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“Any sufficiently advanced technology is indistinguishable from magic.”
-Arthur C. Clarke
THIS WEEK IN FACTS BY EMAIL:
The numbers are out and they are good … but what do they foretell? CMHC latest change will have a negative effect on the residential
market. Condo market struggling.
Will be up May 3, 2014 after 10 AM. A discussion on the real estate market in all major cities. (Lost your password? Call Lubna at 604-683-1111. Best time
to call? After 5 or on the weekend.)
TIP OF THE WEEK:
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- Cruel Truth About Condos
- Don’t Dismiss The Latest CMHC Mortgage Change
- The Bright Side: Where BC’s Population Is Heading
- Spooky Smartphones Can Track Real Estate Action
- Low Mortgage Rates Will Continue: Poloz
- It Costs More To Insure
- Plot Of The Week
- Best Mortgage Rates
C A N A D A: The Numbers, The Numbers – Vancouver
While some headlines scream: Market in Vancouver soar … it is really more like: Steady as she goes. Yes, sales are up
over last April by 15%, prices are nicely higher and listings are lower. But then – look at the benchmark JREI uses: 2011. Compared to April 2011, our sales are actually 6% lower, prices are down a tad and listings clock in a full 9% higher. The volatile
market picture is really visible when you look at some of the suburbs throughout our most divergent Lower Mainland market. We picked a few major ones (if
you would like details on another sub-market, send me an email). Also the problem with averages is that they are – well – averages. Thus condo prices
overall are up 10%, yet single family home prices are only up 4%. Also detached home prices (new) with only 88 sales show price increases
of some 14% higher, while used detached homes in April 2014 ($1,198,800) at 1,283 sales saw only a 3% increase over 2013 ($1,146,500) and
2011 ($1,158,600) but actually a decline of 4% over 2010 ($1,229,000). So better than 2014 … YES. Record market … NO.
Major Point overall:
Actually all price ranges are lower than either 2011 or 2010, not by much, but lower. So, no runaway bull market, but rather a very even market over the
last 4 years, aberrations (the odd multiple offer) notwithstanding. May usually is the high in most real estate markets. After May, sales and prices often
tail down into the summer, see a blip into September and October and then down into December. We see nothing on the horizon that will change this.
Sales in Richmond are higher over 2013, but a full 13% lower than the ones achieved in 2011. Listings are still higher by 11% and the average price? Just
up by 3% over 2011.
Sales are up over last year but a whopping 18% below 2011. Prices about even over the last 4 years but listings 13% higher.
Vancouver East is in FULL recovery beating sales numbers in each of the past 4 years, prices 9% higher.
Sales up over last year and a tad over 2011. Prices strongly higher by 14%, but listings are also higher.
MAJOR, MAJOR POINT:
Lest you think we are being negative. We love Vancouver and the Lower Mainland. We think you make the most money on the day you buy and that may well be
when the market is flat or even down – like now.
Some of the best buys
in the Lower Mainland are new condos or new homes in the Valley, where there is oversupply.
So, do not be afraid to make offer
s. But also clearly we have to look at the details in all the markets to see what really goes on the specific area that YOU want to find
your best deal. Never been truer than today. Particularly in the condo market … see the next piece.
Cruel Truth About Condos
With the possible exception of the Olympic Village in Vancouver where buyers pocketed startling equity returns after
buying the discounted units from the city of Vancouver taxpayers and flipping them into the market, it is tough to make money in the Metro Vancouver condominium market.
And it is getting tougher. That is the cruel truth about condominiums, which now make up the vast majority of housing starts and – until recently – more than half of MLS housing
The overall benchmark price of condominium apartment across the Lower Mainland is now $341,200, but that price isup just 1.8% in the past three years and it would be even worse if not for the increases in two Metro markets:East Vancouver and East Burnaby. In seven Greater Vancouver sub-markets, owners are seeing negative equity on their condo units if they bought in 2011 or afterwards. The
townhouse price performance is even worse: a 1% price decline in the past three years andpositive appreciation since 2011 in only 5 of the 18 submarkets tracked by the Real Estate Board of Greater Vancouver.
The Fraser Valley is also seeing flatlining condo prices. At $195,000 in March, the typical condo apartment price is now
4.3% less than it was a year ago. The typical townhouse has shed 1% of its value in the past year and prices haven’t budged in three years. Abbotsford is a stark example: benchmark condo prices dropped 20% in the past year, to just $135,000 last month.
OK, so you say, resale prices will ramp back up. But while they are waiting, condo owners continue to shell out a lot of money in monthly strata fees and these are threatening to increase due to the need for
For example, let’s look at a high-rise condo of 1,000 square feet in Metro Vancouver. Average strata fees for a high-rise building six to 10 years old in Metro
Vancouver range from a low of $0.27 per square foot in the Tri-Cities to $0.64 per square foot in Vancouver and North Vancouver. (This would equate to from $270 to $640 per month for a 1,000-square-foot condominium.)
Strata fees for low-rise buildings are generally in the .23 cents to .32 cents, with rates for older buildings from 30% to 40% higher than for new
So, if you have paid out $12,000-$22,000 or so in the past three years in strata fees and the price of the unit is now the same or lower as when you bought
it in 2011, the math does not look good. As well, if your strata fees are currently low, expect them to rise and perhaps sharply as the reality of the depreciation reports hit home.
Major point: Condo investors may be better off buying the least expensive detached house. Across the Lower Mainland, the price of detached house on MLS has increased
8.4% in the past three years. That extra $400 a month in strata fees could help a buyer qualify for detached mortgage, especially in the Fraser Valley
where the price spread between a strata unit and a detached house is smaller than in Greater Vancouver.
Don’t Dismiss The Latest CMHC Mortgage Change
Canada Mortgage and Housing Corporation
says the latest change that will end mortgage insurance on second homes and for “stated-income” buyers as of May 30 is no
big deal. Other pundits have agreed, parroting the CMHC message that both programs account for only 3% of unit volume, nationally.
Don’t believe it. This latest change will have a negative effect on the residential market, especially in B.C., on a number of levels,
from the condo market to recreational real estate.
For instance, studies show that a large number of millennials (that is young people) are leaning on their parents to help them purchase a home (or buy a
condo for them while they are attending university). For various reasons, many of the parents prefer to keep the property in their own name. But, under the
recent changes, anyone with a CMHC-insured residence will no longer be able to obtain, or co-sign for, an additional CMHC-insured mortgage.
There are only two exceptions:
Bulk-insured mortgages. Lenders purchase bulk insurance on mortgages with 20% equity or more, typically so they can resell these mortgages to investors;
and CMHC-insured rental mortgages. There is no limit on the number of CMHC-insured rental mortgages a borrower may have.
The changes will not affect those buyers who purchase with more than 20% down payment and don’t require mortgage insurance, nor will it affect buyers who
are not self-employed. But it will still affect a huge number of British Columbians because of thelarge amount of recreational real estate in the province and the high number of self-employed. (BC has one of the highest self-employed ratios in Canada.)
Self-employeds who can’t prove income traditionally, and those who plan to buy a second home with less than 20% down, are left with these options:
- Prime lenders who insure through private insurers (assuming the privates do not follow CMHC’s lead).
- Non-prime institutional lenders, who finance up to 85% loan-to-value (less in non-urban areas) at higher interest rates; and private lenders
who finance up to 80% with even higher rates and fees.
- Private lenders who offer second mortgages in urban areas above 80% loan-to-value.
NOTE: Major Point: The last day to submit CMHC-insured “stated income” and second home mortgage applications is May 29, but many lenders may set a cut-off date earlier so get into see your lender ASAP.
The Bright Side: Where BC’s Population Is Heading
One guiding rule to real estate investing is people go where jobs go and real estate values rise where people go. That basically is why it is more
expensive to buy real estate in New York City than Spuzzum, BC.
So where are the people going in B.C.?
The latest numbers from BC Stats may surprise you.
In its 2013 “Sub Provincial Population” report, it was found that
these 10 areas saw the largest population increase from 2012-2013:
View Royal, Langford (both on southern Vancouver Island); Coquitlam, the District of Langley; Sooke; Fort St. John; Metchosin; Dawson Creek;
Surrey; and the City of North Vancouver.
View Royal, with 9% increase, was by far the fastest growing area in the province. Surrey, by comparison, saw only a 2.3% increase. (Surrey had the
largest amount of newcomers, with 11,116 more people, however.)
The 10 areas that saw the slowest population growth between 2012 and 2013 are: Creston (down 4.8%) Port Alberni, Trail, Prince Rupert, Whistler; Smithers; Hope; Quesnel; Kimberley; and Summerland. In terms of volume, Port Alberni experienced the largest
decline (571 persons).
Vancouver, with a 1.4% increase in population, tied with Summerland at the bottom of the list.
For all of B.C., the population increase was 0.9%, or 39,000 people and the vast majority of these were immigrants. For the year ending
January 1, 2014, 36,190 immigrants arrived in BC, but interprovincially – the province had a net loss of 3,872 to other provinces. Of the
9,000 immigrants who arrived in BC during the last three months of 2013, more than 6,000 were from Asia (1,727 from Mainland China; 1,600 from India, but
only 91 from Hong Kong.) Of the 9,000 immigrants, more than 7,500 settled in Metro Vancouver.
Major Point: With the exception of the two resource centres of Fort St. John and Dawson Creek, the top 10 areas of population growth in B.C. are
suburban communities in the Victoria region (surprise) or the Lower Mainland. As we have pointed out for a while …
this tells us as real estate investors that the clear movement in B.C. is from the rural areas to the city and that is where we likely should be putting
Spooky Smartphones Can Track Real Estate Action
We sat in on a two-day seminar recently where experts explained that smartphones (especially iPhones) are like a Ferrari that most people
drive like golf carts.
Turns out, our smartphones are super smart and the latest communication technology is spooky – and could also help sophisticated real estate investors.
Here are some examples of downloadable apps (mostly free) and other devices that can supercharge your smartphone:
This is a free app, supposedly invented by two Russian geeks who wanted a way to check out which bars had the best looking ladies. With Banjo, your
smartphone scans any crowd at any location and picks up all the Facebooks and Tweet accounts, which often come with photos but also contain names and other
information. Now it gets scary. By using another new app, Been Verified, also free, you can run background checks including criminal
history, the last six addresses and names and any other public records, including mortgages, held by the person. The presenter joked that she could check
out a guy at a bar and find out his net worth. Use your imagination how it could be applied to real estate. (Been Verified is designed for the U.S.; there
are more restrictions on such data in Canada.)
This is a geo-location search tool which can pinpoint any point or building on the planet and pick up local tweets and Facebooks chatter and images in the
area by searching keywords. A simple example: you check out the action around a real estate auction before the auction takes place, from anywhere.
Police Scanner 5-0, a free app for Android phones, lets you scan first responder calls from anywhere in the world right on your smartphone. Think that a remote neighbourhood
you are considering is unsafe? Check out the Friday night crosstalk and find out what is going on.
Major Point: The best way to avoid being creeped out by smartphones: do not sign on to social media sites. Ha-ha, yeah right!
Low Mortgage Rates Will Continue: Poloz
Expect to see low interest rates for years to come, Bank of Canada governor Stephen Poloz told a meeting in Saskatoon
last Thursday. Poloz said that even if rates do rise – sometime in 2016 perhaps – they won’t rise by much.
“Both because of our shifting demographics and because after such a long period at such unusually low levels, interest rates won’t need to move as much to
have the same impact on the economy.”
The clear statement represents a slight shift of tone for the central bank, which has for years warned households to be mindful of overextending themselves
in the housing market because one day interest rates will need to start rising.
Poloz added that the risks of a housing bubble were subsiding, saying that “we have what looks like a soft landing emerging in housing.”
Poloz has even hinted that he might have been prepared to cut rates further in an effort to stimulate economic growth if not for fear of encouraging even
more borrowing, particularly in the housing market.
It Costs More To Insure
“Effective May 1st, all mortgage insurance premiums have been increased slightly to account for increasing capital requirements and a
riskier housing market,”
says Kyle Green of Mortgage Alliance (778-373-5441, firstname.lastname@example.org).
“The last price increase was in the 1990’s and even though CMHC has had low default rates and high profits, the move was made to protect their capital
“That said, the premium increase will have a marginal impact for borrowers. For the average mortgage in Canada with 5% down, payments will only rise
about $5 per month – not earth shattering by any means. Existing insured borrowers will not be affected by the changes.”
Here is a table that shows the previous and new insurance premiums:
Now, the ones that can least afford it, have to pay more … a lot more to insure the bank. How that helps (other than the financial institutions) is not
clear to me.
PLOT OF THE WEEK
PORT MOODY 3 bedroom,
2 bath townhome for sale on Port Moody’s North Shore. Strata fees below $200 per month, rentals allowed, many upgrades, a 500 sq. south facing sundeck.
Price: $289,900. There is no charge and absolutely no warranties given either. You have to check it up yourself.
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While the above information is compiled from sources believed to be reliable, its accuracy cannot be guaranteed
Any type of investing carries inherent risks; as such, JREI cannot assume responsibility for any subscriber’s actions.