts or have sales really died lately?
It may make sense as this would be ?near the end of the sub 3 rate holds.
"Of course that can't happen here, the Americans are a bunch of idiots. We're smarter, dare I say it... better." Strawman....
I take offense with that term. It should be "Straw person".
Alexandrahere, I have wondered the same thing too.
I have seen high rise concrete condominium towers under tarps.
CONCRETE? REALLY! CONCRETE LEAKS
I think one of the problems may be that Engineers that sign off on the water problems will only give a guarantee if the Cadillac option is performed on the entire complex.
Once rot is found, they can't guarantee the problem is corrected until the entire cladding is removed and replaced.
As for those 1970's 2x4 constructed buildings with single glazed windows and stucco over wire. That might be more of a case of age and deferred maintenance by the strata council.
I'll leave you with a question that has perplexed me. Why condos and not town houses?
They used the same building code!
The mandatory depreciation reports are coming due soon (December 13, 2013). That might have an interesting affect on the condo market. Less so on the new ones.
And contrary to what some think on this blog - it rains in Victoria. It rains a lot in Victoria.
And the odds are that somewhere in your home there is wet rot. Imagine calling in an engineer to inspect the home for wet rot and she finds some around the windows. But she'll not guarantee that the wet rot in the building is remediated unless all of the exterior siding is removed, the windows replaced and new flashing installed.
Well most of us would say "buzz off - I'm only going to scrape and paint the sills." Not so in a strata property. That conversation would appear in the minutes. Now, like it or not your home would be wrongly considered a "leaky".
Try to sell or finance it now.
So don't call in an engineer then. You're out of luck - depreciation reports are now necessary on condominiums. And if they note wet rot.
It makes buying a condominium a tricky thing. Better to buy new with rainscreen siding - right!
Nope - those complexes have been known to have their building envelopes fail too.
Or maybe you could come to grips with the thought that condominiums will never increase in price and every year you own the condo it will be worth less and less. Like you do with a car. You need a car - just accept the fact that when you sell, it will be at a fraction of what you paid for it.
JJ: Thanks for your response. I think the main problem with leakage & rot might be caused by the balconies. This is just me. I haven't heard or read about the subject. Maybe you have noticed, many of the townhomes have patios rather than balconies. Also, in the 70's and 80's bldgs most owners opted to "glass in" their balconies. Maybe the extra weight causes the balconies to separate from the main building, thus letting water in. The newer condos don't or can't do the enclosures. I think it may even be a bigger problem if the balconies are the same stucco as the main bldg. If you have wood ones for example, they may be easier to replace rather than the stucco ones.
Also, around town I have noticed some of the older apartment blocks are also being remediated. There again...it seems only the ones with balconies. The apartment blocks built before the 70's, for the most part, didn't add balconies to their units.
More bad news.
Insulbrick.
What the F%$^ is that?
That's asphalt siding that looks like brick from a distance and was put on houses in the 50's and 60's. The insurance companies and banks are now reluctant to insure and lend on these homes. Just like Urea Formaldehyde Foam Insulation (UFFI)in the past. Real Estate Appraisers are now being asked to note the percentage of the exterior that has this junk. Of course most of it has now be sided over top - so who the hell knows if it has any.
As one carpenter said that in his 40 years of replacing this shit, every home that had it had carpenter ants behind it.
inground Oil tank
100 amp services
stone foundations
knob and tube wiring
Insulbrick
Asbestos shingles
Asbestos anything
Aluminium wiring
etc., etc.
Insurance for houses in earthquake zones, flood plains or in the V8 postal code hoods all may have a problem in the future.
It really comes down to the building code that BC adopted from Arizona in the 1990's. The idea was to make the condominiums more energy efficient by sealing them up tight. Every builder and carpenter knew this was a bad idea for BC and told them so. The people at the then New Home Warranty Plan in their own sutle way told them to build to the code or stop building.
I remember some of the old time builders waiting for the insulation inspection to be finished and then slashing the vapour barriers, so that the building could breath and dry out after a rain.
The balconies had an issue to do with the slope and poor design.
The windows had an issue with being installed upside down.
The flashing was an issue of not being done properly.
The stucco is an issue with settling cracks and acrylic.
The exterior electrical outlets were an issue because they were the wrong type.
The paper between the stucco an the building was an issue for being to thin.
The overhangs were an issue for not being large enough or being eliminated altogether.
Water is the enemy of all homes. It sneaks into any crevice. It rots, expands and contracts, brings on mould and mildew.
Perhaps that's why BC picked Arizona's codes - they don't have water infiltration problems.
I wonder why!?
Water is the enemy that's for sure. What a debacle that code era was... In BC it rains a lot! Even in our little micro climate it rains! Sheesh. This is why I am a skeptic....
BC Stats Released September 10, 2013
Building Permits
Y-T-D % change
Total for BC -12.7%
Made up of:
-3.8 Residential
-52.3 Industrial
-19.9 Commercial
-23.1 Institutional
Earnings and Employment Trends for August 2013.
Employment Growth?
------------------
BC is 2nd last at -0.3% growth, NB comes in last at -0.8%. The big winner is Alberta at 3.8%
Where are the jobs?
-------------------
Gains in: Finance, Insurance, Real Estate and Leasing, Food Services, and accommodations, Retails and Wholesale Trade and Professionals (Self Employed people?)
Big Losses in Manufacturing, Transportation and warehousing, Utilities. Health Care and Social Assistance.
Surprisingly our Average Weekly wage rate increased yoy 3.3% (Comparing Jan-Aug 2012 to jan-aug 2013), but we are also working 1.1% more hours.
Overall I see a big negative shift in building permits which we already knew about but also a big shift in the types of jobs. It appears that we are making and shipping less goods and utilities but servicing more and selling more financial, real estate products.
That does not sound sustainable to me, but what do I know? I'm just a busboy working for the fairmont hotel on a fantastic internship opportunity.
Lots more goodies here:
http://www.bcstats.gov.bc.ca/Home.aspx
Good stuff from bcstats, although at least multis are going fairly strong here until year end? It was in TC yesterdayVictoria leads capital region in condo builds
Canadian home prices are at record highs as the real estate market rebounds, climbing 2.3 per cent in August from a year earlier…Prices rose 6.5 per cent from a year earlier in Calgary, 5.5 per cent in Hamilton, 3.8 per cent in Toronto, 3.5 per cent in Quebec City…Prices fell for the 13 consecutive month in Vancouver, though by just 0.1 per cent, and for the sixth month in a row in Victoria, by 2.5 per cent.
http://www.theglobeandmail.com/report-on-business/top-business-stories/home-prices-rise-23-as-market-rebounds-but-fall-in-vancouver-victoria/article14271845/
It must frustrating to watch home prices across the country rise for 3 plus years now while Victoria keeps falling. By looking at August teranets I'd say more tightening is on the way.
It shows Victoria is the most stable. Who would it frustrate?
Sun Life’s Adatia Sees Canadian Home Prices Dropping
"Canadian home prices will drop 10 percent to 15 percent “over time” as mortgage rates rise and supply swells, said Sadiq Adatia, chief investment officer of Sun Life Global Investments Inc."
It shows Victoria is the most stable. Who would it frustrate?
Anyone that expected real estate to appreciate. I'm going to guess people would have preferred a 30% gain like in the rest of Canada to "stable".
I doubt anyone is "frusterated" their house hasn't appreciated hypothetically in relation to the rest of Canada. I can see people being frustrated if their house can't sell, or that they have to sell for a loss. I doubt many people who own a home even know it it hasn't appreciated in the last few years. Most people are not on top of this subject like we are here...
"Most people are not on top of this subject like we are here... "
Ignorance is bliss.
Well there really is no reason to know except for interest sake.
When it becomes more important is when you're actually thinking of buying or selling and you might want to run the numbers of what if it was flat for 5 more years, or what if there was an X% decline and I had to sell?
Canadians' household debt climbs with rising mortgage costs
"But net worth also rises as the value of homes increases"
People are going to be very upset when their "earned" net worth starts slipping.
"I thought home values only went up or stayed flat. Why wasn't anyone saying this was a possibility? I would have thought twice about buying if I knew that I would have to sell at a loss." -Bill Strawmansky
And the same guy buys a car for 40k and loses 20 the moment he drives it off the lot all without blinking an eye...
"Victoria is the most stable. Who would it frustrate?"
Off the top of my head...
anyone who bought an older condo a few years ago and is now down ~30%.
House buyers like 1711 Haultain in June 2010 for $447,500...recently bank sold for ~300,000.
On the high end, numerous ~60% off original list.. Swanwick, madrona, 9344 Ardmore..
None of those examples are people frustrated by a hypothetical difference in appreciation of their house compaired to others in the rest of Canada. I'm pretty sure it would be frustrating to be foreclosed on....
"I would have thought twice about buying if I knew that I would have to sell at a loss." -Bill Strawmansky
No, you probably wouldn't have. Because, for the vast majority of people, the decision to buy a house is not exclusively predicated on money.
And unlike with cars, no one knows that they will have to sell their house at a loss.
Just like no one who bought in 1992 knew that their house price would double in a few short years (and stay doubled basically ever since).
Real estate, it would seem, is one of the few realms in which totally ignorant people can often make out really well. And I can see how this would irritate to no end much less ignorant people like Just Jack.
I think you're baiting me Introvert.
I'm happy for those that have made money in real estate and those that will make money in the coming years.
And for those that have read what I have written over the last few years I hope they are happy too.
I have never said that you shouldn't buy real estate. I simply have been assisting people on how to make a better informed decision.
Even in todays market, it's possible to make a reasonable profit on real estate. You just have to know what to buy. And if you want to retain your wealth what not to buy.
I have even pointed out some good buys with good upside potential on this blog. For awhile I was showing the top five best deals of the month.
And what about pre-construction and new condominiums? If I put the scare into someone buying these and getting them to look deeper, I don't think it hurt them one bit.
Personally, I have never called someone ignorant. A policy that, in light of your comments, I am now reviewing.
I simply have been assisting people on how to make a better informed decision.
And what about pre-construction and new condominiums? If I put the scare into someone buying these and getting them to look deeper, I don't think it hurt them one bit.
Based on your comments over the years about pre-construction condominiums you are mis-informed and have a negative bias towards such real estate transactions. Not sure how that asssits a person.
I think there are some good deals available on condominiums and there are going to be better ones coming up for sale.
When I made some of those comments, I was expressing the idea that condos were over priced.
And that some of the practices of some of the developers were not transparent to the public.
All true.
People lose money all the time on condos they buy pre-sale; however, the key is to differentiate between an actual pre-sale burn (poor end-product) versus a market burn.
A pre-sale burn would be if you bought a pre-sale unit for $300,000 and three years later you sold for $250,000 in a completely flat market.
A market burn would be if you bought a pre-sale unit for $300,000 and sold for $250,000; however, if you had bought an existing unit for $300,000 it would have sold for $240,000.
From what I can see people are experiencing market burn, not pre-sale burn. The reality is the majority of the public is hesitating to buy sight unseen and often pre-sale units are cheaper than a comparable existing unit in that point and time in the market.
Rather than trying to scare people away from pre-sales more accurate advise in my opinion would be to scare them from buying a condo altogether if you feel condos are a poor investment.
I've bought several pre-sales and this is an example of one.
Paid $200k in 2009 pre-sale. Comparable completed units at the time were around $230k. On completion in 2011 my unit peaked at probably $240k and since than it has probably dropped to $210-215k.
If I had bought a completed unit for $230k in 2009 it would have also dropped to $210-215k .
If you wanted to live or invest in a pre-sale condominium like the Falls, Shutters or Aria when they were being built you had to pay the developer's price.
And there is no law that the developer has to sell the condominium to you at fair market value. In fact if the pre-construction contract price was at market value it would be the exception not the rule. You had one vendor (the developer) controlling hundreds of units for sale. And if the market is hot and/or the marketing is not transparent then prospective purchasers may be hurried into buying full price.
So if people were "burned" by buying a pre-construction condo it's their fault. They should have had a third unbiased party to assist them before buying. Then they could have deceided if the premium of being the first to own in the complex was warranted. Or like in Marko's case, they were getting the condo at a below market price.
The real burn would have been if you overbought on a pre-construction at $300,000 that had a market value of $250,000 and as in Marko's example, market values then dropped $60,000. You would now have a condominium that you paid $300,000 now have a market value of $190,000.
And this "real burn" is what is being seen in some of the re-sales today. One example that comes to mind is Bear Mountain. Bear Mountain once boasted that it had the highest number of sales of pre-construction condominums in one day.
In some cases it would make sense to pay less for a pre-construction condominium today than one that has just been finished.
Especially when you believe that a year or two from now, when the complex is finished, condo prices will be lower.
Any discount from market value would be less and less the closer the complex gets to being finished. If the current market value for a new condo is $300,000 and it takes 2 years to build and you expect prices to be 10% lower, a thoughtful person would want to buy that condo today for no more than $270,000.
Canadian Household Debt Climbs, but No Need to Hit Panic Button
The rate at which the our credit is growing is slowing.
"“It is the speed of credit growth that counts, as opposed to the actual level. The only time this measure goes down is during a severe, severe recession,” said Benjamin Tal, deputy chief economist at CIBC World Markets."
Exactly. Let it climb to 200% of income, we don't care. As long as the rate stays consistent.
a thoughtful person would want to buy that condo today for no more than $270,000.
Why would they pay that much?
There is a cost to committing to purchase two years hence. The buyer forgoes the option to invest in any better deal that may come up during the interim.
If there is no discount from the anticipated market price, why commit now?
a thoughtful person would want to buy that condo today for no more than $270,000.
Why would they pay that much?
There is a cost to committing to purchase two years hence. The buyer forgoes the option to invest in any better deal that may come up during the interim.
If there is no discount from the anticipated market price, why commit now?
If there is no discount from the anticipated market price, why commit now?
Anticipated market price? Doesn't quite work like that. In 2004 developers were selling units for 150k that individuals on completion in 2006 were flipping for 250k.
It is difficult to anticipate where the market goes two years from date of purchase.
You had one vendor (the developer) controlling hundreds of units for sale. And if the market is hot and/or the marketing is not transparent then prospective purchasers may be hurried into buying full price.
You have 10+ developers building something at any one time so there is plenty of opportunity to cross shop, on top of the existing inventory you can cross shop as well.
What you describe is equivalent to walking into a Toyota dealership and being hurried into buying a Toyota Corolla for full MSRP without testing driving the Civic, Mazda3, Jetta, Focus, etc., and without doing enough research online to start the process. This type of individual is just lacking common sense.
They should have had a third unbiased party to assist them before buying.
I've seen the books for a few developers and about 1/3 of buyers have a representative (buyer's agent). 2/3 buy direct from the show room.
What I've never understood is why the 2/3 don't get a discount as the developer does not have to buy their representative?
>> What I've never understood is why the 2/3 don't get a discount
I wonder if it occurred to them to ask
If a developer is "buying" their representative. I wouldn't call the buyers agent unbiased.
If the buyer's agent presented a sign and dated report that was used by the buyer to purchase the condominium. And later it was found that the buyer's agent failed in their due diligence and that buyer who relied solely on the agents written report overpaid for that conodminium. Then that buyers agent should have to pay for any loss, other than market decline that the purchaser suffered.
I'd pay $225 to an agent to do this for me.
$335,000 · $5,000 FEE PAID TO ANYONE WHO SELLS MY HOUSE!!!
"The asking price of $335K is firm and is over $100K below the assessed value."
"This is a divorce special, the house is empty and immediate possession is available."
Is being firm on price an option in a distressed sale? They'll find out.
The real problem with low interest rates
"The effects of the Bank of Canada’s low interest rate policy are pretty obvious. Canadians are among the most indebted people in the world today. The superficial picture of the country looks rosy: lots of nice shiny new apartments in Toronto and expensive cars on the streets of Calgary. It doesn’t take a "good" economist to see these things, or to make the connection that cheap money through low interest rates enabled these niceties of life."
But what if the rosy picture is the only picture you are willing to see? A halibut is created.
I wonder if it occurred to them to ask
Buyers ask but developers don't concede (in terms of the buyer not having an agent). For the most part they bank on selling 65-70% directly via their showroom. Depending on the project the savings can be in the 100s of thousands not having to pay out the buyers' agent’s commissions.
I would equate it to the mortgage industry. If you go to the bank and pin them down to give you their best rate they'll give you, for example, 3.49% on a 5 year fixed.
If that exact same bank works with mortgage brokers the broker will also get you 3.49% on a 5 year fixed; however, the bank will also pay him or her 50 to 100 basis points. What they are paying the broker could buy down the rate to around 3.35% to 3.40% but you'll never get that walking into the bank.
If a developer is "buying" their representative. I wouldn't call the buyers agent unbiased.
What is the different between the developer paying the buyer’s agent and a seller on a re-sale unit paying the buyer’s agent?
From a compensation model the pre-sales are actually at a disadvantage with the buyer’s agent because the commission is usually paid out in to 50% increments. Sometimes it can be 50% within 6 months and 50% on completion. Sometimes it is 100% on completion.
However, on a re-sale unit the completion is much quicker. From a pure compensation angle I think most buyer's agents would prefer to get paid within 2 months than within 2 years.
>> Buyers ask but developers don't concede
I guess the developers dont want to alienate the realtors bringing them buyers. Although in a slow market that might change.
It is difficult to anticipate where the market goes two years from date of purchase.
It seems rash committing to purchase two years in advance of completion if you have no idea of where the market is going.
But assume the buyer has no idea. Then he would surely proceed on the assumption that the market is neither rising nor falling. In that case, the price he would reasonably be willing to pay should be lower than current market value because he is forgoing the option to purchase something else, in some respect more attractive, that may become available during the interim.
It is difficult to anticipate where the market goes two years from date of purchase.
It seems rash committing to purchase two years in advance of completion if you have no idea of where the market is going.
But assume the buyer has no idea. Then he would surely proceed on the assumption that the market is neither rising nor falling. In that case, the price he would reasonably be willing to pay should be lower than current market value because he is forgoing the option to purchase something else, in some respect more attractive, that may become available during the interim.
Well... A halibut does have both his eyes on one side of his head and tends to look up to the sky... Then again that's because he is swimming on the bottom.
It seems rash committing to purchase two years in advance of completion if you have no idea of where the market is going.
How is it any more rash than buying a completed unit if you have no idea where the market is going?
How is it any more rash than buying a completed unit if you have no idea where the market is going?
If you buy for occupation now, you get the benefit of occupation at the going price and if that price declines, you still have the benefit of occupation and you may not even be aware of any paper financial loss.
If you commit to buy for occupation years hence, you face the possibility of paying, on completion, far in excess of market price, a cost not compensated by the benefit of occupation during the interim.
Anticipated market price? Doesn't quite work like that. In 2004 developers were selling units for 150k that individuals on completion in 2006 were flipping for 250k.
Still don't see why, if there is no discount from the anticipated future market price, anyone would commit to buy now.
By committing now to a future purchase you are relinquishing the opportunity to take advantage of other investment opportunities that may arise during the interim. That is a cost and should be reflected in the price of property for delayed occupation.
If you commit to buy for occupation years hence, you face the possibility of paying, on completion, far in excess of market price, a cost not compensated by the benefit of occupation during the interim.
I don't think you read my posts at the top....
I've bought several pre-sales and this is an example of one.
Paid $200k in 2009 pre-sale. Comparable completed units at the time were around $230k. On completion in 2011 my unit peaked at probably $240k and since than it has probably dropped to $210-215k.
If I had bought a completed unit for $230k in 2009 it would have also dropped to $210-215k.
There is benefit. Also you get something brand new that has never been lived in.
You also face the benefit of prices going up and the unit appreciating while you are not paying a mortgage, strata fees, or any expenses other than the opportunity cost of your 5 to 15% deposit.
Still don't see why, if there is no discount from the anticipated future market price, anyone would commit to buy now.
You comment would make sense if the future market price could easily be anticipated, which it cannot.
Garth was calling for a condo bubble in Toronto 5 years ago, and every subsequent year since than.
Monday, September 16, 2013 8:00am
MTD September
2013 2012
Net Unconditional Sales: 224 419
New Listings: 598 1,210
Active Listings: 4,556 5,025
Please Note
•Left Column: stats so far this month
•Right Column: stats for the entire month from last year
since then...
You comment would make sense if the future market price could easily be anticipated, which it cannot.
A presale contract, like any future contract, should only be entered into if either the anticipated market trend will yield a profit, or the participant needs insurance against an adverse market trend, e.g., if one is the condo developer and needs insurance against a decline in price. (A developer may presell even if he thinks the market is headed higher,if he needs the insurance to secure construction finance.)
So if you have no idea where the market is headed and you do not need insurance, it makes no sense to enter a futures market. Your risk of loss equals your chance gain, but you will have lost the opportunity to apply your resources to other and possibly better opportunities that may arise during the life of the contract. And in the long-run, i.e., if you make multiple futures bets without any clue about the direction of the market you will be the loser, because there are transaction costs, legal fees, etc.
So if you have no idea where the market is headed and you do not need insurance, it makes no sense to enter a futures market.
There is an exception, however, when the developer (if we're talking condos) offers a substantial discount to the current market value of what is being offered.
if one is the condo developer and needs insurance against a decline in price. (A developer may presell even if he thinks the market is headed higher,if he needs the insurance to secure construction finance.)
Or may offer a substantial discount to market to get pre-sales to the point where the bank will issue him or her construction financing.
People don't like waiting 2 years and usually the best deals are right at launch.
A massive unregulated futures market fueled by borrowed money, what could go wrong?
People don't like waiting 2 years
Exactly, which is why, if there is no discount to the anticipated market price, one should not commit now?
Yea...but my point all along has been there usually is a decent discount.
House prices go up and down with inflation. How much they increase and decrease can be obscured by interest rates, the ease of credit and local conditions.
But not all real estate is subject to the whims of Central Bankers playing pocker with credit and interest rates.
Co-Operative Condominiums can not be conventionally financed and are typically "cash" deals. And are less likely to be influenced by access to credit and interest rates.
In an attempt to separate the sizzle from the steak I look at how Strata Condominiums have increased relative to Co-ops.
The Rudyard Kipling concrete high rise tower in Oak Bay is such a Co-Op building. Back in January 2000 you could have bought a ninth floor panoramic water view suite for $244,000. Today that same suite traded for $498,000. A 104 percent increase over 13 years.
In those two different time perids, the median price of a strata condominium increased from $126,750 to $285,000 or 125%.
A 17% difference.
So what does this mean?
I don't know.
Maybe it means strata homes have still a potential to decline.
Or maybe not.
Nice post and Thanks for this useful information.Full Brick Homes
Post a Comment