Monthly Archives: November 2009

“I can’t wait for the day when these guys get exactly what they deserve”

Bubbles cause misallocation of capital. The temptation of money-for-nothing perverts the reward system in the affected society. Hard working citizens are at the very least distracted, and at worst throw themselves into non-productive endeavours. -vreaa

Yalie at vancouvercondo.info 29 Nov 2009 3:59 pm & 4:13 pm responds to the statements made by wannabe flippers at the recent release of presales for ‘The Mark’ condo complex -

“I’m not a vindictive person, but with such breathtaking displays of ignorance as these, it’s hard not to think “I can’t wait for the day when these guys get exactly what they deserve”. Actually, I DO want these guys to get what they deserve. They represent everything that’s wrong with our society lately – basically people trying to generate cash without generating anything of value. As an entrepreneur, I have been busting my butt the last three years building a real business, with a real product, that people can actually use. It would be bad enough if these flippers were merely throwing themselves off the financial cliff, but what really gets me is that through the associated misapplication of capital and the inevitable economic fallout they’re creating, they’re also going to take out hard-working, honest people who do real work.”

“Currently there are 4 empty stores (the most I have ever seen)”

This from MPM at greaterfool.ca 30 Nov 2009 11:08 am -

“I have lived near this street for 6 years [Denman St in Vancouver], and currently there are 4 empty stores (the most I have ever seen). Two of them say that they are renovating, but there is never anyone there. I imagine that most of them are being pushed out by greedy landlords charging insane prices to lease a 250 sq ft store… Just up the road, there is a ‘dream condo’ development – 8 floors on Robson st with a Starbucks on the street, what else in Vancouver?? This was a perfectly functioning office building for the past 40 years before the idea of building condos. Construction stopped about a year ago and it is completely covered by tarps. The only work happening on the site is the security guard that you see there once in a blue moon….”

“I’ve lived in Vancouver most of my life (>50 years) and what’s going on here is completely irrational.”

This from West Coast Woman at greaterfool.ca 30 Nov 2009 12:07 am -

“I’ve lived in Vancouver most of my life (>50 years) and what’s going on here is completely irrational. The various levels of government hyping that the Owe-limpics are going to bring in all these new people, and people are buying into it and paying ridiculous prices for housing. The house across the street was last purchased 2001/2002 for $445,000, and sold last month for $1,588,000. This house had been nicely renovated with a basement suite added. The house two down from me sold two months ago for $1,560,000 and is now back on the market for $1,888,000. Nothing has been done to it in the interim. The house around the corner was bought for $998,000 at the beginning of this year and just sold for $1,790,000! This house was updated (a bit) and had a bachelor basement suite. In 2001/2002 a well-maintained house in this neighbourhood cost about $500,000. The current price for a knock-down in this neighbourhood is now $1,500,0000+, with new houses selling for $3,200,000 to 3,500,000. These are on lots approximately 50′ x 120′. Have people gone insane just because interest rates are low? Do they really think that people are going to move here because Vancouver looks pretty on the TV?”

“Give me strength and stop me from stabbing them both with my fork.”

It is often lonely to be a contrarian. Bears who see the Canadian RE bubble for what it is are emotionally depleted and extremely frustrated. This bear exhaustion is sometimes taken by contrarians to be a sign of a market top. To be fair to the bullish argument, however, is to note that some bears in Vancouver have been exhausted for years.

This from Jonas at greaterfool.ca 30 Nov 2009 at 12:06 am -

“I was at a dinner party and a stupid couple that recently bought were there. Someone other than me had the sense to ask  “What if the rates go up?”. (There is a god, I thought.) Then the morons actually said they think that rates will go down from here, and stay down for years. Give me strength and stop me from stabbing them both with my fork. I attempted to explain that rates were basically zero and Carney has already alluded to the plan that he will begin to raise rates at some point in the summer, but why fricking bother? About half of the people thought that prices will continue to rise as the economy continues to grow. I tried to explain that rates are historically low, will not go lower, and that incomes are flat to down, and that employment is down and getting worse. I asked them where they thought house prices would be when the variable rate is 5% and rising, and the fricking dumba$$ actually said higher. I swear to god it’s like living in a bad zombie movie. They are every where, stupid people without a brain that God gave a gnat. These will all be the same people with their hands out when the shit hits the fan, and [every] last one of them with a surprised stupid look on their faces will collectively say “Wow, huh… I didn’t see that one comin’”

“This means that, for a non-owner occupied $1,000,000 property, HSBC is asking for 45% down.”

Even though the BOC rates have yet to rise, there is evidence of tightening from lenders. RBC recently increased terms on LOC loans (from prime +1% to prime +2% for many borrowers). This without a change in prime. Now comes news that may herald the beginning of hard times for speculators.

This from McLovin on robchipman.net 29 Nov 2009 12:29 pm -

“An interesting side-bar on “banks tightening up”… HSBC will [now] only finance 60% of the first $500K for a non-owner occupied [investment] (Rental unit), and 50% of the remainder. Even to a mega-bear like me that is excessive. Either they don’t really want to lend money, or they see bad things coming. This means that, for a non-owner occupied $1,000,000 property, HSBC is asking for 45% down.”

“Vancouver is back in boom times… Unlike anything in the world… The speculation is that prices will go up after the Olympics”

Speculators continue to bet on rising Vancouver RE prices, and some still appear to be anticipating that the effect of the Olympics is not yet priced into the market.

Here are extracts from a report by Sam Cooper in The Province 29 Nov 2009 -

“The buzz is back. In scenes rarely seen since the Vancouver real-estate market peaked in early 2008, a horde of hungry investors lined up for hours in a downpour Saturday [28 Nov 2009] to get first dibs on pre-sale condo units in a tower to be erected in Yaletown. Cam Good, who is heading up marketing for “The Mark” by Onni, said some investors even slept outside Friday night to ensure prime line-up positions. “We’re blown away by the turnout,” Good said from inside the downtown pre-sale centre as about 50 investors scrambled around a model of the building.”

“While the global debt and credit crisis continues to haunt developments in former real-estate hotspots like Dubai in the United Arab Emirates, Good said Vancouver is back in boom times.”The [real-estate] strength in Vancouver is unlike anything in the world,” Good said.”

“Mayur Arora, who told The Province he hoped to land a top-floor unit, and his realtor K.D. Dhaliwal, said location and scarcity make the site an attractive investment. “I’m here because they are selling Yaletown at today’s prices, but the speculation is [that] prices will go up after the Olympics,” Arora said.  Steve Dhana was amazed by speculator interest as he watched investors rushing to place bids on units. “The prices went up $50,000 last night,” Dhana said. He hoped to buy a unit in the $500,000 price-range, and also expected prices to surge in February 2010.”

“A lot of our clients do have a huge amount of equity, especially if they are in the market, trading up.”

During asset bubbles, it is relatively easy for participants to almost imperceptibly leverage themselves into more and more exposure to the inflating asset class, thus putting themselves at risk of complete wipe-out when the bubble pops. Participants actually believe that they are being prudent, and their ever expanding paper-profit bottom line reassures them and reinforces their behaviour. The fact that they are taking substantial risk and speculating on ongoing price appreciation may not be obvious to them. -vreaa

The Bill Good show on CKNW Friday 27 Nov 2009 at 10.30 am featured discussion with Garth Turner (greaterfool.ca) and realtor Tony Ioannou of Dexter Realty Vancouver (author of ‘Buying and Selling a Home for Canadians For Dummies’). These excerpts -

Tony Ioannou – “[We are] dealing with a lot of people who think that they have to buy now because the market is running away from them. Most of the people we are dealing with are buying a property to live in… a principle residence… very little speculation in the market.. Very few of our clients are going to ‘the end’ of what they can afford.. They might be approved for a 500K mortgage, [but] they’re taking out a 300K mortgage.. They’re not overextending themselves as they might have done a couple of years ago… We still have some off-shore money coming into Vancouver and the lower mainland but much, much less than in the past. Most of the people we are dealing with are local people just upgrading, mostly move up buyers from a small apartment to a townhouse, townhouse to a house, or up to a bigger house. We’re still dealing with a lot of first time buyers.. [they are] very cautious,… they’ve worked hard to make a downpayment they’re not going to throw it away… So they’re very very cautious and slowly entering the market.”

Garth Turner, in response to the above, said that there was a “giant argument that interest rates would not stay low”. He also pointed out that the average abode cost “between 7 and 10 times the average family income” in Vancouver which was “by world standards, severely overpriced”.

Tony Ioannou continued – “A lot of our clients do have a huge amount of equity, especially if they are in the market, trading up. One quick example, I’d sold a property to a young couple in 2000, a $300,000 townhouse, [with] conventional financing, I went to meet with them last week, they now have paid off their mortgage, [their property is] now worth about $500,000 , they now have a half-million-dollar down payment to go and buy their first house”.

Garth Turner retorted – “Well, that’s exactly what scares me about this whole thing, when you have people who are taking… and in the case of that couple, I’m sure that constitutes the bulk of their net worth… anytime I see people taking the bulk of their net worth and dumping it into one asset and then trading up exactly the same asset class, and increasing their exposure as they go on and on and on…// If we do have an interest rate increase,.. if we have taxes go up,.. I cannot see the Vancouver real estate market sustaining its value going forward.”

“Me and my wife came to Canada [from China] with $3,000 10+ year ago.”

CAVEAT -The veracity of the following story has been doubted by some commenters at robchipman.net.

The fact that stories like this are either true, or are seen as true in the public imagination, is noteworthy. Many locals have purchased RE in Vancouver based on the idea that hard working Chinese immigrants will continue to support the RE market.

This from The Chinese at robchipman.net 26 Nov 2009 8:21 pm -

“Me and my wife came to Canada [from China] with $3,000 10+ year ago. We bought an apartment in 2000, and worked hard, and paid it off in 4 years. Then we bought a house in 2005, and again worked hard and paid it off a year ago (before we reach our 40s). The house has a market value around $1 million in today’s market. Now we bought another house in a much better neighborhood on the west side, with very good schools, so our kids can receive a good education. We are not alone, lots of people from China are in similar boat as us. This is a culture value real estate, willing to work hard, willing to live below the mean to invest for the future and their kids, and willing to take calculated risk, and sometimes enjoy gamble. Now, more Chinese are coming, bringing way more than $3,000 – and they all share the same culture…”

“Third offer on my place has fallen through. Reason was the same each time. Failure to get financing.”

Comments section at robchipman.net (26-28 Nov 2009) is liberally peppered with anecdotal observations of slowing RE markets in and around Vancouver. Perhaps it’s all attributable to the 25 days straight of heavy rain we’ve endured. This from Anonymous 28 Nov 2009 6:57 pm -

“Third offer on my place has fallen through. Reason was the same each time.  Failure to get financing. Banks may be tightening up.  I know my line of credit interest rate just went up. I’m dropping my price on Monday and will get out fast before this market turns sour on me.”

CAVEAT: Rob Chipman, in a posting at his blog (the source of this anecdote) 29 Nov 2009 10:04 am, expresses doubt regarding the veracity of this anecdote (based on IP address of a multiple-poster). Híppos Purrós in the same thread 29 Nov 2009 11:08 am also expressed doubt but, interestingly, added their own anecdote – “Both of [my] girlfriend’s recent YVR RE disposals have fallen through. Buyers’ financing was withdrawn at last moment by lenders concerned about pending special assessment”.

“Over the last two weeks, I’ve been hearing lots and lots of people in the ‘nearing baby boomer’ generation, of all socio-economic classes, talk about selling and downsizing.”

There are many important variables affecting the Vancouver RE market that are very difficult to measure. What is the effect of intergenerational wealth transfer? How many Vancouverites own houses in lieu of RRSPs? How many current owners are planning on ‘cashing out’ in one or five or ten years time? Anecdotes serve as an imperfect window into some of those factors.  This from pianoexcellence at RE Talks on 28 Nov 2009 9:56 am -

“Over the last two weeks, I’ve been hearing lots and lots of people in the ‘nearing baby boomer’ generation, of all socio-economic classes, talk about selling and downsizing. Many are not talking, but have already done it.  I still do a number of piano tunings and repair engagements. A lot of these are for previous piano students parents. I taught mainly Gr 10-12 high school students, and many of them are off to university. I’ve been getting a lot of calls right before thanksgiving to get the piano ready so they can play when they come home for thanksgiving. To my suprise, a number of [these families] had moved to a smaller place. A number of my other acquaintances, even my parents, are talking about it too.”

“HSBC laid off ALL of their ‘Premium Wealth Managment’ staff yesterday.”

This from anonymous at vancouvercondo.info 27 Nov 2009 10:29 am -

“My friend works at HSBC and they just laid off ALL of their ‘Premium Wealth Managment’ staff yesterday [26 Nov 2009]. I don’t think this bodes well for the ‘rich Asians will save the market’ theory….”

“EVERYTHING IS GOING TO BE ALRIGHT” (“Or NOT?”)

The poster boy for the Vancouver RE boom has now come up with a poster that may well end up becoming the ultimate ironic visual anecdote.  Vancouver condo marketer Bob Rennie explains its meaning, and ‘rentah’ comments. This from Bob Rennie, BC Business magazine, 2 Sept 2009 -

“On the exterior walls of my new offices in Chinatown, I’ve installed a 23-metre neon work of art by Britain’s Martin Creed. It reads, EVERYTHING IS GOING TO BE ALRIGHT. And it will. Yes, we boomers are on the downward side of our peak earning years. Yes, we’ve experienced the biggest financial collapse in our lifetime. We will have to institute dramatic changes in how we entertain ourselves, where and how we travel, what we drive, where we live and how we ultimately pass on wealth to our children. For the enterprising business person, there are many opportunities out there to capitalize on this new reality. But for those praying for a return to yesterday, forget it. It’s gone.”

This from  rentah, in the comment section of the same article, 11 Sep 2009 18:04

“Interesting. I’d say that Rennie has COMPLETELY misread Martin Creed’s work. He’s purchased it as a giant Hallmark Card, when it’s actually intended as an ironic warning. (Perhaps everything is NOT going to be alright.) Here [follow] some more works by Creed:
Ask yourself… “Is it the artist’s intention for me to take these works literally?”
Then think about what Rennie is doing.”

—-
Update 16 Dec 2009:
Ironically, the ‘Everything Is Going To Be Alright’ piece was previously installed in that other bastion of real estate strength, Detroit. And it was later changed to ‘Nothing Will Be Alright’. Somehow, I can’t see Vancouver sensibilities being capable of handling all this irony. Imagine ‘Nothing Will Be Alright’ on Rennie’s building in Chinatown. No, neither can I. -vreaa.



Discussed at booooooom.com, with this comment from HFRY 11 Dec 2009: “DETROIT Museum of Contemporary Art had this first by Martin Creed. Then it got changed to ‘Nothing Will Be Alright’ ! think about it.”

“Three up for sale in this building alone, and they aren’t moving.”

This from TJ on greaterfool.ca 26 Nov 2009 12:29 am -

“I live in Vancouver and in my building the 1,040 square footer goes for… standby… $1.13 million. Your monthly maintenance is $550.00 bucks, and Gosh knows what the taxes are – but come on!!! Three up for sale in this building alone, and they aren’t moving.”

RBC report – “The near-frenzied tone to the market is occurring despite still historically poor, and now deteriorating, levels of affordability.”

The RBC has release its ‘Housing Trends and Affordability Report’ for November 2009.

Unsurprisingly, Vancouver leads the pack nationally, with an average Detached bungalow requiring 66.8% of the average household income to service a 25-year mortgage loan at a five-year fixed rate after a 25% down payment.

Here is an excerpt from the report -

“Vancouver — Heating up rapidly
The Vancouver housing market continues to roar back in a spectacular way and property prices are now heating up closer and closer to a boil.  Resale activity has surged since spring and the rebound has more than fully reversed the dramatic drop that occurred in 2008. The concomitant rise in the number of units available for sale has been more subdued, which has considerably tightened the market.  In fact, the ratio of sales to new listings has returned to levels last seen in 2005 and early 2006 when prices were rising at a double-digit annual pace. This near-frenzied tone to the market is occurring despite still historically poor, and now deteriorating, levels of affordability.  In the third quarter, RBC’s affordability measures for Vancouver worsened for the first time since early 2008, rising between 1.7 and 4.3 percentage points.  These increases were, in fact, the biggest among major cities in Canada.  Even though the affordability measures fell substantially during 2008 and early 2009, they remain well above long-term averages.”

“Rich [foreign] money is buying downtown Vancouver and the West side.”

What’s happening in the trenches of RE sales? This exchange at RE Talks, starting 25 Nov 2009 9:12 am, with a realtor responding to some questions about buyers -

MikeStewartRealtor“I am very optimistic about Vancouver’s prospects and [that is] because of what I see on the frontlines.
Out of every 10 buyers you have dealt with, how many buyers get high ratio financing (5% down)? Less than 10% – Most put down at minimum 20% and are not highly leveraged.
How many buyers are first time buyers? 20-30%
How many are rich foreigners? 20-25%.
How many are poor foreigners (i.e. high ratio financing)? Zero
How many need dual income? 40%
Are you seeing foreigners buying with cash and using Vancouver as a vacation property? 15% of my business.
How many properties are bought as rentals? 20%.
The people I work with buy and hold because they see big potential for Vancouver.”

Greenhorn (10:09 pm)Anecdotal evidence I have from a small sample in that rich money is buying downtown Vancouver and the West side. Iranians, Mainland Chinese, Koreans and few buyers from the Middle East. Pretty interesting.

UPDATE: In response to a request for further info, Greenhorn (28 Nov 2009 1:23 pm) is kind enough to add the following -

“My stats come from realtor friends who are quite honest about the answers they give me regarding who is buying downtown and the westside. I also have friends who live in these areas who track every sale in their neighborhood and who know who their new neighbors are. Most purchasers are living in their properties and some are renting them out. It is by no means scientific, but there are underlying trends and patterns that are becoming noticeable. If you discount or ignore the rich foreign purchaser, you will never reconcile how prices in Vancouver can be so high, with record job losses and a weak economy. Of course the Vancouver local with a job can compete with rich foreigners in bidding up prices and getting caught up in the fervor, because interest rates are at record lows, and credit is easy. Everyone in Vancouver is rich now because they are either wealthy foreigners or can qualify for huge bank loans. Which group is dominating the market? The rich foreigner or the heavily financed local yokel? I have no idea, but I am hoping it is the former so that our real estate market stays orderly. If it is the latter, we are in for a world of pain. It sounds like there are a lot of foreigners with cash that are buying.”

“Whistler bankrupted a very good friend of mine. He got in 4 years ago on the Olympics hype but it was all a mirage.”

Whistler is Vancouver’s premier ‘cottage country’. You’d be excused for guessing that, as Vancouver boomed, Whistler would have moved in lock-step. This has not been the case, with the luxury market there moving down for years. This has affected a subgroup of Vancouver RE investors. These two posts at RE Talks on 25 Nov 2009 -

kevind (5:43 am)“I have several friends and associates that got hammered and are still stuck in Whistler and can’t get their properties sold. One guy has had his place for sale for 5 years and has had only one offer in all that time for 1 million under his build cost and he just keeps dropping the price. He’s also lost most of his hair from the stress. I know of another place that went on the market new in 2005 for just under 3 million and last time I looked it had dropped to the 1.8 range and still for sale. The build and land cost him more than 1.8. A round of drinks one evening last season at the Longhorn and I hear this guy over at the next table make the comment something like “Christ, I feel like I could put my place up for 1 buck and no one would call”. Another friend I know just wishes his place would magically burn to the ground because the insurance replacement build value is 1.5 million more than he can hope to get for it today if he’s lucky and he would still own the land. I could go on and on.”

Greenhorn (8:50 am)“Whistler bankrupted a very good friend of mine. He got in 4 years ago on the Olympics hype but it was all a mirage. Once his property was underwater, he gave it back to the bank and got sued for the deficit. Just going through bankruptcy now. Luckily other assets like his home were in his wifes name and she has credit still or he would be on the street. They both have jobs and income right now, but the deficit to the bank was too huge to recover from. Bankruptcy was the only choice. I went to many parties in his house in Whistler. It was beautiful. Towards the end, he had a tenant who operated the property as a type of hostel/hotel. The tenant was always late on rent payments though he was making money and getting paid every month. There are a lot of scammers up there.”

“North American & European travelers all gave me incredulous looks when I told them about Canadian RE, personal debt levels, etc.”

This from Good Times at robchipman.net 24 Nov 2009 12:36 pm -

“Just got back [to Vancouver] from South East Asia (the Philippines,  Vietnam and Thailand), [where] North American & European travelers all gave me incredulous looks when I told them about Canadian RE, personal debt levels, etc.  They just shook their heads and said: “Did you guys not watch what happened around you?????” I just smile, and say we are special…  “

Toronto Anecdote – “There hasn’t been a lot of time spent on discussing the human side of investing in a real estate bubble”

VREAA is a collection of anecdotes from Vancouver and its immediate surrounds. Occasionally, however, an anecdote from elsewhere in Canada speaks so powerfully of issues that are relevant to our market that they merit mention here. This anecdote from Garth Turner’s greaterfool.ca article 24 Nov 2009 crosses that threshold, so I post it here, with it’s out-of-province source (Toronto) clearly noted. It speaks to the financial and social risks of being a young FTB in a RE bubble market. A mortgage broker in Toronto describes their children’s friend’s travails -

“House purchase summer of 2008.   100% financing, 40 year amortization.  Husband a carpenter, wife at home with the new baby.  November 2008, husband laid off, wife goes back to work for minimum wage. Still not enough family income to pay the mortgage and buy groceries. Value of house has dropped 10%.  Payout of mortgage was higher than the purchase price the day they completed, by virtue of 100% financing and the CMHC fee.  Real Estate commission 7% on the first $100,000, 3.5% on the balance.  Shortfall would be $49,000.  Couples’ families want to help.  Daughter and baby move home with her parents.  Son moves home to his parents.  Duplex is rented out to cover the mortgage payment. This doesn’t work.  Husband moves in with wife and her parents.  This doesn’t work.  Couple rent cheap apartment. This doesn’t work.  Mother and child leave after 8 year relationship. There hasn’t been a lot of time spent on discussing the human side of this recession or investing in a real estate bubble but it is important to note the consequences are not [limited to] a loss of money or investment.”

“I think people have lost their minds. I know several people who are in their early 30s or even 40s who are running out and buying not just one, but 2 or 3 houses.”

This from Anonymous at fishyre.blogspot.com 19 Nov 2009 9:22 am -

“I think people have lost their minds. I know several people who are in their early 30s or even 40s who are running out and buying not just one, but 2 or 3 houses! All in the name of “investment” with huge, long term mortgages. If that isn’t the sign of a bubble, I don’t know what is.”

“Prices have been climbing since the spring, and yet many recent owners I know are on edge. Worried about interest rates and job loss.”

From kansai_92 at RE Talks 23 Nov 2009 10:47 pm -

“Prices have been climbing since the spring, and yet many recent owners I know are on edge. Worried about interest rates and job loss.”

“My unsecured credit line is going up a full point in January to prime + 2%. Still ridiculously low, but a true sign of what is to come.”

This from RennieWhereRU? at vancouvercondo.info 23 Nov 2009 10:33 pm -

“Got a lovely letter today from RBC. My unsecured credit line is going up a full point in January [2010] to prime + 2%.  Still ridiculously low, but a true sign of what is to come. Why can’t CMHC insure my credit line, so I don’t have to get this increase in rate and go up to my tits in debt? Not fair.”

“In my neighbourhood, for the last 3-4 years, the amount of housing which is unavailable due to renovation is about 10%”

Has the boom resulted in a larger ‘reservoir’ of housing that is off-market because of renos?  A very interesting idea from Drachen at vancouvercondo.info 23 Nov 2009 4:51 pm -

“I think part of what is supporting the market is that turnover of housing is so fast that a decent chunk of available housing is constantly in a state of renovation/pre-renovation/post-renovation. In my neighbourhood, for the last 3-4 years, the amount of housing which is unavailable due to renovation is about 10%. Right now the duplex next door is without tenants and awaiting planning approval, there’s another two in the same state within a block of me and a rental complex of 8-10 units that was bulldozed 2 1/2 years ago and has sat empty ever since. This is a consistent pattern throughout the neighbourhood and it’s been at about that level for years now. Because of the inflation in prices, owners aren’t in any rush and really don’t care much if the renovations take 2-3 years to complete because it just means the place will be worth more when they finally sell. There was a big rush of activity last year around this time when prices were falling though, which indicates to me that there will be a lot of properties listed in a relatively short time once a consistent downwards (or even neutral) trend emerges.”

“I have bought and sold property both in Vancouver and Hong Kong over the past decade.”

Only a minority of Vancouver participants have any first-hand experience of RE markets taking a substantial fall. This from Cassandra at greaterfool.ca 23 Nov 2009 6:15 pm -

“I have bought and sold property both in Vancouver and Hong Kong over the past decade. Hong Kong real estate speculation is not a sport for the faint of heart. When it moves, it moves like a greyhound on steroids, both going up and down. The run-up in Vancouver RE reminds me of HK before the 1997/98 bust, which was breathtaking in its rapid decline, and left millions in negative equity. … Back in more sedate Canada in 2007 some friends of mine asked my opinion on whether they should buy a four-bedroom 1960’s house in Burnaby for $749,000. I brought out my chart and showed them the last ten-year real estate run-up compared to the historical averages, pointed to the top [and] said to them, “Would you want to buy here?” They would, apparently. Where some see danger, others only see the missed opportunity, all those years where they could have made more money. And we’d better jump in before it’s too late. These were university educated people in their forties. Go figure. Strap in your seatbelts, Vancouver first-time-buyers, your tummy’s going to be somewhere above you when the silent whistle blows…”

“Does it make sense to other people that the variable rate right now is a pretty high risk play with a slight chance of coming out ahead and pretty big chance of losing?”

A mortgage holder chews over whether to lock in or not. This from kramster at RE Talks 23 Nov 2009 9:29 am -

“I’ve been trying to do some research on historic interest rates to assist in determining whether or not I should lock in to a 5 year rate.  What I’m wondering is if the current difference between the BOC bank rate and the banks’ posted prime rate is typical. Currently I believe it’s a 1.75% difference (0.5 vs 2.25 prime). source http://www.bankofcanada.ca/en/rates/interest-look.html (bank rate monthly). Currently I can get prime -0.25%, for a closed variable rate of 2%. The best 5 year rate I can find is 3.99%. (I’m not with Sutton, so I can’t get their rate [3.69% - ed.]). If the spread is consistent, it would require the target bank rate to be about 2.5% or more for the fixed rate to beat a variable. According to the chart I downloaded from the BOC website, [apart from] December 2008 when the rate was dropped to 1.75%, there has never been a time in the last 10 years where the rate was better than 2.5%. I know you used to be able to get prime -1%, which would change things a little, but to get even prime -.25 requires a 3 year term. This leads me to believe that the likelihood of paying less than the current 5 year fixed rate, if I choose the variable rate, is slim to none averaged over the course of 5 years. Am I making sound assumptions here? Does it make sense to other people that the variable rate right now is a pretty high risk play with a slight chance of coming out ahead and pretty big chance of losing? The idea of going variable and locking in later is there, but will you get a chance to do this before it rises? And to me this is a little like trying to pick a bottom of a stock price. When do you jump in? There’s also the problem that the lender with best variable may not be the one with the best 5 year fixed, so if you want to change from variable to fixed you are already at a disadvantage.”

BeatBox adds, 23 Nov 10:18 -

“You can get variable at 2%. Fixed is 3.99%. A difference of 1.99%. Why would you not go variable? The spread is almost 2%. That would require the BOC raising rates significantly. Not likely to happen within the next year. A slight increase, maybe. Then you’re paying maybe 2.5% and still significantly below fixed. BTW: This doesn’t grant you the ability to max out your borrowing based on 2%. Doing that would be foolish. Maybe max out borrowing at the 3.99% allowance, and then go for the Variable. Apply the difference into your payments so that you are paying down your principle much quicker and when it comes time to renew you owe far less. I mean, the difference is about $100/month for every 100k borrowed. Over 12 months, that’s about 1% more of the principle paid down every year. That’s what I would do.”

“A ‘single family dwelling’ in Vancouver will more than likely have at least 2 households, I’ve personally seen 4 per house.”

This from bgard at greaterfool.ca on 22 Nov 2009 at 2:08 pm -

“I own a very similar house [to recently featured 265 East 24th Ave], probably in the same neighbourhood. In fact when I first saw the picture I thought it was my house. Even have a similar colour scheme…though mine is much nicer. Nicest house on crack alley as my wife likes to say. But on to the meat. My taxes (on an assessed value of 700K) are 5,000/year. Hydro and Gas are 3,000/year, for the 3 households that live here, same as in the example. Plus 1,000 for insurance. A ‘single family dwelling’ in Vancouver will more than likely have at least 2 households, I’ve personally seen 4 per house. So you have to factor that in to the overall cost of RE. And taxes never go down. I’ve owned for 12 years and seen my assessments drop twice, last March (when assessments were done at mid dip) and from about ’98 to ’00. I have always paid more each year.”

Herb adds at 5:56 pm that in Ottawa, a 475K house has annual taxes of $6,140 and utilities of $5,200.

“I read a realistic and balanced RE article in the Vancouver Sun” – vreaa

The Vancouver Sun has unexpectedly published a sober and cautious article about Real Estate. This contrasts with years of articles that have most often read like RE promo brochures. The article is from the 20 Nov 2009, Vancouver Sun Business Section, with no apparent byline. Excerpts below, full article is reproduced as first comment in the comment section -

“In B.C., which has the highest prices and biggest mortgages, buyers seem more confident than other Canadians that prices will continue to rise. Even if they are right it would be prudent to remain cautious.”

“Low interest rates have been a godsend for mortgage borrowers, and a curse for savers…. But interest rates can change in the blink of an eye.”

“Financial advisers warn that real estate valuations can go down, as well as up, and people should diversify their investment portfolios, especially in retirement when a house should represent no more than 25 per cent to 33 per cent of total wealth.”

“Would-be buyers should enter the market with eyes wide open and view their purchase first as a place to live, and only second as a store of wealth.”

VREAA editorial comment -

1. What percentage of Vancouver owners are on target to have their house represent no more than 33% of their total net wealth by retirement?  Answer: Very few. Currently, for many owners, their home value represents greater than 100% of their net worth in that the outstanding mortgage is larger than their other savings and investments. And rising RE prices have further decreased the sense of need to build savings outside of RE equity.

2. What percentage of Vancouver owners currently view their homes ‘first as a place to live, and only second as a store of wealth’?  Answer: Very, very few.

‘Real Life’ – “This week I heard this…..”

This intense concentration of anecdotes breaks all records for efficiency of story telling on VREAA. Please send your own observations. Here’s Real Life at vancouvercondo.info 21 Nov 10:43 am -

“This week I heard this:

1. Hotel in Whistler – “last year was bad, this year is worse” (Global TV)
2. Fitness Centre in Fraser Valley – closing after 12 years (friend works there)
3. Condo back on market for -20% than paid 18 months ago (FTB friend)
4. Hours cut by 50% (friend that is an electrician)
5. Renegotiated rent (friend had landlord reduce rent from $1250 to $1050 in Chilliwack – for 1 year old 4 bedroom house.)”

“He bought in 2007 and was pretty much stretched to the limit to make the payments. He had an unexpected expense in 2008 and couldn’t afford it.”

This from davers at VREAA 17 Nov 2009 9:00 pm -

“I heard today from a co-worker that he just sold his Burnaby condo and is thrilled to have come out ahead. He bought in 2007 and was pretty much stretched to the limit to make the payments. He had an unexpected expense in 2008 (I didn’t ask what) and couldn’t afford it. By then the market was dropping and he didn’t want to sell at a loss, so he threw a renter in there and moved back in with his parents. He was lucky enough to have the market then rise and he made a small profit after all fees, and is now renting happily having learned a valuable lesson.”

Olympic Rental Oversupply

This exchange regarding Olympic renting at RE Talks, from 20 Nov 2009 11:46 -

nico101 – “I have a house near Commercial Drive which is losing it’s tenants for the upper 2 floors on Dec 1st. I still have the basement suite tenants though. Given the timing I’m considering the whole Olympic rental thing.”

Agitprop – “My sister has had her place with a jaw dropping view in West Van, listed for a month or two….nada. The market is WAY oversupplied.”

“I don’t come across people very often who are limiting what they do from a lifestyle perspective so they can have more Real Estate.”

From the experience of realtor Mike Stewart (and contrary to the opinion of many), very few buyers are overextending themselves. This from RE Talks 21 Nov 2009 10:14 pm-

“The people I am working with are not at the limit, I would say 70%+ are low ratio and most of these people are working with a lot of equity.  I don’t come across people very often who are limiting what they do from a lifestyle perspective so they can have more Real Estate. People tell me they want to have money/time to do the things they value and they buy property they can comfortably afford. The people I work with see the low rates as a way to pay off their mortgages quicker or keep payments lower than they normally would be and don’t use it as a means to buy something they couldn’t afford. These people tend to be very cautious with property transactions and how they finance these transactions. This caution could be seen in how rare foreclosures were in my market during the economic crisis. This prudence and caution was the reason for this.”

265 E 24th Ave, Vancouver – Ask: $749K – 18 Offers – Sell: $1,033,000 – $284K (38%) above ask

The east side market is hot. Frothy-hot. This from the Globe and Mail 19 Nov 2009 6:03 pm -

265 East 24th Avenue, Vancouver

‘A heritage fixer-upper’

List price: $749,000

18 offers

Sold for $1,033,000 within 13 days

$284,000 above ask

“People think they have to buy, no matter what. We don’t want to panic and jump into something just because everybody else is doing that.”

A frenzied market can put participants through hell. Chris Kowalchuk is simultaneously experiencing regret about not buying earlier, desire to buy now, and caution that the ‘current market is a bubble that is about to burst’. This personal story extracted from the aforementioned G&M article ‘In Vancouver, house prices on a tear’, by Kerry Gold, 19 Nov 2009 6:03 pm -

“With mortgage rates low, and predictions that they’ll go up some time next year, buyers are too often panicking to buy that house, says Chris Kowalchuk, a first-time buyer who lost out on an offer on Tuesday. He bid $700,000 on a two-bedroom east side house listed at $680,000, without conditions. There were at least seven other bids. “Things are overpriced right now, I think, for what they are worth,” he says. “People are thinking they’ve got to get in while the interest rates are low.” Mr. Kowalchuk, a geologist who recently married, is willing to wait until the interest rates start climbing so that the competition will fall away. He believes the current market is a bubble that has to burst. “I’m looking for a house that I can stay in for at least five years, so I’m willing to overpay a little bit to get the right house.” Like a lot of people, Mr. Kowalchuk now wishes he’d been in a position to buy in the fall and winter of 2008, when many people worried that the market hadn’t yet hit bottom and chose to wait and see what would happen in 2009. By spring, buyers realized that the lower prices and low interest rates made houses affordable again, and the market reacted accordingly. “My dad was telling us to buy, buy, buy, when everything was depressed,” he says. “But we didn’t have time, with the wedding. We put it off until we ran out of time.” But first-time buyer Mr. Kowalchuk refuses to get caught up in the [current] hype. He is willing to wait until the bidding wars subside, even if it means paying a higher mortgage rate. “We’re going to keep looking, but we don’t want to panic and jump into something just because everybody else is doing that. If it’s totally a sellers’ market, people will just out-bid each other. People think they have to buy, no matter what. I’m thinking by April the long-term rates are probably going to start going up. I’m thinking everybody will panic and stay out of the market.”

The Globe and Mail – “In Vancouver, House Prices On A Tear”

In parts of Vancouver, such as the Vancouver Eastside, the market has reached fever pitch.  This article in the Globe and Mail by Kerry Gold, 19 Nov 2009 6:03 pm, has so many important anecdotal points regarding sentiment and market activity that vreaa has archived large swatches in this post, and highlighted two stories from it in the posts above.

“In the last three months, a heritage house at 274 E. 20th Ave. was listed for $959,000 and sold for $320,000 above asking, after eight days on the market. A heritage fixer-upper at 265 E. 24th was listed for $749,000 and sold for $1,033,000 within a mere 13 days. A month later, another house nearby at 214 E. 24th, was listed for $749,000 and sold for $950,000 within six days. A typical Vancouver Special at 4554 Walden St. was listed for $730,000 and sold eight days later for $958,000. All those houses were in the trendy Main Street area.”

“It’s very topical,” says realtor Rod MacKay. “Other places [in the country] are strong, but nobody’s seen anything like this. What’s really surprising is nobody anticipated the six-month dry spell being as slow as it was, and prices coming up as much. No one anticipated it bouncing back so far and so quickly.”

“At the beginning of this spring’s buying frenzy, buyers were offering $100,000 above asking in some cases. But by September and October, there were buyers – no doubt tired of being repeatedly out-bid – who are making offers so far above the asking price they couldn’t lose. In the case of the house at 265 E. 24th, it went for $284,000 above asking. “That takes a lot of stones to do that,” says the selling agent Darryl Sjerven. “There were 18 offers on that house. So you go in there, write an offer, and there are 17 other offers and you don’t know what any of them are. They could all be just $10,000 over asking. To go and write $284,000 over takes a lot of guts.”

To describe the bidding mentality these last few months, Mr. Sjerven uses the analogy of a “hang loose” hand gesture – with the three middle fingers curled under and pinkie and thumb sticking out.“Say you get five offers on a house, and suppose the house is listed at $750,000. The guy with the pinkie does not get it, he doesn’t know what’s going on,” says Mr. Sjerven. “Even though there are four other offers, he’ll offer you $700,000 subject to sale of his home and if he gets financing and everything. Then you get the typical pack in the middle, they’ll go around $785,000, or something like that. There’ll be a cluster of those people. Then there’s the thumb. It sticks right over the side and says, ‘this is my house. I want this house.’ He’s far enough ahead that it doesn’t get into further bidding or anything like that. And he buys that house.”

A few months ago, it seemed like the only houses being sold in bidding wars were the “hot properties,” the ones with three bedrooms up, new granite counter tops, and a gleaming in-law suite downstairs. More recently, the bidding wars have been over houses that aren’t so hot, such as that Vancouver Special that went for above asking.“The house wasn’t renovated or anything,” says selling agent Kenny Wong. “It was 37 years old. It had the original “shagadelic” carpets. It was on a 33-by-110 lot. It wasn’t even a standard lot. “I had a hard time selling a Vancouver Special in the winter – a lot of people made low-ball offers,” he adds. “Now they are going over asking.”

Although overall prices aren’t quite at pre-correction levels, for buyers it has felt like the spring of 2008 again.

As to where the market will be in early 2010, the current frenzy appears to be abating and realtors like Mr. Sjerven expect the lull to last over the winter and through to the end of the Olympics. Not many people like to list or buy homes around the holiday season, and few are going to want to sell around the time of the Games, when it could be hard to get around. That five-month lull will create “pent-up demand” that will trigger another frenzy, says Mr. Sjerven. “Once you clear the Olympics out of the way and we’re into April, it will be a race to those listings. Spring is going to rock.”

“They didn’t have to come up with a down payment.”

Money is free and you don’t even need a downpayment. The only thing good about this is that it is almost impossible to make monetary policy any looser without some kind of obscene give away program that’d likely stir objections. This from casual observer at greaterfool.ca on 21 Nov 2009 at 4:40 pm -

“If you go into one of the big five banks, and take their posted rate on a mortgage, they will GIVE you the 5% down payment. CMHC is happy because the 5% DP has been paid, the bank is happy because they get a higher rate on the mortgage, and the buyers are happy because THEY DIDN’T HAVE TO COME UP WITH A DOWN PAYMENT. And it’s all legal and above board. CMHC just charges a premium for a “NON-STANDARD Down Payment”. Now if that’s not a zero down mortgage, I don’t know what is. I know people that have done this within the last couple of months, but none of the media seems to want to bring attention to this.”

“Why should I stay here and pay exorbitant RE prices when I can move to Oregon, make more money with my qualifications, enjoy a better climate, pay less taxes and buy a beautiful home for 500K?”

As markets reach extremes, more and more people become aware of the resultant disparities. Even though most of us prefer to stay put, the benefits of making a move start crossing thresholds that cause some people to take action. This from Peter Pan at greaterfool.ca on 21 Nov 2009 at 1:41 am -

“I’m looking to get the hell out of Vancouver and move to the US… Why should I stay here and pay exorbitant RE prices when I can move to Oregon, make more money with my qualifications, enjoy a better climate, pay less taxes and buy a beautiful home for 500K?”

“It’s Raincouver on the Wet Coast. Just admit it and get over it already.”

Clement weather is often used as an argument in support of higher Vancouver RE prices. This downpour of realism from betamax at greaterfool.ca 21 Nov 2009 2:04 am -

“I live in Van, and it rains often. This last 12 mths has been a dry exception, not the rule. I don’t mind the rain and prefer it to snow, but I don’t know why locals here pretend that it doesn’t rain often and get defensive when others point it out. Does the blind jingoistic patriotism really run that deep? Are we Vancouverites becoming as unthinkingly defensive of our little backwater as inbred hillbillies? It’s like the Emperor’s New Clothes and no one wants to admit the obvious: it’s Raincouver on the Wet Coast; just admit it and get over it already.”

“My wife, young daughter and I are quite content to rent a place for $1,450 a month that would easily list for $700,000 (and probably go into a bidding war to sell for more).”

This from Contrarian in Vancouver, on greaterfool.ca, 20 Nov 2009 11:54 am -

“I live in Vancouver. My wife, young daughter and I are quite content to rent a place for $1,450 a month that would easily list for $700,000 (and probably go into a bidding war to sell for more). Our landlord arranges for the lawn to be cut, landscaping taken care of, and immediately takes care of any repairs. Got to admit, he’s great…kinda makes me feel like I’ve got it too easy. We’ve got a couple hundred thousand sitting on the sidelines in safer investments earning a little interest (aside from our RRSPs which are very diversely invested, life insurance and no debt).  I’m a 40 year old investment advisor with a contrarian and value based philosophy. As I tell my older clients when recommending laddered GICs as part of their portfolio, it’s not just paying 3.35%, you’re getting 103.35% as you know you’ll get your money back. Can’t say that about many investments these days – especially real estate. Heck, the cap rate’s got to be close to that but the risk is huge (oh wait, I forgot real estate only goes up!! – Hasn’t anybody looked at a graph of real estate in Vancouver for the last 40 years?) Luckily for me most of my clients are much older and have no debt. Bad for them is that their kids (in their 50s) can’t say the same, and of course it gets downright worrisome when grandkids (who are in their 20s and 30s) situations are brought up.  Meanwhile the plan for my family is that we’ll keep socking away into our RRSPs, keep building our down payment and in a few years when the @#!$ is really hitting the fan, pick up a pretty nice place and pay it off in less than 10 years. (Hopefully the banks won’t have a problem accepting a 30-40% down payment then! lol).”

Audio anecdote: “Hey, would you like to kick yourself?”… “Today’s real estate market could be at rock bottom, and when markets hit bottom, the winners are buying.”

At this point in the real estate cycle, to be luring individuals who are “worrying about living paycheck to paycheck” into RE ‘investment’ could be seen to be imprudent.   Listeners to Vancouver Radio station ‘CKWX News 1130′ this week (16-20 Nov 2009) were exposed to this 60 second ad about once an hour. The meaty bits are italicized. Or click here to subject yourself to the AUDIO -

Hey, would you like to kick yourself? That’s what you would be doing if you ignore this opportunity. Today’s real estate market could be at rock bottom, and when markets hit bottom, the winners are buying. Come to a free learn to be rich workshop and discover how to join the winners based on the teachings of Robert Kiyosaki, best selling author of ‘Rich Dad, Poor Dad’, the number #1 book on personal finance. Rich Dad’s learn-to-be-rich workshop is free and happening in the Vancouver area today through Friday. This totally free workshop will introduce you to tools and strategies that could create extra cash flow and free you from worrying about living paycheck to paycheck. Don’t kick yourself next year saying “Why didn’t I invest when I had the chance?” This is your chance. Register now online at richdad*******.com or call 800-399-****. Get a free gift for attending. Registration is free. Call now 800-399-****.”

Higher Down Payment, Higher Interest Rate? – “Don’t try to fight the government.”

Risk is being abnormally underpriced in the Canadian mortgage market. Despite the Bank of Canada’s call for prudence, there remains an apparent open invitation for buyers to overextend themselves. This from German Guy at robchipman.net 19 Nov 2009 at 12:44 pm

“I hear a lot of talk about how CHMC is the Canadian version of American sub-prime so, since I don’t have much to do in this never ending rainy place, I decided to go and apply for a mortgage to find out what is it all about.
I asked for a 5 /35 year fixed rate with minimum 5% down payment and 5/35 with 300k down as well as a VMR and wanted to know how much money I would qualify for. Here are the figures I gave the banker (the figures are imaginary and have no relation to my real revenue):
Gross annual income: 95k, estimated purchase price 800k
Expenses estimated by banker: Monthly heating costs $67; annual taxes $2500, loan/credit card monthly: $360

In the case of 5/35 with 40k down he qualified me for loan of $538,842, with $2,404 monthly payment and 4.20% interest rate. In the case of 5/35 with 300k down he qualified me for a loan of $798,842 with $2,534 monthly payment and 4.20% interest rates.

I asked to get a lower interest rate in the second case where I put a bigger down payment since the bank was not taking as much risk as with the first one.
Answer: We take more risk when you put a bigger down payment because your loan does not have to be insured by CMHC, so if anything your interest rate could be higher because the bank is taking more risk. We are not in the business of foreclosing homes and selling to get paid, we prefer when you have a CHMC insurance as our risk is much lower than when you have a pig
[that's 'big' -ed.] down payment above 20% of purchase price.

I asked for a VMR then, he quoted me a 2.25% interest rate for 35 years and qualified for $665,000 loan with 5% down payment.
I asked could put a bigger down payment ?
Answer: No. We will not give you a VMR loan if it is not CHMC insured!

I pointed out the absurdity of the situation in his reasoning, with taxpayer taking all the risk and the banks making risk free profit. All he said was don’t try to fight the government.”

“This well heeled Asian investor’s belief was that there were better opportunities in the U.S. real estate market over the long term.”

This from Ziggy at robchipman.net on 18 Nov 2009 11:36 pm -

“I had an interesting discussion with a well heeled Asian real estate investor (tens of millions invested) a few months back. His belief was that as an investor, there were better opportunities in the U.S. real estate market over the long term. His views on Vancouver was that a correction would eventually occur and could be partly triggered by the exodus of large scale Asian investors to American markets that have retrenched and now offer better prospects for longer term returns than Canada. While Vancouver has a large Asian population, many large scale Asian investors have bought properties throughout the country over the last ten to twenty years. Rebalancing their portfolio is largely a business rather than an emotional decision.”

“60% of the listed homes are over $1M when maybe 6% of the recent sales have been over $1M.”

This from Barbara Samson at robchipman.net 18 Nov 2009 1:45 pm -

“The tiny slice of market (Upper Lonsdale) that I follow is right now critically short of properties under $900,000, but glutted with properties over $1 mil. 60% of the listed homes are over $1 mil when maybe 6% of the sales since Sept 1 [2009] have been over $1 mil. Right now you could buy a crack house for $800,000 or spend 25% more for something really nice. And all the buyers are opting for the crack house?? This is not a balanced market and I can’t believe there are many who are spending their own money in it.”

Purp added the following 18 Nov 2009 8:37 pm -

“I’ve heard some anecdotal info that homes in the $800-900K range in the Main street corridor have also been selling with multiple offers, while more expensive properties close by on the West side are sitting longer.”

Asalvari adds 18 Nov 2009 10:45 pm -

[I am seeing a similar effect] in Dunbar, Point Grey and Kitsilano. The most prolific selling realtors are moving from Dunbar and PG to Kitsilano townhomes.”

“I sold my investment home in late 2005 and am waiting to buy a rental property when fundamentals make sense.”

This from Disbelief at robchipman.net 18 Nov 2009 6:57 pm -

“I am not a renter, I am a west side homeowner. I sold my investment home in late 2005 and am waiting to buy a rental property when fundamentals make sense. Investors aren’t buying into the hype, at least smart investors.”

“I haven’t really been paying attention to fixed rates with variables so low.”

Are current buyers following the recent BOC guidance to be ‘prudent’? This admission from Vancouver Realtor MikeStewartRealtor at RE Talks 18 Nov 2009 10:21 pm, in response to a poster’s question about ‘best 5 year and variable rates’ currently available -

“The best variable I’ve seen is prime -0.1%. Haven’t really been paying attention to fixed rates with variables so low. I’d use a mortgage broker. Talk to a few to see who can get you exactly what you want.”

“I’m single and have a salary that is in the high five-figures, which puts me up in the top 20% of households in Vancouver, yet I can’t afford to purchase a SFH in East Vancouver.”

This from oneangryslav2 at vancouvercondo.info 18 Nov 2009 11:42 am -

“Please let us in on the secret. How is it that people can afford million dollar homes? I still don’t get it. I’m single and have a salary that is in the high five-figures, which puts me up in the top 20% of households in Vancouver, yet I can’t afford to purchase a SFH in East Vancouver.”

Krazy Kanuck & his Vancouver RE Kalkulations

As home prices inflate to stratospheric levels, the utility of the sale price of many homes would cause a percentage of owners to ‘cash in’ – sell, move/rent, and live comfortably on the proceeds. (As one owner planning on selling and leaving Vancouver told vreaa, “I’ll never have to work another winter”.) The flip side of this is that many potential buyers are now sitting on their hands, as they are aware of the utility of the money that they save by doing so. This position is expressed here by Krazy Kanuck at greaterfool.ca 17 Nov 2009 11:05 pm, who has the added advantage of “living temporarily” in Vancouver, which probably gives him useful perspective. -

“I’m living temporarily in Vancouver (the epicenter of delusion), and I can’t wrap my head around the fact that if someone gave me $1 million, I could either: 1) buy a house here…and not a great one, only a good one, OR 2) buy $1 million worth of dividend stock funds, rent the house, put food on the table, and probably run a car. (I’m assuming a 3.6% yield…or $3k a month….for doing NOTHING!!) And my friends call me Krazy.”

“There’s your self perpetuating mechanism: newbie specuvesting landlord runs over his business obligations, makes the renter feel insecure, the renter jumps into a terrifyingly risky but looks-easier-to-live-in purchase situation.”

Being a renter is no picnic. There is always the risk of having a property sold from under you, and having to endure the consequent inconvenience of a forced move. The following two stories are likely the consequences of smart  landlords taking profits by selling.

Now, however, an increasing proportion of landlords are latecomer amateur speculators holding properties for price increase rather than for steady cash flow. Renters who are also prospective buyers may at some point face the bizarre situation of seeing long awaited RE price drops at the same time as being asked to vacate properties that their speculator landlords are hastily liquidating. But we’re not there yet.

Here are two back-to-back stories from vancouvercondo.info of boom market volatility displacing stable renters -

duru2000 on 17 Nov 2009 5:19 pm -

“My landlord (a realtor, btw) is selling the house expecting the prices to go down in 2010. I was thinking of buying at the end of next year, but since Bank of Canada kept the party running with crazy low rates I will have to wait a little longer. So I looked at craigslist and there are plenty of places to rent in my range ($1000 p.m.) right now, not like two years ago. I was playing with the idea of buying a place right now, but I’m not going to do it, I’d rather have a 200K mortgage at 7% than a 400K one at 3.5%. I can put a lot of money down, but it doesn’t make any sense right now.”

Absinthe on 17 Nov 2009 5:26 pm -

After a lifetime of stable renting, my family and I went through some serious bubble related instability with our rental last year. Now we’re paying just slightly more for more bedrooms and a yard, so it’s turned out for now- but I must admit for the first time getting grumpy about this bubble. The insanity in the housing market is making rental feel insecure, and I’m having trouble feeling settled. That, I don’t like. But I realized there’s your self perpetuating mechanism: newbie specuvesting landlord runs all over his business obligations, makes the renter feel insecure, the renter jumps into a terrifyingly risky but looks-easier-to-live-in purchase situation.”

“My dreams of buying cheap real estate are over. I don’t need to own, and current buyers are far crazier than I would have *ever* expected.”

This from rp at vancouvercondo.info 17th Nov 2009 10:31 am -

“My dreams of buying cheap real estate are over. I don’t need to own, and current buyers are far crazier than I would have *ever* expected. We just witnessed a worldwide financial crisis – the biggest in 80 years – and they are lining up to mortgage their lives away for a dream. Casting themselves onto the rocks is more like how I see it, because I don’t see how this could possibly be over. I save enough money to provide decent financial security for my family and will continue to do so. I’m 30 years old. It would feel good to settle down, but instead I’m going to remain flexible about where I live and what job I take.”

“It is annoying to see almost all our friends have moved to their new houses recently. Our hearts sink every time we hear mainstream media telling us next year housing price will continue to go up.”

The real estate boom has shut out some prudent citizens who would, under more normal circumstances, be homeowners. Some feel despair, others great inconvenience. Some gain solace from local and national real estate blogs, in the following case, from Garth Turner’s greaterfool.ca. This post by ‘Mom Society’ at greaterfool.ca 16 Nov 2009 10:33 pm appears to be an update and elaboration from the same poster whose earlier thoughts are archived at VREAA 7 Nov 2009 -

“We desperately want to buy a place with a yard as we have an 18 months old son and he needs a place to play. Although our annual income is around $15,000 more than average, we still find we can not afford anything with a yard, even in Surrey. It is annoying to see almost all our friends have moved to their new houses recently. Our hearts sink every time we hear mainstream media telling us next year housing price will continue to go up. Actually we don’t care if your [Garth Turner's] prediction would be accurate, no one has crystal ball. At least your blog gives us hope in this raining winter, give us a hope to allow us still dream we may have a home with yard in the future. Thank you. If we are belonging to middle class or working class, I feel [we are not alone in] our sadness.”

“They were beginning to get freaked out by the prospect of losing their jobs while trying to pay their mortgages.”

This from logic at vancouvercondo.info 16 Nov 2009 3:53 pm -

“I was sitting in the Starbucks on the corner of Denman and Davie this morning, doing a bit of work and listening to a group of 4 construction tradesmen at the table behind me talking about all the layoffs in the places they work, and stating that they were beginning to get “freaked out” by the prospect of losing their jobs while trying to pay their mortgages. They were most worried by the fact that it’s not just the new hires being let go, but also people with “seniority”. I felt sorry for them, as they genuinely sounded worried, and seemed like nice enough guys.”

 

“I just don’t get it… why the rent is so low, or why the sale price is so high?”

Gloria, at robchipman.net, on 16 Nov 2009, 9:27 am, discovers that Vancouver RE price to rent ratios make no sense. The unit that she describes has a price:rent ratio of 390, and that’s before any talk of maintenance fees (which would put the ratio well above 400).  These ratios would imply that, from a historical perspective, the sales price is over twice what it should be.

“Luxurious ‘O2′ on Davie / Denman St. has several units for sale, and one of them (2bdr/2bthr, 975 sq.ft)  is both for sale and for rent. The sale price is 975k, and the rent is $2500 per month.  I just don’t get it… why the rent is so low, or why the sale price is so high?”