Monthly Archives: June 2012

“I met the landlord’s rep yesterday, and he said prices were going to be weak but Feb 2014 would be a great buying opportunity.”

“I rent a house in a very good area, and was told that it was worth 5 million a couple of months ago when I rented the property.
I was told prices in this area NEVER go down.
I met the landlord’s rep yesterday (he is elderly Chinese, landlord is a Chinese university student!), and he said prices were going to be weak but Feb 2014 would be a great buying opportunity.
I like how he has a very specific date; could be some Chinese astrology call.”

– from ‘T’, via e-mail, 27 Jun 2012

“As a long time tax paying bear bitter about subsidizing the largess lifestyles of those that could not afford it, I will bloody well be a “I told you so type” in the coming years.”

“Get ready and get defensive and don’t gloat and be paranoid. This is going to get ugly starting today.”
Ham Solo at VCI 22 Jun 2012 4:04pm

“As a long time tax paying bear bitter about subsidizing the largess lifestyles of those that could not afford it, I will bloody well be a “I told you so type” in the coming years, albeit perhaps in a more strategic and tactful manner. My coming line will be, “well, if I make more than you, and I sat on the sidelines all these years, doesn’t that tell you something about your ability to afford these ridiculous prices and the sustainability of those prices.” Or maybe something softer like “you really should get in on renting – paying an underwater mortgage is really throwing your money away now with nothing to show for.”
As a six figure single earner, you can be damn straight I will be saying this and I will be bringing it up at every social event, as that would be keeping with the trend of talking about RE at pretty much every social event in Vancouver of the past umpteen years (and no RE is not raised at every event, but RE is a obsessed about topic in Vancouver).
Why should I have to take shit all those years as a stigmatized “poor renter” while prices climbed to the stratosphere, and every hairdresser and Home Depot associate making 50k a year was buying a condo, leasing a BMW, taking Mexican vacations, and buying multiple properties, and then not be able to be righteous when prices crumbled. These people were acknowledged as “investment geniuses” on the way up, so now they can be regarded openly as “investment morons” on the way down.
Payback is a bitch – but we all need to learn that to prevent another bubble in our lifetimes (however unlikely that really is).”

Payback at VCI 22 Jun 2012 4:28pm

For The Record – e-mail From Mortgage Broker Regarding Rule Changes

“Here is an email I received from a mortgage broker who sends me spam emails in disguise of information….just though you may find it interesting…

Dear xxxx:

Last week the Ministry of Finance and OSFI (Office of the Superintendent of Financial Institutions) announced several new tougher guidelines for mortgage qualification. This week it’s apparent that many borrowers are unaware of 2 important details:

1. The Effective Date of the new rules is July 9th (in 7 business days). * Applications must be submitted before this date;
2. BOTH Insured and Conventional (Uninsured) mortgages are affected.

Briefly, the major changes are:

REFINANCE
* Maximum LTV (Loan-to-Value) reduced from 85% to 80%.
* Maximum Ammortization reduced from 30 to 25 Years.
* Maximum GDSR (Gross Debt Service Ratio) reduced from 44% to 39%

PURCHASE
* Maximum Ammortization reduced from 30 to 25 Years.
* Maximum GDSR (Gross Debt Service Ratio) reduced from 44% to 39%.
* Maximum Purchase Price now $1M.

Additional Changes:
* Line-of-Credit LTV reduced from 80% to 65%.
* Increased Qualifying Interest Rates.
* Increased income verification / reasonability tests for ‘Stated Income’
* Cash Back programs may no longer be used for Down Payment.

Some affects of the new rules are obvious, such as greatly reduced purchasing power. Example: A borrower with an annual income of $65K and 5% Down Payment can purchase a $500K home before July 9th and a $410K home after the deadline. However, many of the affects aren’t as apparent for existing borrowers. Example: If the same borrower with an annual income of $65K purchased a home 4 years ago at $500K with 10% Down Payment and Variable Rate Mortgage at Prime -.75% with 35 Yr. Ammortization, even with a 5% Property Value increase ($525K), the current Loan-to-Value is 83%. After July 9th, the borrower would Not qualify for their existing mortgage both because their service ratios and Loan-to-Value are exceeded. Therefore, they are unable to shop competitively for Refinance, Transfer, Debt Consolidation, Equity Take-Out etc. and most likely limited solely to the Conversion and/or Renewal offers (ie. Posted Rates) from their existing lender.

Considering the new rules are intended in part to cool the housing market (and possibly reduce values), an increasing number of borrowers could be affected.

Today’s Best Fixed Rates:

1 Year @ 2.89%
3 Year @ 2.69%
4 Year @ 2.95%
5 Year @ 3.05%
10 Year @ 3.83%

Very Best,
xxxx”

- too much debt at VREAA 28 Jun 2012 8:21pm

First Signs Of Buyer’s Remorse Among West Side Homeowners?‏ – “I foolishly bought into the Westside Vancouver housing market just a few months before the peak of it all and regret it immensely.”

“Reading how some people keep saying “Toronto is hot because it’s central”, “there’s only so much land”, “everyone wants to live here”…. sounds a lot like Vancouver circa 2011.
One year later, we are in a housing slump. Houses are not selling in west side Vancouver (still selling on the east side but that will slow down too), when it was hot hot hot a year ago. I foolishly bought into the west side Vancouver housing market (for only 1.5M at the time which was considered a steal for the property) just a few months before the peak of it all and regret it immensely.
All the naysayers are right. The market will crash and it will crash soon. For sale signs dot the landscape in my westside Vancouver neighborhood. Houses are selling for 100-300K BELOW asking. List prices are often BELOW assessed value.
It will happen in Toronto too folks. There’s nothing special about Toronto.”

Cantor 12 at Globe and Mail, 26 Jun 2012 10:31pm [hat-tip Peter Pan, who asked: "First signs of buyer's remorse among West Side homeowners?‏"]

“Here’s some bearish banking gossip for you as you wait for the Vancouver RE price decline…”

“Here’s some bearish gossip for you as you wait for the decline. A friend of mine, who used to work in banking, called his old boss who is now in Alberta. He called her about the mortgage changes because he is gleefully waiting for prices to deflate and wanted to solicit her opinion. She said something along the lines of hang onto your hats. The banks (like hers) may choose to no longer offer 30 year mortgages on non-CMHC-insured mortgages. They are intending to comply not just with the letter of the OFSI guidelines but with the spirit of what Flaherty is trying to achieve. That’s because…
Apparently, the word on the street is Flaherty got wind that BMO was about to launch a 5-yr mortgage at 2.09% and he flipped. He was already pissed at the endless development he was seeing in the Toronto condo market and the high level of speculation. He called all the bank heads into a meeting and told them to cut out all the shenanigans. Then the next day, to everyone’s surprise, he announced the end of the 30-yr amortizations.
This nice-lady-at-the-bank has been declining HELOCs and mortgages ever since. Everything iffy that comes across her desk is getting kaiboshed. She thinks Alberta will get creamed if other banks are doing what she’s doing.”

mac at VCI 25 Jun 2012 8:46pm

“He half-heartedly lamented that he had bought at the peak. But he also said it’s all relative, if his house goes down so do all the others, so it makes no difference if prices go down.”

“On a business trip with a colleague from Victoria, who I knew purchased last year at the peak of the market. I mentioned how Vancouver prices were coming down, and that the Victoria market had already dropped. He agreed, and half heartedly lamented that he had bought at the peak. But in the next breath, he said it’s all relative, because if his house goes down so do all the others, so it makes no difference if prices go down.
Amazing – so highly educated but failed to realize that with his 10% down, he would be underwater if he went to move or buy up.
This “its all relative” mantra is really prevalent, even my own father believes this.”

Told Yous at VCI 27 Jun 2012 4:52pm

Illogical post-hoc rationalizations will abound.
– vreaa

“We went to look at a townhouse to rent in East Van. I asked the landlord if she planned on selling. She eagerly asked “Why, do you want to buy it?” I guess it’s been for sale for awhile. I think this woman has multiple properties.”

“We went to look at a townhouse to rent in East Van. The woman told us the address, we googled it and found out it’s on MLS listed for sale. I hate living in places like that, you’re always wondering if you’ll be out the next month. Anyway, I went to check it out anyway (with no intention of really renting it), and asked her if she planned on selling. She eagerly asked “Why, do you want to buy it?” I guess it’s been for sale for awhile. I think this woman has multiple properties (somewhat recent immigrant, maybe within 10 years), I googled her number and came up with many different properties for rent. At the end of the meeting, I wished her good luck, she told me to call her if I changed my mind about buying the unit. I could smell her desperation.”
pricedoutfornow at VCI 27 Jun 2012 3:08pm

For the last 10 years in Vancouver, buying as many properties as you possibly could has been a recipe for success. When prices fall, owning multiple properties will be a recipe for personal financial disaster.
Momentum investors hate owning assets in a market that is falling.
When they buy, many set mental ‘stops'; price levels at which they’d want to bail out of their positions, such that they can minimize their losses.
There are many multiple property owners that will bring their properties to market in a falling price environment. Some don’t even know they’ll be doing this yet, but when faced with the unanticipated reality of leverage working the wrong way, they will act.
– vreaa