Monthly Archives: March 2010

“I’ve been in Miami since 2003. It was obnoxious to listen to all the RE talk. Now I get the same thing from my Vancouver-based family.”

Josh at VREAA 31 Mar 2010 6:40 pm -

“I’ve been in Miami since 2003. It was obnoxious to listen to all the RE talk. Now I get the same thing from my Vancouver-based family.”

“An investor who bought into a rent to own home placed their own tenant in the building until they came up with the financing. They wanted to complete in October but now they HAVE TO complete before April 19th or will not qualify.”

joycer at vancouvercondo.info 30 Mar 2010 8:00 am -

“I know personally of an investor who bought into a rent to own home and placed their own tenant in the building until they could come up with the financing. They wanted to complete in October [2010] but now say they HAVE TO complete before April 19th or will not qualify. So it’s no surprise to me that sales are doing well (but still not containing listings), the question is how much future demand is being robbed.”

An Ex-Pat Comes Home – “I’ve been frustrated talking to friends and family in Canada about housing because I honestly feel like I’ve traveled backwards 5 years in time, to when reasonable discussion was impossible in California, and house prices were only going up-up-up.”

CalgaryLurker at greaterfool.ca 27 Mar 2010 7:55 pm -

“I want to share my experiences as a former expat coming back home. I lived in San Francisco/Bay Area for most of the last 11 years and recently chose to move back to Canada for family.  Since being back, I’ve been somewhat frustrated talking to friends and family about housing because I honestly feel like I’ve traveled backwards 5 years in time, to when reasonable discussion was impossible in California, and house prices were only going up-up-up.
I think what frustrates me the most though is knowing what it was like to live through the years after that peak, and the possibility of reliving them yet AGAIN here in Canada. The truth is I very much would like to own a home, I just am unwilling to sell my financial future to do it, which is what the last decade has asked of home ownership.
I am in my late 30s and have never owned a home, but instead chosen to rent. Financially I am certainly capable of buying, and came close on several occasions, but for various reasons ultimately decided it didn’t make sense for me. Our culture’s recent obsession that views homes as investments is an aberration in my view, and over the years I have chosen to put my money to work elsewhere. I suppose I developed this thinking during the 80s as I watched my father tried to sell our family homes during recessions in Alberta, usually at a loss. It certainly coloured his thinking.
After I moved to San Francisco in my late 20s, I watched the dot com bubble inflate and pop, lived through power brownouts, 911, antiwar protests, two terms of Bush, and saw the California real estate bubble inflate and pop, and the budget crisis that followed. What stayed with me is that nothing moves in a straight line for very long. It’s never different this time. People will always move en masse to find the next good thing (or avoid the next terrible thing) whether looking for a job or an investment. It has made somewhat cautious when dealing with my money and big social events like bubbles. Animal spirits be damned!
I do understand what the ride up feels like. It is exciting and it feels GOOD. I had to line up with 30-40 people just to see an apartment to rent, and usually had to overbid! In my industry, everyone was trying to figure out how to get an investment property or three. HELOCs were providing family trips to Hawaii and brand new cars. Every lunchroom conversation was about home reno projects. Etc..etc.. I chose not to buy back then even though a dozen of my friends and co-workers did because the numbers just seemed silly to me (perhaps being the son of an CPA something rubbed off). In retrospect I am very glad I didn’t cave to the pressure I was feeling at the time (though I went to open houses and talked to realtors, so it was close). Today many of my friends in California are underwater on their homes but making payments, some have lost their vacation and rental properties, and some are under threat of foreclosure. Many have had to scale back their lives. One even used to live in Stockton, the ground zero for the central valley collapse, where entire streets were gutted before he moved to Seattle. He lost about 200k of equity and considers himself lucky.
And these are not poor or dumb people by most standards. All of them work in software making 6 figure combined incomes, but they ‘caught the bug’ and started to believe the narrative. It is infectious. And, as you know from Garth’s site, the mortgages that have been issued over the past few years are stretched for perfection. If prices drop more than a few percent, or rates go up a little, or a few bad apples default, it starts a cascade. And although San Francisco proper was more shielded than further out communities from the declines, they eventually felt it too. This in the city that was’ jewel of the west coast’, and where ‘they are making no more land’, like so many arguments I hear now about Vancouver.
So, I recognise now I will likely have to rent until 2014-15 before the crash has played itself out here. Hopefully it will go quicker since the government has relatively fewer schemes left in its pocket to keep the prices high. I will be moving to Vancouver shortly (for business) and it is astonishing to me that prices are now HIGHER than San Francisco’s were, even at its peak. And I used to tell Americans friends about the sensibility of Canadians….
One side effect of the crash in California I noticed was the exodus of people. Either because they were broke, or lost their jobs, or didn’t like what was happening to the social programs, etc. Many people I know are now in Austin, Portland, and Seattle, cities which didn’t crash as mightily, but where housing is cheaper to begin with. (Actually look up the luxury 6000 sqft places with huge lot that you can get in Texas for the price of a Calgary condo. And that is simply what they cost, not crash pricing. Reminds you what housing SHOULD be.) These cities economies where buffered by the influx of people and I think are doing relatively better. The same might happen to Calgary and Edmonton when Vancouver starts to dip, but then again the American cities I mentioned have more diverse economies than in Alberta. If oil isnt high, the entire western provinces start to look like all of California.”

“There are jobs in Vancouver, but not what they use to be. I use to make 60K a year, but most jobs require a lot more for 45K a year now. Jobs are just lower pay in general.”

Sam at greaterfool.ca 31 Mar 2010 11:19 am -

“There are jobs in Vancouver but not what they use to be. I use to make 60K a year, but most jobs require a lot more for 45K a year now. This is what it seems like to me. Jobs are just lower pay in general.”

“A family in China intends to move to Vancouver. How are they planning to pay for a house there? By speculating on local real estate that rises 100% in 3 months.”

It is not clear in this anecdote whether the initial speculation would be done in Vancouver or China; but, regardless, the logic of making money speculating on RE appreciation in order to afford a house is worth documenting. -vreaa

Rich at greaterfool.ca 31 Mar 2010 10:22 am -

“Interesting story I heard the other day: a family in China wants to move to Vancouver. How are they planning to pay for a house there? By speculating on local real estate that rises 100% in 3 months of course! Vancouver is different because in most other markets people don’t save up their down payment by speculating on real estate bubbles. Interesting how deep it goes…”

“Talking with mortgage brokers you’re seeing a lot of cash brought to the table. People buying those properties over a million dollars are plunking down 50%+ on them. Yes, there is a lot of rich foreign money coming in.”

Agent Will is Will Wertheim, a local realtor who posts the Vancouver RE statistics each week on his indispensable blog, agentwill.com. Recently he shared his current experiences in the market. Here’s Agent Will reporting from the trenches, 25 Mar 2010 8:45 am -

Talking with mortgage brokers you’re seeing a lot of cash brought to the table. People buying those properties over a million dollars are plunking down 50%+ on them. Yes, there is a lot of rich foreign money coming in. I’m not selling those, though (not that I don’t want to). At the lower end we’re seeing buyers put down 10-15% on average and being pretty conservative with what they are buying. They may be approved for $500k but they’re looking at $400k or less as their max.

You look in the papers and media these past few months (at least what gets reposted on various sites in our community) and you see a lot of talk about prices, interest rates, and the future. I don’t understand that talk and I’ll tell you why. The Banks want to lend money. They only make money when they lend it. But they don’t just lend it to anyone… they only lend to those they deem credit worthy. They adjust the interest rate to reflect the risk. If the person is too risky then they won’t lend at all and the borrower has to go to a B or C lender which has far higher rates and will lend subsequently lower amounts of money. When media reports that “banks are worried” (and the reality for me is that I haven’t seen any worry) then I wonder if someone is saying a personal opinion or if the bank wants to reduce time spent on processing soon-to-be-rejected paperwork.

There’s also a lot of confusion about the HST and so many people think it applies to ALL housing. To every potential buyer I have had to explain (sometimes more than once) that it only will apply to wherever GST was applied (New housing over $525k, lawyers, realtor commissions paid by the seller, movers, materials for renos, contractors, strata management, utilities, etc.) and that means that purchasing a previously titled property will NOT pay HST.

[Results of a recent poll reported on in the G&M] jive exactly with what I’ve been seeing and saying here: “The survey showed six in 10 mortgage holders say they have taken advantage of current low rates to pay off more principal. It also revealed that 18 per cent of homeowners say they have made a lump sum payment on their mortgage and 16 per cent have doubled up payments to reduce the principal. ”

Again, 60% are paying off their mortgage faster, 18% have made lump sum payments, and 16% have doubled up payments. Question is if those 60% contain the 18% and the 16%, but still that is a very good number to see. And it only means that the other 40% have been going about their business and not taking advantage of the low interest rates. I wonder if maybe that is because the fixed rate still rules the vast majority of mortgages taken. Everyone I know on the variable is making extra payments or payments equal to what the fixed rate would be. Everyone.

Oh, and back to the “qualify for the higher fixed even if taking the variable”? I applaud that decision. But that’s just conservative lil’ ol Me. In my experience those who couldn’t really afford to buy are the least realistic, the biggest dreamers, and the greatest time wasters in my line of work. Yeah, they’re the ones watching the infomercials late at night.”

“I’ve been talking about selling my house for a couple of years in anticipation of the bubble bursting. Next week I’ll have it on the MLS. My timing is interesting. Yesterday had the feeling that it has definitely started. Perhaps I have missed the boat.”

This poster gives us the first taste of the opposite of the fear of being priced out forever, namely, the fear of missing out on profits by selling too late. -vreaa

Bailing in B.C. at greaterfool.ca 30 Mar 2010 10:11 am -

“I’ve been talking about selling my house for a couple of years in anticipation of the bubble bursting, finally about 3 weeks ago I started talking to a realtor and decluttering the house. Tomorrow I have a handyman coming over to do some exterior clean up. But I couldn’t wait. Yesterday afternoon I went outside and put a for sale by owner sign up. By next week I’ll have it on the MLS. My timing is interesting. Yesterday had the feeling that it has definitely started. Perhaps I have missed the boat. Oh well, hopefully there is still a couple of greater fools floating around. I’m just glad the house is paid off and I have a basement suite.”

“I must talk to 5 people a week who say: “I’ve lost a ton of money in the stock market over the last ten years, but I’ve still got my house, and our plan is to sell our $1.2 million house and downsize to a $500K condo, in the next two or three or four years.”

A crucial component of the coming Vancouver RE price bust will be the liquidation of properties by those owners whose financial futures are entirely wrapped up in the market price of their primary residence. -vreaa

Danielle Park is an Ontario based portfolio manager and financial advisor. Here follow quotes from Park from an audio interview with Stirling Faux of ‘The Money and Wealth Show’ 25 Mar 2010 -

7:00 – “The problem is you have all these boomers who have been wiped out twice in the stock market in recent years, and the one solace is housing. I must talk to 5 people a week who say: “You know what, I’ve lost a ton of money in the stock market over the last ten years, but I’ve still got my house, and our plan is that we’re going to sell our 1.2 million house and downsize to a $500K condo, in the next two or three or four years.”

8:20 – “I think that boomers are going to find out that the population behind them has a whole lot less money and a whole lot less appetite for the million dollar homes.”

9:00 – “25 to 30% possible downside [in housing prices]… It could happen in a quick period of time, a few months, another way is [a long period of flat prices].”

14:45 – “If you’re thinking of downsizing… and If you’re in some of these hot cities… Try and figure out whether it’s better to sell sooner rather than later when everybody else plans to get out of overpriced real estate… I think maybe think of it sooner rather than later… and if you’re looking to buy, I wouldn’t be in a hurry. Let the prices come to you. This is the art of savvy investing.”

Many struggle to afford their homes – “The Conference Board defined housing costs as unaffordable if they exceeded 30 per cent of pretax income.”

What percentage of buyers of primary residences in Vancouver in recent years are spending more than 30% of their pretax income on their housing costs? What percentage of those having to eat less nutritious meals because of housing costs are ‘owners’? -vreaa.

The Conference Board of Canada released a report “Building From the Ground Up: Enhancing Affordable Housing in Canada” which is discussed in an article, ‘Many struggle to afford their homes’ in the G&M 30 Mar 2010. Excerpts:

“Many Canadians can only keep a roof over their heads by cutting costs in ways that could harm their health – such as buying less nutritious food.”

“About 75 per cent of Canadians are currently living in homes they can afford, the Conference Board said, adding a further 5 per cent have their housing costs subsidized by the government. That leaves 20 per cent of Canadians struggling to keep up with the cost of their homes, the report said. The Conference Board defined housing costs as unaffordable if they exceeded 30 per cent of pretax income.”

“I assume my realtor means “now is the time to buy.” This makes no sense to me. Rates going up is guaranteed to lower housing prices. Any bull or bear knows this. So now is the worst time to buy.”

Dave in Vancouver sent VREAA an e-mail, 29 Mar 2010. Thanks, Dave. -

“My realtor just posted this as his facebook status:
“The Vancouver Real Estate market is very busy these days. Rates are anticipated to go up in the very near future so now is the time.”
I assume he means “now is the time to buy.” This makes no sense to me. Rates going up is guaranteed to lower housing prices. Any bull or bear knows this. So now is the worst time to buy. Or maybe he means “now is the time to sell.” What does everyone think?”

“After many red hot years the Whistler rental market has tumbled. Far more supply than demand. It is now a renters’ market. Throw in the 300 new units being turned over to locals at the Athletes Village and there is no end in sight.”

Lady Luck at RE Talks 28 Mar 2010 9:45 am -

“After many red hot years the Whistler rental market (for locals, not vacationers) has tumbled. Far more supply than demand. It is now a renters’ market. Rents are dropping by the week. Two bedrooms that were renting for $2000 can be had for $1400. This will also have a spill over effect on the Squamish and Pemberton markets as commuters return to Whistler because of increased affordability. Throw in the 300 new units being turned over to locals at the Athletes Village and there is no end in sight. Not every landlord will be able to weather the soft market. It will be interesting to see if this in turn creates even more inventory for sale. The only thing I see improving the situation (for landlords) is increased tourism next winter.”

“The poor quality of housing construction and design is so obvious, you have to be blind not to notice it.”

Over at robchipman.net, a German man who lived in Vancouver for the last year, is about to return to Berlin, but first shares his impression of our city. Thanks to Híppos Purrós for alerting us to the anecdote.

Here’s German Guy at robchipman.net 29 Mar 2010 1:36 pm -

“Vancouver was a great experience but all good things come to an end I guess. I enjoyed this blog [robchipman.net] and the quality of posts here and learned a lot about the dynamics of BC and RE. As this is my last post here,  I wish you all the best and thank you to all contributors.

Here are some short impressions of my stay here:

Things that I liked:

Canadians:  I met a lot of wonderful people whom I hope to see again here or in Germany and hopefully remain friends for a long time.

The nature The nature The nature: I enjoyed hiking the west coast trail, meeting a wild bear, driving BC Alaska highway, seeing BC wild horses, whale watching , paddling in the Brown lakes, Kootenay Rockies and the wonderful drive from Banff to Jasper,  boarding  BC ferries, skiing in Whistler and lake O’Hara in Yoho park, flying kites with my kids on desert beaches, boating with friends, but most importantly I enjoyed being alone with nature and walking into the roads barely traveled. Only in BC can you do this!

Things I didn’t like:

Health care: I know that many people here are proud of Canadian health system, but our experience was not so good.  After one year here, we still could not find a family doctor. One time my wife had to go to the hospital, she was turned back as there were no rooms available, despite her condition being serious and needing observation according to the doctor . Some long time readers here know my saga with my sinus problem, although not serious, I first went to a walk in clinic last November 2009 only to get an appointment with a specialist by January 28th which after 5 minutes consultation prescribed me an antibiotic Avelox (prohibited in Germany , it almost destroyed my stomach) and a CT scan for which I have appointment on Tuesday October 12th 2010!
Meanwhile I was back in Germany during spring break, saw the specialist and got the CT scan done within 2 weeks, it cost me 95euros.

Public School: We were generally disappointed with the schooling system, kids never came from school with home work nor was really any accountability asked from the teacher. From our understanding the school here seems to be a place where kids go to have fun and play rather than abide to rules, learn the culture of effort and systematic work ethic.
If it is difficult, don’t do it, seems to be the motto.  Fund raising is the main preoccupation of the schools and it is rather frustrating to see the kids come home weekly with fund raising schemes for all kind of things.

Business Opportunities: I could not really find any real business opportunities here rather than some unprofitable franchises in the hospitality industry despite ample pools of capital (2 to 10M). Most small businesses I have analysed have so little profit margins that your money will get a smaller return than leaving it on a 5 year government note.  I looked into farms, wineries, manufacturing, engineering, and hospitality. Business owners I talked to, have extremely exaggerated ideas of the worth of their businesses at least when you look at the cash flow they generate. There seems to be a complete disconnect between risk and reward.
The job market seems to be mainly for low paying  jobs but maybe that is because of the recession.  The best thing that can happen to young people finishing school here is to land a government job or work for a crown corporation or other big company close to the government in my opinion.

Real Estate: Although much has been said here regarding real estate,  I only like to emphasize that the poor quality of construction and design is so obvious, you have to be blind not to notice it.  I have seen brand new construction houses selling for 2+million being built “a la va vite” with poor construction materials, poor design and a mix of tasteless kitschy interior finish that leaves most real estate value on the land rather than building from my perspective.
I have no doubts that Vancouver will get a severe correction in RE prices but trying to time it is a futile exercise.  When the downturn comes it will be painful, and all the myths of the rich Chinese investor and marijuana grow ops (not that they are inexistent!) shall be exposed. People will discover that this bubble is driven mainly by hard working Canadians buying 2 to 3 houses or more on cheap debt subsidised by CHMC, in a desperate rush not to be left behind the neighbour, work colleague, friend etc. as prices keep going higher and higher until they don’t.

Good luck to all. GG”

Mortgage Rates Rise; Financial Literacy Rates Unchanged

A number of Canadian banks have today raised their mortgage rates, with posted five year closed mortgages jumping from 5.25% to 5.85%. Here are some comments made by mortgage consumers below the Financial Post article, 29 Mar 2010. Thanks to metalhead at RE Talks for pointing them out. -

anonymous 29 Mar 2010 1:02 pm“I still think its crazy to get a locked in mortgage. There aren’t many signs outside of Canada that things are back to normal. In fact its far from it. Right now I have a variable rate of 2.05%. How much could rates really go up with so much uncertainty. If they go up too fast our dollar will sky rocket and cause its own problems. I would get a variable rate which could save you hundreds of dollars per month compared to 5.86%, save the money you would have spent at the higher rate and then if interest rates climb you have a buffer to help you but if they don’t rise beyond the 5.86% then you have a lot of extra cash.”

anonymous 29 Mar 2010 12:41 pm“I think a lot of the confusion comes when banks close your mortgage for 5 years on a fixed or variable rate, but they automatically amortize it over 25 years. So people think their house will be paid off in 5 years, when it’s just locking in a rate. That is what happened to me when I was 24 years old. I bought my first home, locked in the rate for 5 years only to find out in 5 years that I had put $15K against the principle and I still owed $200K! Then I went to renew, and finally when I asked them, they were amortizing the mortgage over 25 years again. So in total I would be paying off the mortgage over 30 years! I finally got smart and put a short amortization of 10 years and also started making annual payments on top of my mortgage, until I paid off the house 7 years later.”

And relevant confirmation from older discussion at the G&M:

ruthmatthews 14 Jan 2010 3:58 pm – “Most Canadians do not seem to know that in Canada every mortgage is open after five years and their interest rate can increase at that time UNLESS they have been able to lock in for say, seven, or ten years with specific mortgagees. The amortization period is just used to create a monthly payment to suit the financial ability of the mortgagor. I have spoken to a lot of home buyers who seem to think that if they have a 35 year amortiation with a monthly payment of $650, that this amount will be payable for 35 years.”

Homeviewer Discretion Advised – ‘Vancouver Deliverance’ Visual Anecdote

Bubbles distort judgment. What was going through the realtor’s mind when they were capturing, uploading and presenting these photographs? Surely some form of cautious description in the MLS blurb would have sufficed? This house was discussed on various blogs recently, including greaterfool.ca 8 Mar 2010. Fascinatingly, an ex-owner supplied an anecdote, which is archived below the photos. -vreaa

MLS#V809495 3635 Prince Albert Street, Vancouver East, BC
Lot size 3,159 sq.ft   House 1,650 sq.ft
Asking price  $579,900
“Handy man special. Needs TLC. Mainly Land Value.”


Here’s poco at greaterfool.ca 9 Mar 2010 2:58 am - “Believe it or not, I owned this house back in 1973—I can’t stop laughing.–it was a dump back then but from the pics I see they’ve done a few upgrades.
It does bring back a lot of memories from those days. My first wife and I bought it for 28k in Sept 73 from her mother (somewhat as a gift) we split up and I stayed in the house while we tried to sell it.
Finally sold in the fall of 75 for 43k–had a huge moving out party where I met my 2nd wife—-I wrote her phone number in the dust on the siding “shingles” to the left of the front door– whenever we were in that part of town we would drive by and lo and behold the phone number was still there –years later.
Note the dark brown cupboards in the small pantry(?) area– I swear thats the “mac tac” (70s thing) I covered them with.
But thanks once again for that link– I’ve e-mailed it to many–and yes I will be going by it this week.
PS-hope andrew doesn’t see this –he’ll be calling me a fool for not keeping it as a rental.”

BC Economy: Film Industry – “I spoke to two Producers in the past few days who both said they can’t compete on budgets because of the dollar. The fixed costs in the industry are geared more towards an 80-85% dollar.”

junius at greaterfool.ca 18 Mar 2010 11:54 am -

“The rising dollar is already starting to take its toll here in B.C. Our film industry has taken a kicking over the past few years because of incentives offered in other jurisdictions including Quebec and Ontario but also in the US in states like Michigan and Louisiana. The BC gov’t just increased the incentives to try and match, but it is too late. I spoke to two Producers in the past few days who both said they can’t compete on budgets because of the dollar. The fixed costs in the industry are geared more towards an 80-85% dollar. Due to the high number of union agreements the industry is not very nimble, particularly at the high end. The rise in the dollar will pretty much kill the Spring/Summer season in the industry here in B.C.”

Underwater At A Market Top?

poco at greaterfool.ca 18 Mar 2010 1:25 am -

“I spoke with a realtor friend and asked (jokingly) if any of the properties with downward price changes I had been noticing were underwater. He emailed me the following -

mls#v811945
bought sept 08–333.9k
listed oct 08–375k
down to 349k –now dropped to329k–underwater–duh

mls#v815120
bought nov 08–356.8k
listed12mar2010–367.999k
dropped 17 mar2010–366.995–desperate — no kidding

mls#v807996
bought may07–580k
listed feb 2010–605k
dropped feb 2010–595k
dropped again mar 2010–579.9k another underwater

There are more, many more, of similar properties bought before or during the downturn that are now underwater or close to it given realtor fees and mortgage penalties–if these owners don’t sell and sell quickly where are they going to be in a few months if the market is saturated with listings ( a quote from a realtors flyer i received in the mail) and everything slows down? And where are these owners 20 to 30% appreciation in the last year that all the real estate boards rant about. If these owners lose in a so called “hot” market, I’d be very fearful if I was planning to sell in the near future.”

“My friends were trying to recover most of the costs linked to their one year of West Coast home ownership (almost 100K).”

From Vankouver at greaterfool.ca 26 Mar 2010 1:04 pm -

“Two weeks ago I stood in the West Coast rain creating curb appeal with a garden full of pansies (tough flowers despite their name) on a cute but way overvalued piece of BC RE (I don’t garden). My other 5 friends (all professionals) scrubbed algae off a large deck, cleaned, and painted for 12 hours all in the name of helping friends get their house “into shape” and staged to sell. They were trying to recover most of the costs linked to their one year of West Coast home ownership (almost 100K). The experience was full frontal XXX BC RE. I’ve done the math and estimated that at the group’s average hourly professional rate the cost of fixing up the house to get it ‘market ready’ was somewhere in the ‘hood of about 12-14K…. the pizza and beer was great! They couldn’t afford to hire people to help them because it was too expensive even being in the highest income bracket – all the signs of the silly costs of owning a home. The good news is that foolish buyers were frothing at the mouth. The designer house was sold in less than a week at asking price, with multiple offers. Hate to say it but, the RE agent was quite useless.”

Less Helpful Mortgage Helpers: $43K Income; Old Rules $460K Mortgage; New Rules $230K Mortgage

Ed at vancouvercondo.info 27 Mar 2010 12:53 am asks “Is it just me or is this going to destroy the real estate market overnight?”, referencing this video describing one aspect of the new rules, those applying to how income from a ‘mortgage helper’ suite is applied in qualifying for a mortgage. No, Ed, it’s not just you. It is going to be interesting to observe how all these nudges towards tightening – Flaherty’s light taps on the brakes –  are going to affect a market that just may be teetering on a precipice.-vreaa

Kelowna mortgage broker Lewis MacDonald deserves a plug for walking us through the implication of the new rules:

[This is going to have an even bigger effect than this video implies because the kind of property that the $43K income individual now qualifies for is unlikely to have a $1,000 per month rental suite, or any rental suite. -vreaa]

China & Vancouver – “Is the coming crash in Vancouver RE going to coincide with the coming crash in Chinese RE?”

Here at VREAA we have always been of the opinion that the impact of wealthy Chinese buyers on Vancouver RE prices has been more indirect than direct. By that we mean that local speculators have been the major leveraged purchasers of our RE, and the ‘wealthy foreign buyer’ story has fueled these local gamblers. After all, foreign buyers are responsible for less than 5% of local purchases. However, having said that, we do know the anecdotes of wealthy Chinese families flying into Vancouver for the weekend, and, while here,  purchasing multi-million dollar condos or SFHs on the Westside. And we were impressed, very impressed actually, by the way in which the beginning of what-would-have-been-our-crash (the price drops in 2008) followed quite remarkably the topping and dropping of the Shanghai index. Of course, we were bailed out by the free money that followed the fall 2008 crash of world markets, and we’re now back at those 2008 highs. So, here is the question: Is the coming crash in Vancouver RE going to coincide with the coming crash in Chinese RE?  As grist for the mill, we give you two charts, and a generous excerpt from today’s ‘Barron’s’. “Surging credit has revived the animal spirits of Chinese investors”; “The property market looms so large in the Chinese economy”; “Housing has become a national obsession.” Ring any bells? -vreaa. [Update 28 Mar 2010 - For the record, this does not mean that we think that a RE crash in China is necessary for a serious collapse in  Vancouver RE prices to occur.]

…..  …..

From Alan Abelson’s column ‘Red Flags Over China’, Barron’s,  29 Mar 2010. He cites the work of one of our favourite bubble-ologists, Edward Chancellor, author of ‘Devil Take The Hindmost’ -

“We’ve come across a recent piece by Edward Chancellor entitled “China’s Red Flags”.  It contends “China today exhibits many of the characteristics of great speculative manias” over the past three centuries and then outlines those characteristics.

Such debacles usually start, Edward has found, with a compelling growth story. Another feature is a blind faith in the competence of the authorities. The ignominious list includes: excessive capital investment; a surge in corruption; easy money; fixed- currency regimes; rampant credit growth; moral hazard; precarious financial structures; and rapidly rising property prices powered by dodgy loans.

Of these, rapid credit growth is the most important leading indicator of financial instability, followed by an asset price bubble. Low interest rates and strong money growth play a significant part, too, in creating memorably bad outcomes. China, unhappily, has its share of these dubious qualities as well as being inflicted by a huge speculative mania.

Edward points out that “forecasts for urbanization and economic growth make for a compelling Wall Street pitch.” But he cautions that like the extravagant expectations for Internet growth during the dot-com mania, investors seem to be swallowing whole China’s growth forecasts. A good example is the reckoning that the urban population will increase some 350 million by 2025.

Edward suggests those numbers may not accurately reflect the present density of urban areas in China because a) many rural migrants to the cities tend not to be included in the official count as they lack residency status; and b) officials are rewarded on GDP growth per capita in their districts, so they have an obvious interest in understating how many people those districts contain.

He also notes that “Wall Street tends to downplay the darker aspects of the Chinese demographic story.” China’s population is set to decline in 2015 and the worker participation rate will peak this year. That will cause a sharp shrinkage in the number of people who migrate to the cities and supply China with its seemingly inexhaustible reservoir of cheap labor, key to its spectacular export success.

In recent years, no secret, Beijing has built up a vast treasury of foreign reserves of some $2.4 trillion. But Edward believes it’s a mistake to think that China’s gargantuan foreign-exchange reserves render its economy invincible. “These reserves,” he acknowledges, “can be used to buy foreign assets, pay for imports or defend a currency under attack.” But they aren’t especially effective in wrestling with the problems that follow, say, the collapse of an asset-price bubble, such as a broken banking system or a legacy of bad investments.

And, on that score, he quotes approvingly the observation in a recent book on China that “the only two countries which have previously accumulated such large foreign-exchange reserves relative to global GDP were the U.S. in 1929 and Japan in 1989.”

While surging credit has “revived the animal spirits of Chinese investors” and hugely whetted their appetites for all manner of stocks, including initial public offerings, quick trades and other classic signs of speculative euphoria, the real action has been in “China’s overheating property market.” And a goodly number of Edward’s red flags are “fluttering around” over-stretched real-estate valuations, rampant speculation and frenzied new construction. Housing, he says, “has become a national obsession.”

Pinpointing when the real-estate bubble will burst is a bit tricky, Edward concedes, in part because China is “not a pure market economy. State-owned enterprises can be called upon to prop up markets. Losses may be concealed or shuffled around like a shell game…Such measures, however, won’t cure China’s problems. They only delay the denouement.”

And he cautions that “just because the timing of any future crisis is imponderable, doesn’t mean the risk posed by the real- estate bubble should be ignored.” All the more so because the property market looms so large in the Chinese economy and financial system. Real-estate investment accounts for roughly 12% of GDP. Construction is the main source of demand for much of China’s heavy industry. Real-estate is gobbling up 20% of new bank loans.

China, Edward muses, “has become a field of dreams, a build-and-they-will-come economy.” He predicts that were the economy to slow below Beijing’s 8% growth target, “bad things are likely to happen.” Much of the new infrastructure will turn out to be otiose; excess capacity would linger in many industries; real estate would take a bath, and the banking system would be swamped by a wave of nonperforming loans.

His morose conclusion: “Investors who are immersed in the China Dream ignore this scenario. When the China juggernaut eventually stalls, they face a rude awakening.”

US Single Family House Prices 1970-2010

Yes, this is a US chart. Prices are headed for the green support line (1985 prices), and will very likely overshoot to the downside. To not take into account the possibility of the Vancouver RE market doing pretty much the same thing when the bubble bursts here, is to not heed our own Central Bank’s advice to be ‘prudent’ regarding financial considerations. -vreaa

http://www.chartoftheday.com/20100326.gif

- from chartoftheday.com, thanks to Don.

Vancouver Economy – “Fast forward to March 2010, I have found amazing deals and very motivated sellers. I think the economy has finally caught up to Vancouverites’ free-spending ways.”

This from McLovin at robchipman.net 25 Mar 2010 7:53 pm -

“I have been noticing for the first time that people are hurting. I had been constantly surprised by Vancouver’s ability to buck the recession. Restaurants had been full, shops full, people happily spending. I remember last summer I was looking to buy a ski boat (the ultimate discretionary purchase – which I could easily afford because I rent for 30% of the cost of owning my wicked place) and I really thought there would be a lot of deals to be had, but there weren’t. No desperate sellers or rock bottom prices. Fast forward to March 2010, I have found amazing deals and very motivated sellers. I am looking at deals where people will take almost any price. I actually feel bad my offers are so low, but I am the only one offering. Not just that, its easier to get into restaurants, deals abound, and people seem to have much less disposable cash. I don’t know what this means for RE in general but I think the economy has finally caught up to Vancouverites’ free-spending ways. Anyone else notice the same?”

Yaletown Penthouse Foreclosure – “How is it possible for this guy to be in foreclosure if the price has tripled since he bought? Couldn’t he just sell the place, pay off his mortgage, and still have a few million left over? The answer: HELOC.”

This from Anonymous at robchipman.net 25 Mar 2010 11:56 am -

“I have a friend who rents a Yaletown condo. He told me that the guy who owns of one of the penthouse suites is being foreclosed on. Now, this is no ordinary penthouse: 3 levels, multiple rooms, 360 views, spectacular. Bought in 2002, it has since tripled in price. Don’t know exactly how much it’s worth, but it’s in the multiple-millions. So, how is it possible, I asked, for this guy to be in foreclosure if the price has tripled since he bought? Couldn’t he just sell the place, pay off his mortgage, and still have a few million left over? The answer: HELOC. This guy managed to squander several million dollars of a home equity loan in a few short years, and now has nothing to show for it (all of it, incidentally, likely insured by CMHC).
This kind of story goes a long way to explaining the faux wealth in this city – no industry, low wages, yet everyone has the appearance of wealth. And although this is just one anecdote, that stats show that BCers are more heavily in debt than any other time in history, i.e. this is not an isolated or rare occurrence. We will be hearing many more of these stories in the coming months; it’s going to be ugly.”

Bubble Sentiment Levels – “91 per cent of Canadian homeowners believe a home is a good investment”

A recent study from the Royal Bank Of Canada, 8 Mar 2010, contains information highly suggestive of a market oversaturated with bullish sentiment. Under these sentiment conditions smart players are selling, and markets commonly top.  -vreaa

Excerpts:

Homebuying momentum in Canada continues to gain steam with the portion of Canadians who are very likely to purchase a home in the next two years rising to 10 per cent from seven per cent two years ago, according to the 17th Annual RBC Homeownership Study.

91 per cent of Canadian homeowners believe a home is a good investment, the highest level in 12 years, and one-quarter (26 per cent) expect their home to be their primary source of income when they retire.

Most Canadians (six-in-10) also believe housing prices will rise in 2010, up significantly from 25 per cent in 2009.

“A realtor was putting the hard sell to a couple regarding a Vancouver condo. As they were getting ready to leave, the couple asked him if he was going to pay for breakfast. He said yes. The lady then asked for a latte to go.”

This from Greenhorn at RE Talks 25 Mar 2010 10:04 am -

“At breakfast this morning, I could not help but listen to the conversation at the table next to me. It was between a Middle-eastern couple and a Middle-eastern realtor. The realtor was putting the hard sell to the couple regarding a Vancouver condo. He was advising that prices will continue to go up. He mentioned that if they furnished the condo, they would triple the rent, easily. He said “This is the last prime condo building in Yale Town”. He asked them how long they would be in town for, and they said 2 weeks. I heard him advise the couple to buy the property with a line of credit because the interest rate would be lower and it would be interest only, so a lower monthly payment. They then told the realtor they would think about it, and had to go. As they were getting ready to leave, the couple asked the realtor if he was going to pay for breakfast and he said yes. The lady then asked for a latte to go. Classic!”

“There are no homes in Vancouver for that price. No one seemed to get the irony of a realtor telling people there was nothing west of Sardis that a couple making $100K can afford.”

MarKoz e-mailed VREAA the following, 24 Mar 2010. Thanks, MarKoz.-

“The attached flyer was pushed through my mail slot today.  At first glance it is just a flyer soliciting listings.  At the bottom of the page is a handy guide to give prospective buyers an idea of how much house they can afford based on income.  Apparently a family with a gross income of $100,000 can afford a $348,000 “home” if they have 10% down.  Seems reasonable to me. The only problem is that there are no homes in Vancouver for that price (OK, maybe a few bachelor suites).  I showed it to co-workers and they all agreed she was way behind the times in terms of what people could really afford. No one seemed to get the irony of a realtor telling people there was nothing west of Sardis that a couple making $100K can afford.”

Do buyers in a market show “urgency” at a top or a bottom?

Question: Do buyers in a market show “urgency” at a top or a bottom? -vreaa

Excerpts from ‘Canadians fret over mortgage rates, prices’, Globe and Mail, 24 Mar 2010 -

More Canadians are looking to enter the housing market ahead of higher interest rates and home prices that are expected to arrive later this year. [Huh? Wouldn't increased interest rates put downward pressure on prices? Oh, Nevermind. -vreaa]

“There’s definitely a sense of urgency among home buyers,” said Lynne Kilpatrick, senior vice-president of personal banking at BMO.

71 per cent of current and future homeowners think house prices are too high. It also found about 33 per cent of respondents complained they have lost sleep due to the stress of trying to buy a new home.

Former Risk Manager at RBC Concerned About Risk – “The forces of gravity are as potent in the residential real-estate market as they are in the physical world: House prices do go down.”

You have heard all these arguments before; on these pages and in posts at other blogs from various citizens concerned about a housing bubble in Vancouver. What’s different about the article on the op-ed page of today’s Globe and Mail, is that the concerns are voiced by a former senior manager in risk management at the Royal Bank of Canada. This is how paradigm shifts occur: first the loonie fringe shouts about something; then the blogosphere talks about it; then certain insiders voice it; and, in the end, the public accepts it.  Soon we will all have “known all along” that housing was in a bubble. -vreaa

Here are excerpts from ‘Why we need tougher mortgage rules’, by Louis Ganon, Globe and Mail, 23 Mar 2010 -

[T]he average price of existing homes in Canada [has] been on a tear, rising 19 per cent in the past year and leading many observers to believe an asset bubble was forming in the Canadian housing market.

If raising lending standards made so much sense, why wouldn’t the Big Five raise them on their own instead of asking Ottawa to beef up the rules? The reason is simple. The Big Five, as it turns out, aren’t the only game in town. A unilateral move on their part, as beneficial as it might have been for the system, might have backfired by allowing their more venturesome competitors to fill the void and gain market share at the Big Five’s expense.

In Canada, more risky mortgages (those with a down payment of less than 20 per cent) are insured by the Canada Mortgage and Housing Corp., whose chief mandate is to “promote” home ownership. As long as CMHC is willing to “insure” the mortgages, there’s no stopping less picky lenders from lending. Essentially, CMHC provides a back door through which low-quality mortgages can creep into the system. And if something goes wrong and CMHC can’t absorb the losses, who will have to foot the bill? You guessed it: We will.

These [the upcoming tighter rules] are all positive changes that will reduce the leverage in the system and make it safer, but Ottawa could have gone further. Reducing the maximum amortization period from 35 years to 30 would have been a smart move, and raising the minimum down payment from 5 per cent to 10 per cent would have made a great deal of sense. [Agree -ed.].

..the forces of gravity are as potent in the residential real-estate market as they are in the physical world: House prices do go down.

…when central banks start tightening monetary policy to mop up excess liquidity and stave off inflationary expectations and when capital markets start pushing back against massive government deficit funding and corporate debt rollovers, interest rates will have nowhere to go but up. So we can bet that mortgage servicing costs will also go up.

Waterfront apartment; Rent:Price >>500:1

These condos are selling for about three times their fundamental value. -vreaa

VRENGD at vancouvercondo.info 24 Mar 2010 12:41 pm -

“I’ve posted this before, but I rent a 1200 SF two bed two bath waterfront Apt on False Creek and the Landlord gave me a discount of 20% on the asking rent, which was also 20% less than what the previous tennant was paying. Similar units in my building have sold for $1,000,000 (plus or minus $50k). I rent it for $1800.”

“I have a young family and I seriously doubt there will be anything left for them. Boomers will drain the system. Homeowners will be trapped. I’ll keep my liquidity and mobility and get the hell out of here at the first whiff of serious trouble.”

Unfortunately, we share some of this poster’s concerns. -vreaa

rp at vancouvercondo.info 23 mar 2010 6:33 pm -

“The road to boomer wealth absolutely has been based on other peoples’ debt. They are in their years of maximum income and wealth, and they’re collectively putting the squeeze on younger generations. They’ll do it again as they retire and completely drain the system. I have a young family and I seriously doubt there will be anything for them. We are getting a nice preview from the US of what happens when governments have absolutely no money. They simply close schools, disband the police, etc. Meanwhile there are tons of administrators and what not who will or do make far more from their pensions than I can from working. I expect all resources to be devoted to the baby boomer generation and the median tax rate to approach 75% before it all simply collapses. The poor bastards who bought a house will be trapped. I’ll keep my liquidity and mobility and get the hell out of here at the first whiff of serious trouble.”

“Our discussions are not about when we are buying homes here, they are about when we will move back east. We were raised in large homes with lots of disposable income. We cannot imagine starting a family in a closet with little cash to spare.”

taylor192 at vancouvercondo.info 23 Mar 4:22 pm -

“I’m 31 years old and new to Vancouver (since 2008) from Ottawa. Most of the friends I’ve made are in a similar spot:
– ~30years old
– have above average jobs
– want to settle down and start families soon
– moved here because of the lifestyle and Olympics
– moved from places where housing was 1/2 the price, yet salaries about the same (or higher)

Our discussions are not about when we are buying homes here. They are about when we will move back east. We were raised in large homes with lots of disposable income. We cannot imagine starting a family in a closet with little cash to spare. The catch-22 is that if the housing market collapses here, our above average jobs may go with it.”

“His friend had booked multiple units at a pre-sale last year and is now hard pressed to off-load them. It was really shocking when he then said that I do not need to spend a penny in down-payment, even with the new rules.”

AlmostPefect at vancouvercondo.info 23 Mar 2010 3:55 pm -

“A friend of mine who has a real estate business called to let me know there are townhouses selling in Surrey at a reduced price. His friend had booked multiple units at a pre-sale last year and is now hard pressed to off-load them. I was not interested at all but just prolonged the conversation to get a feel of what is happening out there. It was really shocking when he then said that I do not need to spend a penny in down-payment, even with the new rules. I don’t know the details but it sounded like showing a higher appraised value for securing a mortgage that will then cover full reduced purchase price. Are these kinds of frauds common?”

“Our company offered myself, and two other people, jobs here. The two of us who decided not to move here based our decision at least partly on the high cost of housing.”

The dozens of companies and hundreds of people who have avoided Vancouver in recent years, because of RE prices, are all largely invisible. Occasionally we get an anecdote describing their decisions. -vreaa

Krazy Kanuk at vancouvercondo.info 23 Mar 2010 12:42 pm -

“I’m originally from Calgary, been here almost 2 years. Our company has offered myself, and two other people (from other cities here temporarily as well) to either transfer here, or in my case become a permanent employee. Only one person accepted. Why? The other fellow took one look at house prices, decided it would cost him about $40K a year to rent something comparable to what he owns in Ontario. There’s no way I’m moving here. Sorry, but I want to stay mobile. This town doesn’t have the economy of even Calgary (I mean a real economy….not trading houses). The only person to stay was a young engineer who wanted the Vancouver lifestyle. As soon as she moved here, she rushed out and bought what I imagine is about a $1/2 million condo. The two of us who decided not to move here, based our decision at least partly on the high cost of housing. I’ll never understand why people think high house prices are a good thing. Personally I think they are a bad thing, but it seems like all our political leaders think otherwise.”

Whistler – “The owner told me their real estate agent just said 30 similar properties had just come on the market.”

Ulsterman at vancouvercondo.info 22 Mar 2010 11:58 pm -

“Just had a friend in town from the UK who would love to live here. He watched the Olympics, loves the place, but when he heard about house prices he just laughed and laughed. I rented a townhouse for him in Whistler which has been on sale since July. When I returned the keys, the owner told me their real estate agent just said 30 similar properties had just come on the market. They said if I wanted to rent again, feel free, because they didn’t imagine they’d sell it anytime soon.”

“2008 scared the crap out of this realtor and, even though he is optimistic, he was uncomfortable how exposed he was near the end of 2008 and is unwilling to go through the same agony again.”

jesse, the blogger who provides data regarding the Vancouver RE market at his invaluable blog, ‘Housing Analysis’, presented 4 anecdotes in a comment at VREAA 23 Mar 2010. They will each be headlined. As he says, they have in common low interest rates. -vreaa

Real estate agent and wife bought townhouse in PoCo in late 2007. 2008 came and he started hurting for business. Had to take up other jobs to afford the mortgage and had parental support some months. 2009 came and things were A-OK again. He made close to 6 figures income last year and paid down the mortgage in lump sum by a couple of $10Ks. 2008 scared the crap out of him and, even though he is optimistic, he was uncomfortable how exposed he was near the end of 2008 and is unwilling to go through the same agony again.”

Renters with $110K annual income; Bought Port Moody townhouse; Low interest rates the major driving force behind their decision

jesse, the blogger who provides data regarding the Vancouver RE market at his invaluable blog, ‘Housing Analysis’, presented 4 anecdotes in a comment at VREAA 23 Mar 2010. They will each be headlined. As he says, they have in common low interest rates. -vreaa

“Young couple with 1 year old baby were renting a townhouse but found same sized place in Port Moody for less than the cost of renting in terms of current mortgage rates. They wanted to own and they felt their jobs (legal aid and unionized union office worker) were secure enough to get into the market. They are likely around $110K gross income. Low interest rates were the major driving force for them to decide to buy. They elected for a 5 year fixed rate.”

Bought townhouse 2002; Sold for $150K profit; Bought $900K SFH; Major plumbing problems cost $100K; Income $200K so can afford the hit

jesse, the blogger who provides data regarding the Vancouver RE market at his invaluable blog, ‘Housing Analysis’, presented 4 anecdotes in a comment at VREAA 23 Mar 2010. They will each be headlined. As he says, they have in common low interest rates. -vreaa

“Family friends bought townhouse about 8 years ago in Vancouver. Both work for large banks so they’re likely close to $200K gross income. Sold their townhouse for (I’m guessing) around $150K profit and moved to $900K 5-year-old SFH. They found MAJOR plumbing problems and spent well over $100K to clean it up. Even still, with low interest rates and little discretionary spending, they have been able to afford the hit.”

Bought 2br condo in 2005 for $300K; Income $60K; Variable rate mortgage; Took on boarder; Things going well

jesse, the blogger who provides data regarding the Vancouver RE market at his invaluable blog, ‘Housing Analysis’, presented 4 anecdotes in a comment at VREAA 23 Mar 2010. They will each be headlined. As he says, they have in common low interest rates. -vreaa

“Friend bought 2br Burnaby condo presale in 2005 for ~$300K. Moved in 2008. Parents had to co-sign the mortgage — 35 or 40 year term. Unionized job making probably $25-30/hour on average $60K/year gross. Still making his payments, took on a boarder and things are going well. His income is stable and interest rates are low (he’s on variable) so no pain on his horizon.”


Scotiabank – “It is time for Canadians to reset their housing market expectations. We expect 2010 will mark a transition year as the boom of the ‘aughts’ gives way to a sustained period of more subdued housing activity over the coming decade.”

Thanks to Don for forwarding us an e-mail from Scotiabank 23 Mar 2010 discussing the year ahead for the Canadian RE market. Here follow excerpts. It is possible that this is the closest a responsible bank-economist will get to actually saying “look out below”. -vreaa

“Adrienne Warren [Scotiabank Senior Economist and real estate specialist] provided an outlook for the Canadian residential real estate market in 2010, and discussed the key economic, industry and demographic trends that will shape the decade ahead. Ms. Warren observed, “The performance of Canada’s housing market over the past decade has been exceptional by virtually any measure. Real home prices increased an average of 5.2 per cent annually from 2000 through 2009, representing the strongest decade of real price appreciation in at least 50 years. Housing starts averaged 201,000 units annually, the highest level of new home construction since the 1970s. “It is time for Canadians to reset their housing market expectations. We expect 2010 will mark a transition year as the boom of the ‘aughts’ gives way to a sustained period of more subdued housing activity over the coming decade,” continued Ms. Warren.

Married couple; Combined Income 110K; Bought new condo in Surrey 2009; Cancel dinner with friend; Visa maxed out; Cable bill used last of their cash.

From T at VREAA 22 Mar 2010 10:31pm -

“I have a friend who just got married last year. He and his wife are both employed by Coast Mountain Bus Co…so well paid by average standards…combined income of over 110k per year.
After they got married they bought a new condo in Surrey and furnished it. I was suposed to go for dinner with them tonight, but they had to cancel because they can’t afford it due to the cable bill taking the last of their cash out of their account and all their visa’s being maxed out. Boy am I a happy renter.”

“Friends with $100K income bought a $900K house. In order to be approved, they planned on renting their basement. This week they obtained a quote for the renovations of the basement: $50,000. They don’t have the money, and the basement cannot be rented unfinished. They are in big trouble.”

painted turtle at vancouvercondo.info 18 Mar 2010 9:29 pm and 19 Mar 2010 5:54 pm -

“My friends bought a $900,000 house a month ago. Their family income is $100,000 (they have 2 kids). I do not know how they got a mortgage, but anyway, this is just the average house price/income ratio in Vancouver. Two weeks before moving in, the husband said: “I can feel torture has started and it will last for 35 years.” Charming. In order to be approved, they planned on renting their basement. But this week they obtained a quote for the renovations of the basement: $50,000. Of course they don’t have the money, and the basement cannot be rented unfinished. They are in big trouble.”…”I do not know exactly how their relatives are involved, but they are backing up the mortgage in some ways. However, it is clear they are giving a signature but not a single dollar.”

“I know another family (3 kids) who heavily borrowed from their relatives to buy a 2 bedroom, “for a few years, until we can buy a bigger place.” It has been 5 years. They cannot buy a bigger place, they cannot give the money back to their relatives, and the elder kid (teenager) is not very happy sharing a bedroom with two smaller kids.”

“As my plane was taking off, I calculated that Metro Vancouver’s median house price is about four times that of Phoenix. I could not help but wonder whether Metro Vancouver could ever experience similar drops in house prices.”

It’s always interesting to see Real Estate ‘experts’ look at all the fundamental data but then somehow avoid the uncomfortable conclusion that housing prices will crash in Vancouver. -vreaa

A 20 Mar 2010 Vancouver Sun article by Michael Geller, a local architect, planner, & development consultant, compares Phoenix to Vancouver -

Excerpts:

A 10-year-old, three-bedroom, two-bathroom detached home of 1,182 square feet that sold for $212,000 in 2006 recently went for $89,100.

In Carefree, just north of Scottsdale, a 4,400-square-foot, four-bedroom, four-bathroom house on an acre of land that features a 1,000-square-foot guest house, pool, movie theatre and elevator sold last month for $630,000. In 2006, it sold for $1.75 million.

Waddell [a Phoenix developer] lives in a spectacular 4,650-square-foot DC Ranch home that overlooks the sixth hole of the golf course. Like many Scottsdale properties, it is planned around a majestic great room with a huge entertaining kitchen. A variety of outdoor living spaces surround the pool and open-air fireplace. After seven years, he is ready to downsize; however, like many owners of luxury properties, he is having difficulty selling at a price that is less than what one would pay for a home half the size on a 33-foot lot in Dunbar.

As my plane was taking off, I calculated that Metro Vancouver’s median house price is about four times that of Phoenix. I could not help but wonder whether Metro Vancouver could ever experience similar drops in house prices.

While between 1980 and 1983 we did see some homes drop almost 50 per cent, I do not think Vancouverites will ever witness what has happened in Phoenix. For one thing, our banking system is very different, and recent changes will further control who can build and who can buy into the market.

Secondly, Vancouver’s land supply, unlike Phoenix’s, is constrained by the ocean, the mountains and protected agricultural lands.

[Note that the banks were just as responsible and the land just as limited during the 1980-1983 crash. -vreaa]

Income vs House Price Changes 1996-2009

There is no way of explaining this chart other than via a bubble in housing prices. -vreaa

Canada Income and Home Prices

from Alexandre Pestov’s ‘The Elusive Canadian Housing Bubble’ Feb 2010

“I had a couple in my Vancouver office this week. Annual income $40k, riddled with consumer debts, zero down payment. They want to buy for $675k. This is what this bubble has created, a bunch of fools completely disconnected from reality.”

Ultraman at greaterfool.ca 19 Mar 2010 11:00 pm -

“I had a couple in my Vancouver office this week. Annual income $40k, riddled with consumer debts, zero dollar for down payment, credit score in the crapper. I asked them just for fun how much they wanted to buy for, going back and forth between each other arguing whether $675k was too much. Anyway the appointment came quickly to a close. This is what this bubble has created, a bunch of fools completely disconnected from reality. People that thinks that a $850k mortgage is normal. I tell you [of] the life of a lender these days.

“We rent a Vancouver basement suite for $1175/mo. My landlord, a lovely man in his early 70’s, let us in on the fact that he will want to retire sometime soon. He expects to be selling for $800-900k. He thinks we can afford to buy the house off him!”

This story headlined by Garth Turner at his blog greaterfool.ca, 19 Mar 2010 -

“I am 26, getting married in the summer, live in Vancouver basement suite rental ($1175/mo), use public transit (no car and no other large monthly expenses), and have a good job. Our monthly household income is around $4500 with the prospect of an increase to around $5000 plus or minus by the end of the year. Between my hubby-to-be and I we have been managing to save $800 a month for just under a year. This is being added to a generous gift from his grandfather who wants to see us get into a house/home/homeowner situation. We have about $22000 saved so far. We have always said we want to buy smart – not fast.  So here comes the silly question…   My landlord is a lovely man in his early 70’s. He recently let us in on the fact that he will want to retire sometime soon. He expects to be selling for between 800-900k. There are two other suites in our house which currently take in $3325 combined. My landlord thinks we can afford to buy our house off him! Thoughts? (Yup – that’s the silly question.) I can always tell when people DON’T read your blog and want to discuss Vancouver real estate… (Oh yes – he did use the phrase “There’s cheap money out there right now.”) Okay. One more question to add to this: Can you see any amount of money from some type of scenario (investment from family, joint purchase with my brother and his wife from Seattle who own a house that was purchased there for 380k four years ago, some type of wind-fall like my hubby getting a film contract) allowing us to purchase a HOUSE like the one we live in now by the time our landlord would be looking to sell in several months?”

The New York Times – “Some See a Real Estate Bubble Forming in Canada”

‘Some See a Real Estate Bubble Forming in Canada’, Ian Austen, NYT, 19 Mar 2010

Excerpts -

Some Canadians are concerned about the prospect of a price bubble. The Canadian Real Estate Association reported that the average price of existing homes rose 19.6 percent in January compared with those in the month a year earlier, the latest in a string of substantial gains dating back through last autumn.

Such drastic percentage gains are not just a reflection of the market’s earlier depths. In some Canadian cities, particularly Toronto and Vancouver, prices appear to be heading toward record levels.

“It’s no surprise the housing market responded to low interest rates,” said Craig Alexander, the deputy chief economist of the Toronto-Dominion Bank. “The real question is what’s going to happen in the next year. It can’t continue at the current pace, otherwise a bubble will form.”

“Canadians in the financial and real estate sectors feel a little bit smarter than they should about the strength of the economy and industry over the last few years,” said Phil Soper, the president and chief executive of Brookfield Real Estate Services of Toronto. “Certainly the underlying economy isn’t strong enough to support the prices we’ve seen over the last few weeks.”

“We’ve been looking for a house for 3 years and finally found one and bought it, even though some people’s common sense said “now is the time to wait.”

ängstlich at robchipman.net 15 Mar 2010 8:28 am -

“We’ve been looking for a house for 3 years and finally found one and bought it, even though some people’s common sense said “now is the time to wait.” We waited through the mini-’crash’ and didn’t see a single house we wanted to buy. We had very particular wants and the kind of house we wanted just doesn’t show up often. So we bought the one we found, figuring the odds were slim that we would ever see such a thing again before our children went to university. Even when the market was down, the selection completely stunk, at least in terms of what we wanted – old, not reno’d into submission and turned into a replica of every other vancouver reno that looks like a bad preppy furniture catalogue, close to transit, etc.
But we weren’t willing to spend just anything; we refused to get in a bidding war; we refused to pay more than we thought was currently “reasonable”; etc. and the market situation made it possible to do that. We got a price reduction on the house and have a house that was within the range of what we could afford.
My only regret is that we didn’t buy a house 3 years ago that we didn’t want; we could have sold it now at a profit instead of having thrown many 10s of grand away in rent. But at the time we thought: we’ll find a place we like in a few months so all the expense of purchase and resale will not be worth it. We were wrong, but might not have been.”

“One sold right away, in 2007, for about $1 million. The other home has just been sitting there with the exterior almost complete. A neighbour said the developer was too busy building homes on the west side to finish this one.”

MarKoz at VREAA 18 Mar 2010 12:49 pm -

“There is a partially completed new home like in my neighbourhood, the Main St. corridor between 41st and 49th. It has been in that state since at least 2007. The developer bought a teardown on a slightly larger than average lot and built two new luxury homes. One sold right away for about $1 million. The other has just been sitting there with the exterior almost complete. One neighbour said the developer was too busy building homes on the west side to finish this one. Don’t know where he got that info. Anyway, it isn’t for sale and it isn’t under construction. Puzzling.”

“I would not be exaggerating if I said that in East Abbotsford there are at least 60-90 new SFH’s being started as I type. This in an area that has 270 listings already.”

Developers do not seem to have any ‘insider’ advantage in their ability to predict market strength. Most bubble market tops are accompanied by ravenous new building. -vreaa

pianoexcellence at RE Talks 18 Mar 2010 2:03 pm“I went for a nice drive today cause the weather was so nice. Almost every single new lot I drove past had holes dug and framers starting up. I’ve been driving through those neighborhoods for years and I have never seen this kind of building.  I would not be exaggerating if I said that there are (in East Abbotsford) at least 60-90 new SFH’s being started as I type. (this is in an area that has 270 listings already…up from 160 a couple months ago). Am I the only one seeing it? Is it just my bearish slant? Is this happening in other areas?”

islandlandlord at 2:08 pm“Nope, you’re not the only one. In Victoria its the same thing..there are SFH’s going up every corner you turn. The market is going to flood again.”

“I’m helping my stepmom get her home in West Point Grey ready for a spring sale. Whenever I mention “Bubble” she responds with “Rich Asian Investor” and claims there is no rush.”

How many owners on the Westside of Vancouver are banking on the ability to sell their houses at enormous gains in future years? A lot, we think. How will these owners respond to prices dropping 10%, then 20%? We believe that many will be sellers into a falling market. -vreaa

siddelly at greaterfool.ca 17 Mar 2010 10:33 pm -

“This week I’m helping my stepmom get her home in West Point Grey ready for a spring sale.  I’ve been trying to impress on her the need to hurry up and de-clutter. A smaller home than hers on the same street just sold last week for 1.8 million and I think hers should do the same if not better. Whenever I mention “Bubble” she usually responds with “Rich Asian Investor” and claims there is no rush and she could always wait till next year. Will there always be rich folks wanting to buy in Point Grey or are they the same as everyone else in believing in a falling market that a much better price is just around the corner, so why be in a hurry? I just don’t know what to think anymore about Vancouver prices.”

Realtors To Owner – “We’re getting A LOT of requests for mid priced listings ($450,000-$550,000). A very large number of those requests are coming from folks south of the border, mostly from California and New York, who see Vancouver as well priced.”

American investors buying Vancouver RE in current market conditions are buying high priced RE in a high priced currency, so they absolutely have to be momentum investors, believing that assets which have run up will only run up further. This is the opposite of techniques used by value and contrarian investors, who look to purchase undervalued assets. For momentum investing to work, the investor has to be nimble, and able to sell if the market turns and begins to head down. This is the equivalent of using a ‘trailing stop’. It can work in the stock market, where one can sell within seconds of making a few keystokes. In RE, however, where selling can take days, weeks or even months, and markets can become very illiquid, momentum investors can be left high and dry. This anecdote is also interesting because it comes at the same time as other stories of Canadian investors taking advantage of the US RE pullback and the strong loonie to buy US properties. So these US investors really would be swimming against the stream. -vreaa

raventalk at RE Talks 18 Mar 2010 9:26 am -

“I’ve been deluged in the last two weeks by realtor mail asking me to list my properties. I usually see two or three listing flyers a month – to date this month I’ve received over twenty mailings. Almost all of my properties are on Seymour, so I got to wondering if properties along this corridor are in greater demand than other properties – which I doubted. I was just trying to understand why realtors are so motivated to list new properties at this point, more than any other time I can recall.  So…I spoke to the two realtors I actually hang out with, play rugby with actually, both of them are downtown based, concentrate on lofts. Both of them had basically the same response – We’re getting A LOT of requests for mid priced listings ($450,000-$550,000) and need to build some inventory in that range. A very large number of those requests are coming from folks south of the border, mostly from California and New York, who see Vancouver as well priced. Can’t say I agree (prices seem high to me), but if I’m just one owner receiving these kind of inquiries, could the ongoing increase in listing numbers somehow be related to realtors rush/push for listings?”