Monday, May 17, 2010
May 2008 vs May 2010
Let's say the rest of 2010 plays out like May 2008 to December 2008. You're sitting on a decent down payment and you have an opportunity to low ball in October/November getting around 15% off today's prices on a SFH. You can get a 5-year mortgage at roughly the same interest rate as today. What do you do?
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147 comments:
At 15% I stay put...I would need to see a 25-30%+ correction to enter the market.
I would wait. Asset price matters and the prices are too bubbly. I have to admit though that while I have descent down payment I would not mind waiting a little bit longer anyway since I have extremely cheap housing right now (due to having been in this rental for >5 yrs.
I say wait. 15% wouldn't even get my heart started considering the ludicrous 12% runup we've had YOY (I believe that figure is based on National sales numbers, not sure about local Victoria stats).
Just imagine a sovereign debt default overseas and what it might do to investor confidence, and it doesn't take much to see the market dropping a *lot* more than 15%....
Just my $0.02....
Animal Spirit the stats I provided are just from the VREB Matrix. Double Agent and Think can verify the numbers. I only get the stats when I ask my friend for them. He has access. As for net gain of listings I just used the active listings from the May 3 summary of April from vreb.org
Nov & 15%? I'd wait till January and watch the trends further. In my opinion, the worse case scenario is where prices remain stable. Any further increases would be yet another government intervention.
Trick question
I would wait another year-ish to see if it is history repeating or a real prolonged reduction. If so there will be another 5 years of waiting ala USA.
Depends....if we get a 15% correction and listings come down I would buy.
Such a correction would probably put an old dump in Fernwood on a 6000 sq/ft in the $350,000 range which would be an attractive price for lot. Long term I am putting my money on core Victoria areas holding their value better than outlaying areas.
If 15% correction and listings still high I think it would be a tougher decision.
30% would be a severe correction in my opinion. 1004 sq/ft 2 bedroom condo at the Falls right now 399k. 30% correction = 280k, I would buy three and wait for better days while enjoying views of the empress from the pool.
I think we need 4-5 months for things to play out. Right now it is difficult to tell the difference between real listings and opporunitistic listings.
Just a few of many Bear Mountain examples....
MLS 276970: Sold last year for $1,1250,00 now $1,588,800
MLS 275932: Listed last year for 624,900 - I don't know much it actually sold for - now $769,000
I've also noticed lots of listings for difficult to get rid of homes (home on very busy streets, etc.) People who probably hadn't planned on selling are getting into the market and why not.
1004 sq/ft 2 bedroom condo at the Falls right now 399k. 30% correction = 280k, I would buy three
And your husba buy three?
Right now a 2br at the Falls rents for around $1675/month. I wouldn't pay more than 100x rent for a condo, that's all they're worth. If people want to pay more to buy one, that's their problem. You don't really "own" a condo anyway, the strata does. So why not just rent the cheapest way.
$1675 / 2br - Luxury Living at The Falls!!
No, they are worth 240 times rent. Condos are worth what the market is willing to pay for them.
I think Marko has it right. If listings are still high, hang on. If listings collapse again, maybe it is a good time to buy. While I think there is more than 15% in the cards, it could take a long time, and eventually you just want to jump in.
I suspect that I'll still be here next year though. 2011 is the goal.
If prices drop by 15% by the fall one might reasonably expect the trend to continue for awhile. Prices don't fall 2% a month and then just flatten out.
Listings will taper off starting in August just like they do every year. Buyers get very scarce starting in October and by Xmas the pool is empty. You can get the best deals at this time of the year but if prices are still falling a better deal will be had down the road.
Here is what I would consider before buying:
- have prices been flat for 3 or 4 months.
- are mortgage interest rates still rising
- are folks at the bar and the water cooler saying real estate is no longer a "good investment"
- the state of the economy
- is the TC writing real estate is dead stories
- are BCREA, CREA and VREB firmly stating that it is a buyers market and sellers better be realistic with their price
- are agents looking for any kind of offers including lowballs
Lots to think about while patiently waiting..
This article is about Ontario lawyers. However BC lawyers are licensed to sell real estate as well.
Lawyers jump into listing battle
Lawyers are the latest group trying to grab a piece of the $8-billion in annual residential property commissions, as the real estate industry deals with the impact of changing regulations.
A group of seven Ontario lawyers behind propertyshop.ca,which allows consumers to list their property on the site for a fee ranging from 1% to 1.5%, believe the landscape has changed dramatically because consumers listing with them can now also gain access to the Multiple Listing Service (MLS) for a nominal fee.
More real estate news..
New housing listings soar as experts expect slowdown
Canadians listed their homes for sale in record numbers in April as countrywide housing inventory hit levels not seen in almost a year, says the Canadian Real Estate Association.
While the market has not slumped, just about everybody tracking the sector -- from economists and builders to real estate executives -- say there is nowhere else to go but down in prices and sales.
Once a turn in the market is evident and a substantial drop occurs I think most people on here will hold out for even lower prices as is usual during a deflation.
If prices drop 15 percent, maybe I'll take a vacation. :)
Human nature says you will not buy when prices are falling. So if the market is dropping at 15% a year, you will not buy. Only when prices begin to go up, do most people buy.
And you'll buy three (3).
No, you won't.
Your trade is construction, falling prices means less business for you. You have to diversify yourself all your eggs are in the real estate basket. However, if you still are going to buy 3, then its not when to buy that's important - its when to sell! You have to have an exit strategy either in how long you want to hold the property or how much profit you want.
So say you want to make a 50% profit, how long are you willing to hold the real estate to achieve that goal. And what if the real estate does not perform the way you expected what are you going to do? Real estate is big buck, big carrying costs and big taxes to be paid.
Given your trade is construction, when prices drop you may want to consider "land banking" That is buying a crappy little rental on a big lot when prices are low, that you can develop when it becomes economically feasible.
Elgin Ave -->
Starting price April 8: $750K
Today: $675K
10% slide.........
Glimpse of the future, or anomaly?
Here are some numbers to help understand what is going on in the marketplace.
For the Urban core municipalities the months of inventory for:
Houses is 3.1
stratas is 4.3
The sales to new listing ratios for the urban area are:
houses are 0.5
stratas are 0.49
For the Western Communities the ratios for houses is
Months of inventory 4.9
sales to new listings is 0.58
All of the markets are clearly balanced which would infer stable prices for the next month as there is enough new and old inventory to meet today's demand.
The only worry, is that the spring markets of the past have had a lot less months of inventory and higher sales to new-listings ratios. The spring markets of the past were "hot", this market is just warm tea, pleasant but not spectacular.
The kiss of death is when real estate becomes boring, its very difficult to sell to people that are indifferent. Which probably explains low turn outs to open houses. Even the lookie-lous rather watch re-runs of Dog the Bounty Hunter than snoop through their neighbors house.
I think the most telling is the fact that right now is supposed to be the sales peak of the market for the year, yet the tide has perceptibly turned.
The true story will emerge later in the year, in the traditionally slow times, when the excess inventory has been on the market for months, and months.
This spring though, is the harbinger of things to come.
BS any of you are going o buy if we see a 15% drop....if you do you are just plain stupid!
No way of sugar coating. This market has a long way to go down and jumping in @ 15% when we will certainly see another 15% + over the next 3 years is just plain stupid!
Get out of Victoria and spend some time in the former "desirable places" to live and retire in the good old USA. This hasn't even started yet!
Everyone of the places I'm thinking about have a lot more to offer than sleepy old Victoria and yet their prices are down as much as 50%
People can not afford to retire here anymore, there are no new jobs attracting young people(in fact they are going to be leaving in droves)and wages are not going up anytime soon. We have reached our affordability limit. and that is in a low interest rate environment! rates ARE going up and RE is quickly going to become the red headed step child of investments.
All this talk of buying.....LOL
Condos are worth what the market is willing to pay for them.
That's what they are worth to the seller. What they are worth to the buyer is net rental value, which is about 100x rent. Until such time as the buyer becomes a seller, but future market prices are unknown, although today's buyers obviously think otherwise.
"Price is what you pay, value is what you get".
-Buffett
Tony Joe doesn't have much joy in his latest Facebook post.
Aaran Hall (local Vic RE agent) thinks pre-approval buyers are getting ready to pull the trigger. click here
They better because sales are way down for May.
"If listings collapse again, maybe it is a good time to buy."
It's a good time to buy when owning is cheaper than renting. That'll take a lot more than a 15% reduction, never mind how many listings there are. If you need to assume future price appreciation to justify your purchase, you can't justify your purchase. Buying should not cost more than rent. Either the numbers add up or they don't.
It's a good time to buy when owning is cheaper than renting.
If a house was like a stock, I would agree, but it isn't. Not even close.
It's a good time to buy when you can afford it, and when it makes sense for you/your family.
For most people a house has intangible benefits over renting that they would pay extra for, so you can't compare them like they are equals. There are plenty of obvious benefits to owning, which I don't think I need to list.
So is the market likely to correct over 15%? Sure, given the fundamentals it's hard to argue, but then again, there are some people that have been bearish for years and years in BC and have been wrong all that time. The market was overpriced 6 years ago, and yet that was still an excellent time to buy. My point is that you can't predict what will happen, and I'm not going to pull my hair out waiting forever.
For me, renting is not as good as owning, and the fact that this blog exists shows that the majority of people think the same way. If everyone here was perfectly happy in their rental, there would be no reason to keep coming here.
So if there's a decent correction, we will likely go buy. If we were in a position to buy last spring, we probably would have. Yes it could come down some more, but it could also stay flat, or hang on until the boomers start retiring en-masse, which could be another 10 years. I'm not waiting for that. I'd rather buy less than we can afford, and then in 10 years it will be paid off and we won't have to worry about it.
"Your trade is construction, falling prices means less business for you."
Falling prices = building lots are affordable, trades and material are cheaper. As a builder if I can build a 2000 sq/ft home for $350,000 and sell for $400,000 I make $50,000. If I can build a 2000 sq/ft for $500,000 and sell for $550,000 I make $50,000. Prices don't need to go up to make money.
Same with Realtors, if you can differentiate yourself (i.e. offer 70% cash back, affordable listing packages) you can make more money in a crappy market. Let’s face, if you bought a house 6 years ago and now it is worth $400,000 more paying realtors $35,000 isn't a big deal; however, if you buy a home for $510,000 and three years later it is worth $500,000, paying the industry standard of 6% + 3% + HST ($20,600 on $500,000) becomes a lot more painful, you have negative equity. Therefore, at that point people seek out alternatives to 6% + 3% to a greater extend.
As I have shown before there is a very high correlation over the past couple decades between the amount one can finance and house prices in BC. As interest rates rise, the amount one can borrow and the price of houses will drop, but the comparison of renting to owning will likely still favour renting. So I would suggest comparing the cost of renting to the cost of owning is a poor indicator of when to buy.
As a matter of fact I have always advocated buying a home when interest rates are very high even though the cost of owning could far exceed renting because you will typically pay far less for the house. After a few years interest rates will all balance out and your chances of capital appreciation are much higher. I would rather pay a few thousand more in interest for a couple years and save $100,000 on the purchase price. Unfortunately most people are simply too obsessed with what it will cost me today which is why house prices climb so much with low interest rates and long amortizations.
So my answer to the question in this post is that as long as interest rate forecasts indicate that mortgage rates are going to keep rising, defer your purchase as chances are inventories will be climbing (ignoring seasonality) and houses prices will most certainly continue their downward trend (add another 6 months to when you think it has peaked to get those pre-approvals out of the way and maybe defer even longer if bankruptcy rates are climbing).
Patriotz, nice play on words, but it's meaningless. It's worth what people pay. The millions of property transactions that have occurred in BC since we passed 100 times rent proves my point.
It's worth what people pay.
That's what it's worth to the seller.
An asset is worth to the buyer what it returns in income, plus what the buyer is able to sell it for if and when he decides to sell.
Honestly, are you telling me that a share of Nortel that someone paid $100 for in 2000 is - or was ever - worth $100 to the buyer?
Okay, Marko it's your business.
I agree with you Reid, buying when interest rates are high, usually means a low purchase price. (The early 1980's being and exception).
Employment and household formation are better indicators. If unemployment is dropping and the number of households is increasing after a recent recession then its a good time to buy. If the trend is in the other direction, its time to bail.
Price to rent or price to earnings ratios are useful in the stock market, but not in real estate. It should be obvious to most that there are more complex human factors in buying and selling real estate than stocks and bonds.
Okay, Marko it's your business.
You realize that everything Marko says on this site is fabricated, right? He's not a builder; his dad is a builder and let him hammer in a couple nails on a few projects. (cue Marko talking about how many big deals he's made in 5.. 4.. 3..)
CD - might be that Matrix includes/excludes a few categories that vreb includes/excludes for the month end summary. If one includes let's say bare land and out of region, and the other doesn't a comparison wouldn't work without adjustment.
I'm getting a consistent 1-1.5% listing increase per new posting day on MLS.
What none of these stats is covering is the price corrections; I have never seen so many. Lots of "motivated sellers" and "bring offers".
omc - right - my matrix (I really should find a realtor to give me a PCS account) with the central areas under 525K shows 5 price changes and four new listings today.
The stat I would be really interested in is what is the relationship of listing prices to assessment...
BAM! http://www.bayviewvictoria.com/
Bayview - 50% off. Here we go!
50% off of what?
They don't list prices on their site which is a little odd even for condo sites.
Does it matter? The website isn't done yet, I guess - they just want to get the ball rolling on the hype machine to unload those units. Rennie Marketing is busy enough trying to unload the turkeys in the Olympic Village.
Does it matter? The website isn't done yet, I guess - they just want to get the ball rolling on the hype machine to unload those units. Rennie Marketing is busy enough trying to unload the turkeys in the Olympic Village.
Hi Trevor. Thanks for bringing this information. I think what msr is looking for is some verification.
Where did you see/hear that condos were 50% off at Bayview?
As per the Bayview Site.....
2 Bedrooms are now JUST 399k!!!!!! LOL Bullshit, these units were never 800k. Frikken Liars!
Just more marketing BS trying to lure in more sheep....that Bayview along with Shutters is the biggest ripoff in Vic. Oops sorry second to Bareback Mtn of course.
They do go on to say that a few "select" units are 50% off.....I wonder how many and which ones?
That building is doomed....imagine what the strata fees are going to be for the poor bastards that bought in there once the developer is no longer obligated to offset the costs.
I wonder when the auctions start????
The Bayview followed by several others IMO.
Condos are going to get demolished in this market!
This article says it all..
Canada's Real Estate Market Bubbly
I can't believe there are responses to Marko, and I can't believe Marko has resorted back to his old fabrication. For those who have just joined the program - Marko was "outed" by one of the other posters a while back, Marko then came clean indicating that he is a young, unmarried lad who has a girlfriend, a masters in health information science and still lives with his parents. Given that he can't keep a consistent story and is prone to telling tales with little bearing to reality - I wouldn't take his advice.
Technically speaking, the cost of ownership and the cost of renting should be relatively close as the relative merits of one over the other are very debatable. Housing is an asset, just like stocks but less liquid as such I would think that stocks should have a slight premium over housing in terms of value. That being said housing and a home are too different things and a home is emotional and can be used in ways that stocks can't - so perhaps that is why housing should have a premium over stocks.
If a 15% correction were to happen, I'd like to remain on the sidelines and assess the situation at that time and make a decision accordingly. That being said, my husband might be less willing to do so and I value his wishes very highly as such we are likely to pull the trigger before I would ideally like to pull the trigger.
"An asset is worth to the buyer what it returns in income, plus what the buyer is able to sell it for if and when he decides to sell."
Good description for a financial asset, not so good for a real asset. There are real "amenity" values to owning a house - pride of ownership, autonomy, freedom to make changes, financial security (if you aren't mortgaged to the hilt). Of course there are also hidden costs such as reduced mobility, maintenance (underestimated by everyone who hasn't owned a house) and having a large fraction of your net worth in one asset
Pulling one stat from the article on Canada's bubbly market.
Based on an average house size of 2.3 persons per home, Canada has more homes than population!!!!!
Ouch, ouch, ouch!!!
That 2.3 is down from 2.9 a decade ago. And during a recession the number of person per house goes UP.
Start boarding up the subdivisions and only finish the interior of condominiums that have sales agreements. Move your money offshore and keep two passports ready.
Hi All;
All stock markets down today once again. TSE down almost 100 points.
This morning in my SFH areas there are 18 new items i.e. 9 price changes and 9 new listings. There were no sales or no OM.
The writing is on the wall.
Try telling that to the people here that think a 15% price drop is a screaming buy hahahahaha!
Yes the writing is on the wall so why the hell would you even consider buying after a mere 15% haircut.
This downturn like the upturn will be driven by emotion and psychology....the sheep see 15% and they are all going to be pig piling over themselves to get out. That's when the real pain will start.
500k for a crack shack in Victoria???? LOL give me a break. have at her 15% suckers! Don't forget to set aside 500/month just for the repairs and upkeep to that shack.
The reason this insanity has gone on this long is in a big way cuz the sheeple just don't bloody get it. It's comical but also sad :(
"If a house was like a stock, I would agree, but it isn't. Not even close."
Stocks have nothing to do with it, what matters is the cost of shelter. This has nothing to do with investing, it's a simple cost/benefit equation. Why would you throw money away on a mortgage every month just so that you can say to "own" your home, even though your bank really owns over 75% of it and you are stuck with all the liability for maintenance and taxes?
I could rent an entire house for less than it costs to buy a 2br condo. Why would I pay more to get less? This is literally the most important financial decision of your entire life, which will have massive repurcussions. A few percent difference could be tens of thousands of dollars. Think about how long it takes you to save $10,000, how many coupons you would have to clip to save $10,000 on groceries, or even what a $10,000 difference means when you're buying a car. If ever there was a time to not get emotional about a purchasing decision, this is it. By waiting two, three, or five more years I could be saving myself half a million dollars. That is more money than I could ever save in any other way, in my entire life.
The time to buy will not be when there are a few more listings than usual, it will be when so many people have lost so much money on real estate that the new conventional wisdom is that it's a ticket to bankruptsy. Listings are a leading indicator, the bust is going to take a lot longer.
I can't really say what kind of emotional benefits people get from owning their home. However, I suspect that I sleep a lot better in my rental with money in the bank and way less than a quarter of my income going toward housing than people who are stretched to the limit just to make their mortgage payments with historically low interest rates, no money in the bank and periodic unexpected repair bills hitting their already tight budget. Even if owning your own home makes birds sign in your head all day long, is it really worth it to have that feeling two years earlier at a cost of several hundred thousand dollars? I don't think so.
There are real "amenity" values to owning a house...
Not for an investor, unless you consider dealing with tenants an "amenity".
That's why the cost of ownership has to be lower than renting long run. Otherwise, the investors will go broke.
Same applies to any asset, i.e. present value of earnings must exceed price.
Investors determine the price of RE because if demand from them decreases there is nobody to sell to except renters, and renters are unable or unwilling to buy at current market price.
The "amenities" that owner-occupiers receive are known in economic terms as consumers surplus.
Ryan, you are spot on IMO. It's gotta be a substantial correction before it'd consider jumping in. If renting allows me to have a more satisfying lifestyle (having more disposable income and/or being able to do other investments) I am all for it. I couldn't care less about what north american society thinks one should do.
Sure there are amenity values to an investor.
From bragging rights of owning two homes to "trophy" buildings with your name blazed across the top.
Otherwise - who would have heard of Donald Trump.
Good morning all;
Just looking at the stock markets and they are off to a bad start. The TSX is down almost 200 points as I type this. It is very early in the day however and by the end of trading the results could be quite different.
Have a nice one.
A lot of $20K-$50K price drops in Oak Bay over the past few days (houses under $1M). Not unusual to see 3-4 a day now.
Slow erosion.
RBC lowers 5-year mortgage rate
...by a tenth of a point, on top of a 15 bps drop last week.
Ah, the banks mortgage rate yo-yo...shows you how much they are in control of the rates.
I am not much in touch with the bonds world (can only spread yourself so thin).
I have heard that with the European crisis that the Libor is rising and with it all of our credit products will follow (ie. credit cards, LOC, mortgages).
Does anyone know anything more about this or can correct my thinking?
thanks.
CHEK news had a story onlast night about vacation properties being auctioned. There was a lot on Pender that was listed at $225,000 or so and sold for under $85,000. They gave a bunch of other examples with similar drastically lower selling prices. It warmed my heart.
For simple man: May 20th LIBOR update.
Thanks Mr. 4am - you seem well-versed in that side of the equation - can you gives us the coles notes version of what is going on?
By waiting two, three, or five more years I could be saving myself half a million dollars.
Could be, but nothing is certain. People 5 years ago were saying the exact same thing and were dead wrong. Not saying a correction is not in the cards, but shit, that kind of thing is impossible to predict with 100% certainty, so don't pretend like you know for sure what will happen.
People 5 years ago were saying the exact same thing and were dead wrong.
No they weren't. Most houses were under $500K back then, so people could hardly have predicted a $500K decline. Nor do I recall anyone predicting 40-50% drops. I thought in 2005 that prices were too high, but I didn't think an outright bust was in the cards.
IMHO we will see prices go back to 2004 (or earlier) inflation adjusted. Most US markets have gone well past that.
IMHO we will see prices go back to 2004 (or earlier) inflation adjusted. Most US markets have gone well past that.
Agreed....and as I have stated many times before even those prices were too high.
At least a 300k House is manageable compared to 550k for your average wage earner.
I still think with all that is wrong with the Canadian and global economies and IF we see much higher interest rates, the 40-50% correction is in the cards.
Not wishing or hoping for the record as I don't give a shit. I'm out of here as soon as the pension planets align.
Lot of stupid people are going to lose it all in Victoria thanks to this insanity. I'll be sitting on a beach oozing empathy.....NOT!
No they weren't. Most houses were under $500K back then, so people could hardly have predicted a $500K decline.
My point was they predicted that they would be ahead financially if they waited. They weren't.
Also, if you think anything approaching a typical house will drop by 500k you're living in dream land. That might happen with 1.5 mil + homes, but certainly not the typical house that most people buy.
I will reiterate Mark, I will not be retiring in Victoria. When home prices were half, I might have been able to tolerate Victoria by going to Arizona in the Winter to escape the rain.
At these prices, vacationing for 3 months in Arizona is gone. Windsor is starting to look better.
My point was they predicted that they would be ahead financially if they waited. They weren't.
Oh yes they are ahead financially, because renters have been paying less monthly for the same accommodation as the people who bought in 2005.
That the owners would come ahead if they sold now means nothing unless they sell. "If" and "could" mean nothing in investing. What matters is "did".
And soon enough "if" and "could" will go away anyway.
We do not need an interest rate increase for the cards to fall - an interest rate increase may accelerate the decline but it is not neccessary for it to occur.
The change in rules that were put in place (April 15) already operate as an interest rate increase by lowering the amounts that people can qualify for.
Further, all that is really required is for the people to believe that real estate prices are going to be flat or decline going forward and for the cost of ownership to exceed the cost of rental. This is the point we're at right now. As a result more people are making a decision to take their real estate profits off the table by placing their home for sale (and renting or downsizing), at the same time fewer people are willing to buy properties and are remaining renters or refusing to upgrade. Consequently, we are seeing increasing listings and fewer sales in the market. Eventually this will result in lower prices.
If you add in all the households facing difficulties making their monthly obligations and no longer having the ability to refinance out of trouble to the equation - things get even more interesting.
Given that wage increases aren't happening for many and that continued layoffs and restraint in the area appear likely - I'd expect even more households to be in difficult circumstances in the months and years ahead. It's not going to be pretty...
During the last 30 days for every property that has sold in the Greater Victoria area, there have been 2.3 listed for sale.
A spring bear market!
Watch out, you might get what you're after
Cool babies, strange but not a stranger
I'm an ordinary guy
Burning down the house
Hold tight, wait 'till the party's over
Hold tight, we're in for nasty weather
There has got to be a way
Burning down the house
Burning down the house- The Talking Heads - coming soon to a neighbourhood near you
Oh yes they are ahead financially, because renters have been paying less monthly for the same accommodation as the people who bought in 2005.
What kind of simplistic calculation of net worth does not include your assets? Yes on a pure cash basis renters might be ahead, but certainly not on a net-worth basis.
I'm bearish on real-estate, but I'm not delusional.
What kind of simplistic calculation of net worth does not include your assets?
When the assets are in a bubble, are highly illiquid and cause personal dislocation to sell.
Lots of people south of the border thought they were "rich" 4 years ago. How did that turn out?
Being ahead theoretically is different from being ahead practically.
Does it matter if a person has $500,000 of 'net worth' if they can't meet their monthly obligations? For example, many home owning British Columbians have hundreds of thousands of dollars of equity but are struggling to pay their bills including their mortgage and to feed their families. These 'rich' households are scrimping and saving and barely getting by after their mortgages take most of their monthly income - they don't have anything left for savings or for a safety net. Meanwhile their neighbour across the street (in an identical house no less, with an identical job and an identical wife and kids) who rents is easily able to meet their obligations and saves what remains. Who is ahead in a practical sense of the word?
Point being until you can effectively access the equity and realize it in a tangible form it isn't really money. You can't go to Thrifty's and pay for your groceries using the equity in your house.
Real estate news...
Private sellers shaking up real estate industry
Housing sales back off from heady days of late 2009
British Columbia real estate sales dropped by more than one quarter in the three months of 2010 from the last quarter of 2009 in both the number of transactions and value, Landcor Data Corp. reported this week.
The real estate consultants counted 23,195 sales cleared through B.C.'s Land Title office during the first quarter, which is substantially higher than the same period a year ago, but almost 27 per cent off the 31,623 sales recorded during the last three months of 2009.
Well let's see here. If I was still renting instead of having bought 5 years ago I'd be shelling out 1800 bucks a month for the same place same location. I pay around $1600 on my mortgage and have 13 years left. I max out the rrsp and tfsa, still go on vacation and have two late model cars paid for and zero debt other than mortgage. You guys are dreaming if you think there's going to be some big huge financial calamity when the market does correct. Yes some people will be in trouble but most will not. I know I won't care if my house goes down even 50 or 60%. I like the place and can handily afford it so who cares?
Maniac78 finally comes clean and tells us that he is a "happy owner". Now we know why he keeps coming back time and again with the same old baseless arguments.
Maniac78 - Go ahead and live in denial. If I was in your shoes I would probably keep ignoring the facts and hoping the bubble would not pop.
But please keep posting - you are the last bull left. The others have all disappeared. :>)
Maniac78,
I am not sure what your post means? You can afford your house? That is good. That there won't be any economic calamity when the market corrects, just shows you are not from around here. I was just a kid in the 80s correction, but it is burned in my mind. The neighbour across the street had bought another house to downsize when he retired and then couldn't sell his own. The guy lost over $100k in 1983 money, almost all of his retirement savings. I remember the divorces, bankruptcies and other stresses on kids I knew because of the crash.
Who knows how much it is going to go down this correction (it is correcting), but housing bubbles hurt families.
I remember the divorces, bankruptcies and other stresses on kids I knew because of the (80's) crash.
As do I. What's different this time is the length of the bubble. The early 80's bubble had a quick runup which meant not many people actually bought high. Also the high interest rates discouraged people from using the "home ATM".
It's going to be an order of magnitude bigger this time.
“Point being until you can effectively access the equity and realize it in a tangible form it isn't really money. You can't go to Thrifty's and pay for your groceries using the equity in your house.”
Janice, unfortunately too many home owners have been able to do exactly what you suggest they cannot over the past decade. They simply access cash through lines of credit and other loans tied to the equity in their overvalued homes. I am asked monthly if I want to access my home equity through a line of credit. The banks have been all this for years and way too many homeowners have taken the banks up on it.
I know many people in Vancouver that now have mortgage debt that is well in excess of twice what they originally paid for their house. These people are simply living way beyond their means. When we finally see a material correction in house prices and all this “equity” gets squeezed, then many homeowners will be screwed and finally these people will be forced to live within their means as you suggest, but for many that is not the case today.
I'm no real estate bull at all. I'm sure prices will come down. I'm just saying your wild assumptions about people's finances are just assumptions and probably not a true picture of reality. Just because credit facilities are available to people doesn't mean they use them.
Hi Maniac78;
Canadians are in more debt per capita than ever in history.
You are the minority, and are obviously wise with your money.
Maniac78 - given that you believe prices are going to come down - why on earth would you not cash out now and rent the house accross the street for $1800 (only $200 more than what you are presently paying) and invest your proceeds then buy your house back after it has corrected? Oh wait a second you would be far better off financially if you do that...just as are presently far better off financially having bought when you did - 5 years ago and having enjoyed the appreciation in your equity. So apparently you are only financially smart on the way up - and on the way down - not so much.
Further Maniac78 - you got lucky. Prices continued to rise because interest rates stayed low and unemployment was low and lending was lax. Lending is not so lax anymore, interest rates will rise, and unemployment is double what it once was.
My family got hurt in the 80's (I was in diapers). I'm currently seeing families getting hurt in much the same way and many just can't keep up anymore. Its messy, good people are getting squeezed.
As a follow up to what Reid said in his past post RE: Line of Credit, there are products like the Manulife "One" mortgage which allows super easy access to equity. The One plan can save you a load of money in interest if you are responsible, but all too many people aren't.
You are allowed to borrow up to 95% of the value in your home, at a floating variable rate (3.5% at the moment) but should the loan grow beyond 95% of value, the rate jumps to 21%
AYE CARUMBA!
"Just because credit facilities are available to people doesn't mean they use them."
You're kidding, right?
Remember this?
When the assets are in a bubble, are highly illiquid and cause personal dislocation to sell.
Which you can't determine until you're looking back. What about your investments? Should we discount any gold you own because some argue it is overvalued? Should we remove your investments assets because there is serious risk of downside in the markets? Should we remove your cash because all this stimulus might lead to hyperinflation as many believe?
Lots of people south of the border thought they were "rich" 4 years ago. How did that turn out?
Totally irrelevant since we're talking about Victoria, and we're talking about now, not some theoretical future.
By the way, at Garth's talk here in the fall, I sat beside a guy that sold his house near the first peak (Dec 2007), put all his money into the stock market, and lost a massive amount. So by your reasoning "your assets might depreciate, therefore we don't count them" this guy was smartly renting, but still was worth nothing.
"When the assets are in a bubble, are highly illiquid and cause personal dislocation to sell."
Which you can't determine until you're looking back.
You're saying you can't see a bubble in southern BC RE right now? You need glasses.
As far as RE goes, it can be meaningfully included in net worth by the rental value because this is the benefit which the owner receives every month. But that's all.
@JustJanice
Does it matter if a person has $500,000 of 'net worth' if they can't meet their monthly obligations?
Of course it matters. If they have 500k of net worth, they can liquidate those assets to meet their monthly obligations. If they don't have any net worth, they have no option.
For example, many home owning British Columbians have hundreds of thousands of dollars of equity but are struggling to pay their bills including their mortgage and to feed their families.
I'm not saying that's smart, but you can't argue that real estate was a damn good investment in the recent past. It was also impossible to predict how long the rally would last, as proven by all the years of incorrect predictions.
Also you paint a dire picture of the poor cash-strapped homeowner, but there are far more people that get by just fine with their mortgage and payments.
Who is ahead in a practical sense of the word?
Depends on how you view it. I can easily turn your situation around. The homeowner has a large mortgage, and sometimes has to cut some corners on expenses to make ends meet. He can't buy that boat or ATV, and doesn't go on expensive vacations to Hawaii. However he has his own place, he can put energy into a nice garden, he has the security of knowing his kids won't have to move to a different school, he has a nice comfortable and secure life. The renter across the street has a great investment portfolio and the freedom of no debt, but he worries that his house will be sold and his family displaced. He would like to renovate the kitchen, but can't because it is a rental. He would love to put in fruit trees, but since there is no long-term security, he can't do that either. He has money to buy expensive toys, but can't make his own home feel personal.
So you see, I can spin it the other way too. Just depends on what you value more.
@maniac78
I know I won't care if my house goes down even 50 or 60%. I like the place and can handily afford it so who cares?
I suspect you might not be quite so nonchalant about it, but you're right. As long as you don't lose your income you'll be just fine. I don't think anyone can seriously argue that someone that bought 5 years ago won't be fine. The problem is the people that bought recently, and really pushed the limits of their affordability.
I'm not complaining about my situation. 5 years ago I was a student and had a whole few hundred dollars to my name, so buying wasn't exactly an option. And now it's crazy, so easy decision.
You're saying you can't see a bubble in southern BC RE right now? You need glasses.
Of course it's overvalued. The point is no can predict what's going to happen, you can only make an educated guess. Case in point, the rally last year surprised basically everyone. Another example, people have been calling "bubble!" for the better part of 10 years. They were technically right, as real estate has been overvalued, but they were so dead wrong in the timing that they were left behind.
The other point you missed completely, is that you can't be sure of any of your investments. That doesn't mean you don't count them in your net worth.
If they have 500k of net worth, they can liquidate those assets to meet their monthly obligations.
Only if by selling them they don't drive the price down. When the circumstances that drive people to sell are systemic (i.e. lots of people get in trouble at the same time), markets are local, and you have the lowest liquidity of any commonly traded asset, that just isn't the case. All it takes is a few % of owners of RE having to (or wanting to) sell to crater the price.
I'm not going to sell on some wild speculation that prices are going to come down. This is my home and I can afford it so why the hell would I sell and pay all those closing costs to move into a rental? In what strange world does that make sense? No thanks I've got 13 years left on the mortgage and then I'm laughing.
Sure I wouldn't buy now but for a lot of people it would make ZERO sense to sell and wait out any possible correction. That's a huge risk to make and a huge disruption to a family.
Anyway I'm just lucky I bought when I did and I hope prices do come down for you guys.
"wild speculation that prices are going to come down."
LOL...
Wanna see something really wild?
http://tinyurl.com/2ublwy7
Sure I wouldn't buy now but for a lot of people it would make ZERO sense to sell and wait out any possible correction. That's a huge risk to make and a huge disruption to a family.
Hear hear. Lots of people talking tough, but would any of them actually sell in your position?
Like you say, to gamble with your family's home, pay a bunch of realtor's fees, and disrupt your life, just for the chance at a few tens of thousands? Wow, some people here are money obsessed. It's funny how some bears like to say that we'll go back to a house being a home, not an investment, and then they try to convince others to play their house like a stock.
I had to laugh at Just Janice's suggestion to sell your house, rent the one across the street, and then buy your house back when it dropped in value. What kind of fantasy land are you living in?
This ad will be running in the Times Colonist tomorrow May 22.
Prices falling at the Falls
We're headed for 50%, EASY. Wouldn't dream of touching anything at less, unless some of those POS cash deals start coming on line like Arizona, California, and Nevada where you can get a $500,000 trashed foreclosure house (think $1,000,000 level HERE) for $50,000 cash.
It's coming. When California legalizes pot, and the stock market continues down, we'll see 50% easy.
"you can't argue that real estate was a damn good investment in the recent past."
Only for those who sell at today's prices. My Nortel stock was a good investment too, for a while. LOL
"So you see, I can spin it the other way too. Just depends on what you value more."
No it doesn't. That you are willing and able to overpay for an asset doesn't justify overinflated prices.
As patriotz mentioned, it is possible to receive benefits above the price you pay but this is nothing more than consumer surplus. Landlords don't have a consumer surplus because they receive no "intangible" benefits from home ownership. They won't pay prices you are willing to pay for very long if prices aren't rising to compensate them.
As a corollary, a tract of people may never buy because their consumer surplus is negative: they much prefer renting over owning. All the "high prices are justified because more people prefer to own than rent" platitudes could be turned around to say that "low prices are justified because the only consumers left prefer to rent than own."
maniac78 said "Sure I wouldn't buy now but for a lot of people it would make ZERO sense to sell and wait out any possible correction. That's a huge risk to make and a huge disruption to a family."
I can't believe I agree with you here. :-)
That is great that for a lot of people it doesn't make sense to sell their home. That means that more distressed sales will be happening. Ones who HAVE to sell and prices will fall accordingly.
S2
The Falls......still waaaaaaaaay too expensive!
How much are your neighbors going to hate you when you buy your place for $200k less than they did?
Fast forward 3 years.......how much are you going to hate your new neighbors that just bought their place across the hall for $100k + less than you did?
It's going to be a building full of HATERS LOL!
What happens when all the new, fancy places like Bear Mountain and the Falls put their suites on sale?
The existing suites at BR and the Falls must also meet the new lowered price for resale, and the less-fancy places must now go below that...and it begins.
Could the developers have chosen better names for what is happening?
Bears LOVE Falls
Leo S said.....
Hear hear. Lots of people talking tough, but would any of them actually sell in your position?
Like you say, to gamble with your family's home, pay a bunch of realtor's fees, and disrupt your life, just for the chance at a few tens of thousands?
>>>>>>>
Look dude IF you just made a cool 250-300k + profit in anything, wouldn't you take the money and run?
People will never ever again in their lifetime have the opportunity to make that much money that quickly just by buying something and through no great wisdom or savvy (This was all luck and you know it)have it appreciate so drastically.
This has been a lotto ticket....a gift! It would be insane not to take it. Cuz what the Lotto gods give, they will quickly take away.
Janice is right and I'm sure you family could suck it up living in a very nice rental and having 300k + in the bank! How many trips to Disney Land does that buy? LOL
Shit buy a Ferrari, perhaps a Mercedes for the little lady, enroll the kids in St Mike's and spread the left over $$$$$ out all over the bed and roll around naked in it!!!!!!!!!!!
What a stupid stupid post Leo, I mean really. You telling me you couldn't use that kind of dough?
@jesse
No it doesn't. That you are willing and able to overpay for an asset doesn't justify overinflated prices.
Umm.. That's pretty much exactly the justification for higher prices. Enough people willing and able to overpay, and you get high prices. Of course sentiment can turn, but there is no actual "justification" for any housing price above cost of materials. Everything else is just what people are willing and able to pay. Always has been.
@PainInThe
It's coming. When California legalizes pot, and the stock market continues down, we'll see 50% easy.
When stock markets are volatile, people flee to what they consider to be "safe" investments, which they currently think is real estate (regardless of the prevailing opinion here). Hence, one of the triggers for the housing boom in the US after the .com bubble.
@jesse
Only for those who sell at today's prices. My Nortel stock was a good investment too, for a while. LOL
The difference is that housing will never go to zero, and offsets another expenditure (rent) when you have it. So comparing real estate to Nortel is spurious at best.
@Mark
Look dude IF you just made a cool 250-300k + profit in anything, wouldn't you take the money and run?
Please, enough with the strawman arguments already. If someone had a chance at a guaranteed profit of that magnitude of course it could be different.
How do you not understand that a drop is not guaranteed? It's a prediction. Yes it is likely to drop, but by that amount? On what kind of house? What about your renting costs? What if it drops but you can't find a house you like as well as the last one? What about the disruption to your family? What if it just drops 15% and then stays flat until inflation catches up? Etc etc etc.
If I had ridden the real-estate train up, and I liked my house, I wouldn't really have a problem riding it back down for a while. Who cares, it's not like you worked for that money, it just came and went through no part of your own.
People will never ever again in their lifetime have the opportunity to make that much money that quickly just by buying something
Yeah sure because there have never been other bubbles.
I'm sure you family could suck it up living in a very nice rental and having 300k + in the bank! How many trips to Disney Land does that buy? Shit buy a Ferrari, perhaps a Mercedes for the little lady, enroll the kids in St Mike's and spread the left over $$$$$ out all over the bed and roll around naked in it!!!!!!!!!!!
Case in point. Money obsessed.
Sorry dude, disney land, ferrari, cash baths. That just leaves me cold. No interest in that, past an vague interest in driving a ferrari for a day, but they can be rented easily enough.
Sure it'd be great if you were moving to Saskatchewan and could cash in on your house, but if you're planning to stay here, you're not cashing in, you're gambling. If you don't recognize that I can't help you.
One more thing before I go on vacation.
Remember PrairieBoy? Long time Victoria bear with his own blog. He bought in spring 2009 when markets had corrected 15%. So far he is well ahead, but let's see what the future brings.
Markets aren't rational; you can never really predict the future. If I had bought 5 years ago I certainly wouldn't be selling. Most affordability predictions point to 2004 prices, which isn't that far away from when you bought. If the market fell below what you paid, inflation will bring it back to that level fairly quickly. I really wouldn't want to be that guy who sold out and put his money in the stock market.
Of course sentiment can turn, but there is no actual "justification" for any housing price above cost of materials.
Yes there is, and that is what people are willing to pay for the use of the property, aka rent.
Do you think there is any justification for the price of stocks other than book value?
What you are basically saying is that "fundamentals don't matter", which is what people say during every bubble.
"The difference is that housing will never go to zero"
And here I thought you were arguing in good faith. Housing is leveraged. From a buyer's perspective prices don't need to fall to zero for their clocks to be cleaned if they have debt.
Nortel's assets will never go to zero either. But its stock can and did. I'm sure most of HHV's readers can see the similarity.
"Enough people willing and able to overpay, and you get high prices.
Again you have ignored the crux of the argument. If enough supply is tendered you don't have to pay what you and others are willing and able to; you pay the marginal price and pocket the consumer surplus. Right now the marginal price still happens to be within the bounds of what many are willing and able to pay. Don't be surprised if that point changes significantly lower.
Only two sales under $1 Million in Oak Bay in the past week.
Leo, after this all tanks (Victoria housing prices, the stock markets, and eventually most major fiat currencies), the average person on the street will be angry and sad, but be able to claim ignorance, but you seem to know at least the basics of what's coming if not more, and still decide to do nothing... It will be hard to feel sorry for you down the road.
The major events about to take place are not speculation, they are inevitable (short of some miracles). The only speculative aspect in any of this is the timing, and even the size of that window is becoming ever more narrow... we're not far now.
The word "Crisis" in Chinese is composed of the characters 'Danger' and 'Opportunity'... And mark my words, we're about to witness the biggest 'danger' and thus 'opportunity' of our life-times. You can miss out on the opportunity, but you will not be able to avoid the danger!
Mr.4AM
PS. I sold my primary residence in 2008, have been renting since, and took my significant house proceeds am currently 50%+ in physical precious metals.
after this all tanks (Victoria housing prices, the stock markets, and eventually most major fiat currencies)
That is a contradiction. If things tank, that means they are getting cheaper, i.e. money buys more of them. If currencies tank, that means that things are getting more expensive, i.e. money buys less of them.
Assets and money are priced in terms of each other. They can't all "tank".
so true patriotz, i think Mr.4AM meant 'after this all tanks - housing prices, stocks, and all commodities (including gold/silver), the only thing increasing in value will be major currencies'
If you are married Maniac, it is not "I" it is "we", and if you ever part, you will very much care if "your" property loses 50-60% of its value. So you be a good boy ok?
Alright, let me spell it out for you in a little more detail:
Victoria Housing - Prices will start going down this year on fundamentals alone. This would have happened back in 2006/2007, but the government changed the rules to make money cheaper & easier to borrow. Now they are on the other side of the fence and will push an already over inflated market way down. This will start fast, but then slow down, but also play out for a few years.
Major currencies - For the past few months the Euro has been tanking against the USD due to the EU debt crisis. EU money is running to the USD, gold and Swiss Franc as safe havens (primarily the USD though). The rush into the USD has caused all other currencies to lose value against the USD (Canadian dollar included.. ~5 cents in 2 weeks!)
Germany is trying to implement some radical derivative rule changes to prevent Wall Street from taking down entire countries due to naked short selling, but they need more support from other countries and very fast, if not Portugal and Spain are next to follow Greece, then Ireland and Italy. Germany & France alone can not rescue all the PIIGS, and so failure put a stop to this will be extremely negative to all markets world wide. If the PIIGS get roasted, the UK is next to go. If the UK goes down, it will take the US with it. When the US goes down, it will take the world with it because it is the reserve currency.
The way all these countries go down is due to excessive debt and excessive quantitative easing (printing $ against thin air), which leads to a crisis of confidence - meaning, those which lent these countries money will lose confidence that they will ever get their money back and stop lending to them all together resulting in a MASSIVE financial collapse of those countries addicted to debt.
The collapse will be evident due to the inflationary evidence. It is a no brainer that this will be an inflationary collapse. All the Central Banks know to do is print money, resulting currency devaluation. When a country prints excessive currency, the currency becomes devalued against assets, and this translates to cost of these assets to skyrocket. This is extremely chaotic because consumer earnings won't keep up with inflation and a as result everyone becomes poorer overnight (think Iceland w/70% currency devaluation in a few weeks time frame).
And by assets I don't mean real estate. In fact, I mean almost all assets EXCEPT real estate. Since this will be an inflationary collapse, interest rates will go through the roof, exacerbating the housing price collapse.
Eventually the entire system will be reset, all sovereign debts erased, and new monetary & financial regulations will take place... but not before world wide chaos, civil revolutions (i.e. Iceland and Greene for starters), and if it gets bad enough expect a major war to break out.
Stock Markets - Major stock indexes are highly dysfunctional at this point. Fundamentals are almost irrelevant. The bear market rally from March 2009 is primarily running on government stimulus acquired via bond sales (increasing national debts) and quantitative easing (printing presses going into over drive devaluing currencies). Further, volumes have been razor thin and the turning point is here (-10% in last 2 weeks)... including a 'Flash Crash' that nobody seems to conveniently be able to explain.
The next leg down is expected to go below Q3 2008 lows. It is entirely possible though, that the markets also skyrocket after the collapse to never before seen levels if the Central Banks & Governments stimulate the economies into the stratosphere through QE + buying into the markets, but ultimately, DOW 36,000 wont be anything to celebrate, when a loaf of bread costs $50.
These are general trends believed by a very wide range of analysts, perhaps to one degree or another of severity but the general thesis is very similar. Obviously reality can deviate from this, and I sure as heck hope it does, but so far, everything appears to be on track to an exceptional collapse... and should the governments figure out a way to temporarily calm the chaos through radical rule changes... then just wait for the end of Cheap Peak Oil 'round 2013 to drag us back into another 'Great Recession'.
Now get out there and enjoy that sunny long weekend, eh? ;-)
Mr.4AM
PS. It's not all bad news. Humans mature fastest through the process of suffering... if things are to easy, we all get lazy and complacent.
...would be nice to avoid having Mr. 4 a.m. reduce this blog to the natural stasis for so many bear conversations--gold-bugging and apocalypse predicting...
PS. I believe just last year, 4am predicted we'd all be dead from swine flu by now.
I agree Mr.4AM that your explanation is consensus "believed by a very wide range of analysts", which is part of the reason i don't buy it. I see the exact opposite – at least a couple years of deflation. Markets always punish the masses. You can’t blame anyone for thinking impending inflation, since it is all any of us have ever known (except maybe my remaining grandma). Problem is not many understand the after effects of a credit crisis as severe as the one we've just been through. Quite simply far more money/credit is still being destroyed than created (money supplies are now falling again). Furthermore, now that the main central banks are zero-bound with rates (liquidity trap), blown their fiscal wads, and have no easy way of increasing falling money velocity (now past peak fiscal stimulus, inventory replenishment, and demographic boomer spending), I see a bout of negative inflation almost a certainty.
Mr 4AM,
Are you a fan of Mike Ruppert? you seem to have the same world view. I just saw his documentary 'Collapse'. I would recommend it to readers of this blog.
Looking for a new place.
Hey Guys, I'm getting tired of current apt and I'm looking for a new place. Something 2br-ish and in town (core victoria, not western communities/Sidney).
If you know of something feel free to drop me a line at plasmoid_hates_you@hotmail.com or just post a reply to the blog.
Cheers
bullbear,
I don't subscribe to the average economical views, at least nothing that is in the mainstream media on a daily basis.
This is the wrong forum to discuss these matters, as lengthy detailed essays/discussions would need to unfold and reliable sources & citations provided for all affirmations.
Secondly, the whole inflation vs. deflation argument requires agreement on definitions... something even the experts can't seem to come to a consensus on.
In the past 2 years, we've seen 4 months of actual deflation, and only for very small amounts. To get out of the deflation the Central Banks printed hundreds of billions... and believe me they aren't done yet. The deflationary collapse of the 1930's will remain a one time event so long as Central Banks are around to run the printing presses into over drive. There may be some deflation for short periods, but the PPT will jump in and pump things back up..at the cost of currency depreciation and ultimately very high inflation.
In different words, I first see a collapse via another massive stock market crash, followed by more massive money printing for stimulus / "stabalization" reasons, which devalues the currencies and causes assets to skyrocket. I see more and more countries, and exceedingly larger ones not able to pay their debts as explained in my previous post. Once inflation comes around, I see savers being punished through inflationary prices at the checkout counters. I see housing prices going down down down (in Western Canada).
If I could grossly over simplify these events (as I have posted numerous times in the past) it would be as follows:
First deflation, then inflation.
... In either case, gold goes up. Gold is an insurance against market instability... one need only look at the gold chart in the past ~9 years. In the next two years, I see problems getting more severe and events accelerating (not a good combo!)
Mr.4AM
I should just add for those just reading this, that I am not a financial advisor expert, so please do your own research, also since I'm expecting another major leg down, I'm holding out ~50% in cash to potentially buy deeply discounted assets close to the bottom.
Mr.4AM over and out.
"I am not a financial advisor expert"
Thanks for the heads up.
Oh yeah, speaking of "financial advisor experts", interesting story about Garth Turner. I always wondered why he was so adamant about the "invest or die" mentality, and actively ridiculed anyone mentioning gold, GICs, or other safe/low-risk investments.
Also, he heaps scorn on anyone suggesting that people can invest their own money, and says only an advisor can do it right. A fee-based advisor of course, no one from the banks.
When people ask on his blog for a suggestion for a fee-based advisor, he says to email him offline for a list.
This seemed all ok, until my brother actually did email him for some suggestions for advisors.
My brother lives very close to Vancouver, and asked for any good advisor in Vancouver or Victoria. Well Garth says he didn't know anyone (in that huge region), but immediately launched into a sales pitch saying he has many clients in that area, and he only charges 1% of invested assets for commission.
Now Garth's whole game finally makes sense to me :) I'm essentially a persona non grata on his blog now, after posting the above story (which he blocked). Anything I write that's contrary to his blog posting now gets blocked. Funny stuff. Garth is an interesting guy, but I don't think many people have put all the pieces together to figure out his bias. It took me over a year.
Leo S if I'm not mistaken, Garth has been very forthcoming with the fact that his "advisor" pal is a fee - based guy.
Your post seems to imply (unless I'm reading it incorrectly) that Garth is collecting the fee. I am sure that's not he case BUT perhaps he gets a kickback which wouldn't surprise me.
That said, that's how the world works so don't be naive.
Leo S in rereading your post maybe I was wrong.....maybe you were referring to Garth's guy and not him.
Regardless, is Garth getting greased? I think so, yup. But like I said, that's how it's done and shouldn't surprise you.
Garth is no more self serving than any of the other self promoting shills out there. He does make a lot of valid points and offers some invaluable insights in Canadian Politics and their shortcomings etc.
@Leo S:
Thanks for the heads up. I read Garth quite a bit. But I remember him telling people to buy Nortel in his newspaper column right before the crash - and now he says he didn't.
I'm just glad I didn't take his advice.
Will the Ing bank lobby to offer this type of "mortgage" in Canada?
The home loan that could save you a fortune
Homebuyers are to be offered never-ending mortgages in a bid to overcome Australia's affordability crisis.
ING Direct, Australia's fifth largest lender, is preparing to sell loans that have no fixed term and no requirement to repay any capital along the way.
This is a tremendous product. As well know real estate only goes up and this allows home buyers and the bank to both make a nice profit.
@Skeptic
That story makes me spit venom and profanity. I may have just poisoned my cat.
Never-ending mortgage with no principal payments. What's next, bond slavery? "No payments while you live in your home, and lo, thus did the family sell their children into slavery for nigh onto seven generations."
Mohican has a great commentary today on his Housing Analysis Blog.
I'll Just Sell
In my work, coming face to face with hundreds of people each year, discussing finances and attitudes about finances, I find it very interesting how people approach potential financial pitfalls and opportunities.
One situation I have often come across quite often is the approach toward real estate ownership and financial risk management. The risks I speak of are common to all people: Death, Divorce, and / or a Loss of Income. One of these things can happen unexpectedly at any time and how you prepare for these events is of critical importance in your and your family's long term financial health. Relating specifically to real estate ownership, what happens to the family home when one of these risks turns into reality. How will the mortgage, taxes, maintenance, fees get paid?
@Mark
Garth has been very forthcoming with the fact that his "advisor" pal is a fee - based guy.
His advisor pal? No. Garth himself is a financial advisor. When my brother emailed him he said he didn't know any other advisors in Vancouver, and suggested himself as an advisor. It's not a friend of his, it's Garth.
In retrospect I'm not surprised, we all need to make a living; I was just a bit miffed because Garth likes to make himself out to be this super ethical dude that just wants to help people.
No. Garth himself is a financial advisor
There is noting anywhere on the Internet, including Garth's websites, Wikipedia, etc. that says he is a financial advisor.
A financial advisor is not simply someone who writes books about investment strategies. It's someone who charges people for managing their finances. You need a license to do this in any province. I highly doubt Turner would try to dabble in something he's not licensed to do, he's certainly not that dumb.
anyone have the numbers from last week?
thanks in advance.
Month-to-Date Market Statistics
May 25 2010
Tuesday, May 25, 2010 8:00am:
MTD May
2010 2009
Net Unconditional Sales: 496 879
New Listings: 1,256 1,362
Active Listings: 4,407 3,789
the trend continues :)
thanks. I wish there was a statistic for price changes and cancellations....
That would be very telling.
Leo S said:
"How do you not understand that a drop is not guaranteed? It's a prediction. Yes it is likely to drop, but by that amount?"
I think you are right on here Leo. Many on this blog make all kinds of wild predictions while not understanding the degree of complexness of economic predictions. Time will tell. This is just a blog and many of the posts are strongly motivated by personal desire and not economic-research scrutiny.
Regarding price correction, I think that our government is trying to cause a long term, slow correction rather than one mighty correction (whether I like that or not does not matter). We will see in the future. For the sake of most posters here, I hope the correction will be swift and large; just be prepared that it may take years.
quick analysis...if May sales continue as we have seen until this time in May there will be 641 sales for the month - a 27% decline from last year.
Are you better off today or a decade ago?
The affect of the ultra low interest rates have been more than offset by the higher real estate prices.
The affordability in the Capital City has eroded dramatically over the last ten years. Today, the typical person buying will have almost double the mortgage payment of those who bought in 2000. A trend that will only accelerate as term renewals are reached over the next five years.
Market appreciation has changed from a dream to night terrors as the Victoria market screams onto and beyond 6 months of inventory and a sales to new-listings ratio under 0.4 and falling. A bear market in what should be the strongest market of the year. The spring markets of the past having sales to new-listing ratios greater than 0.9. The trajectory of the market is highly similar of 2008, when property values fell 10 percent in 6 months, before the CMHC bailout reversed this demand driven downward trend.
Increasing unemployment, higher vacancy rates, higher interest rates, falling consumer confidence, corporate and personal bankruptcies may mark the second half of 2010.
The largest economic power in history, the boomers, are leaving and have left their property buying years. Leaving a huge inventory of housing behind, with more homes in Canada than households. A trend that has the propensity to grow to critical levels as the younger generations boomerang back to the parent's house or double up for economic reasons.
And what of the next ten or 20 years? When the boomers reach into their mid 80's. Will 3/4 of an acre in Uplands or Water front be that desirable from the point of taxes and maintenance to people on a fixed income?
And what will happen when the younger generations become the political majority attempting to manage over taxed workers. Property owner's will be seen as the new source of sin taxes, like tobacco and alcohol before, as municipalities struggle to balance budgets.
Traditional retirement neighborhoods like Oak Bay will suffer most from ever higher taxes, low services and increasing deferred infrastructure maintenance. Houses with multiple basement suites, congested street parking, and reduced pride in ownership will turn these once desirable neighborhoods into unattractive districts. As the wealthy leave and the less prosperous inhabit the neighborhoods. A kind of reverse gentrification. Already these areas have begun to lose their appeal, as young families chose not to live in these areas due to closing schools, limited youth recreation, and after schools sports. Bored teenagers/young adults, an underfunded police force, along with an easily targeted elderly populace - one doesn't have to say much more.
I was hoping the Internets will indulge me with an off topic post or two.
As regulars might know I work in Victoria as a Life Insurance and Employee Benefits Advisor. shameless self pimp www.hmrinsurance.ca ;) I have recently had some turmoil in my business and I am thinking of making a few changes. Since most of the regulars are somewhat familiar with me and I have even made some clients and friends from members of this blog I thought I might run some idea past you and take any suggestions or criticism you can lay on me.
People harp on Realtors all the time for their commissions, I too am a commissioned sales person, though I freely disclose what I make. blog post on commissions here
In the group insurance world, where I provide health and dental as well as pension plans to businesses I usually get paid a sliding scale commission, starting at 10% of the first $10,000 of premium and dropping to about 2% when premiums reach $100,000.
Now it is of no surprise that health insurance is getting more expensive every year, about 15% more expensive every year to be exact. I feel I do a good job in keeping my clients premiums low and fair, but there is a definite conflict of interest. If I do a poor job on their renewal and the client pays more premium, I make more commissions. I want to make it clear this is NOT what I do, but it could be of concern.
I am thinking of switching to some kind of fee for service model, but I want to move away from a percentage of premium. There are advisors who will charge a flat 4% no matter the size of the group, but that means they still have a conflict. I was thinking of charging a flat fee per employee enrolled in the plan. Say $10 per member per month. There is no one in Victoria that does this to my knowledge. So a 10 member group I would make $1200 per year, which is about equivalent to what I make in commissions using the current system. But as the plan gets ever more expensive due to medical costs, I do not have a conflict of interest. If the plan is more work down the road I can always increase from $10 per person to $12 etc.
Imagine you were a business owner or a controller, would you care if I earn a percentage or if I charged a flat fee? Is "out of sight out of mind" commissions built into the premiums better than seeing a bill each month? Some months I might not do much work for a client, and others I do a lot, if it is a slow month, are you as willing to pay my fee as in months where you are keeping me busy?
Thanks in advance.
One-third of the home sales in the urban municipalities lay in the range of $365,000 to $560,000 (starter homes). or on average $462,500 or about 7.5 times income.
And two-thirds of homes sales are under $700,000. $560,000 to $700,000 would be middle income homes. Or on average $630,000 or 7.5 time gross income.
And your upper income property would be in excess of $700,000.
For the sake of most posters here, I hope the correction will be swift and large;
The bears would be better off with a slow bust, because the slower the bust, the more people who will have bought high and will not be able to buy low. In other words, the slower the bust, the lower the bottom.
Also the slower the bust, the more DP money the bears can save, if they are so inclined.
http://www.torontosun.com/money/2010/05/25/14084981.html
"RBC's Housing Affordability Index measures the amount of pre-tax income needed to service the cost of owning a home."
...
"The biggest declines in affordability were in B.C., Saskatchewan and Manitoba, with the index in Vancouver rising 4.8 points to 73.4% from the previous quarter."
I agree with Patriotz, a slow bust would probably be better for the bears. There would be more to choose from and more time to make a decision. The problem is the longer the correction, the higher probability of losing your job.
A quick drop, like the Americans, would be better for the economy, as the market would be positioned for a recovery sooner and we could begin to expand the economy. Not that the yanks are there yet.
six of these - half a dozen of those.
Just Jack said... A quick drop, like the Americans,
Quick drop? Let me check my watch, oh that's funny it stopped 5 years ago.
The American bust has hardly been fast. 81-83 that was fast, we could still be 2-3 years out from the bottom of the American slide.
"the slower the bust, the more people who will have bought high and will not be able to buy low."
That depends on sales volumes but yes you're generally correct. Based on the buying frenzy in 2009, my bet is a 1-2 year shortening of the fall time.
Five years does not seem like a quick drop at all.
But I think people in Seattle might just disagree with you as their market peaked in mid 2007 and has dropped some 30 percent since then with prices rewinding to May 2005 levels. I mean thats like prices here dropping by nearly $200,000 in 3 years. I suppose its all relative. If you're looking to buy it may seem slow. If you are home owner it would be somewhat disconcerting? I mean could you save $200,000 in three years? How would losing $200,000 make you feel. I know the loss is only on paper, but it sure would make you feel dumb for not selling a few years ago.
I came back from vacation and found the bottom dropped out of the Victoria real estate market....
Only one more week left in May. Here is what VREB will be reporting next week...
May sales will come in around 670 which is considerably lower than April's 756 and 25% lower than the 879 sold in May 2009. In fact this years May sales will be the lowest seen in many years.
2005 - 901
2006 - 909
2007 - 963
2008 - 770
2009 - 879
Listings are piling on and should hit 4500. Here is how that compares to May in years past.
2005 - 2190
2006 - 2900
2007 - 3462
2008 - 4332
2009 - 3789
Prices have been on a downward trend since December 2009. Price reductions have been rampant this month and multiple offers are history. Median and average prices will be lower this month.
VREB will have a hard time spinning these stats and will try to pump this as a buyers market with low interest rates and lots of inventory to choose from. Will their lap dog, the Times Colonist, reprint this drivel or will they tell their readers the truth?
Anyone buying or selling in this market needs to select a realtor that is not wearing rose coloured glasses and clearly understands that the market has turned down. I would not suggest buying but sellers and their agent need to be realistic or they will just chase the market down with price reductions.
Financial Post article:
Homes overpriced - CIBC bank report
A new report from one of the country's major banks says house prices in Canada are sitting 14% over their "fair" value.
The report from Canadian Imperial Bank of Commerce says the average price of a home has risen 23% since reaching its cyclical low in January 2009.
British Columbia and Alberta homes are the most overpriced, with about one in four above their fair value.
So glad you're back Double-Agent! This blog isn't the same without you! :) Your post sums it up perfectly!
I love the fact that people doing the "price low and get more in a bidding war" are getting burned now. Example, 1276 HOLLOWAY ST, listed originally for 449. I guess the bids weren't to their liking so they are bumping up the price to 549. What a bunch of shysters.
How would losing $200,000 make you feel. I know the loss is only on paper
No it's not. People don't understand that if you pay an inflated price for a house you lose money as soon as you buy it because the purchase price exceeds the rental (fundamental) value. Every single month you are paying more than it would cost to rent the same property. You can recoup this loss only by selling to someone willing to take an even greater loss (the greater fool).
But when the market price falls - inevitably - toward fundamental value they finally get the message that buying at a crazy price was throwing away money.
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