Amused in Edmonton

Housing boom ‘officially over’

‘People need to know the truth’, appraiser says

Hi Garth
I’m an appraiser in Edmonton, here are some comments.

Realtors
I think one of the biggest things people don’t realize, is that a buyers realtor does not have your best interests in mind. When a buyers realtors’ commission is based on a % of the sale value, then how can they serve their clients best interest? I am constantly seeing out of town investors getting fleeced. It’s funny too that last spring during the peak, realtors were saying “now is the time to buy”. Here we are one year later, many people have lost a lot of money if bought last spring, and the real estate board is saying the exact same thing.

People need to know that even if they have a realtor “working” for them, it is still buyer beware. A good realtor should show you actual sales of similar properties that have recently sold to justify what he/she thinks the offer should be.

When it’s easier to become a realtor than it is to become a forklift driver, it says a lot!

House as an ATM
I don’t know how many homes I go into and there are multiple flat panel tv’s, toys in the garage, all new furniture. And this is all with mom staying home with the kids. How do they afford it? Interest only HELOC’s.

BOM now has a LOC that increases as you pay off your house.

Recent Appraisals
New House bought last spring from builder for around $440k incl GST. Went for financing in Feb to take possession, appraised at around $375.
Resale condo downtown last March bought for around $330k, sold this March for around $280k.

CMHC
They don’t have appraisals done on purchases. I see homes all the time sell for higher than they’re worth and I bet they’re CMHC homes.

Inventory keeps going up, buyers aren’t buying, and yet people still think the boom will continue. No we’re not like the States at all! ha!

Thanks for what you’re doing. People need to know the truth, not what realtors and bankers are saying.

Regards,
Amused Appraiser in Edmonton

27 comments ↓

#1 Not Young on 04.16.08 at 10:10 pm

Amused Appraiser in Edmonton,

Thank-you so much for your comments. We need more people that are in the industry stepping up.

#2 Al on 04.16.08 at 11:55 pm

I think it’s a bit ironic that an appraiser who’s figures have a material effect on how much a purchaser can borrow to finance these properties is throwing all realtors into the same used car salesman’esqe pot.

Believe it or not there are honest ones out there. And at my licensing exam, I believe nearly 70% of the class failed. Not sure how hard a forklift exam is, but if the monkeys running around on lifts at Costco and Home Depot give any idea, it can’t be that hard. Or do they even need a license for those lifts?

When:
1. Buyers start taking responsibility for their own misguided ideas about re going up forever, which is now being automatically corrected for them as we speak.
2. Gov’t, gov’t agencies, and banks stop making it possible to finance anyone with a heartbeat because they can stretch out the payments for longer.
3. The laws are changed so the talking heads at remax and royal lepage aren’t allowed to spew out sales spiels to the public via their ‘just released’ studies.

Then we will all be better off.

And I won’t have to drop what I’m doing at 7pm so someone can go make an offer on a property that got listed 5 minutes ago. It could at least wait till morning :0

#3 Justin on 04.17.08 at 12:51 am

Another post…another testament to the reckless behaviour of the CMHC.

Here’s a Financial Post article from 2006 regarding David Dodge’s criticisms of the CMHC:
http://tinyurl.com/6z8kcw

It’s almost 2 years later and their practices have gotten worse.

#4 Dom-GTA on 04.17.08 at 8:06 am

I have to admit that I find the comments from the appraiser to be a little concerning.

Here is someone supposedly related to the industry pointing out some problems that are existing.

My recent experience with my appraiser was that he/she really knew my RE agent very well and that my agent basically told the appraiser what value we needed. It turns out everything worked out ok and our buyer got the necessary financing.

The truth (imho) is that many appraisers know where their bread is buttered and that in many cases they are are the one’s telling the bank what the house is worth. If their evaluations aren’t in line with what is going on then this run up could never have happened.

If all appraisers simply said, “no this house isn’t worth what you offered” how many purchases would go through?

I think appraisers (maybe this one is an exception) have been part of the problem and not the solution. I look forward to seeing the next 12 months and what happens. It is almost as if the market has to crash for any of us to have any credibility! :-)

Good luck to all.

#5 Amused Appraiser on 04.17.08 at 9:33 am

Al,

I believe it’s the whole system that’s wrong. Easy money, CMHC, reckless borrowers and reckless Realtors/Appraisers. Appraisers get caught in the middle because if we don’t meet the numbers there’s a chance the lender will not send work our way again. Lenders don’t like broken deals (I’ve actually lost client because I wouldn’t raise the value). There’s a reason why laws are being passed in the US to deal with this.

As far as my comments on Realtors, I would have to say 10% of them actually know what they’re doing, and these 10% are really good at what they do. My point is that consumers trust that their Realtor is a professional who has their best interests in mind but when we have to take the time to explain how the MLX system works to a Realtor to show him why we appraised his sale $70k short, I think this proves that it is too easy to become a Realtor. I believe the public would have a higher view of Realtors if they made it harder to become one. Why do you think all these commission free websites are being setup?

People ask me all the time, how is your opinion of value different from a Realtors? I tell them the average Realtor sells maybe 30-60 homes per year (guesstimate on my part, I know some sell a lot more!) whereas the average appraiser will appraise between 500-1000 homes per year. Who do you think has a better pulse on the market? Yet no appraisal association makes public comments about the market, only Realtors.

I do apologize about the forklift comment, I did take that a bit far to make my point.

FYI, I grew up in a Realtor family so there’s nothing I don’t know about any facet of the industry!

#6 pjwlk on 04.17.08 at 9:36 am

Al, two things. First Banks have been approving mortgages based on postal codes and not real appraisals. Second, a friend of mine is in RE and she feeds her clients the same bullshit that the RE board feeds her. She has no real understanding of what’s actually going on in the real world and in my opinion her type is part of the problem just as AAIE suggests.

Apparently there are also a number of agents here in Ontario who are advising clients not to put any conditions in on their offers because they won’t get the house if they do. What kind of a jack ass would recommend that?

#7 Lawrence on 04.17.08 at 10:54 am

Current economic conditions – January – March 2008

Output in January rebounded smartly from a sharp drop in December, reflecting a widespread increase in demand. This was consistent with employment, which picked up steadily through the first quarter.

The bounce in output in January reflected the transitory nature of the factors that depressed gross domestic product in December. Just over half of this decline originated in a sharp slowdown in auto assemblies, the majority of which were related to model changeovers at several factories. Auto output in January recouped about half of these losses, and will continue to strengthen in February as more retooling is completed and cuts to control inventories moderate.

As well, the sharp recovery of transportation and housing starts and a surge in auto sales in January points to heavy snow in December and the impending cut in the Goods and Services Tax rate as factors that shifted a significant amount of activity from December to January.

Every province will benefit from higher business investment in 2008, according to the survey of investment intentions. The pervasiveness of the increase reflects the boom in energy investment in the Western Canada and Newfoundland and Labrador, a surge for mining in Quebec and British Columbia, and a rebound in manufacturing in Central Canada.

Firms in Alberta plan the largest dollar increase in business outlays, up $2.5 billion. The continuing boom in the oil sands and pipelines related to their development drove this increase. Pipelines also played a major role in investment growth of over 20% in Manitoba and Saskatchewan, supplemented by gains in mining and hydro development.

Firms in British Columbia intend to raise capital spending for a sixth straight year, the longest string of unbroken gains in Canada. Its oil and gas industry plans the largest hike of any province this year, after it slowed in 2007. The mining industry also intends to nearly double investment to $1.2 billion. Increased spending downstream in smelting and refining helped offset declines for manufacturers of forestry products.

Manufacturers in both Quebec and Ontario intend to invest more, after cutbacks in 2007. Refiners of oil and metals led the turnaround in Quebec. Further upstream, mining operations in Quebec also plan a large increase to $1.9 billion, the most in Canada, reflecting Quebec’s diverse metals base of gold, copper and iron ore. Ontario’s manufacturing investment increase was smaller but more broadly based than Quebec. As well, gains in finance and transportation offset a drop in mining.

Newfoundland and Labrador led investment plans in the Atlantic region thanks to its offshore oil development. All the maritime provinces posted modest gains in intentions for 2008. New Brunswick has the smallest projected increase of any province, as work slowed in transportation.

#8 Lawrence on 04.17.08 at 11:03 am

High commodity prices, favourable balance of trade, low CPI numbers, low levels of government debt, annual government surpluses for ten years running, and reports as above seem to defy the “prevailing sentiment” and opinion of our friend Garth.

I guess flogging a book is a legitimate activity for an MP, especially one called “The Greater Fool”?

Who is the fool?

Garth seems to have a vested interest in protecting financial planners (he is one of them) and not delving into the ABCP scam that has affected each and every RRSP owner in Canada and the retirement dreams of many who thought they were doing the prudent thing by buying AAA investment vehicles.

Garth, who is the greater fool?

I am not, and have never been, a financial planner. I have never collected a commission for selling any financial product, nor have I ever been in the employ of a company selling products or financial services. My views are 100% independent. Suck on that. — Garth

#9 John on 04.17.08 at 12:32 pm

Al Bundy,
If 70% of your class failed your licensing exam, then you must have not been among very intelligent people to say the least. I have come across several realtors here in Calgary and most have just a high school education (barely graduating with passing grades). So being a realtor can’t be all the hard. There are very similar appraiser stories in Calgary nowadays as well. The bubble is on its way to popping.

#10 Dom-GTA on 04.17.08 at 2:14 pm

I just want to make sure that Appraiser doesn’t think I am criticising him. This is about the industry and the incestuous circle that is involved:

Economists—Shout about how “strong” our economy is and how diverse and different from the US
RE companies- Tout the strength of the housing market
Brokers/agents– Perpetuate the “buy now or be priced out of the market” strategy
CMHC/Banks/Appraisers –Approve and fund the transactions

Seems to me that we really need an “objective” entity that can help buyers “beware” a little more. When we say something we just get told off by people like Vultur et al.

Thanks Garth for “maintaining” these blogs as I think this is a place where people can hear something other than “professional” advice. If even just 1 person is saved the misery of losing 50K or 100K because they buy at this peak then the value of what you are doing is borne out.

#11 Jeff on 04.17.08 at 2:38 pm

Housing boom ‘officially over’
The Globe and Mail
http://www.globeinvestor.com/servlet/story/RTGAM.20080417.wcrea0417/GIStory/

#12 goat n snail on 04.17.08 at 3:52 pm

Housing boom ‘officially over’
LORI MCLEOD

Thursday, April 17, 2008

It’s time for Canadians to bid the housing boom farewell as data for the first quarter of the year, released Thursday by the Canadian Real Estate Association (CREA), showed a 13 per cent tumble in existing home sales year-to-date.

“Canada’s six-year housing market boom is officially over. Aside from a few choice Prairie locales, sales are melting faster than this year’s snow pack,” Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc., said in a research note.

http://www.globeinvestor.com/servlet/story/RTGAM.20080417.wcrea0417/GIStory/

#13 CMU on 04.17.08 at 4:20 pm

Well the war weather is here and it looks like the real estate machine is humming. Here in dowtown Toronto where I live the “For Sale” signs are popping up en masse. One thing I’m noticing is quite a few of these places were up for sale in the fall of 2007 when their “For Sale” signs up and disappeared over night.

Me thinks were are beginning to see the start of the slowing market. These houses that did not sell at the end of last year are now again on the market. I’m keeping my eye on a few of them to see if they actually sell.

By the way, I’m in the “trendy” area of Queen West, yes the “trendy” area where: 1) an innocent man walking down the street was stabbed to death by pan handlers last summer etc. etc. (I could go on but anyone that lives in this area is familiar with its dynamic) and not referring to the real estate spin on this area.

#14 Al on 04.17.08 at 5:10 pm

“Al Bundy,
If 70% of your class failed your licensing exam, then you must have not been among very intelligent people to say the least.”

Good one. Don’t quit your day job just yet.

#15 Lawrence on 04.17.08 at 5:58 pm

Garth

Since you derive income from book sales dealing with financial planning and financial forecasting, most fair minded people would say you work in this industry whether you have a license or not.

Why don’t you discuss the serious regulatory issues with respect to the real culprits – the investment bankers and “financial planners” who dupe Canadians out of their savings and collect their commisions without penalty? Your silence speaks volumes.

I am an independent author and (for the time being) an MP. I do not sell financial products or services. My opinions on financial matters and economic forecasting are my own, and I am definitely not a part of the financial industry, whatever that is. As for advisors or bankers or insurance salesguys or mutual fund reps or stockbrokers or brokerage houses (or real estate agents), your blanket and unsubstantiated condemnation speaks volumes. — Garth

#16 anxious renter on 04.17.08 at 7:42 pm

2008 2nd quarter bubble pops!

#17 Al on 04.17.08 at 10:17 pm

Amused, you make some good points. However I think the reason for the influx of commission free websites is two fold. I’ll explain the two biggest ones I think are relevant.

1. The ol bait and switch. Alot of these are run by Realtors. They suck a seller into a sweet sounding deal where for a couple hundred bucks they will post the property on their attention grabbing domain name, will all the promise of selling the property and saving thousands on commission costs. If you want more advertising well, thats extra. You don’t want to take appointments? You get the idea.

These sites do work, but the list to sale ratio is abysmal.
So when the property doesn’t sell and the client is fed up with waiting, guess who is conveniently there to take the listing!

2. They may have been a good idea when the market was hot and all you needed to do was put a for sale sign in the lawn. I think you will start to see the numbers of these types of sites steadily drop as all of a sudden it is not so easy to take the FSBO route when there are thousands of properties listed on MLS that can be purchased through an arms length transaction via agents. It costs a buyer nothing to use a realtor unless a buyer agency agreement is in place and the cooperating commission doesnt cover what is laid out in the listing contract. (See One Percent Realty and other innovative commission structures)

#18 vultur on 04.17.08 at 10:36 pm

CHMC and the government (except Darth I suppose) have a strong vested interest in maintaining stable and growing housing prices in order to maintain adequate funding for perpetually escalating municipal budgets. Without rising property values you won’t have rising property tax rolls and bigger budgets to support the dim witted schemes of our local politicians across the country.

That explains the govt mandate of higher real estate prices. The question is how far can the government go (through CMHC programs, etc.) to perpetuate that growth beyond the fundamentals? My money says much farther and that prices in the big centres are pretty safe from big declines, particularly big money centres like Toronto.

#19 Jeff on 04.17.08 at 10:45 pm

Not sure if anyone caught this… one of my clients bought the magazine.
Vancouver Magazine
Sitting Out
http://vanmag.com/articles/08apr/Sittingout.shtml

#20 HHV on 04.17.08 at 11:59 pm

“The question is how far can the government go (through CMHC programs, etc.) to perpetuate that growth beyond the fundamentals? My money says much farther and that prices in the big centres are pretty safe from big declines, particularly big money centres like Toronto.”

Because that worked during the last two RE downturns in the past 25 years too, didn’t it? Like back in 1982 and during 1995 when no amount of government added “stability” could beat consumer sentiment that “now” just isn’t a good time to buy.

#21 Lawrence on 04.18.08 at 12:31 am

Garth;

Canaccord announced a settlement with some, not all, of the holders of ADCP after buying what they thought was paper with a AAA credit. Unsubstantiated??

Every RRSP (and every Canadian who owns one) in Canada is affected, as is the stock price of every financial institution, by the implications that ABCP has infiltrated our securities industry under different guises and with different types of misrepresentation? No issue?

#22 Another Albertan on 04.18.08 at 1:05 am

Current Economic Conditions – Consultants sharing War Stories over Lunch, Calgary version. (a.k.a. stuff you never read about in newspapers and that corporate communications would deny deny deny if ever asked)

just cut the free beverages offered on every floor. So much for relatively inexpensive goodwill for staff from a company that reported $2.6B in profit for 2007.”

” just sent out a memo that for catered lunch meetings – in order to reduce expenditures – it is no longer acceptable to order desserts.”

” was sending contractors in professional positions home mid-way through the day if it didn’t look like they were busy, in order to save money.”

has a long-term incentive package that is vesting as of April 30. Reports of up to 400 older baby-boomer technical and managerial staff tendering notice of resignation, effective after the vesting date.” (“Go on, take the money and run…” – Steve Miller, 1976)

I wonder about all this proposed investment mentioned in a post above. Is it funded through on-going operations or through the markets? If it’s the latter, companies left and right are finding that the corporate credit market is much much tighter than they were expecting.

The energy sector companies I deal with are long-term positive but decidedly cautious and tentative in the short-term.

#23 BH on 04.18.08 at 9:06 am

We are facing an ethical dilemma in our society now with respect to real estate. It is a huge shame and frankly totally unethical for investors (by the way, many foreign investors from Hong Kong, etc) to keep buying property, especially condos in beautiful Canadian cities, such as Vancouver. This very act increases the prices for other people, especially young couples that are just starting out. The result: People who truly need a home “to live in” and not play games with, can no longer afford this basic need. Or, even worse they will have to close their eyes and stretch themselves beyond their means taking out 40 year mortgages…..Should the government not allow foreign investors/non residents to buy property in Canada? Maybe…As a young professional, having a household income of $150,000 per year, I think I should be able to afford housing in Vancouver or Toronto, but I can’t!!!
Or maybe we should all as human beings become more conscious of how our actions, our dollars in a way, are impacting other people’s lives…..

#24 Sphinx on 04.18.08 at 3:39 pm

This housing bubble, like the one in US but with less magnitude, was prolonged by maintenance of two factors: 1-Buyers Sentiment, 2-Affordability. Sentiment is kept high by the 6%ers (aka RE agents), and the MSM reporting stats from banks, CREA, CMHC, builders, etc. So the sheeple keep buying even if they could barely afford taking more debt to their eye balls. Whenever affordability worsen as house prices keep going up and more income goes into mortgage, lenders react by coming out with exotic products (no money down, VRMs, 40yrs mortgage, HELOCs) to push affordability back up. There’s a limit on how much lenders can push, and interestingly the US housing crashed because of affordability (insane prices, subprime resets, option ARMs, 20/80, etc.) then sentiment followed through. In canada, seems the sentiment is turning first, and many looking at what’s happening south of the border and know this market is unsustainable now, even with cheaper mortgage products (40 yrs loan should be called ‘life mortgage’, like life sentence), even with interest rates coming down by bank of canada.

We’ll see how this spring season perform specially with confirmation in the report by Globe & Mail……go get some popcorn.

Sphinx.

#25 Brent on 04.19.08 at 8:35 pm

For your amusement…..

Houston for $400,000

http://tinyurl.com/4h7znr

Fort Mac for $435,000

http://tinyurl.com/5pewwk

#26 Another Albertan on 04.20.08 at 1:45 am

On Sunday, I’m going to be about 20 miles away from that Houston listing.

Interestingly, there are a number of communities around Houston that were developed by Newland – a company that had its genesis in Genstar/Imasco here in Canada in the early 80s.

In the last number of years leading to the US run-up of prices, Newland had significant dealings (hundreds of millions of $$$) with CalPERS (California Public Employees’ Retirement System, a pension fund) and an affiliate of AIG (American International Group, one of the world’s largest insurance companies), amongst others.

My point is that if you do some sleuthing, you can start to see the very interconnected web of organizations who have a vested interest in seeing the real estate party continue. When the wheels start to grind to a halt, it isn’t just homeowners that are affected. The cascaded effects keep knocking dominoes over all down the line.

#27 Dom-GTA on 04.22.08 at 8:28 pm

Wow Brent, I am blown away by the comparison. I can’t believe the crap they are selling in Ft McM.

Absolutely insane, but of course it is justified right?!?!?

All I can say is this is unbelievable…