Monthly Archives: December 2009

The Province: “UBC frathouses evict students to cash in on Vancouver Olympics”

In bubble economies, the pursuit of profits distorts principles even more readily than under normal market conditions. -vreaa

This from an article in The Province, by John Bermingham, 30 Dec 2009 -

“More than 200 students at the University of British Columbia are being forced out of their rooms by their own fraternities — which have decided to cash in by renting out to 2010 Games visitors. … Five of the eight fraternities are working through a real-estate agency to market their rooms. … Psi Upsilon house manager Aaron Thomson refused to say how much the group is making from its rentals. He told The Vancouver Province the money would go toward a scholarship fund, to pay for repairs and maintenance work, and to top up the fraternity’s contingency fund. “We have this great opportunity where we can fix the house and get all this money,” Thomson said Wednesday. “It is, of course, difficult for most people to have to leave for a month.” Thomson said frat members didn’t have a choice in the matter and no vote was held, but he said the majority favoured the plan.”

“It’s a matter of you being on the boat or not…whether you have the funds or the balls or confidence or whatever to make that next step..”

Bulls continue to use variations of “Buy Now Or Be Priced Out Forever” to justify their own positions, or to strike fear into the few non-owners who are still prospective buyers left in the region. -vreaa

This from instigator at RE Talks 30 Dec 2009 6:13 pm -

“It’s a matter of you being on the boat or not…whether you have the funds or the balls or confidence or whatever to make that next step..
I have an older co-worker. He moved to Mission years ago…back then he didn’t want to pay the prices around metro Vancouver, I guess. Well, now he regrets it, and feels he missed the boat…The difference in value of the metro Vancouver areas grew way higher in value [compared with Mission] than the difference in price 20 or so years ago just due to the appeal of the metropolitan area… It will take a long time for Mission to ever reach that level, if ever…If a person with riches comes to town they aren’t moving to Mission. There are also a lot of movie industry people living around town, too, adding to the rental pressure.. Housing demand whether for rental or PR is still housing demand. This for me means that there will be demand for as long as people are coming here…That is why I don’t want to miss this boat like my older coworker..”

This from eyesthebye at RE Talks 30 Dec 2009 6:34 pm -

I have a friend that moved away from Vancouver in ’99 because he and his wife couldn’t justify the high cost of owning a single family home. They are dual income professionals. If he bought 10 years ago he’d be a 6-700K richer just on the appreciation, then add the equity. The fundamentals didn’t make sense to him in 1999 and now they never will. This move remains one of his life’s biggest regrets. Yes, fundamentals do matter…just make sure you focus on the correct ones.” … [ This poster ends each post with: “The cure for higher prices is moving to a destination with lower prices”.]

“I bought another investment property this year. The mortgage is more than fully covered by my tenants, so even a small drop in the short-run doesn’t matter to me in the long-run.”

Are speculators going to be sensitive to price drops? Are there cash-flow positive properties available in Vancouver?  Is there a way of shorting the Vancouver RE market? [Answers: Yes. No. Maybe.-ed.] -vreaa

At a website called Investor Village, yozzdi considers ways of shorting the Vancouver RE market, and Rotair69 replies, 30 Dec 2009 -

yozzdi“I would like to make some investments that are essentially shorting the over-priced Vancouver Real Estate market. I realize that there are no direct trades for this (such as housing futures etc.), but am wondering if anyone else has looked at this, and found some stocks that could be proxies for this, and might be reasonable correlated to real estate prices in Vancouver?”

Rotair69“I’m doing the opposite – I bought another investment property this year.  However, the mortgage is more than fully covered by my tenants, so even a small drop in the short-run doesn’t matter to me in the long-run.”

“My brother in law just bought his 3rd investment property… This is the same person who would crap his pants if he had to bet $100 on roulette.”

A bull market leads participants to become complacent. Buyers simply don’t see the real risks in betting on continued RE price rises. They wouldn’t dream of buying stocks with 20:1 leverage, or of going to a casino, yet they take very large risks in RE without a blink.  -vreaa

This from oh crap at vancouvercondo.info 29 Dec 2009 3:10 am -

“My brother in law just bought his 3rd investment property, taking advantage of these low interest rates. Overextended to the extreme. This is the same person who would crap his pants if he had to bet $100 on roulette.”

“They went to the ‘RE-ATM’ to do repairs, but only spent half the money on fixing up the house.”

These responses came to a vreaa request at RE Talks (22 Dec 2009 10:32 am) for stories about Pre-2000 owners who have borrowed more against their holdings as prices rose.-

Danigirl 22Dec 2009 12:36 pm“I knew one person (closely) who increased his mortage every time he re-mortgaged, for at least 2 go-arounds I am aware of. I believe he even broke the mortgage once in 2005 or 6 under the guise of “getting a better rate” and “just happened to consolidate” some debts into the mortgage at the same time. My best guess, he was going backwards close to 20K a year for at least 5 years, and figured that’d all be fine because he bought his house 20 years ago and, it covered the debt. On paper it did, but, he was mining his equity out far, far faster than it was re-growing.”

underdog 22 Dec 2009 12:54 pm“I have a neighbour whose rental in Surrey was discovered being used for a grow-op about 18 months ago. They went to the ‘RE-atm’ to do repairs, but only spent half the money on fixing up the house. Since the husband was laid off from the construction industry, the rest was used to ‘supplement’ income. Talking with the tenant, the house was ‘assessed’ again 7 months ago and another equity withdrawal was made, ostensively to do more repairs on the garage/deck. The repairs they did were laughable (not hard to see why the husband is still out of work if his trade is construction) and everything done on the cheap. The tenant says the landlord was going on about how times are ‘tough’ with the husband out of work. Three weeks ago the tenant was advised they wanted to set up another assessment for another ‘withdrawal’ on equity. Landlord is hoping home values (withdrawal limits) have gone up. My understanding is they bought the place for $200,000 and comparable homes in the area are now selling for $475,000. Tenant says landlord seems to think bank should be appraising at $500,000 – $520,000, so I suspect they have maxed the home atm to the $475,000 amount – at the very least. Tenant also commented that landlord was convinced that rates would not be going up for a very long time. I’m willing to bet they are the equivalent of a 0/35 borrower right now.”

canadian 22 Dec 2009 2:44 pm - “I know this family, bought a mega-mansion and a rancher since husband is in mortgage industry and seems to making a huge moolah. Moved to mega mansion and rented both rancher and their old house. Come on, who sells real estate in lower mainland? It only goes up! They saw me as some kinda alien with 3 horns and 1 eye when I spoke my mind out about why I am not buying. Just a year ago – the hubby had a constipated look on his face – as everything was not going as per his plans. Now it seems that the valve down there has been opened good by Carney-Flaherty-CMHC trio, so he is back to his standard rumblings about how [price drops] would never happen here. He gave me that “35% drop? are you crazy” look. “

Prediction For The Coming Decade: A Real Estate Bear Market Will Be Vancouver’s Defining Social And Economic Event.

vreaa is taking liberties with this ‘end-of-the-decade’ note by departing from archiving anecdotes and instead posting a prediction:

A remarkable decade comes to a close. The dot.com bust, 9/11, the US sub-prime housing mess, extreme loonie volatility, failing forestry, commodity roller-coaster rides, the stock market crash of 2008, global recession. Each of these events affected Vancouver’s economy in an exceedingly limited fashion. The strength of the Real Estate market saw us through, and RE was without doubt the social and economic story of the decade. Now, factors threatening market health have steadily accumulated, and in our opinion they are approximating a critical mass. A virtuous cycle is about to turn vicious. All evidence suggests that Vancouver Real Estate is heading for a very significant bear market. Unfortunately, conditions have become so distorted that a simple return to normal will have profound and prolonged consequences for our city.  The coming housing bust will effect all Vancouverites, and the fallout will not be good. For our city, this RE crash will quite likely be the defining social and economic event of the next decade. The factors in the drama are distilled below. Comments welcome. – vreaa

.

‘The Vancouver RE Bubble And Bust’

.Act One – Background Stories:

“Best Place On Earth”.

“Running Out Of Land”.

Chinese Economic Growth.

Wealthy Foreign Buyers.

2010 Winter Olympics.

Grow-Ops; “Multi-Billion Dollar Underground Economy”.

“Real Estate Always Goes Up In The Long Run”.

Free Money; Government Distortion Of Lending Risk.

‘Affordability’ Based Solely On Monthly Carrying Cost.

“Prices Are Going Up”; Bidding Wars.

RE Dominates Social Dialogue; “My Neighbour Made 10 Years’ Salary Flipping.”

Uncritical Media; Vested Interests; Government Compliance.

“Buy Now Or Be Priced Out Forever”, Buying Panic.

Housing Predominantly Valued As Wealth Accumulation Vehicle.

.

The Major Players:

Overextended Local RE Owners.

Local Investors; Households That Own Two or More Properties.

Housing-ATM-Syndrome Sufferers.

Developers, With Lots Of Product.

Speculators, Waiting To Run For The Exit.

Boomers, Waiting To Cash Out For Retirement.

Equity So Life Changing, I’ll Cash Out Soon

Foreign Investors, Who Have As Yet Seen Nothing But Vancouver Gains.

.

Act Two – The Stage Is Set; Current Conditions:

‘Rent to Price’ and ‘Income to Price’ Ratios At Historic Extremes; Both Suggest Housing > 2x Overvalued.

Ownership Levels At Record Highs.

Slow Economy, Strong Loonie, Moribund Industries.

Rising Unemployment, Negative Savings Rate, Dropping Disposable Income, Household Debt.

Misallocation of Capital.

Demand From The Future All Used Up; Depleted Pool Of FTBs.

Adequate Supply.

Olympic Rental Market Underwhelming.

Double Top On Technical Analysis (For What That Is Worth).

Irrational Local Confidence; “We’re Different”; Complacency; Bull Hubris; Bear Capitulation.

.

Act Three – Coming Action:

Dropping Rents, Increasing Vacancy Rates, Worsening Fundamentals.

Mortgage Terms Tighten; At Least 10% Down, 30 Years Maximum Amortization.

Post-Olympic Blues; Olympic Nomad Exodus; Post-Olympic Supply.

Spring 2010 Supply.

Rising Interest Rates.

Price Falls Commence.

Speculator Supply.

Rising Taxes, HST.

Prices Drop Below Jan-Mar 2009 Trough Lows (15% Off).

“Prices Are Going Down”; Dearth Of Bids.

Foreign Investor Supply

Boomer Supply.

Seller Urgency; Irrational Fear.

Stagnation; Multi-Year Bear Market; BC Economy Struggles.

RE Vacates Social Dialogue; “My Neighbour Lost Everything .”

Housing Predominantly Valued As Shelter.

Prediction 2010-2019: A Real Estate Bear Market Will Be Vancouver’s Defining Social And Economic Event.

VREAA will continue to collect stories from the Vancouver RE Bubble ‘n Bust. Please post or e-mail stories from the trenches. The majority will be headlined. The blog posts read like a chronological series of stories. The category and tag sidebars allow you to access specific types of stories. -vreaa

[update: 31 Dec 2009, ‘Foreign Investor Supply’ added]

Related posts:

Regarding the possible relationship between Vancouver RE and Chinese stock & RE markets [27 March 2010].

The Stigma Of Renting In Vancouver [26 May 2010].

Price Drops Will Beget Price Drops [11 August 2010].

Regarding debt & the bubble, Two Charts: All You Need To Know About Canada’s Housing Bubble [26 August 2010].

A Housing Crash Rescue Cannot Be Legislated [6 Sep 2010].

Five Charts: Predicting Future Vancouver Housing Prices [11 Sep 2010].

Stealth Speculators & Shadow Inventory [17 Dec 2010].

“As frustrating as it may be” on the Wrong Side of the Bubble, the Bearish Position Remains Right [24 Jan 2011].

Disillusion Row, Numbers 1-12: Distracted and demoralized locals, many thinking of leaving. [2 Feb 2011]

On Government Intervention [16 Apr 2011]

The Third Fundamental: Total Housing Market Value to GDP – BC in the Stratosphere [7 May 2011]

It Is Dangerous To Blame The Consequences Of A Speculative Mania On One Sector Of Our Community: Let’s Make Sure We Don’t Do That. [18 May 2011]

Misallocation Of Human Capital During Speculative Bubbles – “What do you call societies that depart from meritocracy? What tends to happen to them in the long term?” [30 May 2011]

Was that it? ‘The Top’? [Possibly] [12 Oct 2011]

Land: Not Making Any More; Don’t Need To [9 Dec 2011]

Denying The Obvious Bubble – Close Your Eyes; Think Happy Thoughts; Don’t Use Nasty Words; Bad Things Will Go Away [7 Jan 2012]

Regarding the over-dependence of our economy on the property sector. [19 Jun 2012]

“25% of buyers won’t be able to purchase anymore.”

The tightening of mortgage lending criteria will likely herald the end of the current RE market cycle. -vreaa.

This from mortgage broker Marcus Tzaferis on CBCs The National 22 Dec 2009 (also cited in good articles at canadianmortgagetrends.com and greaterfool.ca) -

“25% of buyers… these people that are buying with 5% down, and those that are buying with 35-year amortizations… won’t be able to purchase anymore.”