Tuesday, April 28, 2009

Welcome to the balanced market

We have moved from a rapidly descending market to one where a bid has appeared for listings.

MOI is in the 5-6 range. Some of the huge drops from list/sell have disappeared and most sold prices I see are coming in near (within 5-15%) the ask price.

This was to be expected. Record low mortgage rates have brought the cost of owning, even at inflated prices, closer to renting, as I showed you in the renting v owning post earlier this month.

As the market strengthens, it then panics those who sat out the long run-up, with the thought that the drop we just had may be it! and we will now embark on a new round of price rises.

I think this current blip will take out the buyers who had been sitting waiting for the smallest drop to get in. Then the driver will be the economic situation once again. On that score things are not a lot better. We had stopped falling as fast, but things are far from a rebound or even stability yet, with huge job cuts continuing in the US and Canada. And we will now have to see what transpires with this swine flu.

This darned disease is another brake on the velocity of money, and an economic damper, when we can least afford it.

I posted before that I thought the market would be stable until June and would then resume it's downward pressure. Lets see if my guess was right and let us hope that the RE market is the only thing we have to worry about.


From Mohican's post http://housing-analysis.blogspot.com/2009/04/teranet-house-price-index.html Vancouver's Housing index is at 135, with 100 being the 2005 price. So we are now 35% over 2005 prices now. Toronto is already down to 106.

I would be very surprised if that's IT for us and we don't get nearer 100. However, as mentioned, we may have price stability for a few months. Then reality rears it's ugly head again.

I suspect the economy and the Olympics have buried any chance of a budget surplus or even a balanced budget for the foreseeable future, so don't expect the Provincial government to be able to bail anyone out.

Friday, April 24, 2009

The Financial Crisis is Over!

The stockmarket is on the up and up. The RE market is roaring back with list/sell ratios moving up and MOI down to 5 months and change.

How things have changed! A few months ago, the world was coming to end, banks were in trouble and big companies were on the verge of bankruptcy.

Now the world is a beautiful place.

Except...while the banks are US and European banks are making money on their day to day operations they still have more enormous write downs ahead of them, and big companies like Chrysler and GM are still on the verge of bankruptcy and have their heads kept above water by massive and regular infusions of tax-payer money.

The companies that are still making money are doing so by cutting costs and laying workers off. This is not the stuff of rebounds. It is an interlude in my opinion.

We have driven off a financial cliff and thanks to the enormous and unprecedented intervention of Governments and Central banks across the world, we have a small parachute to cushion the fall. However fall we must.

Nevertheless the mood has shifted slightly more to the positive and that is reflected in increased economic activity. It also helps having a President across the border who is trying to hit the crisis from several angles (which he didn't cause BTW) instead of having a moron who says.."economics was never my strong point".

So we should expect this little stabilisation to continue a little longer, maybe one month or maybe three or four. The same shills who DID NOT see this financial crisis coming will now tell you with a straight face that it is OVER!

There are many of us on the blogsphere who did see this coming- as a result of the excesses. Yes we were early, but as any economist will tell you foretelling the what and the when requires religious capabilities.

And most of us don't think it is over, though are glad that we have this interlude (who wants a total collapse and food lines and street violence- not I).

Another nice post from Matt on the new social trend of frugality:


Have a good week-end

Wednesday, April 22, 2009

When to buy...if at all?

Everyone has their own reasons and timing to buy or not.

However if you were a potential buyer and didn't have to worry about moving during the middle of a school year or other issues...when is the best time to buy?

Spring..when there is more inventory, Summer...when sellers are getting more anxious..or Fall when only the desperate are left on the market and buyers have withdrawn for the year?

Tough one.

I had coffee with a seasoned RE investor today and asked him what he suggested. "Wait until after the Olympics. Any time after that should work". Was what he said.

Like me he thinks the Olympics was an unnecessary waste of time and effort. Vancouver never needed to be 'put on the map'. All it did was add kerosene to the speculative fire.

Just imagine how many bubbles we had running concurrently in our city..

1) We had the world wide real estate bubble, pumped up by low interest rates and lax lending.

2) We had the commodity bubble with copper, oil, zinc, natural gas and odd stuff like molybdenum hitting the stratosphere. The result was the venture exchange went flying and money poured into Vancouver penny stocks enriching their promoters.

3) We had the huge build out for the Olympics, competing for labour with condo builders.

And now all these bubbles are popping sequentially. There is every reason to believe that the Olympics will be an excellent and colourful spectacle, which will make us very proud to be Canadian and Vancouverites (BC-ites really, since the whole Province is going to be paying for this) and then leave us with a very big hang-over and a bill which we cannot afford.

So his advice to me was wait until all the fanfare and excitement has passed and there is nothing left to prop up RE.

What about interest rates? I asked him.

"If the market gets worried about inflation, then 5 year fixed rates could start heading up. That will certainly weaken the market further. However, one year variable mortgages (which is more closely related to the BOC rate) should remain low for a long time."

He could be wrong of course, we could have hoards of Finns and Swedes coming over after the big O to snap up our RE. Or we could be in the middle of a big inflationary boom this time next year, which would send up both long and short mortgage rates.

It works for me though, since I just signed a lease to take me past the Olympics.

Sunday, April 19, 2009

Weekend Wanderings

I headed around a few open houses on the North Shore on Sunday.

Fair amount of traffic, though less than two weeks when I last ventured out.

At one house I had an interesting conversation with the realtor. He informed me on entry that the house was now listed below the current market price.

"Well why hasn't it sold then?" I asked.

"It will. We have a lot of interest".

"Market price is what a buyer like me or another fool is willing to pay".

"Well, it is priced significantly below assessed value too."

I then gave my assessed value talk, which I have posted previously. Assessed prices have been frozen by the Provincial Government because prices are falling. The last thing they want is for the municipalities to be inundated with appeals as comparables drop in price. It just means the taxable amount would have to be raised or services cut.

So these assessed values are what the local government (hardly a wise judge of value as we can se from the Millenium Olympic debacle) guesstimates what the worth of a property was between 2007-2008 at the very tippy top of the market!

Since then we have had a financial crisis which has vaporized banks and trillions of dollars and has caused a tsunami of unemployment to spread across the world. How on earth can it be used as any yard-stick for measuring value?

The realtor agreed. It then became apparent that this was what the seller needed to get out at break-even since they had bought a few years ago and put quite a bit of money into renovations.

So that is how selling prices are decided..based on market value (lets guess what someone would pay for this), assessed value (which if the government hadn't frozen it, would be 10-15% less in any case) and what the seller 'needs' to get.

What I am trying to say, is if you still thinking of buying in this little spring bounce, at least judge for yourself what you think the property is worth (how about replacement cost) and what you can afford, and if your number is a lot lower than the list price. Go with yours!

This also illustrates how difficult it can be for realtors. Often it is the seller who is delusional and thinks their home is worth much more than it is and the unfortunate realtor is then left trying to defend the price to buyers.

Saturday, April 18, 2009

Calm down bears

OK I see my last post caused some bear angst.

Yes, buying and renting are coming closer due to dropping prices and low interest rates.
However buy/rent comparisons are just one factor and even though logically it SHOULD be one of the main drivers of price, we do not live in a logical world and therefore it is not.

Let me explain

Generally speaking people prefer to own than rent. There are many reasons and I have listed some of them in my previous post. So buying should have a small premium over renting.

However as we all know this premium reached crazy levels over the last few years. Bears noticed this and it had been mentioned by me, VHB, Freako, Mohican and the many other housing bear bloggers.

Why buy something when you can rent it for almost half the price!

What we forgot is that most people are not logical or analytical. When they see something running up in price they jump on board, fundamentals be damned. That is exactly the same reason why a stock can sell for a price/earnings ratio of 10 one day and 15 the next month, even when fundamentals are unchanged.

Things have flipped the other way now. The asset is dropping in price, instability and job uncertainty reigns. The risk has moved from missing the RE band-wagon to falling off it and getting bones broken. So, as Jesse said in the comments section, buying should be at least balanced and probably cheaper than renting, since there is less risk in renting than buying right now.

Previously you could over-extend and buy, and then if you needed to repair the water heater or roof, you would get an appraisal which would show your property up X% and would get an home equity loan and off you go.

Now with prices dropping, you will have trouble getting that extra money and may have to sell. Throw in an illness, job loss, divorce or other life calamity and the house is in foreclosure.

So by buying you are taking on a lot more risk.

As I said In good times people prefer to buy. In bad times, they have to rent.

Also one more point, the buy/sell comparison only works, because you are paying down the debt and are 'forced to build equity'. However as bonuses, and then wages drop people will have trouble meeting their primary obligations never mind putting aside equity.

Also building equity in a dropping asset is a losing proposition.

It is exactly the same as cost-averaging into the stock market for the last 10 years. If you had put $10,000 of your savings on the first day of trading into the fasting growing US companies in the US - the Nasdaq- you would now be down nearly 40%. So much for building equity.

So am I buying now?- No. I am expecting the cost of owning to drop BELOW the cost of renting.

...and I am expecting rents to drop too, as jobs disappear. So both should come down. However there will blips up, on the way down.

However that is just my opinion, and like all bears I have been wrong for a long time, and have vindication is not as sweet when you have to wait half a decade to be proven right.

What happened earlier this year was the near complete collapse of the capitalist system. It took the irresponsible central bankers who did NOTHING while the bubble expanded -an enormous amount of money, zero interest rates (near enough) and huge bail-outs to prevent implosion.

However, in less than a year we have gone from full employment to rapidly increasing unemployment around the world. SO is this over? I don't think so. I think we have an interlude while folks enjoy and adjust to the new lower interest rates and then we realise that a bubble of this magnitude will take more than half a year and a quick, contained drop in RE to end it.

Feeling better bears? :)

Wednesday, April 15, 2009

Here it is...

OK - here are some buy/rent comparisons. The results may surprise you. My conclusions at the end will surprise you even more.

They are just random cases I found on the net, and I have applied my less than perfect analysis to them.

I read some posters state that a house should sell for 200X it's rent or some such simplistic formula.

In fact the relationship between renting and buying is very complex, and there is no 'right formula', it all depends on what is happening to housing and the economy. I will explain this all at the bottom.


I have used the ING 5 year fixed @ 3.9%.

Some folks will compare mortgage payments with rent. However some of the mortgage payment is used to pay down the debt. This is a way of 'forced saving'. Over time the debt will diminish, however over time, rents generally go up. So I have put down the amount the debt is reduced for the first year of the mortgage as an indication. I think this gives you a fairer comparison. (I am a fair bear after all)

I have assumed a 20% down-payment +/- for rounding.

I may have played down the costs of owning. A new roof would set you back many thousands, as would any significant repairs.

Lets look at a few examples:

1) Small Condo in Coal Harbour:

# 807 555 JERVIS ST, Coal Harbour, Vancouver West, $358,000.00
HARBOUR SIDE PARK. Located in prestigious Coal Harbour just steps from Stanley Park, Marina and best downtown living. Updated kitchen/bathroom w/granite countertop. Hdwd flr. 1 parking/2 storage. Rent $1300/mth.

Rental cost: $15,600 a year

To buy:

Assume 20% down ($70,000)

Lost opportunity @ 1% = 700 a year
Mortgage on $288,000 = $18,000 a year
Strata fees = $2444
Repairs = $500
Taxes = $1200

Total = $22,844

In the above example nearly $7000 would be applied to reduce the loan. So there is no significant difference between the two.

2) Port Coquitlam home:

2100sf. house on an 8100sf. lot with 4 bedroom and 2.5 bath. House is like new with hardwood floors, granite counter top, island kitchen, vaulted formal living room, two gas fireplaces, master bedroom with ensuite bathroom, attached garage, and alarm system. Fenced back yard with large inground saltwater pool, sunken deluxe hot tub, garden shed/pool house, garden area, nicely landscaped with stamped concrete patio. To keep the yard beautiful the property has inground irrigation system. House is on a no thru road 1 min. walk to bus stop, close to park and school. 5 min. from Home Depot. Available June1, but flexible. No smoking and no pets please. Reference a must. $2100 +util

For Sale Comparison few doors down: V757487 $532,000

Rental cost: $25,200 a year

Owning with $100,000 down.
Lost opportunity on D/P = $1000
Maintenance etc= $2000
Mortgage on $432,000 = $27,120
Taxes (estimated) = $2200
Total = $32,300
However $10,000 of that will reduce the debt.

3) Large Luxury House in West Vancouver:

$41,880 a year.

To buy something equivalent look at 1265 INGLEWOOD AV, Ambleside, West Vancouver, (V724242) $1,288,000. Same area, though the rental property has a view. The property for sale is assessed at $1,127,000 and last year's taxes were $4241. (source: https://ecom.westvancouver.net/tempestlive/WebInquiry/frames.cfm)


Lost opportunity on D/P $200,000 x 1% = $2000
Mortgage on $1088,000 = $68,300 a year
Maintenance. Roof/yard work/painting etc = $2000 a year

Total = $72,300 a year.

However $26,000 of this is applied to the reduce the loan. So the difference is not that much.

Ok now for the chat:

As you can see, once we account for the amount which is used to pay down the debt, the cost of renting and buying are remarkably close. This has not been the usual case in Vancouver. There has been a premium to buying due to several reasons:

1) Due to limited land, population growth and inflation, property has trended up, leading to capital appreciation.

2) This capital appreciation is a tax-free gain and as such was regarded by financial planners as one of the best ways of accumulating wealth tax free.

3) When you rent -there are many tangible costs such as moving expenses and intangible ones such as being at the whim of your landlord for lease renewals and the anxiety of frequent moves, stability for schooling, neighbours etc.

Because of these, renting has been cheaper than buying for as long as I can remember. However as the lunatic boom of the last few years got going and everyone wanted to get on the capital appreciation band-wagon this difference expanded to 100% or more is some cases.

So how did we end up near even now?

1) Prices have dropped

2) Mortgage rates are at remarkably low rates.

3) The 'lost opportunity' on the down-payment is very low (unless you can time the stock-market)

So is this the time to buy?

There is no magic formula for when to buy. The most important factors are the mortgage interest rates and the state of the economy.

The fact that rent/buy costs are so close, is a sign of how unusual (and potentially bad) our current situation is. If things weren't bad- interest rates would not be so low, and yet house prices are dropping even though it costs as much or less to buy than rent.

If you expect rents to drop, prices to drop, no bonus or worse no job-do you buy- whatever the comparisons?? No!

It is the current uncertainty that is causing the rent/buy parameters to get so close. While it has stimulated some demand, I would expect the uncertainty to trump it very soon...perhaps this summer.

I expect that by the time this is all over we will see rents and prices fall further and just as a pendulum swung too far to one side, it will then swing too far to the other side and there will be a period when it will be CHEAPER to buy than rent! A complete repudiation of the bubble we just had.

However this is just may opinion, and worth as much or as little as anyone's. Opinions welcome..

Tuesday, April 14, 2009

Ok happy readers..

So far, from the poll...it seems more people couldn't be bothered than contacted their MP.

The rest of you think politicians wont listen to your concerns? Really? Well you are probably right!

But if we are silent, then don't complain when they spend our tax money on propping up these monopolies.

You all know how politics work; they try $150 Million first. If the outcry from the public is manageable then they will send more money...much more.

If they want to support Canadian program content...who commissions the most Canadian content?..THE CBC! so why are they taking the knife to the CBC?

Anyway I have made it really easy for you:

Step one:

Click Here http://www2.parl.gc.ca/Parlinfo/Compilations/HouseOfCommons/MemberByPostalCode.aspx?Menu=HOC

...and put in your post code

Step two:

Click on your MP's e-mail address. Write your concerns about the governments plan to pay out millions to the big media companies. Make sure you put your correct name down and ask for a reply.

Step three:

There is no step three! It's that easy.

I know most of you are bored with this subject. But this is incredibly important. A democracy works if there is a free press. We have had a media shackled by the views of a family or corporation, now it will get even get worse if the government decides who should survive and who should not.

Lets make our voice heard.

I will be working on my big post comparing buying v renting. You may be surprised by the results. I will need some encouragement to crunch the numbers. If you e-mail your MP, tell me in the comments section and I will get this post out quicker.

BTW $150 Million = 2000 low income housing units = 4000 folks off the streets.

Saturday, April 11, 2009

Be careful what you wish for...


Ok Folks this needs to be said - we are in a terrible mess.

I know most of you read this blog hoping for clues on the direction of RE and patiently waiting for it to drop decisively. Well we are well on the way - down 15% form the peak and huge drops, 25% or more, in some areas like West Van and Port Moody.

But take a look at this graph and it will show you that Vancouver RE may be the least of our worries:


I have never seen a graph like that. If anyone had shown that to me a year ago, I would have said they were crazy.

That is as near a total collapse in world-wide industrial production, as I had ever thought possible without a world war or pandemic.

Look at Japan!! Industrial output is crashing there - add that to an aging population and a Debt/GDP ratio well over 100% (with the GDP dropping rapidly) and the Japanese miracle has come to an abrupt end. Even Toyota, arguably the best car maker in the world is slashing production.

Anyway, back to my main point. I hope what lies ahead is not so dire, that even though RE is dropping, few bears will be left unscathed to enjoy it!


Yeah, yeah. I know I said I wouldn't mention it again. But I put up a poll on the right hand side. It is self-explanatory.

Friday, April 10, 2009

Week-end RE Round Up- Will add to this post as things come up.

1) When was the last time you saw a builder advertise for work? Been a while:

2) Canada lost 61,300 jobs last month. Add that to the 82,600 lost in Feb and the 129,000 lost in Jan and it start to add up. The only growth areas were public employees.

BC and Alberta were hit the hardest, with BC losing a huge 23,000 jobs, or one third of the total. Half of that loss being construction-related.

This ain't no ordinary recession.

I feel for those who have lost their jobs. Hopefully they are not too extended on debt and have some savings. At least it should mean there are more trades and labourers available for new projects.

Pretty soon, it will be a great time for a private buyer to build a house. Lower labour costs. Lumbar and copper and of course land have come down significantly. But humans being humans, there was a frenzy of building when everything was outrageously expensive and a dearth now.

3) I see ING offering 3.95% for a five year fixed. That's a pretty good deal. Will these low rates reignite the housing market?

Everyone has an opinion. For the (very) little it is worth here is mine.

These efforts may temporarily stabilise housing. However unless you think that's it for the recession, and we bounce straight up from here, then we have further down to go. The driver will be employment security above all.

Even with lower payments, no one wants to get into a big obligation, be that a large mortgage or car payments, if they are not sure they will have a job in a year. It's all about confidence. That's what the car manufacturers are learning. Even with near zero lease and financing options, they cannot stimulate demand.

So I think the lower rates will put a temporary floor under housing - but if, as I expect, the employment situation worsens, or interest rates start to back up with inflation (which I doubt,but is possible), then we get our second big leg down.

So far our pattern is following the US's remarkably closely. A big initial drop from the blow-off high. A period of stabilisation and then a bigger drop as those that have to sell and foreclosures crowd out other sellers.

4) I also don't think the Canadian banks are quite as strong as we keep boasting. Matt Stiles did a post on this : http://futronomics.blogspot.com/2009/04/is-canada-envy-of-world.html

I think we are in better shape than the US and Europe, however if we have a further 15-20% in house prices. Equity will vanish and the banks and CMHC will end up as significant property owners.

Also we may not have had Canadian Fannies and Freddies, but we do have CHMC - which in IMHO was so anxious to get people into home-ownership at the peak of the boom, that it helped fan the fire. I would like the government to tell us how much liability we are on the hook for due to CHMC's creativeness.

Of course don't expect any major news outlets to question the government or they may not get any funding.
5) Vancouver leads the pack. West Vancouver leads Vancouver (down):

6) My last plug on the topic...please e-mail your MP and tell them not to give money to the mega-media corporations.

If you own a restaurant or a dry-cleaners and you fail, no-one comes to your rescue. These media companies were greedy, they borrowed and bought too much and paid their senior executives MANY millions of dollars a year. They jacked up advertising rates and have near-monopolies in some markets eg Vancouver!
Now the restaurateur and the dry-cleaner have to pick up their bill. It would be a national disgrace.
Here is the site for your MP again:

You can contact the Minister of Heritage to insist they only fund Canadian content:

If the Government decides which news organisation gets money, then we kiss democracy goodbye.
6) As I mentioned ING has a great rate of 3.95% five year fixed. Well here's how much the ING calculator says you should buy:
Annual income $100,000
Down-payment $100,000
Car payments $500/month
Property taxes $2500
Purchase price $550,654
That will buy you a very nice house in Surrey now or a shoe-box on the Westside.
7) What's up in the Central OK?
Sales up from Feb but MOI looks huge. Any eye-witness reports?
Stats here:

Ist number March 2009. 2nd number March 2008. % change from previous year.
1 Units Listed 1766 1997 -11.57%
2 Units Sold 379 697 -45.62%
3 Sales Volume $130,507,200. $277,257,344. -52.93%
4 List/Sell Ratio 89.53% 96.39%
5 Days to Sell 109 75 45.33%
6 Active Listings 8792 6766 29.94%
MOI: 8792/379 = 23!

Tuesday, April 7, 2009


Ok so this post is not about RE in Vancouver. It is much more important!

The Federal government is just about to give a large chunk of your money to private Broadcasters like CTV and Global.

This government has a visceral dislike for the CBC, and recently refused it any more money forcing hundreds of job cuts.

However they want to help their supporters and cronies in the big monopolistic media companies.

The same companies- like Global which owns most of our print media, that has gotten itself into $3.9 Billion of debt by over-paying for newspapers, and has paid it's senior executives several Millions of dollars a year each for their bad decisions.

However they couldn't just come and hand over the money or there might be a backlash. So they had to find a way to hand it over, while making it sound good for the Canada. Eventually some bright spark came up with the idea of giving the money to save small local stations and small town programming.

B.S.! There is no better way of protecting local programming than by having a strong CBC with it's large network of local correspondants and an excellent international reputation. If they hate the CBC so much, why not support local journalistic co-ops directly?? instead of sending the money to these failed outfits, so they take their cut.

If this goes through it will be an absolute disgrace, and will confirm to regular people that our money is spent based on who has connections and not on merit.

This is how the 'NEWS' is served up to you:


This is how you can contact your MP before this calamity goes through. Lets not be sheep herded to be shorn again:



In fact this is related to RE. How many articles were there in Vancouver's papers warning people of the bubble and telling them to hold back in the go-go years?

Not many! The Vancouver Sun, Province, North Shore News, West Ender and the National Post all happen to have the same owner. ( as well as the Times Colonist and almost all the other major newspapers in Canada - this is what passes for free speach in Canada)

Monday, April 6, 2009

The Bear has a snooze...

Things are definitely looking a little brighter- in the financial markets and in housing.

The question bears have to ask themselves is whether this is just a bull trap and we continue the down-trend, stablise or even whether we will blast off from here and hit new highs.

Either are possible scenarios. However the graph in my previous post below, has defined the bubble psychology and prices, pretty accurately so far, and a blip up would be expected right about now- before resuming the down-trend.

Why do we get a blip up after the first big drop down? Due to those who have been left out for the last few years, and have been kicking themselves. They were smart enough to avoid buying on the final run up, but are still anxious that they could miss out if they don't get in on this drop.

To add to the fire, interest rates have come down significantly and we have seasonal strength. The result is a self-fulfilling bounce, which causes folks who are anxious to finally take the plunge. I suspect some sellers are thanking their lucky stars to be able to unload at what are still very good prices.

Anyone who bought before 2006 is probably still sitting on a profit. However as I have noted before, things usually go down a lot faster than they went up in a bubble. We have erased over two years of gains in less than a year.

Where to from here?

Now it gets interesting. If we did indeed pass THE top last year, then this blip may last another month or two. The normal seasonal pop comes in Feb- May and then we could resume the down turn, with MOI and over 90 day listings increasing rapidly.

If this bubble is the first one in history not to drop dramatically after topping out, then we can expect a gradually stabilising market, with sellers holding out until inflation and a stronger economy supports their prices.

Which will happen? You know which side of the fence I'm on. However my opinion and a loonie wont even get you a coffee. The critical factors will be jobs and the worldwide economy.

If jobs continue weak then domestic demand weakens. If the worldwide economy deesn't fix itself soon, then the overseas demand drops.

I suspect the bears will continue to be tested for next two months. Of course they have been tested for the last 4-5 years, so what's another two months!

June will be the important month.

Saturday, April 4, 2009

Bear Anxiety

Ok Folks I read a lot of bear anxiety in the blogosphere about the up-tick in sales for March and the missing deluge of listings.

This is despite the drop in prices, which in some areas has been nothing less than a slide off a cliff. (what else can you can YOY drops of 25-38%)

BTW a 25% drop in prices erases a previous 30% gain. The bubble is deflating much faster than it blew up.

Can I give the bears complete reassurance. No. If I was that smart I would be sitting on the beach in Monaco with George Soros, instead of writing this obscure blog. However consider this graph.

Where do you think we are on it??

Friday, April 3, 2009

Assessed value and all that

I see some comments asking about assessed values.

Here's what I think ...who cares about assessed values in a dropping market?? Ignore it.

Assessed values are just a number the municipalities come up with to decide how to extract tax from home-owners. They lag the 'market value' in up markets and sit way above them in down trending markets.

Assessed values are past history. .

Up Trending Market

In an up trending market the current price of a property is probably well above the assessed price

If you get to buy at assessed value you are probably getting a good deal.

Down Trending Market (like we have now)

In a down market assessed values have no meaning what-so-ever. As soon as they come out, the market has fallen below them, and hence they are meaningless. They tell you what someone thought the house was worth a year or more ago.

They are even more meaningless now that the Provincial Government has frozen the assessment values. They did this to prevent a deluge of appeals and reassessments as property prices fall (which would just mean the Municipalities would have to increase the rate of taxes to make up for it and cause an administrative nightmare):

"Property assessments locked in: The Province will lock in the property assessment roll for one year to create certainty for homeowners, businesses and local governments.

“We know that property values have fluctuated widely since assessments were conducted last July,” said Premier Campbell. “To avoid confusion, anxiety and unnecessary assessment appeals prompted by higher-assessed property values that do not reflect current market conditions, we will lock-in B.C.’s assessment rolls at 2007 assessed levels.”

This measure will provide time for markets to stabilize and reflect proper market values so property owners know how much they will pay in property tax and local governments know how much they will collect to provide services. It will help municipalities who otherwise might be forced to make significant adjustments to mill rates and protect homeowners whose assessments would be higher than the market value of their homes. This will not apply to new homes that have not yet been assessed. This will not affect municipalities’ ability to set their own mill rates"


The problem is some realtors and sellers still think that selling at assessed is a 'deal' and selling below assessed is a 'real deal'. Not! If you look at some of the sales recently, particularly on more expensive properties, you will see that the sales price and assessed value have very little correlation with each other.