American homebuilders and buyers are being hit but experts say the B.C. market is much healthier
Peter Simpson
Sun
American subprime mortgages have gone prime time in the media.
First made available in the 1990s to low-income families — many of them minorities, most with poor credit ratings — subprime mortgages helped boost the U.S. home ownership rate to nearly 70 per cent. Ah, the good life, picket fences and tree swings, the quintessential American Dream.
Well, for some it was good while it lasted. As mortgage interest rates began to creep higher, the rising monthly mortgage payments on variable or adjustable-rate mortgages caused homeowners to miss a monthly payment, then another, and another. When homeowners were unable to meet their financial obligations altogether, lending institutions were forced to foreclose.
The ramifications were far-reaching as the blame was spread liberally around.
The U.S. Senate Banking, Housing and Urban Affairs Committee blamed lenders for predatory practices, mortgage brokers for steering buyers into unaffordable mortgages, appraisers for inflating property values, investors for backing subprime mortgages without proper due diligence, and homebuyers for overstating their incomes on loan applications and assuming debt they could not service.
Westcoast Homes readers are likely familiar with the much-publicized Riverbend debacle, where a Coquitlam developer pulled the plug on sales contracts. That unconscionable act caused 32 families to lose their place in the housing market — property values throughout the Vancouver area had increased by a whopping 34 per cent since the families plonked down their down-payment cheques in 2005.
The opposite is happening in many U.S. regions. For Sale signs, some with foreclosure tags, dot the landscape in high-population centres such as California, Florida and northeast rust belt states. When the value of their homes dropped below what they owed on mortgages, homeowners walked from their once-coveted homes, leaving lenders and builders holding the bag on thousands of properties.
Earlier this summer, I joined 300 of my association counterparts from across the U.S. at a leadership conference in California. The mood was somewhat sombre. One housing analyst remarked with a sigh that housing starts in some markets were experiencing an “off-the-cliff decline.”
We were told the economic meltdown was spreading beyond real estate to consumer spending and job growth. Discretionary spending has been curtailed. Corporate boardrooms, too, are awash in worry — automakers about sagging vehicle sales; airlines about fewer travellers and higher fuel costs. Big-box, home-improvement retailers plan to cut staff to mirror the moderating housing market.
David Ellis, executive director of the 4,000-member Greater Atlanta Home Builders’ Association, told me last month his members are feeling the pain of a housing market in retreat.
Atlanta new home sales have dropped more than 25 per cent from last year. More declines are expected. Skittish buyers are walking away from sales contracts, abandoning deposits. Builders looking to salvage deals and gain an advantage over competitors are offering costly incentives such as finished basements, one-year leases on Mercedes, and free in-ground swimming pools.
Ellis might well be in the frying pan of homebuilding issues, but were it not for a timely career move, he could be sitting in the middle of a raging fire.
In 2000, Ellis lived in Naples, Fla., where he purchased a custom-built, family home for $320,000. In May, 2005, after accepting the Atlanta job, he sold his home for $608,000.
Sounds a little like Vancouver, doesn’t it? This is where the similarity ends, however.
The individual who purchased Ellis’s custom-built Florida home tried to flip it soon after the deal closed. Timing is everything, especially in regions where the real-estate pendulum can swing overnight. Ellis’s timing was perfect, but his purchaser, two years later, is still looking out the window at the weathered For Sale sign on his front lawn.
Known affectionately as God’s Waiting Room because of its burgeoning seniors population, Florida seems to be in a real-estate free-fall these days. Investors — a.k.a. speculators — are nowhere to be seen.
Many coastal condominium projects under construction got caught in the market collapse. At one, early-bird buyers paid $500,000 for their condos, then were shocked to learn similar units were later being marketed at $375,000. The result was predictable. The folks who paid half a million walked away from their commitment, and deposits. Some even threatened lawsuits to get the deposits returned.
Another shell-shocked developer dropped prices on his oceanfront condos from $600,000 to $400,000 in an attempt to cut his enormous losses. For sure, development is not for the faint of heart.
So, what’s going to happen throughout the Vancouver region? Experts say relax, what is happening in some U.S. markets will not affect us, that we are insulated by a potent economic environment.
The chief economist for the B.C. Real Estate Association, Cameron Muir, says housing demand is currently broad-based and both home sales and prices will continue to increase.
Canada Mortgage and Housing Corp. expects housing activity to continue its upward path, supported by income and employment growth, and high levels of overall consumer confidence.
Housing starts here are behind last year’s pace, likely exacerbated by horrid winter conditions and the Vancouver civic workers’ strike. Autumn is expected to be robust, and by year’s end we should see close to 19,000 single-family and multi-family housing starts for the fourth straight year — a healthy, sustainable housing market, with no significant spikes or dramatic drops.
As I left my American colleagues to deal with their housing demons, I thanked my lucky stars I was returning home to the Vancouver region, which, notwithstanding its affordability challenges and quirky political wrangling from time to time, is a wonderful place in which to live, work and play.
Peter Simpson is chief executive officer of the Greater Vancouver Home Builders’ Association.
SPECULATORS, LENDERS NEED NOT APPLY
Flanked by his secretary of housing, Alphonso Jackson (left), and his secretary of the treasury, Henry Paulson, U.S. President George Bush on Aug. 31 promised relief for American homeowners facing foreclosure.
One measure he announced, in a news conference in the Rose Garden of White House, would allow homeowners with a good credit history but who cannot afford their current payments to refinance into federally insured mortgages, likely at lower rates.
He also encouraged lenders to try to work out payment arrangements with financially strapped homeowners and urged Congress to pass additional relief measures.
The day after the news conference, the president put limits on his largesse: His administration “will not bail out lenders — because that would only make a recurrence of the problem more likely.
“And it is not the government’s job to bail out speculators, or those who made the decision to buy a home they knew they could never afford.
But I support action at the federal level that will help more American families keep their homes.”
