Real Estate

Vancouver housing bubble?

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Deal Addict
Apr 10, 2011
1358 posts
836 upvotes
Vancouver
choclover wrote: I have a feeling that if these candidates get elected they will lower the $5M threshold to something far lower like $1M and find an excuse (e.g. house sales are dropping) to collect more taxes from more homeowners.
I predict the winning mayor will be the one wanting lower property taxes. Larger home owners will focus their vote.

The remaining votes will be split amongst the broader range of fringe candidates.

Renters also typically are not motivated municipal voters.

Either way, it's so great to not have wacko Greggor Robertson.
Deal Guru
Jan 27, 2006
12143 posts
5273 upvotes
Vancouver, BC
Reakt0r wrote: This is not true.
See next post on no-recourse mortgages. If you don't know what no recourse mortgages are (which it seems like you don't), here's a link to the Investopedia definition - Non-Recourse Debt.
A non-recourse debt is a type of loan secured by collateral, which is usually property. If the borrower defaults, the issuer can seize the collateral but cannot seek out the borrower for any further compensation, even if the collateral does not cover the full value of the defaulted amount. This is one instance where the borrower does not have personal liability for the loan.
Reakt0r wrote: [Citation needed.]
It's the law.... - here's quote from ratehub.ca - Mortgage Default Insurance or CMHC Insurance

From their website,
Mortgage default insurance, which is commonly referred to as CMHC insurance, is mandatory in Canada for down payments between 5% (the minimum in Canada) and 19.99%. Mortgage default insurance protects lenders, in the event a borrower ever stopped making payments and defaulted on their mortgage loan.
Now, that doesn't include private mortgages (ie loans from individuals or loan shark type arrangements) but we are talking about banks so they don't apply anyways. Most would agree that any mortgage that has a very small down payment (ie under 10% or so) and/or very little of the principal paid off in the past few years, may be placed in the 'questionable' category.
Reakt0r wrote: You mean like interest-only mortgages? We call those HELOCs in Canada.
No. I mean mortgages where some of the interest payments are actually added to the mortgage principal rather than being paid by the home-owner. For example, if you had a $100,000 mortgage with a 5% rate, the homeowner would only have to pay an effective 2.5% rate while the other 2.5% (out of the 5%) would be added to the principal. Look up a product called 'Option-ARM loans' which allowed borrowers to make small payments on their debt, but the loan amount might actually increase if the payments were not sufficient to cover interest costs.
Deal Guru
Jan 27, 2006
12143 posts
5273 upvotes
Vancouver, BC
BlueSolstice wrote: Not all U.S. states have "no recourse" mortgages. Some states do allow banks to pursue home owners to the point of bankruptcy. In the U.S. crash, there's no noticeable difference between recourse states and non-recourse states. Most people declare bankruptcy before sending keys back to the bank.
Hmmm.... this study from the Federal Reserve Bank of Richmond in the US goes against your claim that there's no noticeable difference between recourse and non-recourse states - Recourse and Residential Mortgage Default: Theory and Evidence from the U.S. States

Without going through the whole working paper, the conclusion states the following:
Our model predicts that we do not need to observe lenders frequently pursuing deficiency judgments to conclude that recourse alters borrowers' behavior. The threat of a deficiency judgment deters would-be strategic defaulters under many combinations of negative equity and the degree of lender recourse. In other situations, if the borrower does default, then allowing the lender to pursue a deficiency judgment changes how the borrower defaults. In particular, in states that allow lenders recourse, default occurs more frequently by deeds in
lieu and short sales, as recourse gives lenders better negotiating positions.

Empirically, we find that, in a sample of loans originated between August 1997 and December 2008, at the mean value of the default option at the time of default, the probability of default is 32% higher in non-recourse states than in recourse states. The deterrent effect on default is significant only for borrowers with appraised property values of $200,000 or more at origination. At the mean value of the default option at the time of default and for homes appraised at $300,000 to $500,000, borrowers in non-recourse states are 81% more likely to
default than borrowers in recourse states. For homes appraised at $500,000 to $750,000, borrowers in non-recourse states are more than twice as likely to default as borrowers in recourse states while, for homes appraised at $750,000 to $1 million, borrowers in non-recourse states are 60% more likely to default. We also find that recourse deters default on loans held privately; we cannot reject the hypothesis that recourse does not have an effect on loans held by the government sponsored enterprises. Finally, we find that allowing lenders
recourse increases the likelihood that default occurs by a more lender-friendly method, such as a deed in lieu of foreclosure.
Basically, they are stating that in non-recourse states, homeowners have a higher likelihood of initiating the default (ie handed the keys back to the bank and left) by 32% over non-recourse states where the bank or lender forces the issue. In addition, as the value of the home went up, the greater the likelihood of default in non-recourse states over recourse ones.

So, what's your evidence that the Richmond Fed is wrong?
Banned
Aug 24, 2018
196 posts
119 upvotes
^ California being the most populated state in the union (10%) of total US population may have skewed those figures. It is a non recourse state. No deficiency judgment on 4 units or less (CCCP 580 b). I live here, and between 2001- 2008 everyone and their mother was flipping homes. There were more liar loans here than anywhere. Those banks offered defaulting buyers monetary incentives, or even promises not to ruin credit scores (by not reporting it as a foreclosure) if they would turn over the keys rather than be foreclosed on (a long, expensive process for the banks). That's why so many California banks went belly up after 2008.

In my SoCal subdivision, I have a friend who bid on a 1.8 M house, and was turned down. A year later the house is in foreclosure and the bank says "we will accept your offer". My friend said that was a year ago, my price is now 1.5. Bank said we'll get back to you. Friend said "I'm knocking off a 100K for everyday you delay". Bank phoned back 3 days later and said we'll take the 1.5. Friend said it's 1.2 now. The bank accepted.

It was a bloodbath. Worse than when I sold my waterfront West Van property in 1982.
Member
Jul 4, 2017
489 posts
100 upvotes
choclover wrote: Don't forget also that several mayoral candidates want to implement a LAND VALUE CAPTURE TAX on the "land lift" in value created by the city-wide mass rezoning to duplexes. I've heard several of the candidates mention this without using the word tax and was wondering if other voters have picked up on it yet. I have a feeling most people are going to be surprised when it happens thinking that no one ever mentioned that before when they did mention it but using language that is subtle and avoided the direct use of the word "tax".
And what happens if land value goes down, because of this new tax combined with all the other factors at play? Do property owners get a rebate?
Deal Addict
Dec 4, 2016
1692 posts
762 upvotes
craftsman wrote: Hmmm.... this study from the Federal Reserve Bank of Richmond in the US goes against your claim that there's no noticeable difference between recourse and non-recourse states - Recourse and Residential Mortgage Default: Theory and Evidence from the U.S. States

Without going through the whole working paper, the conclusion states the following:



Basically, they are stating that in non-recourse states, homeowners have a higher likelihood of initiating the default (ie handed the keys back to the bank and left) by 32% over non-recourse states where the bank or lender forces the issue. In addition, as the value of the home went up, the greater the likelihood of default in non-recourse states over recourse ones.

So, what's your evidence that the Richmond Fed is wrong?
Interesting. So there has been detailed studies on mortgage default rates of different states. Some can argue that different states have different levels of RE crash (sunny states get hit hard, cold and rainy states like NY and washington did much better), I don't have a study that corrects for other factors.

Interestingly, allowing recourse means more deed in lieu of foreclosure. That means not everyone declares bankruptcy before giving up their home.
Deal Addict
Jul 14, 2002
2130 posts
835 upvotes
otismod wrote: ^ California being the most populated state in the union (10%) of total US population may have skewed those figures. It is a non recourse state. No deficiency judgment on 4 units or less (CCCP 580 b). I live here, and between 2001- 2008 everyone and their mother was flipping homes. There were more liar loans here than anywhere. Those banks offered defaulting buyers monetary incentives, or even promises not to ruin credit scores (by not reporting it as a foreclosure) if they would turn over the keys rather than be foreclosed on (a long, expensive process for the banks). That's why so many California banks went belly up after 2008.

In my SoCal subdivision, I have a friend who bid on a 1.8 M house, and was turned down. A year later the house is in foreclosure and the bank says "we will accept your offer". My friend said that was a year ago, my price is now 1.5. Bank said we'll get back to you. Friend said "I'm knocking off a 100K for everyday you delay". Bank phoned back 3 days later and said we'll take the 1.5. Friend said it's 1.2 now. The bank accepted.

It was a bloodbath. Worse than when I sold my waterfront West Van property in 1982.
Wow! 100k drop per day.
Vancouver/Canadian property won't be as drastic though. We've got CHMC and TREB supporting us. ;)
And times are different globally in 2018 compared to 2008, a lot more capital worldwide available that has fled into investment markets worldwide.
Deal Addict
Dec 4, 2016
1692 posts
762 upvotes
otismod wrote: ^ California being the most populated state in the union (10%) of total US population may have skewed those figures. It is a non recourse state. No deficiency judgment on 4 units or less (CCCP 580 b). I live here, and between 2001- 2008 everyone and their mother was flipping homes. There were more liar loans here than anywhere. Those banks offered defaulting buyers monetary incentives, or even promises not to ruin credit scores (by not reporting it as a foreclosure) if they would turn over the keys rather than be foreclosed on (a long, expensive process for the banks). That's why so many California banks went belly up after 2008.

In my SoCal subdivision, I have a friend who bid on a 1.8 M house, and was turned down. A year later the house is in foreclosure and the bank says "we will accept your offer". My friend said that was a year ago, my price is now 1.5. Bank said we'll get back to you. Friend said "I'm knocking off a 100K for everyday you delay". Bank phoned back 3 days later and said we'll take the 1.5. Friend said it's 1.2 now. The bank accepted.

It was a bloodbath. Worse than when I sold my waterfront West Van property in 1982.
Your friend must have some serious cash stashed away to pounce on that opportunity. Trying to get a mortgage on a 1.2m house in SoCo at that time would be pretty interesting.
Deal Fanatic
Oct 7, 2007
5899 posts
2270 upvotes
RxMills wrote: I predict the winning mayor will be the one wanting lower property taxes. Larger home owners will focus their vote.

The remaining votes will be split amongst the broader range of fringe candidates.

Renters also typically are not motivated municipal voters.

Either way, it's so great to not have wacko Greggor Robertson.
I hope you're right. Interestingly enough, I seldom hear people complain about property taxes. Not even my neighbours. I am pretty sure that my neighbours pay on or about what I pay, and what I pay is borderline outrageous. I don't think there is any shame in saying our property taxes are too high when they are too high. Also, the level of services received from the declined to a point that's laughable. Ever try calling 311 (the attitude on the other side seems to reflect a culture of superiority above the peasants)? Ever try asking for someone from the City to call you back (I have left so many messages for so many people and still waiting to hear something back)? Not to mention the state of decay with our roads, garbage pickup, etc. And don't expect the city to do any bylaw enforcement. So rules continue to be broken while others suffer.

There are at least Greggor 2.0's in the mayoral menu. Hopefully, our fellow voters are smart enough to avoid these choices.
Deal Fanatic
Oct 7, 2007
5899 posts
2270 upvotes
setsunafseiei wrote: And what happens if land value goes down, because of this new tax combined with all the other factors at play? Do property owners get a rebate?
This is a question taxpayers would like an answer to as well. My suspicion is that those in charge will adjust the levers and thresholds to collect more tax and argue that their tax revenue is declining so they have to make adjustments to maintain their revenues. It's a lose-lose proposition for homeowners who just want to have some peace and quality of life. For those still afflicted with the real estate hysteria, they will continue to "build more supply" as they work their way down the path of neverending destruction.
Deal Addict
Apr 10, 2011
1358 posts
836 upvotes
Vancouver
choclover wrote: For those still afflicted with the real estate hysteria, they will continue to "build more supply" as they work their way down the path of neverending destruction.
I've known several that have bought, or attempted to buy, new condos in Vancouver over the past 3 years.

It's amazing how all the new projects that were promoted as "sold out" had many units available. The marketing agents each had 1-2 that they got a special deal on (to later sell).

Also, the developers had several hold-backs to make the units appear to be popular and showed big red dots on the property layout.

When the buyer said they were only interested in unit 701, 50% of the time the response was "well, if you only like that unit, it could be available to you".

When the projects were completed, the listings appeared - - and not from previous private buyers.

There are tons of cranes around Vancouver. Several years ago, the finance minister visited Vancouver and said how worried he was seeing all those cranes. There's double that number now.

Prices and valuations are as fake as buying stock in a new startup, buying art, or a ticket for a concert.

Real Estate Agents, like stock promoters, make money on the way up and the way down, and constantly look at ways to double-dip just like Ticket Master.

Interesting times coming up for those that have really stretched to purchase Real Estate in the past 2-3 years.

A house owner on my street that's been trying to sell his house for 2.5 months just pulled his sign off. Now he has to wait till next April to try again.

But of course, there will have been 2-3 interest rate hikes by then which will have both affected buyers and the market.

The market only shows prices of successfully sold properties. It would be interesting for the Real Estate Boards to give the number of re-listings and pulled listings each month.
Last edited by RxMills on Oct 6th, 2018 10:53 pm, edited 9 times in total.
Deal Guru
Jan 27, 2006
12143 posts
5273 upvotes
Vancouver, BC
BlueSolstice wrote: Interesting. So there has been detailed studies on mortgage default rates of different states. Some can argue that different states have different levels of RE crash (sunny states get hit hard, cold and rainy states like NY and washington did much better), I don't have a study that corrects for other factors.

Interestingly, allowing recourse means more deed in lieu of foreclosure. That means not everyone declares bankruptcy before giving up their home.
I believe that the difference between the sunny warm states and others is simple - vacation homes.

It's common sense that no recourse states will have it worse even if you allow for things like the weather. After all, who wants to declare bankruptcy if they don't have to?
Deal Fanatic
Oct 7, 2007
5899 posts
2270 upvotes
lawonga wrote: October is gonna be a shitshow
I am always curious to hear others' predictions. Can you please elaborate on what you think might happen in October?
Banned
Aug 24, 2018
196 posts
119 upvotes
BlueSolstice wrote: Your friend must have some serious cash stashed away to pounce on that opportunity. Trying to get a mortgage on a 1.2m house in SoCo at that time would be pretty interesting.
He did.

Banks did not want to take property back and become landlords to a bunch of renters.

Even with all this chaos banks would list a foreclosure for below market (sometimes the amount of the existing mortgage). If you offered full price they would not accept it. That was just the start of negotiations for them. They thought "we're banks, we have tons of money, you'll pay our price". They felt the could sit it out, and wait for a nice offer. That cavalier attitude is why hundreds of banks went belly up in California.

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