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Sitting Out — Page 2
The 5 Most Important Things to Know
in Today’s Market
1. Be Conventional
There’s nothing better than catching the wave
when prices are rising, but value rules when times are
tough. Over the past five years the benchmark index
for a house with acreage in Abbotsford has risen 280
percent to $1.34 million, while across the river in
Mission the increase has been 65 percent, to $524,000.
That’s probably because Abbotsford is seen as
a burgeoning proto-city and Mission is not, but at what
point does speculative potential overshoot genuine utility?
(And in a downturn does a nice place to live fare better
than somewhere a developer might eventually want to
try prying out of the Agricultural Land Reserve?) There
are lots of disconnects around Greater Vancouver. Jim
Patton finds it amusing that he and Stone could now
pay cash for a house in West Vancouver, a neighbourhood
they never imagined being able to afford. That’s
because the Elgin Chantrell area of South Surrey emerged
over the past five years as a kind of suburban Kerrisdale,
with prices to match. But can the area’s current
index price of $1.11 million be sustained when a house
in the real Kerrisdale isn’t much more?
2. Be Condo-Wary
This category of real estate attracts a large proportion
of the wrath dispensed by the bad-news bears, who regard
it as the domain of flippers and “specuvestors,”
a group they disdain or, at least, envy and resent.
On the upside, it’s led to blogs like Condohype.wordpress.com,
which wittily dissects the marketing efforts behind
our city of glass (admittedly an easy target). On the
downside, it’s contributed to global warming due
to the number of bears driving around counting darkened
windows—a sign, they believe, that an apartment
is empty, which means it is owned by a speculator who
will be forced to abandon it to foreclosure when the
market turns, a crucial stage in the process leading
to real-estate armageddon.
All this said, many sane and sober prognosticators regard
downtown condos, and apartments in general, as vulnerable,
and recent market statistics provide some evidence to
support the view. One of the culprits is a flood of
assignments—units that were presold and are now
nearing completion, at which time the original buyers
(those specuvestors) will have to pay in full, something
they had no intention of doing. Due to taxes and fees,
assigners will have to sell for as much as 10 percent
more than the original presale price just to break even,
which in a slowing market will be difficult. Assuming
Vancouver’s population continues to grow toward
a seemingly inevitable three or four million, the long-term
future of apartment living is bright—but in the
short term there could be blood.
3. Be Aggressive
One of the nicest things about a softer market is the
more relaxed pace that’s possible when houses
aren’t being snapped up the second they come onto
the market. Sometimes that pace is just too relaxed
for sellers, who may have an urgent need to unload.
Don’t be afraid to make low-ball offers—lots
of them, if need be. Eventually you’ll happen
upon a vendor who’s desperate to dicker.
4. Be Choosy
Take your cue from the U.S., where the biggest price
drops have occurred in depressed areas of the rust belt
and low-cost suburbs of cities that experienced dramatic
price run-ups. That’s partly due to the sub-prime
disaster, which is unique (or nearly so) to the U.S.
But it’s still wise to remember a joke that made
the rounds in Calgary during the 1980s collapse caused
by high interest rates and a plunge in the price of
oil. Question: Which of these is not like the others:
syphilis, herpes, and a house in Northeast Calgary (the
least desirable quadrant of the city)? Answer: Syphilis—you
can get rid of that. The theory is that lower-income
people are the first to suffer; meanwhile, those still
in the market take advantage of dropping prices to move
up to more desirable housing and neighbourhoods. If
this were to hold true during a Vancouver downturn,
condos in spots like Coquitlam and Surrey might be among
the hardest hit. Indeed, prices in some areas of the
Fraser Valley have shown signs of softening in recent
months.
5. Be Flexible
Just as Vancouver has been property mad for the past
several years, ‘real estate’ will become
a dirty word if there is a major correction. In theory
it makes sense to buy when others are selling, and vice
versa. Just keep in mind there are no guarantees a slump
will end on schedule or that a boom, even one that’s
outlasted all the predictions, won’t stretch on
for several more years. Well aware of that, even Stone
and Patton are snooping around, ready to jump back into
the market if the right house comes along. Being too
committed to bearishness is dangerous in Vancouver,
says Stone. Back in 1996 they thought prices couldn’t
get any higher, and traded down to Langley from a house
in North Vancouver. A heritage charmer on Grand Boulevard,
it was unloaded for the vast sum of $360,000. Current
value? Closing in on $1 million. As always: Caveat emptor.
But seller beware also.
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