Kelowna Foreclosures – “Realtor is worried the number of foreclosures will bring the overall market down, hurting anyone who wants to sell their home; now up against something they didn’t see coming.”

Home foreclosures are on the rise in B.C.’s Central Okanagan in recent months. … There are more than 170 court-ordered sale properties on the market in the Central Okanagan, more than 10 times more than three years ago.

Real estate agent Jason Neumann says according to his estimates, in the last 30 days alone 60 new foreclosures were put on the market, and he calls it a disturbing trend.
Neumann is worried the number of foreclosures will bring the overall market down, hurting anyone who wants to sell their home.
“What do you tell your sellers that are not in foreclosure that are now up against something they didn’t see coming? It’s one of those things where the bank is going to have to do what it’s got to do to get it sold.”

‘Home foreclosures skyrocket in Kelowna’, CBC, 15 Feb 2012

Almost everybody has heard that “prices are set at margin”, but the majority of market participants don’t really get what that means; they don’t have an understanding of the full implications.
It doesn’t matter that 70%, or 80%, of owners may be very happy with their homes, and sitting tight: it only takes about 5%-7% of owners with an eager desire to sell to crash a market.
This is very relevant to Vancouver: we often see bulls arguing that most owners are very happy in their homes, they’re in it for the long run, they don’t care about price fluctuation, etc … even if all that were true, the market doesn’t really know or ‘care’ about these happy holders…. It’ll crash based purely on the behaviour of a small minority.
And, of course, the resultant price action may change the way the happy 70% or 80% feel; and so on.
– vreaa

65 responses to “Kelowna Foreclosures – “Realtor is worried the number of foreclosures will bring the overall market down, hurting anyone who wants to sell their home; now up against something they didn’t see coming.”

  1. You know who was worried about foreclosures bringing the market down? The entire US. 5 years ago.

  2. This is of particular interest to me. If Vancouver doesn’t begin to show signs of moderation, one would be tempted to begin looking at Kelowna more seriously. If more discounts are to come up there, we could finally begin to see some RE prices in BC that may resemble long standing RE fundamentals.

    On the flip side, whats discouraging particularly for bearish buyers waiting on the sidelines is the overall behaviour of the Kelowna market. If we are to believe this is the beginning of another wave down, this one particularly serious being driven by foreclosures, it makes one think how far behind Vancouver is.

    Kelowna topped 4 years ago, and has since been down about 20% percent deepening on property type. Its a market that has coasted along with no real discounts for 2 of the past 4 years, only now are we finally seeing foreclosures really spike up. Is it the mortgage renewals coming up that bought at the 2007/8 top?

    If Vancouver topped mid last year, it could be years before we see any discounts worth talking about. Possibly even, we won’t see any significant selling until the top buyers of 2011 renew their low rates in 2016.

    • +1 Burt – I agree. and, as ever, I’ll make my usual comment that if the pattern you’ve just evinced were to happen in YVR, that would be 100% what has happened in the UK – 20% decline, stagnation, further, but much more mild decline. Just bear in mind though, that the net impact of this across five years has been a real-terms decline in price levels of around 35%…

    • Kelowna is rec. property market driven by Albertans. Vancouver is a market driven by immigration. HST is also a factor in Kelowna market since a large # of sales there are new construction.
      Another observation. In BC markets where new construction are a significant portion of sales, I expect further erosion of demand until HST is eliminated. Come 2013 watch the flood gates to open

  3. …what better thread… could there possibly be… to introduce a Reuters piece entitled… [NoteToIllustriousED: Nem’s leader would have been, “AmericanDreamRedux: FromRenterToRiches]

    [Reuters] – New American Dream is renting to get rich

    “Rich Arzaga owns a luxury home in San Ramon, California, but he’s not betting on it as an investment.

    The founder and CEO of Cornerstone Wealth Management, who bought the 5,000 sq. ft. property in 2005 for $1.8 million and has spent $500,000 improving it, considers the abode a wonderful place for his family. But ask him to rate his home — or any home, for that matter — as a financial investment, and Arzaga balks.

    “It’s the American Dream to own a home, but whoever said that didn’t do the analysis on it,” says Arzaga, knowing he’s taking a contrarian stance to conventional wisdom.

    Examining 250 properties around the U.S., and going through close to 40 client files to project the financial impact of owning real estate versus liquidating it, Arzaga, an adjunct professor in personal finance at the University of California at Berkeley, found that, “100 percent of the time it was better to rent, rather than own.”

    That’s right: 100 percent.”…

    psst… ED, check your mail, too… 😉

  4. There is so much to learn from the US. When price appreciation here flatlined, people all of the sudden had trouble making payments. Funny how that works, without capital appreciation, the incentive to sacrifice so much to maintain monthly payments evaporates. And rational people walk destabilizing the whole pyramid.

    What is interesting to me is that the infrastructure in Canada for dealing with distressed property is very different then the US and will likely affect the downside action in a different way. Speed up or slow down? I am not sure.

    • Speed up. Canadian banks have no incentive to hold on to a foreclosed property because the CMHC will pay the loss. American banks had to “extend and pretend”, because if they did too many foreclosures at once they would go bankrupt. People avoided paying their mortgages for 2-5 years. I do not think that will happen here without an explicit government program.

      • Holy Crap. That is a good point rp1.

        I had never given it thought until now but If banks have no incentive to hold then they won’t care what the resale goes for. Can you see what a set-up that is for a price crash as each bank competes to get rid of its own inventory instead of holding for the best price?

        What they will want is a sale in order to complete the process and give them the information they need to make an application to CMHC for the insurance portion.

        Can everybody see what a disaster is coming? This could crash prices.

        Why would the banks make an effort at holding homes off the market? Any foreclosure where the price drop exceeds the down payment amount is a waste of their time. They will still collect 100% of the insured amount whether the sale is fast or slow. Fast puts cash back on their balance sheet more quickly and removes a liability. There is no incentive for them to be good Canadian citizens.

        The banks report to shareholders, not the general public.

  5. From that BNN piece today: “We’re comfortable with the market on an overall basis — there are pockets that are a little bit weak,” Martin Reid, president of Home Capital Group, tells BNN. “We see 2012 leveling off, maybe a bit of a soft landing in some parts. The Vancouver market may be a little bit overheated.”

    WTF? “Pockets that are a bit weak?” “May be a little bit overheated?” You corrupt slime. What’s with all the “bits?” Those pockets you refer to are CRAZILY weak – as in bubble-burstingly weak. Or perhaps you haven’t looked around most of BC *outside* the greater Vancouver region. And speaking of Vancouver itself, if you can call a city now widely acknowedged as being the most overpriced RE market in the world a “bit” overheated, what in god’s name do you call extremely overheated? Hell?

    That Home Capital Group “operates through Home Trust Company,” which they tout as “Canada’s one-stop mortgage lender” comes as no surprise. Seriously people, the filth that permeates this entire thing only seems to rise further to the surface with every day that passes.

    • There was an interview this morning around 7:30AM where this equity fund analyst came up and basically said that there is no bubble in Canada. We should be comparing our housing market to Australia rather than US and Australia housing market only backed off due to rate hike which he doesn’t see happening until 2013 at best. Even then, the decrease will be modest. Home prices/valuation are rich but just because they are rich doesn’t mean the price will fall. Just like equities whose valuation are rich, it doesn’t mean the price will fall.

      • He’s right, a rich valuation doesn’t mean the price will fall. It means it is a terrible investment. Prices haven’t fallen yet, and they’ve been rich for over 5 years. What is certain is that a society must spend more and more each year to keep prices elevated. How much money does Canada have, and how much will we vaporize?

    • I’m not saying HCG won’t get gored in a crash, but you have to understand how they differ from the big 5. They’re all about putting subprime loans on their balance sheet, without CMHC backing. Who do you think does a better job of evaluating the four C’s of credit: These guys, or the robots at the Schedule 1 banks who let CMHC’s EMILI decide for them?

      • Understood. But “a bit overheated”? “Maybe a bit of a soft landing in parts”? “Pockets that are a bit weak”? It all sounds so soft and fluffy, like that ad for toilet paper where kitttens and bunnies and feathers all roll around together on the screen in a veritable cornucopia of cuddliness.

      • “They’re smart guys- it might look bad from the outside, but they MUST know what they’re doing!”

        -All of Bear Sterns’ counterparties, circa 2007.

      • Almost all subprime lenders in the US imploded, because writing bad credit is the business they are in. If you aren’t competitive how do you get customers? I give them a 5% chance of surviving a bubble pop.

    • 4SlicesofCheese

      Home Capital Group aspiring to become Countrywide Financial?

  6. One point that needs to be repeated is that the damage is done during the bubble inflation . Foreclosures, recession, etc. are only consequence of it, not caused by the correction.

  7. Damn, it’s hard no to look at this thing – at all the lies from the mouths of not only realtors, but mortgage lenders, all form of media, politicians, financial institutions, etc, etc – and not begin to think there’s a large-scale conspiracy at work.

    Just take a look at this:

    It’s a Jan 12 article in the Chilliwack Progress “news”paper entitled “Solid year ahead for Chilliwack real estate.”

    Note the depth and scope of the bullsh*t. First, phrases that mean absolutely nothing (“solid,” “no surprises,” “value-added buying dollars,” “perfect time to buy a home”) are tossed around like they actually have meaning and actually have bearing on anything. Then there’s a call for a 4 to 5% increase, with absolutely nothing to back it up. The bastards. Then there’s reference to just how much RE means to Canada’s GDP, which is one of the few truths in the entire piece – and an ominous one at that for us conspiracy theorists. And of course, there’s the mandatory tug at the heart strings (when you spend money on RE, portions of it go to work in local charities). And then there’s the kicker: RE is one of the “soundest long-term investments in a person’s life.”

    Damn it all to hell – is there no end to this garbage? That this is all written up, seemingly as “news” and with seemingly no editorial input, is nothing short of vile. It’s hard, very hard, for the average Joe to ignore this when he’s hit with it over and over and over again. And don’t think all the parties that benefit from this economy-churning “industry” don’t know it.

    • Average Joe doesn’t see RE as a market where there’s good and bad times to buy — he just buys when he gets married, the wife gets preggers or what have you. He doesn’t read this part of the paper, as it contains no sports scores. He sees real estate as a utility: Prices don’t vary much, and you buy it when you need it and sell it when you don’t. Average small-town editor prioritizes accordingly, with an emphasis on bullish as he’s selling ads.

      Move to the city, real estate becomes a game, there’s enough ad revenue and enough competing outlets that maybe someone with a journalism degree is assigned to the file. Who does he call for his opinions? The pros, of course. But they’re all bullish, as the nature of the RE market makes it hard to be a committed bear. Even the biggest circ paper in the country is stuck in this tractor beam. Extra-national outlets have expressed their opinions, but what the hell do they know, and who reads ’em anyway?

      • You’re so right. All this talk about investments, property ladder, etc. isn’t the reason to purchase for ordinary people … in normal markets renting/buying have fairly the same cost with a few trade-offs, so it doesn’t require too much work.

        Unfortunately for regular folks, the trick of low interests and looking only monthly payments makes it looks affordable, but it isn’t so.

        This is something different about Vancouver. I could look how insane the prices were and through all the sweet talk of RE ads, so I became a reluctanct bear. It was just that I couldn’t believe I was the only one seeing the insanity of this market that lead me to these blogs.

        I really would rather spend my time doing something else than watching the market. I just want a place to live, don’t care about return of investment, forecasting immigration, density, etc. At the same time, I won’t risk my financial future i.e. it isn’t “buy a place to live at any cost”. I’m also not interested in becoming a basement suite landlord or being creative, I rather move and get the type of property I want without having to spend the next decades moving around climbing a ladder (which is another lie).

      • “Average Joe doesn’t see RE as a market where there’s good and bad times to buy — he just buys when he gets married, the wife gets preggers or what have you.”

        And if the markets were ‘normal’/’typical’ that strategy would be fine… as it should be. You buy groceries, a car, an education, when you need it. Why not accommodation?
        The speculative mania has forced citizens to gamble… either by overextending and getting in, or by actively deciding to stay out when they would normally be buying… it’s all perverse.
        Curse you, spec-mania!

      • Actually, we’re using the author of that article as our real estate agent… Let’s just say, that’s his game face… In person, he was much more sanguine about real estate in Chilliwack. He admitted listings are piling up.

      • Peter Pan, “game face” huh? When you enter into debt at compound interest does one get advice from a good game face? Ask him what he thinks of the US dollar trend against commodities. If he can’t answer that, he knows nothing about what will happen in real estate. Of course you have an out with a twinkling sprite that can make people fly. Nice backstop.

    • “is there no end to this garbage?”

      There’s a free market for garbage and people are paying for it. With the money involved, this garbage should multiply exponentially, and it has. Compare the nonsense being spewed now with the relatively balanced articles in 2009. If this isn’t the peak of the mania, then I’m frightened to think of what comes next.

      • “If this isn’t the peak of the mania, then I’m frightened to think of what comes next.” – rp1

        This isn’t about real estate, it’s Texas Holdem property style. Are you in? Or are you out?

        Late last year, 10 lots on Cambie Street south of 41st were sold for $3.4 million each. The lots, each with an old house, were sold for triple their assessed value… Eight lots along busy Granville Street in Vancouver are currently up for sale for a cool $30 million…. The asking prices for the eight lots which are south of 41st Avenue, are over twice their assessed values, with total assessed values being $13.25 million…. Seven lots are being sold for $3.6 million each, while a larger one is going for $4.1 million.

        “I’d say it’s even greater speculation along Granville because, unlike Cambie, we have no policy [for increased density] in place for Granville,” (Director of city planning Brent Toderian) said

      • Ralph Cramdown

        This isn’t about real estate, it’s Texas Holdem property style. Are you in? Or are you out?

        It’s movie Texas Hold’em. In real life, if you get dealt lousy cards and you’re not blinds, you generally fold pre-flop. In the movies, everybody seems to call for the first round of betting, then fold when someone raises.

      • If I had a ticket to ride and briefcase full of cash, I’d sit around and try to bluff a few hands.

      • For the record, I used the gambling metaphor in the earlier comment before reading rp1/debtless/Ralph using the Holdem metaphor here.

      • It’s already evident that you have esp.

        [Knew you’d say that. -ed.]

      • Those prices are just retarded. I can remember looking at a pair of old houses on 12th and Main some time around 1983 or so. Two side by side. The guy wanted 106,000 for both of them because they were fixer-uppers and had illegal basement suites…….I thought he was asking too much then……

    • Gord i wanted to reply to your post. You are spot on and that is why I became vocal on realestatetalks over the last couple of years. I blew the whistle on what was going on, and was viciously attacked by vested interests for protracted periods of time.

      They didn’t want anybody putting a different point of view out there, especially not somebody in the development game.

      The lying, the manipulation of information by the industry, the realtors and the media, and the effective “brainwashing”, that i witnessed in my travels to Canada, made me feel physically ill. It was like one continuous add, and they all believed it.

      I’d put it on par with taking financial advantage of intellectually disabled people and think you’ve done nothing wrong. Its like you live in a country of brainless property zombies

      The average person doesn’t have a hope in hell of understanding what has been happening, why prices have blown into a bubble, and how they will collapse.

      VREAA – It doesn’t matter that 70%, or 80%, of owners may be very happy with their homes, and sitting tight: it only takes about 5%-7% of owners with an eager desire to sell to crash a market.

      The crazy thing is that the desperate vendors often have less relative damage, then those that can hang on. By the time they must sell, the market has fallen way past them.

      Currently you have vendors saying what they want. I think we need to see some purchasers with balls out there saying to realtors. “yes you have all this property for sale, marvellous! I’m a buyer and I’m ready to buy, so tell your vendors when they come back and say “why haven’t you sold my home”, That there are buyers sitting waiting, but not at your price, but 25%- 30% less.

      Vendors with properties on the market are in a perpetual state of “hope”, that somebody will walk through the door tomorrow and pay there price.

      Buyers need to get out into the market, be confident, and tell realtors and vendors where they are at. Dont worry if realtors laugh at you. When buyers evaporate and commission dries up theyll start ringing you! At present as listings rise, nobody knows where the market is, because the market is stalled. So get out there and tell them.
      And if you’re in Vancouver, and prices fall 25% – 30% and they call you pleading for a sale, the trend will have set in and you will be valuable because you are a buyer. Then you can really sort out what you’re prepared to pay at that time.

      • Taipan, I surely remember you over at RET. In fact, you and I exchanged notes on a couple of occasions. I also remember the environment over there at the time (and, if I think hard, some of the pseudonyms too). You’re right – you were part of an *extreme* minority. A lot of realtors-in-disguise hurled a lot of insults your way.

        But my oh my, how things have changed.

  8. “There are more than 170 court-ordered sale properties on the market in the Central Okanagan, more than 10 times more than three years ago.”

    I’d be interested to find out what is causing the foreclosures. Is it borrowers who took on too much debt and finally just couldn’t make the payments? Or is it “rational defaulters” who see prices headed in the wrong way, and decide to walk away?

    Either way, this anecdote has foreclosures jumping 1000% in 3 years, even before anyone will admit there is a bubble. Think about the magnitude once the truth sinks in.

    • The CMHC is toast. I give it 8 months. The changes in the Volcker rule announced this week exasperate the problem, leaving Canadian banks without the massive US clearinghouse hedge. Carney is paddling furiously.

      “(US)… bailout will eventually cost taxpayers as much as $124-billion (U.S.) through 2014”

      That’s a fifty percent loss off the top. Meanwhile, in Canada…

      “CMHC backed loans of $541-billion (Canadian) as of Sept. 30, 2011.”
      “the total equity of CMHC was $11.5-billion.”

      • john mf'ing galt

        it’s good to see G&M is reading these blogs

      • You might be right Poco. Eight months before CMHC runs out of insurance room. Off the top of my head they were guaranteeing 5 billion per month on average. In fact though this was recently escalated as the banks sought to insure homes where more than 20% down payments were used. Incredible that it was permitted. The process has allowed them to package up MBS and sell them abroad. So Canadian taxpayers have been unduly burdened with risk while the banks gorged on the insurance that was really intended for those with insufficient means to produce a large deposit. The whole process is so disgusting it sickens me. As the banks flee their loan portfolios in Canada by selling our instruments abroad then we in turn (as taxpayers) foot the bill of the retirement of others while we labour under an onerous burden of artificially created debt obligations. The banks walk away free and clear. Hey, I hear they are expanding into the US and sniffing out good opportunities at buying up weak banks down there. Since we all got beat by the banks maybe we should just buy their stock and profit from our collective loss.

      • Fair summary, Farmer. It was never about home-ower security. It’s about bank interest security. This is where risk capital can make mega bucks hedging. But don’t take your hands off the wheel, the flip from hyper to deflation will occur in the blink of an eye. I still backstop with metals, agriculture, and maybe Singapore.

        If we pull this off, we eat like kings.

      • Renters Revenge

        The CMHC situation has me seriously freaked out. It’s a huge ticking time bomb and it’s about to go off. Wake up Canada!

      • OK. You got me curious. Why and how will you hedge with Singapore. Are you talking currency, land or a safe place to live when the rest of the world comes apart?

      • Farmer, why Singapore? Just to see. Because it’s China-lite. You can speak English if you don’t speak Mandarin. Very international and cosmopolitan. It’s a free market society with harsh penalties for corruption. They welcome foreigners and new ideas. Lots of investors. Fun ‘meeting of the minds’ place, like Alexandria once was. Maybe not for everyone. But I would like to visit Asia in my lifetime and that would be my entry point. Singapore has no debt and 2 % unemployment.

      • Well I sure hope you saved your pennies Debtless in Poco because Singapore had a housing bubble almost as bad as Vancouvers not so long ago. Not sure if it ever popped. They have kind of had the reputation of the most expensive place to live since just about forever. You might be on to something though. I know more than a few people who have no intention of sticking around here for the next recession. They are Asia bound and plan to be where the money and tha action are if things get really slow as some expect. Why sit festering in an EI lineup when you can live tropical at twice the income and pick oranges and avocados in your own back yard?

  9. Just FYI, here is an article about another foreclosure boom – in Beverly Hills. I post it because it’s interesting to see WHY the homeowners were/are walking away:

    • “‘It’s a business decision, not an emotional one which it is for normal people,’ said Deborah Bremner, owner of the Bremner Group at Coldwell Banker, which specializes in high-end properties in the Los Angeles area. ‘I go to cocktail parties and all people are talking about is whether it is time to walk away, although they will never be quoted in the real world.’

      These are not investors. The should not have taken a loan with compound interest in a speculative market. Does the article mention when they bought. I can imagine their buy-in window (late 2007?) because the ostentatious facade says it was an emotional decision. The banker was evil.

      “banks cannot go after other assets” That’s a godsend.
      If you have foreign passport, you don’t need to hang around and save face in the community. Last guy at the table pays the tab and catches a jet.

      The following should be a disclaimer on the business card of every real estate agent and broker.

      ““First, their situation may not be their fault, and it doesn’t mean they’re irresponsible. it has less to do with you, as with the timing’ of the mortgage loan…You are not entitled to fairness… (you) agreed to repay the loan.”
      – Dan Beveridge, certified housing counselor.

      • I don’t know when these people may have bought but, obviously, the US housing crisis started quite a ways back so I would guess most purchases were pre-2007. Regardless, it was pretty shocking to read the sangfroid people had about their financial obligations. Makes me wonder what might happen here if the bubble really bursts this time. Get the popcorn!

      • That’s rich: “Many are walking away not because they can’t pay, but because they judge it would be foolish to keep doing so.”

        I wonder how many YVR specuvestors will keep boasting about the value and – non-economic value – of their properties and keep paying the bank once things go bad here.

    • “Foreclosures on jumbo loans are up 579 percent since 2008, greater than any other form of loan, according to a report last month by Lender Processing Services, Inc.”

      This fact is critical. It’s a myth that the U.S. crisis was subprime. Subprime was just the trigger that revealed the bubble for what it was and toppled an overleveraged, systemic-risk default-swap drunken Wall Street. The real problem was overextended buyers, of all types.

      • Renters Revenge

        And that is precisely our problem here in Canada. Witness: 150-160% debt to income levels.

      • Renters Revenge, therein lies the dilemma. Will the rule makers continue to encourage residents into debt slavery competing with a few cash rich speculators for a place to live?

        Now there’s a multitude of residents trapped into bank serfdom with little wage growth and only lateral movement. Mission accomplished. Foreign investors may come and go as they please. And realtors, grrr, can pat themselves on the back for knowing as much about market fundamentals as a gas jockey knows about the price of crude.

        It’s not about ethnicity or culture, it’s about liquidity, debt, and unfair market advantage for a fundamental need—shelter. Will children born here be able to stay? The current plan, educate your children for free, have some good times, then help them move away and explore their potential elsewhere.

        Until the dollar tanks after July. Just joking. hmmm.

      • Funny you should mention the dollar, Poco. I am thinking exactly the same thing (referring to USD of course) Perhaps “tanking” is a bit severe but certainly a decline is in store. I see the Euro bottoming. Possibly as soon as this month is over. Fed stimulus would send the dollar into a slide right about now and set gold off on a tear while simultaneously giving the Euro the appearance of gaining strength. This is just games with numbers though as both currencies are devaluing in tandem.

        Best to get prepared. The Fed meets for its big powow in just 10 days.

  10. Coco,

    Interesting to note that if you quit paying the bank here…you lose the property but not neccessarily the remaining debt.

  11. Great site. Plenty of helpful information here. I am sending it to a few pals ans also sharing in delicious. And certainly, thank you to your sweat!

    • It is indeed a great site. Tell your friends about it, Auction. There are few other sensible sites where you can get a close up view of the action before it is news and the contributors are mostly pretty level headed folk.

  12. Although these numbers look bad it is only relatively bad based on a typical Kelowna market over the long term history. Based on how quickly and drastically the prices rose it is amazing to me there wasnt a much larger fallout to this point.

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