“A close acquaintance of mine lives in the Vancouver suburb of Surrey (an area that respected blogger Garth Turner recently predicted would see a 30% correction if the national market tanks 15%).
A staunch housing bear himself, my close acquaintance rents the house he is currently living in. The home was recently assessed at a value of $450,000 and the landlord is the quintessential poster child of the over-extended, amateur Vancouver landlord.
Owning her own home in Coquitlam (another Vancouver suburb) plus two rental homes in Surrey, she constantly struggles to make ends meet.
Recently a spat of repairs were required on the house my acquaintance lives in.
First, the garage door sustained damage. When arrangements were made for an assessment from a repairman, the landlord asked my friend to pay the $80 charge (which would be deducted from the next month’s rent) because she no longer had a credit card.
Next, the dishwasher failed. A plumber was called and he replaced the garburator (a repair that had been put off since summer) as well as the dishwasher. And while the landlord arranged a cash payment for these (delivering the money to my friend to give to the plumber on the day the work was to be done), the plumber later confided the landlord had been in tears on the phone as they discussed the best place to secure the ‘lowest’ price on a new dishwasher.
I’m sure you won’t be surprised to learn that all repairs seemed to be “under the table” with no apparent HST tax paid.
There are other repairs that are required at the house but are “on hold” because the landlord admits to cash flow problems.
The landlord has told my friend that the house was a gift she received from her parents over 13 years ago.
So does that mean the property is mortgage free?
In the 3 years my friend has been at this house, he has accommodated 3 requests to have the property assessed for HELOC applications. In the most recent visit (always by the same assessor), the assessor let slip that he had also been doing the same on her two other properties. She has maxed out the available equity on this house (about six years ago this money was used to purchase the second rental home), the second rental home and her own house.
Now, with TD Bank expecting a market correction of 12%, where will this landlord wind up?
This landlord (not unlike many others in the Lower Mainland) have been using their homes as personal ATM machines. And the money they have taken out against their properties is spent.
This particular landlord struggles to maintain basic repairs on the homes and is in a personal financial situation where she no longer has access to credit cards.
What will a 12% drop in property values mean to this landlord?
On the one Surrey home (assessed value $450,000), a 12% correction is a loss in $54,000 in mortgaged asset value. A 15% drop translates to a loss of $67,500. If we were to realize Garth Turner’s prediction of a 30% drop – the loss on this house would be $135,000.
Without continued price appreciation, not only is the HELOC ATM most assuredly closed to her for future withdrawals but any major repair or incident will be devastating to family finances.
If the other two homes are of equal value, she is facing a total drop of $162,000/$202,500/$405,000 in asset value (based on drops of 12%/15%/30%), none of which is equity. Are the banks going to blindly renew mortgages on these three properties when she could be underwater by almost half a million dollars on all three combined?
At what point does the straw break the proverbial camel’s back?
How many more are in similar circumstances?
Without a dramatic turnaround in the economy, how can these people avoid any other fate besides default, bankruptcy and foreclosure?
Anecdotal evidence suggests there is a strong likelihood that a higher percentage of Greater Vancouver homeowners are in this situation vis-a-vis the greater mortgage market than there were subprime mortgage holders in the US mortgage market.
A 12% or 15% correction does not sound like much, but given the dynamics of the Vancouver market it could be devastating.”
– anecdote and analysis from villagewhisperer at ‘Whispers from the Village at the Edge of the Rainforest’, 29 Dec 2011. [Thanks, whisperer. Hat-tip to ‘Bailing in BC’]
Posted in 05. Where do Buyers get the money?, 08. Overextended Buyers, 15. Misallocation of Resources, 18. Spot The Speculator
Tagged Anecdotes, Banks, British Columbia, Bubble, Canada, Debt, Housing, Landlords, Real Estate, Speculators, Vancouver
“Just wanted to share an unfortunate renting anecdote involving a friend of mine, as a warning to others and to see if anyone out there knows the best way to deal with this.
My friend decided to move at the end of this month and found a place around the 20th December. Being right before Christmas the landlord and her agreed to do the paperwork around the 26th-27th. My friend called on those days but didn’t get an answer and finally got through on the 28th. The landlord then said that she had spoken with her daughter and decided that maybe it wasn’t the best idea for her to allow a cat in the house and told my friend that she can no longer rent the place. (The cat had been discussed before the initial showing and wasn’t at that prior point seen as an issue). Three days before the end of the month doesn’t leave much time to find a new place, so she will likely now have to move stuff to storage, sleep on a friend’s couch, and find a new place come the New Year.
Technically, no papers were signed, but it still seems really unfair to me that the landlord made a verbal agreement and then changed her mind at the last second. So, just a warning to everyone out there that the deal isn’t really done until all the paperwork is in place. And if anyone knows the best way to proceed about getting the landlord to perhaps pay moving costs or something (RTO, small claims court?) that would be much appreciated.”
– davers, by e-mail to vreaa, 30 Jan 2011
Nothing was signed, so we’d strongly suspect the prospective tenant has no legal recourse; others may think or know different.
Sometimes renting can be very inconvenient.
We hope your friend finds a good place, davers, and that you both have a good 2012 nonetheless.
– Exhibit text, Vancouver Aquarium, December 2011
Use of RE as any kind of metaphor in the text accompanying a Vancouver aquarium exhibit would be interesting enough. This example is even more intriguing because of the ideas of ‘running out of ocean floor’, real estate being “at a premium”, and perhaps even the message that critters need to compromise if they want to find a place: “Stop gurgling about it: Pay for a decent rock, or move to a peripheral new warf.”
During a speculative mania in housing, real estate gets increasing mention in the local popular culture.
We have previously noted Vancouver examples of RE infusion into childrens’ books, sports fan behaviour, murder reporting, short films, celebrity visits, sports star bios, and musician bios.
Once a bubble pops such mentions simply disappear.
We doubt you’ll find use of ‘Real Estate’ metaphors in exhibit text at aquaria in Japan, Spain or Ireland.
“Had a chance encounter with a Vancouver RE agent (who caters to Chinese investors) this morning. Turns out she is here in the Phoenix area looking for investment properties for her clients.
As well, she already has a few of her own places she rents out as vacation properties.
Didn’t have a chance to ask her what she thought of the Vancouver market – but it was interesting to see her down here on behalf of her clients.
The going rate for a vacation rental Oct-Apr is about $ 2200-2500 a month, and about half that the rest of the year. This is for homes with less than $ 150K into them (if bought within the last year or so).”
– Snowboid at greaterfool.ca 28 Dec 2011 12:01am
Wow, look at those fundamentals.
That’s roughly an average of $1860 p.m rent (less expenses) for $150K.
What would that cost you in Vancouver?
And the US hasn’t yet bottomed.
“To see what is in front of one’s nose needs a constant struggle”
— George Orwell, March 1946
Point Grey, MLS SFH Listings
26 Dec 2010: 27
26 Dec 2011: 54
Some folks are trying to cash in their high-end lottery tickets.
How many will join them in the spring?
The coming crash will effect all sectors of the market.