The cost of peace and quiet
A few months ago I did a deep dive into the impact of the newly unenforceable rental rules, showing that rental restrictions led to substantially lower values in condos. I also briefly looked at the differences in values from of age restrictions showing that seniors-only condos tend to be cheaper than unrestricted condos open to all ages.
That chart turned out to be of greater interest, and I’ve had a lot of inquiries from people living in stratas about the impact of transitioning to a seniors only building. The reason is that after adult-only bylaws became unenforceable last year, many strata councils are considering transitioning their buildings to seniors-only (which remains allowed) rather than open up to all ages. Existing younger residents would be grandfathered, but new residents would need to be 55+ in order to move in (which is leading to tragic situations). It also defangs the loss of rental restrictions, as any tenants would have to be 55+ as well. Approximately 30% of condo buildings in Victoria had some kind of adult-only age restriction that instantly became unenforceable last year, so it’s a problem that a lot of strata corporations have been grappling with.
While I’ve previously written about the lower value of age-restricted condos in a simplistic way by looking at total sales price, this is a topic that requires a second look. Seniors-only condos especially tend to be older than the unrestricted rental stock, so we need to factor out building age and condo size to get a more accurate comparison. To make the analysis more easily shareable, I’ve written it up as a whitepaper, linked below.
Download the whitepaper
As noted in the paper, this is a comparison of value differences before the rule changes. The approximately 20% discount for seniors-only condos prior to the regulatory change may not hold in the future, as both the supply and demand for seniors-only condos is shifting. I’ll update this paper once more sales are available to estimate what the new price premium or discount will be. In the meantime strata corps may want to tread cautiously with adjusting minimum age bylaws until they understand the full impact of such a change.
Also the weekly numbers.
February 2023 |
Feb
2022
|
||||
---|---|---|---|---|---|
Wk 1 | Wk 2 | Wk 3 | Wk 4 | ||
Sales | 57 | 185 | 295 | 718 | |
New Listings | 161 | 382 | 565 | 932 | |
Active Listings | 1747 | 1793 | 1812 | 849 | |
Sales to New Listings | 35% | 48% | 52% | 77% | |
Sales YoY Change | -47% | -37% | -38% | ||
Months of Inventory | 1.2 |
No great change in the sales rate last week or the rate of over-asks which stayed around 15% of sales, but a drop-off in new listings is threatening the continued growth of inventory. Ever since the start of the downturn last spring, the market has been teetering in an incredibly delicate position, with months of inventory remaining in sellers market territory but an extreme shortage of buyers nevertheless having shocked prices lower. In January we had 5.1 months of residential inventory with 1310 residential properties on the market, traditionally considered on the low (sellers) end of balanced. In February of 2015 we had similar months of inventory (5.25) but with nearly twice the properties on the market. With a low level of sales and listings, just a few dozen more sales or fewer new listings can rapidly change the market without an inventory buffer to smooth out temporary swings.
We had a similar short term drought in listings in December and it didn’t last, and last February was a decent time for new listings so part of this is just base effect. Nevertheless there’s clearly no rush to the exits for sellers.
Meanwhile the 5 year bond bounced back from recent lows which will again put pressure on fixed rates. The rates that matter to buyers are the cheapest rates which determine stress test levels. Those have been fixed rates for the last few months which has made central banks moves less directly relevant than the bond market for setting buying power. Clearly the bond market knows as little as anyone else does on where this economy will land or the direction the Bank of Canada will take.
New post: https://househuntvictoria.ca/2023/03/01/february-market-tightens-up-due-to-low-new-listings/
Had some issues with my chart generating code, so a little different than the usual.
State level zoning pre-emption arriving in Washington. I think people underestimate how quickly these types of changes will happen once they take hold in a few jurisdictions.
By the way the evidence from New Zealand is looking extremely promising. Maybe I’ll write about it sometime.
Vancouver passes new budget with 10.7% property tax increase
https://www.cbc.ca/news/canada/british-columbia/vancouver-budget-property-tax-increase-1.6763926
I hit my trigger last rate increase. They emailed then didn’t return my emails for weeks finally got a response and they offered me a fixed rate almost the same as my variable. screw it I just increased my payments instead. If the bank offers you something it’s a guaranteed better deal for them than you.
Is that up and coming?
If we get a few more rate increases this year the trigger rate mortgages might get interesting.
Remember folks. Trigger rates don’t exist if you don’t look at them
If landlords are worried about rent control between tenancies, but don’t want to increase the rent for existing tenants, consider adding the max rent increase each year, but giving the tenant an equivalent discount each month.
I made that comment, ha ha. If it makes you feel any better it wasn’t a Ranger Rover Sport or loaded Defender. It was only a Velar Dynamic HSE. Same as you, each to their own. I’ll stick with my beater 230,000 km 7 year old Tesla with free charging for life 🙂
All these comments over the past week – hundreds of them – ranging from zoning, to affordable housing, to mortgage rates, to parking variances, to government funding, to municipal councils, to sales, lists and new inventory and yet the one comment I can’t get out of my head is that someone said there is a Range Rover parked in front of a home in Kettle Creek. The juxtaposition of that image is unshakeable and makes my head hurt, but to each their own hahaha!
More government doesn’t mean better governing.
What we need to have is deregulation such as abolished lot setback and perhaps structural size/height, and abolished residential zone. Increase live where you work zoning with mixed use residential, light commercial and industrial/manufacturing (no recycling/waste facilities, and strict environment regulations and fines).
That chart is for different quarters than what Leo was quoting below. Q1 2022/Q1 2023 vs Oct 2022/Jan 2023. The unaligned columns got me at first too.
I see, looks like the unaligned columns were fooling me. Looking at the original chart sub 20 year is 22% for both quarters. Which strikes me as very, very low given the average time of ownership. I see the explanation for floating rate mortgages, but there must be more to it. Has there been a lot of refinancing going on already?
20+ entries add up to 78% for Q1 2023, and 72% for Q1 2022.
Thank you for the thoughtful response Leo.
I have in the past spent some time reviewing the Oregon and California approaches. I agree that the options you have highlighted are reasonable and needed.
To me, the biggest issue overall with the municipal decision-making model is that it doesn’t work for long-term planning for more housing because the consultation is largely with interested existing owners who often want to keep things the same – and those the closest to the proposed development become the loudest voices in the room.
Councillors are elected by a majority of those who are already homeowners in many cases and are not equipped or mandated to deal with a housing shortage. There needs to be a provincial system to create and enforce change like you have outlined or the status quo will continue with worsening effects.
Basically, there needs to be a huge shift in attitude in our culture about housing imo.
Affordable housing by 2073! Feel the momentum!
Not really. Tide is turning. I was never under the impression this would be easy or quick. 50 years to build the mess it will not be solved overnight.
Right now there are basically 2 approaches to housing policy at the local level.
The third option is to create strong policies and plans with community input that allows for sufficient growth in every neighbourhood for diverse housing options and then legalize that housing. Provide an easy path for housing that the community agrees it needs, and refocus staff time on the hard problem of getting truly affordable housing built.
As for reforms, I think that while some cities can and are implementing these policies themselves, in the end we need provincial override. There are far too many municipalities and some have zero interest in improving their housing outcomes.
California and New Zealand have likely gone furthest down this path. Policies include:
Source:
Yes this is apples to apples. All sales are unconditional. Sales are reported as follows:
The counts of sales shown in VREB statistics reports are based on listings that are either:
And counted as below:
My tenant was with us for 10 years. Ideal tenant who took good care of the place. But the deep cleaning I had to do after we took back the suite you would not believe!
Can’t be right, because of course remaining amortizations go all the way down to 1 month. Yet 20+ year entries add up to 100%.
What does this table show actually?
Leo, you have to be so frustrated. All the hard work and advocacy that Homes for Living did before the municipal elections, and the result?
CoV: a more pro-density council.
Saanich: the same, or maybe worse?
Langford: worse.
And who even knows about the others?
Plus, Eby is looking like he might be a disappointment for you, too.
All the optimism has drained from Leo’s body!
You know, leading up to the elections, I really thought we had already hit that inflection point, where the have-nots outnumbered the haves. NIMBYs getting roasted on social media over and over. The housing crisis coming up in every news item and discussion. But I guess I was wrong.
can’t even get a table right LMAO….
I love how BC government is promoting remote work while the private sector firms are laying people off and demanding people come back to the office.
Marko was pretty close with the 495 call. I am assuming not all these are firm with conditions removed? Is that an apples to apples comparison against last year?
I wonder what impact the stated government policy of moving a lot of employment to smaller regions (assuming it actually happens in substantial numbers) might have in the housing demand in Victoria. If enough employees move to smaller centers businesses and their jobs will follow. It might be interesting times.
Looks like some people aren’t doing as well as they project.
What types of reforms would be contemplated do you think Leo?
Wow
Remaining amortizations for CIBC residential mortgages
Q1 2023 Q1 2022
20-25 years 31% 45%
25-30 years 17% 27%
30-35 years 3% NA
35 years and more 27% NA
https://www.canadianmortgagetrends.com/2023/03/nearly-three-quarters-of-cibcs-variable-rate-clients-have-reached-their-trigger-rate
Final February figures:
Sales: 460 (down 36% compared to last Feb)
New lists: 811 (down 13%)
Inventory: 1809 (up 113%)
I agree on SFH because it actually doesn’t matter what happens on housing reform. If we don’t fix it, housing scarcity drives up prices. If we do fix it then SFH becomes more rare in favour of more affordable multifamily. Either way, I think SFH will be resilient to further price declines and likely good move if you can swing it.
As for long term, I think substantial reform is inevitable. It’s just a matter of the not comfortably housed outnumbering the comfortably housed in terms of political pressure. People are talking about why not simply restrict housing but they are not taking into account that they will simply be outvoted eventually. Hard to say whether it will take 2 or 7 or 15 years to get to those substantial reforms though.
How would anyone know that the rent was raised between tenants? Or by how much, rents aren’t public knowledge.
We’ve also never raised rents for existing tenants.
We rent to those who won’t stay forever though – mostly students. They have all stayed for their entire degree period. This means some of the tenancies are now under market and, in one case, they are on their fifth year of tenancy.
I don’t prefer really long-term tenancies due to the rent increase issue, and because I want to make sure the rental is in really good shape and turnover allows for repainting and deep cleaning. I don’t think we will do automatic increases going forward despite market and operating expense increases. The only thing that would force us to do this would be a rent increase cap between tenancies.
The basement in my rental (2 bed 1 bath) will be coming up soon and doesn’t look like I can get $2500 now. I do include internet and Netflix (for both up and down suites), but maybe not anymore with the new password sharing rules.
Rental market has softened a bit so I’ve rented two units recently unfurnished, but young navy personnel so they will likely get re-depolyed and I can re-rent. You never know thought. I had the same tenant in a fully furnished unit for 10 years.
I haven’t been super impressed by Eby. Just a lot of talk like every other politican. The only real action taken, imo, was the strata bylaw amendment and while I am in support of it not sure it was that well thought out.
I the primary issue, supply, is not being address and I think the government will dig deeper when the housing crisis comes back in a few years. I wouldn’t leave rent controls between tenants off the table, just to buy votes.
But it’s my understanding they are furnished units which have a high turnover.
Eby publicly came out against this before he was leader. I think he’s as smart now as then.
I can remember when rents were controlled between tenants and it was a disaster.
For 25 units in a COMMON SENSE spot/location.
I continue to preach, we are ****ed on housing long term. If you can afford a SFH buy in the next 6-18 months as long term SFH will only be for generation wealth imo. Who knows the way things are going even townhomes might become a generational thing.
I’ve never raised rent on an existing tenant….one just left me a review on my real estate google page yesterday “I rented from Marko Juras. Wonderful experience, great landlord. Looking forward to buying a house from him soon.”
but the way things are trending I am probably going to start automatic max raise increases starting next year. I think the government is stupid enough to try and cap rent increases in between tenants at some point and if such happens you can’t reward good tenants by not raising rent.
So much of recent government policy is very counterproductive imo.
yep – used to not raise rents, but ever since the freeze during covid we have been raising every year and will continue to do so
For those landlords who are considering not raising the rent the increased property tax bills along with insurance increases are likely to tip them over the edge.
25 townhouses on Rainbow St in Saanich.
Land (3 lots) assembled in 2017
Submission to Saanich in 2019
3 years with Saanich going through the process for no major changes
2 nights of public hearing, close to 10 hours.
Last night in another hours long meeting Saanich just barely approved it, 5 to 4, with several councilors arguing to delay it further or kill it entirely.
For 25 units.
You can’t just shutdown investment in Canada, you have to phase it out.
From: https://financialpost.com/executive/executive-summary/foreign-homebuyer-ban-upheaval-real-estate
Well, the government has been on a near 10 year war to shut down investment in Canada mostly through incompetentance and simplistic populist politics. Why should it it only be isolated to resource development, gotta pull in those xenophobes and jingoist was well. Who cares if it actually shuts down the construction of needed homes. It will play to people’s beliefs and if you do that, you don’t need reason at all….
Yes there are exceptions but I think you’ll find they are just that. And in any case it’s easy to say you won’t increase rent, until you change your mind.
I haven’t and won’t unless they introduce vacancy control in which case I will have to.
Introvert: Landlords will increase the rent for sitting tenants by the allowable % anyway.
Is there any way to know how many mortgages have a co-signer in the last 5 years?
The income potential, if only this had a bathroom!
Office Delivered to Your Yard
Starting at $38,950 or $950/month on a 1-year lease (includes free delivery to Lower Island).
https://www.facebook.com/marketplace/item/903373754341061/
Maybe the law should have been drafted along the the lines of “a local government must not hold a public hearing if a development proposal is OCP compliant unless a, b, or c apply”.
It seems like the power to waive a public hearing is entirely discretionary without any parameters.
Tough turn of events!
“Don’t even hear much about it in other areas. Canadians have been remarkably resilient in the face of a huge financial stressor for now.”
My guess is that people think of the current situation as temporary so they are using up the savings or borrowing more to compensate for the loss of purchasing power and higher interest costs. We are quickly going into stagflation and inflation & interest rates may not come down for a while. By this Fall, we will see significant stress in all markets. Scotia Bank reported earnings today and got pummelled. same will happen to all Canadian banks for the next few quarters. It will be difficult to get mortgages from the banks for a while.
I agree – all the chatter about soft landings feels premature. GDP growth just stalled out in Q4, and the conventional wisdom is that it takes a year or two for rate hikes to work there way through the economy.
See my note about stress test, if they didn’t circumvent it then they should be ok cashflow wise. plus if its insured they can go to like 105% LTV I believe.
Renewal time is likely 3-4 years away, only a tiny fraction of the population would sweat about that. Most people will be under the impression that values would increase and they can refinance without a problem.
True, so you just have to cover the interest portion. A mortgage at 2% on 800K you were paying ~3400/mo (principle + interest). At 6% you’re paying 4k/mo interest only. So only $700 more a month cash flow…until renewal.
Not really, there is no set amount of principal you have to pay back for most lenders so as long as your payments are covering the interest then its ok, which means if you didn’t circumvent the stress test then chances are you are still ok from a cashflow perspective.
Apparently at my firm the quality of the back office (accounting, admin, IT) applicants have increased substantially in the last 3 months, not sure if this means that other places are tightening up or what.
So far so good the slow down in the economy and real estate seems to be fairing better than in past cycle down turns But I’m guessing we are still closer to the beginning than the end
Keep in mind the majority of mortgages are either fixed rate, or fixed-payment variable. That insulates the majority of the population until they either have to renew, or they hit their ‘hard’ trigger (80% LTV and payments not covering interest). There will be a sliver of the population that purchased near 80% LTV in a variable-payment mortgage that are sweating bullets right now. The whole situation just seems precarious…
That 1.1M sale in GH with a basement suite, after PT and other expenses the monthly costs will be probably be closer to 6500 assuming 20% down and 25 year term. Say the basement suite gets 1500, that leave about $5k a month for housing costs to fund for what could be assumed as a couple. That will probably eat up the entire take home pay of a 80k to $90k a year government employee. So cashflow wise it would be very tight for a family unless there is more down payment or if the amortization gets extended.
So far, while sales have been a bit slow, overall the Victoria housing market has remained remarkable stable. And that is a good thing. There may be be moderate price decline but only compared to an unrealistic short lived peak.
I cannot forecast the future and dont pretend to be able to but I would guess that we are looking at increased sales with very stable prices in the coming year.
Will be around 470 for the month, not the best not the worst.
I was being sarcastic there lol. My original thesis last summer was that by Feb a house like that would have been in the 900k-950k range, so clearly I was wrong.
Are we getting close to 500 in sales for the month
5 bed 3 bath that went under what the Royal Lepage page you’ve quoted thought would be the low end. If they put it up for a $1 it could have gone for over a million over ask!!
What has been making the news is people unable to close pre-sales. That’s the first thing to give when you have rising rates and falling prices.
Owner-occupiers are really the last thing to give, and you can still have a good sized decline without a significant number of them in trouble.
Suited house in GH that went almost $150k over ask!! Upon closer look this seems like summer 2021 values at $1.09M. Won’t cashflow though with 20% down.
https://www.royallepage.ca/en/property/british-columbia/saanich/1768-halliday-pl/19192780/mls923884/
Don’t even hear much about it in other areas. Canadians have been remarkably resilient in the face of a huge financial stressor for now.
“DCC’s
DCC’s are meant to cover the costs that municipalities incur from development that are not paid by the developer. Typically a developer of a new housing project pays for the new road, curb and gutter, sidewalk if required, sewer, storm, water, etc. What they don’t pay for is the increased maintenance of parks, larger pumps for sewer or water, retention areas for storm water, acquisition of land for new parks, etc. Langford has some of the highest DCC’s but in return the developers get a higher degree of certainty and faster processing of their project. Or at least they did prior to their new Mayor and Council. In general terms though, most planners will tell you that even the highest DCC’s don’t cover the costs of development and the general taxpayer ends up covering the costs. It’s a constant balance between DCC costs (too high and no development) and higher taxes (pissed off taxpayers).
Why wouldn’t people just start switching into a fixed product at that point?
I personally thought there would be a lot of people in trouble by now but literally zero phone calls from distressed sellers. Not saying there are not distressed sellers out there but as I’ve mentioned before you’ll see a lot more Ford Broncos on a daily basis than Nissan Micras. When you look at lack of listings, mortgage delinquencies, etc., it doesn’t paint a picture of mass distress.
In practice they are set arbitrarily. Saanich recently increased theirs by 50%. I’ve never seen an accounting of what direct costs were paid by the municipality from a new project and whether the DCCs covered it
This movie has been seen before. When a rapidly growing city slows down there is usually a reckoning period when taxes go up or services go down. Often with a bit of delay as initially the infrastructure is quite new and doesn’t need as much maintenance.
Shorter “Just Jack” / “whatever”:
“My previous point that lenders wouldn’t/couldn’t extend amortization because of concerns about the economic life of the improvements is largely irrelevant”
Didn’t hinder 40 year mortgages back when that was a thing.
If this comes to fruition then (my) mortgage payments (on a variable) will have effectively doubled from 3K to 6K. Pretty sure salaries are not up ~50k since rates started their march. Most folk have fixed payment variables, which means their equity is dropping by ~2k/month (or they owe an extra 24k at the end of each year).
I don’t see how this ends without some drama…people just haven’t had to pay the piper yet.
My understanding is that they are and that this is a legislative requirement? Also, local governments finance infrastructure through very long-term low interest loans guaranteed by pooled tax revenues.
I’m not sure how you are making this calculation. Local governments annually adopt a financial plan in accordance with the Local Government Act and the Community Charter. The planning period is five years. Langford’s most recent five-year plan is here: https://www.langford.ca/wp-content/uploads/2022/06/Bylaw-No.-2069-SIGNED.pdf
Heard on BNN that more properties in the U.S. are being sold for all cash offers. In some areas, Atlanta and some cities in Florida, 50% were cash purchases. Interesting in that mortgage interest is deductible in the U.S. Other areas examined, the rate drops to 32% cash purchases.
One would think that higher mortgage rates increases the tax deduction available to U.S. home owners, thereby decreasing the tax revenue collected by the U.S. government. Higher borrowing costs to service their $31 trillion debt will only increase the printing of money creating more inflation. Until governments get their own spending (and borrowing) under control (which they won’t), expect more financial turmoil.
Thought I would answer Caveat as he/her is having some difficulty understanding how a 96 year old home can have a remaining economic life of 30 years. So for all of you bored to death with this as much as I am – just skip this post.
Caveat you said “older but livable”. That would qualify for a 30 year amortization in most cases. That’s about 60% depreciation. Now if the home had had some updating performed then the depreciation would be less. The older character homes in parts of the city are an example. There is rarely a problem for people to get a mortgage on them.
It’s easy to figure out. If the property was worth 1,000,000 and the land is 800,000 with the replacement cost of the house at $500,000 then the remaining economic life is 30 years. Most homes however have had some updating over the years.
If you put a new roof on, kitchen, bathrooms, furnace, update the electrical to copper and the panel box to 200 amps, repair the broken and cracked stucco, windows, paint inside and out then you can reduce the depreciation. Then the effective age of the home is changed. There are 96 year old homes that have been gutted and updated to modern day standards. The house is effectively no longer a 96 year old home. From all observed appearance it is equivalent to a newer home. Less depreciation means a greater remaining economic life in most cases.
What seems to be challenging to you is understanding the difference between economic life and physical life. Economically is how much do the current improvements contribute to the property as a whole. So yes a 96 year old home can have a remaining economic life of 30 years. There are houses in England that are over 400 years old and the house still adds significant value to the property. No one is going to be tearing down Buckingham Palace any day now.
For the general public this isn’t of much importance unless they are obtaining a mortgage for or about to do renovations. In that way an appraiser is able to inform the applicant/client as to what the proposed renovations will add to the value of the property. That helps a person set a budget for their renovations. Without that budget its easy for someone to spend $500,000 renovating a home that after all those renovations are completed may only add $200,000 to the value of the property. Sometimes it’s a good idea to hire an appraiser before starting renovations. It can save you a lot of money.
For lenders this is important as it part of their determination to grant a mortgage or not as it goes to the security of the loan.
Not what BC mandate said in the linked I provided.
DCCs are not tied to costs incurred from new infrastructure.
We had up to 40 years amortization in the early 2000s, which helped drove up the housing price and the government canceled it by 2008. However, the BoC pour another form of gas into the fire with ultra low interest rates plus CERB/bailouts and here we are today.
I’m sorry but I think you completely missed the “Development” part that why the yearly DCC seems to be way more in Langford than Victoria. The costs of building new infrastructure and services cease to exist once the project is complete, and on going maintenance and service costs would be service by property tax/sewer fees/environmental fees (first 20-25 years maintenance costs would be very low or next to nothing).
https://www2.gov.bc.ca/gov/content/governments/local-governments/finance/local-government-development-financing/development-cost-charges
Not even close to the same scale. $8M DCCs vs $155M property tax as far as I can tell
Definitely, (infill anyway). But doesn’t change the fact that if they want to change things it could get very painful for residents. Relying on DCCs and sprawl is not sustainable. Best would be to transition to infill to reduce long term costs but unclear if that’s what they will do
https://www.strongtowns.org/journal/2020/5/14/americas-growth-ponzi-scheme-md2020
This sounds questionable. I had no problem getting a mortgage (30 year) to buy our then 96 year old wood frame house. I’m curious if anyone has come across this in practice for an older but livable house in Victoria.
If Langford is having problems so will Victoria. They have both been sucking on the same teat. Now, they are going to have cut jobs and raise property taxes. Lots of work in Alberta for anyone that wants it or you can stay in Victoria and watch your equity vanish.
The consensus among 1 Wall Street analyst covering (NYSE: UHAL) stock is to Buy UHAL stock. Amerco (UHAL), the parent company of the very familiar brand U-Haul, delivered a 10-to-1 split.
The new development also increases the property tax collected every year.
They already are with all the affordable and below market housing etc. They are helping the folks most stretched.
Maybe they used that $ for down payment on another property which could be a good thing if the cashflow is sufficient
Langford has a budget problem. Development Cost Charge (from new development) was $21M and total property tax collected was $38M.
They either continue the pace of development as before or they will need to raise property taxes. By a lot
Hopefully they’re doing what Friendly advised: having lots of fun!
Langford YMCA asking council to double funding to stay afloat
https://www.cheknews.ca/langford-ymca-council-double-funding-stay-afloat-1142545/
If your going to help the homeowner you have to help the renter it would be the nice thing to do
What events? Don’t tell me – his and hers SUVs, two designer dogs, custom kitchen every 10 years, Hawaii every winter, etc. etc. Never ran into such events, guess I was just lucky.
I can see a program where people that were stress tested are allowed to extend amortization on their primary residence such that the payments are equal to what they would have been at the previously stress tested rate. That is fair IMO.
Mr. Haditagh could also suggest zero down payment, no income verification, along with 40 year amortizations.
What could possibly go wrong!?
Seems simple to me? Anyone disagree?
By Introducing Forty Year Amortization, Canadian Government Can Fight the Inflation and Stop a Real Estate Crash!
“Mr. Haditaghi believes the solution is simple and argues that the government must introduce 40-year amortization and thereby allow homeowners with existing mortgages to renew their mortgages up to 40-year amortization. He believes that this is the only solution that will allow the Canadian Government to combat inflation, without collapsing the Canadian housing market and irreparably damaging the household balance sheets, credit, and home equity of everyday Canadians along the way.”
https://www.newswire.ca/news-releases/by-introducing-forty-year-amortization-canadian-government-can-fight-the-inflation-and-stop-a-real-estate-crash–828885123.html
Sigh… Arghhh.. we have to shake our heads
I wonder if the dream of paying off the mortgage before retirement is no longer a reality for people today. There are so many events in life that require people to take out equity. I have neighbors that bought their house for $400,000 and now have a $600,000 mortgage. They could have almost paid off their house by now, instead they are going to be carrying a mortgage into retirement.
Bingo.
You’re close Dad, except the economic life of a wood frame house is taken from tables which most often show an economic life of 65 or 75 years and not 100. A home that has a remaining economic life of 40 years would therefore exhibit a depreciation rate of (75-40)/75 or 47%.
If the cost to build the house new (replacement value) was $500,000 then it would suffer from 47% depreciation. The depreciated value of the house would now be $265,000. That’s typically an example of an older house that has had minimal updating or remodeling since it was built.
If it were a property with a market value of $1,265,000 then the building would be contributing 20 percent to the value of the whole property. At this point it is getting close to being a flip of a coin. Do I update the house or do I tear it down? If it had a remaining economic life of 25 years then it would be suffering 67% depreciation and the house would only be contributing $165,000 to the property or 13% and that’s most often a tear down. The house is usually f-ugly at 67% depreciation.
Anymore depreciation then you would be considering the value as land less the cost of demolition. Land value as though vacant and available for construction would be say $900,000 but the market value as it is currently improved would be $850,000. There are many ways to account for depreciation such as strait line, sum of the numbers, observed. With housing it’s generally a straight line for the first 25 years and then it is observed condition after that as it is around this time people do renovations and remodeling.
So you can bring a 1940’s built home and renovate it to new modern standards then its remaining economic life will increase to say 70 years from 40 years. That $500,000 home would then have a contributory value of $466,700 +/-.
Now there are exceptions. But most of you will never run across them. For example if your neighbor builds a gas station beside you or the skytrain passes behind your house. Or if you over build in the neighborhood such a 12,000 square foot home in a neighborhood of 2,500 square feet homes. But the answers to those questions are meant to separate the “A” students from the “B” students.
If the bank was just lending on the land then there is no such thing as a remaining economic life. Because land does not depreciate.
But the bank isn’t lending just on the land. The improvements are part of the loan security.
But Foreign Buyer you are almost there. Why would a bank lend on a property when the improvements only contribute 10 percent of the property as a whole? For Victoria that is most likely going to be a real crap box of a house to the point of being almost uninhabitable. That’s a tear down in most cases where the land is most likely going to be re-developed in the next few years with a new house. The house therefore has only 5 or ten years remaining economic life then. Any report that comes back with remaining economic life of less than the amortization period will be red flagged and then it is up to the lender to decide how they want to proceed with the loan. Are they going to decline the loan, lend on the land value only, reduce the loan to value ratio, require more collateral, higher interest rate, etc. Or a combination of them all?
Each lender will have their own policy. That’s when you need a broker to shop the mortgage around. Your mortgage might end up being financed by Bob’s Bank and Burgers.
I like longer amortizations because you have the flexibility to pay it off faster if you want. Alternatively, if someone is temporarily unemployed, you can dial back the prepayments. This was especially true back in the day when you didn’t get a better rate on a 25 year amort.
The examples you gave – leasehold properties and cars – have zero value after the leasehold expires / car reaches the end of its useful life.
A Victoria property with an older building probably has 80-90% of the value in the land, which has no “economic life”.
It makes no sense to limit amortization period based on the economic life of the building in cases where the loan is mostly secured on the value of the land.
I have a 35-year mortgage from back in the good old days of 2009. But I hatched a secret plan to pay it off in ~15 years, so I wouldn’t still be in debt in my early sixties. 🙂
So the bank ordered appraisal specifies an effective age of 40 years on the 100 year old house you have made an accepted offer on and bob’s your uncle. 30 year amortization it is. I think I see how this works.
Hi Leo, long-time lurker, first time poster. Your blog is great, I really appreciate all the work you put into making housing data accessible and understandable!
I’m wondering if it is possible to get the number of “de-listings” from your weekly numbers? And would that be a useful metric to understand the market?
For instance, in Week 2 of February, there were 185 Sales and 382 New Lists.
New Lists – Sales = 197 Expected Increase in Inventory .
Inventory from Week 1 to Week 2 only up by 46 Actual Increase in Inventory.
Therefore, Expected Increase – Actual Increase = 151 De-listings for houses not in inventory but also not sold.
If I’m doing this correctly:
Week 2 would have had an Expected Inventory of 1944 and 151 De-listings,
Week 3 an Expected Inventory of 2063 and 251 De-listings, and
Week 4 an Expected inventory of 2135 and 338 De-listings;
overall that would look like an acceleration in the weekly amount of De-listings.
Are these calculations correct? And can one judge anything about the market from the number/trend of de-listings?
Dad, lending in Canada is highly regulated. It’s not my suggestion, these regulations are set out by the Financial Institutions.
The Remaining Economic Life has to be five years greater than the amortization period of the loan. Otherwise the lender will reduce the amortization period to comply with their regulations.
Leasehold properties are an easier example to explain. If there is 30 years remaining on a lease, the lender will only amortize the loan over 25 years. Obviously you can’t give out a loan for longer than the lease exists.
With houses the calculation is a little more involved as it requires replacement costs, accrued depreciation from all sources, lot value and using depreciation charts of the life expectancy for the various type of improvements. ie a manufactured home, wood frame, concrete construction. The same with a residential mortgage. You can’t give out a loan longer than the remaining life expectancy of the improvements as that jeopardizes the security of the loan.
Let’s use a car for an imperfect example. You are not going to get a car loan for 30 years. Because in 20 years there is a high probability that car will be rusting away in a junkyard someplace. Ooops there goes the security of the car loan.
No one expects you to know these things. Because it’s not your job. Just like I don’t need to know how a Tesla engine works in order to buy one.
The principal would be paid off over a 50 year period instead of a 30 year period. Whatever seems to be suggesting that if the amortization exceeds the remaining useful life of the improvements, then financing would not be approved.
I agree, just saying of the 1000-1500 transaction at the peak in Victoria you only had so many at the bottom feeding the ponzi scheme. Trying to say there aren’t that many people in dire scenarios which I think is part of the reason inventory is so pathetic.
Ya, the quality of the selection still remains pretty doggly as well. Maybe the 50 to 75 point rate bump the BoC will need to do in April following the rate hold in March will start shaking some more listings loose. The only good I have seen on the ones I considered offering on in the last month is the listings only had 3 or 4 offers compared to the 16 to 20 offers on listings the listings I was considering a year ago.
The lending risk is higher because the principal is being paid off so slowly. That’s independent of the residual value issue that Whatever was talking about.
And the people that bought from them … ?
This is the classic ponzi scheme all made possible by people buying in at the bottom.
The worst part is on the ground I just don’t get the sense that we will see a flood this spring. Still yet to receive a phone call along the lines of “variable is killing us, we need to sell.” I just sold a condo for an investor a few days ago and she put it up for rent at the same time and told me “if the accepted offer goes sideways I am re-renting and we will take it off the market.” It was the 4th time she had to re-rent the condo during her ownership and all 4 times the rent was substantially higher on the re-rent. It doesn’t put pressure on investors to sell.
If rates up and rents dropping substantially would be a totally different story.
There’s a new buzzword circulating amidst recession fears. It’s called a ‘no landing’ scenario, but one economist says it’s so unlikely that if it happens, economists might throw away their text books.
From: https://www.ctvnews.ca/canada/economist-calls-no-landing-recession-scenario-possible-only-in-fantasy-land-1.6291239
@ Vic. My Point is. There was huge worry that QE would pump too much money into the economy since 2008 and we would get extreme bubbles in the economy , particularly in residential housing and equities. I have heard of housing bubbles lately so the QE likely did the exact job that all the economists were so worried about. ( Bernanke took this on) That are trying to calm with interest rates which is working. Asset prices will not plummet unless QT is highly aggressive and reverses that graph M2 some how?
If you are 0.1% of the first time buyers that bought March/April 2022 it isn’t a complete nightmare scenario like you lost your job as well. Since then if you work for the BC Government you’ve received a 10% salary increase. Your basement suite is still renting for the same amount or more. You might have to skip a couple of vacations and stay on the island (an incredibly beautiful place), you might have to sell a gas guzzling SUV to buy a compact, and you might have to hold off on a second dog. Next year BC Government will do another small raise, your tenant will move out in a few years, and you will re-rent for a bit more, EVs will become cheaper in 5 years and you can get rid of your tax bill. Even if your timing was the absolute worst, it isn’t the end of the world, long term.
When I look at my March/April 2022 transaction, no first-time buyers. For example, I had a family buy a home in Gordon Head for $1.45 million (probably $1.25-$1.3 now) but we sold their townhome in Victoria for $1,150,000 at the same time and I just sold a similar townhome for $935,000. The people that bought the $1,150,000 townhome retired couple from Toronto so they cashed out high as well. Everyone made out ok in the sequence of all-time high transaction other than 1st time buyers.
If I can get a 30 year amortization on a 60 year old house, why wouldn’t I be able to get a 50 year amortization on a 25 year old house, assuming it was a real thing?
@Whatever: “Lenders Struck Guidelines” can be changed even in a constitution. Especially anything restricting housing. I get it Lenders have to abide by a lot of …. ,but policy makers are there to make the difference . We need to tell them what to do!
FYI in 2008 , a 40 year amortization was normal. 50 year amortization extremely likely, not by the Soper Bank of House Giving
What is the point you are trying to make?
Those new listings… Not good.
It’s not just a matter of extending the amortization period. Lenders have strict guidelines on the residual value of the improvements relative to the underlying land value which would kick in. Most homes in Victoria that are over 25 years old would not qualify for a 50 year amortization.
Still beats spending your life paying off your landlord’s mortgage.
That brand new UK bank is starting out with 30 year fixed terms, and plans on offering 50 year ones in the future. Not far off from my plans to open a bank with 2000 year mortgages in the near future. I’m taking investments, email my laywer (Barrister) for more details 🙂
Soper, you are the only bank? Are you a bank? giving out 2000 year mortgages so you can make the rules. Soper Rules.
We are just talking about the possibility of a 50 year mortgage to allow families to stay in their houses.
https://www.ft.com/content/281fbba6-28e2-42d4-b241-0f215995f0d1
Hi Vic RE; I not sure if you can see this M2 Money supply link.
But It looks like A.. slight increase in money since 1980? Do you think this would affected price of houses?
ttps://tradingeconomics.com/canada/money-supply-m2
Click the link, you have yo go to the max to see the variation from 1980.. still significant increase in money supply, especially recently. Do you think, this affects macroeconomics?
I get it ~ 60% went to bank reserves etc. etc. but ~40% went into Mortgage backed securities in the USA, anyway, that is a lot of $$ going somewhere. Do you think it went into housing?
That’s not how a 2000 year mortgage works though. You spend the first 1000 years accruing interest on the loan, and the last 1000 paying it off. Think of the possibilities.
“Creates the possibility that you’ll be paying the bank interest for the entirety of your life, along with the lives of all your ancestors. With the 2000 year mortgage, I can easily afford an $15 million place with a $1000 a month payment. Just rent out my basement suite and I’m set for life.”
At $1,000 a month for a $15 million house, the mortgage payment won’t even cover a fraction of the interest. Even at infinite amortization period (meaning interest only), the payment would be a minimum of $60,000 per month.
I think it would take a pretty severe recession to drive medians significantly under a million. Just too much resistance there with drop in down payment requirements and likely accelerating trend for detached shrinking as proportion of total home stock.
Right now I’m thinking the bear case is medians hover around a million for a few years until affordability improves via either rate drops or income gains or both. And range of possibilities is up from there.
So your saying if they bought a $1M house it would be 2M? or a $2M house and have it be $3M? or a $500k house and it would be $1.5M?
80’s would be a good indicator on how long it would take to recover after a decline.
Even with current rates or higher rates being the norm?
Soper : Your Idea of 1000 year Mortgage just moved from a Great idea to a Soper Idea!
Creates the possibility that you’ll be paying the bank interest for the entirety of your life, along with the lives of all your ancestors. With the 2000 year mortgage, I can easily afford an $15 million place with a $1000 a month payment. Just rent out my basement suite and I’m set for life.
Re Soper: Good Idea. Re the 2000 year amortization. We will need that if money keeps deflating like it has been. We would need to increase Quantitative Easing a lot more…. Heck anyone can do that… I would say for the next while a 50 year mortgage is more reasonable. Everyone gets a home, your grandkids are still paying the mortgage long after their parents have died, they have a home for life. with a solid family environment. Even if this is 4 great single friends.. it create possibilities .( opposite of not creating possibilities) I am not sure what your goal is but reducing possibilities does not generally help. Inflation is dropping like a rock.,. just watch the next 3 months. We all will be talking deflationary pressures. then back to inflationary in a year or two. Buy your house in November 2020 or now. and enjoy.
I think true for detached. Problem for condos is people don’t tend to stay for 15 years.
Given long term trends I don’t think we’ll see sub $1M Victoria detached again.
Why stop at 50? why not 200 year or even 2000 year mortgages?
Month to date numbers:
Sales: 419 (down 37% same time last year)
New lists: 742 (down 14%)
Inventory: 1797 (up 112%)
Decline in inventory from last week. Not great this time of year.
Inflation is tipping back up in the states Market betting on more interest hikes Im sure Canada will have to follow imo
At a peak in prices and an all time bottom in interest rates, perhaps.
When it comes to primary residence I think you buy when you can afford it. Impossible to time the market but long term not sure how you can possibly go wrong. The mortgage principal drops over time and inflation and wage growth eat away at it even more. Odds are in 15 years you are making substantially more at work, even without promotion, your basement suite is renting for substantially more, etc.
Of course. A developer launched sales of a condo project in Langford a few months ago then cancelled the launch and opted to build rentals. Still being built, but rentals instead of condos.
It isn’t just the soft market but also construction costs are still very high, interest rates for developers are 6-7%/year (and the project can take 2-3 years), etc. I think many projects will be on hold for the next while and some with be converted from condos to rentals as rental market is still strong. With a rental there are some attractive financing programs through CHMC, etc. Just look at Yates Steet/Harris Green 1,600 unit rental project, across the street at the Mazda dealership Chard is building 450 rental units for a REIT, etc.
Problem is not enough labor and not enough on hold to bring down construction costs. A lot of government projects (schools, hospitals, etc.) in the pipeline.
I have read in a couple of places that a number of condo projects in Vancouver have been put on hold due to the soft market in presales. Does anyone know if the same is happening in Victoria?
Leo, got anymore rent data? I want to see if my my oct/nov peak rent call was right. I see some rent incentives now and also the per room rent price is now generally below 1000.
I wonder how emotional you would get if your house was bombed? By the way, insurance does not cover acts of war.
I know someone who’s parents moved to Victoria decades ago and decided to rent instead of buying. At the time house prices were very reasonable. If they had purchased a house, it would have appreciated $1,000,000. That would be enough to make me emotional and cry.
Both, but CMHC only for insured mortgages. Private lenders, neither.
In the short term at the expense of longer term, because it borrows demand from the future. Owners will be in debt longer and pay more interest.
Whatever, I do agree with you. We cannot attach emotion to an equity or investment property if our goal is to make money.
Some people have other goals with owing a home.
I do not agree with the buy and hold strategy in the stock market. But, Buy and hold for at least 5 years in real-estate is advisable . Some even make it a family home and then all the fees totally dry up.
FYI- Hopefully will be 145 years old when my mortgage gets paid off. I never understood why people are wanting poorer quality of life to pay their mortgage down quicker. Now say I a I’m 85 and and all of a sudden ready to have the fun if my life because I finally paid my mortgage??? Dam .. maybe I should have thought about this 30 years ago and had fun then , dam what was I thinking?? Whatever.
What is the Canadian regulator of mortgages OSFI, CMHC??
If it allows for longer mortgage amortizations, does that facilitate further raises in the price of houses?
I wrote about this previously. It’s the difference between a house and a home.
People attach a lot of emotion to a home and they will do things that are sometimes against their best financial interests in order to keep it. So take the 50 year mortgage and when you’re 85 it will be paid off.
I’ve never fallen in love with a house, so my answer would be different. A house is just a thing to me.
Whatever:
If you were in a difficult situation; 1 or 2
1) Would you would rather get kicked out of your house and claim bankruptcy???
2) Or pay the fees you are mentioning and stay in your house and living a happy family life?
Bring on the 50 Year Mortgage. And return our stability. And Yes, Mr. Whatever …. everyone will be paying more interest on 50 year amortization. We do know this, we do not care because we have a home and we are happy and stable and do not care to get rich off or real-estate.
The longer your amortization period, the lower your payments will be. Keep in mind that when you take longer to pay off your mortgage, you pay more in interest.
There’s also an immediate cost to extending your amortization period, as it will require you to refinance your mortgage. While there are upsides to refinancing (like potentially getting a better mortgage rate or consolidating debts into your mortgage), there are fees to consider. In addition to paying a real estate lawyer to do the paperwork, you may have to pay for an appraisal and you’ll likely pay your existing lender a mortgage discharge fee.
Extending your mortgage’s amortization period can reduce your monthly payments, but at a significant cost.
12:09, 4:33, 5:07, 5:46, 6:14, 10:03, 11:17….
Mania or medication?
At time of purchase, that’s true. But if you’re already 5 years or more into the initial amortization starting a new one at 30 years will bring down payments quite a bit, as you’re already paid off a chunk of the principal.
The people who will really be in trouble are the ones who took out floating rates at the peak and already have to deal with much higher rates.
One of the posters suggested that if owners found themselves in financial trouble a solution would be for the government to increase the amortization period to bring down the monthly payments. Going from a 25 year amortization to a 30 year amortization does not bring down the monthly payments significantly.
The monthly payments on $100,000 at 5.59% is $615.64 per month. Increasing the amortization another 5 years drops the monthly payment down by $46.21 to $569.42
Another problem is bank financing if you’re buying an older home where most of the value is in the land. The lender will only amortize a loan if the remaining economic life of the improvements is in excess of five years of the amortization period. A lot of the older and smaller homes in Victoria just wouldn’t qualify for a 40 year amortization.
That sounds like you’re advocating for de-centralizing housing as a means to make housing more affordable. I think this is plausible as long as the area of new housing is outside of the commuting range of Victoria so that demands on the road system is lessened.
In BC we tend to create higher density within the established central municipal areas CMAs rather than develop new city centers. Vancouver Island has essentially two major CMAs which are Nanaimo and Victoria. Developing a third CMA outside of the commuting range of these two CMAs would provide an additional commercial and residential city center that would reduce the need for continued intensive densification. Instead of bigger cities on the island there would be more CMAs for people to chose to live and work in.
Vancouver Island has a lot of unused and under utilized geography.
Well sure. Very likely they will remain more expensive. But the amenity that stands ahead of everything else is jobs. The other amenities you listed really depend on middle class jobs, and if these jobs migrate to the smaller cities other amenities will follow. Not on the scale of Victoria of course, but it will make a difference from what they have now.
Perhaps, policies makers need to retool their thinking process to better serve more clients, by purchase land out in bedroom municipalities to stay within reasonable budget.
There you go Barrister. We’re back to real estate
Someone earlier posted a question of why are we not building more cooperative housing that could be rented at below market rents. That would intuitively seem to be a cure for the rental market.
But it isn’t that simple. If you are building cooperative housing then you need to set out a budget. With high land and construction costs, and expenses directly attributable to the operation that would make the initial rents close to what is currently being charged in the open market. Over time, as the mortgage is paid down, then the rents relative to the open market would be lower. But not initially.
There is a difference between not for profit rentals and Apartment buildings that are bought and sold on the open market. Cooperatives or not for profit buildings need to develop a reserve for replacement for items that have a finite life expectancy. For privately owned apartment buildings there is no reserve allotted. The private owner of an Apartment building simply re-finances as the need occurs. Cooperatives would therefore have higher expenses than privately owned apartment buildings.
Condominium complexes also build a reserve for replacement that is added into the monthly strata fees charged. In the past these complexes did not have much of a reserve and then had to charge each owner a Special Assessment if there was not enough in the reserve fund to pay for a new roof, elevator, etc. Today these complexes have to have a Reserve Study done every few years to make sure that the strata fees charged will provide sufficient reserve funds to replace items with finite life expectancies.
I think there are still a lot of reasons to be near a city and so the nearby communities such as Langford, Sooke etc are still likely more attractive than places like Nanaimo, Courtney etc.
It’s nice to be able to be close enough to attend concerts, museums, cultural events, political events, specialty shops for art supplies, sporting clubs…. such as soccer, wool supplies, business opportunities, visits and get togethers to long time friends and family, etc.
We didn’t buy in Sooke so that we could commute to Victoria, although, granted….. many people do that too.
Most of our neighbors don’t commute. They work from home or work nearby in the community. (Builders, concrete companies, dog grooming, local shops, glass making, artists, boating supplies, fishing industry, logging, etc .)
We bought out here because we could get a new house that is built to code, with a “legal” suite, a massive yard for chickens, garden, and privacy…with much lower taxes and several hundreds of thousands of dollars less than our one hundred year old house in Victoria which we had to have running battles with our insurance agent who demanded a new roof, new wiring, and a whole list of other issues every year…..which drove me nuts.
We worked hard and also were very blessed with good luck.
It’s going to be interesting to watch how much things are going to change.
I’m sure it will be unpredictable with many surprises.
Our family still owns houses in Victoria and we think they have a good future with a secure long term investment. I would not want to bet against Victoria when it comes to real estate and recommend it to anyone who was thinking of buying there if you can afford it. The future is just too complicated to predict.
The problem with looking at Canadians’ debt and the size of our real estate market is that they are dissimilar data sets.
There are a lot more people that have mortgages than there are people buying and selling. If one percent of households with mortgages were forced to put their home up for sale that would swamp our real estate market with new listings.
There are about 180,000 dwellings in Greater Victoria if half of them had mortgages and one percent of them found themselves in a circumstance where they had to sell that would add another 900 listings to the real estate market over time which would push us into a buyers market that would strongly favor buyers. Given our current economy, unemployment and vacancy rates that’s not likely to occur all at once. Only around 2 percent of mortgages come up for renewal every month so any impact of higher interest rates will be spread out over a long period of time. The result is just a market correction, a soft landing.
A lot of other things have to occur such as recession in BC, high unemployment /under employment, and a high vacancy rate in order for the real estate market to crash as it did in the 1980’s. I have no information/data that indicates that this is currently happening.
However, I did see something driving in town today that I have not seen for a very, very long time. A few purpose built apartment buildings that had vacancy signs out. That’s odd as these buildings are professionally managed and typically have a waiting lists of tenants.
I think we have to reflect on the source of published vacancy rates and what that rate means. 1.5% vacancy rate is a low number -but what does it mean? A 1.5% vacancy rate might just mean that someone can find an apartment to rent. There might not be much of a selection but there is availability. So what would a 3% vacancy rate mean? I would opine that would be considered lots of selection available. 5% or more would be dramatic with lots of “for rent” signs which we haven’t experienced since the 1980’s.
Just something to think about as we enter into the Spring Market in about a month from now. Just watch for more signs advertising “for sale” or “for rent”. That’s likely your best and most up to date source of data.
Why are we back to cars?
Yes, very cool interactive chart.
A tesla model S (2020, long range) has worse estimated carbon footprint than a plugin hybrid (Hyundai Ioniq). (Based on typical use)
Aren’t there statscan data for this?
I don’t necessarily see WFH being a huge benefit to bedroom communities like Langford and Sooke. The whole point of those communities was to be “close enough” to commute.
If the commute necessity is removed a lot less reason to choose Langford or Sooke over Nanaimo, Cowichan, Courtenay etc.
Although I will always have a soft spot for Sooke ever since some POS tried to sic her pit bull on my elderly mom there.
“The Globe set out to find out how much people actually owe in these precarious times for borrowing.”
Good grief. The G&M sets out to find out how much people “actually owe”, and so they do it via an “anonymous, informal “ on-line survey where people can post whatever $numbers they want.
G&M needs to raise their game. Someone needs to show them Leo’s white paper 🙂
It’s not a big problem in Victoria. As Marko said the developers increased the deposit to 20%. I’ve only run across two complexes where this may be a problem for some of the buyers.
The problem happens when the purchaser goes for financing when the complex is completed. Prices may be 10 to 15 percent lower than when they signed the contract with the developer. The bank only lends on the lesser of the Contract Price or the Current Appraised Value. The buyer might then have to come up with more money to keep the loan at 80% .
In Victoria. Just reporting what I heard from other agents. Langford. I don’t have numbers. They’re not underwater, just can’t complete and need to assign..
Cool visualization of cost and lifecycle emissions for electric, plug-in hybrid, gas vehicles, roughly matched to BC grid.
Parameters: https://www.carboncounter.com/#!/explore?federal_refund=dont_apply&taxfee_state=WA&price_Gasoline=4.4&price_Diesel=4.4&price_Electricity=10&electricity_ghg_fuel=20&electricity_ghg_veh=400&distance_per_year=6000&ownership_life=8&xAxis=costs_total&axisLimits=hybrid&units=si
In Ontario, sure. In Victoria, I work with a lot of presale buyers and the bulk of it is condos where developers cranked up the deposits over the years to 20% deposit. Someone putting down 20% and waiting 2 years +/- for something to complete typically isn’t in a demographic that will not be able to complete.
Also, no larger development is really under water. If you bought at the Pearl which will be finished later this year you are still 15% up +/- based on current market and where the presale prices were three years ago when they starter selling.
Rescission period haven’t seen it used yet personally. Circumstances for buyers don’t change that much in three days. It would need to be cold feet.
Hearing some stories of presale buyers under pressure not able to complete, and a use of the rescission period even after multiple offers. Interesting times
Old school thinking Frank. Chances are if you fuck the dog at home, you fucked the dog at the office. Internet distractions only exist at home?
Personally, I find that I am about as productive at home as I was in the office. Maybe a bit more so because there are fewer social distractions.
To pay off that debt with equity you have to sell, and the buyer most likely needs to borrow as much or more money.
To service debt you need income, not equity. Equity is always highest before RE declines.
Please remember that a lot of people with debt also have equity. If we ever get in trouble with foreclosures BAC will increase amortization to 40 years why not 50 year amortization. It would take a slight policy change and all of a sudden everyone can pay their mortgage. I would be quite surprised if Victoria or Vancouver get any substantial foreclosures from residents. Sure the developers are all stopping and reconsidering. So that will also decrease supply. All is fine … do not worry… the time to buy in Victoria was in November 2022 .
Results of Rob Carrick’s informal and anonymous survey from January (6,150 responses):
How much debt is each generation of Canadians carrying, and how do you compare?
https://docdro.id/LJpi0xi
https://www.theglobeandmail.com/investing/personal-finance/article-canada-average-household-debt-generations/
Pretty pricey for a death spiral. I don’t expect to be able to pick properties up for back taxes any time soon. Even areas near Vancouver’s DTES are still very expensive.
Frank…… keep in mind that I was just teasing you.
I go back and forth on the future of cities. I left Victoria for all the reasons you stated. I felt that Victoria was in a death spiral. (By the way, I live in Sooke and love it here. I don’t live in Moncton. I have invested in real estate there.)
Work from home works for lots of people, but not everyone. Part of that is what the job is, and part of that is personality. I’ve worked from home since 2007 and it works for me. Covid proved how much could be done remotely.
Here are some stats:
– about 40% of jobs can currently be done from home;
– 60% of jobs requiring a BA or higher can be done from home;
-10% of remote workers report that they are not as productive from home;
-20% of workers don’t want to work from home; and,
-60% of workers want to work partly from home and partly from a workplace.
I hardly ever go downtown because of the crime rate and homelessness. There are lots of new condo towers downtown though. Has to be boosting business a bit, but not enough to compensate for the loss of government workers over time.
It’s not just here, house prices are falling in many places and it looks like the trend will continue. This brings hope for those who couldn’t see anyway of affording a home for the last 10 years but it could be very painful for those who stretched themselves beyond their comfort range to buy in during the frenzy: https://www.theguardian.com/money/2023/feb/25/house-prices-falls-uk-us-europe-property-markets
deryk- Just telling it the way it is. Workers are resisting returning to their offices to avoid the squalor. I also believe that staying at home and losing human contact at a workplace has serious social implications. How’s things in downtown Moncton?
Large population downtown which should support businesses and lots of people still working downtown. But, if the druggies overwhelm the downtown then it is still a dire outcome. We used to eat out two or three times a week, still do but now we go to Oak Bay or Sidney, anywhere but in Victoria.
Frank…whatever you are doing, keep at it, as you must be doing something right.
It sounds, from your comments below, that you have cheered up substantially!
Without workers coming to a city’s core daily, the local businesses that rely on their traffic will close their doors permanently. The area will eventually be overwhelmed by the homeless turning it into a slum. Crime, substance abuse, prostitution, mental illness, disease, will thrive and any hope of revitalization will be gone. Tourism will suffer, the economy of the area disappears and a massive drain on social services will be firmly entrenched in the city. I also seriously doubt the productivity of working at home, too many internet distractions.
Leo, just want to say such an elegant piece of work of the white paper and totally waste of your talents working here… the contents worth a premium fee to read.
Ahh, finally, some SFD listings coming on again today…. Let’s see what March brings.
To some degree all the people living in the condos will compensate for the workers in terms of restaurants. ‘ I have no idea how many workers we are talking about. A few hundred or a few thousand.
” …..the Provincial governments decision to allow large numbers of work from home.”
Music to my ears as I’ve been calling for that for at least the last ten years.
Lower costs per family on every level.
Less car pollution.
Less highway expansion costs.
More family time with much lower costs.
It’s hard to say what will happen to Victoria. My guess is that it will re invent itself in some way.
How many new opportunities will open up in surrounding communities as those places expand and grow?
Government employees working from home makes it difficult to justify all of that very expensive downtown office space that has been built. That might be a problem for their auditing report. Then there are the downtown businesses that rely on a steady flow of hungry and thirsty workers.
Well that’s good news. Canada deficit only $5 billion for the last 9 months. https://ca.finance.yahoo.com/news/canada-records-c-5-54-160722965.html
Dad: You are about provincial government workers being allowed to work from home since 2020 but I suspect that a lot of people felt that this was possibly temporary because of covid. It now seems to be a permanent policy and it strikes me that their would be a greater comfort to many to make housing decesions on that basis.
I’m giving you a check mark on your comment Caveat, just because I miss the sarcasm of Just Jack.
They have been allowing large numbers to work from home since 2020, so much of the impact has already occurred.
Yes. And other communities, since there will be way more flexibility in where positions can be based in the future.
5 year cad bond yield almost setting new highs since the last peak.
The only suggestion I would make if you are buying a home for an elderly parent is to speak with your lawyer about the pros and cons of Joint Tenancy versus Tenancy in Common. It will vary depending on your family situation.
You might want to look at the Canada Caregiver Credit. If you own the property and let them use it rent free you would probably qualify – but don’t take my word for it, ask a professional. Or you could let them own the property and pay expenses, same tax credit the limit is $7,525. In the latter case no capital gains as it would be their principal residence, in the former there would be.
Anyone know anything about buying into a 55+ unit for a parent who is disabled? Or just a condo in general. Are there any tax advantages / incentives. What happens when the parent eventually passes?
Just saw this on CBC: “A Victoria co-op offers three bedrooms for $1,000 a month — if you can get past the wait list”
https://www.cbc.ca/news/canada/british-columbia/vancouver-island-coop-1.6758507
Interesting story, and it sounds different from the CRD housing as it is self-managed and for “working and middle-income” families, and many are not subsidized.
p.s. I also noticed that many of the CRD housing sites are very nice, with park-like surroundings.
Yesterday on Adam Stirling they were talking about the possible impact on downtown Victoria from the Provincial governments decision to allow large numbers of work from home.
My initial feeling was that it would not be a great impact on the city but on reflection I am not sure that it might not have a long term impact. Are people likely to move to the West shore or Sooke or perhaps Mill Bay or Sidney if they dont have to come into the office.
I dont foresee a real exodus from Victoria but I could be wrong.
Do they make violins tiny enough?
So far I don’t see a rush by buyers to adult-only (55+) units. In my personal estimation this is a 475k +/- 25k market value unit without the 55+ age restriction -> https://www.realtor.ca/real-estate/25129191/205-1875-lansdowne-rd-saanich-camosun
Whatever just speaking specific to real estate and housing although i have no problem with every and any protest
Oh Thurston. The Trucker’s in Ottawa would think you are so wrong. As would the Covid deniers and the gun lobbyists.
Whatever I’m of the belief people luv regulation and they do look to the government to stick they’re fingers in everyone’s pie All that meddling makes people feel safe and you can never get safe enough
“They bought under a specific set of rules and now those rules have been changed without their input.” This is a fair point. As well, the rules are ultimately changing as a result of a shortage in supply that was caused in large part to anti-development policies and bureaucracy. If you have X number of additional people needing housing every year and you don’t allow your borders to grow fast enough or the density to increase quickly enough there will be a shortage for both renters and buyers.
An enjoyable White Paper to read. If one is studying Urban Economics this provides a good starting place to develop an economic paper on government intervention in the free (er) marketplace.
Housing is unlike any other commodity that is bought and sold, unlike stocks and bonds, as there is emotional attachment. To a home owner it isn’t just an investment it’s a sense of pride in an accomplishment. It’s common for home owners to have pictures of their homes and their children on their phones to show others . Statements such as “I love my home” are often expressed. When do you hear people say the same for their Tesla stock?
And that attachment brings out anger when governments interject themselves into their lives when it effects their “castle”. And I’m guessing Leo will hear anger when he speaks to the owners in these complexes as few of us like government interference in our lives.
So while you may say to these home owners that removing age restrictions will increase the value of their property there will be those that will not care. They bought under a specific set of rules and now those rules have been changed without their input. That gets people angry and they do things that are against their better economic interests. The dollars for them are not as important as the change this legislation will do to their life styles now that they have to share their buildings with renters and those of a dissimilar age group. That’s not the building they bought into.
Richard Nixon after his presidency wanted to buy an apartment in a New York Cooperative. Despite him being a former president the members of the cooperative would not accept his application. Having a president, even a disgraced one, may have brought a level of status to their complex and possibly increased the value of their homes, but the members of the cooperative just said “no”. You have to have a prime set of gonads to say “no” to someone that was the most powerful person in the world and who bombed parts of South East Asia half way back into the stone age.
When it comes to a person’s castle they do not always chose the most lucrative road.
Not sure what car fires have to do with housing.
The 2020 data that you posted seems to show car fires from internal combustion engines are roughly 4000X more common than fires from EVs. While at the same time EVs are much more common than 1/4000 of the fleet. Ergo EVs safer on this metric at least
Car Fires By Vehicle Type (2020) – USA
Fuel Type Total Fires
1. Internal Combustion 199,533
2. Hybrid (Partially Electric) 16,051
3. Battery Electric 52
I agree that there are much more ICE cars on the road at the moment, but one have to wonder what happens if there are more EV on the road, and where will we stores/dump the toxic batteries after 25-30 years from now (same go for solar panels, wind turbines, and e-waste)?
.
https://vedaing.com.mk/blog/statistics-vehicle-fire-causes/
Oh, one other thought. These questions of impact on age restrictions past present and future should apply to condos in Vancouver too, no?
Yes, I think this could be a substantial factor.
If I had to guess, previous rental restricted but age unrestricted condos should see a demand/value increase, while previously age and rental unrestricted should see a demand/value decrease as investor demand is diluted over a broader stock, and seniors-only condos that can now be rented should see value increase due to additional utility. However unknown is how many adults-only stratas will transition to seniors-only (more supply), and how many buyers previously preferring adults-only units will now be looking for seniors-only now (more demand). Seemed easier to just revisit in a couple months than try to forecast that.
Thanks Leo!
Nice job on the preprint. It’s very clearly written. The only potential comment that comes to mind is that variances were noticeably absent. There’s probably enough statistics for the plots in II.A for variances to be meaningful there (where the variances would give a sense of how much the distributions of unrestricted and seniors-only sales overlap), but probably the data sets later are too small for dispersion to be meaningful.
Easier to print and bring to those strata council meetings.
Will take a look next week for the months-end review.
A white paper! This blog is going up town, babyy.
Where are we at these days in terms of sale price to assessed value ratio? The golden data point.
I think it is important to separate out the impact of the 55 plus factor from the impact of no rentals vs. permitting rentals.
The fact that previously rent restricted buildings are no longer rent restricted will probably have a valuation uplift effect across the board for all rent restricted buildings I’d think.
Even if you can only rent to 55 plus, that still provides owners with flexibility and peace of mind if they need to move temporarily or only want to live in Victoria part time and rent the condo out the rest of the time and increases the market of potential purchasers.
Maybe the rent restriction uplift is already known as there was a known differential between rental and no rental buildings before the change? I’m just not sure how to separate this out from age restriction changes. Maybe it can’t be without more data?
It seems we have gone from about 35% of the market not having kids down to 5%.
While you are limiting the buyer pool this might be counter balanced by the drastic reduction in supply. It should be interesting to watch.