Are the lights ever on?

Drive down through the Songhees or "Humboldt Valley" at night and one thing is very striking, all these new luxury condo developments have no one living in them.

It seems this issue isn't isolated to Victoria. A great article in the Straight highlights the Vancouver situation:

• For the 15 years between 1991 and 2006, the city grew by about 106,000 people.

• The city also grew by about 69,000 housing units.

• At 2.2 people per unit, that should have accommodated 151,800 more people, which could have created the conditions for a housing glut and falling housing prices.

• Instead, housing prices doubled over that time period.

• In 2006, there were 4,736 new housing units completed in Vancouver–the most in a single year since 1995.

• The vast majority of those were in eastern downtown and the East Side.

• Strathcona, Kitsilano, and Kerrisdale received the fewest number of new housing units.

• In 2007, 3,294 new condo units will have been completed in downtown alone.

Sources: City of Vancouver Housing Centre; Statistics Canada; Canada Mortgage and Housing Corporation

My only issue with this report is the 2.2 people per unit average. I find it hardly likely that the number is 2.2; I'd bet it's closer to 1.7 as I doubt there are anywhere near as many 3 person (2 adult + child) households as there are 1 person. Anyway. It's telling non? When you go back over the historical time frame of 15 years and you offset the current influx of people with the 7-9 years of out-migration in the 90s, you get less than 1% growth in total, yet you see 5-6% (my guesstimate) growth in units available.

Perhaps this is the key information for Vancouver:

"Empty housing stock is very difficult to estimate," he said. "BC Stats has previously undertaken some analysis based on hydro usage, which indicated that four percent of all downtown apartments were identified as unoccupied in 2003, with eight to nine percent of condo apartments included in that number." In addition, he said, the 2001 census found that 2,600 downtown apartments were unoccupied.

So much for 0.5% vacancy rates, eh? When the market shows signs of cracking, think you that those owners of the empty places will be keen to hold onto a losing "investment?" Victoria is in the same boat, to a lesser scale, but I'd say the percentages of vacant properties are likely higher here.

As an aside: I haven't been around much lately I know. I actually have, but just not posting. I had let this blog get the better of some of my emotional common sense and decided a little break was necessary. I appreciate the discussion that happens here. When it tapers off as it had over the past month or two, I take it as a sign that my rants are not doing the readers, or me, any service. I'm not yet sure if the break is over.

Collusion in Canada?

I have a friend who is a CFA. We had an interesting conversation that led me to do some digging. He asked a simple question when we were talking about ABCP and how good a deal some US financial stocks are compared to their Canadian peers: "have you noticed how the banks aren't announcing write downs on the same day?"

I hadn't. But what would it look like if they did?

Today, National Bank Financial, the smallest of the Big 6, announced the biggest write down yet: $575 million. It's stock went up. It holds $2.25 billion worth of worthless paper. I'm guessing the other mortgages haven't reset yet?

Anyway, here's what they all have written down thus far:

NBF: $575 million
CIBC: $463 million
RBC: $360 million
BMO: $275 million
BNS: $190 million
TD: nada

Total: $1.863 billion

Now that barely equals the RBC quarterly profit thanks to yours and mine bank fees, so no sweat right? Wrong. Why do they simultaneously announce profit taking, like, say, selling off Visa and Mastercard assets to mitigate their reported losses? Because investors don't like any losses. Period. They panic. And sell. And panic and sell and panic and sell. You get my meaning.

Things are only just starting to get ugly for our friends down south. Citi, the world's biggest bank is rated by some as a "sell" stock today.

Our banks meanwhile, thanks to an assumed lunch date between bigwigs several weeks ago, decided in their wisdom to announce write downs little-by-little; and that's exactly what they did too, the smallest losses were announced first to numb the greater pain announced today. The situation is not rosy here, no matter what any of the so-called economists would have you believe.

Dodge was in South Africa over the weekend, where he hinted a rate cut would be necessary. This will only fuel the inflation that is already much higher than reported in N.A. 2010 could easily prove to be as disastrous as 1981.

Of course, none of this has anything to do with real estate (sarcasm intended) so carry on people.

Truth in Advertising

I was minding my own business today at lunch. Idly munching on a sandwich reading the weekly Real Estate marketing newspaper's condo section when something dawned on me. It was like a bright light on a gray day, as if the clouds opened up and a single beam of sunlight had penetrated through creating my own little private opening of Highway to Heaven. What was this brilliant insight, you ask?

Truth in advertising. It's missing from the real estate market. But it's law in the securities industry. Why isn't truth in advertising required for the "investment" that is constantly being pumped in this town?

Case in point: The Julia is having a hard time selling out right now. The ad in question states "priced below market value to sell out the project." How can something be priced below market value? It simply can't. Market value is the value the market will bear and the only time somethings' market value can be determined is at the exact moment that it is sold. And market value is constantly changing as a result.

So they could have written priced below assessed value. Except that they haven't been assessed yet. They could have written priced below appraised value. Except appraised value has nothing to do with investing. And these "marketing systems" are about making me think I'm going to be rich by buying this over-priced 2-bedroom condo.

Market value tells me that there is a market for this product and the price will fluctuate. Telling me that I can buy a unit below market value is the same as telling me that I can buy the unit today and sell it for more tomorrow simply because I got it for less than market value. Which is clearly not true.

I also noticed that there are a number of Rennie wannabes springing up in this town. It seems every Realtor with a condo listing is somehow an owner of a Marketing System TM.

At one point in time in the BC Legislature a normal citizen could enter a bill for legislation to make a law. I'm not sure if this is still possible, but I believe it is time for all investments to be subject to the same disclosure laws as securities. I can see the headlines when the market turns "Angry citizens outraged by guaranteed investment salespeople, used to be known as Realtors."

Is anyone really surprised?

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Which logo do you like best?



This one was designed by lineardesign.ca for another project not associated with this blog or writer, and has been offered up for use here.

Or we can stick to this obviously amateurish effort at creativity:

Which may or may not infringe on the BC Government's trademarking of the Spirit Bear.

Little of this, little of that

Not much to say today. So I'll give you this: (H/T to Mohican)


On another note: Roger asked about personal anecdotes regarding buyer sentiment. It's been a long time since I heard anyone say now is a great time to buy. Anyone I know that has a home is reassessing their need to continue owning their present house. A few are looking at cashing out. Some, like my parents and their peers, are looking down south.

I know of one flipper (friend of a friend of Ms. HHV) who is having trouble selling his "updated" flip unit. He's lowered the price twice and is now considering, gulp, using a Realtor. The market has definitely changed. It could be seasonal.

It may not be though. Considering sales are higher in October 2007, the start of the traditional slowdown, I'm more inclined to think the price reductions in SFH has nothing to do with seasons and everything to do with affordability. I'm seeing a lot of "deal collapsed due to financing" on MLS. This means either the accepted offer came from someone who couldn't afford the joint, or the lending institution thought it over-valued, under-kept or just a lain old bad risk. I'm glad that for whatever reason, the credit market is tightening; it's good for the long-term overall health of the economy.

Check out this ad from Edmonton. Apparently now is a great time to buy when the developer gives you a money back guarantee that if the market value of your home is less than what you paid for it when you take occupancy, they'll refund the difference. I don't know about you but I'd be hoping that the sub-trades are too busy to get the jobs finished so my "refund" gets bigger. Of course, it will be hard to give back the difference in cash when the company is filing for bankruptcy protection which is what companies do when there is a run on them.

I wonder if we'll see ads like this in Victoria? I wonder if all those people that are expected to come to Vancouver/Victoria? and buy houses during the Olympics will still be coming when the 2008 economic slowdown expected everywhere but China turns to a recession in 2009? Maybe we'll get to see hockey games for less than $500?

A sign of times to come (I hope)

Check this out: MLS # 235876.

This is a 2-bed plus den, 2 bath 1174 SF steel and concrete construction (1974) condo on Johnson St.

Original asking price was $239,900. It sat on the market for 49 days. It sold today for $198,500. That's a $41,400 reduction for 17.3%!!!! I haven't seen a reduction like that in the low-end condo market yet.

Now I know nothing about this building. It has a high monthly assessment of $295 which leads me to expect that there is work to be done, which is normal for buildings of this vintage.

Good work barbers, good work. Keep this coming.