“The New Normative Order” sounds a little Orwellian, but we’ll give this poster their due. In Vancouver, sales are in the bottom 30%-ile when compared with the last 10 years. The spring should be revealing, yes, but, until then, bears such as us have to admit that the fall market is showing more resilience than we’d anticipated. Prices are rather flat, but sales have bounced more than we’d have guessed since the summer. Is this noise? We’re not sure.
The chart above is adapted from those at agentwill.com (thanks Will). It deals with sales by week in the area that realtor Will follows, but it is pretty representative of what’s gone on in Vancouver as a whole.
Here follows a laying-out of the current ‘stick-it-to-the-bears’ case. It’s yet more of the ‘overwhelming-(Asian)-demand’ argument for Vancouver RE.
We archive it here to show that, at this point, it is still being yelled from various roof-tops. -vreaa
‘Flip Flop Vancouver’ at greaterfool.ca 1 Dec 2010 4:44am (! -ed.) -
“In Vancouver, aka crash ground zero, we have had over 100 percent list sell days for the past month, and its only November. We are back to multiple offers and over ask sales. Spring is going to be on fire.
The market has come back with a resurgence, and we are on track for a sales month that will be similar to the rest of the Novembers during the bull years.
Wow, Vancouver bears have been wrong for so long it must really hurt.
As for the Asian factor, yes, everyone with two eyes and half a brain can see that the offshore investment factor is real.
When 78% of the over 2 million dollar homes are being sold to asians, it is pretty clear that they are supporting the market (and yes, that is a real number, albeit from remax).
Gee, its hardly a surprise as Vancouver prices have gone pretty much up since the mid 80s, which correlates nicely with the beginning, and continuation, of the asian influx into Vancouver.
As long as offshore asian money, and asian immigrants come to Vancouver, prices are not going down.
While the rest of the bears patiently rent, and squirrel away the meagre difference between renting and buying, asians in Vancouver are easily amassing their down payments.
Keep in mind that renting is HUGELY stigmatized within the asian community. Asian children stay at home, with no costs, until they are married. Asian children DO NOT rent, preferring not to waste their money on rent, all the while amassing their down payments. It is not rocket science – even when earning average pay, the stay at home potential first time asian buyer can get a much bigger down payment much faster then those renting.
Also, extended family immigrants all pool their resources to buy real estate with the asian community. Four individuals working average jobs can pay off a home much faster than a high income couple. They are more prone to buy investment properties with little down payments as well.
Sorry bears, but the norms, values and traditions of the soon to be dominant group in Vancouver trump those of the soon to be minority group in Vancouver. This demographic does not share in the traditional idea of going out on one’s own, renting a crappy apartment, deferring gratification, and struggling to amass a down payment. Instead, it is much smarter to live at home, not have any bills, and amass a massive DP that allows you to pay off your mortgage faster, and leverage your equity quicker for another property.
But hey, its not like I am pontificating the effect of asian buyers in a local market 3000 miles away from the action. Lol.
Vancouver bears better realize that there has been, and continues to be, a demographic and cultural shift. If you don’t want to buy into this new normative order, time to leave.”
Like it or not, this is all pretty much true.
Chinese investors (not local residents as “flip flop” suggested) are the ones putting more fuel in an already overheated Vancouver RE market (and in many other cities around the world, after all Vancouver is not that unique).
http://english.peopledaily.com.cn/90001/90776/90882/7172484.html
That link is interesting, but I would like to point to the 1980s / early 1990s where you could have exchanged Chinese with Japanese and the story would have read similar.
Money can leave as quickly as it comes.
Flip Flop is obviously a troll. Can anyone confirm if anything he said is true?
The “78% of greater than $2M homes” being sold to “this demographic” is from a Macdonald Realty release. (“This demographic” was the term used by Macdonald).
Renting stigmatization is true of ALL sectors of the Vancouver population.
So, yes, there are some apparent truths in the post.
But much of the rest of the statement is opinion, particularly the general argument that overwhelming demand will drive the market forever upward.
It’s a ‘new paradigm’ or ‘it’s different this time’ argument.
We’ve archived it here simply because this position is pretty representative of much of what you find being argued on many blogs at present.
Some of us still think that the foreign buyer component has only a small direct (but larger indirect) effect on the market, and that this demand could turn on a button.
That possibility, along with the idea that local incomes and rents cannot come close to supporting current price levels, makes the market very vulnerable to a breakdown.
Can anyone respond to this basic question:
What about the fundamentals?? Vancouver does not have the fundamentals to support such RE prices. It is only a matter of time.
Everything else is speculation and self-serving opinion
Betting on wealthy immigrants can single-handedly keep prices high is akin to the tail wagging the dog. Too many people concentrate on the westside and ignore what drives prices in the rest of the region.
And puh…….leezeeee do not come up with “best place on earth” and “mountains and oceans” argument.
I am talking about the economic unemployment, higher taxes and infrastructure fundamentals
Is this what you want to live in? Communities where the prices are driven so high by newcomers (from wherever) that those that live and work here cannot afford to buy and where those that have managed to are squeezed out by increasing taxes and costs. You think that would be a healthy market? No, the bigger the bubble, the bigger the pop!
Well, my anecdote which was picked up here some weeks ago, was that the live at home Asian daughter in her mid 20′s bought a 2 bedroom condo downtown and was going to flip it until she found out it was now worth less than what she paid for it. So now she has to live in it and get a roomie to help pay the mortgage. She also just leased a new BMW with payments in the multi-hundreds of dollars per month. This story from my sister-in-law who used to work with this person. This doesn’t sound like someone who is too smart with her money, and she works in finance to boot!
I find this so ridiculous (and common). I used to work in financial professional services and was shocked that some of my colleagues with finance and business credentials disagreed with my arguments that renting can be better than buying (depending on your outlook on appreciation, of course). My conclusion is that people don’t think they’re capable of the self restraint necessary to save the difference between renting and buying. Also, many people don’ t think it’s possible to make a decent return in alternative ways.
Anyway, let the Asians buy whatever they want. I’ll be in my rented apartment playing with my (up 25% this year) portfolio.
I think theres also some effect of the HST redirecting purchases from presale to resale. It will probably displace prices up ~7% however vaccant land wont move.
I sincerely hope quotes like this survive. A process cannot be understood by stopping it. Understanding must move with the flow of the process. A lot of people are going to wonder how so many could have been so blind to what is going to happen for so long. Quotes like this are so important for that understanding.
When they look back they will see that when the shift comes, so many are going to be completely baffled by the fact that the old explanations have shattered and dissolved, blown away by new movements.
Good thing that all these local Asian children will have local jobs that support a $5,000 monthly housing payment. Right?
Uhuu. So I am waiting for the release of the next StatsCan with regards to median income in the lower mainland.
If the OP is right then I guess we should see an uptick in that deparment…. Single’s average income would be what? Around $200K with families making around $300K?
“Good thing that all these local Asian children will have local jobs that support a $5,000 monthly housing payment. Right?”
“If the OP is right then I guess we should see an uptick in that deparment…. Single’s average income would be what? Around $200K with families making around $300K?”
What is it that you do not understand about pooling resources amongst extended family members? Do you not understand that by living at home for years, and/or pooling resources allows you to put down a much larger down payment than the average person, thereby reducing your monthly payments to affordable levels. The individuals buying do not need to make 200k or 300k a year to afford a place.
Also, keep in mind that for the past 10 years, incomes have not matched house prices – there has, and continues to be a disconnect. That disconnect has not prevented the continuation of the market. When the average family income in Vancouver is 72 k, houses should be around 246k by bear metrics – 3 times income. Good luck bears if you think that houses will ever be that cheap – you will have to take a time machine to go back to 1985, before the influx of asian immigrants if you want those prices.
Oh I understand the pooling of resources. I also understand that you need to have a job first (that pays a living wage at least) to be able to pool said resources.
And I guess that’s why 1/8th of the Provinces GDP is generated by people borrowing money in order to live in a place, eh?
But let’s put this into perspective. A one million home and a “conservative” downpayment of 25% would require the borrower to have 250K on hand.
Let’s presume for the moment that they do live at home, that they have ZERO expenses, not even Student Loans or have to pay for their own clothes, cars or food. Let’s further presume they get out of University / College and land a job to the tune of 50K/year.
After the Government takes it share (~1/3) they are left with 33K/year. Let’s ignore inflation here for a moment (and thus any wage increases) while they are saving and also ignore any increases in house prices, this would mean they would have to save every little penny for the downpayment for 7 1/2 years.
And the 50K starting? That’s a very positive assumption as is that none of their monies actually go anywhere but in a nice little safe investment where they do not lose a penny of it.
Take a rubber band. Put it down on a piece of paper, hold one end with your finger, then put a pencil on the other end. Start moving the pencil outward. Sooner or later the rubberband either snaps or you won’t have enough strength to overcome the pull of the rubber band.
Now, can you see how that relates to a discrepancy between income and cost of a home loan?
BTW, the 3:1 ratio is not a “bear ratio” it is a financial advisors rule of thumb. But face it, it’s not as if the ratio here in Vancouver is 4:1 or even 5:1 (which by all those people who really understand the underlying principles) would already be considered way out of the sustainable range, no sire. Vancouver the deluded has reached almost 10:1.
At what point do you think it is completely unaffordable? 20:1? 30:1? 100:1?
Oh, I forgot, for people like you it will always go up because there will always be money somewhere that just CAN’T WAIT to buy a crackshack in Vancouver.
I live in the Arbutus area, my two (now adult) children went to Prince of Wales High School and were among the minority students (non-Asian) attending. I have noticed that in this area not only are the long-term Asians selling and moving home after Citizenship is attained (and health care assured for old age) but the Asians that have immigrated in the last ten years or so appear to be taking in B & B customers or ESL students to help with the payments. There is one nearby immigrant family, living in a $2M house, that is selling Amway to try to pay the bills and taking in Chinese tourists in their basement on a week-to-week basis. My point is, how much money is owed by these “rich Asian immigrants” or are they just like everyone else, trying to make a better life at any cost for their kids and themselves.
Regarding the “strength we didn’t anticipate” I made a chart about exactly that. Sorry to pimp.
Chart of China and Vancouver House Prices
The scales are not particularly meaningful (for which I apologize), but the deflection point is. That’s the Chinese government dumping stimulus money into their country to offset the great recession. That $600 billion in stimulus does not appear to have remained entirely in China. My opinion, though. Correlation does not equal causation.
AG Sage ->
Thanks for the comment and the link, and we don’t see you posting this as ‘pimping’ at all.
Note that there are two timeframes of ‘unexpected strength’ to address, and we shouldn’t get them confused:
1. The bottoming of the Vanc RE market in early 2009, saved by globally low interest rates (and correlating with the move shown on your chart), and the subsequent rally to new highs. [You may be interested in this post of ours, 27 Mar 2010, that points to exactly the same thing as your chart does!]
and
2. The much shorter timeframe strengthening of Vanc Re sales since mid 2010, that is illustrated by the chart at the top of this current post. Interestingly, this does again correlate with a short term bounce in the Shangai index (and other stock markets as well, though)! I’ll headline this at some point for more general discussion.
Thanks for the link back to March. It’s amazing how long this has been going on. But here in the U.S. the bears got raked over the coals of the immediate reality for, oh, four years. This better be quicker than that.
From the other post:
“After all, foreign buyers are responsible for less than 5% of local purchases.” Obvs, this is not longer true, but even so, given that prices in real estate are set at the margin, it was probably enough to set the price.
Also this jumped out at me:
“Such debacles usually start, Edward has found, with a compelling growth story.”
Huh, I had not considered this as a narrative, but of course it is. It’s the power of myth. A culture’s identity and sense of self-worth is defined not by reality but by the stories they tell about themselves.
I would add to the causal list: Political structures rigged to socialize losses. Maybe that’s implicit in Moral Hazard, but for purposes of public policy, it deserves getting split out.
But back to the stimulus. On the house price index chart, it’s only a month’s lag, from the November 2008 stimulus to the Vancouver market finding a floor. Then it meanders along and finally the feedback loops start working and up it goes. Nov 2008 was bleak in Vancouver: 874 sales rather than something in the range of 3,000. It’s easier to push a weak market back into growth.