“Sales in the first 9 days of 2010 were shockingly low” … “Statistically insignificant?” … “A couple of days, maybe, but not this many days.”

This from SD92129 at vancouvercondo.info 10 Jan 2010 1:27 pm -

“A realtor acquaintance said sales in the first 9 days [of 2010] were shockingly low. I countered with “statistical significance” just to see the strength of his argument. He says a couple days maybe, but not this many days.”

“The agent told my cousin she would try to squeeze the people that made the first offer by telling them there was another offer “out there”. The implication was clear, it must have been higher.”

Here’s a story of buyers who probably paid at least $30,000 more for a Yaletown condo than was  necessary to seal the deal. -vreaa

From Cynic at vancouvercondo.info 10 Jan 2010 9:46 pm -

“My cousin recently listed her apartment in Yaletown (Marinaside) for $739,000. She was offered $710,00 the first day and decided to think about it when the agent called with another offer, but only $685,000 this time. The agent told my cousin she would try to squeeze the people that made the first offer by telling them there was another offer “out there”. Of course, agents can’t divulge the offer but the implication was clear, it must have been higher. Long story short, the first buyers offered $740,000 and my cousin had a sale. She stills feel somewhat sleazy about it but, hey, that’s Vancouver.”

Cabs and Hotels, Olympic Canaries: “People have been canceling their reservations and willingly forfeiting their $500 deposits.”

Olympic exuberance and Vancouver RE market fantasies are joined at the hip, so we are following the Games with interest. Recently a local cab driver told vreaa that he expected 30% LESS business through the Games. Why? Just a few reasons: 1. The lower mainland has been opened to all BC cabs for the duration of the games; 2. Eight hundred buses imported from the prairies will shuttle people to and from Whistler; 3. Cabs are not allowed to take people from the airport to Whistler; 4. Thousands of volunteer drivers will be giving Olympic participants free limo service in 4,600 GM vehicles supplied especially for the games. So a combination of restrictions and competition will reduce business for local cabbies. We have also heard from individuals who own condos in Whistler who have been unable to rent them out. -vreaa

Related stories from oneangryslav2 at vancouvercondo.info 8 Jan 2010 12:57 pm -

“I took a cab into work this morning and as I do every time I’m in a cab, I ask the driver this question: “How’s business?” My query of this cabbie–like my queries of all cabbies–was not pure. It was instrumental to my goal of unearthing information about the potential economic impact of the Olympics on our quaint metropolis. Why cabbies, you ask? Well, they’re the proverbial canaries in a coal mine when it comes to spotting economic trends in their locales. So, what little anecdote do I have to share? Well, the cabbie said that business was slow; he’d had one fare per hour since he started and had made a total of just over $50 in fares (including mine) from 4:00-10:00 am. I tried to console him by noting that this was the calm before the Olympic storm of business that was bound to blow his way. He wasn’t convinced. His wife works at a hotel–a smaller boutique hotel–on Robson Street and their occupancy rate for February is 27%! I made him repeat the figure to me so that I was certain I hadn’t misheard. Yup, 27%!  The hotel had initially jacked up rates to $1000/night and had accepted enough reservations and deposits (a $500 deposit per booking, not per night) to have full occupancy during the Games. So what happened? Well, people have been canceling their reservations and willingly forfeiting their $500 deposits. My ride ended so I wasn’t able to ask him whether that was because they had decided not to attend the Games at all, or whether they had found cheaper accommodations, or whether the rooms had been booked by some corporations “just in case” and were no longer needed.”

The Inconvenience Of Being Bearish – “The housing situation is bothering me. I’m going to need a bigger place. The wife is not thrilled about renting.”

rp on vancouvercondo.info 8 Jan 2010 4:20 am posted an honest review of their recent track record predicting various markets, and humbly gave themselves an ‘F’ for not having predicted the 2009 Vancouver RE market bounce. They continue -

“What can I say, I think people are nuts. So I haven’t been doing well recently. 2009 was an ego basher. But if there’s one thing I’ve learned it’s that fundamentals always assert themselves. I’m not in the market, and I’m not looking for short term gains. I have other things I’m doing. I’m simply trying to avoid being the sucker who gets wiped out. So far I’ve done ok. The housing situation is bothering me though. I’m going to need a bigger place. The wife is not thrilled about renting, and we probably won’t rent a house. That means cramped living, a new apartment, or moving away. All options are on the table, but I’m inclined to stay where we are and make room because the family arrangements are so good. I’m also sick of moving, although it has been hugely beneficial each and every time we’ve done it. Looking for advice: how practical is it for a 2 year old and a 6 month old to share a normal sized bedroom?” [Like the rest of rp's plan, it's very practical. -Ed.]

Owner Triumph – “Lookey lookey. Seems like the next big area is my area. East Vancouver address sells 10% above ask.”

This from eyesthebye, whose story we have heard elsewhere, at RE Talks 9 Jan 2010 8:13 pm -

“East Vancouver address sells 10% above ask. Lookey lookey – seems like the next big area is my area. Just a few blocks away from my east Vancouver shit shack…with one less bathroom and a smaller lot.”

East Vancouver address sells 10 per cent above list
5261 Windsor Street, Fraser Type: 5-bedroom, 2-bathroom, detached, 2,357 square feet
BC Assessment, July 2009: $636,000 Listed for: $799,000 Sold for: $880,000 Sold on: Nov. 16 Days on market: 10
The big sell: There is a definite buzz about Fraser being “the new Main.” With real estate prices reaching Westside levels in the Main Street corridor, gentrification is moving into the next obvious avenue that has easy accessibility to downtown Vancouver. New developments such as Century at Fraser and 29th and Blossom at Fraser and 20th signal a distinct upturn in housing and retail opportunities in the area. This, coupled with comparatively lower house prices, is encouraging young would-be westside families to push farther east, according to realtor Norm Flockhart. Following an “open for agents” and two public open houses, this nicely renovated century-old character home attracted seven offers, pushing the final sale a significant $81,000 above the asking price.”

Follow up comments from tapioca 9 Jan 2010 8:51 pm and 10 Jan 10:33 am-

“Yep. Prices seem to be going up here too, though I don’t know if crazy like Fraser. I actually find it slightly frightening. Both our neighbourhoods are within 15 mins drive from DT, of course yours has the Vancouver cache I saw someone spamming letterboxes with posters a few months ago – we are looking for a home in this area please let us know if you’re selling…signs of desperation.”… “good quality townhomes and apartments are in short supply here under 550k. There are no listings for townhomes right now – and only 2 a few months ago. Only 5 for apartments. Likewise, houses under 700k. They need to start building in the hastings corridor “

“You could stick your finger right into the roof where the ceiling meets the east wall.”

Two mainstream-media pieces on the same day focus on the unclear reliability of home inspectors. Locals have grown accustom to the pitfalls of poor construction, but does the simultaneous occurrence of two such articles from different outlets indicate more widespread buyer caution? -vreaa

‘Can you trust your home inspector?’, a TV program from cbc.ca broadcast 8 Jan 2010, with Erica Johnson & Mike Holmes.

‘Home inspection remains a buyer-beware environment’, a newspaper article by Derrick Penner, Vancouver Sun, 8 Jan 2010.

Darcy Zallen, a civilian employee of the RCMP, holds her inspection report as she stands in her master bedroom,  while contractor Jeff Bain removes rotten wood from the outside walls. Zallen had the home inspected and had no idea that the home needed major repairs. Despite a property inspector’s report that indicated some minor problems and noted a roof needed to be replaced within five years, Zallen faces spending up to an estimated $40,000 to make major repairs before she can move in. She purchased the home for $405,000.
“My main concern was the roof, because it was tar and gravel, but it had this weird metal covering,” she said. Zallen brought in roofing contractors to do maintenance, they told her the roof was beyond repair. And when other contractors started what she thought were cosmetic renovations, they uncovered a wall that was rotting away. “You could stick your finger right into the roof where the ceiling meets the east wall,” Zallen said. (from the Vancouver Sun article).

“We reminisce about when the neighbourhood was a neighbourhood and not just real estate being turned over. There is no way that, at current market valuations, any of us could buy back in.”

This from BeatBox at RE Talks 9 Jan 2010 2:12pm -

“I will likely never sell my Vancouver home. I am fortunate to have it and the view. My salary was never great but when I picked it up single income working professional families could afford to buy a home in a desirable neighbourhood. My longtime neighbours are chefs, bus drivers, a teacher/cop couple, and a small business owner with a shop nearby. The new neighbours are all first gen families with big business interests and investments. It’s been quite the change and there is no way that, at current market valuations, any of us could buy back in. One house is vacant and has been on and off the market with multiple agents over the past few years. We call it the “fishing lodge” as they keep raising their price and never sell… just fishing. The old timers, like me, sometimes reminisce about when the neighbourhood was a neighbourhood and not just real estate being turned over. Everything feels so much more temporary these days. … I am currently looking at some properties in Seattle for my next investment. There are some terrific bargains down there for under $300k that have 3 beds and 2 baths. Great rentals to families working in solid Forbes500 companies.”

The Psychological Momentum Bull Argument – “Red is the New Black; Owning has become a Defining Part of One’s Persona in this City; Renting is the Biggest Stigma.”

It is no secret to readers of these pages that vreaa considers the Vancouver RE markets very overvalued and set for a tumble. For the record, we will at times headline opposing and alternative arguments on these pages. We recently had a look at the bullish predictions of Vancouver condo developer James Schouw, which centered around the argument for overwhelming ongoing demand. Here we highlight posts from an individual who argues that despite increasingly unfavourable fundamentals, psychological market momentum will cause people to take on ever increasing amounts of debt, or overextend themselves in whatever way necessary, such that they “do whatever it takes to [own their home] because it has become a defining part of one’s persona in this city, as renting is the biggest stigma”. We agree that RE has attained a remarkable psychological and social pre-eminence in Vancouver through this boom. Such engines are in fact common in bubble markets.  We disagree strongly, however, that such factors can keep price levels divorced from intrinsic value indefinitely. Fundamentals (yes, those “tired old arguments”) will take hold, and will turn a virtuous cycle very vicious. -vreaa.

For the record, this from ‘Vancouver Rocks’, who admits to being someone who works “administering a multi-billion dollar federal infrastructure fund“. They stated their position 4 Jan 2010 3:50 pm & 8:59 pm at greaterfool.ca -

“The strength of the market is domestic based, and has been driven by historically low interest rates (since 2002), a sincere if not brainwashed belief that we are the best place on earth, a certain level of amenities that cater to those that love scenery and the outdoors, and a commitment by a population willing to take on massive debt for bragging rights. Is that delusional? Sure, but that delusion has fueled the longest RE boom in this province (and in Canada’s history as far as I can tell) to the point that it is entrenched.

Affordability has been tapped for many years. This year and next year will be no different. Each year, people are amazed at the ever increasing percentage of income spent on housing, and each year prices continue to go up. Each year, people bring out the same tired old arguments. And yet, here we are with a low paying service sector economy; a province absent of corporate headquarters; a decimated forestry and fishing industry; an embryonic tech sector; anemic immigration at best; a doubled unemployment rate; and a 15% increase in RE prices one year during the “worst” recession.

Income to price ratios mean nothing in this city. This city has not followed the three times income rule since the early 80s. There has been a disjuncture between incomes and home prices for DECADES now. Such a ratio may mean something in Winnipeg, but out here people find a way to pay for their real estate no matter what – through foreign money, renters as mortgage helpers, second jobs, etc.

People in this city will do whatever it takes to keep their place because it has become a defining part of one’s persona in this city, as renting is the biggest stigma in this city.

And because most people are aware of the strength of the market, any minor “correction” will see people flock right back in because they know that prices go up.

I think people believe that people are taking on massive amounts of debt without knowing what they are doing. While some of the generation Ys are doing so because they embrace risk and have never known “bad times,” other older generations that should “know better” take [on the risk of debt] knowingly.

If the big bad “recession” of 2008 taught us anything, it is that being in the red can pay off – “red is the new black” so to speak. The government created a moral hazard with their bailouts, so many homeowners believe deep down that should anything go wrong with real estate the government will bail them out. Real estate has become the defining sector of an economy, an indicator of wealth, and a “right” in the minds of the masses.

Prices have been in a so-called “boom period” for over 8 years now – yes, that is eight years, and this will most likely be the 9th year of significant appreciation. Just a history lesson for all the young’uns – prices may rise, and dip, but in Vancouver they maintain their trajectory ever upwards. To all of you that are waiting for a major crash in Vancouver, you might have to wait another decade. But be sure to keep checking blogs for predictions that a crash will happen “next year,” and be sure to comment on how much your are “saving” every month by renting ($500 here, $1500 there), all the while watching homeowners secure “paper gains” reaching tens of thousands if not more each year.”

“Don’t buy a house because you think the price is going to go up. It’s absolutely not debatable that housing prices cannot rise faster than incomes over the long term.”

Most 2010-outlook industry reports have estimated that housing prices will gain significantly again this year. The Vancouver Sun, essentially an RE industry mouthpiece through the boom, continues to print cheerleading articles, but has once or twice published words of prudence. This article of caution from the Vancouver Sun/Financial Post 8 Jan 2010. Some excerpts -

As Canada’s red-hot real estate market shows no signs of slowing down in 2010, analysts are beginning to caution some buyers that their best move may be to step to the sidelines.

“If you’re somebody in a situation that you have only five per cent down and you’re stretching to get in the market with a 35-year amortization, I think that would be a very precarious situation right now.” … “If you’re sitting on a pile of cash and looking to move into the real estate market, it would almost be a no-brainer to just wait for lower prices.” (Robert Kavcic, BMO Capital market economist).

“It’s absolutely not debatable that housing prices cannot rise faster than incomes over the long term.”… “If I didn’t personally have most of my wealth tied up in housing, this would not be the time that I would choose to jump in.” … “Don’t buy [a house] because you think the price is going to go up.”(Will Strange, professor of real estate and urban economics at the Rotman School of Management).

“We’re certainly urging people to error on the side of caution. If you’re paying an amount of money, whatever that might be, that you couldn’t sustain if interest rates rose by say 25 or 30 per cent — I can see that being a problem for a lot of people.” (Bruce Cran, president of the Consumers’ Association of Canada.)

“I’m one of those BC homeowners who expects to see my house value go sideways or down for the next 5-10 years.”

Here’s a post from a BC homeowner with a very sensible outlook. They are, however, in a small minority. A far larger group of home owners (and particularly, the last decade’s buyers) are (a) anticipating ongoing RE price gains, (b) sitting with a very significant percentage of their net worth tied up in their homes (oft times >100%), (c) very, very far from having their mortgages paid off, and (d) dependent on their home equity for retirement. -vreaa

This from Keh at greaterfool.ca 8 Jan 2010 1:44 am -

“I’m one of those BC homeowners who expects to see my house value go sideways and/or down for the next 5-10 years. I’ve resolved myself to that and am not selling because a) we love our house, and b) we’re comfortable with it’s place in our overall asset mix and c) are fortunate to have paid it off. Our challenge now is to make the most of a nest egg to generate long-term income. I’m not looking for guaranteed double-digits, just a mix that will earn a few points better than inflation over a timeframe of a decade or two or four. 2-3% over inflation – fine. 4-5% and I’m over the moon.”

“The main problem with houses I see here is that most of them have very poor finishing, and generally are lousy construction jobs.”

Vancouver Rent to Price ratio; Design; Construction quality: The European perspective. -vreaa

This from German Guy at robchipman.net 7 Jan 2010 8:51 am -

“I rent a new house deeper in White Rock/South Surrey that was built 2 years ago. I rent it for $2,500 a month and according the bc assessment site it is assessed at 1.2m.  [rent:price ratio 1:480 -ed.] When temperature dropped below zero in December, I could not get the inside temperature more than 19 degrees with all the heaters on. I had to go and buy extra heaters to heat the place. Then I look at the heaters power, house volume and walls and according my calculations the heating system is designed for 20 to 22 degree inside temperature when outside temperature is 8 to 10. If temperature is below then good luck.  I guess this problem is fairly common. Also I am horrified by the amount of energy you need to heat the place. Good thing energy is not so expensive here!
The main problem with houses I see here is that as soon as you start getting closer to them and look into detail, you realize that most of them have very poor finishing, and generally are lousy construction jobs, you just have to start looking into details.  There is nothing to be said about design and architecture here because really there is not much, I have seen some nice houses south of Granville but they are a minority and on some of them the renovation done spoils the charm more than anything else. Designers in this city are obsessed with kitsch. It is my overall impression. Kitsch is everywhere, that is why it goes unnoticed to the locals I guess.”

“RE in Vancouver has given me the opportunity to save for my retirement without having to save.”

This from soju at greaterfool.ca 4 Jan 2010 6:51 pm -

“RE in Vancouver has given me the opportunity to save for my retirement without having to save (RRSP and such). I’ve always been able to put 5% on the table and sell at a later date and make enough cash to put another 5% down on the next place and put the rest in basic savings. As prices move-up I simply move a bit further from Vancouver and repeat the process. I like RE because I can use more leverage than the stock market and if prices go down at least I have a place to live in or rent out.  I can certainly agree that this strategy sounds ridiculous for some individuals living in other areas. For some [you'd be] lucky to buy your dream home immediately, and spend the next 25 years or less paying it off without moving around, but for us, [we have] the price per square foot we need to keep flipping up to eventually buy our dream place. … I don’t think interest rates will go up mid-year [2010]. The Canadian dollar is already showing more strength as of late. Unless the government doesn’t mind the dollar going to 1.10 against the USD. I also think prices in Vancouver for 2010 will gain more than 10% before taking a breather. I’ve been through 2 RE booms and things just haven’t gotten out of hand yet.”

“I have been laughing all the way to the bank since the second half of 2003. Bought my first modest home in Vancouver, got a good old mortgage helper (aka one of you renters), and I am close to paying it off.”

This from Vancouver Rocks at greaterfool.ca 4 Jan 2010 5:03 pm -

“I have been laughing all the way to the bank since the second half of 2003. Bought my first modest home in Vancouver, got a good old mortgage helper (aka one of you renters), and I am close to paying it off. I have resisted the pressures to always trade up, and have lived within my means. So if the market corrects a mere 10% has predicted here, I couldn’t care less. Most Vancouverites could care less. If it corrects more, who cares. I am still so far ahead of market bears with close to a 100% appreciation so that a 10% or 30% haircut will make no difference to me, nor will it make a difference to the rest of the [owners] here. [The non-owners] cannot afford Vancouver real estate now, nor will they if there is a slight haircut to the price of real estate. Sorry, but Vancouver is something special…”

Bull Hubris?… Or Appropriate Owner Confidence? – “My property got assessed 20% higher than last year! Wooooohooo! I’m going to refinance for another house while you cry-babies live in the dumpsters.”

Vancouver RE owners offer up few descriptive personal anecdotes on the sites that we monitor, despite the fact that we’d like to record such stories here. Very few people who are owners/investors/speculators seem to want to describe their situations. This contrasts with the fair number of renters/prospective_buyers who seem quite willing to share their metrics. Are the owners embarrassed by profits? Or shamed by debt? Or concerned about privacy? Or underrepresented on RE forums? … Owners do, however, quite readily offer up opinions and advice about the Vancouver RE market. The price levels of July 2008 have been regained [Jan 2010]. Owners have been voicing more and more confidence on RE forums. Any statements obviously have to be seen in the context of the kinds of exchanges that occur on such forums, as they are often part of playful or jibing banter, but they nonetheless do reflect an aspect of owner attitude. For the record, some such statements are archived and referenced below. If there are any owners who would like to share specific anonymous stories of their gains and holdings, or how RE has changed their lives, please e-mail them to us and we’ll headline them. -vreaa

sideliner at robchipman.net 4 Jan 2010 12:45 pm – “The market has been unstoppable for over 8 years now.  Nothing will change.  That time frame shows you how strong the market is.  A minor pullback here or there, 5 or 10% means nothing.  The average person is priced out and always will be.”

EconomicBoom2010 at vancouvercondo.info 5 jan 2010 12:22 pm – “My property got assessed 20% higher than last year! Wooooohooo! I’m going to refinance for another house while you cry-babies live in the dumpsters.”

eyesthebye RE Talks 30 Dec 2009 9:23 am – “Bears haven’t said ‘uncle’ yet so I’ll keep twisting the screws”. (With an end-of-post signature that reads): “the cure for higher prices is moving to a destination with lower prices”. [This poster is one who has been generous about sharing specifics. They purchased a SFH in early 2009 which is now up 170K in market value (owner's estimate), for a 300% gain in equity in 11 months (consider the down-payment as initial equity).]

Johnny Horton RE Talks 1 Jan 2010 8:28 pm – (In reference to a non-owner) “…a severe case of Landless Serf Syndrome.” and 11:06 pm – “Vancouver is the best place on Earth.” and 7 Jan 2010 11:44 am – “Don’t worry, when you pass the real estate course, you’ll be out of the in-laws basement in no time.”

mike at yattermatters.com 1 Jan 2010 10:56 pm – “Do you bears ever get tired of being so disgustingly wrong? Give up already.”

jimtan RE Talks 1 Jan 2010 11:05 am – “We have been over all this stuff time and again. And, the bears have been wrong. What’s the point of bringing it up again? You’ve got nothing new to add.”

Vancouver Rocks at greaterfool.ca 4 Jan 2010 3:50 pm – “Just a history lesson for all the young’uns – prices may rise, and dip, but in Vancouver they maintain their trajectory ever upwards.”

VanLoverBoy at vancouvercondo.info 7 Jan 2010 3:10 pm and 3:56 pm - “I’ve got a word of advice for you: M_O_V_E”… “I’m sure from your cheery disposition you’ve got to be one of the renters who has missed the boat. Too bad. Go start out somewhere better, like Africa, MiddleEast or one of those other notasgoodasvancouvermiddleofbumf—nowhere places you’re in love with.”

silverman at RE Talks 4 Jan 2010 1:30 pm (in response to a post from ‘dot com refugee’ that “We have seen that RE bubbles pop on their own, even with low interest rates. Please see Vegas, San Fran, NYC, Arizona, Miami, Dubai, London, etc etc etc etc etc.”) – “You forgot Istanbul and Timbuctu… Please see B.C.“

Steinbock at RE Talks 6 Jan 2010 10:25 pm – “Bears are only good at crapping in the wrong spots. Hence the smell in some basements.”

—

Lastly, these two very trollish and vitriolic posts from someone who calls himself ‘richasian’ (and who is quite probably neither rich nor asian) on vancouvercondo.info 2 Jan 2010 at 2:54 pm and 6:04 pm - “Happy new year you scum sucking renters!!!!!!! I hope 2010 brings continued misery as you watch from the sidelines in your crappy rental! Maybe this year you’ll finally come to grips with your financial situation.” … “Put your fingers in your ears and say na na na na when everyone is saying that real estate only goes up. Continue to drown your sorrow in the pubs downtown you sick little losers. Meanwhile I cash your rent cheque and head to Vegas for some gambling. It’s fun being a winner. How is it being a loser… bears?”

“I am one of many young Canadians that migrated west to take advantage of the economic boom. I might be one of many that won’t stay because I’m priced out of the housing market.”

This from taylor192 at vancouvercondo.info 6 Jan 2010 2:07 pm -

“I am one of many young Canadians that migrated west to take advantage of the economic boom. I might be one of many that won’t stay cause I’m priced out of the housing market. I’ve had discussions recently with other 25-35yos that are considering a move back east once the economy here starts to struggle or it’s time to start a family. It just doesn’t make sense to take on high housing costs to stay here, or when the Olympic/construction job markets dry up. The alternative is to flee metro Vancouver to the burbs of Surrey leaving behind the beach/mountains that brought us here. Might as well continue heading east, back to where we came and much cheaper housing costs.”

“The benefits of renting: If I bought the place I’m living in, my kids would be on the own for university, I would not go on vacation and I would not have any retirement.”

taylor192 at vancouvercondo.info 5 Jan 2010 10:12 am – “We’re in a $458K condo and saving 30% by renting (compared to a 35/5 mortgage, or 40% on a 25/10 mortgage). The assessed value is easily $50-100K under current sales prices.”

VRENGD at vancouvercondo.info 6 Jan 2010 8:41am – “The benefits of renting: I live on the water in false creek in a 1200 SF two bed two bath condo. My place costs me 15% of my AFTER TAX income. I take two $5000 vacations a year. I save $20,000 per year to send my kids to Harvard when they are of age. I still contribute to my retirement plan that will give my 70% of my income every year from retirement until death. If I bought the place I’m living in (I’m pre-approved), my kids would be on the own for university, I would not go on vacation and I would not have any retirement. Who is the sucker? Me or the no-life debt slaves who are stretched to the limit?”

Minister – “We should scrap or adjust policies that no longer comply with the goal of curbing excessively fast growth in property prices”

Ooops! Sorry… Wrong country! (but, curiously, correct policy) -vreaa

This quote from Jiang Weixin, minister for Housing and Urban-Rural Development, China, as quoted at CNBC 5 Jan 2010 11:30 pm, in an article titled ‘China should tighten credit for second homes’ -

“We should scrap or adjust local property policies launched last year that no longer comply with current macroeconomic goals or with the goal of curbing excessively fast growth in property prices”

Article excerpt: China’s housing ministry has called for stricter rules on credit issuance for second home buyers to curb speculation in the property market. The ministry has also pledged to increase the supply of affordable homes, another part of the government’s campaign to tame price rises in the sizzling property sector.

James Schouw in the Vancouver Sun – “Demand will always outstrip supply; Fundamentals and other factors don’t matter; Prices will rise; Don’t worry.”

An article named ‘Supply, demand, and a real estate rebound’ from The Vancouver Sun, 2 Jan 2010 is written by James Schouw, of James Schouw & Associates.  The article doesn’t make it clear, but Mr Schouw is a Vancouver condo developer. The author and the Sun may well presume that this fact is just too obvious to mention. Schouw’s projects include ‘Grace Residences’, ‘Iliad’ and ‘Artemisia’.  Units in ‘Artemisia’, to be built at Hornby and Helmcken, are now in pre-sale for >$1,000 per sqft. ‘Grace’ has fine street appeal, and is justifiably admired for its style and construction quality. Schouw also appears to have a genuine love for our seawall, and we certainly won’t take him to task for that.

Mr Schouw admits to having a simple approach to RE markets. As he puts it at his own website “Real estate needn’t be complicated. Greater Vancouver’s population quietly grows by about 50,000 each year. We need homes for 1,000 more every week. Meeting that demand will be an increasing challenge.” (quote from the promo slideshow for the Artemisia project).

We differ from Mr Schouw in that we believe that price:income ratios, rent:price ratios, interest rates, overt and covert speculation, inherent leverage, overextended owners, employment levels, the state of the economy, ownership levels, & household debt, are just some of the other factors that need to be taken into account when assessing the health of the Vancouver RE market. Our outlook for Vancouver RE can be found here.

For simplicity sake, and for the record, we here offer this reorganized account of Mr Schouw’s Vancouver Sun article. (Quotes from Mr Schouw in bold; Italicized headings from vreaa):

1. DEMAND & SUPPLY

(a) DEMAND IS, AND WILL REMAIN, HIGH.

(i) Population growth; Immigration.

“Many did not contemplate the rate at which our population grows, and the resulting pressure on real estate. They may not have realized it, but people who wait out the market typically find themselves competing against almost 1,000 more people every week in need of a home in Greater Vancouver.”
“Local housing demand, a function of population change, has continued to grow as it has done for years, along with most of Canada. During the 15 months to July 1, 2009, BC’s population alone grew by 92,593, requiring almost 40,000 additional homes. That’s a normal rate of population growth for BC, representing the number of births and new arrivals minus deaths and people leaving, and isn’t likely to slow.”
“Global population is growing too, by the better part of 100 million every year.”
“As the city continues to mature into its world-class role, increasingly desirable to prospective residents from all continents, home ownership and rental will become less affordable, especially in the urban core.”
“Greater Vancouver’s growing population will continue to absorb about 300 additional units of housing every week.”

(ii) People simply need to own homes.

“Greater Vancouver’s real estate market will continue to be driven by the growing number of people that simply need homes.”
“People need homes, and they can’t just walk away en masse as they can with other investment vehicles.”
“An individual or family doesn’t have to be thrilled about the economy or the Olympics to participate in the housing market. They just have to be living.”

(iii) The Olympics.

“Olympic exposure will indeed help to fuel demand in the long term.”

(b) SUPPLY IS, AND WILL REMAIN, LIMITED.

“Since the middle of 2008 the development industry has fallen well short of meeting demand, and continues to fall short, causing effective inventory to shrink. In Greater Vancouver, certain developers were sitting on hundreds of vacant homes a year ago, but now have none.”
“New properties won’t last for long.”
“Prospective ”sellers” in a stable or growing population are typically also prospective ”buyers.” When thousands of homes change hands, keeping spirits high and realtors busy, neither the stock of usable homes nor the number of people needing those homes necessarily changes. Some sellers may choose to become tenants, but each such decision creates a market for one more landlord-owned home, and inventory remains fundamentally unchanged.”

2. FUNDAMENTALS AND OTHER FACTORS

(a) SPECULATION HAS DISAPPEARED

“Speculation, the catalyst of a ‘bubble’, is largely absent from the market due to lingering fear from the lessons of 2008. A bubble will only materialize if overconfident developers and speculators manage to oversupply demand.”

(b) LEVERAGE IS NEGLIGIBLE

“Average mortgage leverage is a fraction of that in more perilous markets, notably overbuilt ‘bubble’ markets to the south.”

(c) INCOME LEVELS ARE NOT IMPORTANT

“Local real estate will likely be increasingly wealth driven, as opposed to income driven. Income sufficient to finance a home is of little concern to wealthy families that don’t need financing.”

(d) EMPLOYMENT WILL BE GENERATED BY SERVING EACH OTHER

“I’m often asked where we find jobs for all our new residents. When population grows, so does local demand for goods and services. Most Vancouverites, including grocers, plumbers, doctors and so on, make a living serving other Vancouverites. Exports and tourism are only pieces of our diversifying economy.”

(e) THE ECONOMY WILL BE STRONG

“It’s difficult to ignore the emerging importance of Canada’s immense resources, especially on a per capita basis, including fossil fuels, water, minerals and agriculture.”
“Only if our local economy suffers compared to other population centers, as it did in the 1990s relative to Eastern Canada, are we likely to see our growth curve flatten.”

(f) INTEREST RATE RISES WON’T MATTER

“Because of tightening inventory, any foreseeable interest rate increases are more likely to dampen real estate sale volume than to dampen value.”

3. CONCLUSIONS

(a) DEMAND WILL ALWAYS OUTSTRIP SUPPLY

(see 1 (a)&(b) above) “Shrinking inventory will make real estate increasingly difficult to buy, with excess demand from the tightest localized markets overflowing into others.”

(b) FUNDAMENTALS AND OTHER FACTORS REALLY DON’T MATTER

(see 2 (a)-(f) above)

(c) PRICES WILL RISE

“Selling prices have been climbing and many buyers have found themselves chasing the market upward. Most values are back in the ballpark of their previous peaks of about two years ago.”
“More would-be sellers may decide to stay put for fear of getting left out of the market. Accordingly, resale volume may shrink but prices will rise.”

(d) DON’T WORRY

“For now, if you own Greater Vancouver Real Estate, relax and have a happy new year.”

Rent:Price 1:550 – “Nope, no bubble here!”

This post describes a situation where a basic rent to price ratio is 1:500. When you take into account property taxes and maintenance, that ratio would be 1:>550.   Under normal market conditions, a ratio of 1:150 to 1:200 makes a property attractive to investors. If interest rates remained low forever, one could imagine investors being interested in properties at 1:250. Even if that were the case, this property is still overvalued by a factor of two based on this metric. -vreaa

This from Mr. Reasonable at vancouvercondo.info 5 Jan 2010 12:11 am -

“I just used the property tax assessment website to check the assessed value of the house that I rent for $1200 a month (whole house, it’s cozy). They’ve got it pegged at a value of just under $600k!!  That means even with a hefty down payment and todays rock-bottom interest rates I’d still be paying more than double in debt servicing, nevermind all the maintenance and property tax costs..  Nope, no bubble here!“

“I long for those days when a home was just that, a home. We all weren’t constantly watching our house values like it was some investment in the stock market.”

BC RE Assessments are out this week. A poster bemoans the profound negative effects that RE has had on local social discourse. -vreaa

This from Crash at vancouvercondo.info 4 Jan 2010 10:22 pm -

“The talk around the water cooler is: “what did your place get assessed at”? Geez…I’m so sick of it. … I long for those bygone days when a home was just that, a home. We all weren’t constantly watching our house values like it was some investment in the stock market. “

Despite Paper Profit, Move-Up Nixed By Rising Prices

This from joycer at vancouvercondo.info 4 Jan 2010 10:12 pm -

“A coworker who has been urging me to buy has finally given up and told me to wait it out. The home he owns was purchased for $250,000 and is now worth around $650,000. Great right? He realized that this starter home is not where he wants to raise his family for much longer. To move up though, he’ll be looking at buying in a neighbourhood which will cost around $900,000. So much for moving up… they used to be separated by around $50K (managable for a family to move up) but the growth in housing has pushed it to $250K (out of reach). He now realizes that the unrealized $400K gain is actually costing him $200K in extra debt and that he won’t be able to move up. I told him to move up now or forever be priced out “

“Sure I won’t (not can’t) buy a house at these prices, but my life is not defined by ownership or not.”

In response to an observation that renters are “pissed off, stressed out” waiting for a Vancouver RE crash,  logic at vancouvercondo.info 4 jan 2010 11:23 am, has this to say -

“I’m not stressed or pissed off. I rent a nice place for an affordable amount of money (20% of income), and save 1/3 of my income as well. Life here is good. I like skiing and hiking, and travel quite a bit too (2 trips to Europe this coming year). Sure I won’t (not can’t) buy a house at these prices, but my life is not defined by ownership or not. If I can never buy here, that’s fine by me – I’ll just retire somewhere warmer (although in 30 years it may well be warmer HERE)- which I’ll probably want to do anyway, to be honest. Happy renter.”

“I know literally dozens of parents that have given between $50,000 and $250,000 to their kids so that they can buy their dream homes.”

Intergenerational Wealth Transfer has been an unquantifiable component of the RE bubble. Has this been happening at a greater pace and in larger amounts than at other times? Are parents more likely to gift large sums for down-payments during a Have future gifts been depleted by the boom, or are large amounts sitting waiting to continue to juice the market (with leverage of >10:1)? -vreaa. housing boom?

This from Joseph at greaterfool.ca 3 Jan 2009 11:10 am -

“The other thing which may taint “housing affordability” numbers in Canada is the role that parents are playing to facilitate the purchase of homes for their children. I know literally dozens of parents (immigrant families but not mine unfortunately) that have given between $50,000 and $250,000 to their kids so that they can buy their dream homes. One parent I know, an Italian immigrant who has worked as a plumber his whole life, purchased a home for each of his kids for their wedding present. Three of the four homes were purchased before home prices started their steep ascent in 2000. The last one he purchased was in 2005. He is still working, pushing age 70 in order to “take care of his own financial needs” now. So are these “housing affordability” numbers really relevant if you have these parents offsetting a huge portion of the debt costs up front… ?”

“I am a West-coast Real Estate Appraiser who considered this market over-priced in January 2006.”

There are a minority of RE industry insiders who privately see the market as unsustainable but who publicly have to conform with herd mentality or risk losing work. This phenomenon is common in the mutual fund industry, where it is more important for managers to move with the herd than to be right about market direction. -vreaa

In a post discussing a possible price drop before or after the Olympics, real estate appraiser gordon at greaterfool.ca 2 Jan 2010 7:09 pm ends thus -

“-Thoughts from a west coast real estate appraiser who considered this market over priced in January 2006.” [paraphrased for headline -ed.].

Profile of the Buyers: “Ten of my acquaintances, all in their early thirties, have bought real estate in or around Vancouver since Spring 2009.”

This indispensable post,  from a commenter at greaterfool.ca, profiles young Vancouver FTBs and their financing habits. -vreaa

This from Flavor Flav at greaterfool.ca 1 Jan 2010 7:05 pm -

“As a long-time bear on Vancouver real estate, I’m interested in who is paying these high prices and why. Among my acquaintances, 2009 was the year of the first time buyer. I am a Vancouver resident and a renter in my early thirties. Around 10 of my acquaintances (all roughly my age) bought real estate in or around Vancouver since Spring 2009. Almost all of them were first time buyers. Generally speaking, I think the Bank of Canada’s low interest rate policies are the main reason why these people bought. The rate cuts were timely in the sense that they saved the herd psychology from turning negative. Prices only dropped for a brief amount of time – not long enough to cause a rush to the exits. … Almost none of the buyers I know had large down payments. None of them, to my knowledge, considered valuation metrics like price to monthly rent multiples, or how much negative cash flow would be if they were to estimate the property’s merits as a rental property. They just got qualified for a mortgage and looked at the required monthly payments (affordable in the short term). I don’t believe that any of these people think that Vancouver real estate could ever go down significantly in the future and stay down for any length of time. Many of them viewed the slight decline in prices we saw in 2009 as a generational buying opportunity for real estate. I think many of them had also been impatiently waiting to buy and when prices were down somewhat and rates were down a lot they pulled the trigger. I don’t know whether many of them chose a fixed rate mortgage but I doubt that more than 1/3 of them would have. It is now hard for me to think of anyone I know who has had consistent employment in Vancouver for 5 years and still rents. I guess that the theoretical reason to lower interest rates in a recession is to promote borrowing and investment so that businesses can easily finance new capital goods, hire people, etc. However, I’ve seen very little of this activity among my group of acquaintances and quite a bit of speculation in asset markets (real estate and stocks). I guess it’s obvious that we are now to a large extent an asset price (bubble) driven economy. Since asset prices are already so detached from fundamentals, it appears that ever-increasing amounts of credit (and willing/qualified borrowers) are needed to keep things going. I won’t be surprised at all if government and the BOC do all sorts of creative things to maintain the fantasy of ever-increasing real estate prices despite lagging income for the average person. It’s either that or throw all these recent first time buyers under the bus big time.”

“When I grew up, Vancouver was just another city, beautiful, wonderful to live in. I would move back, but the costs are now prohibitive.”

During a bubble, people are distracted by the apparent positive effects of increasing property prices. Less apparent are the invisible negative social effects. How many people have left or avoided Vancouver because of the preposterous cost of owning? How many businesses have not set up in the region for the same reason?  I personally know of professionals who have visited looking at jobs here, but then decided against the move purely because of housing costs. -vreaa

This from Andy in a comment posted at VREAA 31 Dec 2009 10:52 am -

“When I grew up, Vancouver was just another city, beautiful, wonderful to live in. I would move back, but the costs are now prohibitive. I have family in West Vancouver and Point Grey, but it isn’t possible for me to move there, my daughter to attend university there, and for it all to happen. It is becoming hell for average people who don’t have money, who just want a home.”

“I am beginning to think there is no end to the upside in Vancouver. People are RE mad!”

Yes, this is a sign of the end of a bubble. -vreaa.

This from Freaked in Vancouver at greaterfool.ca 31 Dec 2009 10:47 pm -

“In the Greater Van area prices are, as of the month of December [2009], going through the roof. Taking a steep spike upwards, no question about it. Is this a sign of the end of the bubble, as my financial advisor told me? (Not that I trust him!) Properties that were listed for $750,000 3 months ago, are now being listed for $900,000. Check out the MLS listings for Richmond. Tear-down properties for just under one mil. Unfortunately, I sold a property 4 months ago, thinking I was very smart, and am now kicking myself. Could have listed now for $50,000 – $100,000 more than in August. Real estate markets go up and go down, but I am beginning to think there is no end to the upside in Vancouver. People are RE mad!!!! There doesn’t seem to be a limit to what they will pay.”

Visual Anecdote: Artist Reece Terris’ “Another False Front”, and the Vancouver RE Bubble.

Artist Reece Terris has produced a very fine piece of art, ‘The Western Front Front – Another False Front’, for Western Front Exhibitions and the ‘Vancouver 2010 Cultural Olympiad‘.  The work subversively comments on the Vancouver RE Bubble, and wittily uses Construction as its medium. The artist has added a large parapet and cornice to the façade of the Western Front Gallery in Vancouver. Description and discussion of the work is reproduced and linked below. We respect the obvious fact that the piece is open to many different interpretations. Here are some initial associations: False Front. Appearance Over Substance. Superficial. Artifice. Insincere. Without Real Substance. Overextended. Exaggerated. Overreaching. Showy. Boastful. Advertised Wealth. Pride Without Foundation. Ambitious. Obvious. Conformist. Frontier. Boomtown. Wannabe. Temporary. Shoddy. Transitory. Veneer. Hollow.       Impressive!      Thank you, Reece Terris. -vreaa

This from vancouver2010.com, the official games website (screencapture: here) -

“The Western Front, one of Canada’s longest running artist-run arts centres, is located in Vancouver’s Mount Pleasant neighbourhood. In an architectural intervention, artist Reece Terris constructs a temporary false front on top of the centre’s already existing false front. This work is in keeping with the idea of architecture as an expression of perceived wealth and culture, and it emphasizes Vancouver’s long-running upswing in the real-estate market and subsequent boom economy.”

This from Reece Terris’ own site, reaceterris.com (sceencaptures: description & installation) -

“The Western Front Front, (Another False Front).

This work is under construction at the Western Front Gallery, Opens December 5, 2009.
The proposed work is an architectural intervention where an adaptation of the existing western false front (or commercial false front) is added to in order to emphasize Vancouver’s long running upswing in the real estate market and subsequent boom economy.
Historically, “the false front commercial building type is seen as a building of the urban pioneer west; a boomtown street lined with false front buildings created visual continuity and an urban atmosphere lending a grander, larger-than-life appearance to the primitive cabins. False fronts crowded together along business streets gave frontier camps a visual sense of security, reinforcing the logical notion of Main Street as a tangible link to civilization. The goal of the western false front design was to produce a building of visual quality that approximated the kinds of buildings being constructed in the more established cities”.
In keeping with the idea of architectural form as an expression of the perception of wealth and culture; I am proposing to construct a temporary false front on top of the already existing false front. The new false front will be one and a half times larger than the original false front and project out over the sidewalk at a slight angle.
Quote from: Dale Heckendorn, “New architectural styles / types added to the lexicon,” Historical & Architectural Survey Newsletter, October 2005 – number 10.”

This from Western Front Gallery at front.bc.ca -

“Western Front Exhibitions is pleased to present The Western Front Front – Another False Front by Vancouver-based artist Reece Terris. This public art project is commissioned by Western Front Exhibitions and presented with the Vancouver 2010 Cultural Olympiad.

The Western Front Front – Another False Front is an architectural intervention constructed on the exterior of the Western Front building. Terris’s addition consists of a new, larger façade, including parapet and cornice. Exaggerating its formal elements, the structure has been built at one-and-a-half times scale, and installed on top of the existing façade at a slight angle.

Historically, wooden false fronts were ornamental structures erected on the front of goldrush-era buildings to make hastily built boomtowns appear more impressive. This created the illusion of larger, more important buildings mimicking those built of cast iron or brick in more established cities. Symbolizing the pioneering Western town, the false front is both synonymous with the artificial display of wealth as well as the rapid boom-and-bust expansions of early mining, railroad and forestry communities.

One of a handful of wood-frame buildings still standing in Vancouver with a false front, the Western Front was constructed in the early 1900s as a lodge for the the Knights of Pythias, a fraternal order. In 1972, the building was purchased by a group of artists and converted into a live/work space. This affiliation grew into the Western Front Society, one of Canada’s longest-running artist-run centres.

Drawing from architectural history to contemporary discussions around façadism (the practice of demolishing a building while leaving its façade intact), Terris’ project juxtaposes bygone projections of culture and prosperity with references to the rapidly expanding economic cycles of modern-day Vancouver.”

—

Discussion of Reece Terris’ work at www.kostuikgallery.com.