US loan defaults spreading

Oh those hippies over at the wall street journal, always focusing on the negative.. According to this article the discomfort caused by bad loans in the US looks like its starting to spread into the area between 'prime' and 'subprime' loans.

Borrowers who take out Alt-A mortgages are considered less risky than subprime borrowers because of their higher credit scores. But as the housing market cooled and loan volume declined, some lenders lowered their standards for Alt-As. Now a rising number of borrowers who took out these loans are running into trouble.

Data from UBS AG show that the default rate for Alt-A mortgages has doubled in the past 14 months. "The credit deterioration has been almost parallel to what's been happening in the subprime market," says UBS mortgage analyst David Liu.

There's an additional bit at the end of that article hinting at the possibility that at least some of the current US housing market woes may be attributed to fraud: "investor concerns about Alt-A loans are rising, according to Walter N. Schmidt, a mortgage investment strategist at FTN Financial Capital Markets in Chicago. A report from mortgage analysts at Barclays Capital in New York this week pointed to fraud as one reason for early defaults on Alt-A loans. The mortgage industry is battling a rash of cases in which borrowers, loan officers and appraisers collude in providing false information to induce lenders to advance more money than homes are worth."

bad apple

Before I post this link I'd just like to give the following disclaimer: most realtors are honest professionals that will give you good advice on buying and selling and not take advantage of you, but I guess there's always an exception to the rule.

Vancouver realtors Dian Dai-Qing Gao and her husband Norman Chan of Sutton-Killarney Realty have been ordered by the BC supreme court to hand over profits from a flipped condo to the original owners.

The couple had purchased a new home in West Vancouver and listed their condo for sale at $529,900 with Gao*(see note below). They had accepted an offer for $517,500 but the day the offer was to go through it collapsed, the court was told.

At this point Gao and Chan decided to purchase it themselves. The couple testified that they were assured by Gao that the apartment wouldn’t be flipped but would be kept by the realtors as an investment. Six days after Gao took possession of the condo it was listed for sale at over $100,000 more than she had paid for it.

Justice Janet Sinclair Prowse found that Gao had breached a fiduciary duty she had with the couple and ordered her to repay them the profit of about $70,000 she made in flipping the property.

So if a realtor offers to buy the property you're selling, should you be suspicious?

____

*Joel Korn of Sutton Group Killarney writes in to point out that the linked article is incorrect on this point. Gao was not the listing agent, the property was listed through Ralph F. Oakes according to the property info sheet.

Travel deficit hit record high in 2006

According to this article at the Globe and Mail, the International travel budget deficit for Canada hit a record high in 2006. This is the difference between money spent by Canadians outside of Canada vs. money spent by others visiting Canada.

The deficit — the difference between spending by Canadians abroad and spending by foreigners in Canada — jumped $1.4-billion to an estimated $7.2-billion in 2006. The travel deficit has increased every year since 2002, more than quadrupling in the process.

The burgeoning deficit was the result of record spending abroad: Canadian residents spent an estimated $23.6-billion outside the country in 2006, up 6.2 per cent from the previous high in 2005. Foreigners in Canada spent about $16.4-billion in 2006, a slight decline from the previous year.

So although foreign tourism dollars have declined slightly, most of the difference is accounted for by increased spending by Canadians traveling.

China stock market stumble

It looks like the economic growth juggernaut just had a bit of a set-back. The Shanghai composite index hit a record yesterday and then proceeded to drop 8.8 percent on Tuesday. If this turns out to be a one day stumble then no problem, but if it worsens in the days ahead it could hurt Chinas economy. If we see spill over into lower resource demand that would of course be bad news for Canada.

Emerging markets in Asia also fell, along with European stocks, as the plunge shook investor confidence. Canada's S&P/TSX composite index fell 196.60 points to 13,207.86, led by gold, energy and information technology stocks. It was the biggest drop since early January.

The move in China also may cause investors to have a second look at other investments that are perceived as risky, Mr. Guatieri said. “It tends to shake confidence. If one market comes unglued, the market will look at other markets that are a bit frothy.”

Update: Markets are down all over, US, Europe and Asia while treasury bonds rally. This is currently the lead story at CNN.

Greenspan warns of US recession.

Well this news is all over so its hard to ignore; after a recent comment about the worst of the US housing slump hopefully being over, Alan Greenspan commented today on the likelihood of a US recession hitting before the end of 2007.

“When you get this far away from a recession, invariably forces build up for the next recession, and indeed we are beginning to see that sign,” Mr. Greenspan said via satellite link to a business conference in Hong Kong. “For example in the U.S., profit margins . . . have begun to stabilize, which is an early sign we are in the later stages of a cycle.”

“While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008 . . . with some slowdown,” he said.

Mr. Greenspan said that while it would be “very precarious” to try to forecast that far into the future, he could not rule out the possibility of a recession late this year.

If a recession did strike the US later this year, I would be very surprised if the worst was over for the housing slump there, but If they can have a housing market slump during a boom, maybe they could have a real estate boom during a recession.

Why not buy now?

A monday question for ya'll, courtesy of a reader, Its a bit more of a manifesto than a question: If you believe Vancouver Real estate is due for a correction, Should you try to talk friends and family out of buying right now?

"It seems to me that most people that believe that real estate prices in Vancouver will correct (as I do) want to warn others away from buying right now - but why? I personally would prefer that any correction is met with less competing cash to bid against. Some people seem to believe that NOT warning people about the evidence of a coming crash is the same as selling people overpriced leaky condo's. I do not. I think people are responsible for their own financial decisions, and even though prices are very high right now, it may make sense for some people to buy anyways. Not everyone cares to shop around for the best deal on everything, and for some people the 'having it now' may be worth the premium. I say let them buy."

So how about it? Do you feel responsible for warning people about market cycles and sharing data pointing towards a correction or crash? Do you fill people in on the minutiae of whats happening in the US market and how it relates to ours? Or do you let people make their own decisions and if that means they end up with an upside down mortgage then tough?

FOR SALE: Magic Beans.

For Sale: 3 lightly used magic beans. Will steadily increase in value as long as you 'believe'. Motivated seller. Hurry!

$387,900

Friday free-for-all

Here's an open topic for Friday Feb 23rd. What are you seeing out there? Feel free to post anectdotes, questions and links to news regarding the local and global real estate market.

Here's what I'm seeing:

-Anectdotal buzz about the Vancouver market heating up again this month after a four month lull. Will house prices stop dropping now?

-It's getting more expensive to park in Vancouver. Heck its getting more expensive for everything here, are we seeing wage increases to match?

-Our neighbors down south continue to experience one of the worst housing slumps in their history. The NAR says the worst is hopefully over, but the builders don't see a recovery yet.

So what are you seeing?

Western housing market 'vulnerable'

Oh those silly bears at the TD bank. They're claiming that price gains in Vancouver and Calgary are unsustainable. Somebody needs to tell them the good news - it's the new economy!

This time its different!

Leaky condos & politics

The NDP has done what political parties do and issued a press release accusing the liberal and conservative parties of inaction in the leaky condo crisis. The BC leaky condo crisis is the largest and costliest construction crisis in Canadian history. Beyond the health hazards of living with mold in your walls, these repair costs have added to the 'affordability crisis' here.

The average per unit repair cost for co-op owners rose from $38,000 to $62,000 between 2000 and 2006, while per unit repair costs for condos went from $20,000 to $54,000 in the last six years.

The key recommendations coming out of the Barrett Commission included: forgiving the GST on repair and restoration costs; income tax deduction of repair costs; fair and flexible Canada Mortgage and Housing Corporation grants to leaky housing cooperatives; and penalty free access to RRSPs to fund repairs. The Commission also suggested that CMHC has failed to be an advocate for homebuyers in the coastal climate of British Columbia.

“The Barrett Commission, a BC provincial inquiry, could only go so far in determining what role CMHC played in the delivery of substandard constructed homes. That’s why the Federal government must hold an inquiry to get to the bottom of this matter and to prevent other Canadians from falling victim to defective homes,” said Maretic.

VHB steps off the stage.

VHB is taking time out for real life and shutting down the Vancouver Housing Blog for now. I just wanted to thank him for all the work he's put into his site, and all the analysis and info he's shared over that time. I wish him the best and hope he comes back to blogging soon should the urge strike.

Should we expect higher property taxes on condos?

Todays Sun has an article about the municipal tax system in vancouver and the disproportionate load it puts on business owners. From that article:

Over on Burrard, not far from the bridge, Henry von Tiesenhausen of Commercial Electronics notes that, in a five-year period when the tax on his home increased 16 per cent (and when his company's sales were flat) his business taxes rose 102 per cent.

"I have to ask the question," von Tiesenhausen said in a letter to Mayor Sam Sullivan, "is it worthwhile even operating a business in the City of Vancouver?"

A growing number seem to be asking the same thing -- and answering in a way no one wants to hear. While commercial growth in the city has long trailed residential, the last two years have seen a disturbing new trend. For the first time, more businesses closed than opened.

In general a condo tower consumes more in services than they pay for, while businesses pay more than the services they consume. With the huge number of condo projects downtown, and businesses shutting down should we expect property taxes to increase greatly to take up the slack, or should we expect the city to adapt its budget to spend less on services?

US: Largest home price drop on record.

Ouch. Todays CNNMoney has an article about the fourth quarter report from the National Association of Realtors showing the largest price drops on record with price declining US markets now outpacing those with gains.

The most recent median prices are down even more: 3.4 percent since hitting record highs in the second quarter. Almost three-quarters of the markets, reported on by the group, saw declines in median prices over the past six months, with eight reporting double-digit declines.

Vacation markets, where investor-buyers had driven up prices during the building boom of 2005, were particularly hard-hit.

The Sarasota-Bradenton-Venice, Fla., market saw the biggest year-over-year decline in the fourth quarter, with prices plunging 18 percent.

When looking at the change between the fourth quarter and the second-quarter peak, the Palm Bay-Melbourne-Titusville, Fla., market saw the biggest drop, with median prices plunging 19.5 percent.

Wow. Those are mind-boggling price drops in a time of super-low interest rates and a strong economy. It remains to be seen how bad the US housing slump will get, and what effect this will have on the economy as a whole. For now the NAR is repeating their mantra "I think the worst is over".

Condo prices in the suburbs

There's a strange article in the Vancouver Sun today - Its a very short writeup:

Now that the condominium craze has changed the Vancouver landscape and used up virtually all available space, condo fever is sweeping the suburbs and it's there we're finding the biggest percentage increases in condo prices.

They then publish the following list of benchmark condo price changes from January 2006 to January 2007. Prices in every area are up year over year, but I was curious to see how much of those gains came early in 2006 and how they've faired since September 2006 (the GVRD benchmark peak so far). I've added the September to January price changes below each area, with the dollar figure of price losses or gains:

New Westminster: +24.8
Sept 06: $256,336 Jan07: $260,959 [ + $4,623 ]

M. Ridge/P. Meadows: +21.5
Sept 06: $227,176 Jan07: $234,041 [ + $6,865 ]

Port Coquitlam: +18.8
Sept 06: $223,563 Jan07: $226,235 [ + $2,672 ]

North Vancouver: +17.6
Sept 06: $341,575 Jan07: $350,037 [ + $8,462 ]

Richmond: +17.5
Sept 06: $280,581 Jan07: $275,108 [ - $5,473 ]

Coquitlam: +17.3
Sept 06: $260,559 Jan07: $259,815 [ - $744 ]

Burnaby: +15.5
Sept 06: $298,821 Jan07: $292,816 [ - $6,005 ]

West Vancouver: +14.7
Sept 06: $601,004 Jan07: $549,203 [ - $51,801 ]

Vancouver East: +14.3
Sept 06:$271,469 Jan07:$273,808 [ + $2,339 ]

Vancouver West: +12.7
Sept 06: $426,810 Jan07: $422,896 [ - $3,914 ]

Port Moody: +10.6
Sept 06: $274,392 Jan07: $272,974 [ - $1,418 ]

South Delta: +6.7
Sept 06: $310,184 Jan07: $295,320 [ - $14,864 ]

Market that Yaletown livin!

Wow. A local developer has taken to marketing their building in Yaletown with an episodic web video that is kind of, how should I put this? .. dismal. Maybe I'm just not in the right target market, but I'm really not seeing the appeal of this low budget sit-com about stalking neighbors and the 'Yaletown lifestyle'.

They've got the Sun & Chicago Tribune to write up articles about it, so it may just work as marketing. They've done everything they can to make yaletown look appealing with the ideal of selling a 'lifestyle' instead of just a condo, but it all just looks kind of cheap and as far as I can tell this is the lesson:

Buy a 500 sq foot condo in Yaletown to prove that you can. There are friendly people there. You will have fat grumpy neighbors to complain about, but they will move to Spain. You will then be free to spend the rest of your time trying to guess the sexual orientation of the other beautiful people that live in your building. Your condo is fabulous! Yaletown is a lifestyle!

..or something to that effect.

And now you really want to see it don't you? Alright, I'm going to play right into their diabolical marketing plan and give you the link, but don't come crying to me when you feel all dirty and underwhelmed.

Deadly fungus on the west coast.

No, not in the walls of your condo - in the air on the West Coast. Apparently global warming has turned the west coast into a breeding ground for a deadly fungus whose spores have caused the death of 8 people. From the globe and mail article:

Dr. Kibsey said some health officials have been “reluctant” to publicize the potential risks for fear of hurting tourism on the island, which receives more than seven million visitors a year.

In the summer of 2002, for example, those investigating the outbreak had put up a number of signs warning of the potential risk of fungal disease in the popular Parksville area of the island's east coast. But they didn't last past the season. The signs, Dr. Kibsey recalled, had prompted a “huge number of campers to cancel their reservations en masse.

“They were taken down because the chamber of commerce put pressure on the medical health officer to remove them.”

I don't think the chamber of commerce should worry so much. Clearly the mold problems in condos hasn't caused demand to go down for them so why would it negatively affect tourism?

Stocks fall on US housing data

Stocks for financial groups and builders got hit pretty hard today with a round of bad news from the US housing slump and mortgage defaults from overextended borrowers. HSBC announced that their bad debt charge from last year is $1.8 billion more than expected due to US mortgage lending. Hey, a billion here, a billion there, pretty soon you're talking about real money!

Subprime lender New Century Financial saw their stock drop by an astounding 36% today as a wave of rising defaults and late payments is making itself apparent across the US. Many smaller subprime lenders have closed down over the last few months and there are concerns that the combination of dropping home equity, higher mortgage rates and record low levels of personal saving could lead to more trouble for the US economy as a whole.

Meanwhile in Vancouver scientists have announced the discovery of a tiny hole in the Bozone layer that insulates our economy from the US. The CMHC says that this should not be a concern as it is a very tiny hole that at the very worst it may cause a "soft feathery plateau" in our once hot housing market, and "hey, who doesn't like soft feathery plateaus?"

Home prices flat for first time in 6 years

Marco sent in this link to todays Globe & Mail. Monthly house prices are flat in Canada for the first time in six years, possibly signaling a slow-down in our once hot real estate market. The largest monthly drop was in Alberta, with a slide of 0.9 percent, the biggest drop in eleven years. The largest monthly increase was seen in Saskatoon followed by Regina and London. Across Canada it added up to flat prices.

Home prices didn't budge between November and December, Statistics Canada said Thursday. It was the first time since June, 2000, that its monthly new housing price index was unchanged.

That easing will help keep inflation under wraps, an economist said.

“The rise in new house prices that feeds directly into the consumer price index for shelter, is expected to put less upward pressure on core services inflation in the coming months,” said Ted Carmichael, chief economist for J.P. Morgan Securities Canada.

As regular readers here know, the REBGV benchmark price in Vancouver has actually been dropping each month since September 2006, losing almost $20,000 in that time. Prices in Vancouver are still very high by historical standards, so it remains to be seen how far prices will correct or if spring will bring more buyers with more credit.

repairs: 1201 Lameys Mill Rd.

Ahoy there! This building at 1201 Lameys Mill Road has great views out to false creek near Granville Island and a somewhat nautical / pirate theme to the way its scaffolding and tarpaulins drape. Going by the name 'Alder Bay Place' these condos use a mix of traditional Vancouver green mesh and white tarps.

send your leaky tarp covered condo pictures for the repair photo album to: vancouvercondo.info@gmail.com

Canadian building permits drop

Paul sent in this link to an article in the Globe and Mail about Decembers unexpected drop in building permits across Canada. Economists had been expecting a drop of about 2 percent, but permits actually pulled back 7.8 percent.

Most experts expect construction activity to ease from last year's 2006 blistering pace amid higher mortgage costs, though overall activity is expected to remain strong.

“The data is in line with our view that the residential sector is likely to continue to cool...although only modestly in 2007,” wrote Dawn Desjardins, senior economist at Royal Bank of Canada, adding that “non-residential investment will continue at a solid clip backed by firm corporate balance sheets and decent profits.”

The article points out that last year saw a huge number of permits in western canada, so it will be interesting to see what happens when the record number of projects under construction complete in the next year or two.

dangerous electrical wiring in older homes.

There's an article in the sun about the large number of houses in the lower mainland with sub-par or dangerous electrical wiring that often requires work to be insurable.

Dangerous electrical wiring exists in the majority of pre-1950 homes in B.C., especially those with secondary suites, according to preliminary findings by a Vancouver company.

Of 104 older homes inspected by last year by PowerSafe Inc., 60 per cent had electrical problems requiring immediate attention.

Hazards that could lead to a fire zoomed to 84 per cent in 30 homes with secondary suites, said Brian Cook, co-founder of the firm.

I know a couple of people who bought houses in the last year that required re-wiring before they could be insured - depending on the size of the house this can run from around $15,000 and up - a good thing to be aware of and budget for when shopping for an older house.

America loves the fresh minty taste of debt!

Personal savings in the good ol' US of A have dropped to their lowest levels since the great depression. According to this article on MSNBC "The savings rate has been negative for an entire year only four times in history — in 2005 and 2006 and in 1933 and 1932. However, the reasons for the decline in the savings rate were vastly different during the two periods."

During the Great Depression when one-fourth of the labor force was without a job, people dipped into savings in an effort to meet the basic necessities of shelter and clothing.

Economists have put forward various reasons to explain the current lack of savings. These range from a feeling on the part of some people that they do not need to save because of the run-up in their investments such as homes and stock portfolios to an effort by many middle-class wage earners to maintain their current lifestyles even though their wage gains have been depressed by the effects of global competition.

The article goes on to point out that the timing of this low savings era could be particularly bad with an estimated 78 million baby boomers approaching retirement. Instead of saving for retirement many boomers are spending all of their income and then some.

Unfortunately Americans aren't the only ones with this problem. From the most recent data I could find The BC provincial savings rate was -7.9% in 2004.