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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Email: village_whisperer@live.ca
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It's not just the million dollar homes falling below assessed value

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Reading this blog you know we are watching the comments of the likes of BCREA chief economist Cameron Muir and UBC Sauder Associate Professor Tsur Somerville with keen interest.

Last month we have Somerville saying:

“Most people don’t have to sell their house,” he said. “You bought it for $200,000. The price is now $150,000. Unless you have to, why would you sell it?” 

For prices to go down ­significantly, contended Somerville, “You need people who have to sell, either because the economy has collapsed and they don’t have any income or developers have built a whole bunch of units that are unsold and the bank is screaming at them or foreclosing or something like that.”

None of those conditions appears imminent. 

This week he changed his tune and said Vancouver home prices could drop by 10% next year.

Meanwhile Cameron Muir insists:

"we don’t see a recession on the horizon, and we don’t see interest rates going up any time soon, so what kind of financial calamity is going to happen in Vancouver to get people to sell for 75 cents on the dollar?”

We've shown you examples of Vancouver detached houses that currently have asking prices 23% below assessed value and Richmond detached houses 25% below assessed value.

Some have suggested that these are these extreme examples and that no such worry exists on the lower end of the spectrum where the average Vancouver income earner resides.

Without getting into the debate about whether the 'average Vancouver income earner' is into million dollar properties or not, a quick check of the comment section on the excellent blog Vancouver Condo Info turns up an immediate example to reference (hat tip Teddybear).

Here is an example of a Vancouver condo from a lower price range.

This is #2905-438 Seymour Street in the downtown core of Vancouver (click images to enlarge): 

It's a 1 bedroom, 1 bathroom condo which is currently listed at $319,000.

The $319,000 asking price, btw, is a big reduction.  It was originally listed for $389,000 on August 20th, 2012.

Now for those that discount that a $70,000 asking price cut (detractors will tell you idiots can always ask wild prices, doesn't mean squat in the big picture), 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 (according to Somerville), the owners of this property have cut their asking price to more than 15% below assessed value.

Toss in another 10% drop in value next year (again... according to Somerville) and you have a property that would come in at 25% below assessed value.

Muir wants to know what is going to happen in Vancouver to get people to sell for 75 cents on the dollar?

Perhaps he should give the folks at 498 Seymour Street a call and ask them?

I suspect it has something to do with the fact that the listing indicates that 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, so they will - and in doing so they still get out 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'. 

It's a factor could wind up having a profound effect in the coming year.

If anyone knows the original purchase price of this unit, it would be nice to compare that to the current asking price/current assessed value  - let us know.

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Email: village_whisperer@live.ca
Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.