Houses Bought Price-Unseen In Alberta
The National Post has this update from Canada. “Consumers in Alberta are now putting down deposits on housing lots without knowing what the final price for the finished home will be, in the latest example of the desperation for housing in the province.”
“The bizarre situation in which consumers are contractually bound to pay a final price yet to be determined has been going on for the past few months, said Allan Klassen, president of the Alberta chapter of the Canadian Home Builders’ Association.”
“‘That’s how people are securing housing now,’ said Mr. Klassen, adding the situation is being driven by demand for housing as opposed to greed from builders.”
“To combat price worries, builders are now willing to let consumers guarantee themselves a space in a development if they are willing to put a deposit on a lot. Mr. Klassen said that deposit can sometimes be about 20% of the value of the lot.”
“For that deposit, consumers are usually signing a contract that binds them to buy the house once it is completed. The final price is dependent on what type of costs the builder incurs. The prices rise as costs rise. The deposit contracts vary from builder to builder but Mr. Klassen said most builders are willing to let consumers have their deposit back if they are unhappy with the final price because the current market conditions are strong.”
“It’s a dangerous game for consumers, according to Brian Hollohan, manager of market analysis for CMHC in Calgary. ‘There are a lot of unusual transactions taking place and people are taking unusual measures to secure a home. It’s not something I would do,’ he said.”
“Consumers looking for more price certainty in the existing-homes market are out of luck. Kevin Clark, president of the Calgary Real Estate Board, said the average price of a home in the city was rising as much as $500 per day.”
“‘The resale market is quite insane,’ said Mr. Clark. Mr. Clark said it’s no wonder people are willing to put deposits on new homes without knowing the final price. ‘If they don’t there is another person right behind who will,’ he said.”
‘That’s how people are securing housing now,’
It’s interesting that in each bubble market, while things are still red hot, complete insanity is seen as a new norm.
What is it about Alberta? There isn’t enough land in the Great White North? Enough timber? Vacation destination with all their warm weather?
I thought I had seen/heard everything
I was wrong.
This has to be the stupidest thing I’ve ever heard. It’s even worse than Condotels, or waiting in the rain for 4 days to buy a house, or taking on a suicide loan.
Our canadian brothers have one-upped us. We must not allow this.
I have a new idea:
Let’s get some future FB’s to put a downpayment on NOTHING. They will just give me money, and perhaps I’ll build a house for them. Or maybe not. But the deposit secures them the chance to pay full price for whatever it is I end up doing. If I do nothing, then they are contractually obligated to pay me full price for doing nothing. (future price of me doing nothing is to be determined).
Geez.
Clouseau
Here’s another great idea:
I have something in my pocket. I won’t tell you what it is, but it might be very valuable. We’ll have an auction to see who gets to buy it. I will set the starting bid, but I’m not going to tell you what the starting bid is. When you place your bid, you won’t offer a specific price, but instead are promising to pay 10% more than the previous bid, whatever that was. At the end, the winner will find out what the item is and how much he/she gets to pay for it. Hurry, hurry, opportunities to get screwed this badly don’t come along all that often.
Hmmmm… I know, for all Albertan’s out there, I’m currently accepting deposits for new housing developments on the moon. Get them before you are price out of the market! It may take a few years, but the moon will be humanities gateway to colonization of the solar sytem, and ultimately the galaxy. Invest in the future… you can’t go wrong!!
And I thought we(US) were the dumbest people
on the planet.
Well, it seems them Canucks really are behind us.
Let’s just call it a draw.
OT, but I was talking to a guy today who works in real estate in NoVA, and I asked him about activity over Memorial Day weekend. “Dead,” he said, “Absolutely dead.” He went on to tell me that he knows a realtor who has 33 active listings and didn’t get a single phone call all last week for any of the listings. “Not even a caller with a question about one of the listings. It’s incredible,” he said.
N VA/DC is the only job secure market in the USA- via the sweat of the taxpayers
Hey… someone has to pay the bill. It may as well be you.
N VA/DC is the only job secure market in the USA- via the sweat of the taxpayers
Not necessarily, flat. I worked for a defense contractor in the 90’s and fed work is definitely cyclical. I know many people who sell to the federal government and lately, it’s tough. So much money is being siphoned off by Iraq, Afghanistan, and Katrina that budgets for things like information technology are getting slashed. Some of these reps are looking to get out of federal sales altogether and switch to commercial.
I lived in DC for years and agree with John. Sure, if you work for an agency you are pretty safe, but you don’t earn the big bucks; a GS-13 makes between $65k and $85k. The contractors are where the work is. When the contract ends, OOPS, you’re looking for another contract or job.
if GOP blows it DOD contractors will take a hit- free health care commin w Hilery
GOP (govt. of parasites) blew it long ago. DoD contractors need to take a hit and there are 40 million uninsured in this country.
Thanks, John, for the N. VA update. That is an amazing anecdote. I noticed that 46% of Ashburn properties are reduced. However, I know of two houses that did go under contract quickly, one in Falls Church (in a really good commuting location) and one in Fairfax, which went for 10K under asking. I’m seeing a lot more “luxury” SFH rentals coming on the market in the Haymarket area.
The word I’m getting here outside PW County is also “Dead”. The lack of activity doesn’t spur many unwitting sellers into lowering prices. They just take them off the market and tell themselves they’ll try again next year. The more “aggressive” sellers are lowering prices. So far this seems to have very little effect, which is why sellers are more apt to remove the home from the market. They are scared of what the market will truly bear.
Arwen U,
“They are scared of what the market will truly bear”
SO TRUE! These “me too” and “throw your hat in the ring” have got to be driving realtors absolutely insane! There must be dialogue forming along the lines of; “Are you actually SERIOUS about selling your home?” Are you willing to reduce your asking price back to 2004/3/2/1 levels to get this deal done?” “Price reductions of 5 and 10K aren’t getting the job done, are you willing to reduce your price by 50, 100, 250K?” “Are you willing to consider a short sale if there are no offers when we’ve reduced to what you owe on this place?”
This will only work with the sellers who are interested in “moving up” or into a smaller primary home. For those who have purchased the 2nd, 3rd, etc, their only option if they remove it from the market is to try to rent it, and that’s not working for them either…can’t get enough rent to cover mortgage and other cost of ownership. They are screwed either way. That’s way the foreclosure numbers have risen dramatically.
BayQT~
John-
Have you seen any long-time owners who need to sell cutting their price aggressively? Or are they in the same state of denial as all the “investors” in NoVA?
Personally, my exit and re-entry costs will equal or exceed any anticipated drop in values. Not even putting a value on my time, effort, loss of interest rates, and general headaches that such an endeavor would cause.
No one’s asking you to sell. My friend owns a house in Falls Church. 15-year mortgage on original 170K loan obtained in 2001. She’s in at about 5% fixed interest rate, too. That sucker’ll be paid off in no time, which is her goal. She’s *very* conservative and has no other debt, always pays cash. Current “value” of property is 450K but she doesn’t care.
Sounds like a good plan.
That’s not conservative, just common sense.
Not always possible, though. We were planning to make a switch to a different house, different neighborhood. Timing the move matters if you are going to move anyway. We will therefore be in a rental for 2-years. One of those years is in Europe, so Im not complaining.
If your friend was smart, she would sell and rent and lock in gains. Houses are replaceable. She’ll be able to buy another, better one for the same or less money.
What is is about home owners and stock investors ? Somehow they all understand the concept of buying a stock or a house when it is going up, but NOBODY understands the concept of selling the asset when it is going to go down. Somehow stock investors think sitting is cash is a sin. Stupid. The markets have fallen for nearly the last 2 weeks and yet everyone is still fully invested.
What about transaction costs in and out, moving costs, stress and effort, and giving up a house you love and a 5% interest rate?
What about the 30% bath you are going to take on that house in the next year. Transaction costs are low if you don’t use a
con managent. Giving up the house you love ? You’ll find another. 5% interest rate ? What about the upcoming 8% mortgage rate on a depreciation asset ? There are places to invest that will yield more than 5% and after the house has depreciated you can buy it back for 30%-50% less and pocket the rest. Now that is a smart investment move.It takes less than a week to move a house. Small amount of work for a big gain.
When was the last time you sold a house, moved to a rental, and then rebought and moved again several years later?
Have you seen any long-time owners who need to sell cutting their price aggressively? Or are they in the same state of denial as all the “investors” in NoVA?
I’ve heard of it happening sporadically, but I’d say that most sellers are still completely delusional. They can’t believe that the market has turned like this and it’s not coming back. Many of them bought in at the top and don’t know what the hell to do now. They can’t slash the price $100K like the builders are — they have no equity and they sure don’t have $100K to bring to closing. So they’re hoping and praying that things will turn around before they’re forced to default.
John in VA,
Can’t speak to that part of the US but here outside of Portland, OR it was just dead all around! Very little traffic (auto, RE, foot or otherwise!) Just dead. Granted the weather sucked (as is our tradition) for Memorial Day but even quite by our standards. I see fuel prices already impacting the consumer and they damn sure ain’t looking at houses!
You folks had wonderful weather a couple weeks ago when I was there. It hit 92 one day; I’ll bet you (collectively) were complaining it was too hot.
92? Sounds like hell on earth!!
Comment by John in VA
2006-05-30 09:32:21
OT, but I was talking to a guy today who works in real estate in NoVA, and I asked him about activity over Memorial Day weekend. “Dead,” he said, “Absolutely dead.” He went on to tell me that he knows a realtor who has 33 active listings and didn’t get a single phone call all last week for any of the listings. “Not even a caller with a question about one of the listings. It’s incredible,” he said.
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Too funny!!! I wonder how long it will take before the collective RealtWhore base begin lobbying anyone they can for relief….. They’ll make tax whiner groups like fairtax.org seem like mature adults.
read the internet, eh
3-6 months and ALberta will tank too
“If they don’t there is another person right behind who will….”
…Until one day (soon) when there’s no GF.
Actually, Alberta may be one of the markets that is different. Because of the oil sands, actual end user demand is higher. Some employers have resorted to using tents to house employees because housing supply is far below demand.
Not in Calgary ! You are speaking of the oil sands where there are housing camps for out of town workers. There are no tents in Calgary, I’m pretty sure.
Nice story to explain the bubble mania. The trouble with your story is that the oil price mania correlates strongly with the housing price mania, and when the inevitable bust arrives, the oil patch in Alberta will learn first-hand what happened to the Texas housing market in the mid-1980s.
Calgary is no stranger to the oil market boom / bust cycle. I know it seems that fuel prices may stay high for a long time, but should they fall Calgary is out of luck.
Austin Martin,
Umm… I refuse to believe that any place is “different” other than perhaps Manhattan.
In California it was the “rich Asians moving to the US”, in S. Florida it was the “rich South Americans”, in Washington DC it was the “solid government jobs”, in Killeen/Temple it’s the “huge military base with solid jobs”, yada yada yada.
Two places are different Manhattan and Monte Carlo.
The Manhattan difference is more-than-priced-in already, which may explain why no less than Mayor Bloomberg has predicted a housing market correction for his fair city (which I assume especially pertains to the pricy Manhattan zone).
Manhattan is not immune from economic forces–when there’s a recession, Wall Street won’t be able to keep inflating the local bubble. NYC will likely always be a relatively expensive place to live, but that’s a very different thing from real estate prices always going up.
Seeing more rental listings for apts. in Brooklyn that look like failed flips, speculators that couldn’t sell, and they’re trying to get enough rent to cover their mortgage. So the rents are very high, even compared to the already inflated rents around here.
But in this case the people have already moved there, the population has increased, and incomes are way up. It’s not the hypothetical “people will be moving there in the next 10 years”.
People come and people go. I remember in 1998-2000 here in Bay Area, apartments were housing 7-8 Indian Java programmers, rents were insane. Then everything collapsed, programmers packed up and left, and streets became literally empty.
The same with the oil boom. It’s not the first, and it’s not the last.
This could never happen again… right ?
http://history.cbc.ca/history/?MIval=EpisContent.html&series_id=1&episode_id=17&chapter_id=3&page_id=1&lang=E
Don’t forget Santa Claus and the Easter Bunny.
“The bizarre situation in which consumers are contractually bound to pay a final price yet to be determined has been going on for the past few months……For that deposit, consumers are usually signing a contract that binds them to buy the house once it is completed. The final price is dependent on what type of costs the builder incurs. The prices rise as costs rise…….the average price of a home in the city was rising as much as $500 per day.”
This looks like an accident waiting to happen. Are they not following what is going on here in the US?
“The final price is dependent on what types of costs the builder incurs.” WHAT?!? And, of course, there is no way to track cost increases as time goes by, right. No way to figure out what the house is really gonna cost them. And interest rates? Another question mark, yes? Would they be locked into a rate, or is that also hanging in the balance?
What is WRONG with sheople? They’d save more money by just giving a set amount to an email scammer and say thanks for taking my money. I am just too through with dumb asses.
BayQT~
What I found more quizzical is what lender in their right mind would finance any home in this type of speculative market? O.K 20% down is about 19.99% more than the avg. American puts down but still! Housing bubbles in Alberta? What next!
20% of the value of the lot, not the house and lot. And who says the “owner” is actually putting that in. Or if he is, that is going to stay in after the first HEL.
A Calgary boom is nothing new at all. I just don’t understand why the average price in Nova Scotia was apparently up 37% yoy in April (48% in Halifax). I think CREA has messed up their numbers:
http://www.crea.ca/public/news_stats/statistics.htm
Looks like I’ll be the contrarian on this thread…
Alberta really is different. There is only one place in North America that is seeing a massive economic boom which promises to continue for the next 30 years, and its Alberta. You have to remember that Canada is sitting on more oil than Saudi Arabia, and the vast majority of it is in Alberta. As the middle east goes down the tubes (and I firmly believe that things haven’t even started to get bad yet) Canadian oil will become vastly more important. And we shouldn’t forget that China has 300,000,000 middle class consumers who are buying cars now.
There’s no question that housing is due for an enormous fall, and I believe that plunge will be global. The economic factors of low interest rates, lax loan requirements, and demography all made housing into ‘a perfect storm’ which is now getting ready to blow over.
But the economic factors that are building Alberta’s economy are completely different. And they’re just getting started.
Fair enough, but there’s no shortage of available land there. Alberta makes Wyoming look crowded.
I totally agree, bubbly. I’ve been to Alberta many times. They could build millions of new homes there and still have plenty of room to spare. Besides, a lot of that oil is in the oil sands way up north by Ft. McMurray. Very, very cold.
If this is true, Alberta is not different…..It’s supply and demand. To many people and too few houses. When the supply of houses matches the number of buyers, it will settle down. If the supply exceeds the demand, prices will fall.
Alberta is also not different in dealing with the global credit bubble. Lots of cash looking for somewhere to buy
“And they’re just getting started.”
Yeah… where have we heard that before ? Anyone remember 1978 ? By 1981 you couldn’t give a house away in Alberta. Sure, this time it is different. Yep. What do you think is going to happen to oil demand when half of California is bankrupt ?
And the supply of homes will eventually catch up with demand. And when it does there won’t be a shortage and the price will fall.
“There is only one place in North America that is seeing a massive economic boom which promises to continue for the next 30 years, and its Alberta.”
Boom, yes. A “promise” to continue for 30 years? Su-u-u-re…
Most of the “oil reserves” in the Alberta tar sands are unrecoverable.
Recoverable reserves require massive amounts of natural gas to extract and process the tar into oil. Canadian natural gas reserves will be exhausted in 10-12 years at current consumption rates. Imported liquid nat gas (LNG) will be prohibitively expensive. Long before nat gas reserves are exhausted, the 80% of Canadians who depend on nat gas for heating will demand it is used for that, not processing tar (turning gold into lead) in Alberta.
Tar sand oil producers know all the above, which is why they’re trying to get a nuclear power plant built up there, though locals won’t allow it (NIMBY) and they’d need to break ground for construction soon to get it up and running in time, which won’t happen.
Even if nuclear power worked and Alberta tar sand processing output doubled to 3 million barrels per day, it would only just meet Canada’s current daily oil demand. And even if Canada sold all of that to the US, it would only meet a fraction of the US’s 23 million barrels/day demand.
Alberta ain’t so different after all.
I once heard a story about a guy who used to live in Alberta. One morning his newspaper was thrown far away from his door and he had to pick it up himself. It was a windy and 40 below day and bang! the door was slammed shut and he would have been frozen to death in his pajamas had one of his neighbors not answered the door for him.
Dont lick the ice! A friend of mine told me once of how he let the family dog out in an Edmonton January. They found the poor pooch whimpering with his tongue frozen to an icicle.
(c. 1980)
“HOUSTON really is different. There is only one place in North America that is seeing a massive economic boom which promises to continue for the next 30 years, and its HOUSTON. You have to remember that TEXAS is sitting on more oil than Saudi Arabia, and the vast majority of it is in close proximity to HOUSTON. As the middle east goes down the tubes (and I firmly believe that things haven’t even started to get bad yet) TEXAN oil will become vastly more important. And we shouldn’t forget that China will have 300,000,000 middle class consumers who WILL BE BUYING CARS in 20 years”.
Ahh yes, Alberta IS different…Much different than say…Houston. Good luck with that.
-dd
The difference is, that Alberta isn’t in a “housing bubble”, per se. The fundamentals(although you might think the fundamentals are a bubble) are there. So oil may be in a bubble, but for now, housing in that area isn’t.
Throwing money and not caring about the price sounds pretty bubbly to me.
This situation gets at the essence of bubbles. There is always a fundamental factor which explaines why the bubble zone is different, but then the demand side of the market runs amok with the story and pushes prices up to far more extreme levels than the fundamental factor would rationally justify. Those like Austin Martin who claim the price runup is explained by fundamentals tend to overlook the question of whether the “fundamentals” themselves are sustainable, not to mention the housing prices they carry along.
Austin,
What fundamentals? It went from 250k to 340k in one year, It’s now almost as expensive as Toronto. That’s a lot for a cow town.
So what are you saying, A.M…..that all the middle-class folk can easily afford to buy SFH/condo/townhouse? ….that salaries increase well above the cost of living?….that if someone purchase, say 2 or 3 such homes that they wouldn’t have problems renting them out and having that cover their cost-of-ownership?….that funny-money (voodoo loans) are not necessary to realize the dream of homeownership?…and the incomes that are “up”, as you say, is that for everyone, or in the circle that you run in?
Just curious. Please explain with more details. Help us understand why and how the fundamentals work in the market there.
BayQT~
A bubble is defined as when the price doesn’t reflect the fundamentals. For example with housing, the price goes up while the earnings(rent) doesn’t. If the earnings are going up lock-step with the price, then there is no bubble. If incomes, rent, and population are all going up, those are the fundamentals that drive housing prices.
A lack of fundamentals does not define a bubble. In fact, all bubbles get started because the fundamentals support a rise in the value of a particular asset..initially. And then pure greed takes over, panic sets in…and people start putting money down on houses they haven’t even seen yet.
it has been stated many times that a bubble is when the prices get ahead of the fundamentals. So in order to prove a bubble exists in an area, you need to show that they are out of whack, i.e. if rents aren’t increasing, etc. A price increase in itself isn’t a bubble. All I’m saying is that of all the areas, this one may or may not be a bubble.
LOL. I was thinking this same thing!
OT…
I wonder if real estate appraisors take incentive information when looking at “comperable” sales. And if they do, I wonder what they do with the data.
And even if they do, I wonder how much of that information is available to them. From what I understand, “incentives” do not get listed on the sales statistics.
Any thoughts?
Comment by John in VA
2006-05-30 09:32:21
OT, but I was talking to a guy today who works in real estate in NoVA, and I asked him about activity over Memorial Day weekend. “Dead,” he said, “Absolutely dead.” He went on to tell me that he knows a realtor who has 33 active listings and didn’t get a single phone call all last week for any of the listings. “Not even a caller with a question about one of the listings. It’s incredible,” he said.
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….Too funny!!! I wonder how long it will take before the collective RealtWhore base begin lobbying anyone they can for relief….. They’ll make tax whiner groups like fairtax.org seem like mature adults.
Thread OT - But interesting.
CHINA: The Chinese financial system is carrying about $700 billion in bad debt and may experience $220 billion in losses, according to a report released by Fitch Ratings. The losses could completely wipe out the capital holdings of some banks, the report added. The report’s bad-loan estimate, which includes future loans that are not yet nonperforming, is larger than the government’s official estimate of $164 billion for bad loans.
China is pretty much a closed society with little access to information that the party does not want you to have. I wonder just how bad it is over there. I wonder if (as holders of some of the US debt) it could impact here.
Very interesting, sigalarm. Where did you get that info ?
That information came from a public domain intelligence report from “Stratfor”, a research firm that focuses on geo-politics.
sigalarm, I’ve been following this as well. China is rife with corruption and their banks are propping up many money-losing state-run businesses. Hot money is pouring into all kinds of ridiculous ventures, just like the dot-com bubble. Their banking system and capital markets are very immature and not at all prepared to deal with a major crisis. I remember America’s awe and wonder of Japan Inc — until they cratered and we came to realize that it was all just a big bubble.
Sounds like a little island country that was going to take over the world in 1990 with their “reinvention” of management and manufacturing. LOL.
I’m with the China naysayers here. There’s so much hype about China (and India), how we’re falling behind it, etc. You almost never read anything skeptical about China’s future prospects. And that lack of skepticism is what makes me HIGHLY skeptical about China as an economic force. As others have pointed out, it’s just like Japan 20 years ago. As a student my teachers encouraged me to learn Japanese, as Japanese business supremacy was a certainty. We would all be working for them and we would have to conform to their ways in the end.
CEO’s are drooling over the potential of tapping the 1 billion+ Chinese market. It seems like everyone is forgetting one inconvenient thing about China: they’re still a Communist country! If the $hit hits the fan there how safe will your company’s multi-billion dollar investment be?
I couldn’t agree more. Anyone remember the Asian currency crisis of 1997 ? http://en.wikipedia.org/wiki/Asian_financial_crisis
Something is brewing in the world economy. NY and NASDAQ sold off again today. Sure, the consumer is getting hit and housing is going to crash. But investors aren’t that smart yet. They haven’t figured out that is still on its way.
Something else is amiss. I think that hedge funds must be pulling money out to cover margins or something.
I’m tired of hearing about China, China, China.
Totally OT but this is great! Someone finally posted an ad in the paper How to Buy a $450K Home for $750K
I just wish I knew what paper it was in
http://www.oftwominds.com/blogmay06/RE-ad.html
That is great, I would like or an add to show up in the local paper exactly like that one.
Arwen U said . . .
“My friend owns a house in Falls Church. 15-year mortgage on original 170K loan obtained in 2001. She’s in at about 5% fixed interest rate, too. That sucker’ll be paid off in no time, which is her goal. She’s *very* conservative and has no other debt, always pays cash. Current “value” of property is 450K but she doesn’t care.”
What do you mean, she doesn’t care? Do you know what the taxes are on that sucker? Falls Church taxes are recalculated annually according to “fair market value.”
From the Falls Church tax collector’s Web site:
“The Real Estate Assessor’s office assesses every parcel located in the City annually at 100 percent of fair market value as required by Section 58.1-3201 of the Virginia Code. The goal is to assess and maintain real property information in the City of Falls Church in a fair and equitable manner to ensure that each taxpayer bears only their fair share of the real property tax burden as determined by the City Council of Falls Church.”
Buying something price-unseen?! Wow, sounds like the U.S. health care model. I didn’t have insurance for the longest time, and paid cash. I would ask how much a visit or expense was going to be before they gave it to me, and the receptionists and doctors looked at me like I was speaking another language. Glad to see this nonsense has made it to another sector!
Social Security comes to mind as well.
During the South Sea Bubble:
oops, see below…
or above? Yikes…someone stop me!
Everybody remember a story from Spring 2005 about some people in Arizona buying houses sight unseen? How much has changed in a year. Now I know how the British and the Australians felt when they saw this madness in the US. Vancouver/Calgary are no different than the ther places that had housing bubbles, they’re just late. My BIL is an “investor” in Vancouver, and I tell him what’s happening in Miami and he won’t listen. Oh well, there’s nothing I can do but warn him.
As far as Calgary goes, I’ve been there, it’s just a cow down in the middle of the prairie. They can’t even use that “everybody wants to live there” excuse like Vancouver can, and their Olympics were in 1988!
I agree that Calgary is a bubble. Check out the Calgary bubble blog:
http://www.calgary-housing-bubble.blogspot.com
Houston has the same problem as Alberta.
http://www.bloomberg.com/apps/news?pid=10000103&sid=agQL9qJSGK6U&refer=us