888 state

Yesterday I was out and about, and noticed more "For Sale" signs than I have seen for a while. It seems that there are 4 or so on every block. It seems that it is sinking in that it is over.

My neighbour has had open houses the last three week-ends in a row. It seemed that it was mostly Chinese looking (I can tell the difference between Chinese, Japanese, Korean, etc. 19 times out of 20 +/- 3%). No Mercedes, Lexus, BMW, mostly small, less expensive vehicles. Maybe that indicates they are more frugal, and can afford a $900K house on a smallish lot in East Van.? Maybe not. I enjoyed doing yard work while my stereo pumped the Sex Pistols, The Ramones, Forgotten Rebels, etc., out my window. Hey! fore-warned is fore-armed. Right? The asking price is 20% higher than it was bought for last year. And the defects are starting to show. Good luck with that.

So, I was all juiced up, and did some MLS searching. Still no houses in East Van. under $400K. I guess we will have to wait for fall for things to sink in. Prices and quality are all over the map, with tear-downs listed in the same price range as new construction, and big lots in the same range as small lots. A little price compression before the price depression sinks in, me thinks.

What I found interesting was all of the houses listed with a bunch of eights. I counted 10 places (out of 160 or so) that were listed for $888K. That is kind of blatant, and if I were Chinese, I would be somewhat offended. Do the listing agents think that they (Chinese) are that stupid/naive/superstitious? You would not want to mess with over/under bids on a place that was listed for $888,888.00 would you? I'll give you $888,888.88 plus my lucky rabbit foot. No Deal? I'll throw in a four-leaf clover!

Sadly, many who over-extended themselves to buy in the last couple of years - with the hopes of insane appreciation - did not see the credit crisis, doubling of energy costs, accelerating property taxes to pay for Olympic cost over-runs, food inflation of 30%, etc., coming when they factored their top line.

Why don't we just start bidding $300K with a bunch of conditions on these $800K places? Let us bring it down!

There are deals ahead. Keep your powder dry.

what if?

Back in 2004, my wife and I felt that we had enough of a down payment (better than 35%) to buy into what we thought was an outrageously over-priced market. Problem was, we saw very little that caught our fancy, and what we did look seriously at were all involved with bidding wars. I thought to put an unconditional, full asking offer on a character house that had obvious issues, but my agent suggested not to bother. It went for $150K over.

So what if we had been reckless, and got the place? It needed foundation work, modernized plumbing and wiring, a new heating system and a new roof, not to mention windows and what not. I could have done a lot of the heavy-lifting, but it still would have cost at least $50G's that we did not have. Second mortgage? The first mortgage, including property taxes. would have been $500/month over what we were/are paying in rent. We would have had some tough months even without a 2nd mtge. Doing the work mostly myself would have been a few years' project in itself. Looking back, I'm glad that we didn't, because we would have been buying at our margin, and at the time, I thought that a turn-around was probably imminent. Appreciation was far from my mind.

I guess I was wrong about the appreciation, the place is probably worth $700K now. Maybe more. We missed out on a couple of hundred G's. That sucks. At the same time, we had a kid, and our income has dropped a bit, so we might be a bit uncomfortable now.

There are certainly intangibles to owning, and I wondered what those might practically be. Starting with interest rates: we were approved at 4.2%/5 years. If we had taken a 3 year term and had to renew at today's 5.79% or there abouts, we would be priced out and would have to sell. Mind you, we would walk away with a nice chunk of change, and go travelling for the time it takes for fundamentals to return. I would have gone for 7 years at a slightly higher rate though, and would be sorely tempted to cash out. Ooops. I forgot about li'l solipsist. I guess we would be locked in... But, as of December 07 we would have paid down $18,174.81 in principle, and $30,102.78 in interest. Instead, we have saved over $24K in the difference between rent and own, and we have been making interest instead of paying it, and I always feel better about that. And then there are those pesky repairs and maintenance, and increasing property taxes. But oh, yeah, the paper equity.

Bottom line is, I don't really have any regrets. It was over-priced.

investor alert!

In my last post, I compared a house in Arbutus to a house in Killarney. I mumbled about moving 40 blocks west, and the price doubling...how about moving 4,000 kilometres east? For less?

I was just fiddling around, looking for some info. for a post that I was thinking of, and serendipited (I think I made a word up) onto this place in Kitchener, Ont.



It's a 20 unit walk-up apartment building, that appears to be fully rented, for sale @ $1.075 million. That is a bit cheaper than the Arbutus shack featured @ $1.089 million, though it does not have the prestige of that W. 16th Ave. address (snort!) The thing is, the Arbutus address is in serious need of a wrecker's ball, and another $300 - 400K to build a swish place that befits it's neighbourhood, and it would have no revenue to off-set your $8100/month mortgage (plus taxes, etc. - and don't forget the new construction...).

Here are the numbers - in case you are interested.



Now, I know that this is not apples to apples, and you would still be augmenting the payments by ~$25K/year, but if you lived in one of the apartments, you could eliminate the superintendent's and management's salaries, and you would only be down about $12K/year. You could probably make that back in appreciation (or is the place way past it's best before date?), and jack the rents up a bit, and you are on the road to riches. You would not need an income of $303 G's a year to qualify either - hell, just about anyone with a minimum-wage job could qualify.

I know that these are very different prospects, but if I was going to dump over a million bucks into a dump, it would be a dump with some income.

a crawl space of your own

We have been looking at rents on Craigslist, and talking about the disconnect. Rent vs Own calculators, vacancy rates, etc. Just be thankful you aren't in Whistler - where a crawl space rents for $650 a month. That's right - a crawl space!

(CBC) - A severe shortage of rental accommodations has forced some residents in the resort town of Whistler, B.C., to get down on their knees to find a home - literally.

Residents like Warren William have been living in crawl spaces under condo units, happy to have any place to call home. "You gotta duck in to get in," says Williams, "I have a four-foot-tall door."

Even such tiny quarters aren't cheap.

At $650 a month, including utilities, the crawl space where Williams lives is inside the Nordic Vistas townhouse development, and he considers the price a steal.

Cramped and crowded rental housing is common in the resort community, where real estate prices are among the highest in Canada. Every winter, thousands of young people in low-paying resort jobs struggle to find homes.

In 2002, a single home was shut down after it was found to contain nearly 80 beds, with 24 in the attic.

What's next? Cardboard box CONdo's at the Whistler dump?

I thought that Canada was a "First World" nation.

There is something hideously wrong here.

note - I lifted the pic above from another site and photoshopped it. No credit because I don't remember where, and it was most likely lifted from elsewhere anyway. If you sort of recognize the pic, thanks!

the tenant

Well, that last post was a sleeper...

Van-City Slumlords is a new blog taking on specuvestors(?) who are trying for ridiculous amounts of rent. The blogger is choked. Understandably.

I don't have much trouble with my tenancy. I have lived in the house for 7 1/2 years, and have had only 2 rent increases (in line with the RTA). Management changed a couple of years ago, and the accountant now collecting the rent tried to raise it by about 13% last winter. I told him that he had a choice between not raising the rent, and keeping us, or having to make some hefty modernizations, and good luck that the new tenants don't turn it into a grow-op. He didn't raise the rent.

I am lucky though, I have been here quite a while, so the rent was reasonable in the first place. I am glad that he didn't call my bluff though, because by all accounts, trying to rent right now is a nightmare. Amateur LL's trying to cover ridiculous mortgages with ridiculous rents on ridiculous hamster cages with ridiculous terms, and other pieces of like shite. I definitely would not buy anything. I would leave town - much as I do really like it here.

I really think that with the squeezing of tenants to cover just a part of the mortgage, the game is well nigh over. Idiots may be "happy" enough to drop 70% of take-home pay on their own abode, but there is no way on earth that people are going to pay that kind of money to rent a hell-hole. The buck stops with the tenant. That is the margin.

Check this blog out (link in sidebar). It's full of vitriol and foul language, but is a good measure of what is going to happen. At least that's what I think. The blog has video, and links that show that this is not just a local phenomenon either.

Let them eat cake indeed.

insurance

VHB wrote about earthquakes, and the pope wrote about older electrical problems making insuring homes an issue. But what about climate change, and the insurance risks around that?

I read an article (excerpted below) in the Glamour and Madness that spoke to that concern;

Insurers seek shelter from climate change

Jonathan and Katie MacLennan's new home...is a steel-reinforced fortress against nature.

It's the first of its kind in Canada and a symbol of what houses could be like in the future — at least, if insurers have their way.

The Canadian insurance industry, which is seeing weather-related claims soar, is considering how to cope with climate risks.

It might have been more to the point to ask how home-owners are going to cope with the insurance industry's concerns - it is, after all, we who will cope with the concerns through higher rates, or even the inability to afford the premia. Earthquake insurance can be very expensive, and some insurers will not even cover that liability.

The Pope wrote that some insurers will not insure older homes until their electrical systems are upgtaded to the current code (no pun intended). The rental that I live in has been given the word that the electrical panel must be updated within 30 days to continue the coverage (the house was built in the early 1950's).

Worldwide insurers' catastrophic losses have soared 20-fold in the past three decades. Last month, Lloyd's of London's chairman called climate change the “No. 1. issue” for the industry and said a $100-billion (U.S.) “mega-catastrophe” may hit anywhere on the Atlantic coast.

Canada's not immune. Three quarters of insurers' spending on disasters has occurred in the past decade alone.

Which means insurers are battening the hatches — calling for better building codes, preparing for catastrophes, making sure the language on policies is clear and emphasizing weather in their risk analysis. They're also diversifying into new areas, such as weather derivatives.

Reading between the lines, the insurance industry is calling for higher premia. Just when we started becoming hopeful of better affordability.

Swiss Reinsurance Co., the world's largest reinsurer, expects Canadian demand for natural catastrophic risk reinsurance will only grow. Insurers' interest in climate change has grown “dramatically” in recent years, said J.J. Henchoz, president and chief executive officer of Swiss Re Canada.

Which raises the thorny question of premiums. As regions become more disaster-prone, insurers may well jack up rates.

“I don't see swaths of Canada becoming uninsurable,” said Gregg Hanson, CEO of Wawanesa Mutual Insurance Co. “Nothing is uninsurable, it just might not be economical.... You can always get insurance if you pay a price.”

He sees high risk looming in low-lying, flood-prone areas, such as the Red River Valley in Manitoba, the Saguenay region of Quebec and areas of the Fraser River in British Columbia

Ooops - no need to read between the lines, just a need to read further.

Others say no region will be immune. “We're all at risk, and that's perhaps the most troubling trend we see,” said Kathy Bardswick, president and CEO of Co-operators Group Ltd., Canada's third-largest home insurer. “These events are happening everywhere.”

That's why her firm, which paid for the PEI project, is focusing on how to prevent damage in the first place.

So, are building codes going to become more stringent? What will this do to afforability?

Get your buckets of cash ready. "The System" is not through with rifling our pockets just yet. It might be a good idea to do your stretches - so that you can bend way over. And don't forget the lube.

2 years of salary vs. 7.7 years of salary

Just a quick, cheap post to keep things going -

Regina most affordable place to buy a house: study

(CBC) - A study on the cost of buying a house in six English-speaking countries ranks Regina as the most affordable city in Canada.

In Regina, it takes the average person twice their annual salary to buy a home, according to a 2006 study recently released by the Winnipeg-based Frontier Centre for Public Policy.

The centre looked at how many years of family income it takes to buy a house in Canada, the United States, the United Kingdom, Australia, New Zealand and Ireland.

Winnipeg was tied with Quebec City for second among the 17 Canadian cities surveyed. In those cities, it takes an average of 2.5 years of salary to buy a home.

In Saskatoon, it would take 2.6 years, putting the city fourth on the Canadian list. Canada was the most affordable of the six countries. On average, citizens require only 3.2 years of annual income to purchase a home.

The study considers communities with a 3.0-year rating or smaller to be affordable.

The most affordable community of the six countries is Fort Wayne, Ind., while the least affordable area is Los Angeles and Orange County. In Canada, Vancouver, described as "severely unaffordable," came in last, taking 7.7 years of income, on average, to buy a house. link

brain function as related to RE prices

Some may be (and have been) questioning what is so great about Vancouver (besides the balmy winters). I know that I have been questioning that myself, and decided to look up housing prices across this great land - just to see if Vancouver prices have a modicum of rationality. Nope. They don't.

Here are the average resale prices, how much they have moved (either way), and average rents in Canada's major urban centres. House prices are looked at November 2005 - November 2006, and rents are looked at October 2005 - October 2006. (Resale prices of homes are from MLS stats, and rental stats are from CMHC link)

Vancouver - average resale price - $519K (up 16.5%)
- average rent - $1,045 (up 4.4%)

Calgary - average resale price - $360K (up 36.4%)
- average rent - $960 (up 19.5%)

Edmonton - average resale price - $282K (up 42.5%)
- average rent - $808 (up 9.9%)

Regina - average resale price - $123K (up 11%)
- average rent - $619 (up 2%)

Saskatoon - average resale price - $167K (up 9.6%)
- average rent - $608 (up 4%)

Winnipeg - average resale price - $153K (up 14.8%)
- average rent - $709 (up 3.4%)

Toronto - average resale price - $355K (up 4.2%)
- average rent - $1,067 (up 1.1%)

Montreal - average resale price - $218K (up 3.2%)
- average rent - $636 (up 2.8%)

St. John, NB - average resale price - $141K (up 13.8%)
- average rent - $556 (up 2.1%)

Halifax - average resale price - $194K (down 1.2%)
- average rent - $799 (up 3.5%)

NFLD (all) - average resale price - $135K (down 3.4%)
- average rent - $635 (up 0.4%)

Talk about regional disparities. Vancouver % increases pale in comparison to Edmonton and Calgary, but in those cities, houses are still affordable. Further, all of Canada has been heading to Alberta because of the oil boom. There are very well paying jobs there. Even burger flippers and Tim Horton's workers are fetching in the neighbourhood of $20/hr, and could entertain the idea of buying their own home. In Vancouver, even the best paid (Dr's. lawyers, etc.) are hard pressed to come up with the money to buy the crappiest of places (and I include brand new 500 square foot condo's in that assessment).

Anywhere east of Alberta (with the exception of Toronto), I could buy a place pretty much outright. In some places, I could do so and have money left over for a new car, a few holidays, etc. And, Vancouver has some of the lowest median earnings in the country. In a lot of those cities, one could buy a place with 0% down, and the rent would cover the mortgage payments. Here, one would need 50% down and still fall short of the rent covering payments. We have had the hardest winter weather of any city in Canada so far too, so don't tell me about how great the winters are here. We don't even have the equipment to keep the streets free of snow and ice here. Montreal spends $50 million per year on snow removal. I would be curious to know how much ICBC will be paying out to motorists who crashed into each other on our snowy/icy streets. I'd bet that it is in the tens of millions.

So what is it about Vancouver? I think I have an idea. The soil in BC has very low levels of selenium, and hence, low levels in our food (even food from California, etc. Selenium levels fall drastically west of the Rockies). Selenium is crucial for brain function (I take supplemental selenium - so I'm ok!).

There you have it - the brains of British Columbian residents are operating in very low gear. That explains so much - poor driving habits, self-centredness, buying unaffordable real estate, the gov'ts that keep getting voted in, etc.

We are collectively brain-dead. Vegetative. Stunned.

I'm outta here!

I'm bullish on this real estate!

The Bedroom...

One day perhaps, we will all make it to the Moon. But given that the trip is probably not imminent, we thought you would enjoy a picture of what the view out of your bedroom window may one day look like. Here it is: (moonshop.com)

Back in December I wrote about the next boom in real estate here. At that time, NASA announced plans to build a permanent base on the Moon. The idea is to have a base that can be used for further forays into space (Mars is on the agenda), and to facilitate the exploitation of resources present there. One of those resources is Helium3, which can be used in nuclear fusion to provide clean energy here on Earth. With oil taking such a precipitous tumble this last week, people may be thinking less of alternative energy sources. But that's not the end of it - not by a long shot.

There is a group called The Lunar Embassy selling plots on the Moon. You can buy one, I can buy one, anyone can. The "Head Cheese" of the Lunar Embassy is a guy named Dennis Hope, who in 1980 went to his local US Governmental Office for claim registries, the San Francisco County Seat, and made a claim for the entire lunar surface, as well as the surface of all the other eight planets of our solar system and their moons (except Earth and the sun). Obviously, he was at first taken for a crackpot, until, 3 supervisors, 2 Floors and 5 hours later, the main supervisor accepted, and registered his claim. link Is he a crack-pot? A pot-head? A crack-head? Can't say, but he purportedly was awarded a Prestigious Republican Gold Medal for his derring-do. It's a pretty bizarre tale all-in-all, but the guy does seem to make sales, so he is making money. He even charges a "lunar tax" on all purchases.

Now supposedly, NASA has said that Mr. Hope has no right to sell these plots, but it seems to me that the UN, Russia, US, have made no objections, and as stated above, Mr. Hope purportedly won a gold medal from Congress, so who the flak does NASA think they are? netcheck.com (the Better Business Bureau for the Internet) says that they are legitimate, and Moonshop reports that a couple of Presidents of the United States are among over 1700 satisfied customers. They have a plethora of items for sale (besides Moon plots), but here is what 1 acre of prime lunar real estate will cost you -

Prime View Lunar Properties (1 acre)
Normal Deed US$ 19.99
+ US$ 1.51 Lunar Tax (tax payable only once)
Shipping and Handling are: US$ 12.50 (For up to 5 of them, going to the same address).

Like any realty company interested in moving product, they are even offering incentives - in the form of a brand new Chrysler Prowler to be won (they don't say whether they will deliver that to your lunar address). You can even buy a "town site" of some 4400 acres for a paltry ~$5500 US.

It sure does sound crazy (it will cost you about $900 million dollars for a charter flight to the Moon), but what if space travel becomes popularized, and the costs drop? Wouldn't you feel silly? If there is Helium 3 on/under your patch of the Moon, you could be a zillionare if you only but plunked down ~$20 US. Just don't forget to claim your mineral rights.

I'm pretty bullish on this RE. I might just buy 5 acres. I may not get to walk it (I wouldn't really want to), but my great-great grandchildren might think that I was a pretty adroit investor 100 years down the road.

Note - this guy has also laid claim to all of the planets and moons in our solar system - with the exception of Earth...

Finally - sorry to disappoint anyone who waited two days to find out what "the next big thing in RE" is - expecting that it might be Naramata, BC, or Flin Flon, Manitoba, but I've been up to me arse in alligators, and there's nothing like a little suspense!

Houston - there is no problem. Over and out.

co-housing

I read an interesting article over at The Tyee (originally published 1/11/06) about three couples who bought a property together.

They speak of the legal agreements arrived at regarding joint ownership, and the financing with "so many names on the title". It turns out that VanCity was the only one who would finance them.

The property is three rowhouses on two city lots, and each couple has their own "townhouse". Their idea seems to be more about community than affordability, but it is an interesting vision towards where this town might go. It seems to me to be an interesting way towards densification, although these are pre-existing homes.

Here is the closing paragraph. It is an interesting read - if you want to check it out for yourself, click the link above.

I highly recommend the leap of faith necessary to create this type of arrangement. To create a more caring and healthy society, I think we need to make this leap more often in our communities. We are not hippies, but we crave a place where neighbours know each other well and aren't afraid to lean on each other. We all need both privacy and community, and with so few places in the city where the two coexist so brilliantly, we have created an ideal place to live, to grow and thrive, to watch the seasons come and go, to witness our children grow together.

the vancouver stampede

There seems to be a growing sentiment that Vancouver is just not worth living in anymore.

I wrote here last week about the exodus of head offices from Vancouver. In metropolitan Vancouver, head-office employment also declined by 29 per cent 1999-2005. There have been a great number of condo conversions, and those office buildings are gone. The City has put a moratorium on conversions, but is it too little, too late?

condos have recently soared in both prominence and price as eager buyers line up for what are often tiny dwellings bearing enormous pricetags.

...(Mayor Sam)Sullivan said. "But eventually you realize, 'My God, we have very little industrial land left'."link

It's not just head offices that are leaving (or thinking of leaving) Vancouver either. Foo (too) recently left Vancouver for Halifax, citing his #2 Reason to leave Vancouver as the ridiculous RE scene here. His #1 reason was to accept a good job offer - something that pays above the training wage (hard to find here?).

Sentiments are changing. Check out this link at the Discover Vancouver Forum. This blog is not the only place to see ridiculousness. A sample post -

450 square foot character condo in boutique building, only moments from amenities, including community centre. Parking can be rented from some guy on the corner in a fedora. Kitchen recently remodelled to include a sink, fridge, and a stove! Laundry just up the street by Mr. Kwan. Included in strata fees is doorman. Get in on the market while you still can! Reduced to only $315,000.

A couple of sample comments from my post of yesterday;

Michael said...
My wife and I bring in about $150k per year. We refuse to live in a Vancouver Special in East Van with people shooting up out front. If we move back east we can both get jobs that pay the same or more while actually being able to afford a home. We are going to give it until the spring and then start to look elsewhere. We know three other mid 30's couples with young children in the same situation. If housing continues to move up I suspect you will start to see an exodus of the people that should be driving the economy (not to mention a doctor shortage).

12/12/2006 8:29 AM


Anonymous said...
Ditto here, Michael. I am 35 my partner is 33, and we have two kids aged 9 and 7. My partner is doing graduate work, and I alone make 130k/year. We have no intention of staying once she has completed. It is just not sensible. And amongst our friends, the majority feel the same way.

12/12/2006 8:47 AM

ken said...
Interesting to see the comments about leaving vancouver. I'm in a similar situation and unless something major changes will probably be out of this city within the year.

Granted that this is a tiny representation of Vancouverites, but I did not see anything like this a year ago. VHB was pretty much the only contrarian blog on Van. RE. It's all over the place now.

When we zoom out to take a look at the big picture, something is happening. I don't know how gleeful we should be as we watch the best place on Earth implode around us.

The fire sales will commence in the spring. Gird your loins.

affordable housing

source

The other day freako posed this question - Exactly why is it that market cannot provide affordable housing? And what exactly is affordable housing? A nice SFH with a picket fence in a gentrified neighbourhood? Five pieces of plywood? Until we realize that quality of housing is a relative concept, I don't think we can even define the problem. And once we do, how will it be rectified, and who should pay? here.

Good question. One that I cannot think of an answer to, but poses more questions in my mind;

Affordable rental housing?

freako pointed out that the market sets the price, and I am certain that he is reasoned in saying so, but who sets the market?.

SRO's, which are aimed at those with limited income, or on income assistance, tend to be about 50% of the monthly stipend of those receiving benefits. If more than that, they would certainly be unaffordable for the indigent. Underemployed people may take up the slack, or maybe not.

What about the homeowner?

Traditionally, banks have looked to no more than 32% of after-tax income for shelter costs (though I read recently that they are revising that up to 40%). That would include utilities and taxes. But here, we are close to 50% of median household labour income required to make a mortgage payment on a median priced house link. That's with 25% down too. Then another amount for utilities, repairs, taxes, etc. is needed.

So from the lowliest welfare recipient to the median wage earner, things are clearly unaffordable in Vancouver.

What can be done?

Beats me. They (whover they are) have us all by the short hairs. Refuse to pay, and you can try to make it on the street, or go somewhere that you can afford. But what if you can't afford to get to where it is affordable?

I wouldn't expect legislation against foreign ownership (if that's part of the problem) to be very palatable to any but the most disgruntled. Mexico doesn't allow foreign ownership. Mexicans have land rights though, and there is a system of Ejidos where the land is held in common. There is a loophole in which foreign companies can own land, but that feeds a big mess of corruption. It's also quasi-fascist.

Foreigners are not allowed to own land in the United Arab Emirates either, and you can't marry their girls. The state provides a villa to each married couple, and men are permitted to marry up to six women. A villa for each wife. Cool! Emirate men can marry foreign women.

This? source

No, I'm not a communist - just trying to find a dramatic ending to a tedious post. Maybe even provoke discussion.

But really. In the end, who sets the market when it comes to necessities?