Tuesday, January 09, 2007

Like a Slow Moving Train Wreck?

Real Estate market corrections have been likened to slow moving train wrecks and I couldn't resist the analogy to the new home development in Fort Langley called Bedford Landing. I have been quite interested in the $400,000,000, 378 home, 78 acre Bedford Landing development in Fort Langley for two reasons:
1) I like Fort Langley, its charm and historic significance, wouldn't even mind owning a home there someday and
2) I think it is a barometer for sentiment in Fraser Valley Real Estate.

Check it out here: www.bedfordlanding.com
I had the opportunity to tour the discovery centre, sales centre, and showhomes recently and I have followed the press on the development for a couple years now.

Here are some of my observations about what most people see:

1) Lots of local press dedicated to how 'fantastic' the development is and what a 'great impact' it will have on the area.
2) Plenty of press about the 'pent up demand' for the homes
3) Enthusiastic public officials, developer staff, and newspaper articles
4) The obligatory overnight line up for the 'opportunity' to put a deposit on a home
5) Insane stories about people travelling from far away places to live there
6) Townhomes are $375,000 to $400,000 and Single Family Homes are $475,000 to $600,000 with the next release having homes up to $1,200,000.

Here are a few other observations that don't get the press:

1) The development is right beside the main CN Rail line which has 16 freight trains per day traveling past at 80-100 km/h. Two trains went past while I was touring the show homes and the homes shake as the train goes past.
2) The development was built hastily on top of 5 - 8 metres of sand infill dredged from the Bedford Channel.
3) Its on an old mill site - who knows what's underneath the ground?
4) Only half of the homes available for sale have actually sold now - where did the line up go? What about all that pent up demand?
5) Where will all of these people (1000+) shop, drive, go to school, etc? There are no plans for increased amenities in the area and Fort Langley has significant development restrictions.

My take on these observations is that the potential buyers are not so enthusiastic about the homes at current prices and thus that ‘pent-up’ demand has dried up, the demand was false and fabricated, or the people causing the demand are unable to afford the homes at the asking prices. We will see how long it takes before the developer lowers prices to meet potential buyers.
So, is our Real Estate market a slow moving train wreck?


mohican said...

Looks like the locomotive is demand with the fuel being easy money in the form of low interest rates and loose lending practices.

Dignan said...


I agree that this "late stage" housing development will definitely be a good one to watch to see exactly how strong or weak the demand is in the fraser valley. Do you know the exact stats of the development, how many have sold, how many are available etc...etc...?

mohican said...

I recall that 122 units were for sale in 'phase 1' and as of a couple weeks ago approximately 1/2 had sold. 'Phase 2' (another 80+ homes) is supposed to be coming up for availability soon (february I think).

This is despite the fact that the developer announced on Nov 10 that all 122 had been spoken for through an advance deposit process.
See the press release here: www.bedfordlanding.com

solipsist said...

I think that the "pent-up demand" is for reasonably priced homes. The developer is about a year late for pent-up demand for any piece of junk offered for sale.

Good point on the substrate underlying this development too. Talk about castles built on (potentially toxic) sand. And I sure hope that CN is not running trains on that line. Their track record is not very sound these days (convenient double pun only partially intended).

Taylor Webb said...

so, what are you doing with your money during the train wreck? are you waiting to buy RE after the wreck is completed (assuming it's a wreck and not a bump)? or, have you written-off RE completely? either way, what's the financial plan?

here's a bone: the loonie is dropping like a rock. US$, Yuan$, and Euro$ up 8-10% against the loon since september '06.

WHERE should we put our loonies?

mohican said...

"What's the financial plan?"

My wife and I own a home that we like and we don't plan on upgrading or moving anytime soon so regarding Real Estate, I am not doing anything except standing still. No investment property, no upgrades because there is no value.

I don't ever 'write off' an asset class - especially one as large as Real Estate - so I'm not sure what you mean by 'writen-off' RE. I do only invest in assets that demonstrate solid valuations with a fair margin of safety. I am unable to find any RE that qualifies right now.

I don't ever advise investing by gambling on short term plays like recent currency movements but rather long term asset allocation which is disciplined, robust, well diversified and of course - value based. If there is no value, then I stay in cash or invest with managers who have the conviction to do the same.

Taylor Webb said...

thx, but i was asking for a few specifics. i understand that you don't see any value in RE. fair enough. do you see any value in ANY asset class? if so, which?

i'm just working off the title of the blog "financial planning."

mk-kids said...

hello mohican, great blog, thank-you & look forward to watching the market with you in 2007.

this post was especially interesting for me as i have been following over the past year or so a similiar development in pitt meadows by mosaic. it is also on a reclaimed mill site, is close to the pitt airport (which has big plans for expansion) is on on the wrong side of the dike, is currently subject to construction noise for a new development phase & pile driving for the golden ears bridge. it is also a bit of a drive from anywhere but they do plan on building a "village" at some time - shops & such - very smart planning by the local government although i kind of expect the developer to bail on that once the housing market crashes... i'm not suprised that all the residential stuff is getting pounded out first.

most of these places are selling for half a million bucks, a jump of about $150 k from last year. they had a cheaper phase and are preparing to start another of the cheaper phase except they aren't so cheap anymore... i will be interested to see what happens with those. i'll keep you posted.