Entries from July 2011 ↓

Dear Garth

In my last pitiful post I mentioned that most of the people who come to this site never leave a comment. With an army of blog cutthroats, fact police and omniscient doomers ready to eviscerate the unsuspecting, not sure I blame them. You need rubber boots, a helmet and personal intimate protection just to click on the damn link.

This may be why lots of others choose to email me instead ([email protected]). Good choice. I’m happy to get the feedback, pick up the intell on various markets and have the chance of responding to people who are not called ‘Cookie Monster’ or ‘HouseHornyHousewife.’

Of course, scads of notes to me go unanswered since I just don’t seem to have enough time. But they’re all illuminating. As we head serenely into a Canadian long weekend and an American crisis, I thought I’d share a few.

Great website.  Just had my first experience with a real estate agent in Vancouver. I live in South Korea but am on vacation for 2 months to visit family. My brother thinks I should move back to Vancouver so is encouraging me to check out some homes. We happen to pass by an open house in a 3 floor townhouse. We checked it out – pretty nice but it’s a total of 4 floors – including the downstairs which just leads to a nice indoor parking lot. This is in North Vancouver btw. Inside we found out that you have to be 55 or older to live in these townhomes, which is bizarre considering the steep steps. The place was about 1700 sq ft, and going for $767,000. Being 41, I couldn’t buy even if I wanted to but had an interesting chat with the agent there. Of course, her mantra was that it’s a great time to buy and prices weren’t going to crash. She did admit that the condo market is softening and one could get away with a low ball offer. In the course of our conversation she mentioned some interesting numbers: 7% of the people buying were Asian and 78% of the houses put on the market were not selling.

What floored me in our discussion was when I asked her the real reason behind the RE price increases in Vancouver. Her reason: “Everyone wants to live here.” I then brought up the low interest rate factor, mentioning the 0 down 40 year mrtges, which turned to 5 – 35, then 5-30 etc. She told me that was ridiculous and that there never was 0 down 40 year mrtges. I thought I was in the twilight zone. I told her that was fact but she refused to believe it. So according to her , and most real estate discussions I’ve seen in the main stream media, low interest rates never come into the housing boom equation. I’m leaving Vancouver. – John B.

Good idea, John. Hard to know what’s more disgusting – agents as devoid of knowledge as they are of experience or ethics, or a 1,700 square foot TH in an ugly burb on the wrong side of the bridge for $767,000. Come back from Korea next summer. Both will be gone.

Garth: I think you should add this to your Calgary POS file: “All offers subject to Court Approval.”

I watch this market like a hawk..this property has had a bizarre listing history.

Jun 17 2009 — 2.95M
Aug 9 2009 — 3.55M
Aug 11 2009 — 4.55M
Aug 24 2009 — 3.45M
Aug 25 2009 — 2.95M
Dec 31 2009 — 2.79M
Mar 09 2010 — 2.39M
Feb 11 2011 — 2.35M
Jul 26 2011 — 1.85M Power of Sale

Predictions?

Sure. I predict a lot of CREB yahoos will be eating their white Stetsons over the next few seasons, as train wrecks like this one pile up in those ‘demand’ neighbourhoods like Aspen Woods that sane people want nothing to do with. But what excellent porn! “Gleaming hardwood and travertine floors, soaring ceilings, gourmet granite kitchen with breakfast bar and nook.   Generous mudroom with plenty of built ins and laundry area.  Upstairs features 3 bedrooms each with its own ensuite, master bedroom completed by spa like ensuite (body sprayers, steam shower, his and hers sinks) with has huge walk in closets with built ins and even a lookout to the backyard.  Basement is fully finished with media room, games room with wet bar and 2 more bedrooms.” But then this. “Property sold on an ‘as is’ basis with no warranties or representations on behalf of the seller or its agents.” Ooops.

Hi Garth: My friend told me about your blog 2 months ago and I have been reading it daily ever since.  Now I found myself having a tough time deciding what I should do…

I am in my early 30’s and I am starting a new career. I own a 4 bedroom, 2 bathroom house within a 10 minute walk from downtown Victoria. I paid $440,000 four years ago with $45,000 down and have subsequently put about $30,000 into renovations. I have a $360,000 mortgage and I am on a variable rate of 2.65% with 36 years left on the mortgage so I pay ~ $1445/month including property taxes. I have the house rented for $2100/month (plus 2/3 hydro) and I live alone in a very comfortable detached 2 bedroom suite at the back of the property.

As it stands, the rental income pays for my mortgage, property taxes, house insurance, utilities and puts a little money aside for repairs. As I have lived in the suite for free I am able to save about $1750/month and now have an investment portfolio that is around $60,000. I would like to live in the suite for a couple more years while I settle into my career.

If I sell my house I figure I could get $525,000 if I was lucky, and taking everything into consideration (outstanding mortgage, down payment, renovations, realtors fees, blood, sweat and tears, etc) I am guessing I would have about $40,000 in my pocket. I know interest rates will increase and property values will drop however, I am unsure if I should “get out while I can” because I feel I am in a bit of a unique situation due to my rental/living situation; Victoria’s low vacancy rates; it’s high rental costs; and, students always looking for a place to live.

Do you think Victoria’s property values will drop more than 10%? Do you think an increase in mortgage rates could increase the number of house rentals which will subsequently lower rental prices? Do you think I should just “ride it out” and hold onto this property as an investment?

I am willing to take your advice and change to a 5 year fixed mortgage but if you think I don’t have anything special and it’s time to sell, I will sell now and moor a boat in the inner harbor! I am having a tough time getting unbiased advice as my real estate agent and mortgage broker seem to have skewed opinions. — Steven

Of course prices in Victoria will fall 10%. At least. The place is grossly overvalued, and the local economy continues to wilt. Prices up-island are already heading into the dumpster as listings soar and sales melt. Without all those greater fools from Mississauga and Edmonton, Victoria’s cooked. And they’re staying put. In any case, you’re a smart boy and I like this arrangement. You can weather lots. Stay the course, and stay out of that harbour. Floaties.

Hi Garth, I would like your opinion as your a very intelligent person, who can give me an objective opinion, which I need. My friend Jami-Lee, wants me to buy a small house. She’ll move in with me. I am supposed to put her name on the house and she,’ l pay all the bills. The problem is she isn’t my girlfriend she’s a playgirl with lots of guy friends and I wonder if there will be problems when I get a girlfriend or if I am just being cynical and that this makes sense. Drop me a line soon. John Sturdy

OK, I know what you are thinking. Jami-Lee? Playgirl? Mr. Sturdy?

But, no, I didn’t make this up. Honest. I’m not that good.

Extremism

Yesterday the webmaster for this diseased site gave me a new toy. It’s a page full of flashing lights, tumbling messages, gaily coloured maps, morphing numbers and crowning it all off – a big speedometer thingy. It tracks how many people are visiting the blog at any one time, with the needle swinging as people sign on, read my words, then leave in utter disgust. It even has two gauges below tracking who’s reading and who’s writing a comment.

Hang on a minute…

Okay, just checked. I’m scribbling this at 9:47 pm Wednesday night, and there are 178 people on the site. Of those, 11 are now writing comments. 141 live in Canada and the rest are all over the place. Several are apparently throwing up.

I mention this because only 1% of the people who come here actually leave a comment. I just pray to the goddess above they don’t represent society as a whole. Cuz then, we’re screwed.

The common wisdom seems to be that the world is about to flame out, the US will go bankrupt next Tuesday, banks, governments and financial markets are all rigged in favour of The Man, interest rates will stay low (or decline) for years to come, the money in your bank account is ‘worthless fiat toilet paper’ and nobody is ever, ever to be trusted. Yes, this is the guns-God-gold-tinned tuna crowd, and I expect over the next few days my speedo will be redlining with whackos.

Now, in the real world, big difference. There’s a new survey from Manulife, for example, which just asked people what they feel confident or worried about. Is it their money becoming worthless? Banks collapsing? Stock markets crashing? Those bubonic-laced roaches crawling over from The Coming Depression site?

Not so much. The two items of least concern — stock market volatility and the value of the dollar. The things people get horny over, their TFSAs and real estate.

This doesn’t mean we shouldn’t worry about the End of Days, running out of oil or C Difficile, but it probably means common sense lies somewhere between utter systemic economic devastation and looking at the Property Virgins babe in her tank tops. Let’s remember that what people think is going to happen actually plays a role in making it happen, since 60% of the economy is the result of consumer spending.

Of course, there will be no generational financial crisis next week. But between now and then, I sure expect wonky markets and dumb predictions. In fact the 267-point drubbing on the TSX Wednesday had me wiping drool off the monitor, as great companies went on sale. Still, this is not the time to be buying individual stocks. You are much better off spreading the risk around with exchange-traded funds, and making sure you have those bonds and preferreds to balance.

Sure, people love their tax-free savings accounts, but 80% of them contain (of all things) savings. That’s like me being celibate. A crime against nature. Instead, these things cry out to be stuffed with saucy growth assets and set loose in the sun.

But enough yammering, Here’s Sandy. Whazzup, dude?

Hi Garth: I’m writing hoping you can help a brother, help a brother out. The brother in question is 37, single, with a daughter who lives with him part-time. He earns $75K a year in a government HR job. No debts but investment holdings under $100K. He bought a Toronto condo at Yonge and Sheppard for $290K in 2007. Sold it last week for $355K. The reason? He wants to buy another 2 bedroom condo at Yonge and Bloor for about $425K to live the downtown lifestyle again. Fair enough that he wants to be in the centre of the universe. However, I have made the case countless ways that he would have more flexibility and be ahead financially by renting a place. He’s not listening to me, only boasting of the 3.7% rate he can get on a 5 year fixed mortgage. Could you spell things out for him in your usual gentle, mild-mannered way? <cough>

See what I mean? Manulife nailed this. People continue to have a high degree of confidence in the homes, believing them to be the best investments possible, after their TFSAs full of savings earning less than the inflation rate. And folks will continue to believe this until they see overwhelming evidence to the contrary – which is prices actually declining.

So what to tell Sandy’s brother? Well, I guess we could start by pointing out that with closing costs his old condo cost $296,000 (and maybe more if he had an ED down payment). And after commission, he walked away with $337,000 (less if a mortgage penalty). That’s a value gain of $41,000 in four years, or 13% — barely over 3% annually. At a time when inflation is 3.4%, that hardly cuts it as an investment.

More salient is the fact 17,000 new condo units will come on stream in 2011, and that about 60% of them are being purchased by investors, 90% of whom have no idea what the hell they’re doing. Prices have been forced higher by cheap rates and idiot speckers, but rents have flatlined. As a wise poster pointed out here yesterday, the $145,000 condo he rented for $1,650 a month years ago is now worth $300,000 and still rents for $1,650.

In fact, renters in this environment are being subsidized heavily by owners. Rents barely cover property taxes and condo fees, let along financing charges or the lost investment power of the equity. Condo renters can flit among the newest projects as they come on stream, while owners are stuck with last year’s model. And as supply overwhelms demand amid rising rates and slumping buyer demand (both are coming), those with a lease will look like geniuses. Your brother will look decidedly unhip, trapped in a concrete box where liquidity’s as rare as grass.

So, stop trying to save him. Let the sibling rivalry juices kick in. Two years from now you get to gloat and dominate, watching as the self-confidence drains from his limp form. What could be more satisfying?

Holy crap. It’s 10:28 and the speedo needle just jumped past 350. Gotta go. Barbarians at the gate.