‘Sky’s The Limit’ In A Housing Bubble
A pair of reports from Canada serve as reminders of how housing bubbles are built. “Pinder Bains is a 30-year-old cashier taking courses towards becoming an accountant, but she has other ideas for making a living. That’s why, on Vancouver’s sunniest Saturday of the year, she is cooped up with almost 500 others in a conference room, listening to speakers on the general topic of earning ‘passive income.’”
“‘I’d like to, you know, not work.’ she says.”
“Wouldn’t we all. And that’s the lure of Ozzie Jurock’s popular spring conference, LandRush 2006. ‘You can create any life you want if you invest in real estate!’ Mr. Jurock promises. ‘I believe that.’”
“A host of vendors outside the conference room are also offering their market know-how, with tantalizing promises like How to Buy an Apartment Building with No Money Down! Realtor Randy Friesen, whose truck bears the logo ‘If you’ve got money in the bank, you’re not buying enough real estate,’ hands out a phone book-sized package of properties he considers potential cash-flow generators.”
“It doesn’t take long for Ms. Bains to realize that the promise of income without work is beyond her means. Calculating a $400,000 mortgage with 25 per cent down, she would need a tenant to pay at least $2,000 a month to cover the payments and property taxes. That still leaves maintenance costs. ‘I think you really need to do your investigating,’ she says. To that end, she’s thinking of taking Mr. Jurock’s upcoming $1,497 weekend seminar course.”
“Rudy Nielsen, another Landrush speaker owns and develops land across the province. Most of the properties he is selling now are parcels he bought two decades ago. Mr. Nielsen also shares the story of his own spectacular bankruptcy in 1982.”
“‘I was cocky and brash,’ he says, recounting how he bought more than he could handle and found himself $1.5-million in debt. After his wife and banker left him, he took his dog and a canoe to a lake as far north as he could go and lived in the woods for two weeks.”
“All day he fields calls from people asking if they should buy. ‘I can’t believe some of the people who have phoned me up and said, ‘I’ve got a mortgage on my house, I’ve got a second, and I’m making payments with my credit card.’ he fumes. ‘I just feel sorry for those people. For Chrissakes, keep a safe fort!’”
The Toronto Star. “More than 17,000 new condos sold in Greater Toronto last year, the most ever in the history of the area. The good news for realtors is that Toronto is the hottest market in North America. The potentially bad news (if you’re an investor) is that Toronto is the hottest market in North America.”
“‘We know that everything that goes up must come down. When anything seems too unbelievable, it usually is,’ says economist Frank Clayton. ‘And the longer the sales go on and prices appreciate, the bigger the adjustment we’re going to have.’”
“There are already signs that developers may be hedging their bets. Several new projects in Toronto have been offering bonus commissions to agents. By the end of this year, housing economist Will Dunning estimates, 14,700 units will be completed and ready for occupancy. He expects more than 14,000 units to be completed in 2007.”
“‘We won’t start seeing a lot of the effects until early 2007, but there will be a wave coming,’ he said. Dunning has repeatedly warned that he thinks there is a ‘high risk’ that the market is overbuilt.”
“One thing he and Clayton agree on is that there are a significant number of investors in the market, anywhere from 25 to 40 per cent. If the market softens, many will be placing their units back on the market. ‘Things are totally out of whack; the numbers of condos being sold don’t support demographics,’ Clayton says.”
“Even if the conservative estimate of 25 per cent is applied, that means there will be at least 3,000-plus condo rentals coming on the market every year for the next several years. Those condos are expected to compete with apartments and other condos to drive rental prices down and vacancy rates up. When investors can’t rent their units, they tend to unload them.”
“Some investors believe the Toronto market has legs because it isn’t Miami or New York, or even Vancouver, where prices have gone up considerably more, argues Israel Schwartz, who is considered one of the shrewdest wheelers and dealers in the market. ‘There is no such thing as a first-time house buyer in the Toronto market any more,’ he says. ‘It’s about being a first-time condo buyer, because most people don’t have a choice if they want to live downtown. That’s what’s fuelling this.’”
“Toronto developers have managed to boost their bottom line by building smaller units, says Schwartz, who sees shrunken condos as an inevitability. ‘Ten years ago, you paid $250,000 for a 900-square-foot place, and now you’re getting 600 square feet for the same price,’ he says. ‘But at least you’re getting your foot in the door.’”
Thanks to the readers who sent in these links.
PT Barnum said it best!
This way to the egress!
I’ve given up on wishing people would wise up. At this point, I want as much competing capital destroyed that I’ve started to hope the final run up is spectacular. Thus, when I buy, we’ll say “hi” as we shop and chuckle how no one else is bidding and we’ll all get into decent homes.
Note: I stick to my previous predictions that this ends locally by Oct 15th and Nationally by end of November.
As to get rich quick schemes… they’ll always be around. I try to protect friends and family, but there is no way to stop them in a truly free society.
Oh, answering a later post:
Some of the people most excited to get in are the *very* people who were only able to buy in due to the last crash. Talk about selective memory. The mania I saw at work yesterday was… scary.
We’re going to see a generation sans retirement income. I hope people have their resume ready to be a greater at a “mega mart” so that there is food during retirement.
Neil
I prefer Horace Greeley: The darkest hour of a man’s life is when he sits down to plan how to get money without earning it.
The only house I own is in Canada as mentioned before and I inherited it. I have been offered almost unfathomable amounts of money for it because it’s on the ocean. It’s a shack IMO. I wouldn’t live in it except for vacations and even then it’s too damn cold in the summer. It has sentimental value as it belonged to my mother or I would just raze it and donate the land to charity. I may eventually do that anyway.
May I ask where in Canada is this shack?
Why don’t you sell it now and buy it back for 1/2 price in 5 years?
Nova Scotia. Really beautiful part of the world but way too cold for this broad.
Yeah TXC, Sell it. Give the buyers 10k off the price with the condition that you get a 10 year option to buy it back should they resell. (Tell them your hubby is sentimental and that is the only way he would sell it)
you’ll get it back with a mansion on it.
Ben, you HAVE to post the pictures I sent in last weekend - the ones I took of some 30 minute TV ad with TWO MIDGETS offering a real estate seminar in San Diego. Talk about a gimmick!
Some really good friends of mine did that seminar (I know I know). They went to the first free seminar, then they did the follow up one for like $2,000. And then there are all these add ons. In all, I think they spent around $15,000.
The first thing they did once finishing the seminar: bought a condo near Naples or Sarasota, I forget which. It’s now rented out. (they bought sometime early 2005)
Of course they’re relying on that to return them lots of cash for various reasons I won’t go into.
Our nickname for those two dudes is “Scamidgets” as in “scam” plus “midget”
We all laugh about the scamidgets now, but I know that my friend is a little worried about that FL place. (and his brother has 6 properties in Phoenix, all cashflow negative)
yech
“The first thing they did once finishing the seminar: bought a condo near Naples or Sarasota, I forget which. It’s now rented out. (they bought sometime early 2005)”
Sarasota or Naples…hah! Doesn’t matter since they are the two FL towns most at risk right now with their nearly 50% yoy sales declines just reported. Sarasota median price is down 15% from summer ‘05 right now…both of these markets are toast. I guess they’ll be renting it out for a while!!
“To that end, she’s thinking of taking Mr. Jurock’s upcoming $1,497 weekend seminar course.”
Spend $5 on a good calculator and run the numbers yourself, spending $1500 and wasting a weekend on complete bullshit is stupid. Haven’t most of these charaltans been debunked repeatedly as not even owning property and yet they are still allowed to spread their bad advice ?
Mo,
Exactly. If they were so good at this stuff, they would keep to themselves and make all that big money. “Those who can do, those who can’t teach.”
Yep, Most wind up in federal court. IRS or BK
While most of the harsh comments have been directed at RE agents, appraisers, and mortgage lenders, I think that all those people producing “seminars” on “how to get rich in RE” deserve much of the blame. After all, it is pretty obvious that the bubble was formed by investors looking for quick bucks (and by the regulators who weren’t watching what the lenders were doing). And there has been an explosion of RE “moguls” making sales pitches at seminars, late night infomericials, and on the Internet.
Let’s ferret out some of these clowns!
i think what you’re referring to is called “capitalism.” It would be tough to ferret out maybe.
It has already been done.
http://www.johntreed.com/Reedgururating.html
bs detector tune up checklist
http://www.johntreed.com/BSchecklist.html
His Kiyosaki posts and response emails are terrific.
I would be suprised if John T Reed didn’t lurk here.
I posted links that got lost or delayed.
Google - John T. Reed real estate.
He had great material on guru rankings, RE BS detector checklist and blasts Kiyosaki with facts.
That’s a great site.
Added to Favorites.
We Canadians suck too, eh. No doot aboot it.
Pinder should keep that money for her real education. Hopefully, she’ll learn something before she is officially an accountant.Then she’ll look back and be thankful that she can’t buy anything in Vancouver at this time.
I was giving a talk at a local high-school on financial fundamentals. When I got to investments the teacher jumped in and said to the class “And what’s the only investment that never goes down? Real Estate!”
I couldn’t let it stand so I said “Some economists think we’re in the midst of a RE bubble that’s about to crash while others think it’ll keep going up 20% a year.”
The teacher didn’t look very happy but I just couldn’t let that one go.
Jesus, there was a real estate downturn just ten years ago in California. Is the mania that engrained? Apparently.
Yeah, I’m amazed anyone over 20 with basic reading skills would ever utter a phrase like that.
What is the average age of a holder of a real estate license in the US? A Realtor (TM)?
It’s a good thing you didn’t let it go. It might remind the teacher that he/she should check their facts before making such broad statements. Too bad you didn’t have a small chart of $100K compounded at 20% continuously — “Gee, kids, in 20 years that $100,000 condo would be worth more than $3 million!”
That’s why I homeschool.
That is why I might have to.
Kirk,
I seriously hope you are kidding. Was it private or public? And, why in the world would she say something so stupid??? I can’t even picture it, it’s so unbelievable!
Just realized the teacher could have been a he.
It was a he, and no, I’m not kidding. But I wasn’t completely shocked either.
‘You can create any life you want if you invest in real estate!’ Mr. Jurock promises.
I don’t understand why people don’t run when they here these too good to be true get rich mumbo-jumbos.
Politicians do the same thing ALL the time.
It is the way it always has been, and always will be. Invest accordingly.
“‘Ten years ago, you paid $250,000 for a 900-square-foot place, and now you’re getting 600 square feet for the same price,’ he says. ‘But at least you’re getting your foot in the door.’”
More likely another part of your anatomy stuck in the door when it slams shut. Yeowww.
If real estate is such a great can’t-lose, no-work investment, why are these guys wasting their time giving seminars when they could be buying real estate?
“If real estate is such a great can’t-lose, no-work investment, why are these guys wasting their time giving seminars when they could be buying real estate?”
This question should be asked of every Amway, Herbalife, and every other MLM-scheme sucker. The real product they’re selling is the pitch, and the marks are too dumb to see it.
Not to mention every idiot with a trading “secret” (stock, futures, forex, commodities) who advertises in TASCC or any other trading publication. I just wonder if there is an inexhaustible supply of suckers for these pitches. I once moderated a trading “chat” room for a couple of days before deciding if I wanted to take on the responsibility full time (DID NOT) and the people in this room were so uneducated, so needy, so clueless, it scared me. They wanted someone to tell them what to do (and conveniently, to blame if things didn’t work out). This the market for these pitches.
Toronto real estate will boom with all of the Floridians moving there since they are having a hard time paying for their homeowner’s insurance and property taxes. They are also not making any more land there in Canada.
Suzanne researched this.
Canada:
I think it’s America-locked, right?
clouseau
I got a card in the other day about a real estate get-rich investment seminar coming to town. The thing that’s significant is that I live in Montana. Montana! They are having seminars in four different Montana towns in the coming months. So far I thought we were just getting screwed by Cali money pouring in and driving up prices of our “cheap” RE. But now maybe we’re going to get nationwide “investment” fever here, too. I can’t wait.
Regarding the NBC News clip last night on the couple about to lose their house, did you happen to see their new Ford Explorer sitting in the garage? At least she won’t have to go to the effort of separating her keys as she throws them in the driveway. The bank can take back a 2fer.
The only one getting rich without, you know, working, is Mr. Jurock.
it’s wierd how late in the game this stuff works-
Landrush. I love it.
The Homestead Act: pioneers stampeding to their 160 acre paradise. How romantic.
Fast foreward:
Moronic “investors”: stampeding to bankruptcy and foreclosure. How stupid.
RE: The Homestead Act - will this protect FBs and GFs??????
OT! It’s really fascinating how this is all playing out. So it’s my Friday off and I am sitting at home reading my favorite blog. Ding dong…ding dong…I get off my chair and walk to the front door. That’s odd as I say to myself as I peep through the window. A man with a flyer and a business card.
Can I help you? The man answers as he hands me a flyer and a business card: “I am selling this property a few blocks from you and if you know anyone who’s looking to move into the area, please let me know.”
It’s a 1574sf single story built in 1971 for $589k. I immediately told the man: “everything sells on price, did you understand that?” The house is way overpriced and will not sell in this market unless it’s reduced immediately by $100k. He said “I understand but my sellers don’t.”
I finally ended the conversation when the idiot persisted that prices will not decrease in CA. I told him that the fact he’s going door-to-door to elicit a sale or should give him a clue as to where the market is going.
Nice, interaction.
Terrorizing Realtors.
This is the way the war will be won.
One on one in the trenches debunking these stupid RE myths.
Ben or Prof Piggington should get a TV series or get the Mythbusters TV series to implode RE misconceptions.
A bit OT, but I’ve gotta share. At work we get a lot of weird faxes. The one that I noticed today said:
ATTENTION: Home Owners
Refinance NOW!! and we’ll give you *2 FREE Airline Tickets!! We’ll meet or beat anybody’s rate. Our rates start at 1%!!
Then it goes on to list several loan amounts and the *low* payment you would have. And check this: Debt consolidation, 100% financing, bankruptcy OK, foreclosure OK, unlimited cash out AND no income verification.
Etc, etc…..an 800 phone number, and in small print:
2 Free Airline tickets anywhere in the US upon loan closing. Airline chosen by lender.
Makes me gag.
BayQT~
If the tickets were to South America (one way) and the escrow agency cut a couple 100K to me I would consider it.
NEWS NEWS NEWS
The following quote from an email exchange between Sherry Cooper and myself was removed from the Vancouver Housing Blog site. I wonder why? Please note who this woman is:
“I never said prices wouldn’t fall. I can’t control how I am quoted. House prices in places like Vancouver are likely unsustainable. However, someone who read the article, which I haven’t seen, suggests that raising the issue of house price declines is fear mongering. I have no effect on house prices. My understanding is that a significant number of Albertans are speculating on BC real estate.”
Dr. Sherry Cooper
Executive Vice-President, Global Economic Strategist
BMO Financial Group (Toronto), Harris Bank (Chicago)
Chief Economist, BMO Nesbitt Burns
sherry.cooper@bmonb.com
Tel: (416) 359-4112
Web: http://www.bmonesbittburns.com/economics
Fax: (416) 359-4922
Assistant: Trudy Verkaik, trudy.verkaik@bmonb.com
(416) 359-4650
——————–
BTW Sherry’s comments about Albertans are misleading because they are buying in resort or retirement areas of BC but not in the Vancouver market to any degree that would fuel this outrageous bubble in Vancouver where 50% of the owners of downtown condos are “investors” according to Bob Rennie, the biggest marketer of the former Vancouver dream out there.
Ben…..PLEASE add a daily Canadian section to your site because the Vancouver Housing Blog is very one sided and anything that criticizes Vancouver is removed. They even have a journalist from one of the biggest newspapers in Vancouver on the site, that they suck up to, who is always posting pro industry propaganda, in my opinion, and not much in the way of anything critical is tolerated. I don’t like censored sites.
Would you do something like this?
Thankls
Michael
Umm, go fly a kite Randalbard. You just don’t like that I chop your racist BS from my site.
I do invite everyone to visit my place and judge it for yourself.
Ummm… Sorry Mike… I visit both sites and you are wrong on all counts… Cheers!
Michael, your post here, in addition to being incorrect, is disturbingly juvenile and does you no credit. Start your own blog or just STFU.