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A Fear Of Overpaying For A Depreciating Asset

Two reports from the Globe and Mail in Canada. “This two-bedroom, two-bathroom 811-square-foot unit is in a 21-year-old building in South Vancouver, overlooking the Fraser River. The seller was moving out of town and the property was originally listed for $550,000. The buyer made an offer just as the lockdown had begun, but did not remove the conditions of sale. There were few in-person showings, according to listing agent Keith Roy. ‘When no offers came in, the seller lowered the price and the buyer came back with a reduced price and only one day of conditions and a quick close,’ Mr. Roy said. ‘In the midst of COVID, home sellers had to take reduced prices.'”

“Agent Clare Packer expected developers would flock to this ageing two-storey residence for its irregular, 82-by 144-foot lot in a prime neighbourhood near the North Saskatchewan River. But listed last winter with an ambitious asking price of $1.5-million, only one lowball offer was registered and quickly rejected. In recognition of the harsh market conditions, the home was relisted in April priced at $1.185-million.”

“‘St Georges Crescent has some of the most coveted real estate in the entire city,’ said Ms. Packer.”

The Motley Fool. “The coronavirus put a dead stop on anyone hoping to easily sell their homes. In some cases, with job loss reaching sky-high levels, that meant selling your home for a fraction of its worth. I don’t think Canadians will suddenly stop having kids. The main focus tends to be on immigration. In April, immigrants coming to Canada dropped by 80% since the same period in 2019. Canada’s largest cities of Toronto, Vancouver, Montreal and Calgary could be the worst hit, with immigration being cut in half and unemployment expected to increase and remain high through 2022.”

The Western Investor. “Reverberations from COVID-19 are shaking up the Metro Vancouver’s rental-home market, where the tourism downturn has forced some landlords to stop renting homes via sites such as Airbnb and instead seek long-term tenants. ‘My general belief is that a long slowdown would be bad for rents and home prices,’ said Tom Davidoff, director of the University of British Columbia’s Centre for Urban Economics and Real Estate. ‘When I say bad for the market, I mean the price goes down, not that it is bad from a social welfare perspective.'”

“Davidoff agreed with Real Estate Investment Network senior adviser Don Campbell, who recently told Business in Vancouver that the pandemic could be a ‘psychological shock’ to over-leveraged homeowners and investors, who may decide to scale back large mortgages and exposure to real estate investments. Small-business owners hammered with forced business disruptions may also decide to sell their homes to provide capital for their businesses, Davidoff suggested.”

From Blog TO. “Rent prices continue to fall in the City of Toronto this month, even as pandemic restrictions gradually lift and life bounces back to (‘a new’) normal. The July 2020 report from rentals.ca and Bullpen Research & Consulting puts the average monthly price of a one-bedroom apartment in Toronto at just $2,063 — down 9.3 per cent, year over year, and 1.9 per cent from the month previous.”

“‘There has been much discussion over the last three months regarding how the influx of units that were previously being used as short-term rentals has impacted rental rates in Toronto,’ writes Bullpen Research president Ben Myers in the report, referring to a recent flood of Airbnb units being transformed into long-term rental housing and upping supply levels.”

“‘There is a significant number of apartments under construction in Toronto, which start to add even more supply to the market and potentially put more downward pressure on rental rates,’ the firm notes.”

“Condo rents are still plummeting. ‘This type of monthly rent volatility is rarely observed,’ notes rentals.ca. ‘But keep in mind many landlords are offering incentives, with a number of new purpose-built rental apartments offering two months free rent.'”

From Mortgage Broker News. “Online marketplace Real Estate Wire (REW.ca) has announced the addition of more than 10,000 rental listings to its platform. The 10,000 new additions are located in BC, Alberta, and Ontario. Data from analytics firm AirDNA showed that long-term residential supply has noticeably improved as Airbnb and similar services have scaled back because of the COVID-19 pandemic.”

“‘We are seeing an incredible new amount of inventory of furnished units come onto the long-term rental market over the last few months,’ said Andrew Harrild, co-founder of Condos.ca.”

From Castanet. “Residents of a ritzy West Kelowna neighbourhood say they are are being driven out of their million dollar homes by short-term ‘party houses.’ Sabine Zerwes says things began to go wrong in the Pinot Noir Drive neighbourhood above Mission Hill Winery about three years ago when a Vancouver man purchased a home and began renting it out as a weekly short-term rental.”

“She says the homeowner purchased the home next to her, put in a pool, and began renting it out last month. ‘He just bought another home on Pinot Gris,’ says Zerwes. ‘He put a big pool in there, and plans to start advertising that home next week. Three homes, four to five bedrooms each that are being rented out on a weekly basis. This is illegal – we all know it.'”

“Zerwes says people are constantly coming and going, and the noise is, at times, unbearable with six to eight adults and kids running around at all hours. Some people, she says, have become fed up, and moved away. ‘(It’s a) Very lovely neighbourhood… we’re all retirees. We spent a lot of money on our million dollar homes to live in a quiet, beautiful, quaint neighbourhood and, trust me, these party homes are not adding value to our street at all.'”

From CBC News. “A real estate agent who has managed several Airbnb listings in an East Vancouver building for years has been ordered to stop using his condos as short-term rentals. According to a recent decision from the B.C. Civil Resolution Tribunal, condo owner Zulkider Jiwa argued the rentals should be allowed because they were for stays 30 days or longer and therefore complied with city bylaws. Ulrike Rodrigues, a strata council member who has fought against Jiwa’s Airbnb listings for the last five years, says she and the rest of the strata were relieved to hear the tribunal’s decision.”

“She first voiced her opposition to Jiwa’s Airbnb listings in 2015, well before the City of Vancouver instated stricter laws in 2018 to regulate rentals shorter than 30 days. ‘When you move into a building and you’re surrounded by neighbours and you’re in a nice neighbourhood, you don’t expect to be hearing rolling suitcases all hours of the night,’ she said. ‘You don’t expect to see strangers in the hallways.'”

The Recorder and Times. “Potential short-term accommodation (STA) hosts in Gananoque are frustrated with what they see as the town’s refusal to engage with them before coming up with a new bylaw, last December, that appears to prohibit them from operating within the town. All of the Airbnb/Homestay/Vacation Rental hosts interviewed said they felt the town was doing everything in its power to shut them down. ‘I received a letter saying I was operating illegally, though they really shouldn’t have known how to reach me,’ said Andrew Lunman, an Airbnb host.”

From News 1130. “The same week B.C.’s finance minister said housing sales dropped a whopping 45 per cent because of the pandemic, some real estate watchers say the situation isn’t so bad, but others are convinced it will take several months for the Metro Vancouver market to rebound. Carole James says prices fell four per cent between February and May, but Michael Ferreira who is the managing principal of Urban Analytics (which tracks data for developers) says prices are already coming back up.”

“However, Dane Eitel with Eitel Insights predicts prices will continue to drop until at least next year. ‘The truth is the inventory is rising. The condo market had 2800 brand new, active listings in the month of June. That was the highest month since 2012. There’s not a pent up need to buy, but there is a pent up need to sell.'”

“He adds sales in May were the worst they’ve been in 15 years with only 325 more detached homes and 450 extra condos sold in June. ‘The inventory in the detached market grew more than 700 and the condo market grew over a thousand from the previous month, so you tell me where is the pent up demand? Most markets in detached properties will be in 2021, the condo market will likely be in 2022, so we will eventually be positive about this market, but as it currently sits, it’s very difficult to be an optimist, unless you’re a real estate activist. You’re not really acting as an analyst.'”

“Eitel insists some buyers are already taking their time because they’re worried about paying too much for something they can get for a better price next year. ‘That is a fear of overpaying for a depreciating asset, so into 2021 when prices are attractive, buyers will be fearful that prices will continue to go lower and that will be a tragedy for those that miss out on this historic opportunity upcoming. Some sellers are seeing that they will need to sell, but praying and holding on for dear life that won’t come to fruition, but eventually it will. In 2021, you will see the roll out of foreclosures and that’s where the investor mindset starts to change and starts to purchase properties at a discount. And, that will force the average sale price lower because no longer are they looking at mansions that were selling for $17-million and actually selling at $12-million. They’ll be looking at properties listed for a million and maybe selling for $800-thousand.'”

“On Tuesday, the provincial government predicted a $12.5 billion deficit linked to the pandemic with Finance Minister Carole James saying, ‘This could be the worst downturn experienced in our province in recent history.'”

This Post Has 48 Comments
  1. ‘St Georges Crescent has some of the most coveted real estate in the entire city’

    Yeah, that’s why you whacked the price Clare. I’ve got a lot of crater to post. I may add more than usual to keep up.

    1. ‘St Georges Crescent has some of the most coveted real estate in the entire city’

      Message to Agent Clare Packer:

      Coveted by who? And why should I care?

      Creating a sense of guilt or envy is one of the most annoying sales tactics used by Real Estate agents.

      1. That any property in St. George is coveted is risible. Yeah, I get it that it’s a place to escape Salt Lake winters while remaining in Deseret.

  2. Feel free to join the “Metro Vancouver Housing Collapse” Facebook group and share in the information/discussions along with 9,431 others.

  3. Sacramento real estate is way way inflated right now where I live in northern California and not much inventory due to scaredy cat sellers afraid of catching corona cold virus from potential buyers. One place sold 50k over asking sight unseen in Folsom which amazed me as I’d never buy an expensive shack without being able to see it in person.

      1. They have plenty of faux wealth features packed into 2,600-sqft. That backyard patio, pool and bar outside the kitchen is appealing. The bathroom’s jetted tub with a gas log must be nice with the light off and a bottle of wine? In San Jose that place might haul in $2M.

        1. The location is safe too.

          Those homes due east down by Will Robin’s Golf below that earthen dam likely have steep flood insurance premiums. A seismic event with a full reservoir could be ugly.

        2. Indeed it is the kind of home that I would love to buy and own someday if not paying that high of a price. I see less expensive homes on the market in Sacramento that feature a lot of these things but they are not in Folsom and don’t have the best schools. Still good safe areas close to downtown.

      2. Nice home but a lot of steps. Any injury below the waist and you’ll be regretting those.

          1. Same here- after breaking my ankle and spending months waiting for the damn thing to heal, owning 2 story homes with lot of steps is not as appealing as a basic one story flat home with easy access and nice pool/hot tub.

        1. Lots of steps not only outside, but inside with those sunken living rooms. Visually it’s very appealing but practically I’d be tripping half the time.

          That said, you are getting a LOT for your $750K. Even in my area that house would be that price. The landscaping/hardscaping/pool alone is at least $75K.

          1. @oxide, right? Same here I am the clumsiest fool on planet earth. Flat one story for me no steps!

          2. The older we get, the harder steps and stairways get, even if we have no severe walking problems. I have an 85 year old friend living in a trailer park. He bought the mobile home he’d been renting and sold his car. He invested a little $ in having a first class handicapped ramp built from the driveway to the side door of his trailer (topped by an enclosed porch) and loves it, along with everyone who visits him. He walks up & down the ramp for exercise multiple times a day. If he ever needs a wheelchair, he is set for that too.

          3. The older we get, the harder steps and stairways get

            One thing I have noticed with my fake knees is that not all stairs are created equal. A home staircase is usually steeper than one in a public place.

  4. Krugman issues mea culpa on globalization: https://foreignpolicy.com/2019/10/22/economists-globalization-trade-paul-krugman-china/ – the reason this comes up now is the regret at possibly helping a populist protectionist come to power.

    He also stated the Internet would have no more impact than the fax machine: https://www.businessinsider.com/paul-krugman-responds-to-internet-quote-2013-12

    Recommending a housing bubble to replace the NASDAQ bubble, then not seeing the oncoming Financial Crisis: “To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.” : https://mises.org/library/fact-checking-paul-krugmans-claim-be-right-about-everything

    Even among the (very few – e.g. Rajan at the 2005 Jackson Hole) economists that warned about the Financial Crisis – they too can be wrong on large issues.

    There are speculative results and non-speculative results, and the economy is hugely complex, so effects that are two and three steps away are hard to predict. Immediate finance effects are more straightforward it seems.

    1. Don’t forget the phony space alien thing.

      Paul Krugman: An Alien Invasion Could Fix the Economy …
      business.time.com › 2011/08/16 › paul-krugman-an-ali…
      Aug 16, 2011 – “If we discovered that space aliens were planning to attack, and we needed a massive build-up to counter the space alien threat, and inflation and …

        1. Let’s have an HBB poll.

          Which is more likely, the alien invasion scenario or the identification of the “hackers” of Dr Krugman’s computer?

      1. Here’s a fuller link of Krugman recommending a housing bubble to replace the tech bubble: https://www.businessinsider.com/krugman-in-02-greenspan-needs-to-create-a-housing-bubble-2009-6

        And here we are today with both! Initially simply dropping interest rates was able to juice the market, along with generally declining interest rates. Then when that stopped working, printing money and dropping interest rates was the next step. Now it’s all that plus buying corporate debt plus bond ETFs. Wonder what’s next.

    2. The Republicans sold out the country’s future by loading debt on the government. And they were total hypocrites — deficits don’t matter when they are in power and want to cut taxes for the rich, and do matter when you have a Democrat in the White House.

      Krugman was equally a hypocrite — against the Bush tax cuts because of the deficit, in favor of far more debt than Obama was willing to impose.

      It isn’t ideological, it’s generational.

      1. “The Republicans sold out the country’s future by loading debt on the government.”

        Back when Ronald (Mommy?!) Reagan was in office someone (David Stockman?) opined that if the federal government was mired in debt that there wouldn’t be any money for Democrat spending.

        1. Yeah that was the “starve the beast” approach advocated by folks like Grover Norquist.

          Then of course, the government “rediscovered” seignorage, and the the rest is history, until of course the limits of seignorage are reached. So, unfinished history.

      2. Did you manage to get unemployment checks after getting laid off? I heard that NY was slow to send out checks.

  5. Newer neighbors who continuously have work done on their home . Saw the big boss drive up in a shiny black pickup with chrome wheels and a handicap sticker on his license plate.

    It was the handicap sticker that got me, in a contractors truck…

  6. ‘I received a letter saying I was operating illegally, though they really shouldn’t have known how to reach me,’ said Andrew Lunman, an Airbnb host.

    [img]https://media.giphy.com/media/KZSUN7FKBZrm2WHDdX/giphy.gif[/img]

  7. “A Fear Of Overpaying For A Depreciating Asset”

    A rapidly depreciating asset….that empties your wallet every day it owns you….. Now housing prices are falling.

    Goleta, CA Housing Prices Crater 15% YOY As Coastal California Housing Market Turns Toxic On Collapsing Housing Demand

    https://www.movoto.com/goleta-ca/market-trends/

  8. Not that he wasn’t operating illegally, just that the city shouldn’t have been able to find him!

  9. Anybody have family or friends that need two incomes to stay afloat with kids in school in one of these cities where schools are not opening in September? If you can’t afford someone to watch your kids who would have otherwise been in school and you need your job to pay a mortgage, what gives? I don’t know what the numbers are but there must a lot of people in this situation.

    1. “Anybody have family or friends that need two incomes to stay afloat with kids in school in one of these cities where schools are not opening in September?”

      Most of my California family and friends are dual-income households. No choice in any metro today unless family gives you a house, free and clear. Home schooling via tutor is probably the least expensive and safest option.

    2. I have a friend who was widowed last year. She’s got 2 young elementary school children and started a new job two weeks ago. I don’t know how she does it. Her husband was sick for a few years.

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