I read an article today talking about the fact that Canada is facing the lowest inflation in 56 years, but analysts did nothing but yawn at the news. They claimed that energy costs were artificially driving the inflation numbers low. At the same time, every realtor I deal with calls me with a new set of clients that are going into an offer where there are multiple offers, and they are asking if the clients can write “subject free offers” without the financing clause so that their offer is more attractive to the seller.
What is going on? This type of crazy manic behaviour by buyers hasn’t been seen since the summer of 2007 (the height of the real estate peak), and it’s scaring me.
I think buyers are getting caught up in the “real estate never goes down” mentality that gripped the city of Vancouver from 2003 – 2007, and I think those same buyers should talk to people that bought from 2007-2008 and see if these 20% over asking price offers make any sense.
A couple of examples:
One of my well-to-do clients was looking at a fantastic house at $995,000 in Vancouver. It contained two suites that generated $1,950 of rental income in addition to the main floor that he intended to occupy. $995,000 seemed like a reasonable price, but he got word of multiple offers, and asked if he was pre-approved to $1.1M in the event that the bidding went higher. With that amount of rental income potential in addition to living space, it was likely it would go beyond asking price. So, what do you figure it went for?
He backed out at $1.1M and the place eventually sold for $1.2M… a full 20% over asking price.
TWENTY PERCENT!
Think about that for a second: 20% over asking price is downright silly, in my opinion.
“But with the rental income, it’s so much more affordable!” people yell at me.
Sure it is. With today’s interest rates a LOT of properties look affordable. However, if the borrowers would do the math at 5.50% and 6.50% (rates that were here only 1 year ago) they would see that when their term expires, this property might not be so affordable, and hence, not so valuable.
Now, I’ve been criticized by other brokers for being to “demand” focused. The truth is, I AM demand focused. While supply always plays a roll, it is NOT supply that is driving this market. It is crazed, manic, emotional buying by borrowers that are being egged on by the media which keeps saying that the “Canadian House Market is Back!” and no one pays attention to the fact that the stats used by the media are WAY out of date. By the time the mass media hears that the market is heating up, it’s usually WAY too late to get into that growth sate. Otherwise, wouldn’t everyone be doing it? Of course…
So, costs of living (aside from housing) are falling, interest rates are low, costs of all goods are falling, interest rates are low, energy prices are falling, and interests rates are low… anything sound odd about this? The Bank of Canada has their foot on the monetary pedal, and STILL prices of everything in the country seem to be falling EXCEPT real estate.
We are faced with two possible scenarios:
1. Real estate is somehow still undervalued (despite record low interest rates, and a meteoric rise in prices in the past 3 months)
2. Real estate is overvalued, but that historically low interest rates are making it appear cheaper than it is (or cheaper than it will be in in 5 years when most mortgage terms expire)
What appears most likely to you? That $1,000,000 for a house in Vancouver is “fair market value?” or that things are starting to get away from reality again?
“When the average family cannot afford the average home, trouble will follow!” I’ve been screaming this for 2 years, and no one listened until January-December when the pain was being felt. Now, all signs point to over-valuation again, and buyers are lining up.
If I could find a way to “short” the Vancouver real estate market, I’d do it in a heartbeat. Unfortunately, it’s not that easy.
Until next time, happy investing!
p.s. I’m getting out of this city for a week to get my bearings and see if the real estate market looks any better up in Alaska, and there will be no updates during that time. In the interim, read Garth Turner’s blog at http://www.greaterfool.ca Garth is a communicator, author, lecturer, columnist, TV personality, entrepreneur, MP and populist. Better yet, read his book “After the Crash.” Another source of great info that I read is the Daily Reckoning at http://dailyreckoning.com and these authors pretty much called the great collapse in 2008 and were crying for it for the prior 2 years during the run up in their book “Financial Reckoning Day.” Enjoy!
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~ by merc359 on August 22, 2009.
Posted in Market Commentary
Tags: private mortgage, vancouver mortgage broker, mortgage broker vancouver, bank of canada, vancouver mortgage rates, best mortgage rates, best mortgage rates vancouver, vancouver mortgage, prime rate, prime rate trends, private financing, best rates in canada, canada best rates, best rates canada, mortgage rates canada, best mortgage rates bc, prime rate canada, canada prime rate, bank of canada prime rate, canada rate trends, pre foreclosure, canada foreclosure, canada pre-foreclosure, rowan smith, private morgage, private mortgage vancouver, private morgage vancouver, private financing vancouver, vancouver private mortgage, vancouver private morgage, vancouver private financing, private constuction loan, private construction mortgage, private construction morgage, private construction financing, vancouver construction loan, vancouver construction financing, difficult financing, poor credit mortgage, poor credit morgage, morgage broker vancouver vancouver morgage broker, best mortgage rates in canada, bc mortgage rates, best vancouver rates, canadian prime
Multiple Offers, Lowest Inflation in 56 Years, What is Going On???
I read an article today talking about the fact that Canada is facing the lowest inflation in 56 years, but analysts did nothing but yawn at the news. They claimed that energy costs were artificially driving the inflation numbers low. At the same time, every realtor I deal with calls me with a new set of clients that are going into an offer where there are multiple offers, and they are asking if the clients can write “subject free offers” without the financing clause so that their offer is more attractive to the seller.
What is going on? This type of crazy manic behaviour by buyers hasn’t been seen since the summer of 2007 (the height of the real estate peak), and it’s scaring me.
I think buyers are getting caught up in the “real estate never goes down” mentality that gripped the city of Vancouver from 2003 – 2007, and I think those same buyers should talk to people that bought from 2007-2008 and see if these 20% over asking price offers make any sense.
A couple of examples:
One of my well-to-do clients was looking at a fantastic house at $995,000 in Vancouver. It contained two suites that generated $1,950 of rental income in addition to the main floor that he intended to occupy. $995,000 seemed like a reasonable price, but he got word of multiple offers, and asked if he was pre-approved to $1.1M in the event that the bidding went higher. With that amount of rental income potential in addition to living space, it was likely it would go beyond asking price. So, what do you figure it went for?
He backed out at $1.1M and the place eventually sold for $1.2M… a full 20% over asking price.
TWENTY PERCENT!
Think about that for a second: 20% over asking price is downright silly, in my opinion.
“But with the rental income, it’s so much more affordable!” people yell at me.
Sure it is. With today’s interest rates a LOT of properties look affordable. However, if the borrowers would do the math at 5.50% and 6.50% (rates that were here only 1 year ago) they would see that when their term expires, this property might not be so affordable, and hence, not so valuable.
Now, I’ve been criticized by other brokers for being to “demand” focused. The truth is, I AM demand focused. While supply always plays a roll, it is NOT supply that is driving this market. It is crazed, manic, emotional buying by borrowers that are being egged on by the media which keeps saying that the “Canadian House Market is Back!” and no one pays attention to the fact that the stats used by the media are WAY out of date. By the time the mass media hears that the market is heating up, it’s usually WAY too late to get into that growth sate. Otherwise, wouldn’t everyone be doing it? Of course…
So, costs of living (aside from housing) are falling, interest rates are low, costs of all goods are falling, interest rates are low, energy prices are falling, and interests rates are low… anything sound odd about this? The Bank of Canada has their foot on the monetary pedal, and STILL prices of everything in the country seem to be falling EXCEPT real estate.
We are faced with two possible scenarios:
1. Real estate is somehow still undervalued (despite record low interest rates, and a meteoric rise in prices in the past 3 months)
2. Real estate is overvalued, but that historically low interest rates are making it appear cheaper than it is (or cheaper than it will be in in 5 years when most mortgage terms expire)
What appears most likely to you? That $1,000,000 for a house in Vancouver is “fair market value?” or that things are starting to get away from reality again?
“When the average family cannot afford the average home, trouble will follow!” I’ve been screaming this for 2 years, and no one listened until January-December when the pain was being felt. Now, all signs point to over-valuation again, and buyers are lining up.
If I could find a way to “short” the Vancouver real estate market, I’d do it in a heartbeat. Unfortunately, it’s not that easy.
Until next time, happy investing!
p.s. I’m getting out of this city for a week to get my bearings and see if the real estate market looks any better up in Alaska, and there will be no updates during that time. In the interim, read Garth Turner’s blog at http://www.greaterfool.ca Garth is a communicator, author, lecturer, columnist, TV personality, entrepreneur, MP and populist. Better yet, read his book “After the Crash.” Another source of great info that I read is the Daily Reckoning at http://dailyreckoning.com and these authors pretty much called the great collapse in 2008 and were crying for it for the prior 2 years during the run up in their book “Financial Reckoning Day.” Enjoy!
Like this:
~ by merc359 on August 22, 2009.
Posted in Market Commentary
Tags: private mortgage, vancouver mortgage broker, mortgage broker vancouver, bank of canada, vancouver mortgage rates, best mortgage rates, best mortgage rates vancouver, vancouver mortgage, prime rate, prime rate trends, private financing, best rates in canada, canada best rates, best rates canada, mortgage rates canada, best mortgage rates bc, prime rate canada, canada prime rate, bank of canada prime rate, canada rate trends, pre foreclosure, canada foreclosure, canada pre-foreclosure, rowan smith, private morgage, private mortgage vancouver, private morgage vancouver, private financing vancouver, vancouver private mortgage, vancouver private morgage, vancouver private financing, private constuction loan, private construction mortgage, private construction morgage, private construction financing, vancouver construction loan, vancouver construction financing, difficult financing, poor credit mortgage, poor credit morgage, morgage broker vancouver vancouver morgage broker, best mortgage rates in canada, bc mortgage rates, best vancouver rates, canadian prime