Saturday, September 19, 2009

The Million Dollar Crack Shack


That's the latest rate that one faithful reader advises can be had for a one year fixed term mortgage.

Critics have dubbed these rates the crack cocaine of the housing market enabling local addicts to re-inflate Vancouver's status as the most bubbly real estate city in North America.

As Scotiabank economists Derek Holt and Karen Cordes have warned, lenders have been providing "excessively generous financing terms" which has had the effect of "putting people into homes at an earlier stage than would have otherwise been the case." The net effect? "Two or three years from now - once short and long interest rates are probably higher ... a lot of those mortgages will not be as easy to carry as they are right now."

On that note, come with us now as we take a tour of the high life in Vancouver. Let's see what a million dollar home looks like in this bubble inflated world of ours.

First up, this house on West 5th Avenue in Kitsilano.

This 1926 home features hardwood floors, a large renovated kitchen, a bright two-bedroom basement suite, a white picket fence and a tree swing.

Sure, the yard is small, the view out the back is of a giant condo complex, the bedrooms are tiny - the master is only slightly more than 100 square feet - and it is just half a block off one of the city's busiest thoroughfares. But those shortcomings were quickly forgiven by the dozens of prospective buyers who streamed through the first open house saying, "Honey, I love it" while trying to imagine life without closets.

Think you'd be interested? Too late.

Five days after that open house, seven agents lined up to make their offers. The asking price was $959,000, but because of the competition, the bidding war pushed the price higher. Only two bids came in at less than $1 million. In the end, the home sold for a staggering $1.142 million - more than $180,000 over the original price tag.

Earlier this week on the Eastside, we were advised about a partly updated Commercial Drive bungalow with a two-bedroom suite and a new garage and studio. That dump drew 10 offers - most of them with no inspections, despite the fact that the 1920's era house needed a new roof, electrical upgrades and drain tile work, and had an old oil tank buried in the back yard.

The first showing was Thursday last week, and on Sunday it sold for $113,000 over the asking price.

Let's cruise up to North Vancouver now. Deep Cove to be exact. Here's a beauty for you.

This beautiful one bedroom palace was described as 'liveable' and in a "fabulous location nestled in the middle of Panorama Park. You can almost touch the cove waters... in the heart of the action, yet surprisingly private."

'Surprisingly private' because you're probably too embarrased to have anyone visit you... or your friends don't want any photographic evidence proving they did.

Selling price? Just over a million (I am told the land is assessed for $775K and the house for $35K.)

So mortgage rates remain at an all time low despite bank economists warning that the cheap money is encouraging reckless behaviour... reckless behaviour that is manifested in prices that continue to rage and by buyers who bid them even higher with low-cost mortgages.

How can this possibly end badly?


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  1. What a weird city we live in. I really don't understand the psychology at work here.

  2. Where does all the money come from?? I know lending standards are lax but how many people in Vancouver are still left who could qualify for that amount of financing? There aren't THAT many couples with combined incomes of over 200K and you'd think they all already have somewhere to live by now.

    I know that all the skid row junkies probably drag down the median income in that city significantly but I lived there three years during the tech bubble and didn't think even then that there were a lot of terribly wealthy people and that RE was inflated even then.

    I know that FINTRAC applies to new condos that are bought off the builder but does it apply to any other real estate transaction?

  3. Its all "bubble bucks". You and your significant other, sold two over inflated condominiums and now buy an over inflated $1,000,000 home. So, this single transaction had a possible multiplier affect of 4 real estate transactions as you sold your two condos two the new "wannabee rich". And the seller of the $1,000,000 home is out looking at waterfront property. Your the typical double income household, you will have financed at 80 percent and your monthly payment will be around $2,500 per month
    because of your down payment from the condos.

    What you may not understand, is that while the price of the property has gone UP, your lifestyle quality has gone DOWN. Your living in a "poor man's" house in what has now become a rich man's neighborhood. Your gambling on price appreciation, because this is not the house you want to be in 35 years from now. You only win in gambling- when you leave the casino.

    Gordon C.
    A real estate appraiser for the last 25 years.

  4. skye, the "psychology at work here" is the belief that real estate never goes down. Most people under 30 have never lived through a time when housing prices have fallen or stayed constant for a long period of time. They expect prices to rise forever so they mid as well get in now.

  5. надо быть сумасшедшим чтобы купить этот сарай за такие деньги!

  6. Нда,оказывается не только в Москве :)))

  7. +1 to last comments)

  8. I think this is great place just need a little renovation of the surroundings.

    Paula M

  9. It's a combination of supply and demand and a city that has a lot of people nationally and from international locations moving to it.. yes 1.1 million is a lot of money.. but millionaires are a lot more common today than they were 20 years ago too..