I guess you should never underestimate people’s attraction to conspiracy theories, their ability to look a gift horse in the mouth, or the zany quality of of the conclusions people can reach. It can be some good stuff!
“Wed/Thurs Numbers are being held back. Why may you ask? It’s Friday and why bother communicating negative trend information just before the weekend. 2-3 days worth of consistant data could negatively or positively impact the value of a potential offer….It is too bad there is no third party organization that regulates real estate listings and sales results without any conflict of interest”
I’ve got close to two years of consistent, and free, information reporting. The numbers have sometimes been bullish, and sometimes bearish. Its all still available on the internet. Lately I’ve been very busy with various demands. I haven’t been able to devote much time to this free service, and I’ve provided explanations (short staffed at my office, flood restoration, health challenges for a family member, large renovation).
The information that I provide (and more) is available to any Realtor. It is far from strictly controlled. In other words, its pretty easy to obtain. It does take someone’s time and effort, and that’s the problem. Its free to the readers, but its not free. It costs me, (and any Realtor) time and money to provide it.
The Real Estate Board of Greater Vancouver regulates listings and sales information, and has done so for decades. Its done so in up markets and down markets. Whether you describe price increases or decreases as positive or negative doesn’t matter: both have been reported consistently. The individual transactions that make up the whole can be tracked easily. The idea that the data gets molded to sort some type of agenda is risible.
Anyone writing an offer should ask for this kind of information, but anyone who bases the purchase of a piece of real estate on three days worth of sales figures needs professional advice.
Don’t get me wrong. I’m not fishing for compliments. I’m just really amused (bemused?) by Spencer’s conclusions.
That said, here are the numbers for Wednesday and Thursday.
Wednesday: 283 new listings and 204 sales for a sell/list of 72.08%.
Thursday: 326 new listings and 146 sales for a sell/list of 44.78%
Friday numbers, up to now, are 248 new listings and 107 sales for a sell/list of 43.15%. Inventory stands at 11,290, while over 90s are at 2,432 (21.54%).
The Best Real Estate Anywhere! 
Well i have said it before and I will say it again. It is your blog and I am sure there are many of us very grateful for the numbers.
Ignore the odd complainer.
BTW -ran some numbers on another listing.
685000 2 Bed, 2 Bath, 911 sq ft, Coal Harbour Condo, Vancouver
Palladio, nice water, marina & mountain views from this NW facing 2 bdrm, 2 bath home. Granite/marble tile, granite counter top w/ large island, in floor heated kitchen & master bath, jacuzzi tub, fireplace & balcony. Pets & rentals ok. Tenanted $1675/mo prefers to stay.
OK lets say you buy this as an investment and keep the tenant.
With 25% DOWN…at 5.8% for five years and amortized over 25 years you pay $3227/ month.
Add $150/month strata
And $100/taxes
Assuming it is rented 12 months with no gaps, nothing gets broken or needs repairing and your tenant never pays lat, you manage it yourself, you dont have to carry extra insurance, the building has no ‘special assessments’ etc.
You still have to pay $1800 a MONTH to KEEP this investment!
Does that make sense.
Add in 4.7% interest lost on your Downpayment (even at 40% tax rate that’s $4900 a year)
So your cost in this rather ideal example of no added expenses….is $2200 a month.
GOOD LUCK!!!
Nice song and dance Rob but I’m not buying it! 😉
Rob is the puppeteer pulling the strings on this market. The careful massaging of the sell/list numbers has buoyed real estate when incomes couldn’t.
And to think I thought it was the drug industry.
The clowns who think you are trying to delay releasing negative numbers are the same clowns who think two or three days of negative numbers demonstrate an actual meaningful trend.
Remember last September guys! It looked like the market was headed down for three months, then what happened after December?
Thanks for all the hard work Rob, most of us appreciate it very much.
These numbers seem really bad to me. I don’t recall seeing a trend like this– we haven’t had a single day over 100 since August 14th. Rob, how does it feel out there “in the trenches”?
Do you think we can keep these gains up forever geezer? Or just flatline for about 10 years before the next uptick?
Geezer,
This is the end. A RE “double top” (similar to stocks) has now come and gone. This is the true downward leg.
sell/list of 44.78%
sell/list of 43.15%.
we are D:-( :-(Med……… 🙂
Fish,
interesting analysis up there.
The facts you mention are the kind of facts that got VHB, Freako and company started a couple of years back.
It is puzzling to most of us (apart from the few guys who just like to scream on the blog) that fundamentals do not support the market.
In fact, fundamentals have not supported this market for at least 24 months.
Yet, we have had a further (and, to me, unexpected) run-up in prices in the past 2 years.
The big question nobody is asking is:
– is there any fundamental reason (apart from rents and incomes, which just don’t work as you have showed above) which is supporting the market? Foreigners and retirees buying? Someone else? Any hard data?
As far as I can read, there is no convincing evidence of that….if anyone has any, please post!
Until then I am left with only one option: the prices may still be going up, but there is no sound reason to explain that!
Domus,
So true. Poor schmucks. Psychology in action.
“You’d better buy now, or you’ll be priced out FOREVER!” or…”You know, there ARE other interested parties”, or, try this one, “What with the Olympics coming and all, and since Vancouver is a world-class city…”
OR, my all time favourite…”It’s different here”.
Chumps, schmucks, dunces…take your pick.
mass psychology and easy credit… lethal combination
Domus; “Until then I am left with only one option: the prices may still be going up, but there is no sound reason to explain that!
This is just a thought so don’t shoot me, I am reading more and more ofcurrency devaluation. As our currency is based on the American dollar, and the dollar(US) is weak and has been for sometime, and going downhill could we actually be seeing inflation in the housing and deflation in wages thus very bad fundamentals. I want to when I get time plot Vancouver housing against a basket of commodities such as oil, gas, wheat and gold. (I would appreciate suggestions) I have a feeling housing is actually flatlining as far as purchase power against some basic commodities, and wages are declining(drastically). Just an idea what do you think? Note: Currencies are based on nothing tangible since Nixon got rid of the gold standard in 1973.
Hi Rob,
You mention that real estate information is available to any Realtor and is far from being strictly controlled. The fact of the matter is the control is with the Realtors and not with the public which in my opinion as a non-Realtor equates to being strictly controlled data and industry.
I realize it has always been this way “for decades” in the real estate industry but does that mean it is transparent to the buyer? I realize the real estate industry is a profit generating business model much like the new car selling business but there needs to be more tranparency for the buyers. Look at the new car business where you can now gain access to wholesale prices on any new car and go to the dealer with this data. Tranparency is working for the end buyer more so over the last few years in this industry and forces the dealers to look at other areas to make profits or cut costs.
In any regards, under the current Cdn real estate climate and industry set-up I appreciate your time in providing the public with access to the market sales information…..however I still think this should be readily available to the public from a third party organization with no conflict of interest.
Out of curiousity, why does MLS not publish to the public the # of days a listing has been available?
I tend to agree with Blue Skies. This run-up is not mysterious when you consider the totality of forces that combined to create the global real estate frenzy we have been living with. As we all now have learned from the subprime crisis, the whole system was too dependent on perpetually rising real estate values and is now in the process of imploding on itself. The run-up in Vancouver has been unprecedented in intensity, but the support from low interest rates and easy credit has also been unprecedented. If you look at historical trends since the 1970’s though, I’m not sure the duration of this bull market is out of the ordinary. Seems to me there was a good 4 – 5 year bull market in the 90’s. What leaps out to me though, when you look at how far above we are the benchmark average price adjusted for inflation, is that after a run-up, prices have always not only returned to the mean, but have dipped below for a period and take a long time to recover: 1983 – 1990, 1998 – 2003 or so. (The current run-up actually started below the benchmark average, maybe that’s why it seems like it’s gone on so long and has risen so high.)
Numbers always revert to the mean. This is true in baseball, poker, flipping coins, what have you, and it has been true in Vancouver real estate in the past and it will be true in the future.
Interesting aside: recently read Jared Diamond’s “Collapse.” The book is about the collapse of entire civilizations but one thing he said I think applies to smaller systems, i.e. real estate bubbles. Diamond shows that throughout history, social systems do not take a long gradual time to collapse after reaching the height of their power. Instead, the collapse is usually incredibly swift. I think this rule has played out with the Dotcom burst, the current US housing burst, and maybe it will apply in Vancouver as well.
“…throughout history, social systems do not take a long gradual time to collapse after reaching the height of their power. Instead, the collapse is usually incredibly swift.” – Northern Ally
Yes, things can unravel rather quickly. Think: Nicholai Ceauscescu in Romania and the the fall of Erik Honneker in the DDR as fairly modern examples. Who’d have thunk it?
Perhaps “Kapitalismus” as we know it is nexxxt?
Northern Ally “Interesting aside: recently read Jared Diamond’s “Collapse.” The book is about the collapse of entire civilizations but one thing he said I think applies to smaller systems, i.e. real estate bubbles. Diamond shows that throughout history, social systems do not take a long gradual time to collapse after reaching the height of their power. Instead, the collapse is usually incredibly swift. ”
Great read, nice to know someone else reads outside the box! 🙂
You almost made me cry Rob…. almost.
boy oh boy, we are seeing the sky is falling tonight arent we!
The following is a cut and paste from RET, belong to a poster ID Johnlaudry:
“It appears to me that everyone (bears and bulls) are trying to stay on the moral high horse.
Let’s be frank. Speculators are a greedy selfish bunch who look out for only their own interests. There is no beating around the bush about this. This is what capitalism is about. It encourages competition and that’s the name of the game.
On the other hand, the non-speculators are not any better, since many of their own frustration arises from the fact that they only wish that they were among the winning speculators. The people standing on the sidelines are also only looking out for themselves hoping that prices would crash 50%+ so that they can actually afford something decent while watching many others suffer as a result.
All in all, everyone is simply selfish and greedy, there is no use pointing fingers at who is a lower lifeform and who is not. The only difference is that one segment got lucky by getting in the game at the right time, the other segment had been unlucky as a result missing boat.
In capitalism, there is no moral high horse, it’s only an imaginary concept serving to wash people’s hands clean of their self-inflicted guilt”.
tqn: good rant!
greed vs. fear
now the greed has turned to fear…
it can go down….. uh oh!
tqn, your view is rather limited. Speculators who are successful may not have a lot of need for money and may just view it largely as an intellectual exercise, like anther person would complete crossword puzzles. Of course they take care not to wipe out their net worth. That is part of the exercise.
Jeff: these numbers remind me a lot of what I was seeing last spring. Daily sales numbers are good, solid numbers, but listings are very high, resulting in a mediocre sell/list percentage.
Naturally, I hope this trend will continue for a while longer, until the inventory buildup can’t be ignored any further. This spring, I thought the trend would hold through the summer, but I was oh-so-wrong when sales went nuts all through July and into the middle of August.
and into the middle of August.
…. and then the buyers went home….
Check out your local paper for unpaid property taxes. Certainly a lot more listed this year compared to last.
I would say the list/sell numbers are in limbo, not really bearish and not really bullish. Sales usually fall off at the end of September, so it will be interesting to see how low they go in the next couple weeks or so.
Domus
Prices often take up a momentum of their own, regardless of fundamentals.
Rising prices beget rising prices. It is so seductive, that people ignore fundamentals. It happened with the dotcoms, tulips in holland etc etc
It is also self-reinforcing. Those that pile in despite the naysayers find themselves enriched and the cautious lose out, until they finally agree that ‘things must be different this time’ and give up and buy in.
I was near buying into the nasdaq in 2000, when it refused to drop after Y2K….luckily I held out and the nasdaq lost 75%.
I know Freako has VHB used to bang out the fundamentals and then gave up as the mania kept growing.
The fundamentals have just got worse. They usually win out in the end.
And yes, there are a lot of retirees from outside BC ending up here IMO…from other Provinces, from other countries (where property is valued ++ and renting is not)
Stay tuned.
since Nixon got rid of the gold standard in 1973
Actually, most countries (including the US) went off the gold standard at the beginning of WWI, went back on at the end of WWI, and went off for good in 1933.
Solipist; “Actually, most countries (including the US) went off the gold standard at the beginning of WWI, went back on at the end of WWI, and went off for good in 1933.” Technically maybe but not really.
Countries could still demand their US dollars be exchanged for gold until the final link was disconnected by Nixon 1971-73. The American gold reserves were inadequate to keep up to the demand. Nixon was unable to spend as much as he wanted. It was known as the Bretton Woods system in place since WWII.
http://tinyurl.com/dvzvr
Countries could still demand their US dollars be exchanged for gold until the final link was disconnected by Nixon 1971-73.
The system Bretton Woods replaced was an anti-free market approach designed to maintain consistent currency exchange rates. It was government/central bank meddling of the worst order, and a means for the major economic powers to turn the global economy into a zero-sum game – effectively giving the traditional powers a monopoly on economic growth. Which is neither feasible, as history has shown, nor fair.
The root cause of 70s stagflation was the unwillingness of the major powers to let go of their gold-conversion choke hold on the rest of the planet. Once the fetters came off, and percolated through the global economy, we got what we have now, nearly 3 decades of almost uninterrupted global economic growth, the dissolution of at least one nasty empire, and an explosion in the availability of inexpensive goods and services.
The current system, which allows pretty much anybody, anywhere to turn their dollars into grams of gold at anytime is much more responsive to actual changes in economic outlook at the nation-state level. It is no coincidence that the developing world only really started impacting the global economy after Bretton Woods was scrapped.
As long as there are no perfect humans, there will be no perfect system. Literally billions of people’s standard of living has rising dramatically since Bretton Woods was rightly taken out back and shot. This is a testament to the fact that –
whatever its flaws – the current approach of treating nations like companies and their currencies like stocks is a far more effective than the Central Planning politburo-style approach of Bretton Woods.
Strataman,
I am not sure I understand your argument.
Why would you have wage deflation (real? nominal?) versus house price inflation?
Can you explain the mechanism?
Fish,
I understand the mechanics of bubbles: what I do not understand is how can we be where we are now, after prices have gone so much out of whack. I really wonder whether there is such a large share of external demand that incomes do not matter….
Or, is it possible that occupancy rates are low? Is it possible some people decide to buy apartments and leave them empty? If so, why?
Fundamentals are the driver of prices in the long-run. Fundamental and prices are out of whack now as they have never been before. Yet, my prediction that prices will fall has been very wrong: in fact, prices have marginally gone up again.
Does this mean an even bigger drop or are we missing something? I am willing to listen to bull aeguments as long as they do not involve fundamentals, which are evidently insufficient to explain things.
“whatever its flaws – the current approach of treating nations like companies and their currencies like stocks is a far more effective than the Central Planning politburo-style approach of Bretton Woods.”
I agree never said anything about it being a good system. However my point was what is a dollar worth? My own feelings are that the barrel of oil is the only worldwide commodity that the dollar can be pegged against. This is just my opinion but when you think of it the dollar can only buy commodities to find some sort of value. So I would say it would be interesting to plot housing prices against barrels of oil and see if there is actually a bubble! 🙂
Domus; “Why would you have wage deflation (real? nominal?) versus house price inflation?
Can you explain the mechanism?” I would rate it to a commodity such as oil which is world wide. So you would plot housing costs as barrels of oil and wages as barrels of oil. I think you would see deflation or reduction in wages and slight increases in housing, but nevertheless that would still show terrible fundamentals, with the differance being they (the fundamentals) are caused by real wage loss. A basket of commodities would be better of course, thus my request for suggestions. If I could come up with a basket of world wide commodities (used most everywhere for everyday living), I would like to replot RE and Wage value against that basis. Technically it should show the same fundamental spread as now but maybe the cause is differant or split between wage deflation and RE inflation. Maybe there is no bubble? For instance Miami wages are terrible compared to the amount of oil they could buy five years ago on a median salary! 🙂
Strataman,
suppose you are right (as you probably are) and we start measuring everything in a new unit, let’s call it `oil’ or `commodity basket’.
This would mean: how many units of `oil’ do you earn per month? How many units of `oil’ does that apartment cost?
Yet, someone has to pay for that apartment, in oil or not…..is it only Albeta’s oil executive who are buying apartments in Vancouver?
The main question remains: who is buying them? How are they financing them? What do they do with them (live in, rent, keep vacant)? Can it go on for much longer or are we approaching a switch point?
Domus: “Can it go on for much longer or are we approaching a switch point?” No it can’t because of unaffordability. In that way I think it will crash. The problem is probably wages. Who’s buying? Some bonafide investors but more highly leaveraged homeowners. You create an atificial demand. If a person with 5% down is buying the same house as a person with 30 % down you have unequal competition which drives the price up. 10 years ago the 5% down would not be in the market. Now they are and being insured by CMHC funded by taxes collected from the 30% down guy. We are subsidizing competition to ourselves driving up prices so everybody loses. It is government intervention in free market, and it will come a callin for payout sooner or later. If your a smart 100% cash investor you can also lose when the houses/condo’s on each side of you go under. It’s happening in the states where bonafide good owners with no debt problems watch there homes plummet in value as services are suspended and neighbouring units sit empty.
Spencer:
You’re assuming a conflict of interest. There really isn’t one.
You’re also pretending that a buyer can’t get the information that they need should they want to buy. That’s really not the case.
You’re ignoring the impact of privacy laws on your access to other people’s personal information, which is a real issue, and which the REBGV largely solves for you.
You’re right that information that belongs to Realtors is accessed through Realtors. That’s obviously fair, since Realtors collect it, pay for it, and acquire legal copyright to it. To describe that as a problem ignores the fact that the information is not only available to you through a Realtor, but in fact has to be provided to you once you enter into an agency relationship with a Realtor. It also ignores the fact that a buying agent has different interests than a selling agent, but both have access to exactly the same MLS data.
You’re real problem, it seems to me, is that you don’t have free, unfettered access to valuable information. You want what Realtors pay for and own without being required to do business with a Realtor.
The comparison with wholesale car prices is foolish. There isn’t a wholesale house price because there isn’t a limited number of suppliers. However, all tax assessments and most original purchase prices are public information. You can buy some of it from the government (you have to pay, mind you).
My problem with your position is that you obviously don’t understand how the system works, you make some very poor assumptions, and then arrive at some unfounded and negative assumptions. You’ve got the right to do that, and the right to express your opinions publicly, and I’ll even provide you a forum. However, you don’t get to tee off on me or my profession with impunity. You should be more prepared before you pass judgement.
I beleive that MLS doesn’t publicise the number of DOM because of privacy laws. I’m not certain about that, but what is clear is that any Realtor can tell you, with the click of a button, what the DOMs are. The nature or level of agency relationship is the deciding factor (read the Blue Brochure and this will become clear to you).
Domus:
Expansionary periods are much more irrational thatn contractions (or so I’m lead to believe); its natural that predictions about an expansionary periods demise would tend to be inaccurate.
Also, the conflict about whether CA is a fundamental in RE comes into play. Theoretically CA is a product of fundamentals. In practice, not so much (witness Fish’s example of the bad purchase at the top of this thread – could you have bought that thing, ever, at 25% down and positive cash flow? Probably not. Has it been a sound investment? Probably. Does that impact real estate? Obviously).
Does a purely speculative market drive fundamentals up? Again, obviously. VHB, freako and company can call for a crash and say fundamentals don’t support price increases, but as the crash fails to materialize the bulls raise rents, and VHB, freako and company pay them. That translates into real price support (the degree to which it does so is arguable, but its not negligible).
Bottom line? The market will change. We don’t know when or by how much. Your confusion/amazement is natural. I share it.
Snick:
“Think: Nicholai Ceauscescu in Romania and the the fall of Erik Honneker in the DDR as fairly modern examples. Who’d have thunk it?”
I guess Reagan and Thatcher probably imagined it. I’m pretty sure a lot of other right wingers weren’t too surprised that communist police states can’t last forever. Related topic, watch that movie “Lives of Others” – pretty clear why the DDR fell.
Data thief:
Don’t cry for me. Lend Spencer one of your Naomi Klein books instead.
M-
The problem today is that there isn’t an inventory build up. Inventory has dropped.
WordPress is either very slow in posting comments or the comments are going into space again. In case my comment shows up twice, you will know why.
“Your confusion/amazement is natural. I share it.” – Rob
Share some more of your thoughts.
I have the same curiosity as Domus. Why, why, WHY?
Snick writes ,“You’d better buy now, or you’ll be priced out FOREVER!” or…”You know, there ARE other interested parties”, or, try this one, “What with the Olympics coming and all, and since Vancouver is a world-class city…”
But I don’t think most people are that stupid. Maybe you can fool some of the people, but all of them? As Domus asks, where is the hard data? I don’t buy that it’s just “psychology.”
Strataman, I plotted my (professional) income against Vancouver housing prices over the last eight years and it didn’t look good: in fact, it was depressing.
Northern Ally, you write that “numbers always revert to the mean.” But we were reading this kind of thing on VHB years ago. I’m starting to have my doubts. Maybe you CAN fool all of the people all of the time. Maybe they are perfectly happy eating peanut butter sandwiches and never seeing an end to their housing and credit card payments. Or maybe they all have grow-ops.
Fish:
“685000 2 Bed, 2 Bath, 911 sq ft, Coal Harbour Condo, Vancouver
Palladio, nice water, marina & mountain views from this NW facing 2 bdrm, 2 bath home. Granite/marble tile, granite counter top w/ large island, in floor heated kitchen & master bath, jacuzzi tub, fireplace & balcony. Pets & rentals ok. Tenanted $1675/mo prefers to stay.
OK lets say you buy this as an investment and keep the tenant.”
The market rent for the condo today would be $2500 per month. Simply renegotiate the rent or evict the tenant for renovations and re-rent at $2500. The $1675 was probably from 5 years ago with no increases. At $2500 itcovers the interest on the mortgage and the only negative cash is the maint and taxes.
Actually your example shows how much rents are rising. In this particular example market rent has gone up 50% since this unit was rented (more if rent increases have been given). How does the investment look if rents go up another 50% over the next 5 years? This is realistic as the area is still under development and improving. Over that 5 years the property becomes cash flow positive and the tenant pays off the last 20 years of the mortgage. Over that 20 years rents continue to rise and the landlord puts cash is his pocket to recoup the original negative cash flow and down payment.
The beautiful part of this is both the tenant and landlord are happy. The tenant thinks he is saving money by renting. Each year rents rise but it is still cheaper than buying, so he continues to rent. He is waiting for the “crash” where buying is cheaper. The only problem is it never happens. In the end the property is 100% paid for by the tenant(s) and the landlord retires with nice monthly cash flow and a significant asset he paid nothing for.
Snick:
My position on this market hasn’t changed in months. It has to change, one way or another. I don’t know how the change will manifest itself, or when. Therefore, I don’t recommend market timing, and I do recommend buying anything that makes sense. Put another way, take care of the downsides and let the upsides take care of themselves. If all you can do is keep your powder dry, then do that (arrange LOC financing at todays valuations, etc).
I’m pretty sure your position hasn’t changed over the past several months either (you’re still going on about Tri-cities price drops and double tops, right?). Unless I’m mistaken you seem to allow for only one possible outcome – continuing appreciation followed by a devastating crash.
The difference between us is I can’t predict the future, but you apparently can. Its been that way with you and I since the beginning.
Doubter:
I’ve tracked annual appreciaton for years. I’m not a statistician, so I’m sure my approach has some flaws, but for the longest time we were between 5% and 6% annually across most categories (house/townhouse/apartment split into 4 qualitative categories and divided geographically); now we’re in the 8% range. Either something has changed or something is out of whack. My question is: where is the mean that we have to revert to, and will the mean “goalposts” be shifted as a result of the global economic changes we’ve seen?
Why? If you chart it, the duration of this bull run is nowhere near being out of the ordinary. The vertical rise in price seems incredible, but I would argue that it has had incredible support for most of this period: economy good, interest rates still pretty low, easy credit. On top of that, the idea that real estate is the path to wealth became inscribed in the popular consciousness. Every third show on TLC now is about flipping or renovating houses. That wasn’t the case even 3 years ago. The Georgia Straight today has pages and pages of real estate ads as well as glossy real estate inserts. Started with ads for artsy-fartsy studio lofts, now it’s everything. I can remember a time not too long ago when that wasn’t the case either. The idea that an average middle class person or even an “artist” could buy and sell “real estate” as opposed to a place to call home has been sold to the mainstream the same way that mutual funds, stocks, tattoos, pilates your daily frappucino, etc. were sold to the mainstream. I think we are reaching the limits of affordability now though–even the banks admitted it this week, and we are reaching the limits of the “bigger fool” theory, if only because if someone is a bigger fool than you, how did they amass enough money to buy an 800k bungalow? Easter Island collapsed around the time the biggest and most expensive monuments were in the process of being carved and erected. Maybe this bull run will collapse around the time a Van. special sells for…?
However my point was what is a dollar worth?
It’s worth whatever someone holding a non-dollar currency is willing to pay for it.
The data you ask for is readily available. The problem is there is no “super-currency” to use as a standard numeraire. Without that it becomes an exercise not unlike bible reading, where the viewpoint of the viewer ends up contributing more to the conclusions than the data/text itself.
It is different this time.
We are in the middle of a massive credit crisis.
When was the last time you heard of a bank run in an established economy?
Most of the purchases here are done with mortgages, you need a functioning credit system to support this and currently this is getting more difficult to do.
At some point this will impact both the psychology and ability to just keep on buying.
Value is considered to be what a buyer is willing and able to pay. At our current stratospheric heights we are in deep doo-doo.
Blueskies:
We might be in the middle of a massive credit crisis, but something I read this week in the Financial Post gives me pause. Richard Croft was writing about perception, and its effect, and pointed out that sub-prime mortgages make up 1% of the US residential mortgage market, and that real estate accounts for 10% of the US economy. If he’s right that puts sub-prime mortgages (the good ones and the bad, foreclosed upon ones) at 0.01% of the US economy. (BTW, Croft was writing about investment strategies over the long term, and the value of cnosistency and persistance. He wasn’t arguing against the effect of the current credit crunch).
We can’t argue that the sub-prime situation hasn’t had an effect, and we know its got another 18 months or so to run. I guess I’m wondering: is a massive credit crisis the same as a massive crisis? Are equity markets up or down? Canadian dollar up or down? Demand for commodities up or down? (And no, I don’t have a position on this – I’m genuinely curious how it will play out).
it is beyond just subprime, now we are dealing with trust and transparency between banking entities and central banks.
every institution is hoarding cash for their own purposes and refuses to lend to smaller banks.
as quoted “wink wink nudge nudge” does not cut it for collateral anymore.
credit availability going forward is not an absolute “business-as-usual” given.
real estate accounts for 10% of the US economy
But does that account for all the lawyers, RE agents, renovators, furniture manufacturers, advertisers, Home Depots, etc.? I think that if all of those ancillary industries were factored in, RE would account for much, much more.
That’s 0.1% of the US economy, Rob. An order of magnitude error. Of course, a milion times nothin is still nothin 🙂
Still looking for parity on the bick by sept 19th. Then I’m buying a condo in Vegas.
*buck…I don’t want that typo to get me into a pickle.
Rob said:
“Does a purely speculative market drive fundamentals up? Again, obviously. VHB, freako and company can call for a crash and say fundamentals don’t support price increases, but as the crash fails to materialize the bulls raise rents, and VHB, freako and company pay them. That translates into real price support (the degree to which it does so is arguable, but its not negligible).”
Rob, I am glad you share my doubts. I feel a little less dumb. However your paragraph above puzzles me.
What does it mean that a speculative market drives fundamentals up?
Fundamentals are fundamentals: they depend on real wealth production, real incomes, real goods and services. How do high house prices generate an increase in real incomes for most people? An increase capable to support further rises in prices?
Are you talking about fundamentals (e.g. per capita GDP growth) or about something else?
Newflash:
“At $2500 itcovers the interest on the mortgage and the only negative cash is the maint and taxes.”
We do not, to my knowledge, have interest only loans in Canada
So at $2500…you still subsidise the unit by over $1200 a month.
….after 5 years at 50% increase in rent…that would be 8% a year! I think that is a little improbable. lets try 5% which is still generous.
We are probably looking at 8-9 years for this unit to become cash-flow neutral.
In 25 years you will have paid it off…that’s good.
But do we really think that in those 25 years we won’t have to renovate, replace an elevator, fix a leak…etc. any of which could EASILY eradicate a year or more’s rent.
Now lets say we buy this unit with 100% cash. Even with the polyanna situation of no repairs, no vacancies and no dead-beat rentors….we are looking at 1.8% return at the current rent….and 3% at the rent increase you suggested.
Not really hot numbers. Considering that one unexpected event could erase that completely…and that bank paper is 4.75%…and quality commercial paper is over 5%, and there are preferred shares offering even higher.
Domus
Your frustration is understandible and no-one can explain what drives manias, or how and when they will end.
What is certain is that it happens when most bears have capitulated, when the mantra of ‘this time is different’ has been widely accepted, when ‘fundamentals don’t matter’ and lastly when no-one expects it. They happen suddenly and violently. And once the tide turns…NOTHING can stop it.
Witness what is happening in the states.
Finally…no one can tell you when. It may be this year…or next or…
I have friends that lost a bundle shorting AMZN, because it was so clearly over-bloated.
I personally had 1 year puts on AMZN which expired worthless, if they had been 5 months longer I would have made a killing.
Hi Rob,
You are assuming that a realtor has the best interest for their Buyer clients. I have unfortunately not come across a Realtor that has really proven their position as one that is for my best interest. My #1 interest as a Buyer is to get the lowest price based on actual value. Dealing with a Realtor as a buyer in my opinion is a conflict of interest when they are paid on commission. Through thorough market research I ensure I have the price that seems fair before entering into negotiation with a Seller Realtor.
Your second point on ignoring the fact that a Buyer can have access to DOM information is weak. Firstly, you are assuming that a Buyer is using a Realtor. Show me where I can sign up for the DOM info and how many listing rounds in the year and I would be more than willing to pay a monthly subscription fee.
You mention DOM is part of privacy laws protecting owners. This confirms to me that as a Buyer I may not know whether I am buying an undesired piece of property or not. In other words buyer beware for the public which is the basis for my opinion on this industry. How about privacy laws protecting dairy producers from putting expiry dates on their products?
As a buyer for property I want to know how long and how many times certain properties have been on the market. The current set-up for the real estate industry is this information (expiry information) is simply not available for the public…..without of course going through a Realtor, and if the Realtor decides to send you the information.
You are correct that I choose to not use Realtor services to represent me as a Buyer. Actually, I also choose not to have a Realtor represent me as a Seller as I have successfuly used services such as Comfree to sell my properties throughout Alberta. I am now in BC and am happy to see Comfree just beginning to enter the Vancouver real estate industry.
My comparison to the car industry is simply a comparison of access to pertinent data that could change the make-up of a potential deal.
Thanks for this forum and for the opportunity to give my opinion!
Hi guys,
have a look at this (from today’s FT):
http://tinyurl.com/2jtlym
Rob,
I think something is wrong with the blog environment: the comments counter is stuck at 40 since yesterday. But many new comments have been added. I just checked to read some previous one and I realized about the problem.
Just thought I would let you know….you don’t want to lose valuable readers 😉
“My position on this market hasn’t changed in months. It has to change, one way or another.”
– Rob
What’s THAT supposed to mean?
A chameleon probably wouldn’t be able to keep up with your so-called “changes”.
At least I have been consistent.
Plotting Case-Shiller against Crude or Gold shows home prices in terms of bbl of oil or oz. of gold peaked in 1999 and have been in a downtrend since. I didn’t have time to look at every city, limiting it to Boston and NYC on the east coast and Portland and San Francisco on the west coast. No particular reason other than I know all four cities very well and they each had data going all the way back to 1987.
Curiously, in terms of those two commodities, housing prices are at multi-decade lows. Turning the relationship around – relative to home prices, oil and gold prices are at historically high levels.
Which makes for an interesting observation: if one argues that home prices are too high, then consistency requires one to also argue that oil and gold are even more “irrationally exuberant”.
I look forward to the next reference to “mean reversion”…
🙂
No, one is not required to argue that oil and gold are even more irrationally exuberant unless one believes that there should always be a fixed correlation between housing prices and the price of oil/gold.
You can’t just take any item, and compare it to another item and say based on the comparison that one or the other is expensive.
If you want to play this game, why don’t you give me a bunch of Microsoft stock for $20. Even at that price, it’s way overvalued when you compare its relative appreciation since its 1986 IPO.
To be sensible, one has to arrive at the value of things based on their fundamentals.
Oil’s running out. That’s why it’s expensive.
News Flash,
Are you done smoking weed? Hell, rent will go up another 2000%. Most people in Vancouver are making $2 million salary. NOT
Rob,
Although the article you mentioned seems like there is only a small percentage of subprime mortgages, the problem is in the combination of the following factors currently in play:
Subprime losses – 156 mortgage companies have gone under since 2006, hedge funds going under, non-bank commercial paper not being able to pay back companies who invested millions of dollars, banks aroung the world exposed to subprime (potential losses pending), foreclosures, high inventory of homes on the market, falling home prices, home builders on the edge of bankruptcy, etc.
Credit crunch – Banks refusing to borrow to each other, refusing to approve riskier loans, companies unable to raise financing, companies unable to get loans, banks having liquidity problems, etc.
Fear Factor – people hoard cash, stock market jitters, possible recession looming, a bank has liquidity troubles in the UK – did you see how long the lineups were on tv? Everyone was lined up for hours to withdraw all their money out of their savings accounts.
Plus, increasing oil and gas costs could further damage the U.S. economy which has already been hurt by the subprime meltdown. New highs in oil prices could be the straw that eventually breaks the consumer’s back.
Rob, don’t forget about alt-A and don’t forget that the proportion of recent mortgages is much different than that of all those outstanding. According to Credit Suisse, in 2006 subprime was 20% of the originations, alt-A was another 20% and jumbos were 12%. The first half of 2007 was even worse. How many of those people would get a loan today? How easy is it today to buy a house in California without a jumbo, and how easy is it to get a jumbo?
And if you’re examining the impact on GDP then you have to consider MEW. People have been extracting ~$100B every quarter – this is a significant chunk of disposable income and the tap is about to run dry.
Greenspan on the subprime fiasco:
“This was an accident waiting to happen. If it weren’t subprime, it would have been something else. We have been through this type of event innumerable times over the centuries. We get to a state of extraordinary exuberance which, when confronted with reality, turns to unrelenting fear, huge withdrawals, extraordinarily little liquidity, and considerable credit fears.
“We know where it’s going. We just don’t know the actual, specific resolution. We have never had the capacity to defuse a bubble, and I suspect the reason is that until we essentially reach the climax of euphoria, the speculative fever doesn’t break. But when it does, it turns on a dime.”
Domus:
If my house goes up in value, so do surrounding properties. That means that when you buy my neighbour’s house you decide what rent you want based on the price you paid. Let’s say you charge 1/200 of the purchase price.
I was collecting 30% less than that for a comparable property. You’ve contributed to higher rent pressure. My tenant leaves, and I re-rent for the same rent that you’re getting. I get more real income.
You bought with a 200 rent multiplier. That’s a little speculative. Freako and VHB make very good arguments for not paying so much for a rental, and that only the assumption of CA justifies it. Your speculative activity increases my fundamentals (my property is worth more because its cash flow has improved) and you’ve increased my real income.
You might argue that rent is not a fundamental for real estate. I guess that’s a fair argument. I’m assuming that it is a real estate fundamental.
fish:
Are you really trying to demonstrate that RE is a bad investment, period? Clearly that is not the case. You can make boo boos with it, but it can make you a killing. Its returns commonly kill equity returns once you factor in leverage. RE can be both a great and a terrible investment, depending on how you do the activity.
Spencer:
Realtors are required, by law, to put the interests of their clients ahead of their own. If you catch a Realtor doing otherwise and you can prove it, and there is any substantial damage, you can make them pay. That’s a simple fact. Its not an assumption.
You confuse the price you pay for a house with the price you pay a Realtor for their time. The old canard that its in the Realtor’s best interest to inflate what the buyer pays is in direct conflict with the other old canard that its in the Realtor’s interest to get the seller to accept less so that he can make a sale. Square that circle and you’ll have a position. Until then you’re just repeating an old, tired and illogical refrain.
What you pay a Realtor and what level of service you get is completely negotiable. A Realtor can charge you a flat fee for information, provided you and he agree to the business relationship. If you want to negotiate with a listing Realtor and simply acquire market information from another Realtor, nothing stops you. Make an agreement with a Realtor. Pick up the phone and negotiate. I don’t know of a yearly subscription fee for the service, but I suspect that’s because there isn’t real demand. How much would you pay? (I pay somewhere in the neighbourhood of $3500/year for that info, although I get other benefits as well, but that gives you an idea of the cost.)
A buyer can learn what an owner’s DOMs are. You can ask the seller directly, or you can ge the information from someone who has copywritten access (i.e., legal ownership rights) to it. What you can’t do is simply assume that a seller’s personal and private information should be accessible to you in case you want it. Its not yours – its his. That conflict is why you require the permission of the owner of the information to access it. Don’t want a Realtor? Ask the owner directly. Don’t want a Realtor but want to deal with a listing Realtor? Ask the listing Realtor – you may convince the listing agent or the seller themselves to give up a percieved negotiating advantage. (It should be obvious that if this simple DOM issue is a real challenge, you’re in no position to negotiate a deal on your own behalf).
You’ve put yourself in a box: you don’t want to use a Realtor because you don’t percieve value, but you want something Realtors have. My question is: do you want it for free, or are you willing to pay? If you’re willing to pay there’s no real challenge: buy the information and negotiate your deal like everyone else. Conversely, if you’ve been a succesful negotiator w/o the info, how critical is it?
Last, lets remember that our little back and forth began when you voiced some unfounded and negative assumptions about when and why numbers get posted. Everything you’ve written since betrays a misunderstanding of the business combined with a propsensity to make poor assumptions. My advice is to educate yourself. You can make a lot of money in real estate, and you can do it without a Realtor if you choose, but you can’t do it without a solid grounding in the business.
Snick:
This market will change. I’ve said that forever. Market changes, I don’t.
In terms of when it changes and by how much, I’ve changed from “buy” to “wait and see”, largely as a result of not finding good numbers. That applies, as always, to investors, not principal residence occupiers (two completely different breeds of cat).
We’re both consistent. You think you’re infallible, and I recogonize that I’m not. 🙂
Dee Dub:
Very interesting twist.
coco:
My only counter is: look at what the central banks are doing. However, it is going to be a page turner to see how this plays out.
It will be a page turner alright.
Latest subprime/credit crunch losers Japanese housewives who invested savings in various currencies and subprime hedge funds. Some have wiped out their savings and have not told their husbands yet.
The subprime/credit crunch is like the energizer bunny, it keeps going and going and going and going and keeps hitting more investors worldwide.
For what it’s worth: heard from a couple people that they’ve noticed Japanese investors in their building selling. One of them directed me to a Japanese real estate blog. Here’s the URL for anyone who reads Japanese or has a friend who does: http://bbs.jpcanada.com/topic_dtl_reply_list.php?bbs=7&msgid=4884&resid=1&ntopic=1&cat=0
First guy asks on Aug. 27 if anyone is interested in investing in Vancouver real estate with him. He’s also interested in a business. He gets 23 responses from Japanese real estate investors, many of whom are experienced in Vancouver (most recent response Sept. 16), pretty much all of them advising against Vancouver, and using the “Bubble” word frequently. First respondent calls investing in Van. real estate “suicidal!” Many others drooling at the opportunity to profit from the coming carnage!
If there’s anyone out there who reads Chinese and can see what Chinese investors are saying?
For what it’s worth II: Here’s another Japanese blog, journalist in N. Van.,
says he’s researching Van. for “The Economist.”
http://otokonokakurega.net/blog/travel/86/entry720.html
Blog entry of Aug. 20 entitled “Is Vancouver a Bubble?” He thinks yes, and gives a run down on the situation here. As with the bloggers above, Van. reminiscent to him of Japanese experience. His next blog of Aug. 27 compares cost of living between Japan and Vancouver and finds Vancouver now more expensive in many ways.
From Rob
“fish:
Are you really trying to demonstrate that RE is a bad investment, period? Clearly that is not the case. You can make boo boos with it, but it can make you a killing. Its returns commonly kill equity returns once you factor in leverage. RE can be both a great and a terrible investment, depending on how you do the activity.”
Agreed.
Rising markets make everyone look like a genius. I had buddies in 2000 who had never looked at a earnings statement…who used to buy a $2 dotcom stock because it was ‘cheap’.
They had no clue how many shares where outstanding, who owned them, what the revenue or earnings (usually negative) per share were.
They still made a good chunk of money on their clue-less investing.
Meanwhile RE in Vancouver was shunned. So what does that show? There is a cycle to all investments. sometimes it is the equity market, sometimes gold, sometimes RE and sometimes CASH (or equivilents)….I am into the last one in a big way.
If you buy in at the top of any cycle you WILL be severely financially punished. Some of those $2 shares went down to 5c and then disappeared altogether.
A cash-flow negative property in a recession, where good renters are hard to find, will eat up your savings fast.
There are people I have met who can afford to keep a cash-flow negative property for a year. After that they are hoping to sell (they have to and cash out their gains)
ANY major expenses or job loss, or renter who damages or who bounces a few checks and they will be in SERIOUS trouble.
If prices drop 10% they will equity negative.
With stocks you can sell in 5 minutes and take your losses.
With RE you are married to your investment. It can a b&^%$ to get of. The selling costs are large. The carrying costs are large.
So it is not a bed of roses, as some investors are about to find out.
Northern Ally,
Here is the translation of your second link in English. It is two pages long, second page link looks kind of mumbo jumbled together at the bottom of the page, but it you click on it you get page two just fine.
http://tinyurl.com/yu4xcf
Northern Ally,
Here is the English version of your first website, perhaps you can find the link in English for us and repost.
http://tinyurl.com/3yoetn
Thanks, coco, did not know such a thing was even possible. Of course, the trans. is ridiculous, but you sort of get the gist. I plugged the first URL into Google language tools and got a translation. Here is the URL but I am not sure it is copying properly. Will post anyway. If interested, just copy the first URL into the Google translator and it will work
http://translate.google.com/translate?u=http%3A%2F%2Fbbs.jpcanada.com%2Ftopic_dtl_reply_list.php%3Fbbs%3D7%26msgid%3D4884%26resid%3D1%26ntopic%3D1%26cat%3D0&langpair=ja%7Cen&hl=en&ie=UTF-8&oe=UTF-8&prev=%2Flanguage_tools
Northern Ally:
“Blog entry of Aug. 20 entitled “Is Vancouver a Bubble?” He thinks yes, and gives a run down on the situation here. As with the bloggers above, Van. reminiscent to him of Japanese experience.”
You could have seen pretty much the same types of comments (from certain posters), but in English, on this blog… 🙂
An: I agree with you, but as it’s often speculated that rich Asian speculators are keeping this market afloat, I find it interesting to see the Japanese blogosphere calling Van. a bubble.
Rob,
Like Van der Zalm, you should go into politics. Then, everything will be FAN-tastic! until it’s not.
Weyerhaeuser to close B.C. sawmill, cut 224 jobs
http://tinyurl.com/2us4m8
Hmm…remember when Bill Bennett said. “B.C. is not for sale” when it was proposed that MacMillan Bloedel be sold to a US multinational?
Later, Glen Clark yapped about it being a “good deal” for British Columbia.
It makes one long for the likes of Mel Hurtig and the Committee for an Independant Canada.
In other words….if it were a BC op, at LEAST the decision would be made in a boardroom HERE and not THERE. Small comfort, I realize…
No matter what, U.S. housing slowdown will cause more BC forestry layoffs in the future. We are not immune from subprime slime.
What a fantasy land we live in. We keep our jobs make payments and homes keep going up to make things all worth while!!! 😛
What a farce.
Sub prime?
Whats the difference between zero down with 40 years ammortization and Subprime mortgages?
What a load of Sh!T
Which is the lesser of the two evils? They are both very wrong.
It makes about as much sence as being half pregnant!!!
Like whatching a dog eat it’s puke.
http://tinyurl.com/3bor3q
quotes from a Bloomberg article:
slowly seeping into the brains here in lalaland…..
The number of Americans who may lose their homes to foreclosure more than doubled in August from a year earlier
U.S. economic growth is slowing as the two-year housing decline worsens amid the surge in foreclosures and the collapse of more than 100 mortgage companies,
This is just the beginning of a wave of new foreclosures,”
…..there’s more
It’ll be interesting to see the next set of numbers from Rob. I think the recent downturn trend will continue. The psychology is shifting. Some Vancouverites might be learning a lesson from the U.S. situation. It may have caused locals to actually THINK over their investment moves. Many locals are stretched beyond their means. Look out below.
Beware of Bears!
We will have to see if we follow suit and drop interest rates. Could delay this for another year.
Even if Canada were to lower rates, the negative mindset from down south and across the pond will have to have some impact.
Housing is still too pricey and really has to come back down.
ya but the US media has yet to effect our market.
>Paul wrote:
>ya but the US media has yet to effect our market.
The effect of the U.S. media has hit the Edmonton market already. Edmonton is in a freefall.
Gadwin
Fed lowers interest rates 50 bbp, but warns on inflation. Cure for inflation = higher interest rates. Sounds like a bit of a vicious circle.
Canadian dollar close to par.
Canada’s August inflation rate should be out any day now. So with that number and what the fed has done, we will have a better idea if they will hold or lower interest rates in Canada in October.
I think Rob is hoping for a 50 bbp rate cut in Canada to revitilize the housing market further.
Even our landlord is hinting around. “Well, I think prices have gone as high as they are going to go. I’m thinking of maybe selling in the spring.”
Typically Canada will follow the US and lower rates so that our dollar drops. Exports and industry are going to get nailed if our dollar stays at these levels or climbs. That said if inflation continues to rise ….. well were dammed either way. Tough time to be David Dodge. He does sound more tough on his inflationary position,but that can change….. So did Bernanke and look what happened. How long will this help markets for? Will it save the US economey? I doubt it.
Should we cut rates housing may keep on going. In which case I will jump out of a window 😉
You are so right!!!!! 😉 that was me
Paul,
Totally agree. Stars are misaligning. Inflation pressures, credit tightening, oil prices increasing, more shoes to drop in the next quarter when the Canadian banks start reporting subprime losses, more forestry layoffs, etc.
I don’t think you have to jump out of a window, affordability walls will kick in sooner or later, unless they come up with the 100 year mortgage so you can pass it onto the grandkids and drop interest rates by 50 bbp.
Don’t be surprised if it happens, coco, they had what they called “three generation” mortgages in Japan at the height of the bubble–amortization periods that would carry over to the grandchildren.
coco:
I’m not hoping for any kind of drop in rates to revitalize the housing market. Its pretty vital right now.
G&B:
We’re seeing lots of listings, but inventory isn’t going through the roof. Sales haven’t fallen off that much. Anecdotally, we’re seeing our office inventory sell. I’m not sure that prices are falling, so I’m not sure where you’re going when you say “I think the recent downturn trend will continue”.
“I’m not sure that prices are falling, so I’m not sure where you’re going when you say “I think the recent downturn trend will continue”. – Rob
Nonsense.
what about buyer fatigue?
can you lure more buyers into this morass using increasing amounts of borrowed money?
blueskies:
Are you asking me?
-I don’t lure buyers anywhere.
-buyers don’t see a morass.
-buyers aren’t showing clear signs of fatigue.
I’ve noticed recently two articles inteh Financial Post talking about buying real estate and the new 40 year amortization rates. Both articles contained recommendations that mortgages be paid off early, and that buyers sacrifice on lifestyle and location in order to buy something that they can truly afford. One mortgage expert commented that, historically, Canadians tend to pay mortgages off before the 25 year amortization period, and he expected to see 40 year ams paid off in 20 years.
My experience with borrowers is that they often (perhaps even usually) elect to accelerate their mortgage paydown, so I’d tend to agree with the prediction for 40 year ams being paid off sooner.
I think that’s an interesting contrast to the common claim that buying real estate today entails mortgaging your life away (there are a lot of bears who can paint that picture in bleaker colours, so I’ll leave it to them).
Rob,
I think you misunderstood what I meant. If interest rates were lowered in Canada 50 bbp on October 16 you would like that, as it would revitalize the market. The winter market that is.
“-I don’t lure buyers anywhere.
-buyers don’t see a morass.
-buyers aren’t showing clear signs of fatigue.” – Rob
Never surrender!
Rob quotes Financial Post comment,
“One mortgage EXPERT? commented that, historically, Canadians tend to pay mortgages off before the 25 year amortization period, and he expected to see 40 year ams paid off in 20 years.”
What time erra is this guy talking about Rob? Is this when homes were $ 100k? 1980’s?
What a line of Sh!t! This comment is of analysis of the past not current market conditions which are way out of wack! We are seeing extremes today.
Rob continues to quote self proclaimed experts ,
My experience with borrowers is that they often (perhaps even usually) elect to accelerate their mortgage paydown, so I’d tend to agree with the prediction for 40 year ams being paid off sooner.
Ha! This comment is unbelievable! Perhaps this comment is from an expert that can drive with his eyes closed.
Rob, I am glad that this Sh!t didn’t come from your mouth.
the fact that 40 year mortgages are available and are used is an indication of a distressed market.
Rob, I mean recent trends seem to point towards a downturn. Sept has been bearish but it’s way too early to tell. In any event, a good sign for Da Bears! I am calling this a top and believe we’re heading down. I am also passing that advice to friends and family. We’ll all be gathering for another Kumbayah sing along!
The Bear Facts!
mbb:
Here’s the story:
http://www.canada.com/nationalpost/financialpost/story.html?id=fb6de935-a2a0-4486-acb7-2b30e9067121
as for your statement:
“…”My experience with borrowers is that they often (perhaps even usually) elect to accelerate their mortgage paydown, so I’d tend to agree with the prediction for 40 year ams being paid off sooner”.
Ha! This comment is unbelievable! Perhaps this comment is from an expert that can drive with his eyes closed.
Rob, I am glad that this Sh!t didn’t come from your mouth.”
Sorry to tell you, I did say that and it is my experience that most principal residence buyers/borrowers that I’ve sold to accelerate the paydown. Maybe its because I recommend it so highly. Who knows. But the fact is, in my experience (that is, with buyers I work with) accelerated paydown is the norm.
Once you accept that my experience is, well, my experience and accurately described, I understand that its a bit of a leap to think that my PR buyers are similar to most other Canadians (they never seem too wierd to me). That’s why I’m not surprised that a 40 year am would get paid off sooner.
Of course, thats one of the selling features of the longer am: qualify for the mortgage you need based on your income with a 40 year am. Pay it off on an accelerated schedule. Get a room-mate. Get a basement suite. Get some of your income in undeclared cash. Get a raise. Work over-time. Get married. Endure inflation. Get a tax refund and make a lump sum payment. Remember, we’re talking about people who want to buy real estate, not people who quail at the thought of a lifetime sentence paying off a mortgage and eating kraft dinner.
Answer me this: are you really unaware of people who begin, on day one, making bi-weekly payments on their mortgages?
I was one of them Rob, I know what it was like to work fourteen months on my house to make a basement suite. I remember being able to rent it for $850/month. I also remember missing days at work because of a bad back and sitting at home with pneumonia as well. It was only a 25 year mortgage. Yes I was making bi-weekly payments as well. Now the house has doubled and people think 40 year is acceptable? WOW.
If I bought that same house now with the same downpayment I had in 2002 I would have a$550 k mortgage.
Have you forgotten what it was like to be working for an hourly wage Rob? Having to rely on your physical health to hold a job to pay your fat mortgage? Do you know how many people are cought up in over thier heads to which you think maybe ok?
I really think agents get detatched from reality when it comes to the thought of their clients working for an hourly wage. Try and re attach to the thoughts of empathy.
Perhaps,Rob… I should just say this. I personally feel that having a $360k mortgage is a major load when the average family makes $58k.
Even the RealtyLink mortgage calculator will tell you you need a $120k total family income to sustain a $360k morgage.
I understand your message Rob. At 25 amort you had to scrape the bottom of the barrel to pay it off earlier. So what next?
Oh and by the way, in regards to paying my mortgage I also had some slow times where my work hours were cut when it was slow. Not a nice feeling!!!
From Financial post article:
—————————————————————–
Paying that much interest is just throwing money away, says Ron Cirotto, who runs the Web site http://www.amortization.com. He has spent years trying to convince Canadians to pay down their mortgages and can’t wrap his mind around the new amortizations.
“He laughs at the suggestion the 40-year amortization is giving Canadians more flexibility when it comes to making lower monthly payments. “I’m not sure you can call it an advantage to pay interest for another 15 years,” says Mr. Cirotto. “To me it’s bullshit. The best way to save money is not to have any mortgage.””
—————————————————————–
I know I am being selective here Rob but the above is essentially the other half of the story.
Thanks for engaging with me 🙂
re 40 year am. Pretty simple: the longer you have a loan, the more interest you pay on it. It does, however give you the option of lower monthly payments (around $100-200 or so) compared to 25 year am, which could be necessary depending upon your situation, though . The idea is, eventually, your wages increase and you can pay off the principal quicker.
The caveat with the long am periods is that you will pay down close to 0 equity in the first few years. There’s not much difference between interest-only and 40 year am in the first five years IMO.
Wait for the 100 year amortization schedule a la Japan. Seems like we have a ways to go 😉
MBPONR:
O.K. then.
I tell you that in my experience most buyers who need mortgages try to pay them off early. I tell you that my experience tends to make me agree with a guy who predicts that people with 40 year amortizations will try to pay them off early as well.
You conclude that I’m lacking empathy.
That’s a bit of a stretch. You might just consider backing the truck up a bit and thinking before you throw rocks. If you were to talk to me about borrowing for a house, we’d talk budget, we’d talk affordability, and I’d advise you to buy less and pay it off sooner.
Is there a big difference between me and Cirotto when it comes to personal residences? Am I saying anything that you actually disagree with? Just curious.
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