Should I buy a leaky condo?

Lately I've been recieving a lot of mail asking for advice on specific issues.. I'd like to take this time to proclaim my non-expert status. I have no way of foretelling the future, if I had that ability I'd be too busy swimming around in my money bin to post here.

The most recent question to come in is from someone considering the purchase of a previously leaky condo unit that has been repaired and has the standard warranty. Here's the concern:

"The development is in Coquitlam and was repaired last year to a level that it has the 2-5-10 warranty. My concern is in the design of the building which doesn’t have overhangs in some areas and has a flat roof in some areas. Should I be concerned with this?"

Most conventional wisdom I've heard says to stay away from buildings like this, but I have a feeling that some of the people reading here might know more about this subject than I do, so therefore I submit this topic for discussion - Are flat roofs and lack of overhangs on a repaired leaky condo a dangerzone? Or are previously leaky condos a good way to get into an overpriced market?

How will a US slowdown effect Vancouver?

There are a couple of articles in today's Globe and Mail that are interesting.. The first is about a report from National Bank Financial that says US house prices could drop another 10%. This report disagrees with the National Realtors Associations chief economist David Lereahs claims that "This is the price correction we've been expecting – with sales stabilizing, we should go back to positive price growth early next year".

"Stéfane Marion, an economist at National Bank, disagrees with the NAR's statement that the faltering U.S. housing market has hit a trough and prices will start climbing again. "In our opinion, this forecast is way too optimistic."

"...rising interest rates, higher house prices and surging costs for heating homes have triggered a severe slowdown. In recent weeks, the housing correction has become the dominant topic of conversation, fuelling talk about a possible U.S. recession."

The second article examines what impact a U.S. recession would have on Canada:

"Canada sits ominously at the top of a list compiled by Merrill Lynch economists of countries that are most dangerously exposed to the slowing U.S. economy. After Venezuela, this country leads the world as most dependent on the U.S. economy for its well-being. And the United States, as becomes more evident with every new economic report, is in trouble.

Over at HSBC PLC, economists have gone through a similar list-making exercise, and they, too, found that “Canada is at the top of the tree” in terms of exposure to the weakening U.S. economy, surpassing Mexico and Latin America.

Merrill Lynch believes the rest of the world has enough momentum to pick up some of the slack left behind by the United States, while HSBC believes the U.S. will drag down most of the world with it. But they agree that Canada — with its open economy, its proximity to the U.S., and its dependence on trade — is more vulnerable than pretty well any other country to a U.S.-led global slowdown."

It's not all gloom and doom though - both reports suggest that even if the US economy tanks the Canadian economy may be able to get through with just a few "bumps and bruises".

"..consumer demand and business investment are expected to remain strong, fuelling the Canadian economy from the inside, instead of relying on the global economy for strength.

The U.S. slowdown could change that momentum, but it will take years to slow down domestic demand, said Merrill Lynch's chief economist in Canada, David Wolf."

But what impact would this scenario have on the Vancouver housing market? How much are we counting on property values to be driven by future demand from outside Vancouver?

To buy or not to buy.

The financial facelift in today's Globe and Mail focuses on a vancouver couple that would really like to buy a house, but are priced out of the market. Or are they?

"George and Colleen have a sympathetic banker. He has offered to finance the purchase of a house with the understanding that there would be no payments until George has finished his training. That's very accommodating, but five years of compound interest would be a huge sum to pay, the planner adds."

Their situation is looked at by a financial planner from Kelowna, Derek Moran who points out that they could stretch to buy a condo, but doesn't recommend it right now:

"George and Colleen could downsize their plans. A condo for $400,000 would be an alternative to a house. Some banks will lend up to the full value of a home. Without any down payment, a mortgage at 5.3 per cent with a 25-year amortization would cost $2,395 a month, not including property purchase tax, GST and mortgage insurance costs. It would be paid off by the time George is 57 and Colleen 59.

Is it worthwhile to take on a $400,000 debt to buy accommodations similar to those they already rent for $1,200 a month? In spite of the advantages of ownership, it makes sense to continue renting, Mr. Moran insists. Buying would cost twice as much each month in mortgage charges as current rent and would expose the couple to the risk of a housing collapse as well as property tax increases and rising interest rates."

It's interesting that they bring up the possibility of a housing collapse, and even put some potential numbers on that situation:

"If George and Colleen find that real estate prices soften, they could save as much as $100,000 on a $400,000 condo. With the financing costs added in, that saving would actually be $296,368 by the time the mortgage is paid off."

Isn't it amazing how $100,000 becomes almost $300,000?

We're number 1! (in lack of affordability)

RBC just release a report on housing affordability in canada. There's a story in the Globe and Mail:

"In the third quarter, “Alberta and British Columbia had the sharpest erosions in affordability, driven largely by double-digit annual price gains,” the Royal Bank division said Tuesday. “However, Alberta's soaring price gains still leave the province below past affordability stress points.”

Housing in Calgary and Edmonton remains more affordable than in Toronto, Montreal and Vancouver, relative to incomes.

“Vancouver, however, is entering uncharted waters as it sets new records for poor housing affordability in two out of four classes, and the other two will likely do so later this year,” the report says."

See? Vancouver is number one in lack of housing affordability with a record-setting level of unaffordability. I'm sure that comes as a big suprise to everyone here.

"The RBC Affordability Index measures the proportion of pre-tax household income needed to service the costs of owning a home.

The higher the index, the more costly it is to afford a home. For example, an Affordability Index of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.

The most affordable housing class remains the standard condo, with an index of 27.5 per cent.

A standard townhouse is next at 31.4 per cent, followed by a detached bungalow at 39.4 per cent. A standard two-storey home is still the least affordable housing type in the country with an index reading of 44.8 per cent."

So those numbers are for all of canada, what do the numbers look like for affordability in just the west, specifically in Vancouver? Ah, here we are:

"RBC Affordability Index for a detached bungalow for Canada's largest cities is as follows: Vancouver 68.2 per cent, Toronto 43.9 per cent, Montreal 36 per cent, Calgary 34.6 per cent and Ottawa 30.3 per cent."

68.2 percent of the average pre-tax income.. I wonder why they use pre-tax income? It's not like you can write off your mortgage here like you can in the states.

Correction: Federal government WILL review leaky condo crisis

Seems to be lots of leaky condo news lately - the federal governments review of the lower mainlands leaky condo crisis is back on:

"Prime Minister Stephen Harper won't break his election promise to review the federal government's alleged culpability in the $1.5 billion leaky condo disaster, a federal official said Monday.

A spokeswoman for Human Resources Minister Diane Finley said a new option has emerged since the minister wrote to owners in July saying it would be inappropriate for the government to even consider initiating a review while the issue is before the courts."

I wonder if they got many complaints after news broke that they were unable to carry through on their election promise to review the leaky condo situation here. Whatever happened I think that a lot of people in affected buildings around Vancouver will be pleased with this turn of events, particularly if it leads to some sort of future solution. For a 'world-class' city Vancouver has some pretty awful architecture and some suprisingly shoddy construction, lets hope this gets us moving in the right direction.

This renewed claim to look into the leaky condo crisis is pretty vague at this point, hopefully some more specific information will be forthcoming:

"We're currently studying options as to how we can proceed without compromising current legal proceedings, as we have recently learned that there may exist review options that will not interfere in these proceedings," Colleen Cameron, Finley's director of communications, wrote in an e-mail to The Vancouver Sun today.

"Unfortunately, I can not provide detail about these options at this time-only assure you that we remain committed to a review."

story in todays vancouver sun.

$29 million to build, $40 million to repair.

More depressing news on the local leaky condo front, this hot on the heels of the federal governments announcement that it is dropping its election promise to review culpability for the Lower mainlands leaky condo crisis:

"Owners in a leaky condominium project that cost $29 million to build in 1994 may now have to pony up a total of $40 million to keep the buildings standing.

The City of Vancouver ordered Gardenia Villa, at the corner of Nanaimo and East Broadway, to get an engineer’s report after an inspection showed various parts of the complex were at risk of failing structurally. The city also ordered immediate shoring to one of the buildings in the complex because of imminent danger.

Normally, it’s the strata council that decides to get an engineering report done and the city doesn’t get involved until there is an application for a building permit to do the work, Vancouver’s chief building official, Dave Jackson, said in an interview. But in this case, some of the owners complained to the city that maintenance wasn’t being done.

Following an inspection, the city was concerned that the building “might be damaged to the point where something might fall,” Jackson said. In its order, the city also referred to “water ... leaking out of structures in several locations and ... algae growing extensively on the building’s exterior stucco.”

If all repairs are done to this building it will end up costing an average of $160,000 per unit, an astounding figure considering that some of the units were originally purchased for much less than that amount.

"Options the owners will be considering today, according to a notice of the meeting, include doing nothing, proceeding with the repairs, suing the parties who designed and built Gardenia Villa, and dissolving the strata corporation and selling the land.

But legal action against the developer may prove difficult as Maple Resource Investments was dissolved in 2003 for not filing annual reports. And Jackson said doing nothing was also not an option. “Ultimately, we expect them to do the repairs and if they don’t, we would eventually order them to,” Jackson said.

Once the strata does the repairs, the city will require letters from structural engineers to ensure it has taken care of the safety issues related to the structure, Jackson said. The city will also need letters from envelope specialists that repairs meet minimum standards of the Vancouver building code.

Tony Gioventu, executive director of the Condominium Home Owners’ Association would not talk specifically about the Gardenia Villa project. However, he did say other projects with large assessments have been able to spread the repairs over a number of years, “which eases the financial burden on the owners.”

Full article in todays Vancouver Sun.

How much will the olympics cost BC?

Astute reader Suavek just sent in the link to this story - It seems that the 2010 winter olympics are going to cost just a teensy bit more than originaly estimated. It turns out the cost will be around $1,000,000,000 more than the BC government previously indicated. For the number illiterate thats ONE BILLION DOLLARS more.

The BC auditor general just released a report that the true total cost of hosting the olympics is estimated at $2.5 billion dollars, $1.5 billion of which will come from the province. By not counting the actual cost of building all of our projects for the olympics the BC government had previously insisted that the total cost to BC would be no more than $600 million.

B.C. Economic Development Minister Colin Hansen took issue with van Iersel's findings, arguing that the Sea-to-Sky Highway would have been improved anyway, and should not be considered an Olympics-related cost.

''Sure there's lots of things that the government is doing that we are wrapping an Olympic flag on,'' he said. ''But those are programs that are not part and parcel of us living up to our obligations for the staging of the Olympics.''

The Auditors report says "given the province has the ultimate responsibility for the financial outcome of the Games, we feel there should be regular and complete reporting of the total Games costs to the taxpayers. To date, the province has only reported to taxpayers on the $600 million envelope it has established; however, there are many other Games related cost that are not being reported as such by the province.''

The 65-page report also highlights significant problems with the management and marketing of the Olympics, and warns that costs could go even higher. Van Iersel found, for instance, that the province lost $150 million in projected revenue from broadcasting and international sponsorships by failing to adopt a routine ''hedging strategy'' that would have protected them against fluctuations in the dollar.

He found, too, that the government will have to wait six years longer than expected to launch a marketing campaign, because it didn't realize the International Olympic Committee restricts such campaigns until the previous Olympics are over. B.C. had planned to start its campaign in 2003, but now will have to postpone it until after the 2008 Olympic Summer Games in Beijing. Van Iersel said the delay could hurt the provinces plan to reap $4 billion in economic spin-offs.

The auditor's report also notes that the Vancouver Organizing Committee (VANOC) has transferred construction risks for many of the venues to other partners. But if rising costs make it impossible for those partners to finish the job, ''there is a risk the province will have to contribute more funding to VANOC to get the projects completed,'' the report says.

The province has set aside $76 million for such unexpected costs, but the auditor general also questions whether that emergency fund will be enough.

I think we all know how the BC government can GUARANTEE that they'll have plenty of money to cover any unforseen costs: Invest in real-estate!

They must really like beer..

Sign spotted on west sixth - that's a lot of beer at todays prices, I wonder if they'd take part payment in pretzels?

Review of leaky condo crisis dropped

The government has decided not to follow through on its election platform promise to review the leaky condo crisis in the lower mainland and CMHCs involvement and responsibility in said crisis. This story from todays Vancouver Sun:

"The Conservative government has shelved its election promise to conduct a review into a federal agency's role and potential culpability in B.C.'s $1.5-billion leaky condo crisis, according to a letter sent by Human Resources Minister Diane Finley to a homeowners' group."

The promise to review CMHCs responsibility in Vancouvers leaky condo crisis was made by Stephen Harper when he visited Victoria in December. They now claim that promise can not be fulfilled because of court actions launched against CMHC.

According to internal documents CMHC was aware in the early 1980s that new federal building regulations could lead to severe damage to homes in coastal areas

"As I'm sure you can appreciate, it would not be appropriate for me to comment or to consider initiating a review into leaky condo issues while these matters are before the courts," Finley wrote to Consumer Advocacy and Support for Homeowners (CASH), a consumer advocacy group that is seeking compensation for the thousands of B.C. residents whose homes and property values were devastated by moisture damage.

CASH president Carmen Maretic, in a letter sent Wednesday to Harper and Finley, said the Tories "knew or should have known" at the time of the campaign promise about a lawsuit filed against CMHC in B.C. on Dec. 6, 2005.

Critics have also noted that CMHC has been named in more than 30 other lawsuits. Former Liberal housing minister Joe Fontana and former Liberal industry minister David Emerson, now Tory trade minister, stated publicly in mid-2005 that the government couldn't comment on CMHC's role in the crisis because the issue was before the courts.

That didn't stop Harper from including a promise to "review CMHC's handling of construction regulations and 'leaky condos.'" in his "Stand up for B.C." election speech on Dec. 17th.

A press release accompanying the platform boasted that Conservative MPs "understand and have advanced the interests in British Columbia" on several fronts, such as pressing CMHC "to investigate how it failed to warn homeowners about potential problems with 'leaky condos.'"

In an exclusive interview with The Vancouver Sun after the announcement, Harper said he'd consider compensation for condo owners following the review.

Here's the full story.

Vacation Condos get really expensive.

You know that quarter share vacation condo you were going to buy as an investment? It looks like its going to get a whole lot more expensive. Owners are finding their property taxes doubling or tripling after they buy when the property classifications get changed from residential to business. From the Vancouver Sun article:

"Taxes on one vacation unit in a Vancouver Island resort jumped from $3,800 to $15,200 when BC Assessment changed its classification from residential to business in a shift that is hitting resort properties around the province.

At Pender Island's Poets Cove resort in the Gulf Islands, strata fees including taxes tack on almost $1,100 a month to the cost of a quarter share in a townhouse that is listed for sale at $229,000 for 12 weeks of occupancy a year.

Some buyers are signing up for fractional ownership in vacation homes only to find long after the deal is sealed that the residential tax rate has given way to business and their costs are much higher than they expected.

The poets cove example floored me - $1,100 a month in taxes and strata fees for a place you can only stay in 4 months of the year?! Naturally there is an uproar over this classification shift:

"Developers and property owners are appealing the assessments but the regulations are against them. A group of Whistler owners, the Legends Owners Association, lost an appeal on the issue in 2005 in a decision that resonated throughout the industry.

"That Legends case at Whistler has set the tone in the property tax matter," said Phil Leseur, vice-president corporate and legal affairs at Bear Mountain, a destination resort in Victoria.

"The judge said if it looks like a hotel, smells like a hotel, is being operated as a hotel, it's taxed as a hotel."

Bear Mountain was successful in appealing one year that saw taxes on its quarter-share units hiked to a business classification, but Leseur said the company is still appealing that classification for another year and there is no guarantee what will happen with upcoming tax years."

US foreclosures spike in august.

Wow. Bad news from CNN money about the US market. Foreclosures in August jumped up 53% higher than the previous year, most of this happening in what was once the hottest markets: Florida, California and Nevada. From the article:

"Rick Sharga, RealtyTrac's vice president of marketing, says the rising foreclosure numbers are in part the result of rising monthly payments on adjustable-rate mortgages, which have a low introductory interest rate that heads higher after an initial period.

"Usually, foreclosures are a lagging [market] indicator," he says. "But we've never had a situation like this with adjustable-rate mortgages amounting to $400 billion to $500 billion coming up for adjustment over the rest of the year."

Fortunately we don't seem to be as keen on these types of mortgages in Canada, but there are concerns about a tanking US market dragging the Canadian economy down with it. The US is by far our largest trading partner.

"Contrary to what many consumers may believe, lenders are not anxious to foreclose on homes and put families out on the streets. Foreclosures tend to be money losers for lenders and are done mostly as a last resort.

Sharga says lenders are beginning to recognize that a problem is brewing and are taking steps to address it. They are much more amenable to a short sale, for example, in which they accept a low-ball, cash bid early in the default process that may not even cover their mortgage, in order to avoid a larger loss later. That can help homeowners by preserving their credit scores and easing their transitions into the rental market.

"Lenders say they're looking for ways to work with homeowners in trouble," reports Sharga. "So for homeowners looking at a default situation, the sooner they talk to their lender - and see what options are available - the better."

If bank foreclosures are accepting low-ball cash bid offers that don't even cover the mortgage, what pressure is that going to put on home prices in their area overall?

House prices to go flat?

There's an article in today's Vancouver Sun about the average cost of carrying a mortgage in Vancouver - It currently costs an average of $2,322 per month for a mortgage on an average house in greater Vancouver, and that's IF you put 25% down. The subtitle on this article is 'Vancouver area close to levels last reached before previous downturns.'

There's a graph attached to the article that shows the two previous market peaks they compare today's prices to and its kind of scary, both peak years had a huge drop after the peak.

"We haven't been where we are today since 1994 and 1989 which were both peak years in their respective cycles," Cameron Muir, senior market analyst with CMHC, said in an interview.

The study supports other surveys that suggest real estate prices will level off as homes become less affordable, although Muir doesn't expect that to happen before next year.

Although the CMHC doesn't seem to think prices will drop like they did after the two years today's prices are compared to, they do think prices will level off, which is a soft way of saying they will stop increasing at the rate they have in the last couple of years. This is completely unacceptable! If I want an investment that will stay flat I'll bury canning jars full of Canadian Tire money in my backyard. I suggest we boycott the CMHC until they can GUARANTEE that prices will continue to increase by 20% per year to infinity.

Potential Buyers?

Ok, lets say we think the market has peaked.. lets assume we have a few months to sell our condo investment property and lock in some gains before prices start to drop. What sort of buyers are out there?

TYPE 1 - BUYS AT ANY PRICE
Type 1 has got to have it. They will buy your home at any price. Maybe they're freaked out about being priced out of the market. Perhaps they are very very wealthy and desire Vancouver above all other cities in the world, or maybe they've won the lottery and money is no object for them. You want at least two of these type 1 buyers interested in your house or condo. They'll bid up each others price and will never insist on sticky points like 'subject to inspection' and 'subject to financing'. These are the people that will make you money. Hunt them down and keep them close to you.

TYPE2 - BUYING AT A PRICE
Type 2 will buy, but not at any price. These people are typically refered to as bears. They want to buy, but they have a limit to how much they are willing to pay. They're looking for something specific priced below a certain level. They'll crunch numbers and think long and hard before buying. These people will be your fallback position if you can't find any TYPE1 buyers out there to make you stinking rich. As long as you didn't buy within the last two years you'll probably be able to make some money off of this type of buyer, at the very least you'll be able to get most of your principle out of your property to make that money available for other uses.

TYPE3 - NOT BUYING
These are the bastards you have to watch out for. These people aren't keeping an eye on prices or perusing the MLS. They don't even know what current house prices are. They have no interest in the Vancouver Real estate market and the only way they'll buy anything is if they win the lottery or have a rich aunt kick the bucket and leave them a bucket of cash. Maybe they're still in highschool. Maybe they've allready bought a place. Maybe they are bankrupt and planning to move out of vancouver in the next year. Maybe they've attained a level of spiritual nirvana that leaves them uninterested in worldly possessions. Whatever the reason for their lack of interest, they aren't really a factor in the price of your home. Shun these people. Yell at them when you see them on the street. They will ruin our economy and they will destroy our property values.

So where is the market now? what percentage of the population is type 1? What percentage is type 2? The number of house and condo sales have dropped in the last couple of months from the previous two years and inventory is up, but maybe the majority of type 1's just happened to take the last couple of months off and traveled away from Vancouver. Any estimates for the current population breakdown? And where will we find future type 1's to keep the money train going uphill?

August sales down, inventory up.

This story in the Vancouver Sun has some stats on the real estate sales figures for the lower mainland in August 2006. This is the fourth straight month of growing MLS listings. August saw a drop of 17.8 percent in sales overall, but the sale of single family homes were hit hardest with a drop of over 25%. Prices were still up in August, with the average single-family home price reaching $649,042, but with increasing inventory competing for fewer buyers there is a concern that property values are vulnerable to price drops as noted in a recent TD Bank bubble-watch report.

Helmut Pastrick, the chief economist for Credit Union Central B.C., expects that as long as the economy stays strong there won't be any significant downturn:

Pastrick started sensing a slowdown in sales last fall related directly to the inching up of mortgage rates, which "hasn't been . . . precipitous, but has been fairly steady.

"This is more an affordability-driven sales decline . . . but not enough [of a decline] to really trigger a significant downturn."

Pastrick does foresee fewer first-time and low-equity buyers entering the market.

I wonder what will happen to prices if we were to remove demand from first-time and low-equity buyers? It looks like thats starting to happen now, the next year or so should be interesting.

Dave Rishel, president of the Fraser Valley Real Estate Board, said August sales were still at high levels, and the drop does not represent "quote, 'the beginning of the bursting of the bubble.' "

The increase in listings, Rishel added, should give buyers more selection and more time to rationally contemplate purchases.

"I think we are all in agreement that there will be adjustments in the market," Rishel said. "We'd be fooling everybody to say that there will be a steady cycle all the way up to wherever. We all anticipate these slowdowns from time to time, but [overall] I don't envision anything radical."

Selling in Vancouver - Good, Bad & Ugly

Are you looking to sell a condo, house or townhouse in vancouver? With lots of stories in the news about housing market crashes across the US, recession fears & slow sales in the lower mainland for July and August here are some quick good, bad and ugly points about selling your property:

THE GOOD:

Vancouver is still a very desireable place to live - there are still lots of people that would like to buy your home.

THE BAD:

They can only afford about half your current asking price.

THE UGLY:

Highest new housing starts in recorded history for July, thousands of new condo units coming up in 2006 & 07, imigration flat, high debt level and low incomes, interest rates rising, prices on new units dropping to move inventory.

True tales of Real Estate fraud.

A depressing tale courtesy of the Toronto Star about a man who had his rental property sold out from under him by identity thieves. Apparently title fraud is on the increase creating problems for both owners and the buyers who assume they are dealing with the true owner of a property.

Friday free-for-all

Ok, here it is - the random catch all non-topic. Post any comments you have about the vancouver housing market, predictions for the future, rediculous MLS listings, news story oddities or anything to do with housing, bubbles, wealth or what-have-you.

Keep it reasonably clean and civilized or suffer a lawsuit at the hands of some random condo marketing corporation.