For a 100-year-old, the east Vancouver denizen doesn’t look too bad.
The bone structure is solid, but the skin is sagging and more than a bit of plastic surgery is required. There are a few screws loose, too.
The house near East 5th and Victoria is a fixer-upper, but that didn’t stop someone this week from paying $800,000 — $151,000 more than the list price — after a fierce bidding war for the property.
The scenario is playing out across Vancouver in hot neighbourhoods such as Mount Pleasant, Commercial Drive and Strathcona as buyers contend with tight supply, as well as with looming amortization changes and interest rate hikes.
Throw into the mix homebuyers who held off purchasing last year and it’s fuelling a “pretty crazy” market, said Rick Stonehouse, a realtor who specializes in east Vancouver.
“It’s been a very unusual beginning to the year,” said Stonehouse, whose clients – a young professional couple – offered $766,000 for the house. There were 20 offers, according to the listing agent.
The ramshackle place has a garage that leans to one side, missing shingles, a decrepit kitchen and an untamed yard. On the plus side, it has nice views, large bedrooms and an original fir floor.
Still, the high sale price had Stonehouse scratching his head. It didn’t take long this year for the market to get overheated, either — one property that was listed at about $1.1 million sold for $1.6 million in early January.
It’s quite a contrast to late last year, when “you could just feel the brakes coming on” starting in September, Stonehouse said.
Realtor Selina Jansen, who also had a client bidding on the house, says artificially low list prices are fuelling the bidding “frenzy.”
“Some people are notorious for it, and I think other people are now copying them because they’re having so much success with it,” she said.
Jansen’s client offered $711,000 for the East 5th house, one of three unsuccessful offers in the space of a week. In the others, her client — a professional woman — bid $811,000 for a house at East 14th and Knight that was listed at $789,000 and sold for $860,000. A home on Aubrey Place was listed at $749,000 and later taken off the market despite bids exceeding $800,000.
Mortgage broker Angela Calla of Dominion Lending Centre says bidding wars are dangerous because of the tendency for emotion to trump reason, resulting in the buyer paying more than what the lender determines its worth.
“Borrowers have gotten caught up in bidding wars like that when they focus too much on the emotional aspect and not really the fundamentals,” she said.
Knowing the assessed value of the property is an important piece of research, Calla said.
People entering a bidding war should also set a ceiling of what they can comfortably afford — and be prepared to walk away if it’s exceeded. Homes that are the subject of bidding wars often require work, so homebuyers should include renovation costs in their calculations, she advised.
Those bidding on a property also need to make sure the closing date falls within their pre-approval window to ensure the lowest possible interest rate, she said.
Various studies have identified Vancouver as one of the most unaffordable housing markets in the world.
For some, particularly first-time homebuyers, it gets worse on March 18. That’s when new federal rules take effect setting the maximum mortgage amortization eligible for Canada Mortgage and Housing Corp. insurance at 30 years, down from 35. For a homeowner with a $600,000 mortgage at a five-year closed rate of four per cent, that works out to an extra $200 a month.
Ottawa discontinued the 40-year amortization and zero down payment options in October 2008.
Interest rates are also heading up. TD Economics projects the Bank of Canada will raise its key interest rate from the current one per cent to three per cent by the end of 2012, and some of the big banks hiked five-year mortgage rates this week.
For those already testing the outer limits of their financial comfort zone, the looming lending changes compound the sense of urgency.
But it’s not only people rushing to beat the disappearing 35-year amortization period who are finding it a tough market to crack.
Miri Malkin and Gabi Kabazo, the parents of three children under 4, are living in a Yaletown condo while they look for a house in Vancouver in the $800,000 to $1-million range. The couple are pre-approved and plan a 40- or 50-per-cent down payment.
They’ve been looking since May, but have yet to put in a bid because all the houses they’ve looked at are either fixer-uppers or don’t have enough space for their family. They would prefer to live in Vancouver rather than move to the suburbs.
“It’s very frustrating,” Malkin said. “We’re willing to pay but we can’t find anything.”
The couple, who moved to Vancouver from Israel in 2004, were looking in 2008 but didn’t buy because they thought prices might come down. One Arbutus townhouse they looked at was priced in the $700,000 range and is now listed for more than $1 million.
News of bidding wars in an overheating Vancouver market comes on the heels of a TD Economics report that identifies B.C. residents as most vulnerable to interest rate hikes, a housing correction or an economic downturn. The province’s average household debt-to-income ratio of 160 per cent is the highest in the country and matches levels reached in the U.S. just before the financial crisis and housing bust.
Tsur Somerville, director of the Centre for Urban Economics and Real Estate at the Sauder School of Business at UBC, is watching the real estate activity “with concern.”
“The only hopeful piece is that it’s just sort of a mismatch between people looking and available product,” Somerville said. Somerville, however, doesn’t believe Vancouver is at risk of a U.S.-style housing meltdown. Two characteristics that were prevalent south of the border are missing here, he said: fast and loose credit, and a lot of speculative product.
“I’m always willing to believe in a market adjustment or a market correction, but I’m not willing to believe that Vancouver’s going to be cheap,” he said. “So it’s just sort of what variant of expensive we’re looking at.”
For cash-strapped buyers rushing out to purchase now so they can get a 35-year amortization, TD Economics chief economist Craig Alexander, one of the authors of TD’s report, has a simple message: Don’t.
“If the only way you can afford a property is that you have to amortize the loan over 35 years versus 30 years, you shouldn’t be purchasing the property,” he said in a phone interview. “It’s that simple.”
Read more: http://www.vancouversun.com/business/your-money/Bidding+wars+break+tight+housing+market/4268800/story.html#ixzz1DhmsCGdk
This entry was posted on February 11th, 2011 | Posted in General