Vancouver Island realtor Shayne Fedosenko, as quoted on greaterfool.ca 27 Aug 2010 – “[There are] huge concerns and hardships in the new mortgage qualifications regarding suite income and people having to qualify. This is the way that it used to be: you could take the suite income, say it was $1200/month and they would add it to your mortgage qualifications as a $200,000-$250,000 increase in your qualification amount, now what they do is take the amount of the rent: $1200 /month, multiply it by the 12 months in a year and add it to your income, making only an extra $ 40,000+ to your qualification amount. This is why the market has completely softened. The market is completely dead. Brand new houses in Sooke, down to $299,900 from $399,900, no calls. The market has dried up all due to financing. I talked to 7-10 mortgage brokers and many agents while I was at the Victoria Real Estate Board golf tournament and everyone is scared. Hundreds of foreclosures coming, about 75% of the home owners could not qualify to buy their own houses (especially with suite). So what happens when their term of mortgage is up and the banks need them to re qualify? They are doomed. Last month there were 300 home sales on the Lower Vancouver Island with 4700+ listings. One of the worst ratios ever. End of June is supposed to be the closing day of the year. Every Realtor has a few nightmare bank stories right now. This will put us into a huge recession.”
[Yeah, this is what happens when a housing bubble starts reversing. The mortgage changes may seem to have precipitated the reversal, but, if it hadn't been this, it'd have been something else. Bubbles eventually collapse under their own weight; they're ponzi schemes; they run out of new blood. -vreaa]
Do any of you think this bubble is going to burst without a significant decline in employment?
Doesn’t everyone think this? Recessions, job loss, fall in home prices all go hand in hand. The question is how fast will things fall, and how long will it last?
This is a good post as it gives a sense at how horrific RE is doing outside of the city-state of Greater Vancouver. Listen to the anecdotes from Kelowna, Whistler, and the Island, where sales are worse than in 2008. The rest of the year is likely going to be extremely weak for these markets. It’s difficult to say whether there will be a “2009-esque” recovery in these markets but a step-change in affordability and employment seem unlikely.
Why is this relevant for Greater Vancouver? First it gives an indication of where government stimulus monies will end up to bolster job losses: in the hardest hit RE markets meaning less $ for GV. Second there will be knock-on distress that will start to creep into GV, slowly but surely, in the form of worker in-migration and capital losses on secondary homes.
I think it’s really worth asking why Vancouver’s market has remained relatively strong, not why the other markets are weak, as many in the blogosphere have portended weakness is only a matter of time.
Keep fighting the good fight, vreaa.
“The market has dried up all due to financing.”
Vancouver’s market has the same problems and price drops and sales have held up relatively well, though still not great. Weakness is simply because prices became too high. Don’t blame tightened financing; tightening is inevitable.
“Do any of you think this bubble is going to burst without a significant decline in employment?”
It will be a cascading effect… no new construction of houses, then that sector starts to get the slow grind of work shortages, then the ball will keep rolling. It is the same thing that happened to the south of us, many upon many of the homeless were involved in house construction before the bubble burst…. just wait, it won’t be this fast decline, but rather a slow unwinding. I can first hand give to this as my girlfriend is a painter and has been doing it for over 30 years. Things are getting very slow for her work now. this tells her 2 things. Home owners will not hire a painter when they can do it themselves, and 2 there is more competition for painters as new construction dries up. Follow that with cut throat pricings.
Oh yes, we are heading into the 80′s all over again, however, this time around it will be 10 times worse when she starts to kick everyone in the CREDIT binge. In the 80′s if you didn’t have cash you plain and simple did not buy it.
“Do any of you think this bubble is going to burst without a significant decline in employment?”
The market has topped (May 2010) and we doesn’t need increasing unemployment, or increasing interest rates, or any other specific precipitant or perpetuating factor for prices to now proceed to tumble. Sure, those things will speed the descent if they happen to occur, but the most important factor will be the dropping prices themselves: buyers will sit on their hands, speculators will bail, foreign money will stay away (momentum investors don’t buy value, they buy increasing prices), move-up wannabes will be trapped, etc, etc.
Price drops will beget price drops.
Yes, when refinances is on the horizon and people realize they own more than the house is worth and the bank wants the difference before writing you a new mortgage.
See the stampede of people trying to unload the houses as quickly as possible.
Or how many do you know that have $20k+ lying around?
This begs the question – whiter goest CMHC? We are on the hook for over 700 BILLION and they have a float of NINE billion? Did you know that noted Economist’s are saying that TWENTY Major Western Countries are effectively bankrupt. Unemployment in some US States is 22% – inner city Black gents are facing 80%. The numbers for July Home Sales were terrifying. The jobless claims are stark. There are fully 8 Federal Mortgage Fixers on the go and none are working. The US is BROKE> and believe me, dear BC’ite – Canada is going to be in a world of hurt by Q2 2011. The Housing Crash here in BC is going to be something to ne behold. Us hardworking types will also get tagged to bail them out. It is called a Depression, folks. Deal with it. Got Cash? Sell Illiquid RE. Get out of Eqyities. Short Banks. Sell Bonds. Silver yes, ETF;s no. This will be Japana, on steroids.
Well, it looks like our economy is getting worse and worse. Results in the housing sector are quite disappointing as they play a crucial role in our economic growth. But I don’t like the idea of succumbing to pessimism. I still have hope that times will change for better once again.
What we’re facing now is a large cold dose of realism, after years of unrealistic optimism built on people spending borrowed money that they hadn’t earned and didn’t deserve.
You will have a significant decline in employment. You will realize just how many people the extended real estate industry has been supporting: construction people, banking, real estate agents, mortgage brokers (do you guys have those?), architects, planners, designers, landscapers, wood products industry, plant nurseries.
Once those losses set in, secondary employment effects hit among restaurants, retailers, all discretionary spending. Down here, we had significant impacts on government employment as property taxes and income taxes have both fallen. Also, our local government building and planning departments had a ton of excess staff due to the boom times, that was no longer needed after the bust.
Bottom line is that during a bubble, labor and resources end up greatly skewed towards the bubble industry, and a lot of people find themselves far off-sides after it pops.
Sorry to be a downer.