In Victoria is takes nine times the average income to buy a house. In Kelowna it’s seven times. In parts of the Lower Mainland, and Vancouver, about ten times. Could this be why my events this week in each location have been sold out? Or is it simply my rippling abs, the steely sixpack beneath my tie and that infectious personality?
Hmm. Maybe it’s the realization the US housing market collapsed when it reached far lower levels of unaffordability. Or that the economy in BC and across the country is barely crawling. Or that higher rates and taxes are on the agenda of politicians who will never reveal it. Or the clear sense houses increasingly represent danger, while opportunity lies elsewhere.
More likely, though, the hundreds who will hear me this week are a tiny minority – like the ragamuffin band of spear-brandishing contrarians who come here to whiz on authority. The vast majority of citizens live in delusion. God help them.
Before I begin today’s sermon, rabble, let me remind you how useful it is to take a gander south of us from time to time. While we’re not Americans, and this ain’t Phoenix or Dade County, even a mild case of the USA real estate crisis would be lethal to our pompous and self-absorbed middle class.
Four incredible years into the housing melt, the number of homes seized by US banks in a single month has just topped 100,000 for the first time. And while this may be temporarily derailed by the current wrangle over legal titles, rest assured it will continue. At the same time, there were more than 300,000 additional new filings for foreclosures last month – which was 3% higher than in August. And, for the latest 90-day period, RealtyTrac reports 930,437 foreclosure actions. That means one in every 139 homes was hit.
That, of course, is just foreclosures. At this moment, one in four families with a mortgage in the US is under water, owing more in financing than they have in equity. And an estimated four million other families have stopped making mortgage payments figuring there’s no longer any point.
But never think this is an American condition. They have no corner on greed and stupidity.
While sitting on a flight between Victoria and Kelowna, secretly working my Berry as the WestJet attendants were busy selling earphones and bags of Bits ‘n Bites to buy fuel, this note appeared on my screen:
“Hi Garth: After reading your blog tonight, I wonder how anyone can possibly still be thinking now is the time to buy real estate. The time has passed. I’m an accountant and I’m starting to hear tales of woe, people who bought real estate in the last couple of years and are now sorely regretting that decision. Here’s a story you might find interesting.
“I went to visit a friend of mine whom I hadn’t seen for a few months. When I arrived, things seemed a bit tense around her household (she and her husband have a bunch of kids), even more than usual. When she and I were alone, she confessed to me that her husband, in his infinite wisdom, purchased one of those famed Olympic condos with the intent of making a quick flip. “Ha! I’m sure you know where this story is going….The condo is now lingering on the market, and personally I doubt there is a chance in hell that it will sell, especially now that the developer is hinting at offering incentives on the new condos-how could my friend’s condo possibly compete with free strata fees for 2 years?
“So now they are stuck with making mortgage payments of $2400/month on this bloody condo (that’s right, it cost nearly $500k!). That’s a big chunk of change for any family to come up with every month, on top of the usual household expenses. I think eventually they will have to ask family for help, or sell their current home. My advice to her: SELL!!! drop the price and SELL ASAP! But I think it’s too difficult to bear thinking about taking a big loss, which they would have to get a personal loan for, adding to whatever debt they already have. So they sit and wait. And pray.
“And this unfortunately is not the first time I’ve heard a story like this. Another guy I know bought a house in the Okanagan for “investment purposes”, decided to sell shortly after…and oops, didn’t receive one offer, despite lowering the price to less than what he paid for it, of course. The thing sat vacant at a cost of $2000/month. Now I think it’s being rented for considerably less, leaving the guy with at least a few hundred dollar shortfall each month. And there are more stories just like this one..people who are losing at least a few hundred a month on rental properties. Which is ok, right, because “Real estate always goes up!” And this is just the tip of the iceberg…maybe it’s just my profession but I seem to know an awful lot of people with the same story: too much real estate, trying to sell, can’t drop the price because the mortgage will then exceed the selling price. And that’s not even mentioning the other consumer debt they have….
“So I’m not sure what kind of crowd the guy who’s on your blog today is hanging out with, but it sure isn’t anyone I know. The last family party I went to, for once not one person suggested that I’d better get in while I can-which is what it’s been for the past five years or so. Times are a’changing… Anyway, great blog, as usual, just thought I’d share!”
And this is the way it will change. One sad story at a time. Family after family discovering what was once safe is now fraught. Where there was value, now risk. Where there was quick profit, now looming loss.
Nobody likes to discover their beliefs are bogus. Denial will be everywhere for months. Sellers will need indefatigable proof buyers are shunning them before they move on prices. And once enough do, the herd will turn on a dime. We’ll then be living the USA experience.
Are you ready?
Greater Fool Komedy Korner, with Cameron Muir...
