Saanich Going Green

As an Easter gift to builders, it appears as though Saanich has created an incentive for small builders to go 'green'. We applaud this, Saanich can afford it, and quite frankly, we can't see anything wrong with consuming less and producing less by-products. If it takes a bit of an incentive to get the ball rolling, then so be it.

That said, how do you feel about green homes? We can't imagine many people would have any issues with the idea of building more efficient houses, but costs could be a deterrent.

Should Saanich have created an incentive for consumers rather than builders? Are you more likely to buy a green home than one that hasn't been built to meet the same standards?

As first time buyers with a bit of an environmental conscience, we'd love to find something in our price range that fits the ticket. The likelihood of that is nil.

We've looked at the Dockside Green development seriously. We like the ideas and think the location and the amenities would be attractive. But we're not big on the prices, the condo lifestyle and couldn't see ourselves stretching into a townhouse there.

Politically speaking, we prefer incentives to regulations. So we think that providing incentives to builders rather than requiring them to build a certain way is a good thing. But we also think Saanich really missed the boat. Why not provide those rebates to the consumer directly: that way we can reno our house (if possible) to meet the standards? That's how the Federal rebate program works; Saanich could have added-on to make the whole thing really attractive to homeowners/buyers, and go beyond changing light bulbs, appliances and furnaces.

Will you buy green? Will you pay a premium to buy green? Will green be worth more in the RE market?

Mortgage Mania: how the bubble grows?

Interesting article on MSN today.

It's obvious that 'innovation' is necessary in the mortgage market place in order to finance "one-million dollar starter homes" in some of our cities.

So what does mortgage innovation look like? In 2003, Scotiabank launched its Free Down Payment Mortgage. The other banks quickly followed. But they weren't the first to do it. So-called alternative lenders like Calgary-based CanEquity Mortgage or Toronto's Xceed Mortgage Corp. have been offering no-money-down mortgages for some time.

As if that wasn't enough, car manufacturer GM had to get in on the deals and they now offer 107% mortgages: because it's always a good idea to leverage more than your property is worth.

"The Canadian cash back program can also be used by someone who already has a mortgage with a rate that is considerably higher than the current rate and is in a situation where it pays to break the mortgage and use the cash back to pay for the penalty costs," [Callum Ross, a Toronto mortgage broker] writes on his website.

I'm curious to know who would have those high rates, considering that rates were below 5% for at least 3 years before our current 6% figures kicked in in 2006?

So why would lenders take such risks? Apparently they're not. After all these aren't sub-prime offerings; you actually have to have really good credit ratings to qualify for what David Dodge of the Bank of Canada, in a written expression of dismay, called

products [that] contribute to inflation... and increase the risk of a housing bubble by excessively expanding the pool of potential buyers.

But more importantly, these 'alt-mortgages' get [clients] into the mortgage cycle earlier than they would otherwise and

Most importantly, such mortgages entail higher interest rates — typically one or two points above what you could negotiate on a conventional mortgage. And if you want to get out of the mortgage before the end of the term, you'll need to pay back at least some of the gift amount.

Sounds like a good deal to us. Where can we sign up? What's that you say? These 'innovations' have a catch?

The catch — and you just knew there had to be one — is, boy, will you pay down the road.

No sh$t, Sherlock. But that's OK, we live in the buy now do not pay for 18 months era of 'free money' and guilt-less purchasing. After all, if we spend more than we earn, we can just go and refinance our debts into our mortgages, can't we? No wait, we already owe more than our homes are worth and the market value was going up. What a great deal we got ourselves into.

with no equity in the home, you essentially start out in the hole by the amount of your closing costs... the mortgage has to be insured by the likes of CMHC or Genworth Financial... This insurance ups your cost, and the lower the down payment, the higher the insurance rate. With a no-money-down mortgage, you're looking at 3.5% or higher of the principal.

Wow. Think about that for a moment. You borrow 107% of the market value of your home. Then it costs you 1.5% in closing costs plus 3.5% or more in insurance, so now we're at over 112% of the value borrowed. I know, you could use that extra 7% to cover the closing costs if you are smart. BUT IF YOU WERE SMART YOU WOULDN'T BORROW LIKE THIS.

So there's a particularly good chance you wandered down to Chintz and Co to stock up on glam furnishings prior to hitting up the Mercedes dealership to finance that new C-class you've been eyeing for years, 'wrapping' it all into your mortgage which is a great idea in times of low interest and rising property values.

How can we assume these mortgages aren't smart? Don't take it from me; take it from the pros

No-money-down mortgages — along with long-amortization and interest-only varieties that keep your premiums low but keep you in debt longer — are much more pricey in the end, which is why they don't have many fans among financial advisers (emphasis mine)

Considering that most Canadians get their financial advice in their bank, and that in 2006 CIBC reported "that non-traditional mortgages are growing by 50% a year" I'd say this market's practices are gonna be OK...

"Over the next five to 10 years," [CIBC] noted, "innovation in the mortgage market will accelerate at a pace not seen before in Canada."

Flippin' This

I've tried to adhere to my self-imposed policy of not taking particular listings or agents to task on an individual basis. But I'm willing to make an exception in this case.

Since the beginning of February there have been 6 listings in one building in town-5 units, one listed, taken off, then re-listed to set the DOM at 0. Another beef of mine, but I'll leave that one alone.

Here's the building:




She's a beauty. I actually knew someone who lived here 15 years ago... still looks the same on the outside. And he loved the four flight exterior stairwell with the laundry basket and bags of groceries plus case of beer. But apparently the inside of some units have undergone a dramatic transformation making them sought after homes.

Here's your MLS links: 1, 2, 3, and 4.

Now I know the banks have been calling every homeowner in town offering great rates on HELOCs, but could it be that 5 unit holders in 60 days in one building bought into the plan... or is this the work of flippers? Just asking is all...

Some Thoughts...

After the shock of March Market Madness wore off the past 24 hours, I thought it prudent to start digging and see just how 'off' my internal predictions were.

As a bear, I wanted to believe that the market was correcting. Were there any real signs of this? Or was it purely wishful thinking?



This chart that compares actual sales to new listings, not total listings suggests that this market is experiencing a rising number of sales and a rising number of listings. The language in the market update would suggest that its a good time to be a buyer and a good time to be a seller; after all buyer-choice is rising while prices are going up too.

If we look at last year, we can see that May was the peak month for both sales and new listings. Can we assume the same for 2007? Beginning in September 2006, the market started to trend downward. Left-overs from the Spring/Summer selling frenzy were either coming off the market or sellers were taking less, leaving some of us to think that the upswing was over. February and March 2007 demonstrated otherwise. If you could afford not to sell your home, there was a good chance you could wait for top-dollar.

But what if you'd already bought and you'd lose your new home if you didn't sell your old one? There was a good chance that this factor is attributable to the slight decline in average prices over the last 6 months of 2006.

Yesterday in the TC, there was a 4-page RE market pump. I have to admit, it was some of the more balanced reporting on RE market conditions I've seen in a while.

Here's the headlines and some quotes:

Historic low rates expected to continue
"inflation isn't a big concern but a recession is possible" US FED
"The economy is weakening quite rapidly and could even be close to a recession as we speak" Nick Majendie, Chief Portfolio Manager, Canaccord Capital
"rates will fall a bit but could spike at any bad news" Aron Gampel, Deputy Chief Economist, Scotiabank

Boomer's Market
"interest rates are expected to drift moderately higher this year and next" Paul Ferley, Assistant Chief Economist, BMO
"there has recently been some dampening of housing demand, which could have an impact on construction and house prices" Paul Ferley, Assistant Chief Economist, BMO

Seems as though Paul is right, as CBC states: In the residential sector, permit values declined 17.8 per cent to $3.0 billion, the lowest since March 2005.

And now for some anecdotal evidence in the low-end segment: 8 new listings and 4 price changes and that's just the condos. We're seeing prices all over the map too. I would venture a guess that price compression isn't taking hold in the low-end condos. Two-bed, 1+ bath places, all in relatively similar neighbourhoods are seeing price fluctuations between $189K and $249K for product that is very similar.

Maybe the condo market will be the first to slip? As the VREB has already indicated.

April Fools Came Late?

Have to say that the only word that describes my feelings after reading this is shock. Is this a joke? I guess not.

Looking at our end of the market, I wouldn't have predicted this at all. We've been seeing very little activity, and numerous price changes downward. My only explanation for the increase in average and median prices is maybe this is the last push by the flippers to not get caught with their pants around their ankles.

It would make sense that anyone who has purchased and updated their properties in the past 12-18 months would likely get more. If there is increased product on the market and more competition between places, then the nicer ones should go first one can assume. Maybe that's what happened in March?

There were more listings and more sales. This is normal after the winter slowdown. VT says the first quarter score has the bulls running away with the game thus far. My bears are a third period team playing the wrong game on the wrong field apparently.

Maybe we'll rethink the whole rent and wait this one out... OK, that's just my shocked emotions talking, but seriously, my gut feels pretty sick about this one.

Here's a serious question that demands a serious answer (and I ask all the bears that read this to really take an analytical look at our bearishness): are we fooling ourselves? Could it be that our wishful thinking has deluded us into believing that the downward correction is coming a lot sooner than it is? I'm not saying there will be no correction, but it apparently isn't coming anytime soon. After all, September 2006 - January 2007 looked pretty flat, even showing some slight declines in certain price ranges/neighbourhoods; it would seem like that 'trend' died in February.

Monday News Hunt

Decided to 'waste' some time today searching through Canadian news sites for some RE market-related news.

First off, maybe this explains why prices are so sharply increasing in BC?

Not only do Vancouverites live in the world's third-best urban centre, but they also enjoy the highest overall quality of life in Canada.

Apparently Victoria wasn't on that list at all because I'd bet we'd have a pretty good argument for a better quality of life here.

According to the Canadian Real Estate Association, February 2007 set a new record high for average sales prices nationwide, led by Alberta and Saskatchewan at 34% and 17% respectively. BC experienced "modest" gains at 12% only 0.1% above Manitoba.

Want to live in BC? Be prepared to shell out an average of $413K for a SFH. Compare that to $126K for the equivalent property in PEI.

Now, I know, I know, you're all thinking this bear has gone and put on his bull horns. So I give you this:

At the end of 2006, an estimated one out of every eight subprime loans was in default.

It would seem as though mortgage companies who didn't follow the fundamentals are losing their shirts. Don't think it can happen in Canada? Sub-primes aren't available here anyway, are they? Considering that 1 of 8 = 12.5% and that Canada has only 5% of its available mortgages in sub-prime territory, I'd say we're not as likely to lose all of our sub-prime mortgage companies, just some. So keep putting your RRSP's into mortgage companies who 'guarantee' 14% returns... you'll be fine.

Xceed Mortgage Corp., a Toronto-based "non-traditional" mortgage lender, puts the default rate on Canadian subprime mortgages at 2.1 per cent — less than one-sixth the American rate. And to drive home the message of the comparative health of the alternative mortgage market in Canada, Xceed recently raised its corporate dividend and reported higher profits.

That's not to say all is safe in WinterWunderland, as this most important sentence states: "A drop in Canadian housing prices and increases in interest rates would pose problems for borrowers."

Given that only 84% of our trade is done with our friends and partners south of the border, we'll be okay despite the talk of looming recession. And this dandy from August 2006. And this one from March 2006. Of course, George doesn't know what he's talking about does he?

And US new home sales declined too. But if that isn't indicative enough that the market is tightening up, check out how REALTORS are going after the 'little guys' who invariably appear during the bull periods and disappear when the bears wake up.

And purely anecdotal evidence gathered at a dinner party last night: retired couple owns two houses up on Bear Mt. Bought one to live, other to flip, both for sale, neither sold, on and off the market for the past 4 months. But they say its OK, high-end is a difficult market to sell in. I'll give them that.

Meanwhile, their early-20s kids proffer stories of buying and flipping town homes "because that's all people want anymore" and getting rich quick. (One's a telemarketer and the other a 2nd year apprentice, so they've got plenty of experience to back up their claims). I'll tell you, it was a real test to keep my mouth shut last night.

Welcome to Spring in Victoria

It seems as though the political pressures of rising housing costs has gone straight to the CRD's movers and shakers in the political world.

A local mayor Kris Caustinian sent us a PM yesterday morning that word on the avenue is that the 'old folks are getting restless and they just won't plum take it no more'. At a rally for affordable housing Saturday morning, to mark the 150th anniversary of the first time real estate prices doubled in one year, many of the community's original inhabitants turned out in a major show of force.

It may have taken almost one-hour for the foursome to drive their four-wheeled electric scooters from the corner of Foul Bay to the Penny Farthing Pub, but the enthusiasm was described as "intense" by one on-looker.

"The way they're waving those Union Jacks and tooting those bugle-horns, you'd think it was VE Day all over again."

So what was all the hullabaloo about? We caught up with Jack, Jake, John and Frank in the front of the pub to find out.

"We just won't plum take it no more," they said collectively before Frank's voice box battery gave out. "We've seen year-over-year growth that has made our modest homes into castles. This isn't what we worked so hard for all those years for."

The "three J's and a F" (their gang's street name, apparently it gives them more 'cred') woke up on Assessment Day pissed that the local liquor shop was out of Pim's and they we're finally Paper Millionaires who couldn't celebrate.

"My grandfather didn't fight at Waterloo for this nonsense," stated John. "We didn't work so hard and contribute to the CPP and all those new-finagled social engineering projects like Unemployment Insurance so that you young folks could just stop having babies and start flipping our homesteads looking for an easy buck."

He had me there. How was I to retort? So I ordered another round of Black and Tan's to general groans from the table: "You stinking Irishman, St. Paddy's day has been and gone. It's bad enough you get one day a year dedicated to you lazy louts, couldn't you have ordered us a Boddingtons?"

I could only reply with an explanation that the bank wouldn't give me an extension on my HELOC this year and it's all I can afford. I quickly changed the subject back to their protest and asked what it was they we're looking for as a response.

"It's quite simple really," Jake said. "The bastards at the [city hall] have got to start listening to us. We're older and wiser than they; even if we do forget to put our teeth in on occasion. These prices are unsustainable. Your youth is supposed to be about making babies and teaching 'em to play footie."

"Yes, not about working two careers each, flipping houses on the side, and complaining about no social daycare services," droned Frank-he'd changed the battery by now.

We left that pub at 11am, thoroughly sloshed and in fine fetter, thinking how lucky we are to have the '3 J's and a F' fighting the good fight and sending the message of unsustainability to the local politicians behind the 'Tweed Curtain'. As we walked along singing God Save the Queen behind those scooters, I turned to my soon-to-be-wife and said, "Now we know why houses are so sought after in this part of town. And some call it sleepy?"

Happy April 1st everyone.