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.)

On the Way to Iceland

Faroese boats at Thorshavn

Faroese boats at Thorshavn

Travelers on the way to Iceland usually stopped at the Faroes. The descriptions of the Faroese and their houses are similar to what is later described in Iceland but with some surprising differences. Symington, like travelers before him, gets off the boat at Thorshaven and keen observer that he is, has this to say about the town.

“Houses, stone for a few feet next the ground, then wood, tarred or painted black, and generally two stories in height; small windows, the sashes of which are painted white; green turf on the roofs. The interiors of the poorer sort of houses are very dark; an utter absence of voluntary ventilation; one fire, and that in the kitchen, the chimney often only a hole in the roof. Yet even in these hovels there is generally a guest-room, comfortably boarded and furnished. In such apartments we observed chairs, tales, chests of drawers, feather-beds, down coverlets, a few books, engravings on the walls, specimens of ingenious native handiwork, curiosities, etc. This juxtaposition under the same roof was new to us, and struck every one as something quite peculiar and contrary to all our previous experiences. The streets of Thorshavn are only narrow dirty irregular passages, often not more than two or three feet wide; one walks upon are rock or mud. These passages wind up steep places, and run in all manner of zigzag directions, so that the most direct line from one point to another generally leads “straight down crooked land and all round the square.” Observed a man on the top of a house cutting grass with a sickle. Here the approach of spring is first indicated by the turf roofs of the house becoming green. Being invited, we entered several fishermen’s houses; they seemed dark, smoky, and dirty; and, in all, the air was close and stifling. In one, observed a savoury pot of puffin broth, suspended from the ceiling and boiling on a turf fire built open like a smith’s forge, the smoke finding only a very partial egress by the hole overhead; on the wall hung a number of plucked puffins and guillemots; several hens seen through the smoke sitting contentedly perched on a spar evidently intended for their accommodation. In the corner of the apartment; a stone hand-mill for grinding barley, such as Sarah may have used, lay on the floor; reminding one of the East, from whence the Scandinavians came in the days of Odin.

Faroese boatman

Faroese boatman

In passing along the street we saw strips of whale-flesh, black and reddish-coloured, hanging outside the gable of almost every house to dry, just as we have seen herrings in fishing-villages on our own coasts. When a shoal of whales is driven ashore by the boatmen, there are great rejoicings among the islanders, whose faces, we were told, actually shine for weeks after this their season of feasting. What cannot be eaten at the time is dried for future use. Boiled or roasted it is nutritious, and not very unpalatable. The dried flesh which I tasted resembled tough beef, with a flavour of venison. Being “blood-meat,” I would not have known it to be from the sea; and have been told that, when fresh and properly cooked, tender steaks from a young whale can scarcely be distinguished for beef-steak.”

This description is one of the best I’ve read simply for its details. Symington sees a man on the roof of a house with a sickle cutting grass for his livestock. Spring is heralded by the roofs of the houses turning green. He actually gives us a description of cooking being done and of both plucked birds and live chickens in the house. He tries the whale meat and describes it as tough beef.

The Faroese are less well known than the Icelanders. That may be for a wide variety of reasons. Perhaps, in part, it was their greater willingness to be part of the Danish empire, partly because it was the Icelanders who had the sagas, partly because Iceland excited a great deal of curiosity during the 19th C. because of its geology. However, the Faroes have always been a safe harbour, a stopping point on a dangerous journey, and Icelanders have, through the centuries, sought shelter in Faroese harbours. The climate is just enough different that grain can be grown. There has been enough prosperity that as Symington describes, there are a variety of crafts, often admirably done in spite of the dark, dank, unhealthy living conditions.

It is a shame that the visitors who came to Iceland were more interested in the geology than the people. Because they come from wealthy, often noble families, they have little or no interest in ordinary people and if they comment on the fishermen or the paupers, it is dismissively. Even Ebenezer Henderson, the minister who comes to distribute Bibles is a snob, interested only in associating with individuals he considers worthy of his attention. His Christ would have been quite comfortable in the temple of the money changers.

The scientific reports that came of all the expeditions to Iceland have long ago become irrelevant. The mechanisms of the geysers have been revealed, the rocks, classified. Quite by accident, the simple fact that there were no commercial inns or hotels, meant that the people where the travellers stayed were described. That, ironically, is what is valuable.

It is impossible to separate the Faroes and Iceland. Historically, they are joined. Politically they were joined. They are bound by custom and circumstance. Symington is quite right to call his book Faroe and Iceland.

It is by comparing the Faroese and the Icelanders that we can obtain a deeper understanding of our ancestors. Too often we talk and write of Iceland as if, somehow, it was separate from all the islands between it and Europe but nothing could be further from the truth. Ships and sailors seek shelter. They seek trade. They establish social and business relationships. It is in these other places where we can get a glimpse of what our ancestors were and were not like.

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.