Real Estate Downturn?

[Darb 2k]

Saw this posted a work. Interesting.

Thoughts?

Came across this site which you may want to check out if you are thinking of buying (or selling) real estate in the next while.

http://www.greaterfool.ca/ (MP Garth Turner's book site)

Here's a Victoria-specific letter and response I found interesting:

Hello Garth,
It’s been many years since we last spoke about the time you returned
to government, but I wanted you to know how well received Greater
Fool is out here in Lotus Land. Well, at least by me. I hadn’t
finished the first chapter when I called down to Bolen Books and had
them set aside additional copies for each person in a group I meet
with to discuss investments. You’ve put into clear language what I’ve
been trying to tell people for some time now. Hopefully with your
background to back it up, the words will carry further and with more
weight. I’m even hoping that after reading her copy my mom will be
able to shake herself out of her lifelong fixation on her house.

The sad thing is there are many who will grudgingly admit that what
is happening in the US *might* happen to the rest of Canada, but
*surely* won’t happen here in Victoria. This has added gasoline to
many people’s desire to buy, even in the face of increasing
inventories and stagnant sales.

The unfortunate quandary for people like myself is that for a mid-
thirties, recently divorced, working stiff it looks like *all* the
options are poor ones at this point. Affording a traditional mortgage
on a single self-employed income is prohibitive, renting anything
affordable has far too many restrictions (no pets, no gardens, etc),
the new mortgage options seem to have more downsides than ups for the
person paying the bill, and it’s looking to get worse as costs
continue to increase across the board due to Olympic Inflation while
wages lag.

Thank you for your time, and all the advice over the years.
Cheers,
Scott

--

Yes, delusional thought seems to be a by-product of living in
Victoria. Granted, it is a jewel, with lots of cultural stimulation,
an enviable climate, wondrous geography, a quaint way of life,
government stability and memorable architecture. All that supports
local real estate and has resulted in a premium for houses located in
the region.

However, you must remember that affordability levels have plunged as
prices increased, and with the inevitable economic downturn gripping
the national economy, this problem will be exacerbated. The second
major concern is that Victoria’s relatively small population demands
a sizeable net inflow of people in order to sustain real estate
values. Those people – buying homes worth an average of over $600,000
– need to dispose of real estate in other regions, usually Ontario,
before they can buy over-priced digs on the island. But the market is
falling apart back East, and the disintegration will only pick up
speed over the next year. Conclusion: Victoria prices now have just
one direction in which to travel. And anyone buying in the next 12
months will, unfortunately, regret it. The phrase, ‘greater fool’
charges to mind.


From: http://www.greaterfool.ca/2008/04/12...nt-into-heloc/

[ostampflee]

The stupidity has to end at some point... you need six figures of income to buy anything that you could raise a family in, and I dont think the median income in Victoria is anywhere near that.

Watch high end condo prices and the more expensive houses with no good reason for being expensive (Bear Mountain), they'll be the first hit.

[Darb 2k]

I hope so. Gives us Low-Mid class people some hope of buying.

Listings have increased greatly over the last month.

[Hickman]

yeah i her about this as well. i hear ruffly taht houses will be droping 15-20 K in the next 8 monthes.

[Victoria SiR]

Pretty much the main reason I have been waiting.

[Hickman]

Originally Posted by Super WOP

Pretty much the main reason I have been waiting.

/agree

10 char....

[rental_metard]

I'm hoping for it. Some houses here i saw were way too expensive for their size / local. Their was a house for 700k like two blocks from $$$$$$$$. Fuck that.

[MidnightMechanic]

Its already happening. A friend of mine's parents had their house up, just dropped the price $20k to get more interest. It will turn into a buyer's market in no time.

[Vette Dood]

If you look at the housing market historically (in Victoria) over the last 40 years, there is a very clear trend with how the market changes. There has been almost the exact same trend 3 times now. Property value maintains a constant value for 7 to 10 years, then over the course of 3 to 5 years it will double in value. Towards the end of the doubling period there is a small dip of 5 to 10% before it flattens out and repeats itself on teh same cycle. If you look at the pricing in the market, we are just coming to the peak of that doubling phase. If you look at the properties on the market, it is a good indicator that that hump is being crossed and there will be a downward shift over the next 12months. There is more property currently on the market then there has been in like 7 years. Every month there is less being sold. The Victoria Real Estate Board has very good published statisics if you want to take a look for yourself. While no one can predict the future, I would say the likely hook of atleast a 2 to 3% drop is high, and a good change of a few more points beyond that. In a market where a house will run you 500 large, 3% is a nice size of change. For those that think your average starter home is going to drop down $200k, I have news for you... people are going to still expect to pay over $400k if not more for a starter home, but I feel there is still a bit of time before the market is just right to buy in. Another indicator is new condo developments. There are several in the city (Dockside Green, Reflections..) that can't continue development do to lack of pre-sales. This is a great indicator of the bottom side of the market going down, and that will suck in all the other prices. For anyone holding out in a 50% reduction in housing prices, good luck - it won't happen. If you want to save your self $25 - $30k I'd bank on buying in Q4 2008 / Q1 2009.

Another thing to keep in mind is that waiting to save that few extra thousand may end up burning you on interest rates. No one can predict the rates, but there are a lot of people floating variable rate mortgages. There are also alot of talk and fear rates are going to go up. This is starting to cause a shift from variable to fixed rates. One thing you can count on is the banks taking advantage of the demand and bumping the rates up of a fixed rate mortgage. Some lenders are already trending this way.

My best bet at this point is to watch the market like a hawk, have all your ducks in a row to get your mortgage. Wait as long as you can, and then get a pre-approval and a rate hold on a fixed rate mortgage before it bumps. Hopefully your lender will guarentee it for 120days, then start to move on houing. That gives you 4 months at todays rates to find a house and for the market to shift a bit further.

Those are my thoughts and plan at this point.

[Great68]

Well, Phase 3 of Dockside Green has been put on hold because they haven't sold all the units from Phase 2 yet.

That's not a good sign, the whole Dockside Green site is supposed to be 10 phases, 1000 units when all done, and they're having trouble selling their 250th unit.

Of course, $350K for 600sq ft is a freaking rip off, even for the location and all the frilly "Green" things that place has to offer. These condos are no "starter homes".

I guess it only appeals to the trendy urban greenie weenie, latte sipping, beret wearing, haiku writing motherfuckers.

I didn't buy right when I moved here because I bet on prices dropping. I'm happy it might be actually happening.

[sixthgear]

prices come down, rates go up. Best to see if you come out ahead with this "down turn". Personally, we are still going forward with building a new house. Our house may "drop" 15-20K, but it is still way higher than what we paid for it.

[Victoria SiR]

If rates aren't in the equation the situation changes.

[Enraged]

historically, variable rate mortgages cost less, but there is, obviously, a risk. I'm looking at buying in Q1 2009, so I have been watching all of the listings on mls. more and more are being relisted at lower prices.

it's good to see there are like-minded people in Victoria who realize that $300k for a 650 sqft 1 bedroom condo is not a good deal...

[Vette Dood]

In my opinion, rates are always in the equation. Even if I had enough money to flat out buy a house I wouldn't. Id spread it across 20% down on as many houses I could that had a 2bdrm suite, mortage 80%, double rent the property and have the two suites pay off the mortgage for you. Thats just one option though.. with the market topping off, and lots of money to play around it may be more cost effective to use the large sum of cash to invest else ware for a 'lower' risk investment, but a higher return then would be payed in mortgage rates. Then either rent a full house or put 20% down to cover the mortgage and pay the interest rates on the principal. There are good reasons why investors don't think property is a good / safe investment and would rather rent then pay a mortgage and invest money into something with higher / safer return. There are plenty of places that are moderate risk to dump money into with 12% dividends, I don't think property is going to get that kind of pace anymore.

[Great68]

Originally Posted by Enraged

it's good to see there are like-minded people in Victoria who realize that $300k for a 650 sqft 1 bedroom condo is not a good deal...

You couldn't even fit a queen sized bed in the Master Bedroom of a typical suite at Dockside.

And if only people could see how shitty these things were actually built (Like I have), they'd be running away...

[rental_metard]

Originally Posted by Great68

I guess it only appeals to the trendy urban greenie weenie, latte sipping, beret wearing, haiku writing motherfuckers.

dottie ?

[sixthgear]

Originally Posted by Super WOP

If rates aren't in the equation the situation changes.

Yes, if you paying for it 100% up front then interest rates are not in the equation. Sadly, 99% of buyers aren't in the situation to pay for a new place all at once. A small change in the rate can sometimes be the difference between someone affording a place and not affording it. Personally though, if you can't take a change in the rate, you shouldn't be looking at a place worth that much.

[Vette Dood]

Originally Posted by sixthgear

if you can't take a change in the rate, you shouldn't be looking at a place worth that much.

Example: USA

[TouringTeg]

I don't think there is anyway rates can stay as low as they are. Interest rates will need to be rasied to slow down the inflation rate. With gas and food prices skyrocketing and a slowing economy worldwide there aren't as many buyers. I agree that we aren't going to see anything crazy like houses under 300k. Victoria is still very desirable and boomers are looking to retire somewhere nice.

We bought our condo in Q4 07 and are happy. We plan on keeping it and renting it out and buying again. We were considering buying again earlier this year but it was clear prices were going to start coming down.

[Victoria SiR]

Originally Posted by sixthgear

Yes, if you paying for it 100% up front then interest rates are not in the equation. Sadly, 99% of first time buyers aren't in the situation to pay for a new place all at once. A small change in the rate can sometimes be the difference between someone affording a place and not affording it. Personally though, if you can't take a change in the rate, you shouldn't be looking at a place worth that much.

Fixed for accuracy.

[sixthgear]

Originally Posted by Super WOP

Fixed for accuracy.

Not really. I am a 3rd time buyer and I don't have 100% to put down.

I bought my house when I was 22. 8 years later it's worth ... 4 times more. And guess what, when I bought it for $130,000, it was just as tough as it is now to get money. Banks were WAY less likely to give money out to people, and interest rates were significantly higher. We couldn't get over $150,000 from the banks, and my wife and I both had very good income and a large down payment. So even if prices drop (especially because of economy), then interest rates are going to go up and banks aren't going to give money out.

On another note, but I want houses to stay as expensive as possible. It's not that I don't want you guys to get houses, but equity is king and it really has given me financial freedom. However, I can also see not wanting to get into a $400,000 mortage. Especially if the markets do crash and interest rates go through the roof.

[Black SC2]

This may be weak advice, but it helped her ladyship and I a tonne when it came to purchasing our house; get something with a mortgage helper in it. Having the rental income allowed us to get into a house size/ locale that we otherwise couldn't afford, and will also help us ride out potential rough times ahead. There seems to be a fair bit of land zoned as R2, so if you're looking around, keep those areas in mind. Illegal suites can be more trouble than they're worth, and you can't claim the potential rental income when it comes to shopping for a mortgage.

[Great68]

Originally Posted by Black SC2

This may be weak advice, but it helped her ladyship and I a tonne when it came to purchasing our house; get something with a mortgage helper in it. Having the rental income allowed us to get into a house size/ locale that we otherwise couldn't afford, and will also help us ride out potential rough times ahead. There seems to be a fair bit of land zoned as R2, so if you're looking around, keep those areas in mind. Illegal suites can be more trouble than they're worth, and you can't claim the potential rental income when it comes to shopping for a mortgage.

Werd.

Mortgage helpers helped my cousin buy a $550K house as his first home. Granted the house needs A LOT of work, but he's a journeyman carpenterso for him it's easy. Houses with legal suites already built into them are hard to find though. I know when I was looking for a place to rent only a few of them turned out to be fully legal.

[Nightwalker]

Good time for this thread, I have an appointment with my loan officer to discuss this on Tuesday. I'm looking now but probably won't be after anything till 4th quarter, or 1st quarter 09.