Notary Poll – “More than half of B.C. homeowners have refinanced their home or property.”

More than half of B.C. homeowners have refinanced their home or property, a new survey by Mustel Group for the Society of Notaries Public found.
Of those who have refinanced, 49 per cent used the money for renovations; 23 per cent to buy other real estate; 23 per cent for other investments; 10 per cent to purchase a new car; and 8 per cent to consolidate or pay off other debts.
“B.C.’s homeowners have enjoyed a healthy real estate market in most areas of the province,” said John Eastwood, president of the Society of Notaries Public of B.C. and a South Delta notary. “Many homeowners find themselves in the fortunate position where the current value of the house or property has far surpassed the price they initially paid, meaning a significant amount of their equity is tied up in the home. Mortgage refinancing allows them to access this equity without having to sell or downsize.”
Homeowners were split on whether the value of their homes would go up in 2012, with 44 per cent saying they expect an increase and 52 per cent expecting prices to stay the same.
In Metro Vancouver, 54 per cent said they expect prices to go up, with 34 per cent not expecting increases in the next year.
“There’s always a lot of interest in house prices and market forecasts here in B.C.,” said Akash Sablok, a Vancouver notary. “The reality is that most people live in their homes and those homes are their biggest investment and equity holding so it’s important to understand both the implications and opportunities this presents whether you’re looking to buy, sell or refinance.”

‘More than half of B.C. homeowners have refinanced: poll’, Vancouver Sun, 30 May 2012

HELOCs are common. They result in increased leverage to the RE market; an increased vulnerability to falling prices.
Note how this poll suggests that 96% of BC owners believe that in 2012 prices will either go up or stay unchanged. Which means only 4% say prices will drop. (Freaks!)
Also, note the universal “homes are an investment” belief.
– vreaa

62 responses to “Notary Poll – “More than half of B.C. homeowners have refinanced their home or property.”

  1. Agree completely, VREAA. The first thought when reading this that I had was where are the people that may expect a decrease. Even after the 12% YOY decrease has become public knowledge (initiating the slide) and the new rules to dampen credit availability, it’s of note how most people still likely think their place is special and will hold value. Perhaps the old fallacy of believing that something bad can never happen to me is what’s happening here.

  2. Lemme get this straight:
    – The increased money spent on renovations will increase the property’s utility
    – Thus increasing the property’s value
    – Imputed rent goes up because the debt load has increased
    – Therefore… … … either a) incomes magically go up to cover the increase in imputed rent or b) someone else will be willing and able buy the value of the renovations.

    Did I get it right?

    Remember the old days when we had to set aside money for capital replenishment? That was awesome.

  3. So 44% expect an increase and 52% expect prices to stay the same?

    Those were the only two options? No push polling here, nosirree.

    “Press ‘1’ if you think prices will continue to go up.”

    “Press ‘2’ if you think prices will not increase.”

    “If you believe that prices will go down, please hang up and try again.”

  4. The statistic that I pull out of this: 72% of HELOCs have funded further investment in RE. (whether renos or more RE). Ponzi much?

  5. joe_blown_away_by_high_housing_costs

    I have a question for the commenters on this blog. How much do you think real estate prices will drop in Vancouver? And why?

    TD Bank is calling for a 15% drop over 3 years. Is this realistic? I’m thinking it’s going to be more like 50% to 75%. What do you intelligent people think about this?

    • I would say 50% is a given; how much lower it goes depends of what happens in the rest of the world. Between 2007 and 2009, Toronto market dropped about 25% although the Real Estate boards and the media spun it to be much less.That was the reason for the Emerg interest rates (since the rates are still here, I guess the emergency is still here.) Canada does not have the benefit of a World Reserve Currency and is a rather small fish in a very big pond. The sharks will devour Canuckistan long before they finish Uncle Sam. Once a few more of our Mortgage heavy banks are downgraded (CMHC or no CMHC), watch interest rates rise, the RE market get absolutely slaughtered and HFC smugly claim we told you not to take on so much debt! We did everything we could to be prudent (like 0/40, 0/35, 0/30 and now 5/25, liar loans, 0 down, approving developments that should never have been approved, like all those shiny new condo towers in downtown TO where the balcony glass keeps falling on to the street, and not holding the media and RE industry for lying blatantly – don’t we have laws against ‘False Advertising’.) Well ultimately the buck stops with each individual that signed on the dotted line, especially since 2009, and thus I hope there is not even a penny’s worth of mortgage relief for any of them, not that I expect there will be.

    • Can those of us who aren’t intelligent answer too?

      My estimate is well known here:
      Fundamental values as measure by rental yields, local incomes, and estimates based on long term inflation, all suggest that housing in Vancouver is overpriced by a factor of 2 to 3.
      This suggests prices would have to drop 50%-66% to come into line with fundamentals.
      There are numerous other secondary factors that will effect prices, for instance:
      (a)- We expect a modest Vancouver-is-warmer-than-other-Canadian-cities premium to persist, so you could argue that would moderate price drops a bit, but also,
      (b)- After a massive speculative mania (ours lasted at least 8 years), when prices finally collapse there is almost always overshoot to the downside (the idea that people learn to detest the thought of buying RE so much that prices drop lower than those determined by fundamentals).
      One could guesstimate that the above two factors may essentially cancel each other out. There are other secondary factors that will come into estimates, but most are minor.
      Anyway, our prediction is that the most probable outcome is 50%-66% real price drops from peak to trough, for all property types, across the lower mainland. Timeframe by no means clear, but we are prepared to guess that the trough will come this decade. Likely in 3-4 years, we’d say; numerous trajectories are possible on the way down, everything from plummets to slow grinds to bounces at certain support levels. Destination pretty much the same regardless.

      • Van east guy

        There will likely not be half off deals in certain parts of the lower mainland. The Ridge/Meadows and parts of the FVREB. I would say N Delta and parts of Surrey will see less than 50% decline. A $600k home in Surrey can get you a large and newer home. So what’s fair for a 5 year old 2800 sq/ft house on a 5000 sq/ft lot? I’d say at 30% off would be about right.

        I would project a larger decline in the westerly areas of the REBGV (aka HAM territory). Where prices have either doubled or tripled during this crazy run.

        I’d like to hear from you where you think will be rocked the hardest when shit finally hits the fan!!

      • Van east guy -> What did a 5 year old 2800 sq/ft house on a 5000 sq/ft lot in Surrey sell for in 2001, 2002, 2003?

      • If somehow the overall economy starts to pick up some steam could that counteract or at least mute a downward price spiral? I would think that would be a major beneficial factor for the “soft landing” so desperately desired?

      • donald -> Such support would have to come from wage inflation, and, if at all substantial, there would likely be a need for parallel increase in interest rates.

      • Yellow Helicopter

        ‘can those of us who aren’t intelligent answer too?’
        – VREAA, you rock. :-).
        And thank you for creating such an informative, thought-provoking, debate-encouraging site. I have learned so much, and am very grateful.

    • While you’re waiting for the intelligent people to weigh in, I’ll give you my two cents. I think we’ll see something along the lines of a 20% to 25% correction nation-wide, with perhaps 35% in Toronto and 40% in Vancouver. I base these numbers on nothing in particular, other than my belief that a “soft landing” simply isn’t possible at this point. Since 15% is generally considered to be at the harder end of the “soft” landing scenarios, I’m going 5% – 10% further nationally, with steeper drops for the biggest bubbles. I also believe Winnipeg will get smacked harder than most. Even though it’s prices have only “caught up” to elsewhere, (that’s what Peggers tell themselves anyway, maybe for comfort?) the reasons why it was never caught up before are still there – Winnipeg is a dump. Yet catch up it has. Up 148% since 2000, even more than Van on a pure percentage basis. So Winnipeg will fall hard too. Worse than average, but not as far as Toronto.

      Confounding these predictions will be numerous half-baked schemes that governments at all levels will initiate to “help protect Canadian families’ most important invesment” and to “bring about a recovery in the housing market”. These schemes will fail miserably, but only after costing us all billions, and possibly even precipitating several bear trap-style rallies on the way down, thus prolonging the agony, and spreading the pain to innocent bystanders who really shouldn’t have to pay a @%$@#! penny in extra taxes to ameliorate mistakes they never made. People here in Canada believe in government intervention a lot more than in the US, and are more inclined to buy into the idea that “the government will never let the housing market collapse” theme. Thus, our ride down might be more choppy, as wave after wave of false government-inspired hope waxes and wanes.

      Other than that, we’ll be fine.

      • I hate to say it but you’re probably right about the high likelihood of ham-fisted attempts to save the market. It’ll be excruciating to watch.

      • Ralph Cramdown

        I think I’ll disagree with attempts to save. The problem is too widespread for anything that costs enough money to make a difference to be affordable. Yeah, the US got a temporary bounce with an $8k homebuyer tax credit, but where are those buyers now? More than $8k underwater.

        The best thing that could happen would be quick sales if we have significant defaults. US lenders and agencies are being horribly slow about it, and worries about shadow inventory are keeping buyers out of the market.

    • joe_blown_away_by_high_housing_costs

      I want to say thank you to all of you. And a special thank you to VREAA for your detailed answer and for hosting this blog. I have learned a great deal from this blog.

      • joe_blown_away_by_high_housing_costs

        …one more thing: VREAA and most of the commenters here are clearly VERY intelligent. I appreciate all of your answers to my question.

      • Agree. Our host is tactful, knowledgable/wise and articulate. Also the recent pics per post a la KWN add a nice touch.

      • Thanks, you are very kind.

    • As I’ve mentioned before, in the ’80s the city assessment on our Kitsilano house went from $334,000 to $125,000 (approximately) in one year. That was the period of time that pressured the city into averaging the assessments so they wouldn’t ever again be deluged with homeowners challenging their assessments.

    • I think Vancouver is as overpriced now as San Diego was in 2005. I expect our correction will be about the same as theirs – 40%-50%.

    • Worst housing in the least desirable suburban hoods at about 25 cents on the dollar vs. peak… UltraPrime off by about 1/3… The rest between 40 to 60 cents on the dollar… TimeLine 18~36 months. Two caveats… 1. The majority of YVR inbound flight capital has already arrived and… 2. Absent unusual/exotic CB interventionist monetary policy.

    • “What do you intelligent people think about this?”

      Who knows. But I think -30% is a given.

  6. I guess this means the other half will be doing so before July 9.

    FWIW, my neighbor’s wife is an underwriter for CIBC. She told me it was pure chaos (bordering on a Yuk Yuk’s laugh fest) over at their offices yesterday. No one has a clue how they are going to deal with all the applications that are pouring in now (the vast majority of which are refi’s). As you all know, that “black box” of their’s (aka FirstLine) was also shut down as they could not find a single buyer. Yikes…

  7. So just to clarify, you could previously refinance your home and extract up to 85% of its value as a new amortizing mortgage. But now you can only do 80%… and of that 80%, the first 65% of it can be readvanceable (HELOC), and the other 15% must be amortized? How much of the old 85% refinancing was allowed to be HELOC before the rule change? All of it?

  8. We are the 4%?

    This is why bubbles happen. A majority of the population believes one thing, and that is prices are going and staying up. So when an unsustainable price for homes are maxed out, the market turns. Then bulls feel bearish. Then markets drop, bulls still believe as drops continue, and then shit hits the fan and we have victims. Bubbles only happen when we get a boat load of believers and then we eventually run out of these people. At the peak, there’s nobody left to buy. At 70% ownership, the tide has turned. Bye bye 96% fools.

    • “We are the 4%?”
      hahaha. Nice.

      Also, even though we didn’t comment on it in the original post, you’ve reminded us of this as an illustration of contrarian principle.
      In investing/markets, when 96% of the market participants expect one thing and 4% expect the opposite, always, always, always align with the 4%.
      The more extreme the bull:bear or bear:bull split, the more likely the move away will be large, and the more reason to invest heavily.
      In fact a 96:4 ratio is a “sell the farm” and “back up the truck” scenario that only comes along about once every (typical) decade in investing terms.

      • The key is, they were polling homeowners. Throw some renters in there and see how bullish the numbers are.

        The irony is delicious. The belief that owners are more responsible, more mature, more stable, more everything, is very deeply rooted in our culture. When Canada’s Parliament was created – the BNA required that Senators have at least $4000 of “real property” over and above debt as a pre-condition of appointment. It was the chamber of sober second thought after all – only property owners were thought to have the necessary character.

        The age of HGTV house porn has turned that completely on its head. Now it seems it is the renters who have the more rational, level-headed, long term view of the real estate market. The owners have been blinded by the easy “equity gains” and the steady diet of real estate propaganda, which serves to reinforce their beliefs.

      • “… they were polling homeowners.”

        Good point. Not all market ‘participants’ were polled.
        At the same time, prospective buyers are only a minority of all renters, and the ratio would still have been very high (but, agreed, not 96:4).

      • So, do you think homeowners should lose the vote, Cranky? They are obviously ruining the country.

        Damn funny.

      • Nah, not lose the vote, just reined in with tighter mortgage rules. Seems the government is finally coming around to the same realization.

  9. Vreaa,

    Just curious, do you work in a field related to real estate?

  10. joe_blown_away_by_high_housing_costs

    I have another question for this blog: How do you think the new mortgage rules might affect condo projects not yet started but currently being planned? The Little Mountain redevelopment on Main Street is of particular interest to me. Do you think the developer will go ahead with a massive development of 2000 condos? What about plans to demolish the Georgia Viaduct and put up condo towers there? What about plans for condos on the Musqueam Marpole Midden? What about plans for 50 storey condo tower at Surrey Central. There are lots of condo towers being planned for the future right now. Municipal politicians are acting like these are all going to come to fruition. Will developers walk away and stop building condos because of these new mortgage rules. After all, as some have pointed out, it’s the entry level condo market that is going to feel the biggest impact of these mortgage changes.

    • There is a plan to demolish the Georgia Viaduct? I must be out of touch. So how are they going to move all the thousands of daily commuters that cross it everyday?

      • Joe_Blown_Away_By_High_Housing_Costs

        There is no decision yet on the future of the Viaduct but Mayor Robertson and Vision Vancouver are pushing to have it demolished. Elevated highways built alongside the waterfront were typical of modernist 1950s-70s urban development. Most cities have them, many cities have demolished them (San Francisco, Boston’s was put underground). Of course, these have gone out of style and do not fit with Vancouver’s brand as the greenest city on the world. So they want to demolish them under the guise of using the land for green space/parks and some condos. Expect more condos and not so much of the green space. People will have to bike or take transit into Downtown Vancouver. There is also recent talk of replacing the two middle lanes of the Granville Street bridge with bike lanes. Biking is almost an ideology for Mayor Robertson and his followers. It’s a way of appeasing middle class yuppie leftist green voters in Vancouver without actually doing anything meatier that addresses social inequality. Very predictable outcome: Demolished Viaduct means more traffic on Hastings Street to get into Downtown. Hastings already has problems with pedestrians being struck as people on drugs frequently go out into traffic. The increased traffic load on Hastings will lead to more pedestrian hits on Hastings Street. Then demolishing the viaduct won’t seem like it was such a good idea. And the condos planned for where the viaducts may never get built if the real estate crash makes it uneconomical (although most commenters seem to think condo development will continue unabated despite the real estate bubble popping so I could be wrong on that last point).

      • Wow. Thanks for filling me in Joe. I am a little surprised by the idea though. I don’t know if you are old enough to recall but at one time there was an idea to build a major inbound road along the waterfront to reduce the tension of traffic congestion. Kind of a circle or perimeter road around the city. Everyone hated the idea of course and maybe they were right but the idea of removing a major artery is like doing triple bypass surgery and forgetting to tie in one of the big veins. This is crazy.

    • They might just build smaller units with cheaper labour and finishes to lower the final price while maintaining a good profit margin. As long as people can still borrow CMHC insured mortgages with 15% down, it should be fine I think. Most new condo pre-sale requires a 10% to 15% deposit which means people who are buying already have to cough up more than the minimum 5% down payment. People generally do this with LOC, HELOC, savings, bank of Mom and Pop, etc. I don’t think the rules will affect these sources as much as most here believe. The biggest impact is like the high priced condos ($600K+) and $1M+ Townhouse/Condos/SFH as those people would face tougher borrowing criteria and monthly payments. If you are borrowing $300K, the changes does affect but not as much as higher mortgage amounts. As well, developers can easily shave 30 to 60 sq ft off a unit for a saving off about $15K to $30K of the purchase price. Developers can also give incentives like they did in 08, etc to lower initial mortgage amount.

      It will have a dampening effect for sure. However for the under $500K condo units, especially under $350K units that are favorite for spectulators and first time buyers, I don’t expect to see too much effects. I think we will still have to wait until the pool of buyers are fully exhausted along with a point of no return where there is just too much money pouring into RE/mortgage repayment that other sectors of economy gets affected and slowly starts to shut down and laying off people and starts the negative feedback loop.

    • “How do you think the new mortgage rules might affect condo projects not yet started but currently being planned?”…. – Joe

      Well… as it happens… I think you’re going to see a lot more of these, Joe…

      http://tinyurl.com/86963p5

      [NoteToEd: ‘ContentReconnaissance’/Sicamous BC/2012.06.21; There’s definitely a ryhming leader in there somewhere – “Shuswap ___ ____”]

  11. Joe_Blown_Away_By_High_Housing_Costs

    This just appeared on the Vancouver Sun website:

    “In a report going to city council Tuesday, city planners say they’ve hammered out a long-awaited agreement with Holborn for what should be built on the 6.2-hectare L-shaped property at Main Street and 33rd Avenue near Queen Elizabeth Park.

    The so-called policy statement is a blueprint for Holborn’s plans to build 1,800 units. It was crafted with input from neighbours who would be affected by the massive development.

    Holborn bought the site, a former tract of postwar social housing, from the provincial government in 2007 for an undisclosed sum. The province made a commitment to the city that Holborn would replace the 224 units of social housing that had been on the site, and add 10 units for aboriginal people. All but one of the old tract houses were demolished in 2009 and the property has been vacant except for four families since then.

    The province said the net proceeds from the sale would be used to create social housing elsewhere in the city.

    But the development has been stalled for years because of a disagreement between Holborn and the city over how dense and how high the new buildings can be. Holborn had wanted to rezone the property for a much denser, higher development than the city anticipated, saying it needed the change to make the project financially feasible. The city and surrounding neighbours resisted.

    The two sides have now agreed on a density range of 2.3 to 2.5 FSR or floor space ratio, which will allow Holborn to build a mixed community that includes stepped towers up to 12 storeys tall, with the majority of buildings in the four- to 10-storey range. The project is still subject to rezoning, which would trigger public hearings. The company hopes to begin construction early next year.”

    http://www.vancouversun.com/news/Little+Mountain+development+generate+million+public/6827424/story.html

    So my question is this: Do you think this project will actually get off the ground next year??? Don’t you think it will run into more trouble and yet further delays due to the housing bubble crash and recently announced clamp down on mortgages??? What about other anticipated major condo developments in the Lower Mainland? Are developers seriously going to continue to add to supply during a real estate crash?

  12. new mortgage rules are a pseudo interest rate increase. Huge condo developments count on the speculative element to finance the ground breaking, and to build momentum for the bees to make honey. Bear Mountain in Victoria’s Highlands is a pretty good example of a monster development that drew in a large speculative element. The RE corrected here significantly in 2009, before moving up again with the 2010-2012 crack up boom. I’d be surprised if even 10% of these large condo developments, now on the drawing board, get off the ground.

    • Joe_Blown_Away_By_High_Housing_Costs

      Thank you for your answer to my question. Over at Vancouver Condo Info, mac said this:

      “All these projects are going to go ahead. The “Chinese”, whoever they are, local or foreign, we don’t know, are going to continue to buy and hold pre-sales and SFH until the city is like a Ghost City in China.

      In the meantime, a smaller and smaller group of local buyers will continue to chase pre-sales borrowing their 20% from their parents now for the down payment. Used condos will languish. No connection will be made by the media. Inventory will skyrocket until one day either it collapses or every business in Vancouver is bust, leaving only Chinese speculators and their empty condos. However the Mayor Cam Good of Vancouver will still accept awards for Urban Development and pose for a picture in the Vancouver Sun.

      That’s my prediction.”

      Both opinions sound convincing. Whom should I believe?

    • What? No astrological references?

      • paul is showing admirable restraint, and we all should, too.
        😉

      • OK. I get the hint. Shorter posts……I have my moments.

      • No… no! Your posts are much appreciated, Farmer, keep them coming.
        We were referring here to the fact that we recently shared with Paul S the fact that we don’t give weight to astrology, and he has responded by continuing to share his perspective on RE (which we welcome) while setting aside the astrological. That’s the gentlemanly restraint we were referring to.

        We don’t have any concerns here about people digging deep and expounding on their views on the RE market at some length, when they feel moved to do so. We do so ourselves occasionally.

      • OK. Good to hear. (I was reading and posting on the wrong thread).

  13. Re viaducts … Since 1990 the population of downtown Vancouver has increased by 50%, trips to downtown by car have decreased by 20%. Getting rid of vehicle infrastructure, higher parking taxes, better bus service, better and more extensive skytrain service and bike lanes are all part of a carrot and stick strategy to get people away from the car. The city may not get the timing right on the viaducts, but the trend is clear that there will be a better use for the land or the viaducts can become an urban park like the famous Highline in Manhattan, which is very successful.

    Vreaa, I don’t believe that all types of housing will be hit equally in terms of pricing – the condo market has added tens of thousands of units, townhouses far less, and upzoning means that SFH in Vancouver has actually declined in numbers as has been pointed out on this blog before. The level of speculation by housing type will be revealed in the coming months as credit tightens.

    • Keith -> I respect that opinion; we’ll see what happens.
      My thesis is that all the property types are far more interrelated than most imagine.
      Remember that, throughout the mania, SFHs and ‘land’ have been argued to be exclusive, and have been bid up accordingly.
      They are also as prone to ‘speculation’ as condos (depending on exact definition of that word… more to follow).
      Once everything reverses, we’ll drop back to the prices of 2001, 2002, 2003.
      How different are the detached:attached ratios now compared with then?
      (serious question, anybody want to do the math?)
      We believe SFHs have run up by greater %ages, isn’t that correct?
      So you could just as easily argue that SFHs have had more of a speculative run-up and may suffer greater %age drops on the way down.. but that’ll probably be balanced by condo supply factors.
      Anyway, our guesstimate is pretty much the same %age drop peak to trough across all property types. We’ll see.

      • “Once everything reverses, we’ll drop back to the prices of 2001, 2002, 2003”

        LOL. And do the 450,000 new residents of greater Vancouver just vanish? If you’re justifying 2003 prices how do you do this with 2012 population and demand?

      • formula1 -> You and I have always had to agree to disagree on this.
        You know that I believe that you overestimate the effects of population growth on housing prices. You see the run-up from 2003 as the result of increased demand and limited supply; I see the run-up as a gigantic speculative mania where prices departed from those determined by underlying fundamental values (and where standard supply:demand analysis becomes meaningless).
        I maintain that you underestimate the effects that a reversal of this process will have on prices. Once the chasing of prices upwards stops, there is nothing but fresh air between current price levels and those supported by fundamentals, far below.
        Population growth is a small secondary factor that will not have a major effect on price moves as the bubble deflates. Yes, it has an effect on fundamental values, those will have risen at about the rate of inflation since 2003, but they are still far far below today’s price levels.

        We’ll simply have to see how it all plays out.

  14. The supply has to be balanced by the demand and there is far fewer people that would get qualified for the mortgage in the SFH sector than in the condo and towhouses – means fewer qualiufied customers corresponds to fewer SFH, more customers for condos. I can not back up this by the real numbers but the gut feeling is that the ratio is pretty much the same.

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