There were 110 price changes, of which 7 (6.36%) were increases and 103 (93.64%) were reductions. The average original price was $631,742, while the average new price is $612,203(-19,539/-3.09%). Average DOM to price change was 50.
0.92% of all active listings had their prices reduced Monday.
The Best Real Estate Anywhere! 
This is a hot market. I am wondering what is the state of rental market. It would be interesting to know what will happen in spring. I believe, we will have 2008 pretty much like 2005.
I think things will be active during the spring but will start to slow down. And by slow-down I mean relative to the crazy increases we’ve seen. Bears will be happy as things YOY %increases will be down, and bulls will be happy because overall prices will be up. Then we can have a group hug 🙂
edit:
Make that “happy as things like YOY”
I agree An
where did all the inventory 13k people go?
Inventory usually declines through the end of the year… Christmas factor.
Check even places like Detroit:
http://www.housingtracker.net/
Inventory will most likely climb in the spring… especially depending on how deeply the US goes into recession.
The monthly stats do not indicate a hot market.
Sales are about the same as last year at this time. But it appears new listings are down (in the numbers here). OTOH there are many projects completing with what must be hundreds to thousands of units not on the MLS (assignments or held by developers). The MLS and the numbers here are only telling part of the inventory story. Its just hard to figure out the whole story, especially at this time.
Bank of Canada is suggesting it will not move to cut its key interest rate despite the surge of the Canadian dollar above $1.08
http://tinyurl.com/2hd6tm
(although Karen Cordes, economist at Bank of Nova Scotia states she thinks they will cut rates in the first quarter of next year)
Bull-like numbers over the last few business days. How sad. I notice the listings look a bit low and sales are still decent.
Bear Crossing!
Inflation is running rampant here in the west. Look at oil and housing. Even if its not in the basket of goods.
Employment is stronger than expected and imports are offsetting losses in exports. The bank will hold firm. Bonds will rise increasing mortgage rates which will also be pushed up by the continued credit crunch. Housing is finished.
Loonie predicted to hit 1.15 by next year, if U.S. dollar fails to strengthen and/or the Fed cuts interest rates again.
coco, more like US dollar wil lhit $1.15 in a week. Things are moving so fast!
Whatching Nasdaq boom, U.S. stocks are a bargain!!!
Look for a temporary retracement in the Canadian dollar in the next few weeks. I do a fair bit of currency trading– the CAD has been strengthening at an accelerating rate– this rate of change won’t last for long. After a few more cents of rise, it’ll probably retrace 3-8 cents, then start rising again.
If you look at the last few days, new listings are plummeting. And its the beginning of the month. Any “on the ground” observations as to why that’s happening?
Is this an entirely bullish indicator? Or could it be bearish too? Are existing home owners (who are considering listing but don’t have to) not listing because they don’t want to miss out on anticipated increased appreciation. Or are they not liking the current market as it may not be appreciating like they had hoped? (perhaps not relisting because they couldn’t get their desired price at this time).
Most of people who post here are those who missed the opportunity and wish prices to crash.
There is no reason for the market to crash here.
Look at the fundamentals.
“There is no reason for the market to crash here.
Look at the fundamentals.”
Those two lines don’t go together.
Hello Rob,
I have read through the previous postings in regards to Coco’s offer on the particular house that she was interested in. I would like to contribute the following:
Goal : to obtain the required/desired housing attributes, at the lowest possible total cost.
Winning = getting the house with the attributes at the lowest possible cost OR avoiding buying the house without the attributes without the pricing justifing it.
Options:
a) offer an amount significantly lower than asking.
pros – you can always offer more on future offers if needed, you may get acceptance at the lower price, you are more likely to achieve the goal of lowest possible total cost, you still retain options to confirm that the house meets the required attributes (no rot for example). You have more money in the total pot to deal with any deficiencies that might be missed during inspection.
cons – you risk “insulting” the sellers
In this option if the house actually does meet your requirements, you buy (or potentially offer more if original offer is declined), and you win. If it does not meet your requirements, you walk, and you win.
b) Offer an amount that would not be considered significantly lower than asking.
Pros- the offer is more likely to be accepted, there is a lower risk of insulting the sellers.
Cons – it is very difficult to go back to a lower offer once a higher offer is made. You are reducing the chance of achieving the lowest possible total cost. You have less money in the total pot to accomodate any deficiencies that you might miss in an inspection.
In this option if the house meets your requirements you buy, you might be winning, you might be losing… it is unknown if a lower cost was possible. If the house does not meet your requirements you walk, you win.
It would seem that the surest way to potentially not achieve the goal is to not choose to go with a low offer as the first offer. Patience is the key in this scenario as you may lose out on some homes to other people… but better to lose a dozen and get the right one in the end, than to get the wrong one right away.
In regards to Realtors and Home Inspectors… everyone is fallible, an individual should always watch out for their own interests. Is a Realtor or Inspector going to be watching out for my interests? Maybe, Maybe not. They might think they are and still not actually be. I might think they are… and they might not be. Always watch out for your own interests, no one else is as interested in your success as you are.
I think Rob, that if you wanted to you could lay out these options in a manner that would support what I am roughly laying out here. I would certainly be very interested in seeing a well laid out argument for not “lowballing” that considers all of the factors without bias. I wish I had more time to contribute something a bit more “fleshed out” than the above post… perhaps another time.
Thank you.
paulb, I think you are correct about rising mortgage rates.. However, remember that yields move inversely to prices, therefore bond prices will drop.
Priced Out,
November 6th, 2007 at 2:16 pm
“There is no reason for the market to crash here.
Look at the fundamentals.”
Those two lines don’t go together.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
HAHAHAHHAHAH!!!! I love it.
I’m going to leave it here although some people are fundamently stupid.
Jurock
“There is no reason for the market to crash here.
Look at the fundamentals.”
I’m guessing that’s irony. Either that or a client to make any agent’s eyes light up eh Rob?
J Ben:
I both agree and disagree with you. Here’s why. For me the goal is a succesful transaction that meets the client’s goals. Avoiding a bad transaction isn’t a goal. Its the exact opposite of that goal. If all you do is accomplish the exact opposite of the goal, you haven’t accomplished the goal.
Clearly I don’t define winning as not accomplishing the goal. We’ll have to agree to disagree on that, but answer this truthfully: if you came to me looking for a house, and I got you out of 100+ bad deals, would you be satisfied? Or would you look for someone who could do the job you asked them to do?
I think you’re misreading my approach on lowballing, and I think you’re making some bad assumptions about the negotiation process, but you raise some good points. I’ll try to clarify later (and no, I don’t say “never lowball”)
Is shorting the US Dollar the next “bubble”?
We had the tech stock bubble, where people dutifully bit up the price of online pet food companies and everything else, not on basic fundamentals, but on the expectation of further frenzy.
Then the housing bubble, where people bought up dives in crummy neighborhoods and everything else on the expectation of further frenzy.
What’s next?
The Globe and Mail says there’s no rationalle for the Loonie to have gone as high as it has, or to go any higher.
But, what if shorting the US dollar (and US economy) becomes the next bubble? Switch out your money now, before it goes any lower! Sell your US dollars with the expectation that it will be lower later. Then make a zillion buying US dollars back in a couple years.
This could send the entire Canadian economy into bubble-phase, with everyone investing as fast as they can, completely screwing up Canadian industry, raising housing prices even higher, then having the whole country drop like a rock in 5 years when the pendulum swings back and everyone brings their investment $ back t the U.S.
Anyone else think this may be happening?
Whybuywhenucanrent?
Avoiding a bad transaction should be a goal for most buyers. I’d argue that it’s usually more important than achieving a transaction that meets a client’s goals.
Suppose that you find a house that has a 67% chance of meeting your criteria, and a 33% chance of being a leaky condo with mold that will make your children sick and crush your finances. If completing a transaction that meets your requirements were the most important goal, you should then do the transaction — after all, it’s most likely going to be successful. But I think most people shouldn’t do that transaction, because avoiding the bad transaction is far more important than achieving to the good.
I’d actually be pretty impressed if you got me out of 100+ deals because they didn’t meet my criteria. But I’m kind of odd.
Plus, such a scenario would be absolutely terrible for your business. I’d expect you to fire me as a client. And if it happened for most of your clients, you wouldn’t be in business for long.
Whybuywhenucanrent,
Sooner or later those American houses are going to start attracting buyers. Call it a clearance sale.
Rob,
Your blog is showing daylight saving time on all the postings.
Whybuy, there are a lot of good reasons for the US dollar’s collapse, and I’m not convinced it’s a bubble. I wrote this back in January.
Housing Bust
Now, take all the factors there — they’re pretty well all bearish for the dollar. Add in the trade deficit, the budgetary deficit, overstretched social programs, lower interest rates, and the fact that the Fed is choosing inflation as its method of addressing the problems in the market. The only real thing going for the US dollar is that the economy is still rolling.
OTOH, Canada has a trade surplus, a budgetary surplus, a strong economy, stable interest rates, roaring commodities, and taxes on their way down. The main bad thing for Canada is the fallout from the US. So, it’s not terribly surprising that the loonie’s been on a tear against the US dollar.
Lower taxes does not mean a stronger economy Ape. Many of the strongest economies in the world have higher tax rates than us. The tax vs business friendly curve is something that’s been sold by conservatives for years. It’s never been true but somehow it’s one of those lies that gets told so often that it becomes accepted as truth.
“Lower taxes does not mean a stronger economy Ape. Many of the strongest economies in the world have higher tax rates than us. ”
Care to provide some examples?
Anacdotal., its seems to me that we underestimate the effect the high CDN $ and the slowing US economy will have on our local market.
We are a small lower mainland based manufacturer, we sell into the leisure and transportation businesses, a fairly large portion of our sales are in US funds. So not only are the sales slowing, the ones few we get return substantially less in CDN$., now , our US customers are typically either oblivious of the $ or unwilling and/or unable to accept price increases to help offset these changes. Now, what has that got todo with Vancouver real estate? , well, we own our building, our property taxes have risen along with the value the building, triple in the last three years (great!, its only on paper, we still need a place to carry on our business and its primary worth to us is a place of business and not a real estate investment, (property taxes now equal to 2 or 3 well paid staff), our labour is in CDN $ and up until recently our purchases were from mainly Vancouver area suppliers. We are forced to look father afield to buy our raw material China, India, the US etc. So taxes are up, labour up, insurance up, profit down, sales down. So what? I get asked, well my local suppliers may lose our business, (they all have workers that live, own, want to own or rent in the Vancouver area),, as do we,. The # of buyers who have job security and good steady incomes in the local manufacturing industry will be few and far between. The point of my rambling is the thought we are insulated in anyway from the happenings in the US economy is comical. We will survive as we are somewhat specialized. But we will most certainly be contributing far less to the well being of the local economy, if at all. We have many peers facing similar struggles all with employees trying to pay rents and mortgages locally
The $915B bomb in consumers’ wallets
Americans have record credit-card debt and banks are starting to sweat an uptick in default rates.
Why some fear this could be the next subprime.
http://tinyurl.com/2cc3ok
Interest rates in Canada are to be stable through next year.
We would not expect a spike in mortgage rates to hurt Affordability:
http://tinyurl.com/2xx869
Yes, Anonymous
Other countries have higher tax rates…..but only Canada has……..
http://tinyurl.com/27qczo
Anonymous,
regarding:
““There is no reason for the market to crash here.
Look at the fundamentals.””
and
“Those two lines don’t go together.”
here are the fundamentals:
http://www.theglobeandmail.com/servlet/story/LAC.20071106.PRCITIES06/TPStory/Business
Re: “After reading the comments on Thursday’s Numbers I’m not too motivated to share the details. What’s the point? ”
My opinion on this housing market has gone all over the place in the last six years.
My history: Bought one house 6 years ago, then another two years ago. Sold the first one last year for almost three times what I paid for it.
The most recent house is a rental that pays for itself (barely). But now that rental house would go for almost 200k more than what I paid for it, not making it a worth while rental investment.
What I do know is that numbers are numbers. And I check this site five times a week to see what is going on. I can get lots of comments on what people’s personal opinions are on the market anywhere.
So my suggestion to Rob if he is having a hard time with the comments is just to turn them off. I am sure that I am part of a silent majority that enjoy coming here for the numbers. And possibly for Rob’s insight too 🙂
Keep the numbers coming.
Those numbers maybe slightly skewed with Olympic Development office space rentals.
oh kill me now and put me out of my misery.
Jurock,
You might want to go back and do your homework on how much office space is temporarily taken up by 2010 Olympic games development compared to actual corporations leasing long term.
http://tinyurl.com/ypyshy
it’s a good thing the California equity locusts did not invest in Vancouver because now they are going to need all the capital they can get to keep from sinking:
The drop in home values could cost the typical homeowner as much as $200,000 in lost wealth,
Lesser Ape:
You’re being clever, and I’m pretty sure you recognize it. Rather than making a decision based on hypothetical odds, and defining a successful transaction as something that hurts you, why not simply buy a property that suits your needs? Don’t buy a leaker. Don’t buy something you can’t afford. Make those two points (among others) critical components of your goal.
Avoiding the bad at the cost of missing the good is a question of risk tolerance, pure and simple. I’m guessing that you’re more risk tolerant than you let on.
“I’d actually be pretty impressed if you got me out of 100+ deals because they didn’t meet my criteria. But I’m kind of odd.
Plus, such a scenario would be absolutely terrible for your business. I’d expect you to fire me as a client. And if it happened for most of your clients, you wouldn’t be in business for long”.
You don’t really mean any of that, do you? If you were impressed with my service would that equate to you valuing it? And if you valued it, you’d pay for it, right? And if you were willing to pay for it, I could turn a profit, correct? Unless, of course, you’re easily impressed. Then the service, while impressive, wouldn’t be valuable, and you wouldn’t pay for it.
bearish:
“its seems to me that we underestimate the effect the high CDN $ and the slowing US economy will have on our local market”.
I don’t know how to accurately estimate the effect, but the potential is huge, and it certainly has my attention. Out of interest, where do you think the dollar should be?
The fundamentals I see from Jurock’s link is a hostile environment for opening or growing a business that is not related to the Olympics or real estate.
A new hire at my workplace had been laid off when his last (high tech) employer moved to Eastern Canada. Just one guy, but it made me wonder.
Where I work is basically a branch plant for an American company. I can’t help but wonder if my job will eventually be in jeopardy as the Canadian $ rises. There is a lot more talk about “productivity” lately.
After reading that story, I’ve never been so sure that Vancouver is going to be wasteland after 2010.
I was at an open house on the weekend. The realtor also had his mortgage broker there to simplify things a little. Mortgage broker had this to say about my few questions re: The US meltdown and whether or not she thought it would happen here. She said there was no Subprime here and that it will not affect RE here. I have owned 3 homes in the past 12 years and my second Mortgage was for 40 year ammort. In 1998. There are things called ARM(adjusteable rate mortgages). My point is that maybe there are no subprime mortgages here. But there has always been very creative mortgage brokers and they have been getting more and more bloodthirsty every year.
“Subprime will not affect Vancouver real estate.”
How soon we forget… why Canadian mortgage rates went up in October…commercial paper with U.S. subprime exposure.
http://tinyurl.com/2hqhxr
subprime is alive and…..well….. not well here anymore. It has been very active over the last many years according to my mortgage broker. No doc mortgages etc. have been here for a long time. Far less than in the US though.
Remember the subrpime was not what started the US housing collapse it just helped fuel the flame.
Disbelief,
I’m curious about a person who would chose a 40 year mortgage.
How old are you or how old will you be when you finally pay off your 40 year mortgage?
Do you have plans to pay off the 40 year mortgage early?
I know in Japan people pass mortgage debt onto their kids. Will that happen here?
Rob
“its seems to me that we underestimate the effect the high CDN $ and the slowing US economy will have on our local market”.
I don’t know how to accurately estimate the effect, but the potential is huge, and it certainly has my attention. Out of interest, where do you think the dollar should be?
Tell me more of what you think about this.
CMHC – Higher mortgage rates expected in 2008
http://tinyurl.com/2quf4c
(CMHC hmmm…. higher mortgage rates with 900k average prices….interesting…contradiction)
how on earth do you dig all this stuff up Coco?
Canadian building permit values fall unexpectedly
http://tinyurl.com/2pwu3t
“Still, the agency cautioned that the housing market in Canada could soon weaken.”
where do you think the dollar should be?
According to the latest Big Mac index, it should be at 88 cents. That would make the current 109 cent dollar 23% overvalued.
http://www.economist.com/markets/bigmac/
Ok, now I think we’re on the same page Rob. Instead of the goal being a successful transaction, you’ve added that you don’t want to buy a leaker, and you don’t want to buy something you can’t afford. So I think we’re basically saying the same thing, in different ways — I have two goals, you have one goal with multiple parts.
My approach to risk is that I’m totally willing to lose 100% of an investment as long as I believe it has an extraordinary expected return. (e.g. I frequently buy options.) I’m not willing to risk a huge chunk of my net worth on a single bet or buy any investment that would annoy me, even if it offers an extraordinary expected return.
If I valued your service, I’d be willing to pay for it, but not necessarily an amount that would let your business survive. There are many services that I value but don’t buy. Plus, the fact that I would value it, doesn’t mean anyone else would, and I don’t have the assets to keep your business going all by myself.
But if hypothetically I had a billion dollar portfolio, and you could look at 2020 buildings every year, and discard 2000 of them as not meeting my criteria, and the remaining 20 that meet my criteria I expected to return 25% annually, then I’d hire you, all by myself.
Paulb,
Forensic background.
“I don’t know how to accurately estimate the effect, but the potential is huge, and it certainly has my attention. Out of interest, where do you think the dollar should be?” Just checked after hours crrency trading our loonie broke $1.09 this evening.
My feeling is all hell is going to break loose if this keeps up. I don’t think realestate is even a story now, but the chances of a major recession in Canada could easily happen. Expect to see major layoffs in service industries, retail and of course any tourism. Lumber is dead. Movie industry up here will die if this keeps up. Short term buying spree by Canadians going south followed by unemployment? Sorry we need a 90 cent loonie to survive next to our major trading partner! The rest of our trade with other nations is peanuts in scale!
Yes, the loonie set a double record today broke through 1.08 and 1.09
…and don’t forget tomorrow $100 WTI oil
gettin’ innerestin’ now!
Oil jumped over $3 to a new record high of $97.10 before falling back slightly.
Spot gold hit a 28-year high, reaching $824.30. In January 1980 gold hit a lifetime high of $850.00
#
coco
November 6th, 2007 at 8:04 pm
Do you have plans to pay off the 40 year mortgage early?
I was showing that even in 1998 mortgage brokers were already using 40 yr mortgages. At that time it was the only way for me to get into the house that I bought. I sold that house in 2002 and purchased my next house with conventional mortgage. It is and would be very foolish for anyone to get a 40 year amort at this time. IMO… I had trouble sleeping some nights at that time.
As long as China and India keep consuming base metals, and as long as our BoC doesn’t flinch, the Canadian dollar should be at about 1.10. Knock off 3-6 cents for every 1/4 point cut by BoC. All bets are off if Asia coughs.
Loonie just hit 1.1o
US Dollar Slumps to Record on China’s Plans to Diversify Reserves
http://www.bloomberg.com/apps/news?pid=20601087&sid=abxV_7HapdYk&refer=home
I was talking to a small business owner who gets paid entirely in US$. Geez, they are suffering. Not only are they losing on the currency exchange but the bank is screwing them with the conversion fees. They have low overhead and remain profitable, but this kind of thing could kill other local businesses.
Rob, quick investment question.
My wife and I (+ child) are thinking of buying our first home in Burnaby/New West. Would the following be a reasonable strategy for reducing our exposure to a downturn?
Let’s say that (hypothetically) we could buy a 700k house based on 300k down and borrowing 400k. But we would be happy for
7 years in a 400k property (say 2Br + den) based on 200k down and a 200k mortgage.
Is the latter strategy an effective way of diversifying? E.g. we could sell in 7 years by which time housing might be more affordable. Thus our wages would go further than they do today.
In other words, is the only choice for first time home buyers to go all or nothing? Or is there a middle ground, and if so, then what is the logic behind it?
It’s nuts in the markets…..
China is dumping U.S. securities and buying other investments.
Canadian dollar peaks 110.86, now trading at 110.31
Oil at 98.06
Gold at 845.00
I read an article quite awhile ago, that if China decided to dump all their U.S. assets that the American dollar could collapse as far as a peso level.
How much China dumps remains to be seen.
Seattle – Local home prices slide
http://tinyurl.com/2ae2fe
British Columbia’s lumber producers are flooding the U.S. market with cheap lumber and mowing down forestry companies in the rest of Canada, an Atlantic Canada sawmill president said yesterday as an East Coast versus West Coast yelling match broke out in the forests.
http://tinyurl.com/yw8nqv
China holds 1.5 trillion dollars of U.S. treasuries and U.S. currency.
Fed in a pickle. If they lower interest rates again, this can weaken the U.S. dollar further. Then China dumps more? A recession maybe unvoidable.
BoC in a pickle. With everyone flocking out of the U.S. dollar, even if BoC could lower interest rates (say the job numbers or inflation numbers came in much lower, allowing them to do so) it may not matter as the dollar may continue to rise as the U.S. currency weakens.
“I was showing that even in 1998 mortgage brokers were already using 40 yr mortgages.”
are you certain that 40 year amortization was available in 1998?
“How old are you or how old will you be when you finally pay off your 40 year mortgage?”
no need to pay off in 40 years – cut down on eating out, reduce fancy vacation, fancy clothing etc…, and you can pay it down in no time. If you dont have a mortgage, I suppose you live rent free until your day? (whether it’s lower mortgage payment or cheaper rent)
Thought this was kind of interesting. George Jahn from Globe&Mail wrote about Oil today at $98:
“Since mid-August, oil has soared nearly $30 and gold has approached a lifetime high. Investors, wary of global equity markets where the full blow of the credit crunch has yet to be felt, see commodities as a sure bet.”
Like Oil, Real Estate is also commodity… How weird would it be if investors were taking their money out of the tumultuous global equity markets & investing their dollars in RE as a hard commodity…
RE of course being the culprit of the credit crunch in the first place.
Avoiding the mess in the global equity markets by investing in the commodity entity that caused it!
Ahh, what a tangled web we weave.
Not likely to happen, outside of Vancouver it seems most market players are quite aware of how overpriced Real Estate is. There are many articles in the Wall St Journal and similar papers about what a lousy ‘investment’ a home is, whether you live in it or not. Which of course is part of the reason it’s collapsing. It’s the nature of investors to always jump to the rising opportunity and abandon the falling one, just look at the last bunch of market cycles.
You didn’t see people investing in tech stocks as a hedge against the tech stock collapse did you?
No Anonymous but thats the stock market you’re talking about. When global equity markets gives investors the jitters, they withdrawl and invest in hard assets. Not usually vice versa. That was what George Jahn was saying in his commentary.
You don’t see hoards of people fleeing hard assets seeking the safe pastures in the stock market, do you?
DWB, please show us support for your idea. Why would people move money into an asset that is declining everywhere around the world.
Interesting how all the way up there were warnings, but the same attitude we see so strongly here held on in spite of all evidence to the contrary. It’s interesting how if you look at the graph you can really place the attitudes of people who post here in the run-up portion of the curve.
Warnings ignored.
Dire warnings vs. “See you’re wrong, it’s STILL going up, ergo it will go up forever!”
Hi Jeff,
“DWB, please show us support for your idea.”
I thought I did.
I’ll break it down for you again.
And also, I don’t necessarily agree with it either, just an interesting idea about the credit crunch – that Real Estate sneezed, the global equity market cought the cold & commodities like Oil & Gold benefit from this. Oh, and what else technically is a commodity? Real Estate.
1) See the G & M quote from the article for the “support of my idea” I directly quoted writer George Jahn.
2) Jahn in the quote says, “Investors, wary of global equity markets where the full blow of the credit crunch has yet to be felt, see commodities as a sure bet”
3) Real Estate is a commodity.
I’m assuming that within the preferred heirarchy of commodities, Oil would be at the top and the choice of investors, followed by Gold, and Real Estate dead last. But, hey, Real Estate still is in the list of commodities.
Anonymous:
Regarding your comment: “…Like Oil, Real Estate is also commodity…”
Housing is actually not a commodity. A commodity is homogeneous across all markets (so, gold/oil in Europe is the same as gold/oil in South America). Commodities are priced globally. Housing is a fixed asset priced by local market forces.
What oil and housing do have in common is they are physical, scarce, and always useful so they will both have a minimum price below which they can’t drop – maybe that is where the illusion of investment safety comes from. The lower price limit is what is really critical to know if safety is the goal.
Price to move up to your original home;
700,000 +50% -> 1050000
400,000 +50% -> 600000
–
700,000 -50% -> 350,000
400,000 -50% -> 200,000
–
In the first case, your outlay for buying your target home is $805,000 and in the second it is $550,000.
This is quite a bit narrower than say, renting, and putting down either $1,050,000 or $350,000 assuming the same variance. I concluded that after accounting for rental costs, it is generally wise to buy below your means (well below) if it is possible. Had the markets dropped, I would of sold at a loss but bought “at my means” – a place for the long term. Since the markets have risen some 20%, I’ve ended up hedged significantly more than those that were renting.
This comes with the caveat that I’m now in the midst of selling with the intent to rent.
In any case, the idea is that if you are unable to buy the 700,000 place but know you will want to, you can either buy and assume the opportunity risk (up or down), hedge your bets by buying something in the middle or rent and take the full risk (up or down). If the 700,000 is the hedge, then the situation is different. IMO, to hedge in the present, you have to buy under what you would otherwise want.
Egad I’m being absentminded. The above is in answer to Pearl’s message. I didn’t copy and paste this at the top;
Pearl,
You describe what I chose to do. Stepping down is a good way to hedge (not diversify) the change in the markets.
Taking your two situation and assuming your job is not related to the industry (meaning your income will remain stable);
Lesser Ape:
I say that I act with my client’s interests in the forefront. That means a successful transaction, for me, is a buy that meets the buyer’s needs, not mine. That’s always been my position. Some people assume that I have a different motivation (which wouldn’t be smart business on my part), som conclude that a succesful transaction is merely a buy, (despite what I’ve explicitly said many, many times). The buyer defines the needs. I can advise them on those things, but they have the final say.
Your approach to risk is your personal decision. What you define as a huge chunk of your net worth is also your personal decision, but let’s not forget that you should be putting 25% – 40% down. depending on the state of the market and where you buy that is generally not a huge chunk of your net worth.
How you define value is also personal, but let’s face it: for it to be workable you pretty much have to agree that value means you’ll pay something for it. Only then can we decide whether you’ll pay me enough for my valuable service to allow me to run a profitable business. If the service was generally valued at a point precluded viability, the obvious conclusion is that people don’t value being kept out of deals, regardless of what they say (actions, in this case, speak louder than words). That may be why, despite the freedom to negotiate a la carte flat fees for service, the market prefers to pay a commission for a succesful transaction (and the fact that the market does that is not a matter of opinion – its a simple fact). Bottom line: If you won’t pay for something you don’t really value it. Not everything can be bought, true, but that doesn’t mean we wouldn’t be willing to pay for it if it could be bought.
The issue isn’t whether I look at multiple properties for a buyer. The issue is whether a buyer (and by extension, me, as the buyer’s agent) is successful by not making a deal. Clearly, the buyer who does not make a deal is not a succesful buyer. Equally clear is that the buyer who makes a bad deal is not a successful buyer.
” But if hypothetically I had a billion dollar portfolio, and you could look at 2020 buildings every year, and discard 2000 of them as not meeting my criteria, and the remaining 20 that meet my criteria I expected to return 25% annually, then I’d hire you, all by myself.”
Aren’t you saying that if I found a property that met your criteria, you’d pay me? Why is finding the proeprty critical? Why wouldn’t you pay me a flat fee for each property I found that didn’t meet your criteria? Aren’t you actually making my point?
Strataman:
“My feeling is all hell is going to break loose …we need a 90 cent loonie to survive next to our major trading partner!”
I think that the danger is there, but a 90 cent loonie isn’t the final answer. The key is productivity, and how slowly it changes, while at the same time how susceptible to other things it is. Our commodoties are sold in US dollars, so in one sense their prices are rising more slowly or dropping faster than we initially think. If we were more productive we’d be fine, but that changes very slowly (its not just a case of individuals working harder). Keeping the dollar low (or simply having it low) masked a lot of problems with the economy. Anyway, currencies change value fast, and the markets appear too big for single national players to control, so…I agree with you that the danger is real.
Pearl:
Great question. I’ll try to devote a post to it. I’m sure strategy talk will prompt lots of good comments.
Capital One falls on credit card loss warning
http://tinyurl.com/2rnqml
(U.S. payroll loan companies are starting to have problems too)
Chip:
““Lower taxes does not mean a stronger economy Ape. Many of the strongest economies in the world have higher tax rates than us. ”
Care to provide some examples?”
Denmark where the minimum tax bracket pays a higher % than our maximum tax bracket.
Luxemborg with the highest per capita GDP anywhere (over double Canada’s).
Norway, Iceland, Austria, New Zealand, Germany, France, Sweden…
Some beat us per capita and some as a total economy. There are lots of others, do you want more examples?
As an addendum, I don’t think you need to look beyond the US where the tax rates are the lowest they’ve been in a long time and yet the economy is set to go into a massive recession/depression.
A recent example (a few years ago) is the new Toyota plant in Ontario, there were 3 US states offering millions in incentives to locate there, Toyota chose Ontario even though they offered NO special incentives because of higher education levels and medicare (both products of a higher taxation system).
Anonymous,
The problems in the U.S. were caused by very low interest rates, which made people take on more credit risk, not by lower taxes.
“Yale [economics] professor Robert Shiller examined housing prices from 1890 to the present. According to his calculations, if you exclude inflation, a house that sold for $100,000 in 1890 was selling for about $110,000 in 1997. During that 107-year-span, even at the peaks of the market, that house never sold for more than $125,000. Yet in 2006, that home was selling for almost $200,000. So we’re way higher than we’ve ever been before.” (from the Motley Fool)
Tell me again how there’s no bubble? Real Estate as a rule does NOT appreciate in value (in adjusted dollars). Prices will return to around the 110,000 benchmark or lower. Always have, always will.
I know, I know, “Vancouver is different” We have magic Olympixies sprinkling Olimpixie dust in the air which will cause our real estate to eventually be worth more than the rest of the world combined!
70% of the U.S. economy is consumer driven, the countries you mention are more export driven.
coco:
“Anonymous,
The problems in the U.S. were caused by very low interest rates, which made people take on more credit risk, not by lower taxes.”
You’re missing the point. Or you’ve actually got the point but somehow it went over your head at the same time…
EXACTLY! Taxes didn’t (of themselves) cause the problems but they definitely didn’t help the economy either. Rates and questionable market/lending practices saved the economy after 9/11 and since that was all just using morphine to walk on broken legs things are catching up (as they always do).
coco:
“70% of the U.S. economy is consumer driven, the countries you mention are more export driven.”
I don’t know the consumer vs export numbers for all those countries. Is that somehow relevant?
Anonymous,
Nothing has gone over my head. Perhaps you underestimate the economic power of the red, white and blue machine when it comes to importing goods from other countries around the world. They don’t call the U.S. an Economic Super Power for no reason.
World’s 10 Largest Exporters and Importers, 2005
http://tinyurl.com/39qw26
Top Ten Countries with which the U.S. Trades
For the month of August 2007
http://tinyurl.com/2tj633
coco:
I think you’re wise to not count the US out just yet. I think the question is: can the US economy re-invent itself yet again?
Many would say no, but they have done it time and again. I wouldn’t count them out. I think that we (the rest of the world) needs them as much as they need us.
“Denmark is a net exporter of food and energy. Its principal exports are machinery, instruments, and food products. The United States is Denmark’s largest non-European trading partner, accounting for about 6% of total Danish merchandise trade. Aircraft, computers, machinery, and instruments are among the major U.S. exports to Denmark. Among major Danish exports to the United States are industrial machinery, chemical products, furniture, pharmaceuticals, canned ham and pork, windmills, and plastic toy blocks (Lego). In addition, Denmark has a significant services trade with the U.S., a major share of it stemming from Danish-controlled ships engaged in container traffic to and from the United States (notably by Maersk-SeaLand). There are some 375 U.S.-owned companies in Denmark.”
Rob,
I totally agree with you.
The world needs the U.S. economy, it may just be wishful thinking that other countries (like China & India) can pick up the all the slack if the U.S. falls into a recession.
They didn’t come up with that…”if the U.S. sneezes the rest of the world catches a cold” phrase for nothing.
The U.S. recently sneezed “subprime” and the rest of the world felt a little woozey too with their own subprime commercial paper exposure too.
Coco, maybe you missed some earlier posts. The topic I was discussing was how taxation effects economies. To wit, greater taxation does not mean poor economic performance and cutting taxes really doesn’t boost economic output. You seem to be arguing with someone who isn’t here.
#
tqn
November 7th, 2007 at 9:54 am
“I was showing that even in 1998 mortgage brokers were already using 40 yr mortgages.”
are you certain that 40 year amortization was available in 1998?
I am quite certain that I had a 40 year amo in 1998 I have the paper to prove it. I had a very creative mortgage broker who promised to get me into that house and she did. And there are many people in this very situation right now wallowing in indebtedness. The cause is not only creative broker but raw ignorance.
Anonymous,
Your assuming I’m arguing with you, that is not the case.
Productivity levels decline as the tax rate increases, as people choose to work less. The higher the tax rate, the more time people spend evading taxes and the less time they spend on more productive activity. So the lower the tax rate, the higher the value of all the goods and services produced.
That is me above.
coco
“Productivity levels decline as the tax rate increases, as people choose to work less. The higher the tax rate, the more time people spend evading taxes and the less time they spend on more productive activity. So the lower the tax rate, the higher the value of all the goods and services produced.”
Wow, that’s amazing, that’s the biggest load of crap I’ve ever heard. You’re saying that in Denmark with taxes nearly twice ours that people spend so much time trying to avoid taxes that they don’t have any time left to work (never mind that they have a higher per capita productivity than us)? I’m assuming you don’t have any data to back this up. Mostly I assume that because it makes no sense from ANY angle. Just wow. I’m truly shocked. Did you come up with that or did someone else tell you that?
I guess the fact that everything you said is actually proven false by real world economics doesn’t effect your opinion? Why don’t you use your powers of magical thinking for some useful purpose like pretending you’re somewhere nice. Or maybe you could be a superhero or something. Some people like that kind of stuff.
Let me put it simply. If you had numbers you’d see that they don’t add up to your conclusion.
You’re saying that 1+1 = blue
It’s not even off the charts inaccurate it’s just bizarre.
A country can still have high tax rates and productivity, but if the tax rate becomes too high for either corporations or individuals it can affect productivity.
Coco,
Anonymous is being rude to you. Don’t bother trying to have a conversation with him if he can’t be civil to you. They think they know it all.
You both have valid points.
A country maybe be able to handle the burden of 50% income tax, but could that same country carry the burden if taxes were increased to 60% plus? Most likely not.
Coco:
“Productivity levels decline as the tax rate increases…” 4:19
“A country can still have high tax rates and productivity, but if the tax rate becomes too high for either corporations or individuals it can affect productivity.” 4:37
Umm, so you’re backing off from your previous statements then?
Greg, apparently he doesn’t think he has a valid point, at least not with his earlier position. I was being rude because he was just making stuff up to support his argument, apparently, now that I’ve called him on it he realizes he was wrong.
Anonymous,
I think Coco was just explaining further what was meant by their original post, not backing off from anything. Sometimes the written word can cause a lot of communication problems on the blog.
You can make a generic statement about productivity levels and forget to mention the part about too high of taxes. Then you post that part later.
Greg, go to my previous post, look at the two coco quotes. Can’t you see how the two things are incompatible? In 1 he says, “Productivity levels decline as the tax rate increases…”, then, less than 20 minutes later he says, “A country can still have high tax rates and productivity” (which by the way was a part of my original point that he was arguing against).
What part don’t you understand?
I don’t see it like that.
I think they meant too high of taxes would effect productivity from the start, but failed to put it into one post or the proper words.
Been reading the blog for quite awhile, rarely post.
Looks as if Coco works in financial markets by all the previous posts I have read. So, you may think they don’t understand, but they may understand more than you think. Best to ask Coco.
I would layoff the insults though, I watched one too many bloggers be rude and get shunned out of the blog by everyone else. They ended up talking to themselves.
I have a business flight to catch. So, I will not be here to reply back.
Greg,
Your right. I posted quickly and didn’t have the time to properly explain things thoroughly. When I came back to post to explain income tax rates, what levels effect productivity and which ones don’t; I was surprised that Anonymous sunk to new lows.