Tuesday, May 29, 2012

Turn! Turn! Turn! (to Everything There Is a Season)

As we watch available real estate inventory surge to just under 19,000 properties  for sale in the Vancouver market, it has many anticipating that the long awaited correction may finally be coming to the Village on the Edge of the Rainforest.

Sales have been slumping dramatically. HAM (Hot Asian Money) has been a no-show in the Spring  market, and Inventory levels are surging - almost double from where they were five short months ago.

But as we have cautioned numerous times before... don't assume.  Watch and see what happens.

Recall that a while back we talked about several triggers which could implode the market.  There is the China Trigger, The Speculator Trigger and The Boomer Trigger.

The China Trigger may start the ball rolling, but I think the Speculator Trigger and the Boomer Trigger will be the ones that create the sheer panic which will lead to wholesale price liquidation... particularly the Boomer Trigger.

By now faithful readers are well aware that the majority of the self-indulgent Boomer generation have failed to prepare for their senior years.

Seven out of 10 Boomers do not have enough money set aside for retirement. And since 2011 marked the beginning of the great Boomer transition into retirement, this financial planning statistic is significant.

Starting in 1946, the demographic Post-World War II baby boom began. And the Boomers at the front of this wave have benefitted most from seemingly everything.

After having been raised in the post-war affluence of the 1950s and 1960s, the first wave of boomers entered their mid 20's starting in 1971. As they settled down between 1971 and 1976, these first Boomers bought homes which sold for between $40,000 and $60,000 in suburb communities like Richmond.

Now, as these Boomers head into retirement without adequate funding to carry them through their golden years, the vast majority have a very simple retirement plan: sell their bubble inflated asset of a house, downsize and live off the proceeds.

A average house on a large lot bought in 1971-1976 in Richmond for between $40,000 - $60,000 is now 'worth' between $1.0 - $2.5 million dollars.

Enter the Boomer Trigger... trigger the sale of the one significant asset Boomer's have to fund their retirement. At the same time, if the market slows, Boomers can use their original purchase price advantage to under cut other sellers in a collapsing market - a maneuver which has the potential to crash the market if done by a large number of Boomers at the same time.

Well, as we have noted for most of the past six months, the sales of single family houses in Richmond has been coming to a slow crawl. Inventory is at all time highs.

And today I have another example of a Boomer who may have pulled the Boomer Trigger to undercut other sellers in a stagnating/collapsing market.

Allow me to draw your attention to this typical 1970s house which can be best described as a 'tear-down'.

It's address is 6840 Coltsfoot Drive (near Granville and No. 1 Road).

Billed as "4 bdrm plus den 2 1/2 bath home in great area, perfect to live in now and redevelop later", the house was constructed in 1973 and it is a 1,992 square foot home sitting on a 7,385 square foot lot - perfect for the speculator redeveloper.

Throughout 2010 and the start of 2011 these properties were the hottest thing going in what was known as HAM central - the Vancouver suburb of Richmond.

It came to market at the start of 2012 with an 'assessed value' of about $1.1 million.

But 2012 isn't 2010 or the start of 2011.

Recognizing that the Richmond real estate market was already stagnating, the owners of 6840 Coltsfoot Drive listed their home for sale on January 16th for only $968,000...

That's right,  the original asking price was below assessed value!

What a deal, eh?

Last year, speculators would have launched into a furious bidding war to seize on this opportunity.

This year? Nothing... nada.

It has sat on the market for months now.

Recently the owners of 6840 Coltsfoot Drive cut their asking price to $868,000 (click on image to enlarge a screenshot of the reduced listing - hat tip ZRH2YVR):

6840 Coltsfoot Drive recently sold... for $800,000.

That's right. Assessed at almost $1.1 million. Listed for $968,000. Asking price cut to $868,000. And it just recently sold for only $800,000.

Is this the sign of what's to come?

And what of the Boomer next door or down the Street?

Last year compatible homes were selling in Richmond for $300,000 - $400,000 over the asking price.

Those bidding war prices, along with the original asking prices, were way above assessed value.

We profiled a couple of those sales here.

But the tide has turned.

Earlier this year we profiled an owner in Terra Nova who slashed almost $1 million off his $2.3 million asking price. Now we have this lower tier example of a house being sold for significantly below 'appraised value' .

Smart Boomers (those who are wise enough to see what is happening) are pulling the Boomer Trigger and selling for whatever they can get.

As a Boomer do I dump mine too? Or do a wait to see if the market recovers?.. only to discover a market that continues to stagnate as inventory hits 22,000 or 23,000. If I wait... will the only offers coming in at that point be for $650,000?

How long before homeowners drop by this site which is showing Richmond homeowners how many of their fellow residents are cutting asking prices on their homes??

It's a falling market right now. And as homeowners begin to realize their current 'assumed value' is evaporating, will more Boomers start to panic like the ones at 6840 Coltsfoot Drive?

We shall see.

Clearly the pressures of the market are starting to wear on some sellers.

And price cuts are happening everywhere, even the west side of the City of Vancouver.

As noted on the blog, Real Estate Talks (hat tip Makaya), there were 9 price changes on the west side on Friday, all decreases:

4460 West 6th was $2,748,000, new price $2,640,000 (–$108,000)
3760 West 17th was $1,698,000, new price $1,598,000 (–$100,000)
160 West 59th was $1,350,000, new price $1,280,000 (-$70,000)
475 West 38th was $2,990,000, new price $2,780,000 (-$210.000)
5637 Baillie was $2,348,000, new price $2,331,000 (-$17,000)
4452 Crown was $2,680,000, new price $2,550,000 (–$130,000)
1816 McNicoll was $2,498,000, new price $2,350,000 (-$148,000)
5276 Blenheim was $3,388,000, new price $2,998,000 (–$390,000)
3348/3352 West 3rd was $2,198,000, new price $1,988,000 (–$210,000)

This is from ONE day only.

Every single day we are seeing between 150-200 price changes in the Graeter Vancouver market.

If you bought one of the 9 places listed above last year with a minimum of 5% down, you are seriously underwater today.

And just think... these homes will sell for much less than what is currently being asked for.

Make no mistake... many of these houses were originally listed with prices that were too high to begin with.  But last year they would be snapped up without a second thought... part of a surging market.

The market surge is gone.

To those sellers who recognize this, they are jumping on the chance to sell to anyone who is interested even if it means accepting offers significantly below assessed value.

Sellers not attuned to this dynamic are simply cutting their asking price to somewhere just above assessed value, or not at all.

And what of those out there - naively unaware of the current market dynamics - currently looking to buy a house.

Some sellers are salivating at the prospect.

The Financial Post is suggesting another round of mortgage wars is on the way.

Could it be that there are some house horny young couples out there who can be induced into the market in the next few months?

I can't imagine anyone doing so, but you know there are some foolishly itching to exercise a recent mortgage approval; a move that will trap them in what is increasingly a falling market.

They will think they are getting a good deal.

Their realtor will say "it's a great time to buy" (translation: "it's a great time for me to make a commission.")

They will rationalize their deep desire to own their own home and it will overwhelm the common sense of all the mainstream media articles out there right now warning of a looming housing collapse.

But these buyers will be catching a falling knife... and making the most disastrous financial decision of their lives.

What else can you do but point out the emerging trend and hope they see the reason behind your cautionary words?

For everything there is a season... and buying right now is 'out-of-season'.


Email: village_whisperer@live.ca
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  1. In Vancouver, RBC estimates the combined cost of mortgage payments, utilities and property taxes rose 3.1 percentage points to 88.9 per cent.

    Read more: http://www.montrealgazette.com/news/Home+affordability+deteriorates/6694390/story.html#ixzz1wGrOY659

  2. Up next...appeals to BC Assessment Authority to lower assessed values for lower tax rates.
    Followed my municipalities upping the mill rate.

  3. And yet it is still sold for $400-500k more than its worth.

    1. That actually sounds just about right.

      Look out below...

  4. Shouldn't the bids here result in higher than 5% odds? I can already find properties for sale in Vancouver West and Vancouver East (a few) listed for close to or below their 2006 sales price.


  5. Excellent post!!!

  6. I wonder what this will to do inter-generational tension?

  7. Don't mean to be a "Debbie Downer" but can't we see with our own eyes that most old white boomers in Richmond have already sold and pulled up stakes? Isn't that why Richmond is now 84% mix of newer-to-Canada Asians? Isn't the same process now taking hold in the Westside of Vancouver and Van West? And aren't these old-time, sold-up Vancouverites now in the process of funding their children's homes?

    This trigger might happen in the rest of Canada but the local folks in Vancouver have pulled the trigger already and are making out quite nicely. I think I'll go back to your original caution of not assuming anything about this city being similar to other situations in Canada.