More on ridiculous discounts

Some more on the ridiculous discounts offered back in February:

The second building is located in Aldergrove, not far from West Edmonton Mall. It’s a terrific location, with walking trails on 2 sides of the building and with easy access to everything. Prices int his building normally range from $199,900 to $214,900 for a 2 bedroom and $178,900 to $188,900 for a 1 bedroom. He is asking us to sell these first 10 units at $155,000 for a 1 bedroom and $165,000 for a 2 bedroom.

We WILL NOT be reporting these sales to the MLS system so that these sales don’t bring down the values of the buildings.

Some of the condos in the west end are still on the MLS and asking $167,500 for a two bedroom. Anyway I found the google cache of the original offer on Feb 23rd here. Enjoy.

Millwoods condo follow-up

Anyone remember these condos? The ridiculous discounts?

The 1 bedrooms normally range in price from $179,900 to $190,900. The 2 bedrooms range from $204,900 to $227,900.
...
The developer, for these first 10 units only, is selling them at $150,000 for a 1 bedroom and $160,000 for a 2 bedroom.

Well over 3 months later these condos can still be found on the MLS; $155,000 for a one bedroom and $165,000 for a two bedroom. I wonder where that original price range came from? I guess they really were ridiculous discounts.

Comfree Success Rate

The new Comfree is here as described in the monthly report:

Further assisting sellers with pricing, ComFree launched the “New ComFree” with a bang. Thursday June 5th ComFree played host to a day of fun-filled activities including special appearances from the Edmonton Esks cheerleaders, Edmonton Rush, Joe FM live on location, and best of all our friends from Big Brothers and Big Sisters were present to take in the fun.

With all the celebration the private listing company now charges $947, up from $699! They also re-animated the corpse of "sales success", now called "success rate" (See previous posts here and here)

We expect our success rate to jump from 73% to the high 80’s maybe even 90’s with the New ComFree.” says Travis Holowach, “Just another reason that the ComFree Advantage works for buyers and sellers in this market.”

I cannot fathom what type of twisted process could be used to arrive at a 73% success rate for Comfree in the current Edmonton market. Comfree hasn't been 73% successful at selling houses for awhile now. However, unlike REALTORS, they are 100% successful at getting paid.

Lets take a look at some metrics that are derived from actual numbers in a repeatable and straightforward way. One is the sales-to-listing ratio and another is sales-to-total inventory. Another insight is to determine the properties that are removed from the inventory each month without selling:

"REMOVED NOT SOLD"
=
PREV. MONTH INVENTORY + NEW LISTINGS - SALES - INVENTORY

Date	Sales	Listing	Inventory	Sales to Listing	Sales to Inventory	Removed Not Sold	Comfree's Sold to Listing
Jan 07	327	419	820	78.0%	39.9%		82%
Feb 07	416	496	837	83.9%	49.7%	63	82%
Mar 07	513	664	893	77.3%	57.4%	95	82%
Apr 07	505	788	1180	64.1%	42.8%	-4	78%
May 07	556	1212	1616	45.9%	34.4%	220	73%
Jun 07	405	1243	2179	32.6%	18.6%	275	61%
Jul 07	277	1100	2696	25.2%	10.3%	306	58%
Aug 07	237	788	2972	30.1%	8.0%	275	58%
Sep 07	201	613	3423	32.8%	5.9%	-39	50% *
Oct 07	146	470	3108	31.1%	4.7%	639	-
Nov 07	124	356	3060	34.8%	4.1%	280	-
Dec 07	91	162	3026	56.2%	3.0%	105	-
Jan 08	151	389	3088	38.8%	4.9%	176	-
Feb 08	164	449	3108	36.5%	5.3%	265	-
Mar 08	201	574	3196	35.0%	6.3%	285	-
Apr 08	233	624	3329	37.3%	7.0%	258	-
May 08	205	597	3386	34.3%	6.1%	335	-

*Changed to sales success

Look how the properties removed and not sold from Comfree inventory has exceeded sales for several months now. This would imply a "success rate" of less than 50%. Also note that it has been an entire year with a sales-to-listing ratio of under 40%, excluding December.

Just some things to consider before shelling out $947.

CMHC freedom day

Notice how when offering as an incentive they disclose how little money you are putting towards principal.

"Remember 95% of your payments in your first year could be interest"


Marketers are creative with numbers! This inspired me to look at the 40 year mortgage more creatively myself.

With a 5% rate and 40 year amortization 14% of your payment goes toward repaying your debt in the first year. Not quit as depressing as the ad would imply. Leave it to me for some positive spin.



How much do you pay off in the first year? $805 for each $100,000 owed as shown below.

The first two charts neglected CMHC fees. From the last post we determined that with a 40 year mortgage and 5% down you need to tack on 3.35% to the loan amount. While the last generation celebrated being mortgage free, we can aspire to "CMHC freedom day". That is the day to celebrate paying off the CMHC premium portion of the balance. This happens on month 46 as illustrated in the chart below.

What the ads don't say

Here is a builder ad for new condos in Edmonton I got in the mail:


Wow! $824/month
The fine print:
4.15% with a $9875 down payment & combined income of $51,364.

On the back:
*Based on a variable rate of 4.15%, OAC, clients to qualify at a 3 yr posted rate with 5% ($9,875) down. Own with a combined income of $51,364. Rates subject to change without notice. E&O apply.

So I assume the payment is based on the lowest priced unit at$197,500 at a low variable interest rate that is subject to change.

What's not on the ad:

1. 40-year amortization. The only way to get this type of payment is to use an extended amortization. Not surprisingly, this is pretty much standard for first time buyers now.

2. CMHC fees. When putting down less than 20% CMHC fees apply. This is a percentage of the loan balance based on size of down payment and amortization used.

Here is a table of premiums from the CMHC site.

Financing Required	Premium % of Loan Amount
Up to and including 65%	0.50
Up to and including 75%	0.65
Up to and including 80%	1.00
Up to and including 85%	1.75
Up to and including 90%	2.00
Up to and including 95% Traditional Down Payment Flex Down	2.75 2.90
Up to and including 97% Traditional Down Payment Non-Traditional Down Payment	2.90 3.00
Up to and including 100%	3.10
Secured Line of Credit Surcharge Non-amortized repayment option: 5 years 10 years	0.25 0.50
Extended Amortization Surcharges Greater than 25 years, up to and including 30 years Greater than 30 years, up to and including 35 years Greater than 35 years, up to and including 40 years	0.20 0.40 0.60
*Premiums in Ontario and Quebec are subject to provincial sales tax — the sales tax cannot be added to the loan amount.

So with 5% down and 40 year amortization the expect CMHC premium is 2.75+0.6= 3.35%. This gets rolled into the loan balance calculated as follows

$197,500 (purchase price)
-
$9,875 (down paymnet)
=
$187,625 (mortgage balance before CMHC premium)
+
$6285 (CMHC premium)
=
$193,910 (mortgage balance)

Using the above loan amount 40-year amortization and an interest rate of 4.15% returns a monthly payment of $828 using this mortgage calculator. Basically the same as the number used in the ad.

3. Floor plan details

So I am making the assumption that this price refers to the smallest 1 bedroom floorplan on the main floor of the complex. This floorplan is 610 sqft and shown below.

I thought I would be creative and add a 6ft tall person laying on the floor of the master bedroom. (estimated from dimensions on drawing)

It is also interesting to add up the square footage of the rooms above:

living: 11`x 9`2 = 100.83 sqft
dining: 11`x 5`4= 58.67 sqft
kitchen: 7`9 x 8`3 = 63.94 sqft
bedroom: 10’-1 x 11’4 = 114.28 sqft
bath: 5’-1 x 8’2 = 41.51 sqft
total of these 5 rooms:
379.23 sqft

Note that I did not include some of the other areas such as the laundry/"storage"or the "walk-in" closet or hallways/balcony so i do not dispute that it is possible to arrive at the 610sqft using an alternate method. Even still there is more fine print on the floorplan:

The developer reserves the right to make modifications and changes to building design, specifications, features, and floor plans. Suite sizes are approximate, and are based on building area not the legal measurements as shown on condo plan.


4. Condo fees - the quoted price does not include condo fees.

5. Property tax - the quoted price does not include property tax. You know the tax that pays for stuff like this.

These ads are very common in the industry. Take a look at a different one shown below, I wonder what type of financial engineering is used to arrive at the payment shown.


I strongly recommend watching this CBC Marketplace video on buying a new condo.

Unobfuscating May Stats

The monthly numbers are out for Edmonton and Calgary and there is a lot to cover.

From Edmonton's report: Never been a better time to buy a home, says REALTORS® Association

May sales exceeded same month sales in 2003 and 2004 but were below May sales for 2005-2007 when the market was super-heated.

WRONG. May sales were in fact below those of 2004. There were 1961 residential sales during May 2004 compared to 1821 May 2008. From archived stats.

The title is laughable. What was the REALTORs Association saying last year this time? From May 2007 report:

“Rising prices are forcing buyers to explore their housing options. People are being priced into the condo market,” said Pratt. “May figures demonstrate that the trend has not yet abated.” She urged both buyers and sellers to consult a REALTOR® before venturing into the market. “With the average price of a single family dwelling rising by over $400 a day, you need the latest market figures that only a REALTOR® can provide.”

Totally disingenuous! When the stats demonstrated a price increase in 2007 the it was extrapolated going forward. With decreasing prices it is now a great time to buy.

Calgary has the same theme: BUYERS NEED TO PAY ATTENTION – HOMES ARE ON SALE TODAY!

Calgary, June 2, 2008 – “Now is not the time to wait until the sale is over and then decide to buy; after you read a headline, the best time to buy has passed,” cautioned, CREB® President, Ed Jensen. Home inventories are high; buyers are reaping the benefits of selection and are able to negotiate the best sale price and terms. Today’s market presents buyers with great purchasing opportunities, according to information released by the Calgary Real Estate Board.

Was similar logic used during the run up? Did CREB ever warn buyers that homes were too expensive during the boom? Did they anticipate this "sale"? Seems like it has been a "short term buying opportunity" for awhile now.

Fact is sales are low, inventory is high and the spring market is closing. Remember the talking heads were counting on spring for the rebound. Here is an interesting article from the one and only Calgary Herald:

Housing market set to catch spring fever

...

Another factor could be that people get over the end of the year and have received their bonuses. This may be giving them some incentive to upgrade homes.

"The dominant factor is seasonality. People are getting out of hibernation mode and they want to get out and enjoy the spring weather and view show homes," he said.

...