Read Between the Lines: Part 2 (Globe & Mail article)

Mike Fotiou says:  Reading through this post, it might sound like I’m negative on real estate (Ironic, I know) but I just wanted to balance the tone of the article which seemed more like a paid advertisement than a report.  Read this journalistic gem and source of my annoyance from the November 14th, 2008 Globe & Mail:

Real estate gets the Obama boost

When I read articles like this, it’s apparent why some have such a tarnished view of the real estate industry.  

The irony, Ms. McCann says, is that so many potential buyers plan to stay on the sidelines for a few months, she foresees a return to bidding wars when people crowd into the market all at once.

“If everyone waits until the spring, we’ll be back in multiple offers.” –

Fear.  Sense of urgency.   These are not tactics that should be used to market real estate.  Real estate is a product that sells itself – if it’s priced right.  By that, I mean priced right for you:

  • Can you comfortably afford the mortgage payments, property taxes, utilities, insurance, and any repairs that may arise?
  • Do you have some breathing room if interest rates rise at the end of your term?
  • Are you putting the minimum downpayment and choosing the longest amortization possible?  Why?
  • Could your property be rented out and cover all your carrying costs?
  • Would it be cheaper to rent a similar property?
  • Is this a purchase you are making with a long-term view in mind? 
  • Is this property being viewed as an investment, or a home?

“…believes people who are waiting for prices to fall further are missing an opportunity to troll for bargains now. The Bank of Canada has cut interest rates, listings are brisk and potential buyers are scarce.”

I cannot speak for the Toronto real estate market, but I’ll apply the comments for the situation here in Calgary.   Interest rates are low, and there is high level of inventory for single family homes and condos.    That’s great news for prospective buyers.   How about prices?

– “Another house she listed for $625,000 on St. Germain Avenue now has an asking price of $559,000.”

A poster commented on that sentence:  “SOMEONE’S BOUND TO BUY IT SOON SO GET IT NOW BEFORE THE PRICE DROPS EVEN FURTHER!!”     The sarcastic post rings with truth. Unless you wanted that specific home, what’s the rush?  It might’ve been $65k overpriced to begin with.  It might still be overpriced.

– “...also sees good opportunities in the market for investment properties. The rental market is hot, she notes, because so many people have been putting their plans to buy on hold.

She recently helped one client buy a house listed for $695,000. The client pays about $2,200 a month in mortgage costs but collects $3,000 a month in rent. 

“They have someone else paying off their mortgage.”

Yes, a rental property that pays for itself is great – but something just doesn’t add up in this scenario.  $695,000 home.  Only a $2,200 mortgage?

I plugged into the calculator:  4% variable rate mortgage, with a 35 year amortization, and the monthly mortgage payments were still over $3,000.    Her client either: 

a) had a down payment of nearly $200k
b) got a reduction of nearly $200k 
c) blend of ‘a’ and ‘b’

You can take two things from this: 

  1. Every property can have a positive cash-flow if you put a substantial enough down payment.  Whether or not that large downpayment would better serve you in other investments will be left to you and your Financial Adviser to discuss
  2. If the seller reduced their price by that much what does that tell you about the situation of the market?

“Benjamin Tal, senior economist at CIBC World Markets…adds that Canada does not have the subprime mortgage crisis that has hammered the U.S. housing market”

Perhaps not to the same extent, but still making an impact here in Canada:  (Macleans, October 22, 2008)

– “The 13-per-cent decline in Toronto’s average selling price reported for October, compared with the same month last year, is likely a distortion, he says. Mr. Tal points out that the market in October, 2007, was particularly robust because people were rushing to strike deals before the implementation of the city of Toronto’s land-transfer tax.  “It’s possible that the 13-per-cent, year-over-year drop was really an exaggeration. Statistics can be very dangerous.”  ”  –

I agree, statistics can be very dangerous when you can’t spin them to fit your opinion (snarky!)   What Mr. Tal is basically saying is that people rushed out to pay, on average, 13% more on properties just so they wouldn’t have to pay the new Toronto land-transfer tax.  

On a $500,000 home,  a Toronto buyer would now have to pay $12,200 in municipal and provincial land-transfer taxes (Calculator)    I can see why people opted to buy that home in October for $65,000 more so they could save on the impending $12,200 land-transfer tax (of which the new tax made up only $5,725)

In case you were wondering, Alberta does not have this land-transfer tax.

While some sellers have the luxury of waiting for a good offer, some homeowners are under pressure to sell, she adds. Perhaps they have to move because of a baby on the way, a marriage break-up or a job relocation. Or they may have bought another property before the market fell into the doldrums.

When those homeowners cut their asking prices, it will have a cascading effect in the neighbourhood because even sellers who are not desperate will feel they have to match the lower prices.

“When one person reduces, they all reduce because you’re fighting for the next offer,” Ms. McCann says. “They’re not desperate, but they have to lower their price to compete with the person who is.””-

This is obvious – the market is dictated by supply and demand.   She seems to be putting the blame on desperate sellers and saying this is why prices are dropping, not because the market as a whole is in trouble.   Again, I can’t speak for Toronto- but Calgary has a high amount of vacant houses and condos for sale and those sellers will probably be among the most motivated to reduce prices to sell.  Or they might end up renting their property out, hoping for a spring-time recovery because “prices always go up in the Spring.”  (There might be a Spring bounce, albeit a very brief one if the economy & inventory levels aren’t on board.  Public perception of the market will be a huge factor at that time)

Look over all the facts, statistics, and research at your disposal so you can make the most informed decision possible – and the best decision for you.

If you’re thinking of buying or selling real estate in Calgary, Chestermere or Airdrie, feel free to contact me.

Visit to search for properties in Calgary & area, view daily MLS stats, recent news, and more!

Mike Fotiou
First Place Realty
Direct: (403) 554-2284

Mike Fotiou is a licensed Realtor®, Accredited Buyer’s Representative®, and Certified Condominium Specialist.

9 responses to “Read Between the Lines: Part 2 (Globe & Mail article)

  1. Good article Mike.

    I want to buy a house next year but I won’t bite until prices get competitive with rent. I’ve been watching some house in the 330,000 range and they’ve all dropped from original prices of around 370-380,000. They were probably close to $400,000 at the peak. (Cochrane)

    That means a price of around $270,000 which also takes the price back to long term mean, more or less. Another concern is that the meltdown may mean further declines and I don’t mind losing a little because I’m buying this to be my home, but I wouldn’t buy if I thought I was going to lose 10% right off the bat and maybe more.

    I figure by the middle of next year we should know how far the sky will fall and I’ll also know how things are going to shake out for my business in the midst of all this turmoil.

    I think that’s where the market is at for most people. ‘Prices are falling so there’s no rush and we better wait and see if the sky will actually fall or not.’


  2. I totally agree with Glenn on this one , basically staying in park until this money thing blows over. Good time for everyone to take a good look at the bank account and pay some bills down.

    Thumbs up again Mike good article!


  3. How can the G&M get away as publishing that as news?

  4. Great post Mike!

    I posted on the same article and guessed that with a more conventional mortgage (25 years, 5% fixed rate) the down payment would have to be $320,000.

    Mike says: You’re right – I was trying to give them the benefit of the doubt and stretch the best possible scenario for their buyer. PS – sorry this post didn’t show up earlier, WordPress had filed it under SPAM.

  5. Rational Exuberance

    Great blog Mike! Really appreciate the honest assessment. Most in the RE industry and their parrots in the media are spinners, who will do anything and say anything to create a sense of urgency.

    Bottom line is that the past few years we had a RE bubble, just like many other places in the world. Once prices drop back to pre-bubble levels, inventories will clear and the market will return to “normal”, just rising about the rate of inflation 1-3% per year. right now, many homes are listed at double fundamental value (ie costs are about double potential rental income), so they have a long way to fall. 5% and 10% reductions are not going to change the supply/demand dynamic that much.

    For those who want to sell their house soon, lower your price to 10% below the lowest available comp, and you will sell, and get out with close to bubble peak prices, before the real carnage begins.

  6. Thanks for your comments everyone, it’s appreciated! All viewpoints are welcome so feel free to share your thoughts with others.

    November 1 – 15th comparisons 2005 /2006/2007/2008

    Single Family Homes

    Average Price: $308,590/ $405,320/$446,052/ $430,166
    Median: $269,000/ $375,000/$400,000/ $381,500
    Sales: 802/ 691 / 499 / 334
    Average Sq ft: 1528 / 1454 / 1511 / 1543
    Average LP/SP: 98% / 97% / 97% / 95%

  7. Anyone wish to comment on today’s article? 😉

    CMHC sees stable housing market

  8. Stable thats funny if anything I would say things are unstable. people are thinking twice about a lot of things now . just look at the markets down they go .

  9. First time on your site Mike, great post. Appreciate the honesty. Keep up the good work!

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