Home or House?

 

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Someone asked me what I’ve been doing lately.

I said, “Fixing up my house.” It’s true. I fixed up my office: repairs, paint, new floor, etc. Now, I’m fixing up the laundry room. I’m not planning on selling. I’m just dealing with normal wear and tear. But just down the street is a house for sale. Nice place. The people who bought it and renovated it are asking 995,000. If someone puts twenty percent down and pays all the expenses, taxes with cash, they’ll still have a mortgage of 805,000. If they own 190,000 of the house and the bank owns 805,000, who really owns the house?

Made me think about my house. That’s what we say, isn’t it? My house. But it isn’t really my house.

When I had a mortgage, it was mostly the bank’s house. If I’d sold my house, the bank would have got most of the money. Some of my friends who didn’t have houses thought owning that 1915 house built by a Welsh shipwright meant I was rich. They mixed up debt with assets. I just owed more than them.

My grandparents and my parents were scarred by the Great Depression. My grandparents had their house taken away by the bank. The bank foreclosed. It really didn’t take my grandparent’s house. The bank took back its own house.

The problem is that we all suffer from recency. We think whatever conditions exist will continue to exist. If there is a depression , there will always be a depression. If there are high interest rates, there will always be high interest rates. If house prices are going up, they will always go up.

The longer a trend continues, the more recency is reinforced. Even though housing prices are at absurd levels in Vancouver and Toronto—in Vancouver, a vacant lot can cost two million dollars—people are still buying. Young people are taking out 700,000 dollar mortgages. Are they afraid that house prices could fall twenty percent (140,000)? Their down payment and their equity could be wiped out? No, because, you see, house prices always go up. That’s what the TV shows say.

House prices don’t always go up. House prices crashed in the USA. House prices in Victoria in the 1980s fell so hard that the banks and credit unions had room dividers set up that were covered in pictures of houses they needed to sell. An offer of fifty percent of the mortgage would get you a deal.

House prices in many areas in Canada are starting to slip. Money is still cheap but it isn’t just in Alberta that people are losing their jobs. It doesn’t matter how cheap money is if you are unemployed. Or underemployed. My grandfather always had a job but the railway cut his wages not just once but many times. He was working full time but he no longer could make the monthly payments.

According to Garth Turner’s blog, http://www.greaterfool.ca/, house prices in Saskatoon are down 15% from this time last year. 96 houses sold last week. 85 went for below the asking price. Then there is Calgary.

House prices are notoriously sticky. People who have financial problems will keep paying the mortgage as long as possible. They need a place to live. They’ll skimp on other things but they’ll make that payment. When they can’t, they’ll put the house up for sale. They’ll start by asking for a price that’ll get them back the money they’ve paid. If the market isn’t there, they’ll be forced to drop their price so they can give the bank the money they owe. If they don’t get enough money to cover closing costs and the bank debt, they still owe the difference. A lot of people think they can just walk away from a mortgage. Nope, no jingle mail here. You owe 700,000 The house sells for 500,000. You owe 200,000.

Recency. We all suffer from it.

I sold my first house for more than double what I originally paid. My second house I sold for four times what I paid. I wasn’t investing in houses. I just bought a house I needed and then a house I wanted. It seems to prove that house prices always go up. Buy now or buy never. That’s the mantra. Except the assessed value of this present house has slipped every year since I bought it. I’m glad I’m not planning on selling it to provide a pension. I’m glad I don’t have a big mortgage. I’m glad I accidentally made money on the first two houses.

My house. Maybe. In a way, I guess it’s my house. If I pay the strata fee every year. If I pay the taxes every year. If I pay the utilities every year. Stop paying those plus the mortgage and, like my grandfather, I’ll discover whose house it really is.

It’s not just Alberta that is having economic problems. It’s not just low prices for oil and natural gas. Our economy is resource based. We sell oil, gas, ore, lumber, grain, fish. China doesn’t need our natural resources or Australia’s natural resources the way it did. Our oil can’t compete with oil that can be sold for as little as twenty dollars a barrel. You don’t work in any of these areas so you are okay, Jack? No, you are not. There is a business and tax chain that runs right through the country. Oil field workers come from all over the country. Suppliers exist all over the country. They can’t sell their product, they’ll shut their doors. Medicine Hat is already seeing service and supply businesses closing.

My house. I want to feel that it is my house. Although someone else lived here before I did and someone else will live here after I leave. The banks, the credit unions, the mortgage brokers, the real estate agents, the TV hypsters, all say now is the time to buy. Certainly, for them it’s a good time for you to buy. Maybe they’re right. Maybe I grew up too close to the Great Depression. Maybe I’m still influenced by the Great Depression that destroyed so many lives. Maybe house prices always go up. Maybe. Maybe no one will ever have to go through the trauma my grandparent’s went through. I hope so but I wouldn’t bet on it.

(WDV studied economics in university. Theory of Business, Money and Banking, Labour Relations, International Trade but then foolishly went off to write poetry, fiction, and drama.)

Bling

Laxness warned you. Did you read Independent People? Did you make an effort to understand it? Did you realize that unless you are one of the 1%, you are Bjartur of Summerhouses. You don’t think you are? Really? Denial and vanity won’t keep you from being Bjartur.

Bjartur worked all his life to be independent. That’s in the title, right? Independent People. Owe no money to anyone. Never trust a money lender. I remember my grandfather saying the same thing. Both grandfathers, actually. They never believed that debt equaled wealth. Bling wasn’t their goal in life.

Yes, I know, Laxness was first a Catholic and then a Commie. He was looking for something, anything that would make more sense than the system in which he grew up. They didn’t. He threw them off. The way one tries on coats at the clothing store. That didn’t keep him from seeing the crazy way the Capitalist system worked. Boom and bust. Power to the bankers. Success judged by how much you can spend. He should be alive now, in the age of Bling.

When I bought my last house, I didn’t have much money for furniture and drapes, the kind of stuff with which you fill up a house. Stuff to sit on, eat off, eat with, sleep on. I saw an ad in the newspaper saying that some people were selling all their household goods. Second hand, I thought, maybe cheap enough for me to be able to buy a few things.

I drove out there. Mamma mia! Or whatever they say in Icelandic. Mega house. New. This couple had built it, furnished it. Nothing but the best. Twelve months had passed. They didn’t like their stuff anymore. It was piled up on the property and in the three car garage. When you’re competing for the blingiest of the bling, you’ve got to have the latest. You don’t want your blingy relatives and friends to see your couch, your mixmaster, your latte maker and sneer. I fought with the other peasants for whatever I could get. When you’re a peasant, you use your elbows and knees to claim and protect stuff that came from stores that wouldn’t even let you in the door.

What made Bjartur and you spring into my thoughts today was Garth Turner’s blog, http://www.greaterfool.ca/. This post is called geezernomics. Since I’m now a geezer, it caught my attention. He’s got advice on OAS and CPP, the sort of things that are important to geezers.

Bjartur, of course, never had OAS or CPP. What he had was a sheep ranch at a place called Summerhouses. The reason he was called Bjartur of Summerhouses is that there were a lot of Bjarturs and when you mentioned his name people needed to know which one you were talking about. In this case, it was the Bjartur who started to build a house with cheap money when the market for sheep products was good and had it foreclosed on when he couldn’t pay his loan.

However, there are people who feel they, unlike Bjartur, can never have this happen. After all, real estate always goes up. Except in Vancouver there is already a property being offered 40 % below assessment. 40%. 30% below assessment is common. Don’t roll your eyes. This is coming to you. There’s an ad on Craiglist by a couple who bought something they shouldn’t have. In the ad they say you, yes, that’s you, can rent their place for $2500.00 a month and they are going to live in the basement along with the washer and dryer. Their bling has blung. People think they may have bought another house before selling (houses always sell really fast for more than you paid for them, right) and they can’t sell house number one. Imagine having two mortgages and living in the basement along with the washer and dryer. Maybe they can take in washing.

I know that the most brothers and sisters of Bjartur are the young and the indebted but I also know of any number of geezers who bought or built bling, houses that said in spite of the fact that they’re part of the Viagra crowd, they’re going to have a pile more kids. I mean, why would a couple in their sixties build a place with four bedrooms, five bathrooms, unless they’re going to have more kids? Maybe they figure in tough times (have you been watching the stock market these last few days?), their kids and grandkids can move in. Or maybe they’re going to provide room and board?

Garth Turner says get liquid, sell your house, rent until whatever is happening quits happening. Only a short time ago, I could have done that. In my neighbourhood, when a For Sale sign went up, two days later a sticker went on saying Sold. Not no more, no more. DOM (Days on the Market) has gone from hours to months, many months. A beautiful house in our neighbourhood has been on sale for at least three months. Today, as I walked by it said “New Price.” Betcha, betcha, the price hasn’t gone up.

Life’s funny. When I read Independent People it never occurred to me that I wasn’t any smarter than Bjartur of Summerhouses. Cripes, I thought, couldn’t he see what was coming? Nope. And neither could I and neither could you. We keep making the same mistakes over and over again.

Sorry Halldor, I ignored your good advice. You may have been a Catholic and a Commie but you got it right.

 

Does it hurt, yet?

It doesn’t matter what political party is in power, the rule is the same, savage those least organized, most unrepresented, least able to provide donations to a political party or to provide high-paying directorships or jobs to politicians out of office.

That’s us, folks. You and me.

You made reasonable assumptions about the income you would receive on your savings or for an annuity. Reasonable assumptions don’t take into account the venality of the political class.

I just came across a copy of The Financial Post, January 26, 1980. Here are part of the tables provided.

“Five-year GICs and term deposits

At the banks:

Bank of B.C.        11%

Bank of Montreal 11.25%

Bank of Nova Scotia 11.25%

At the trust & loan companies

Canada Permanent         10.75

Canada Trustco                 11.25

Fidelity                                                11.25

Etc.

The government(s) lowered the interest rates, and lowered the interest rates, and lowered the interest rates to keep the economy moving. Except it didn’t. All it did was create a housing bubble that has threatened to destroy the American economy, robbed people of homes as the bubble collapsed, allowed lenders to make liar loans, sell worthless bundled mortgages in a frenzy of greed.

In the meantime, retirees were having their financial feet cut out from under them. That’s not the banks money that is being leant out at 2.99%, that’s the depositors’ money. And, because the loan rate is so low, the interest paid to the depositor is next to nothing.

Interest rates have not been set by the market. There has been no free market. Interest rates have been set by government(s) for all the wrong reasons. The very people who railed against government interference in the free market, capitalist system have been the first to privatize profits and socialize losses. The bankers who have, once again, created a terrible financial mess, get massive loans of our tax money and give themselves outrageous bonuses because they’re still in business.

Vancouver and Toronto are the centers of real estate madness with no price too high because no matter how high a price, the buyer knows that someone will pay even more. The music will never end and no one will be left without a chair. The music is stopping and more and more reports are of real estate “investments” going bad. The real estate industry plays games with the numbers but sales are down, prices are down and indications are that they’re going to keep going down.

The problem is that a lot of people in their sixties and early seventies have a simple retirement plan. Sell the house. Live off the avails. That’s fine, except a lot of people are retiring and how many younger people can afford houses of one million plus? I’m a bit ahead of the curve. A war baby, I retired eight years ago, sold my house and down sized three years ago. Right now, I wish I’d downsized into a rental.

When I downsized and bought my current house, the market was crazy. There was little for sale and what there was was mostly garbage. Tatted  up junk going for unbelievable prices. The atmosphere was that of a carnival with people certain they were going to win a prize.

The housing crash in the USA didn’t have to happen. It wasn’t a natural disaster like a tornado. It was created by a toxic combination of bankers and real estate companies abetted by governments. You’ve heard of Fannie Mae and Freddy Mac in the USA and the disaster they became. We’ve got our own CMHC. Those guaranteed mortgages? You and I are doing the guaranteeing. The bankers take the commissions and you and I take the losses.

In the meantime, to keep the housing bubble from collapsing, interest rates are kept at artificial levels. Retirees like you and me are being robbed. We thought we were in a market economy, we thought free enterprise was what existed in Canada. Not anymore.

Doesn’t matter whether the government if Conservative, Liberal, NDP, marijuana party, they all feed the same hogs with food off our plates. Check out what you get for your savings. Check out your grocery bill. It ain’t us whose being fed.

 

 

Up, up and away: Superman? no, your taxes

February 07 F1203003 $1,334,200 $0 0%
April 18 F1203003 $1,100,000 $-234,200 -18%
August 13 F1203003 removed
August 17 F1220933 $950,000 $-384,200 -29%

 

This property in White Rock, BC has dropped in asking price from 1,334,200.00 to 950,000. Why should that concern  you? You don’t live in White Rock and you don’t own a house you thought was worth over a million dollars. The assessment is 1,050,000.00. The price may keep falling.

The reason that it concerns you, me and everybody else is that taxes are based on assessments. If assessments go down, taxes have to go up to pay for all those things that municipalities have to pay for. Ya know.

Yesterday, there was a report that a house that was being offered at over 5,000,000.00 went into receivership. That kicks those rich people where it hurts. Except, the people who are likely to be hurt are the tradespeople who did the work, the companies who supplied the materials. You see, the house isn’t finished yet. Imagine if you own a company that does drywall and now you aren’t going to get paid. Or does paving, or roofs, or provides plumbing materials, or…. So, there are even fewer people to pay those taxes for roads, schools, garbage pickup, recycling, etc.

Our property taxes are going up, up, up. Either that or our services are going down, down, down. Those community centres may be going dark. Those community golf courses may be locking the gate. Unless, of course, we pay more property taxes.

There’s a recession. If you’ve got a steady, secure job, you won’t have felt it but people who own businesses, particularly people with small businesses have been and are struggling to stay afloat. There’s lots of unemployment and, a lot of the employment that exists, is part-time, poorly paid. How do you know retired people are hurting financially? Take a look at the greeters in places like WalMart or Home Hardware or some of the people cleaning tables in Tim Horton’s. On my trip back to BC, I stopped at a Tim Horton’s and the lady cleaning the tables was older than me. I’m 73.

There are a lot of things in life that are like icebergs. You just see the tip but underneath, there are sharp edges ready to tear your life apart. Mortgages are like that. You can get a mortgage at 3.5% so you go for the granite counter tops, the Jacuzzi and the sauna, the extra bedroom, the double garage, the I want to have this so when my friends come to visit, they’ll envy me. Except the mortgage is based on both of you working, is based on interest rates staying at 3.5%, is based on the house going up in price or, at least, not going down. Ahah! One of you loses a job, interest rates start to go up, both bad but then a neighbour has to take 100,000 or 200,000 less than they paid three years ago and you realize that you’ve got an upside down mortgage.

An upside down mortgage? What’s that? Never heard of it. Really? In the good old USA, upside down mortgages are everywhere. That is, a mortgage is 300,000 and the current value of the house is 150,000. Come renewal time, the holder of this “investment” needs to come up with 150,000 dollars because no banker in his right mind is going to lend 300,000 on a house worth half that. Any chance you’ve got 150,000 floating around somewhere, anywhere? No? You just joined the homeless. Welcome to the WalMart parking lot.

Oh, did I mention that if you put 20% down, it’s gone.

House prices are sticky. People who don’t have to sell put their homes up for sale. They don’t get the price they want so the owners take them off the market. That makes prices sticky.

At the moment, there isn’t any panic, except among some real estate agents who have been buying assignments on pre-built condos. You know, getting an option on a condo early, then as the building nears completion, flipping it for quick bucks. Real estate agents are nothing if not greedy and some, in spite of past lessons, have a whole bunch of these assignments. They need to get out. The prices for these units are not sticky. The sweat from desperate real estate agents makes them slippery.

The other not sticky, that will drive prices down, are divorces (court ordered sale), deaths, job moves you can’t refuse, job losses, builders who can’t borrow any more money to finish projects. These are situations where a house has to be sold. They’ll lead the way.

If prices fall by 40%, then so will revenues based on property taxes.

If you are thinking of buying, don’t. If you have found someone who just is desperate to buy your place, sell. If you know someone who is desperate to buy my place, let me know. No, that’s not my property at the beginning of this article. I’m not in that league. Thank goodness -40% of less is less. I’m thankful for small mercies.

Real Estate Gossip

Address:# 5 1483 BEACH AV, West End, Vancouver West

March 09 V903565 $7,500,000 $0 0%
April 08 V903565 removed
April 18 V944049 $6,900,000 $-600,000 -8%
May 30 V944049 $5,999,000 $-1,501,000 -20%
June 20 V944049 $5,899,000 $-1,601,000 -21%
July 31 V944049 $5,799,950 $-1,700,050 -23%
August 14 V944049 $4,950,000 $-2,550,000 -34%
August 17 V944049 $4,695,000 $-2,805,000 -37%

This table is from the blog site, Vancouver Price Drop. It’s for shock effect. I mean even after the price is off 37%, I couldn’t afford it. Even if it goes down 80%, I couldn’t afford it. Neither, I expect, could you. What would anyone expect to happen with a house priced at 7,500,000?  I mean, how many buyers are out there with 7,500,000 burning a hole in their pocket?

But that’s what has people on the internet whispering, whispering that  the rah rah promo of real estate always going up is becoming less believable. That some real estate agents are now delivering pizza.

Of course, the whispering is about the two major Canadian housing markets in Toronto and Vancouver. I don’t follow the Toronto market but Vancouver has been nuts. Tear down shacks sell for more than a million dollars, more than a million dollars. That means someone is willing to pay a million dollars for a lot, plus closing costs, taxes, and the cost of tearing down the tear down. No price has been too  much because you know prices always go up, houses have gone up ten times what they were bought for in the seventies.

Even in sleepy Victoria, the land of the newly wed and nearly dead, the land of few decent paying jobs, lots of crap jobs selling trinkets or sandwiches to the tourists for minimum wage, house prices have had nothing to do with local employment. There’s the Legislature and, therefore, civil servants but, contrary to what most people believe, most civil servants do not make large salaries. There’s the university. There’s dockyards where ships get built and repaired. The navy. But Victoria isn’t an industrial town. Tourists never bring the locals big money unless the local owns a few tourist traps that employ minimum wage workers. There are the hospitals and the schools.

Real estate agents have been making out like gangbusters. They’ve been selling to the retirees from the provinces on the other side of the mountains. The kind who have sold the farm and want to spend the rest of their life golfing instead of shovelling snow.

My first house, 1971, cost me 47,000. I sold it for 85,000. The buyer sold it for 250,000. It is now assessed at 520,000. Same house. 1915, 2.5 bedrooms, kitchen, formal living room and dining room, lots of built in cupboards and paneling (the builder/owner was a Welsh shipbuilder), one bathroom, an old fashioned basement with a low ceiling. The people I bought from had owned it for three years. They paid 18,000. Can you say “Nuts”? 18,000 to 520,000. For what? A house built in 1915 on a small lot.

I then bought a house that had been on the market for a year. Heritage, double lot, 1929. It needed work.I sold it two years ago for 3.5 times what I paid.

The whisperers say it is coming to an end. People have been buying the most expensive they can manage because real estate only goes up, didn’t ya know. Except anyone who knows anything about the history of real estate (this does not include real estate agents), knows real estate tanks and when it does, it takes everyone and everything with it. Or so the rumour goes.

My grandfather used to regale me with stories of real estate in Winnipeg. He bought a two story brownstone around Osborne. Then his employer cut his wages, then cut his wages, then cut his wages and there were no other jobs. And my grandfather no longer could pay the mortgage and his house was repossessed. He never got over being bitter about it.

He used to tell me about the big houses off Corydon that the owners couldn’t afford to keep up and rented them out, not for cash, but for someone to live in them, heat them, pay the electricity, cover the taxes.

Like the lots around Winnipeg Beach that had gone up to 1,200 dollars. When men were making a dollar a day. And which went down to 50.00 a lot and stayed there for a very long time.

But that was a long time ago and things are different now.

Houses aren’t just homes, they’re ATMs, they’re assets. That’s those things you can turn into money. I’ve got this asset, honey. I think I’ll sell it and we can go on a vacation to Southern France. Except, sometimes, the whisperers say, assets stop being liquid, like nobody wants to buy them anymore. Happens all the time. Businesses go under because no one wants to buy their product. Can’t pay the bills. The creditors refuse any more credit. I worked for a short time for a company that evaluated credit for businesses. Every day I saw small businesses where the stock was illiquid. It hadn’t sold. It was out of fashion. Credit payments were over ninety days late. It’s called going bankrupt. But houses aren’t like that. Someone always wants them.

The whisperers say houses are becoming illiquid. Imagine. You bought a house in the last few years. Your plan was to sell it to finance your retirement. Your assumption was that real estate always goes up, that there is always an eager buyer, no, not a buyer but buyers, just waiting to bid on it, paying even more than you imagined your house was worth. But what if buyers disappear? What if nobody bids? What if there are no offers? What if you lower the price to create, as the real estate agents call it, a better price point but nobody makes an offer? You get the idea. IIliquid.

All the chatter is about Toronto and Vancouver. Of course, what do you expect? The people living in those cities think they’re the centre of the Universe. Everywhere else the prices are still going up, the buyers are outbidding each other in a desperate competition to own a house with granite countertops, Jacuzzis with more jets than anyone else, places like Calgary, Edmonton, Winnipeg, Saskatoon, Regina. Places where there are lots of jobs. I was in Calgary two days ago. There were posters everywhere asking people to apply for jobs, begging people to apply for jobs. Oil is 95.00 a barrel. The crops in Saskatchewan and Manitoba are bumper crops, magnificent crops, fantastic crops, I can afford a bigger house, a new truck, bigger farm machinery, a winter in Mexico, kind of crops.

But there are whispers like those on the blog site “Whispers from the edge of the rain forest”. Gossip on the internet, nothing but gossip. Urban myths. And, of course, there’s Garth Turner, that rabble rouser, with his blog. The sky is falling, he says. House prices are going down 45%.

At night when I think about the whisperers, I sometimes think, I shoulda rented instead of downsizing by buying a smaller place. I shoulda downsized into a rental apartment. Urban myths, that’s all they are, I tell myself. Real estate always goes up. It’s just internet gossip. People will always want to retire to Victoria, to Kelona, Salmon Arm, Kamloops.

I just had the balcony and the deck rebuilt. Why not? The price is sure to go up. I’ll get my money back.  It’s just internet gossip.