Monthly Archives: October 2010

High End Market Tales; A Request For Advice

This 18,633 sqft house on 1.12 acres [3489 Osler] in Shaughnessy sold for $17.5M on 22 Oct 2010. It had been listed since 21 Oct 2009 with an ask of $22M.

Regarding higher end properties in this part of town, a successful young Vancouverite sent the following anecdote and request for opinion to VREAA by e-mail. Perhaps readers can volunteer their thoughts. :
“I have some questions, but first, let me give you some background. I was born and raised in Vancouver. I am 33 and married. My wife and I live with my parents in Vancouver and I’ve been watching the prices in Vancouver soar. I could have bought an apartment several years ago but I decided that it would have been foolish. I had some money to play with so I decided to start a company with a few friends.  I am in the process of selling my share of the company for approximately $7 million. My dream is to purchase a home in First Shaughnessy and the home I fancy is on the market for approximately $5 million but its assessment is $2.9 million.  The house is from 1910s, approximately 7,000 sqft in need of some renovations. Lot size is around 14,000sqft.  I am a bear to some degree, but I do not know if we are headed for an absolute crash of 30%+.  I am willing to pay more than the assessment, but in short not a dime more than $3.5m.
Do you truly believe Vancouver west side is bound for a crash when it is irrefutable that the Mainland Chinese are buying everything they can get their hands on? Furthermore, First Shaughnessy is tiny and thus I can see demand for that part of town outweighing supply for years to come.  I am curious to hear your opinion on what you would do if you were in my position. Do you believe that Westside homes will sell near their assessment prices?”

“Update on an Olympic Village rental condo, where the asking rent is decreasing.”

El Magnifico at VREAA 31 Oct 2010 1.12pm“Update on a rental property I posted some time ago. Rents are decreasing as well…
I have been following this 1BR 630 sq.ft. condo in the Olympic village. It has been for rent since at least early August 2 for $1750! (I even sent them an email early September to tell them that there was no way they were going to find a fool that would pay $1750 per month for that). After sitting empty for 3 months, they finally followed my advice and decreased their price to $1,650 which is still very expensive considering the size, location and bad publicity around the OV…
I’m wondering how long it will take them to find a tenant and how much it will have cost them to wait with their overpriced condo sitting empty…
Here is the link: http://vancouver.en.craigslist.ca/van/apa/2035326065.html

“Prices are certainly negotiable at the moment.”

logic at vancouvercondo.info 30 Oct 2010 3.07pm- “Just had friends drop c.620k on a 2 bedroom place near Commercial (still overpriced imho, but hell, they can afford it). Originally listed at 699 a few weeks earlier. Prices are certainly negotiable at the moment.”

BNN Don Campbell Interview Transcript – “The Apocalypse Is Not Coming” – ‘Plateau’ As Worse Case Scenario

The interviewers ask one or two excellent questions, but the end result is a strange fudging of the issues. Spot the fallacies and misconceptions in the following dialogue. [We list the ones we spotted at the end of the transcript.] -vreaa

From Is Canada’s Housing Party Over? [28 Oct 2010 5:10 PM] BNN.ca [linked here at msn.com] -

Interviewer 1: Last week the Bank of Canada said there was a prospect of a more pronounced  correction in the housing market and this week The Economist magazine’s latest survey claims that Canadian Real Estate is overvalued by something like 24%.
So, is the Canadian Housing Party finally over?
Here to give us some perspective is Don Campbell, he is president of the Real Estate Investment Network.
Well let’s start with that right away is the bubble over here in Canada, is this the end?

Don Campbell: It’s that magic word bubble, right? You can feel it doing THIS…

…with that word… There isn’t a bubble in Canada… let’s get really clear, there is no national real estate market… it’s very regional… and you’re going to see cities like Hamilton and cities like Edmonton and cities like Maple Ridge BC do incredibly well, for the next, you know, three to five years… and other areas, that are going to be overpriced, like the Vancouver market is overpriced… and will have a tendency to be flat.
And, when they talk about this bubble in their analysis, what it is really, is a big pendulum, and a pendulum has swung so far into the buyers market right now, that you are going to see that the economic fundamentals are going to sit… and they’re going to have to grow to support that… where the pendulum is sitting… And that pendulum will swing down… let’s be very clear. [Let's try, to be clear, yes, please, very clear. Please. -ed.]

Interviewer 1: What the government, what the BOC keeps saying, and I think they have a valid point, is that the debt people are taking on to buy their houses is really getting out of control… The house prices are running way ahead of income levels… Isn’t that going to be a problem? isn’t that really the bubble that they may be more worried about… the debt bubble.. as opposed to the housing price bubble?

DC: They are, until you look at the housing affordability index… You know the RBC puts out a housing affordability index every quarter… And I keep seeing that it’s less affordable to buy, until you look at a ten year average of our affordability issue… hugely out of whack in Vancouver… slightly out of whack in Toronto… but every city across the country, housing affordability is trading right on ten year average… it’s very interesting.

Interviewer 2: So you don’t see if interest rates start to rise that there is going to be a significant amount of people that are going to be underwater here?

DC: No, I don’t see that at all, because I’m seeing that… Interest rates are going to go up, they’re not going to go up right away, because of everything else that’s going on in the world… but you’re going to see it tick up slowly… a lot of people are still in variable rate mortgages which is a great thing to be by the way… you can win, in that game… but right now, because of that trading range, because of the ten year trading range, I’m not seeing a big bubble anywhere, except maybe in the condo market in downtown Toronto and for sure in Vancouver.

—-

DC: [Discussing CREA changes] As the listings are growing across the country, therefore softening the price increases, these changes, come the spring, probably Jan Feb 2011, you’re going to see the listings start to escalate, over and above what would normally happen, therefore keeping a cap on prices, and therefore keeping it in that ‘buyers market’ arena… Now it’s funny, a lot of people…during that ‘seller’s market’, it was frothing, people going “I just can’t find a property to buy… I can’t”, now you have that exact market you’re looking for is the property you want to buy, and there’s lots of them, and everybody’s going… “Oh my goodness, I wish it was like the olden days, when it was all full, and prices were going up fast fast fast…”

Interviewer 2: I just question that because, having spent two years looking for a house in Toronto, the product though, isn’t great, so it seems to me that if you get a good product you’re still going to have that kind of froth there.

DC: Absolutely, and …

Interviewer 2: I guess people are putting junk out all the time…

DC: Constantly… You’re going to see a lot more junk come on …

Interviewer 2: Is that going to keep prices down, because it’s still (junk)…?


DC: It’s going to keep prices down, especially in that mid-range, the lower range will always sell, because it’s inexpensive, and you look at rent… you might as well buy, in that lower range. The luxury market is actually doing very well as well… It’s that middle market… in Vancouver and Toronto, and even in Montreal, is going to be the one that’s going to be expanding in the number of listings… There’s going to be some GREAT product that comes on board during that period of time…

———

Interviewer 2: Okay, if we look at potentially what kind of retracing we may be seeing here, let’s take Vancouver which you’ve mentioned several times, we saw sales plummet there in the summer by, I think, 45%, what kind of impact do you think that this could all have on prices in Vancouver?

DC: Well, one thing I think we have to be very, very clear of is average price is just an indicator that doesn’t mean ANYTHING, really, at the end of the day, because those condo, like you said, in certain areas, are continuing to go up while others are going down. You’re going to see the ground oriented units in Vancouver, that prices are going to plateau, which means houses and townhouses… anything with dirt involved in them… because they’re just getting unaffordable… and we’re moving to the boxes in the sky… What you’re going to see is that because of the HST, a lot more sales of the RESALES side of it… and um in the resale side, right now, there are a lot of brand spanking new condos, probably like we’re seeing here in Toronto, … a lot of people bought those properties, they’ve now bought it, paid the HST, and nobodies lived in it, and they’re going to sell it into the market place so there’s going to be a lot of brand new condos coming onto the market which you’re not going to have to pay HST on and that’s where the gold is going to be.

Interviewer 1: So where’s the market headed five years from now?

DC: If we take a national average, it gives a 3-5% average, you’re going to see 2011… not a very good year… but 2012, 2013, 2014, all of our economic analysis is showing that you’re going to see a 3-5% increase which, if you put 25% down on a property… it means you’re getting 20% return on your money… that’s a pretty good place to be…

Interviewer 2: Okay, so none of this/… we’re not looking at anything apocalyptic here, none of these declines of 10% that some of the banks are predicting for example?…
Interviewer 1: 25% though (laughs)…


DC: … The Economist magazine puts that out every month, right, that rating…  The apocalypse is not coming…. I think you have to buy regionally… the number one fundamental that you have to look at if you’re buying an investment property is buy where there’s jobs… don’t buy where the jobs used to be, buy where the jobs are going to be.
You can not analyze a housing market by looking at the housing numbers, you can only analyze the future of the housing market looking at the economic fundamentals, which is jobs and in-migration.

———————

Fallacies and misconceptions in the above dialogue:

1. That “there isn’t a bubble in Canada”.

2. That areas that are overpriced will “be flat”; will “plateau”.

3. That we are in a “buyer’s market right now”.

4. That housing affordability at ten year average is reason for complacency. [hint: emergency low rates]

5. That there is no risk of “a significant amount of people that are going to be underwater here”.

6. That certain areas (Hamilton; Edmonton; Maple Ridge) and certain property types (the very low end; luxury) are immune from price drops, in fact will do “incredibly well”.

7. That there are going to be some GREAT opportunities in the spring [2011]… Including the ‘middle [mid-range] market’ in Vancouver; and the new resale [flip] condos where HST has been paid (“that’s where the gold is going to be”).

8. That “average prices don’t mean ANYTHING, really.”

9. That anybody knows what’s going to happen in the economy 2 years from now: “2012, 2013, 2014, all of our economic analysis is showing that you’re going to see a 3-5% increase.”

10. That leverage is to be embraced: “You’re going to see a 3-5% increase which, if you put 25% down on a property… it means you’re getting 20% return on your money.”

11. That a decline of 10% could be conceived to be ‘apocalyptic’. (“We’re not looking at anything apocalyptic here, none of these declines of 10% that some of the banks are predicting for example?”)

12. That the thought of a 25% price drop is laughable: “25% though (laughs)…”

13. That “you cannot analyze a housing market by looking at the housing numbers, you can only analyze the future of the housing market looking at the economic fundamentals, which is jobs and in-migration.”

14. That the possibility of a bubble existing is to be made light of.

15. That “the apocalypse is not coming.”

-vreaa

Critical Data Point – 64% Of BC Owners Plan To Sell Their Homes Within 10 Years

A new Ipsos-Reid poll (n=3,565 Canadians, 462 BCers) contains a figure that will likely startle even those of us who were already anticipating lots of sales pressure in coming months and years [Vancouver Sun 27 Oct 2010] -

“Only 36 per cent of B.C. respondents said they plan to remain in their home for more than 10 years, the lowest figure in the country. Quebec and Atlantic Canada claimed the strongest connection to home, with 58 per cent intending to remain beyond a decade.”

So, 64%, or two out of every three owner households, plan to sell their homes in the next 10 years. Wow.  Has that figure ever been higher? Let’s see how many of those households rush to bring their properties to a weakening 2011-2012 market, for fear of losing their paper gains. C’mon everybody, surely you can see where this is heading? -vreaa

“After my conversation with my parents’ banker the other day, I guess I shouldn’t be surprised that the craziness continues.”

Patiently Waiting at vancouvercondo.info 26 Oct 2010 at 9:28 pm - “After my conversation with my parents’ banker the other day, I guess I shouldn’t be surprised that the craziness continues. You don’t need a steady income if you had one a year or two ago. Just bring in those old tax assessments. The lender won’t just be accepting of your application…no, they will be downright anxious to throw a mountain of debt on your weakened shoulders. When I said I might want to wait to see where prices go, the banker reminded that the homoaners will “just pull their houses off the market” if buyers don’t appear. Why? Banks will now let the homoaners pile on even more debt in exchange for even less freedom. Up to 125% of their property value.”

Carney – “An abrupt correction in Canada’s housing market is possible.”

Bank of Canada governor Mark Carney, shown outside the bank's headquarters on Oct. 20, on Tuesday defended progress made by G20 finance ministers on stabilizing currencies.

CBC 26 Oct 2010“Bank of Canada governor Mark Carney agreed Tuesday that an abrupt correction in Canada’s housing market is possible. Appearing before the Commons finance committee and responding to a question from Nova Scotia MP Scott Bryson, Carney said he was not predicting a significant drop in prices, but given how far prices have risen and the high level of Canadians’ household debt, it could not be ruled out. Carney told the committee the bank is limited in what it can do to use interest rate changes to encourage Canadians to reduce their debt.”