An Anecdotal Kind of Day

I was at a BBQ last night. A Realtor I know socially arrived a bit late who had been closing a sale getting contracts signed etc. We started chatting and I made some references to crazy new condo prices and even more ridiculous entry-level SFH prices. Throughout the conversation I made a couple of references to the status of ownership. I received this in reply: "I don't own my own place. Why would I own something that would cost me three times what I pay in rent?"

On new condos: "I've sold a couple. I try and stay away from them to be honest, I want repeat customers not people who will want to sue me. Let's just say we're in for a really big mess in the next decade. In the 1990s it was leaky buildings. I don't think the new stuff will leak. It's got pretty good breathability with the new code regulations. What will be the issue is this: they've thrown them up so fast that quality is a huge issue. Shutters, The Wave, Railyards, all junk. Some job sites have 1 ticketed journeyman per twenty guys working on the place. The stuff is happening so fast that the inspectors can't keep up with checking credentials. Anyone who had a $10/hour job can get on at these places for $16-$20/hour just by showing up with boots, a hard hat, some hand tools and a pulse. You're going to see a lot of unhappy buyers complaining about poor workmanship."

On flipped homes: "You see a lot of them for sure. I haven't sold any. My clients aren't interested in them so much. I'm selling a lot of land these days, mostly out of town. People with money are doing custom stuff rather than buying existing properties. I don't know many out-of-towners who want 50 year old homes with problems. If they're retiring here in the future, they're happy to move to Mill Bay, Shawnigan or the Peninsula and build a dream home. Flipped homes have a worse reputation for quality than the new ones, and they're getting to be bad enough."

On the state of the market: "Do you think Realtors pay attention to that stuff? Economics, sales statistics are what we get in our weekly updates from the agencies that we don't read. We're trying to sell. That's what we do. Not analyze."

On the number of Realtors in town: "1200 give or take a few. It's a tough business to make a buck in. Sink or swim. Every boom year we get 500 newbies who come in thinking homes sell themselves. Every flat year we get 500 newbies leaving shaking their heads."

Whose Buying Anyway? Redux

Great set of stats and corresponding report released recently by the Government of BC.

Let's see if we can make some sense of the stats.

I'm not sure why I've been having such a hard time finding more current income levels for the CRD. Apparently I'm not the only one. Gov.bc.ca has 2000 numbers. City hall has 2003 numbers (which are actually less than the 2000 GovBC numbers). Anyway, if you live in the capital and are a member of the defined family group (meaning married, with or without children, or unmarried with a child) there is a good chance you make just slightly more than your peers elsewhere in BC.

What if you're not married or don't fit into the above? Well the numbers change a bit when you factor in whether or not you work.

It seems fitting that we in the CRD seem to work a bit less than our provincial counterparts, except that those of us who do work 'enjoy' full-time work more than the rest of BC. We seem to have a few more entrepreneurs amongst us too. What 's telling though, is less of us here in the capital make more employment income. This means our wages are less and that 'family income' isn't indicative of employment; rather much of it may come from RE and other investment income.

So we know that employment and investment income isn't a part of the astronomical RE prices in Victoria. After all, when is the last time you heard a bull proclaim "we're all just making so much money these days; it's got to go somewhere?" Nope, Bull lines of the Bubble are "everyone wants to be here. People are coming in droves. Don't you see all the foreign license plates?"

Well apparently that's simply not true. We in Victoria trail the rest of BC by 0.5%. Who leads? Shuswap Lakes, Squamish and the rest of the Okanagan. Turns out when people want cottages and other secondary homes, they buy not in cities, but where other cottages and secondary homes can be found. But the most telling stat is over the past 10 years our average population growth rate hasn't changed at all. Put that in your pipe and smoke it Bulls.

And because no post on HHV is complete without a current RE price rant I give you this dandy chart:

I'd like to point out that in 2001 (6 years ago, before the boom) 19% of homeowners were spending more than 30% of their gross income on their housing costs. Think that number has gone up at all? Renters were obviously higher. But guess what? Rents only climbed from $726 to $892 or 19% compared to almost 100% increases in housing ownership costs.

New Home (to you) Must Haves

When we go out house hunting there are certain rooms that stand out for us in importance. Here's our list:

The Kitchen

It need to be grand. It need not be granite. It need not have stainless or even hardwood floors. But it does have to have two things: good storage and good workspace. I am flabbergasted at times by how little counter space exists in some galley-style kitchens in older homes and newer condos these days. Maybe it's reflective of the sociological trend of eating out and ordering in. Or maybe it's just that everything comes pre-packaged these days and you need not have the prep room. I like to cook. I need the space. We won't compromise on this one.

The Bathroom

We're not unrealistic with our expectations in this room. We'd like to have two of them, but that isn't necessarily realistic in our purchasing options. Where we live now has the nicest bathroom we've ever rented. That's because it has a full tub (rare in suite's for rent in our experience). Ms. HHV likes to soak, she'd love a jetted-soaker tub, but will settle for a tub instead of a shower stall.

Again, no need for granite counter tops. But cabinetry ideally is real wood, not melamine or wood facade with metal drawers. Like in the kitchen, we'd expect hardware (drawer slides and hinges) to be metal, same as the handles. Wandered through Home Depot or Rona lately? This stuff is cheap. Sure you can get cheaper, but in a small place, that extra couple of hundred spent can make all the difference in impressions of these two rooms.

We'd like to see a really good exhaust fan to protect our investment from steam-caused mold. On that note, we'd love to see a glassed-in tub enclosure and concrete backer board instead of drywall. Those are pretty rare these days as the building code makes no mention of them and they are pricey additions.

The Bedroom

We don't need big, but big enough to fit a queen bed and a chest of drawers. The closet needs to fit all of her shoes and my shirts too. We actually prefer carpet to hard flooring in this room; it's nice on the footsies on those cold winter mornings.

Wooden Windows

When I was much younger, I worked in a wooden window factory. I never proved much talent for woodwork, but I did fall in love with the craftsmanship that can only be found in quality wooden windows.

That said, wood windows require maintenance that isn't necessary in most other incarnations of the looking glass. I won't be heartbroken if I can't find them, but they'd be there in my dream home.

The Garage (or storage)

We're pretty good about not being pack rats. We don't need a ton of storage. But we do live pretty active lives and it would be great if I had a place to store my bicycles--I'm forever looking for new ones. Anyway, I'm none too handy, which is OK because I'm plenty handsome :) so I don't have much of a tool collection, but a place to put my dirty cycling stuff and bikes, and a place for Ms. HHV to banish me and my stuff to when she needs some space to do yoga or whatever would be high on our list of expectations when shopping for a new place to call home.

What are your must haves? How much will they influence your decision to purchase? Would you pay extra for any of them? Can your home be an emotional purchase or is it simply driven by economic fundamentals (to all you bears out there)?

The things you learn on late-nite TV

Watched ABC's 20/20 tonite. Shouldn't have. Talk about a disjointed, waste of an hour dedicated to Real Estate sensationalism.

Here's what we learned:

1. If you want to be rich, apparently you have to own a home
2. If you want to out smart a Realtor, you have to understand their language
   
3. In the future, all Realtors will only get $500 to sell your house
4. In a stagnate market, apparently buyers only look at the outside of your house
5. Buyer Beware (of the neighbours, they may kill you)
6. If they do kill (the previous tenant) don't worry, selling is just a matter of time
7. Never, ever buy a house built on a subdivision that used to be a WWII Air Force practice bombing range. If you do, you may find not 1, but 19 unexploded bombs in your yard

Have we mentioned how much we love sensational media?

Have the Mighty Fallen?

Might be more a stumble than a fall, but it appears like a downward motion none-the-less.

This dandy gem of a quote is my nomination for positive-spin of the year:

"Sellers can expect to see offers with the conditions that we normally have, such as subject to financing and subject to inspections," said Carolyn Pratt, president of the Edmonton Real Estate Board.

I guess Ms. Pratt means to say that a declining market is the norm for Edmonton. Were people really buying properties without inspections? I guess greed does make you stupid.

For anyone interested, this little interactive dandy from CBC demonstrates just how far prices have gone from fundamentals (remember the 150 times rents rule?).

When Politics Trumps Economics

Most of the time I leave politics out of the mix of stories on this blog primarily because it's such a divisive subject. But some media yesterday and today has got me thinking that we can't ignore it completely like we are wont to do at times.

Yesterday, this story, out of Meech Lake (oh, the irony of political failures there) has most provinces calling for Dodge to leave interest rates alone out of fear that increasing the dollar's value will hurt exports. And they're right. But on the flip side, touching the interest rate will slow-down the crazy spending Westerners (who coincidentally don't buy a whole lot from the East anymore) who are responsible for much of the RE run-up and other inflationary pressures.

H/T to Greg for this timely link where C.H. Smith really gets into the craziness that is government controlled economics. Scroll down a ways to see just how big the household debt has become in the US. Ah, yes, but we're not them. Or are we?

Between 1982 and 2001, per capita debt doubled, stemming from dramatic increases in both mortgage and consumer debt.

Other studies show that increasing financial wealth, particularly home equity, stimulates household spending. So the recent run-up in real estate values in many areas of the country may have helped to loosen the purse strings of homeowners. (Ya think?)

Eastern Canada has truly become a diesel engine in the Canadian economy: slow and steady. The West is like an F1 car being driven by Lewis Hamilton: fast, loose and nothing to lose. Until we hit a wall. Inflation and affordability are macro economic factors that should not be ignored. 1981 taught us that. Does anyone remember?

A Sherlock Holmes Kind of Hunt

I was driving in from a swim at Thetis lake yesterday when I heard an advertisement for Reflections on the Zone. The radio add differed from the print: the price for the radio one was $344,900, print is $334,900. Anyway, the catch is that for the first 12 months your mortgage payments are cut in half (on a 0 down, 40 year amortization plan). Clearly this deal is aimed at FTB's.

PB over at Victoria's Truth wrote about this on Sunday and some discussion took place in comments. Anyway, long story short, the radio add really got under my craw and I knew I wouldn't get it out from there until I figured out just how the sellers were going to pull this off. The discussions provided some questions, but no answers were found.

Was this kind of sales tactic some new relationship with financiers? Were we going to see banks get into the "buy now, do not pay for 12 months" Brick game? The tactic has obviously had remarkable success in the electronics and furniture world. Is this just a logical extension into real estate marketing? Never mind that car manufacturers haven't caught onto this in any big way.

So I did some digging. I talked to some people. I peered around corners. I lifted rocks. I followed some leads. I got lost. I sat down exasperated. I did what all great men do when they need some help: I turned to the brains of the operation and said "Ms. HHV, what should I do?" Her answer was so brilliant it defied odds of simplicity: "how 'bout you give 'em a call? Now stop bothering me at work."

And like all good detectives I hid my true-voice with the sound of crinkling paper and asked my question: "Just who is paying the difference in mortgage payments during that excessively cheap first year?"

The answer surprised me. As it turns out, there is no great conspiracy theory. The Bank isn't involved at all. And you aren't deferring those payments either. Here's how it works: you go get your mortgage based on an agreed upon purchase price. In this deal, it's either $344K or $334K or somewhere around there because, of course, each unit has a different sticker price. Anyway, the developer then gives you a discount, but not in the form of a discount, rather it's like a cash back financing option, except it's not really cash.

You get somewhere in the neighbourhood of $9K-$11K, again depending on agreed upon purchase price. You can get them to cut cheques to your bank for mortgage payments bringing your's down to that magic advertised $995/month or you can get some combination of cheques to the bank or credits at furniture stores or even credit card credits (maybe you can collect the airmiles and get a free trip too!). You still have to qualify for the purchase price: $334,900 plus GST = $354,994, which means you need an income of just under $83,000 and no other debts.

So what do we think? I actually respect the chutzpah underneath the brains behind this scheme. S$&%, you got to give 'em credit for creativity. If you make your money selling RE, you don't want to reduce your prices. At the same time, when the competition heats up, as it obviously has in the local condo market, you have to attract buyers, and, well, money talks. So this scheme satisfies two criteria in that conflicting scenario: buyer's get their discounts, and RE market watchers see that prices did not go down.

Is the scheme deceptive? Sure. Is it ethical? I suppose that depends on who you ask. We don't call the sales tactic unethical, rather the problem lies with the reporting of the sales price. I'm sure your complaints to the VREB will end up in the recycling box. It's a good thing we have new media to make sure the truth gets out there.