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.”