Martin Crutsinger
USA Today

WASHINGTON — Construction of new homes plunged to a record low in January as all parts of the country showed big declines in building, but mortgage applications jumped in the most recent week as rates dropped.

The Commerce Department says construction of new homes and apartments dropped 16.8% last month to a seasonally adjusted annual rate of 466,000 units. That’s well below the 530,000 units economists expected, and was the slowest pace on records dating back a half-century.

Applications for building permits, considered a barometer of future activity, also dropped to a record low, falling 4.8% to a rate of 521,000 units, slightly below economists’ expectations.

While the news isn’t good for the construction or real estate industries, the low level of new-home construction should help reduce the backlog of unsold homes over time.

Compared with January 2008, housing starts were off a record 56.2% and permits plunged 50.5%. Completions slumped a record 41.7%.

In the mortgage market, applications soared last week as fixed mortgage rates dropped below the key 5% level, and demand for refinancings surged.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity jumped 45.7% to 875.3 the week ended Feb. 13. It was the highest reading since Jan. 16, and coincided with a 0.2 percentage point drop in average 30-year mortgage rates to 4.99%, the MBA said.

The MBA’s refinancing index climbed 64.3% to 4,472.9. The gauge of loan requests for home purchases rose 9.1% to 257.3, the MBA said.

In a third report Wednesday, the Federal Reserve said industrial production took a bigger-than-expected nosedive in January, largely reflecting shutdowns at plants making automobiles and related parts.

The report say production at the nation’s factories, mines and utilities fell 1.8% last month. Economists expected a 1.5% decline.

The continued weakness in home construction underscores the problems facing the housing industry, which is in the grips of the worst slump since World War II. Troubles in housing have pushed the country into a recession and also triggered the worst financial crisis in seven decades as banks struggle to cope with billions of dollars of losses in mortgages and other types of loans.

The new housing figures were released on the same day President Barack Obama is scheduled to announce his administration’s plan to reduce home foreclosures.

More than 2 million American homeowners faced foreclosure last year, and that number could soar as high as 10 million in the coming years depending on the severity of the recession, according to a report last month by Credit Suisse.

The new report said construction dropped 42.9% in the Northeast to a record low of 36,000 units at an annual rate. Building fell 29.3% in the Midwest to a record low 53,000 units, while it dropped 12.8% in the South to a new record low 246,000 units.

Construction activity fell 6.4% in the West to an annual rate of 131,000 units, slowest pace since October 1966.

The National Association of Home Builders on Tuesday said that its housing market index rose to nine this month, climbing one point off an all-time low as improved traffic by prospective buyers helped lift some builders’ confidence in future sales. Still, readings lower than 50 indicate negative sentiment about the market.

For all last year, the number of housing units builders started totaled 906,200, also a record low. That was down from 1.36 million units started in 2007. The previous low was set in 1991.

Contributing: Reuters

Copyright 2009 The Associated Press. All rights reserved

 

City faces choice of cutting its commitments or raising another $77 million

Kelly Sinoski, with files from Miro Cernetig
Sun

The cost of social housing at the Olympic Athletes’ Village has risen dramatically, from $65 million to $110 million, raising fears about the city’s ability to live up to its promises to build the units.

A staff report going before city council today estimates the city would have to invest a further $77 million to provide the 252 units of affordable housing it had committed to.

Council has already committed $32 million to the project.

The cost overrun, the latest in a series of financial woes for the Olympic village, means Vancouver‘s cash-strapped city hall will either have to invest the additional dollars in the village, or reduce its promise to put 20-per-cent social housing in the $1-billion development.

In 2007, it approved an interim increase to $95 million, the report said.

Vision Vancouver Coun. Geoff Meggs said the city will now likely struggle to live up to its promise and the public’s expectation to provide affordable housing as part of the village plan.

He noted the amount of affordable housing was cut under the Non-Partisan Association-dominated council led by Sam Sullivan.

The question now is how much social housing can be provided and how affordable it’s going to be, he said.

“These are staggering increases,” Meggs said. “I’m just wondering if anyone was paying attention to these costs. We really do need to find out how the city [estimate] fell so short.

“I’m as stunned as I think voters will be when they see this report. How do we achieve affordability and at what cost? If it’s in doubt, that’s a really serious setback.”

The news will be a major challenge to Mayor Gregor Robertson, who campaigned on creating more affordable and social housing in his three-year term.

Now, just two months into the job, he faces the possibility of cutting back social housing at the Olympic village or finding money to pay for it.

NPA Coun. Suzanne Anton said the city is committed to building the social housing, but notes the challenge is that “the costs are so high. These are very expensive units.”

She noted that when her council cut the number of units, it was “pilloried.”

“We cut back some social housing because we couldn’t afford it,” she said. “It would be wrong to cut back on this but we have to go find some more money.”

The report suggests the development design, increased floor space, and escalating costs in Vancouver‘s construction market all contributed to the rising costs.

But Janice Abbott, executive director of the Atira Women’s Resource Society, said the city can’t afford to abandon the social housing project or reduce it.

“They need to find a way to maintain the social housing, regardless of cost; they’re going to have to work with the provincial and federal governments,” she said. “We don’t have enough non-market housing in the city.

“This promise was made to all of us in Vancouver.”

Abbott said she finds it surprising that city officials are just now raising the alarm over the costs. “Somebody should have known,” she said.

Meggs said the public should be consulted.

“We may have to go back to the public and get advice on how to solve this problem,” Meggs said. “We want to have affordable housing; not just there but across the city.”

Under the development deal, the city is responsible for financing any extra costs to the social housing. Over the last year, city council has repeatedly signed off on those extra costs but the new report now presents a tally.

The social housing cost overrun is in addition to $125 million in extra construction costs already reported in building the market condos in the Olympic development.

Costs for a community centre in the village have also risen from $28.5 million to $35 million, the report said.

© Copyright (c) The Vancouver Sun

 

David Baines
Sun

Bad news for investors in the Trump Ocean Resort Baja, a proposed luxury condo-hotel development in Mexico that has hit the skids.

The project was being marketed exclusively by Vancouver-based S&P Destinations Ltd., owned by Sid Landolt and Peter Dupuis.

In an interview Monday, Landolt said his firm had “considerable success” marketing the project, but he couldn’t recall the total dollar amount of pre-sales.

Forbes reported that 70 per cent of the units in the first tower, worth $122 million, were sold in one day, bringing in $25 million in deposits. In the second tower, one-third of the units were sold in the first day.

While the marketing campaign was a success, the actual development was a bust.

The developer, Irongate Wilshire LLC of Los Angeles, advised investors late last year it was still looking for financing. It also told investors that their deposits, totalling more than $32 million, had been spent.

What happened to the money is not clear. According to the San Diego Union-Tribune, the developer didn’t even break ground. Forbes reported there are “only holes in the ground.”

It is now clear that the project is dead, and investors will not get their deposit money back.

Landolt said most investors are located in the southern U.S. One Vancouver man told me last week that his sister, who lives in Orange Country, Calif., had lost her deposit of $220,000.

Landolt says his firm was simply the middleman. It collected the deposit cheques and forwarded them to the developer. He said investors were informed in writing that the deposits would be used for construction purposes, rather than being held in trust.

“This situation is completely out of our control,” he said. “It was not manufactured by us, but we are finding ourselves right in the middle.”

He said his firm has received several complaints, and one investor has already filed a lawsuit against the firm.

“This is an extremely difficult situation,” said Landolt. “Nobody at S&P feels good about this.”

Meanwhile, another mega-project that was being marketed by S&P has come to a crashing halt.

The Wyndansea Ocean Front Golf Resort in Ucuelet, a $650-million project being developed by Marine Drive Properties, sought creditor protection last month, hoping it could restructure its affairs and salvage the project.

“Despite an inventory of readily saleable real estate, we are unable to meet our current liabilities,” Marine Drive president and CEO Elke Loof-Koehler said in an open letter.

Last week, B.C. Supreme Court Justice Bruce Butler determined that any compromise plan was “doomed to fail” and revoked the creditor protection, which means the project will be liquidated.

Landolt said S&P sold residential lots only, and those sales were completed and title transferred to the owners, so no deposits were lost.

“Personality is not all that Mr. Petrossian has going for him,” Eddie Petrossian, B.C. Conservative party candidate for West Vancouver-Capilano, immodestly states in his biography.

“Eddie has worked for several Fortune 500 companies such as Primus Telecommunications, Canaccord Capital, and Sprint Canada.”

When I mentioned to Petrossian that Primus and Canaccord have never made the Fortune 500 list, he didn’t disagree. “I stand to be corrected on that,” he said.

I also noted he made no mention of Edward Jones, the investment firm where he worked from November 2002 to November 2004.

That job did not have a happy ending. He was fired and ended up facing a disciplinary panel struck by the Investment Dealers Association, the regulatory body for errant brokers.

In its decision, the panel said Petrossian had been rooting around mailboxes in the lobby of his girlfriend’s apartment building when he noticed an unopened letter from a brokerage firm, addressed to a woman he had never met.

He opened the letter and found a statement of her account. He reviewed the statement, put her name on his prospect list, located her new address and forwarded the statement to her, along with a typed note:

“It’s been some time since we last discussed your investment,” he wrote, even though he had never even talked to her, let alone discussed her statements. “I feel now is a good time to get together and review how those investments are doing.”

In handwriting, he added, “I’M SURPRISED BILL HASN’T CALLED YOU TO UPDATE YOUR ADDRESS! SO MUCH FOR HIS SERVICES! I LIVE AT #703-1415 W. GEORGIA. I REC’D YOUR MAIL. AREN’T YOU LUCKY? THANKS.”

In fact, he didn’t live at that address, and he didn’t receive her mail. He had intercepted it.

Referring to her portfolio, he made several notations: “THIS STUFF IS TOO RISKY! … GOING NOWHERE! … DIVIDENDS FALLING!”

The woman’s sister found out what he had done and complained to Edward Jones. Petrossian initially denied opening the mail, but when confronted with the evidence, he admitted he had. Several days later, he was fired.

The disciplinary panel said his actions amounted to fraud: “We agree with counsel … that this conduct nullifies any implied presumption of good moral character.”

The panel noted that, after being fired, he was unable to find brokerage work in Vancouver. In April 2005, he moved to Toronto and joined Canaccord as a broker’s assistant. A condition of his employment was that he get re-registered, but he couldn’t because his disciplinary problem hadn’t been resolved. After three months, Canaccord dismissed him. This was the extent of his employment at this so-called Fortune 500 company.

The panel also found that, while working at Edward Jones, he knowingly prepared and published advertisements promoting coupon rates for bonds, when he had been expressly told he could only advertise yields to maturity.

He had also been told not to advertise himself as a Certified Senior Advisor, but he nevertheless used the designation to promote himself in four ads over the next three months.

Although he admitted his breaches and expressed remorse, the panel said he still didn’t seem to “fully comprehend the gravity of his conduct.”

The panel fined him $30,000, assessed $5,000 in costs, and suspended him for 12 months. He never returned to the brokerage industry and is now working for his family’s business, an auto-wrecking company on Mitchell Island.

“Everybody makes mistakes in their career,” he told me Monday. “I didn’t defraud anybody. I admitted to my mistakes. I just want to put this behind me.”

Petrossian is running for the provincial legislature in the upcoming election, to be held on May 12.

© Copyright (c) The Vancouver Sun

Investors are on the hunt for deals, economist says

Brian Morton
Sun

With home sales — and prices — dropping in B.C., is now a good time to invest in real estate?

The B.C. Real Estate Association says it just might be, pointing to a large drop in carrying costs for an investment property today compared to a year ago.

“It doesn’t matter what the market is doing, I don’t say whether or not it’s a good time to buy,” association chief economist Cameron Muir said in an interview on Monday. “That being said, I would suspect investors are actively looking in the marketplace for bargains. If you compare today versus a year ago, investing in real estate is more attractive than it was then.”

Muir made the comment after the release of an association housing survey Monday that concluded the residential sales dollar volume on B.C.’s Multiple Listing Service declined 61 per cent to $873 million in January, compared to the same month in 2008 when sales totalled $2.25 billion. In the Metro Vancouver region, the sales volume was down 62 per cent over the same period, to $413 million from $1.09 billion in January 2008.

Muir — who said he also believes sales activity in the province will pick up in the spring because of improving affordability resulting from lower mortgage rates and home prices — cited a typical mortgage payment for a property in January 2009 compared to January 2008.

He said the benchmark price for a two-bedroom condo in Metro Vancouver was $334,602 in January, 11.5 per cent less than the $378,336 the same condo would have sold for 12 months earlier. A typical posted five-year fixed-term mortgage stood at 5.79 per cent in January, much lower than a similar mortgage rate of 7.39 per cent the previous January.

Therefore, he said, a condo with a 10-per-cent down payment (on a 25-year amortization) would have resulted in a monthly mortgage payment of $1,890 this January, nearly $600 less than the January 2008 mortgage payment of $2,468 (property taxes, maintenance fees and mortgage insurance fees not included).

On top of that, he said, there’s upward pressure on rents with the same two-bedroom condo renting in October 2008 for about $1,507 a month — a five-per-cent increase from October 2007.

“For both investors and home buyers, your mortgage payment would be several hundred dollars less than a year ago,” said Muir, who noted that investors have so far not been very active since the economic downturn started last year. “As an investor, the cash flow from the rent will more closely match your mortgage payment on the property.”

The BCREA survey also showed that residential unit sales fell 57 per cent to 2,115 units during the same period.

The average price on the MLS in B.C. was $412,934 in January, down nine per cent from the same month last year, the survey noted.

Muir said that home sales were sluggish in January, reflecting an overall malaise in consumer confidence and a weaker provincial economy.

Muir said that first-time buyers are especially impacted by the economic news and are holding back because of a lack of confidence. “Demand from first-time buyers has been off significantly. First-time home buyers tend to be younger and not have years of experience in their occupations. Therefore, they have more concerns around job security. They’re more vulnerable to layoffs.”

Despite that, he said, the BCREA expects sales to rise this spring because of greater affordability and lower interest rates.

Muir noted that realtors are reporting increased activity from buyers over the past three weeks, but that it hasn’t yet materialized in sales statistics. “By all accounts, there’s increased interest.

There are more showings and more buyers kicking tires.”

Meanwhile, an Ipsos Reid poll released last week showed that a growing number of British Columbians think this is a good time to buy a home, though most say it isn’t a good time to sell.

The poll found that some 71 per cent of respondents said it is a somewhat good or very good time to buy real estate. In November, only 60 per cent of respondents told Ipsos Reid it was a good time to buy.

In the latest poll, though, 82 per cent said this is not a good time to sell a home.

The poll also found that British Columbians’ expectations for falling prices are changing, with just 42 per cent of respondents saying they expected prices to be lower 12 months from now compared to 57 per cent in November.

The association represents 12 member real estate boards and about 18,000 realtors.

© Copyright (c) The Vancouver Sun

 

B.C. real-estate prices dropped almost nine per cent from January 2008

Province

The economic downturn delivered an enormous hit to B.C.’s housing market as the year began, figures released yesterday show.

Residential sales volume across the province tumbled 61.2 per cent to $873 million in January from the same month a year earlier, the B.C. Real Estate Association said.

B.C.’s average residential price dropped 8.9 per cent to $412,934 last month from a year ago.

And residential unit sales plunged 57.4 per cent in the same period, the association said.

“Home sales were sluggish in January, reflecting an overall malaise in consumer confidence and a weakening provincial economy,” BCREA chief economist Cameron Muir said.

“Reports of an increasing number of consumers shopping for a home have yet to materialize in the sales statistics.

“The large selection of homes for sale in January likely reduced any sense of urgency for potential homebuyers to commit to a purchase.”

Improving affordability triggered by lower mortgage rates and home prices should boost sales activity in the spring, the association said.

In Greater Vancouver, the average residential price fell 8.8 per cent year over year to $536,162.

Sales dollar volumes in Greater Vancouver fell 62.2 per cent year over year, while unit sales dropped 58.5 per cent during the same period, the association said.

In Victoria, year-over-year dollar volumes dropped 52.9 per cent and unit sales fell 44.7 per cent.

The average residential price in Victoria dropped 14.7 per cent to $431,312. The average residential price in Powell River posted the province’s greatest drop, falling 23.4 per cent to $190,847.

© Copyright (c) The Province

Miro Cernetig
Sun

Shahram Malek is not a man who seeks the spotlight. Nor does the intensely private Malek clan, whose members prefer all discussion about their lives and their global empire’s finances to stay inside the family.

But he’s heard the rumours, too — the family company isn’t up to the task of building the $1-billion Olympic village. It won’t meet the completion date, just eight months away. And the one that really wounds — the family company, Millennium Development, is on the verge of going under.

“How do you deal with rumours like that?” he asks, hands clasped together and drawn up to his chest. “Do you go and take out an ad in the newspaper?”

Perhaps not. But when you’re at the centre of a media maelstrom, either you define yourself or others do it for you. So here he is, a multimillionaire sitting down with a columnist.

He suggested meeting in the private lounge of one of his hotels. Tea and coffee are served. A gas fire burns silently beside our plush chairs. Classical music, a little Pachelbel, occasionally some Wagner, fills the room. You strain to hear the soft-spoken, impeccably well-mannered developer.

“It’s very hard for me, what we read in the papers,” says Malek, adding that some mornings he has felt he’s in a dream. “We don’t like to be in the papers.”

Questions about the family’s financial situation cause him to shake his head and clench his hands tighter. He is adamant about the health of Millennium. It is just one, stand-alone entity in a family empire with interests in Europe and the Middle East.

“Certainly, we’re not insolvent,” he says. As for the potential losses from the Olympic village — some inside the city’s administration fear losses of $100 million or more — he dismisses the thought.

“We will break even,” he declares. “We think we will go beyond breaking even.”

And how will Millennium do so, with cost overruns already pegged at $125 million and a deep downturn in real estate cutting deeply into the Olympic village’s profitability?

Patience, he says. If the Olympic condos are sold off in “an orderly fashion,” over three or four years, “we can make money off the project and a good return on investment for all concerned.”

But can we trust Millennium to finish the project? The City of Vancouver has recently appointed an overseer to ensure the project stays on track. Privately, the city’s new administration worries Millennium is too small for the job and its tight construction schedules.

A flicker of frustration crosses Malek’s face. He and his brother Peter have built projects just as big, he says. In Iran, while in their 20s, the brothers oversaw construction of an equally massive village for the Asian Games three decades ago. There was pressure there, too: a helicopter, with the Shah of Iran its passenger, often hovered over the project. The Shah’s functionaries occasionally made it known that missed deadlines might mean jail time.

“If we were too small,” says Malek, “how would you have built a project like this [the Olympic village]? We have built large projects.

“We are truly believers of this project. We will finish it.”

We all should hope so. The Malek family has been hit hard by the global credit crunch. But unlike many of their developer peers, who have stopped construction to preserve cash, they are grinding ahead with no guarantee of profit.

After the Olympic Games, the condos used by athletes will go to market. First in line to get back their money will be the banks. Then it will be the city, owed more than $200 million for land and other costs. Then Millennium will absorb what’s left — whether that be profits or losses.

Look at this another way. If Millennium is forced to exit, as persistent rumours suggest, guess who absorbs all the risk of Millennium’s high-stakes gamble when the Olympic village is left without a developer? You got it — taxpayers.

© Copyright (c) The Vancouver Sun

Real estate investors on the hunt for deals, economist says

Brian Morton
Sun

With home sales — and prices — dropping in B.C., is now a good time to invest in real estate?

The B.C. Real Estate Association says it just might be, pointing to a large drop in carrying costs for an investment property today compared to a year ago.

“It doesn’t matter what the market is doing, I don’t say whether or not it’s a good time to buy,” association chief economist Cameron Muir said in an interview Monday. “That being said, I would suspect investors are actively looking in the marketplace for bargains. If you compare today vs. a year ago, investing in real estate is more attractive than it was then.”

Muir made the comment after the release of an association housing survey Monday that concluded the residential sales dollar volume on B.C.’s Multiple Listing Service declined 61 per cent to $873 million in January, compared to the same month in 2008 when sales totalled $2.25 billion. In the Metro Vancouver region, the sales volume was down 62 per cent over the same period, to $413 million from $1.09 billion in January 2008.

Muir — who said he also believes sales activity in the province will pick up in the spring because of improving affordability resulting from lower mortgage rates and home prices — cited a typical mortgage payment for a property in January 2009 compared to January 2008.

He said the benchmark price for a two-bedroom condo in Metro Vancouver was $334,602 in January, 11.5 per cent less than the $378,336 the same condo would have sold for 12 months earlier. A typical posted five-year fixed-term mortgage stood at 5.79 per cent in January, much lower than a similar mortgage rate of 7.39 per cent the previous January.

Therefore, he said, a condo with a 10-per-cent down payment (on a 25-year amortization) would have resulted in a monthly mortgage payment of $1,890 this January, nearly $600 less than the January 2008 mortgage payment of $2,468 (property taxes, maintenance fees and mortgage insurance fees not included).

On top of that, he said, there’s upward pressure on rents with the same two-bedroom condo renting in October 2008 for about $1,507 a month — a five-per-cent increase from October 2007.

“For both investors and home buyers, your mortgage payment would be several hundred dollars less than a year ago,” said Muir, who noted that investors have so far not been very active since the economic downturn started last year. “As an investor, the cash flow from the rent will more closely match your mortgage payment on the property.”

The BCREA survey also showed that residential unit sales fell 57 per cent to 2,115 units during the same period.

The average price on the MLS in B.C. was $412,934 in January, down nine per cent from the same month last year, the survey noted.

Muir said that home sales were sluggish in January, reflecting an overall malaise in consumer confidence and a weaker provincial economy.

Muir said that first-time buyers are especially affected by the economic news and are holding back because of a lack of confidence. “Demand from first-time buyers has been off significantly. First-time home buyers tend to be younger and not have years of experience in their occupations. Therefore, they have more concerns around job security. They’re more vulnerable to layoffs.”

Despite that, he said, the BCREA expects sales to rise this spring because of greater affordability and lower interest rates.

Muir noted that realtors are reporting increased activity from buyers over the past three weeks, but that it hasn’t yet materialized in sales statistics. “By all accounts, there’s increased interest. There’s more showings and more buyers kicking tires.”

Meanwhile, an Ipsos Reid poll released last week showed that a growing number of British Columbians think this is a good time to buy a home, though most say it isn’t a good time to sell.

The poll found that some 71 per cent of respondents said it is a somewhat good or very good time to buy real estate. In November, only 60 per cent of respondents told Ipsos Reid it was a good time to buy.

In the latest poll, though, 82 per cent said this is not a good time to sell a home.

The poll also found that British Columbians’ expectations for falling prices are changing, with just 42 per cent of respondents saying they expected prices to be lower 12 months from now compared to 57 per cent in November.

The association represents 12 member real estate boards and about 18,000 realtors.

© Copyright (c) The Vancouver Sun

Take these valuable hints aimed at the best deal for you

Kristin Goff
Province

Sure, credit markets have gone wonky lately, but the good news for people renewing or shopping for a first mortgage is that wheeling-dealing days for consumers are still here.

Mortgage borrowers “still have lots of negotiating power, but you need to know what you can negotiate down to,” says Nelly Van Berlo, an Ottawa accredited mortgage professional and president of the Mortgage Source Inc., a franchise of the Mortgage Centre.

It takes some research, self-evaluation and shopping around to come up with a deal that’s right for you. Here are some tips on what to ask and where to find information.

Is that the best you can do?

You don’t have to be nasty when you ask, but don’t be shy either. Asking for a better mortgage rate than the posted rate has become so common that lenders factor it in when they set rates. Yet one common mistake people make is to automatically sign and mail back the deal their lender sends at renewal time. Even if they negotiated a better rate previously, the renewal document most likely is at posted rates, not the discount they got before, says Van Berlo.

Start shopping at competing lenders or at mortgage brokers, who represent a variety of lenders, to get information on your options.

If you find a better deal, ask your lender to match or better the rate. Be careful not to trigger credit checks by potential lenders as you comparison shop. Although it isn’t supposed to happen, Van Berlo says multiple credit checks can sometimes hurt a person’s credit rating.

What flexibility features and fees does the mortgage have?

Go for the product, not just the rate. Some “no frills” mortgages offer great rates, but potentially expensive costs if you need to get out of the loan agreement before the term is up. Ask about flexibility to make extra payments, increase the monthly or weekly payments.

What’s in your financial future?

Lots of people wonder if they should take a longer-term mortgage to lock in today’s rates for perhaps five years, or take a short-term approach and wait for rates to fall further. It’s helpful to look at all household debts, income, whether job security is an issue, and just how large a payment you can handle. You may also want to discuss your goals and strategy with a mortgage professional you trust.

© Copyright (c) The Province