There were 89 price changes, of which 4 (4.49%) were increases and 85 (95.51%) were reductions. The average original price was $535,17169, while the average new price is $519,795(-15,375/-2.87%). Average DOM to price change was 51.
0.76% of all active listings had their prices reduced Wednesday.
There were 82 price changes, of which 5 (6.1%) were increases and 77 (93.9%) were reductions. The average original price was $602,185, while the average new price is $575,496(-26,688/-2.68%). Average DOM to price change was 54.
0.70% of all active listings had their prices reduced Thursday.
In case the bears were losing heart, Friday brought them welcome news: 214 new lisintgs and 112 sales, for a sell/list of 52.34%.
The Best Real Estate Anywhere! 
Circle craft fair, LOL!
thanks for the numbers.
From the previous thread!
(1) Sunny California:
“An estimated 12% of Californians will sell their homes at a loss this year, said Realtors association economist Leslie Appleton-Young, up from about 2% in 2006.”
“Sands counseled agents that property prices must be cut drastically to “get in front of the crisis.” Otherwise, agents will “follow it down like a dope” and get even less for the properties, if they can sell them at all, he said.
Speaking with Sands was Alan Long, president of the Southern California region of Sotheby’s International Realty Inc., who also told agents to cut listing prices to speed sales. Rising foreclosures could cause prices to fall 20% below 2005 levels, he said.”
”
Long counseled agents to drop sellers who aren’t willing to lower prices.”
(2) New York City:
“A precipitous rise in the number of condominium owners who are defaulting on their common payments, an important indicator of future foreclosures, is being reported.”
“During the last housing downturn in the early 1990s, there was a similar increase in defaults preceding numerous foreclosures.
“This could be an indication that something larger is going on,” a partner at Breier Deutschmeister Urban & Fromme, Lisa Urban, said. Last year at this time, she had one such case of a default on common charges; now, she has seven.”
Don’t buy Vancouver RE now! Especially if you are a young family and you have to go deep into depth. Save your skin!
thank you for the numbers.
Thanks for the update.
http://blogs.wsj.com/deals/2007/11/07/500-billion-the-mother-of-all-write-down-estimates/?mod=fpa_blogs?mod=fpa_blogs
So, this is the latest, subprime, CDO estimate.
The result of a decade of greed by investors on both sides (institutional and individual) comes to the point where the entire western financial system is put at risk.
There has to be a realization that the profit maximization of investors eventually comes at a socially unacceptable cost. Does that realization arrive when we sink into economic depression? Does it have to come to that? The invisible hand works; occasionally it give us all the finger. Decent, commonsensical regulation would have prevented much of this. Like mortgages of 80% of equity instead of 105+. An end to the capital gains exemption for personal residence, maybe. And the end to the insidious practice of CDO’s; debt built on opaque risk.
We have some time left in Canada to get our personal finances in order before the full force of the US storm arrives. But arrive it will. So, get out of debt. Put some cash in the bank if you can. And think about how people made do in the 1930’s. We could all learn a few things about prudence and its relationship to long term survival.
So, i’m off to Vagas for probably the last time in a long time. 🙂 Maybe i’ll win the megabucks.
http://tinyurl.com/d8q6j
Toronto and Vancouver Condo mania from an American point of view.
I thought Vancouver’s condo mania was 2004/5
Thanks for the numbers Rob, now all we need is Aaron, for the entertainment, but if he has an open house, Dogs 1 and 2, (Tqn, and Vanreal) will do.
Great article Strataman. It’s funny he mentions Seattle like its still doing well. It’s not. Well into the negative numbers YOY in just the last couple months.
Concerto
“I thought Vancouver’s condo mania was 2004/5”
Nope there wasn’t huge lineups for condo’s with people camping out for days. That situation is basically the last two years. Quality of developments two years ago were far better then today. More money today but spec(econo) grade condo’s now, the stuff even two years ago was far better quality. So there is a double bubble, poor quality and higher prices. Also two years ago US was still strong Canadian currency weak, good investment for out of country. Now they kinda choke when they see the prices, but they probably are going to do very well as they liquidate Canadian real estate, and recieve far more Yuan, HK$, or US$ then they put in. There are truly world class speculators and they will look for other gullible markets!
My god, inventory is falling fast. Its not about predicting when we will hit 13,000, but when it will be at 10,000.
I think that many feel that its simply not the time to sell right now. As many homes sit for too long, as we all know in Spring the prices go up and the market gets all hot again….. It should be a very interesting spring indeed.
“Thanks for the numbers Rob, now all we need is Aaron, for the entertainment, but if he has an open house, Dogs 1 and 2, (Tqn, and Vanreal) will do”
Off topic, time for comforting a lonely soul:
oh, poor you, dont let the high ratio sale/list dispair you. Worst, you can always ask for free counselling from you spycho instructor, or us here; please dont wander around DTES, it’s cold.
By the way, my neighbour has chihuahua cost as little as $5000. how much a “spycho” student worth while living in mama’s basement? I hope you have a wonderful weekend.
Went to an open houses in Renfrew area on sat: quite a bit of viewers, it might have something to do with weather – and the realtor expected to have it sold next week! Beat that.
one thing I’ve noticed in my reading is no one in the US can see a bottom to the RE market even looking out to 2009…..
I found another way that buyers get screwed in Scamcouver, the transfer tax:
http://www.cbc.ca/news/interactives/map-housingcosts/
Only Toronto and Halifax are higher. Alberta is zero, while San Francisco and Chicago are significantly less.
“Toronto and Vancouver Condo mania from an American point of view.”
Mish has been calling the top in Vancouver real estate for years now. He is a perma bear on everything.
From the Mish article: “When people are standing out in the street, or worse yet paying someone $2,000 to stand in line for them, the party is about to end.”
Well it should have ended 3.5 years ago when Yaletown Park went on sale. The line ups for presales started then and have not stopped since. Like a broken clock the perma bears will eventually be right for a brief moment.
great picture Rob
perma bears will eventually be right for a brief moment.
i’m picturing the brief moment during the detonation of a nuclear blast….
you know light, heat and scintillating radiation.
is that what you meant?
Disbelief, Where are you seeing homes sit for a long time. Sure not in this neck of the woods. Houses are still selling within one to two weeks often for overlist price.
I see homes sitting and reducing for months in Coquitlam. Stats show only 6-8% yoy price increases there, so it doesn’t surprise me.
Total Homes on Market: 56,215 (Includes single family, patio homes, town homes, condos, and lofts)
Total Sold: 1,043
Average Days on Market: 130
Average List Price: $472,178
New Listings: 4,285
Back on Market: 526
Pending or Active w/Contingency: 1,431
Temporarily Off Market: 378
Expired: 1,743
Canceled: 1,811
PRICE CHANGES: 6,559
A little bit of phoenix RE market interesting format….
#
vanreal
November 11th, 2007 at 1:28 pm
Disbelief, Where are you seeing homes sit for a long time. Sure not in this neck of the woods. Houses are still selling within one to two weeks often for overlist price.
Let me take a wild guess on your occupation hmmm Realtor perhaps…
Canfor will close New Westminster fiber mill
http://tinyurl.com/25tnhd
Sawmills in B.C. Interior to shut down
http://tinyurl.com/ynpy7x
Cascades idles Quebec sawmill, may sell part of it
http://tinyurl.com/2bhnt7
Canadian Homes built with cheaper U.S. wood?
http://tinyurl.com/yrvktd
Canadian Homes built with cheaper U.S. wood?
Yes, and I wonder if it is actually Canadian wood – the product of our raw logs shipped south, and imported back as lengths. Meantime, Canadian mills close.
“Yes, and I wonder if it is actually Canadian wood – the product of our raw logs shipped south, and imported back as lengths. Meantime, Canadian mills close.”
Good point probably a lot of it is. If the CDN dollar stays up it will require a lot more productivity at Canadian mills as they are no longer subsidized by a low Loonie. I notice the Americans no longer complain of Canadian subsidies in lumber. I believe Jimmy Pattison said that the rising CDN dollar will be good for productivity improvements in all Canadian businesses, either they will compete or fail, no more Loonie subsidy. From my point of view this is good! (Sorry I can’t find that statement by Pattison, but I am sure it was him as I made a mental note at the time!) 🙂
http://tinyurl.com/2zczqd
mining for good news
The world economy can now look forward to confronting four ugly and partly interrelated shocks at the same time: a US economy heading for the rocks, a rise in global inflation, a collapse in the dollar’s exchange rate and a credit market crisis.
…and more bad news
BC Bud exports are going down.
We will probably have to end up burning this crop ourselves…. incrementally of course 🙂
http://tinyurl.com/2xaj7j
“Mish has been calling the top in Vancouver real estate for years now. He is a perma bear on everything.” Yep he has and your response is the same (exactly) as what US realtors in California and Florida said about him! Funny don’t hear a word from them now. ?? 🙂
http://tinyurl.com/2l5z47
Asia falling, the people who will replace the US!
Coco, like I posted a few days ago, its all about mining, forestry is a has been for BC. Check out this story:
http://www.canada.com/vancouversun/features/businessbc/indextest.html
Skeptic, that article list the strongest publicly listed companies right now and mining is looking quite strong.
But, do you have an evidence that current and ensuing mill closures will be offset by mining?
Say 10 000 or 20 000 foresty jobs go, is mining going to replace these and the lost revenue? I am not quite sure of that.
I did my own searching .. check it:
Click to access qf.pdf
It’s a big mistake to use the number of big public traded companies as an indicator of economy. All the big companies in forestry are getting hit. Same as all the big US financial/rating companies are getting hit. When the time is good, everyone in the field seems to be singing and doing well. When the time is bad, rarely everyone sing the same tune anymore.
Skeptic,
I previously read your article on mining. Are you stating that laid-off forestry workers will just be absorbed in the mining industry? That job skills are interchangeable to any other industry?
http://tinyurl.com/24ywxz
Vancouver quality of life in danger. No kidding! We are heading towards a bedroom community with no tax base.
Oil & Gold fall…Oil 93.98, gold 805.40
Canadian dollar 104.23, keeps flirting with going into 103 range.
National Bank of Canada , the country’s sixth-largest bank, could write down the value of some of its asset-backed commercial paper holdings by up to C$400 million in its fourth quarter, analysts said on Friday.
http://tinyurl.com/2wn9qt
Dundee Securities analyzes Canadian Banking stocks.
http://tinyurl.com/23sn4t
“Canada’s Big Six banks could incur write-downs of at least $1-billion before their future growth would be impaired.”
Some winners, but mostly losers as loonie soars
http://tinyurl.com/yvjhvm
“The soaring dollar has made B.C. lumber, minerals and natural gas costlier on international markets that trade in U.S. dollars. It also makes B.C. a more expensive place for Americans to visit, which will potentially discourage them from coming to the province for a vacation.”
Skeptic,
Quote from article linked above.
As for the mining sector, PricewaterhouseCoopers estimated earlier this year that a one-cent move in the Canada-United States exchange rate causes a $71-million Cdn shift in earnings for mine operators.
Coco, thanks for posting all those links.
Unfortunatley you are like the little boy that is running around and yelling, ” The sky is falling, the sky is falling!”
Keep it up though, your url’s are a good read.
About the lousy-eco condo supply now. LEAKY<LEAKY!!! Insurer’s of developers will be hit in the next 5-10 years. Whatch for discounts on foreclosed fixer up condos! The condo market will get hit the hardest in any correction/leak combo.
Coco, the point I’m making is that the Province’s future is more tied to mining than Forestry.
People who are laid off will either retire, learn new skills and change industries or move to somewhere that Forestry is profitable.
The last article you linked to has some errors, it says: “minerals and natural gas costlier on international markets that trade in U.S. dollars”. These commodities are priced in US dollars so if the dollar changes they don’t become more costly, the Canadian producer’s margin changes instead.
In the downtown core alone I’m interested to know if we put 2 occupants into every new suite that is being built. I wonder how many people we would need to accomplish that feat alone. Let’s look at this logically for a moment ( Realtor BS and Bear scare set aside). Lets see if we can put this specuvestor myth to bed.
“People who are laid off will either retire, learn new skills and change industries or move to somewhere that Forestry is profitable.”
Whatever happens in forestry, it still a huge revenue hit in the short/medium term. Whatever happens will take time. Mining looks to become more important than forestry, as you state, according to the link I posted, this isn’t yet true as of 2006, but we might be in the middle of the shift.
deviating from your point skeptic, 2 interestings notes about the article I posted, forestry-based manufacturing products account for > $15 billion per year, 36% of all manu. exports. If that pulls back by a third that would negate the entire value of mining production which is $5.6 billion a year.
Also, you’ll note the exports to China in 2006 were valued at $1.5 billion (4.5% of bc exports) compared to > $20 billion BC sent to the US and $4.7 billion to Japan. BC send $346 million of export to India, or 1% of the total. If China and India are going to save the world, it doesn’t seem like BC was invited to the party.
“People who are laid off will either retire, learn new skills and change industries or move to somewhere that Forestry is profitable.”
Whatever happens in forestry, it still a huge revenue hit in the short/medium term. Whatever happens will take time. Mining looks to become more important than forestry, as you state, according to the link I posted, this isn’t yet true as of 2006, but we might be in the middle of the shift.
deviating from your point skeptic, 2 interestings notes about the article I posted, forestry-based manufacturing products account for > $15 billion per year, 36% of all manu. exports. If that pulls back by a third that would negate the entire value of mining production which is $5.6 billion a year.
Also, you’ll note the exports to China in 2006 were valued at $1.5 billion (4.5% of bc exports) compared to > $20 billion BC sent to the US and $4.7 billion to Japan. BC send $346 million of export to India, or 1% of the total. If China and India are going to save the world, it doesn’t seem like BC was invited to the party.
Dog #3 said:
“Coco, the point I’m making is that the Province’s future is more tied to mining than Forestry.”
Not much of a future.
Third world old economy stuff, very volatile, not much local control of the economy, cut throat competition, low skill level, dangerous filthy jobs, and boom bust cycle.
And yes, there are a small number of high skill level jobs, but very few relatively speaking.
Welcome to the Brazil, and South Africa club.
More talking head humour.
I put all the old ‘blasts from the past’ on flickr now and I scanned 3 new ones that I think are appropriate at this time. The new ones are the 3 at the top of the page at:
flickr.com/photos/sporco_macchiato
Thanks to macchiato, the dogs have been muzzled.
All except for -A- . Kiss my ( Y ).
Hey Macchiato,
Good points. One interesting thought I had is that many of these companies don’t have mines here in BC, like Goldcorp for instance. They’re listed on the TSX, but the revenues may not pass through BC from their operations elsewhere.
The head office and their highly paid people are here though and probably contributing to the RE boom. Could be a similar story for a lot of the others. What do you think ?
a US recession?
http://tinyurl.com/ytjj7e
that is right disbelief everyone who sees a different point of view from you is a realtor.
The comment that gave it away was that ”
Houses are still selling within one to two weeks often for overlist price.
If that statement isn’t from someone in the business of spinning a line of BS I don’t know what is. The market is cooling and that is a fact. (maybe seasonal maybe not we will soon see) .
funny thing is… I am a Realtor and a bear on this site and the fact is that properties are selling in 1-2 weeks often with multiple offers.
but… the sky is falling… this November will prove to be a bear trap… my prediction is all down from here.
Speaking of a super hot mining industry, check out point 5 of this post
http://tinyurl.com/ytlylg
Skeptic, I did notice the same as you, that many mines are not in BC, having different impacts. It’s hard to get the whole picture. It’s possible mining takes a hit in the near future too, remains to be seen.
Also of note is that mining jobs jumped a lot in the last 3-4 years, but it’s hard to compare to forestry cause they don’t break down the manufacturing jobs in the article I posted. But, I think it’s fair to say that it makes up a huge chunk of the more than 200K jobs in manufacturing, on top of the 22K jobs mentioned directly in forestry. My guess is that the 22K are the actual ‘lumberjacks’ in the forests, whereas all the mill jobs (2X4s, OSB, plywood) are considered manufacturing. It’s all forestry to us though.
Further, you’ll notice that 46% of all felled trees were pine in 2006 … I am imagining lumber yards throughout the province full of this dead pine beetle wood, without any buyers to be seen.
Mining, had 19K jobs in 2006 up from 11K just a few years ago. I think it’s fair to say that mining has already seen it’s big run and probably can’t expect job increases at the same rate. to your point, I wonder how many of those jobs are in Vancouver, giving more evidence of your Head Office theory, or at least the impact of companies like Goldcorp on the Van economy. Everyone knows head office jobs has been on a sharp decline in general.
More on those head office jobs in mining, if you read the reports linked below, the best guess is that head office jobs in mining haven’t had material impact on Vancouver. In fact, in the top 500 Canadian companies, there are only 3 mining head offices in Vancouver: Goldcorp, Teck Cominco and Mitsubishi Canada. Placer Dome was bought by Barrick, another one bit the dust recently.
thetyee.ca/Views/2006/08/16/HeadOffices/
http://www.bcstats.gov.bc.ca/releases/info2007/in0720.pdf
city.vancouver.bc.ca/commsvcs/planning/corejobs/pdf/research/13headoffices.pdf
It’s hard to say how many small companies there are, companies not considered head office companies. Are there so many of these that it’s creating big opportunties and strong employment numbers? I don’t know.
My freind is a realtor, he/she mentions as well that it’s unknowing immigrants that are continuing this buying trend. The agen calls it a downturn after 2010 maybe then agian word around town is that most expect correction if late , it will be after 2010.
Anyone been to any open houses lately? How does the bustle of the market compare to last June? November ’06? Where were you looking, what were you looking at?
Whybuywhenucanrent?
mining inndustry will keep hiring more and more people as long as the metal price remains at current level.
there are a lot of mining projects under construction in BC now and more under exploration. i am working in this field and there is a shortage of engineers, metallurgists and workers.
Jesse “i am working in this field and there is a shortage of engineers, metallurgists and workers.” Just out of curiousity Jesse, I also work in a high tech field (building control engineering). Are you seeing difficulty in finding people due to Vancouver housing prices? I sure am, eager applicants turn down jobs in dismay after looking at costs of living here.
Hi Macchiato, all good points. A couple of other thoughts. How does the pay in the forestry or manufacturing sector compare to the mining industry ?
Another thing, regarding the head offices, do many of the top BC list make it to the top 500 list, I suspect not.
Some of these smaller mining co’s might have 10 highly paid people here in their Vancouver office all making double or triple the average income but still be quite a small company. All of these 10 would be supporting the high home prices. Not necessarily big companies but perhaps a big impact on the Van RE market.
just a message for -A-
how are you? hope you had a nice weekend. Time to wake up for “spycho” class. Dont sleep too much in your mama’s basement, you might get obese! Opps, time for this RE chihuahua dog going sniffing new RE deal, gotta make some money. -A-, have a nice day!
The new sold signs around Renfrew showing that the market is still somewhat active, even in Nov. Strange!
Seems some people think others can’t figure out who they really are when they post under another blog name and make less than stellar comments.
Bankruptcies rising, along with loonie
http://tinyurl.com/yvhorl
Royal Bank of Canada takes $360M charge for U.S. subprime mortgage problems
http://tinyurl.com/22uk3w
Subprime losses could reach $400 billion, analysts say
http://tinyurl.com/yr685a
E*Trade Going Out Of Business? (subprime exposure)
http://tinyurl.com/388cyp
HSBC to Reveal $1 Billion Bad Debts
http://tinyurl.com/3dey9h
I’m not sure I got this exchange 100% right, but…
Disbelief wrote:
“As many homes sit for too long, …”
Vanreal countered:
“Houses are still selling within one to two weeks often for overlist price.”
Disbelief seemed to disagree, writing:
“Let me take a wild guess on your occupation hmmm Realtor perhaps…”
It went back and forth a little until Jeff injected:
“funny thing is… I am a Realtor and a bear on this site and the fact is that properties are selling in 1-2 weeks often with multiple offers”
These threads seem to have a life of their own, often divorced from the daily numbers, but the exchange highlights some interesting things. One is the idea that Realtors, by definition, prefer to live in denial (thanks for trying to counter that, Jeff). The second is that the numbers are there to look at and evaluate. Houses do still sell, overlist, often within 1-2 weeks. That can’t be denied. Houses that don’t sell overlist stay on the market longer, but still very short times on average (35-45 days) and sell close to list price. Sales volume has dropped, clearly, but inventory has dropped even more. This market may be changing, slightly, but its far from slow, and it doesn’t look like its turned.
Don’t they say that things boom from the center outwards and slow from the outskirts in? Cause houses may be selling well in Vancouver proper but that sure doesn’t seem to be the case in the burbs. Yes some are selling, but certainly not many, if any over list and definitely not in 1-2 weeks. Some of the areas I have been watching in one burb are not moving at all.
observation.
place: n. burnaby
i live in n. burnaby and in july 2 houses came on to the market – both descent detached homes both newly reno’d. the one i did go into was listed at 729,000.
last month i noted that both had ‘new price’ signs on them. they have been sitting with the new price sign for over a month now.
is there such a thing as ‘newer new price’ ?
cheers.
s.
I often post the over-lists and where they occur. Most occur on the Westside, and this has been the case for literally ever, but there are clearly overlists in other areas as well.
My point is simply this: the existence of over-priced listings is not inconsistent with over-list sales. The existence of over-priced listings is not inconsistent with a strong market.
We have, on average, very short DOMs to sale, and sales that are very close to list price. We don’t have a lot of inventory. We have people provide us with scary numbers from other markets, and those numbers are very different from what we see here.
More interesting and applicable: what IRR’s and cap rates do we see here?
I have to agree with Rob. I am not seeing any cracks in the downtown. In fact, there is very little inventory and sellers expect to receive more than the last guy. It could be seasonal, sellers could be waiting until spring, sellers could even be waiting until 2010.
My feeling is that the cycle must eventually come to an end and then the sell-off will begin. Until then, the market seems quite tight.
I think that some of what I said was taken out of context. First I wish to state that I am a homeowner which I consider just that, my home…which I might add is priceless. I had 2 rental properties one I sold in 2005 and the other in 2004. I did very well on both. I am still a bear in this market, I can give many examples of why and will if asked. I do think there are many realtors and agents that are in denial, justly so if and when the market slows so does their paycheck. I am getting a little sick about all the hype by Mr. Rennie and others to be honest. But just the same I know there are many great realtors just like great salesmen( thats all they really are). Thanks Rob I meant know disrespect to you and I think you are one of the good ones…
Rob,
Looks like you have more robust sales in the Vancouver area and areas like the Fraser Valley inventory is at record levels and sitting longer on the market. Interesting contrast.
“It’s been seven years since Fraser Valley buyers had this much inventory to choose from,” says Jim
McCaughan, president of the Fraser Valley Real Estate Board. “REALTORS® are able to show their clients more properties and as a result, we’re noticing a gradual increase in the length of time homes are on the market.”
Above quote from Jim McCaughan was from October 2007 stats.
Coco:
I don’t track the FV much (just a couple part of Surrey), but based on what we’ve seen with those two areas I’m not surprised. BTW, I know Jim and he’s a great guy.
Disbelief:
I’m not trying to take you out of context. I’m just pointing out that your observation and other people’s observations aren’t necessarily in conflict.
A slow market doesn’t mean a lesser paycheque for Realtors. That’s a bad generalization/assumption to make. When this market turns some Realtors will go broke. Some won’t. Some won’t notice in terms of business volume, because they’ll pick up business that others are grabbing now. Crunch the numbers and you’ll see the true answer.
Here’s a question: what’s Jeff saying that I’m not?
TD:
I’m not sure how you calculate IRR, but I can share a couple numbers with you: a North Van property for $550,000 breaks even with a 63% downpayment. Assuming a 5% per year capital appreciation rate the IRR is 4.21% after 5 years (you’ve got to pick some point at which to take the snapshot, right).
Change that to 25% down (neg cash flow to the tune of $1200/month) and IRR drops to 3.13%.
Buy it all cash and you get 4.13%.
I like to see double digit (10-15%) IRR after 5 years, but we haven’t seen that for a while.
Cap rate on the above is about 4.15%.
That should tell you that investment buys are tough to justify these days.
What about trades?
I agree with Rob that many Realtors will drop out of the business when times are more difficult and therefore other Realtors will pick up additional business.
Stop renting!
Buy a house now!
Sales lead
http://tinyurl.com/2r2ddw
from craigslist:
I make more than $50,000 and still can’t find a place I can afford. One that isn’t a total dump, anyway. I mean sure I could spend $1600-1800 for a nice place downtown and be close to work. But I have a car payment to make ($415) and car insurance to pay ($200/m). And I want to have a life OUTSIDE of work, be able to go to a movie, treat myself to some DVDs, go out for a nice dinner, that kind of thing. Why would I spend almost 50% of my take-home pay on rent? What a crock!!
Rob,
If you calculate the IRR on your North Van house example with full payment and figure you can rent for $2000 per month and assume a 4% annual increase in rent your IRR would be 2.3%. That’s over 20 years. The IRR in five years is negative.
I would bet you anything that you haven’t seen double digit IRR over a 20 year investment (not to mention a 5 year investment) in Vancouver in your career, at least not in the last 20 years.
Note: A 2.3% IRR in Canada is effectively negative.
Rob,
Assuming the same house ($550k), same rent ($24k/annum) and absolutely no carrying costs (risk, insurance, maintenance reserves, property tax, etc…) you have a 4% cap rate. That’s with no financing, you never consider financing when calculating a cap rate. Also cap rates never take appreciation into account.
This is the kind of calculation that investors do in a heartbeat when initially considering an investment. It’s simple arithmetic. This example is very telling about RE investments and realtors in Vancouver today. If you were only selling to investors and giving them honest advice you should have very little business.
TD:
The point in saying that IRR depends on how you calculate it is that there are differeing assumptions involved. I calculate it with various downpayments, and over a range of times (it changes during the life of the property and changes in income/capital appreciation/ taxes/maintenance etc).
If you put 100% down you may well not see double digit IRRs. People don’t do that very often, so what’s the point of comparing properties on that basis?
In terms of cap rate, are you telling me something I don’t know? You say cap rate is about 4%, and I say its 4.15%. It seems like we’re on the same page here.
What you say about cap rate is correct, in that many investors do it on the back of the napkin and thta its simple arithmatic. However, if you think it ends there you’re very much mistaken. And that makes me wonder about your assumptions, especially when you say that that low cap rates are very telling about Realtors in Vancouver and my business. I’ve already said, repeatedly, that its tough to justify a new purchase (versus a trade) in Vancouver. How about you answer my question about a trade. Are there no good trades to be made today, or should all real estate investors leave the market? Why do big investors still acquire properties? Why do apartment buliding owners still buy? Is it a simple case of you understanding things and everyone else not, or is it perhaps a case of you not taking some of the complexities of the exercise and differing assumptions of the players into account? Simplification is a great technique to promote understanding, as I’m sure you’d agree, but is it a law? (You might want to consider that a little before you question whether I give honest advice or not, especially when we come up with the same numbers).
Rob,
You obviously don’t understand IRR or cap rates (In the post where you claim that I agree with your calculation I am actually trying to point out your mistakes). Most people don’t there’s no shame in that, unless you style yourself as a real estate investment advisor. FWIW the IRR is less important than the cap rate and you probably wouldn’t even waste your time calculating it for a property in Vancouver as you wouldn’t even make it past the back of the bar napkin stage. If a real estate investor looked objectively at their investments and treated them as actual investments then they would be out of RE for now.
As for your second point, why were huge investors buying up shares of Webvan, Pets.com or Enron? Why were huge banks buying up commercial paper they didn’t know how to value? You’re basically telling me that because everyone else seems to be doing it it’s a valid investment. Now why would anyone need to pay for that advice?
TD:
I did IRR with actual rents, not your assumed rents, I factored in a different capital appreciation rate, and a different time factor. You used the same factors (“2000 per month and assume a 4% annual increase in rent your IRR would be 2.3%. That’s over 20 years.”) but different values. Its not a surprise that we came up with different IRRs. I still concluded that it wasn’t a good investment.
I didn’t share any rent figures, and came up with a cap rate of 4.15%. You used your own assumptions and came up with one of 4%. I don’t and didn’t include financing costs or capital appreciation in calculating the cap rates.
“the IRR is less important than the cap rate and you probably wouldn’t even waste your time calculating it for a property in Vancouver as you wouldn’t even make it past the back of the bar napkin stage”
I’d tend to agree right now, and have said as much. However, we have a pre-set spreadsheet that includes the calculations and we do them at various times, for various reasons, for various people. Those numbers came from a client’s existing property. I think I’ve made it pretty clear that I haven’t sold any investment properties on the basis of the numbers for a few years now.
When you say “If a real estate investor looked objectively at their investments and treated them as actual investments then they would be out of RE for now” you sort of address my question. I’d argue that many real estate investors consider more than the numbers that you’re restricting analysis to, and that they’re still objective investors. I think the issue revolves around what long term is, and what the investor’s goals are. Let’s be clear: I’m not saying a negative IRR is good because we’ll get continued double digit CA. But I’m also saying that people who settle for inferior numbers today don’t strike me as equivelant to risk tolerant investors buying ABCP that really isn’t.
That’s not the same as saying “Other guys are doing it, so you should too.” Its asking you, point blank, are these guys wrong, and is there only one way to approach the investment question? I honestly don’t know the answer, but I do know that many succesful investors approach it differently than you seem to think. And nowhere in this did I give any investment advice, aside from saying that the example I used didn’t look too good.
FWIW, a lot of people agree with you when you say “If a real estate investor looked objectively at their investments and treated them as actual investments then they would be out of RE for now”. However, some subscribe to the “time in” approach instead of the “timing” approach (and I’m sure we’ve both seen that argument in different fields of investment).
Rob, I know I already took you to task on this but there’s really only one way to calculate a cap rate, and if you tell me your cap rate and your investment cost then I know your assumed income.
TD:
I love jumping between posts.
If A=2 and B=50 and cap rate = C, and C=A/B, then you’re right, you only need 2 of the variables to arrive at the third. Thanks for inventing algebra 🙂
What you don’t know is whether A is net or gross. As I wrote “I didn’t share any rent figures…” You need to know the rent figures to determine whether a was gross or net.
I think what we’re really getting to is that I used real numbers that you didn’t see, and you used some fairly accurate assumptions. We came up with cap rates that are with $67 bucks of each other on monthly rent and you’ve determined…that I don’t understand cap rates? As far as I can see you either don’t know what you’re talking about, or you’re looking over my shoulder! You can’t use algebra to determine whether I used net or gross!
For the love of Pete man, I used your assumptions in my post.
Read carefully: You are the one calculating a cap rate of 4% in your original post. I am saying that in order to get 4% you would have to have an income of 2k per month. That is your assumption, you did not include that assumption in your original post. When I told you what you used as your income assumption you said that I “didn’t know what numbers you used”. How can I not know what numbers you used? That’s why I gave you an algebra lesson, not to be an idiot but to show you how either I knew what numbers you used, or you have some erroneous method of calculating a cap rate.
I am simply saying that either your assumption is income of 2k per month (NET) on a 550k property in north van (which is crazy) OR you don’t know how to properly calculate a cap rate for RE investment purposes!
So what’s the problem?
Just to clarify, I don’t need to use algebra to determine if you used net or gross to calculate the cap rate. If you calculated the cap rate you used NET income. That’s the only valid way to calculate it.
You would only use gross when you have no idea what your costs might be. Is that what you’re saying? You used gross because you have no guidelines for investment carrying costs?
TD:
“For the love of Pete man, I used your assumptions in my post”.
Actually, that’s not true. You may think that’s what you did, but at the time you said something quite different. BTW, (again) I didn’t make any assumptions aside from what the property was valued at. I used actual rents. The only assumption was the valuation of the property itself. I also pointed out to you that some of the assumptions you were making were poor ones. Compare these two quotes, which are both from you:
“Read carefully: You are the one calculating a cap rate of 4% in your original post. I am saying that in order to get 4% you would have to have an income of 2k per month. That is your assumption, you did not include that assumption in your original post.”
That’s just not true. You calculated the 4% cap rate based on your own, self-admitted assumptions, as your second quote indicates:
“Assuming the same house ($550k), same rent ($24k/annum) and absolutely no carrying costs (risk, insurance, maintenance reserves, property tax, etc…) you have a 4% cap rate”.
You did that, TD, not me, and you did it before I told you I was using actual rents. You’re right that I didn’t share the rent figure – you came very close with your deduction all on your own, but you did actually refer to it as an assumption, and you’re the one who made it.
I’m not arguing with your math, because, on cap rate at least, we agree. I’m just pointing out that you a) make a lot of assumptions, and b) change your story a bit, and c) when we actually say the same thing you seem to want to maintain that I’m wrong but you’re right.
Here’s another example of you changing your story:
“Just to clarify, I don’t need to use algebra to determine if you used net or gross to calculate the cap rate. If you calculated the cap rate you used NET income. That’s the only valid way to calculate it. ”
versus:
“I suggested the calculator because you didn’t calculate the cap rate correctly. You excluded all your costs and assumed an unrealistic income (or you did include your costs and assumed a huge unrealistic income).”
We both calculated cap rates. I did it using actual figures and came up with 4.15%, and you did it yourself using assumed figures, and came up with 4%. Originally you said I’d done it wrong, and now you seem to be saying I did it right. Does that mean I’m still wrong?
“Sorry Rob, I guess sarcasm isn’t conveyed very well in this medium.”
“This medium”? You mean, like, written English is a clumsy tool for expressing sarcasm? As opposed to, …um,… spoken English? Sign language English? Its ironic that Shakespeare and Mark Twain worked absolute wonders in this medium. Maybe the shortcoming is with you. (Just maybe).
All kidding aside, your argument is probably very clear to you inside your skull, but you should either keep a better eye on what you actually say, or else maybe keep the elbows down a little.
Rob, Here’s a chronology of the posts:
1. I ask you to show an example of IRR and CR on a property.
2. You post the IRR and CR with the house price.
3. I post showing the rent required to come up with your CR.
4. You somehow interpret my post as being a lesson on how to calculate CR’s. All I was trying to do is cast doubt on your $24k income. (Oh, and point out that you don’t include financing in a CR.
Poorly written or not, I was using your assumptions (house price and cap rate) to question your income assumption (not stated). I can’t help it if your cognitive abilities are less than stellar.
“This medium”? You mean, like, written English is a clumsy tool for expressing sarcasm? As opposed to, …um,… spoken English? Sign language English? Its ironic that Shakespeare and Mark Twain worked absolute wonders in this medium. Maybe the shortcoming is with you. (Just maybe).”
Actually Rob unless you are on par with writers like you mention above, then yes it is difficult to effectively express sarcasm in the written media, no matter the language, that’s why those two are household names. Are you claiming to be a member of the literary intelligentsia now?
Tony:
I wrote: “Cap rate on the above is about 4.15%”.
You wrote:
“Assuming the same house ($550k), same rent ($24k/annum) and absolutely no carrying costs (risk, insurance, maintenance reserves, property tax, etc…) you have a 4% cap rate.”
I wrote:
“In terms of cap rate, are you telling me something I don’t know? You say cap rate is about 4%, and I say its 4.15%. It seems like we’re on the same page here”.
And then you wrote:
“you never consider financing when calculating a cap rate. Also cap rates never take appreciation into account.”
“Rob, Here’s a simple cap rate calculator:…”
“I suggested the calculator because you [Rob]didn’t calculate the cap rate correctly. You excluded all your costs and assumed an unrealistic income (or you did include your costs and assumed a huge unrealistic income). I thought I could subtly point out your error, sorry.”
“You [Rob] obviously don’t understand IRR or cap rates …”
And now you say:
“3. I post showing the rent required to come up with your CR.
4. You somehow interpret my post as being a lesson on how to calculate CR’s. ”
It seems like a pretty straightforward interpretation based on what you wrote. Anyway, this is getting tired. You made some bad assumptions and got called on it. Quit trying to wriggle off the hook.
Right Rob, whatever you say.
BTW how’s your “sign language english” coming along?
Tony, I’m just quoting you on this. I’ll interpret your “whatever” as an admission that you don’t have an argument or a position other than being frustrated and pissed off, which is why you try to disprove or invalidate things I’ve never said.
FWIW, I don’t find written English a prohibitive medium. Its you who uses it as an explanation of unsupportable statements. Feel free to cut and paste my quotes indicating that I think the NV property is a good investment, that I recommend buying without looking at metrics, or that I don’t understand cap rates or IRR. If you can’t do that then stop making poor assumptions and false claims.