Sunday, October 28, 2012

Update on 2905-438 Seymour Street - how a seller could cut 60% off asking price and still profit




A lot of people simply can't conceive of how a market could collapse.  

The idea that anyone would shave 50% off the asking price of their home and lose all that money just boggles the mind.

But as we have shown you, there are properties currently listed in Vancouver for 23% below their assessed value and in Richmond for 25% below their assessed value.

Even at the lower end of the market, prices are listed below assessed value right now.

On Friday we were talking about #2905-438 Seymour Street in the downtown core of Vancouver. It's a 1 bedroom, 1 bathroom condo which is currently listed at $319,000. (click images to enlarge): 



The $319,000 asking price is a big reduction from the original listed ask price.  On August 20th, 2012 the unit hit the market for $389,000.

That's a cut of $70,000.

But detractors will tell you idiots can always ask wild prices, that doesn't mean squat in the big picture and it certainly doesn't mean prices are falling.  All it means are sellers are becoming more realistic with their asking prices in today's market.

The real test comes when we look at the assessed value:


As you can see... this property is assessed at $376,000.

So in a so-called 'flat' period the owners of this property have cut their asking price to more than 15% below assessed value.

Why?

Cameron Muir attempted to kibosh any housing collapse concerns by demanding to know what is going to occur in Vancouver to get people to sell for 75 cents on the dollar? Muir insists theirs no reason for this to happen.

But at the same time, media 'experts' like Tsur Somerville are predicting Vancouver home prices could drop by 10% next year.

With 498 Seymour, we hypothesized on Friday the fact this seller was listing below assessed value probably has something to do with the fact this is the first time this unit has been on the market since the original sale. 

The building was built in 1996. Since then we have seen a huge loosening of credit (which triggered our massive housing boom -see our post here).  As a result it's not hard to surmise we have a situation very similar to the Boomer Trigger - i.e. people can move on price, they are worried about a housing collapse, so they will move on price - and in doing so they still get out of the market with a healthy capital gain.

This is an element that both Muir and Somerville appear to completely ignore. Many of these people selling for below assessed value aren't taking 75 cents on the dollar for their original 'investment'. 

Yesterday a diligent reader  advised that this unit originally sold in 1996 for $135,000.

The asking price right now ($319,00) is more than 15% below assessed value.  

But if it fails to sell, and more concern and panic grips the market... these sellers could cut their asking price by as much as 60% below assessed value and sell for $15,400 more than they paid for it.

If sellers the market continues to stagnate, there are lots who would have no problem exiting with massive cuts because they would still be making a profit in the midsts of a cataclysmic crash.

There are many sellers who could fuel such a panic.  

And in the midsts of that panic, not one seller would view the transaction as them having only gotten 40 cents on the dollar.

If people are cutting asking prices now by as much as 25% below assessed value in what is termed as a 'flat' market now, is it so hard to imagine sellers enacting real time price cuts of 40 - 50% when the news tells us prices have already collapsed by 10% in the months ahead?

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11 comments:

  1. Agreed. The new price point is set at the margins. That is to say that a small number of sellers are capable of pushing down all prices and thus lowering comparables. If 99% of homeowners just did nothing at all but sat on their hands and refused to budge on price the "boomer trigger" sales below assessment could still drop the whole market. This is just the inverse process of what drove the market up in the first place but now played in reverse. It is in fact what is coming.

    Farmer

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    1. I'm one of those who can drop their prices.
      Purchased at $315,000.00
      Assessed at purchase at $317,000.00

      Current assessment $947,000.00

      why sell?
      property tax from $4,000.00 a year to $24,000.00.
      for an unimproved live work space

      mortgage payment a year $7,200.00

      Equity destruction... this year alone $13,800.00. some 35 thous in the last 5 years. I have to make 2.5 times that in profit to break even...one for the tax man, one for me, and 40-50 cents for CRA tax's on real profit, and stuff like it or some $87,000.00 to replace it.

      property tax increasing at 27% a year...compounded...

      owe $160,000.00

      how far can I drop and still make a profit??? or break even.
      tell me why would I not sell? even even below market and assessment value...

      1/3 the block I'm on for sale now over this and 35 well paying jobs going away... forever...

      Silver

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    2. Umm silver, so why not just sell then? Or 5 years ago?

      Not sure how taxes can go up that much unless the land was re-zoned, hence the value jump (you haven't included any time frame for the purchase/new assessment so I have no basis).

      Man I hope those 35 well paying jobs make it back someday, they might actually be able to afford the house they built! ;)

      Delete
  2. "This is just the inverse process of what drove the market up in the first place but now played in reverse."

    Funny how people can't conceptualize it working in the opposite direction.

    ReplyDelete
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    1. Yes, I agree it is odd. Very odd. Especially as so many people simultaneously fall victim to the same obvious myopia. They call it "herd behaviour" in the economics world and yet I still cannot fathom how even well educated folk fail to see the flaws in the group thinking process. They too are often victims of the same errors in thinking that lead to poor decision making despite the extensive body of evidence and reams of historical records that should guide them otherwise. Very odd indeed.

      Delete
  3. Why are people illiterate these days?

    "Loose" and "Lose" seem to be over the head of supposedly graduated and even university educated people.

    "Their". "There" and "They're" might as well be ancient Hebrew nowadays.

    Such a sad time when grade 3 English is considered nit-picky.

    ReplyDelete
    Replies
    1. Scary.
      Why are people illiterate these days?
      "Some" or "so many" people, yes, but they aren't truly illiterate, they just have poor spelling and grammar, or maybe they are just tossing off a quick comment without being anal about it.
      Using just "people" in that sentence implies a universality that isn't there.

      "Graduated" people? Do they come with reference marks showing how full of education they are?

      A period and a comma are not interchangeable!

      "Considered nit-picky"?
      Nit-picky in itself could be considered rather slangy, and even if the usage was desired, it should be more like "'Tis a sad day when expecting people to employ language of at least a third grade level is considered to be (shudder) nit-picky.

      I'm OK with quick online commentary that disregards proper grammar, I'm OK with people who think grammar matters, but people who complain about proper english usage in a missive rife with grammatical errors...

      Delete
    2. "Why are people illiterate these days?"

      I don't know...why can't people see the forest for the trees? How can you read an article and overlook the narrative while getting gummed up on a few technical grammatical points? Did someone run out of homework to mark on a Sunday night by any chance?

      Farmer

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    3. Boomer trigger

      Delete
  4. Some very important points:

    1) The address stated in the text of this post and the previous post state 498 Seymour, when the screenshots show that it is in fact 438 Seymour.

    2) There are two foreclosures in this building right now. One of them is a one bedroom listed at 289,000 (assessed at 343,000)

    3) This blog posted in February 12 about a sagging balcony that was brought to the attention of the concierge. Could there be building envelope special assessments pending on this building?

    Sincerely,
    Rational Bear

    ReplyDelete
    Replies
    1. Thanks for that, the error has been corrected.

      Interesting about the two foreclosures. Do you know what the second one is? Do you know the unit numbers of both.

      You are correct about the earlier post (Feb 12) as well. I was going to link it but didn't. Might be worth an additional post with the addresses of the two foreclosures.

      Delete