Calverley responding to your 'housing prices' comments

John - I would pay no attention to the pump and dump crowd. RE has been over valued for at least 3-4 years now, the bubble is slowly deflating..slowly only due to low rates..which obviously will catch up with us sometime in the next few years..once inflation knocks on our doors. I have seen people get caught with their pants down in the last year, buying before selling and losing tens of thousands because they thought that we were still in the summer of 06. Anyone buying now, be prepared to lose 20%+ in the next 2-3 years...

Realy? If that is thrue that the housing prices are down? Doesn't look like that for the Property Assesment. My house price increase with more than 30%? Could you please comment ????

supply and demand. housing prices rise and fall. markets do the same. my children still do not have homes of their own. i tried once to assist with home ownership and the parties parted ways. house was sold and back to square one. our children have learned to live beyond their means not separating wants from needs. home ownership has a price. you can be house poor. everything that comes in goes out on upkeep and mortgage and taxes. SAVING for a down payment or just saving in general has never entered into heads. my first house was 10000. my first new car was 2500.00. my PENSION is four times what my income was back then!!! CYCLES. at least back then the chances of my OWNING my home before i DIED were better then they are now!!!!

Property assessments are, if I recall, based on the estimated market value as of June the prior year, which is based on historical sales data going back several months. So, in reality, the current assessed values for a property would be based on the market conditions in existence nearly a year ago.

As to John's comments that the downcycles last 4-6 years, besides Calgary and Toronto, Vancouver and BC in general had about a 5 year downcycle starting in 1982, and another downcycle begining in 1994 and lasting until around 2000-2001. So, two more sets of data to vouch for the pattern of 4-6 year down cycles.

Milo,

Housing assessments, by your city or township, are NOT a reflection of the market value of your home -- they are intended to be a reflection of the value that the home needs to be in order for the city or township to collect the needed taxes. If you want to know what your home is worth -- get an appraisal by a CRA or AACI, or barring that compare to similar homes in your area that have sold.

I see alot of homes for sale that say they are selling under the assessed value -- who cares, the assessed value is in no way tied to the true value of your home -- it is just the city's way of increasing your taxes -- no more no less.

While I agree assessed values do not usually reflect the current market value, they are intended to reflect the market value at a point in time - namely at a point in time in history.

The notion that it is just the city's way of increasing your taxes is completely untrue. It is done to establish what your fair share of the overall property taxes to be collected should be - no more no less.

What we have here is an opportunity to stop and think - something that a few million people should have done before buying in the last few years as the market, fueled by greed, ran out of control. What should people think about... energy and utility costs!!! Now that it's a buyers market, we should NOT be satisfied with 'Code Standard'. As a matter of fact we should be getting tough with legislators about increasing the standards for energy efficiency on ALL new housing and, especially, public housing (where we pay the price in our taxes) Energy and utility costs can often reach $500/month or more - in an era when, if builders and buyers REALLY cared, they could easily be cut in half (using off-the shelf technology).

I believe you are correct.........
Two points of importance...

1. Anything is only worth what another is willing to pay....
2. People need to understand the reality of the Real Estate Sales force.....They set the trend by which prices climb.....think about it......they shmooze the seller into listing at _____. Their income comes from 7% of the first $100,000.00, and 3% of the balance.....

So, we need to quit playing Russian Roulette with an essential like housing, and use it as a retirement fund with prices rising at a regular cost of living level.......

If you want greed, don,t moan when you loose......

And Dan, furthermore to your comment regarding the previous downturns in BC, let's not forget that in the 80' it was a minus 54% drop in prices. Same as the U.S. And in the 90's it was 35%, same as in the U.S. There was also a blip in 2000/2001 or the last term of the NDP in B.C.
So the points are 1) drops here can be severe 2) he US is down over 40% and we are down how much? Are we to think this time is different? When I can rent a house in the suburbs for $2 grand a month but it would cost me close to $4 grand to own it even at these unprecedented low interest rates, why would I buy? The potential market price increase? Wright! So there is every reason to support the writer’s estimate of a 30% further drop in prices. And that would be the good case scenario

Well, these are interesting times and right now I believe there is not a person alive that can predict what this emotional and fianancial turmoil will do to the market. Investment advisors worldwide on an average have failed miserably. A true measure of an advsiors investment plan is to ask him how they have done with their own investment strrategy in the last 2 years. So before I personally take advice from anyone, book or not, I need to know how they are doing. Is their plan working.

Additionally, Canada is a beautiful place, and I get many people staying with me from other parts of the world and commenting about how (comparatively) our real estate prices, for what we can buy, is low. So why, do we need to be tied at the hip to what the US is experiencing. Many places in the world are suffering major adjustments and some are not. Just a question.

Folks get emotional about their home values so it's no surprise they lash out at an author pointing out some doom and gloom news. However, I think the author will be proven over time.. to be quite accurate about where things are headed. I doubt very much it will be pretty over the next few years.

Thanks for the clarification, John. I think the readers perceived that your opinion were biased because you have mentioned your book twice or 3 times in your previous article. They seem to think you are promoting your book.... and the article is a self-promotion...

Anyway, good luck in your forecast!

I am not an investment advisor, but since when was it an investment advisors role to predict the future of the markets? Their role for my portfolio is to invest it prudently according to my risk tolerance. I never for a moment had the illusion that it was going to be a smooth ride with no ups or downs. Stop and think about it for a minute... if an advisor could predict the future.. they would have no needs for clients like us. They are there to help guide.. not to pull out a crystal ball.

From what I can understand from this article is...buy a home to live in, not as an investment. If you stay in your home for years it will go up eventually. I just hope the interest rates don't skyrocket like they did in the past.

I think it is great that the author responded!

I agree with the author...perhaps not the 30% he envisions, but a good 15% - 20% in our Montreal market, for sure. We are buying a second home as our condo is now too small and our family has grown over the last year. Prices out there for homes in Montreal are so unrealistic and they haven't budged over the last 8 months....yet. We are still waiting for the prices to drop and firmly belive that they will.

Real Estate agents tell us that homes in the $250K - $400K range are moving well, but those homes in the $500K - $800K haven't budged an inch, while the millionnaires buyhing homes more than $1 million are still rocking! YEESH!

mcshane, you are bang on. A home, we all require. Buy one to live in and not to speculate with. Even tough I did mention those -54 and -35% before, over time it will gain and will gain well. For those who don't own one now, wait till the market hits bottom. It will be an even better time to buy in. Then keep it for a long time.
As for the writer who says Canada is beautiful, I also agree. Are our homes cheaper than in other places? I beg to differ. Last I checked Ireland is minus 40% already, Europe in general is dropping. It is happening everywhere. Are we cheaper than some places? May be. But one cannot compare London with the population, financial hub and lack of land they have, with us.
Our population is small and we are one of the biggest countries in the world. Supply and demand here does not equate the same as elsewhere. Paris will always be worth more than we.
And of course we have to concern ourselves with the U.S.. 60% of our business is done with them. Besides, when a house in Canada is worth $600,000 and the same in Daytona Beach is worth $195,000 please keep in mind the supply/demand issue I just mentioned. And I believe Daytona Beach to be just as desirable as any place in our home-land.

So if house prices have dropped 30% already in Edmonton, I'm ok? My wife and I are looking at building a new home. Two years ago, the model we wanted was $760,000 for the 'base' model. Today we can buy it for under $500,000 with a ton of included upgrades. That's over a 25% drop in price.

I'd love to think that I'm getting a 'deal' on the home, but I doubt it. The builder is also guarenteeing that if the value of the house drops that the price will be reduced to the new market value until we take posession. How the heck can they actually figure out market value, when they are the only building company that makes that model home?

I'd like to buy now with interest rates being so low, and when builders are actually fighting to get my business, but articles like this make me wonder if I should wait longer. We are looking at buying the hoem to live in, but I don't want to start off in a new home that looses $150,000 of it's value in 2-3 years.

I'm totally confused.

Factors influencing housing prices
1) Emotion - right now its in the dumps

2) affordabiility - Wages have not gone up - they wont begin to go up until we some pressure on inflation. We have just come through some unprecedented wage growth (past 5yrs) and we are now asking the same employees / vendors / contractors to go back to 2003/4 rates and in some cases 2000 rates which are at least 8 - 10% less than todays wages that is before inflation is accounted for.

3) Inflation will not go up (in Canada) until Commodity prices go up (in the west anyways).

4) The US has downplayed how BIG their problem is and this will take YEARS to come out from. In Japan when their housing bubble burst it was called the "lost decade..." therefore commodity prices are not going up anytime soon. (maybe gold cuz its safe as a hedge against printed money)

Sure this is a touchy subject. If you have purchased a home in the last couple years you dont want someone to tell you "sorry buddy youre going to loose your shirt". But everyone must agree on the fact that NOTHING in the world can increase in value at the rate that housing did in North America in the last 5 years. By basically giving money away at historically low interest rates and to anyone with a pulse its a easy recipe for higher prices. But I think if you have even a little bit of common sense you should see what will happen. The BOC and the FED are now at zero interest effectively. Yes that might stimulate growth or hold back the tide a few more months but its just a patch on a sinking ship. Two things will probably happen:

1) Interest rates start to go up to battle inflation - Housing prices go down.
2) Inflation goes crazy as rates stay too low - Housing prices mayl rise but probably will go down because your cost of living in all purchases will increase and youre going to have even less money for housing...unless you can talk your boss into a 10% raise per year then things might stay the same for you.

It was cheap and easy credit that caused such havoc in the economy to begin with. Well we seem to be stuck on the cheap credit. The last thing we need to do is go further into debt as a consumer. That is just deferring the eventual reduction in consumption. But even if the consumer isnt spending into deficit the governments are. This is kinda the same problem. We shouldnt be borrowing more money - people or the government (which is just the people's money spent for them).

All these problems are related to one another. Central Banks - Stock markets - Housing - Consumer goods- Government Deficits Etc Etc....

Its insane to think that the policies that got us into this mess can get us out!!!

I have heard varying opinions from realtors, bankers, and investment experts, but the one big thing everyone seems to ignore is that house prices don't rise and fall on a whim.

The fear and greed cycle of the investment markets does not apply in the same way to housing. There is a segment of home owners who are really just investors looking to make a buck, but by and large home owners are home dwellers. Most homeowners bought the house the bank would give them the money to buy. Now we have a situation where banks are tightening their requirements for who qualifies AND starter homes are too expensive for starter buyers.

Those true first time home buyers are the foundation of a rising market. The rest of us already on the property ladder are insulated to varying degrees by the rising values of the homes we already own. A down payment saved for the first time, however, has gone from $3,500 (5% of $70,000) 10 years ago in Edmonton, AB to over $10,000 for that same three bedroom townhouse condo which is now worth over $200,000. I speak from personal experience here.

Wages have not gone up at the same rate as downpayments so year by year that first time home buyer market has been shrinking. With no one to buy their starter homes at a premium the trading-up market has also shrunk. Hence the glut of homes on the market with no one looking at them.

The American markets were assisted in their mad inflation by mortgages that convinced people they had more money to spend than they could afford. That is the only reason their housing bubble reached such epic proportions and Canada's did not. But the reality remains that, even in Canada, the pool of buyers has shrunk so much that there are more people trying to sell a house than there are trying to buy it. That creates a buyers market.

And until prices hit a point where first time buyers can afford them, housing prices will continue to sink.