dboy

I don't think this is a strong indicator that the market as bottomed out yet.The economy will contract 3% in BC and more job losses are a certainty. Moreover, investors don't see any value in re at the moment, not until there is a better a connect with rental vs ownership rates. It is still much better value to rent than own.

As Alan said, i feel that we are in a dead cat bounce. I make well over 6 figures and don't feel comfortable buying until prices drop to around the 2005 levels, which is when fundamentals started to fall apart and sanity left the market. This is not new york, london or San Fran - our wages can't support the overpriced real estate it is an economic certainty that prices will eventually fall.

Butch Cassidy

I dont say it was an indicator that the market has bottomed, I dont have crystal ball and I am not prepared to say with any certainty what will happen tomorrow.

Very dependent on your market and (in a lot of cases) how lucky you have been. At the moment 75-80% of FB that I come across are prepared (at least partially) to buy because their mortgage payments would be lower than they are currently paying in rent.

What has concerned me MOST this week is the current promotion by ATB where they are offering cashback mortgages (upto 25k back which you can use for the down payment) at just shy of 6%. Assuming you can qualify on income this raises your budget for a home by UPTO half a million. Now THAT is INSANE

Alan2005

Cashback mortgages!!! - otherwise know as instant negative equity. People who take these kinds of mortgage are financial muppets. As is anyone taking a mortgage today thinking these low rates will be here forever.

Melmouth

This comment needs some qualification. The only people for whom high interest rates are ALWAYS bad are banks and realtors/estate agents... because the high repayments push capital values down and thus percentage based commission falls.

Obviously they also catch out buyers who bought at times of high capital values/low interest rates.

High interest rates are actually very good for financially responsible savers and first time buyers. Prices are forced down and value up. The benefits run even further as they usually reflect high inflation, which eats into the already low capital repayments. Anyone who bought in the UK in the late 70s and 90s it very grateful for high interest rates as they have earned a lot of money as a result.

Just one example: The postman, immigrant father of a friend in London bought a £20,000 house in Islington in 1978. It is now worth over £1 million. Postmen only buy houses in Islington when interest rates are above 15%.

So actually there are many who would welcome the readjustment that would be forced by a bout of even moderate 8% rates. I think we will see this within the next 5 years as governments try to bring commodity price inflation under control. That inflation will probably develop before the end of the current crisis as China and India increase their purchasing of Brazilian food, minerals, wood and oil.

I always find my stomach twists a little as yet another realtor explains to me why a property priced at 4 or 5 times it's construction cost is "great value for money". Those half a million dollar starter homes being sold in Vancouver are little more than run down, second hand, garden sheds and every single current purchaser is signing up to negative equity.

Vancouver's property market has become as financially irresponsible as London's. Prices are now dictated by what can be borrowed, not value. They will see-saw with interest rates and the interiors in the middle and lower price ranges will be poorly maintained as the entry price drains purchasers of resources... but that's the modern business of bankers and realtors... bleeding the middle class.

dboy

Well said, i too would take higher rates with more realistic house prices. The low rates are just another invite into toxic debt - god help us> I wish realtors were more accountable, but I guess we are all responsible for ourselves.

Alan2005

That's my attitude too - we don't have to buy their snake oil just because it's for sale.

jerry brewer

Hi
A good one I was told the other day,
as to find out when the housing market was bottoming is to watch the current gas prices at the pumps, if they are slowly creeping up it means people are spending and the oil companies think they can get away with more as the economy is improving.
An interesting theory I will be watching this year.
I like talking with long term vancouverites, who have seen it all happen before,they have great stories
like the see saw effect of east - west canadian economy.
if it's bad in the east it's better in the west.. & vise versa

Often wonder if it was the $4 gas price last year that killed the economy and not the negative equity.
cheers
Jerry

Melmouth

The problem is one of a growing population chasing dwindling resources. David Attenborough mentioned a couple of weeks ago that the world's poulation has tripled in the last 50 years.

http://www.optimumpopulation.org/

In that same time the Canadian Grand Banks cod fisheries collapsed to zero and the UK North Sea fisheries is catching about 10% of what it did.

The result will be ongoing inflation.

The solution lies in high quality education and small families.

JonboyE

How do you define value, and how is that different from the price someone is willing to pay? Value is a very subjective concept.


The price yesterday was 104.9 / l at my local gas station - it has been as low as 79.9 in the last six months. I think there is an element of truth in what you say.

My opinion, for what it is worth, is that Canada is not going to be able to hold interest rates at this low level for long. There are too many debt ridden governments in the world who will see reflation as the easy option to reduce their debt to GDP problems. I happen to think that some loosening of fiscal policy and a little bit of inflation will be a good thing. I have absolutely no confidence that governments will be able to control the reflation without some significant hikes in interest rates.

It is a bit of a dilemma, as house prices tend to lag the real economy by 12-18 months there may come a time next year when house prices are still falling, and long-term interest rates are climbing. This will reduce affordability and tend to keep prices low, but existing home owners can look forward to some price inflation which will tend to devalue their mortgage debt.

Melmouth

The difference is clear. My choice of terminology isn't necessarily universally acceptable but I would choose to define the situation thus:

A value led market (e.g. Berlin, Germany):
Supply outstrips demand; price is moderated at the low end by costs and at the high end by the availability of other choices; purchasers consider purchase price as they would a car.

Here's the result on price of a house in need of basic restoration in the suburbs:
Suburban 3 bedroom detached house: £100,000
Cost of renovation (high expectations in Germany): £80,000
Final value: £250,000
Gross profit: £70,000

This market, in a high wage economy, sees very little price fluctuation. Mortgages are typically 25 year fixed rate for the full term.


A credit led market (London, Vancouver):
Demand outstrips supply; anxiety, dishonesty (false income claims) and foolishness (banks not checking creditworthyness; lending excessive multiples of false salaries; purchasers ignoring the risk of interest rate increases) drive price and is moderated only by what people are allowed by banks to borrow; purchasers are encouraged to ignore total capital outlay and consider only monthly payments.

Here's the result on price of a house in need of basic restoration in the suburbs:
Suburban 3 bedroom detached house: £400,000
Cost of renovation: £20,000
Final value: £410,000
Loss: £10,000

This market, in a lower wage economy than Germany, sees vast fluctuations and negative equity roughly once a decade. Mortgages are never 25 year fixed rate for the full term. They are typically variable after the first 2 years.

The result for Londoners is that they pay much more than Germans for their house, do less restoration, and have to live in much poorer quality interiors because a much higher proportion of the price is the 'entrance fee'. That does not exist in the Berlin market where a buyer can, should he choose to, pick up a derelict house for £5000.

I was at an auction in which a well maintained 20 bed Gutshaus in Hoppenrade, 2 hours north of Berlin, in 5 acres of gardens, sold for £15,000.

Look at the graph on the front of this site to get an idea of just how unstable the London property market is:
http://www.housepricecrash.co.uk/

That fluctuation in average price is characteristic of a market not priced on simple value to the consumer but reflecting the cost, and thus the quantity, of capital borrowed. Vancouver has reached the point where it is now mimicking post WWII London.

Melmouth

And the corollary to that is that savers are about to be robbed... so choose your moment to invest in something the government cannot devalue.

Alan2005

Nearly - certainly $150 was a wake up call for the worlds economies. And this was mainly due to the energy markets soaking up the excess liquidity when the real estate markets no longer could. Easy to see in hindsight - but I bet the smart money went from real estate to energy and then to gold (and is probably still there).

Currently what is stopping a recovery isn't the oil price (oil is probably undervalued now) - it's the availability of credit. At the peak of the real-estate boom, about 2/3rds of western mortgages were funded by securities - this market is now well and truly dead - and without easy access to credit, the amount of bidding up people can do is limited.

Also I expect that the appetite for western government debt (particularly US debt) by cash rich nations will lessen unless yields (and thus interest rates) rise. I expect interest rate rises within 18mos - recovery or not.

Alan2005

Is it shiny and yellow?

Alan2005

You are thinking of wage inflation - this isn't the same as price inflation. It's likely that we will all just get poorer.

Note: I know how to multi-quote - was just being lazy

Melmouth

Thought there will undoubtedly be fluctuations in its price it doesn't reassure me because I don't think governments would not allow that much value to land in the hands of those who have hoarded it... they have a habit of confiscating it when feeling worried, or broke.

These are unsettled times. I'd think in terms of basic necessities.