Monthly Archives: January 2011

True Words Spoke In Jest – “The Vancouver real-estate market is a pyramid scheme teetering atop a cloud of ephemeral hope and, simultaneously, eternal fear. If a single homeowner begins to doubt the prudence of their investment, the pyramid will collapse.”

Stephen Quinn, host of On the Coast on CBC Radio One, Vancouver, in ‘Glad you asked: pithy responses to [Vancouver] visitors’ FAQ’ Globe & Mail 28 Jan 2011 -
“[Vancouver RE] is expensive. The average price of a bungalow in the city is $890,000.
The cost of housing remains high because the Vancouver real-estate market is a pyramid scheme teetering atop a cloud of ephemeral hope and, simultaneously, eternal fear. If a single homeowner begins to doubt the prudence of their investment, the pyramid will collapse. Which is why there is a bylaw prohibiting homeowners from ever expressing out loud regret for their real-estate purchase. Regardless of how leaky it may be.”

This humorous piece taps the author’s unconscious and delivers up a perfect description of the Vancouver RE bubble. The reader comments on the piece are equally telling, most found the observations ‘lame’. As one dissenting commenter noted: ‘sometimes the truth hurts’. -vreaa

“I’m just plain sick of hearing from everyone how much they have made from flipping houses while I sit there renting.”

Singh at greaterfool.ca 31 Jan 2011 12:45am“I’m just plain sick of hearing from everyone how much they have made from flipping houses while I sit there renting. Can’t wait for this all to play out!”

Downside Of Renting – A Forced Move: “So now me, wife and two kids (one whom is 4 months) have two months to find a home.”

ulsterman at vancouvercondo.info January 29th, 2011 at 1:45 pm“The intangible benefits to owning brought into sharp focus: This morning I got the break-up call from my landlord. He’s just sold his house in East Van and wants to move in. He had his place on the market just to see what he could get and in his words, “Wow! the market has really picked up.” He’s smart enough to be extracting capital from his home and moving into his mortgage-free, inherited family home – life’s pretty rosy for some.
So now me, wife and two kids (one whom is 4 months) have two months to find a home. Isn’t renting just wonderful. And no, with a family to raise, i was not like the majority of people [on vancouvercondo.info] – i was not stuffing thousands a month into 10-bagger stock picks and getting rich while renting.
OK, gotta go start searching the delightful supply of “no cats” rental homes on Craigslist. Did i mention it’s a shitty, grey Vancouver day?”

“He has been infected with this way of thinking from MSM and friends. Hard to blame him as he has seen his house triple in value in 15 years, he is a simple hard working man, somehow always lucky with real estate.”

4SlicesofCheese at VREAA 29 January 2011 at 12:59 am-
“My father tells me buy now price does not matter.
If you don’t like the place move in 2-3 years and it will be worth 60-70k more.
If you cannot pay the mortgage just sell it and buy a cheaper place with the money you made from selling it.
He is not only giving me advice he actually wants to give me 200k for downpayment, even with that and my own I would still not even consider it.
Everytime I visit my parents, first thing he asks me is have I looked at any new houses. I just have to say “Yeah I am going to an open house this weekend”. I tried once to tell him I think there’s a bubble, that did not go well haha I will just stick to my “Yeah I am going to an open house this weekend”

He has been infected with this way of thinking from MSM and friends. Meanwhile not listening to anything his family says, including a nephew that works at Goldman Sachs who called the bubble in the states years ago and says the same thing is going on here now.
Hard to blame him as he has seen his house triple in value in 15 years, he is a simple hard working man, somehow always lucky with real estate.
At the same time a few of my aunts have lost ALOT of money in the past investing but that does not seem to take that into account.”

David Dodge – “Look mister borrower, you’ve gotta have an equity stake in this as well… so that if things go really bad, it’s not all on the Canadian taxpayer, part of it is on you.”

David Dodge, former governor of the Bank of Canada, on BNN ‘Squeeze Play’, 25 Jan 2011 -

Interviewer: How significant was [the recent mortgage tightening]; was it just cosmetic?

David Dodge: No, look, you’re always working at the margin, but let’s be very clear: a home purchaser is able to borrow at very low interest rates because you and I as taxpayers essentially guarantee that, when it’s a high ratio mortgage… and so it’s not at all unreasonable, again for us as taxpayers, to say, “Look mister borrower, you’ve gotta have an equity stake in this as well… so that if things go really bad, it’s not all on the Canadian taxpayer, part of it is on you.”
So, there is that issue, and that is a long standing issue, it’s an issue which I raised back in 2005… we didn’t have it quite right… I think the adjustments that the government have made are indeed absolutely appropriate.
We face a funny situation at the moment where low interest rates are appropriate for the economy as a whole but where do they have their maximum impact? They have their maximum impact on the housing market. And so it is appropriate to use that quantitative tool (ie the terms and conditions under which you can get a CMHC insured mortgage), to use that tool to dampen somewhat that effect because you really don’t want the Bank of Canada to have to raise rates inappropriately just to cool the housing market. So I think it was absolutely appropriate what the government did.

Interviewer: Do you think though it’s really going to be enough if you’ve got, basically, record household debt now?

Dodge: Wait a second, wait a second.. this is operating in a particular market, in the housing market, and what we saw was that Canadian housing prices fell sharply but then fully recovered and then overshot. So house price to income, house price to rent at the moment is at historic highs. And so we do risk, in the housing market, we risk a bubble forming, which is not helpful to anything/anybody… so I think the government took exactly the appropriate action… I might have wished they’d taken it a little sooner, but they took exactly the appropriate action, and they deserve full marks for that.

Interviewer: Is the whole credit thing a big deal if your real estate is worth more?

Dodge: Well, hang on (laughs) that was the box that the Americans got themselves into.. they bet on house prices going up ad infinitum… and of course they fell, in some places by more than 50%… and then you have an enormous problem… so I think this is absolutely appropriate policy, given that it is appropriate for the BOC to be very accommodative at this point in time.

Interviewer: But, David, what about the CMHC… massive expansion of their balance sheet from $150B now north of $500B they’ve been approved up to $600B, that’s all on the taxpayers books, why didn’t the government say//… It’s like Fannie and Freddie in the States.. that didn’t work out to well… putting a lot of that on the balance sheet of the tax-payer.. shouldn’t the government be trying to claw CMHC (back)

DD: Whoaa-whoaa…// The Canadian mortgage bond program, that’s what you’re talking about, it’s already insured by CMHC… We have the risk already… whether those mortgages are packaged in a bond, or not… The reason we have that program, why it was expanded so rapidly in 2008 and 2009 and that was to ensure that the banking system had the liquidity to carry on. Now, that program, over time, probably can be wound down a bit, so that it doesn’t add to your and my risk as a taxpayer… we’re already on the hook, we’ve ensured those mortgages

Interviewer: Almost 70% of all residential mortgages are now insured and CMHC is the insurer of last resort

DD: And that is why it is important that everybody have an equity stake in their house! (chuckling)

[*In an earlier part of the interview, Dodge also intimated that many would say that at a 85c loonie we would more or less make Canada "competitive with the Americans".]

Our comments:
Dodge always seems very sensible.
We are pleased to see him mentioning fundamentals such as price/income, price/rent, and how he emphasized their historic extremes. One hopes that those who consider these factors unimportant would note that Dodge still sees them as crucial (but we’re not going to hold our breathe on that one).
We respectfully disagree with him when, like some other commentators, he implies we are able to avoid a bubble via mortgage lending tightening: there already exists a bubble, worse in certain markets. If ‘historic extreme’ separation of prices from fundamentals doesn’t alert us to this, what would?
He repeatedly reiterates that he sees the mortgage tightening move as ‘appropriate’. But he also points out that he would have been more hawkish and moved earlier.
The interviewers are on the correct track when they ask him whether the changes are enough.
It would have been nice to have seen them ask him direct questions about the implications, say, of a price/income ratio of 9.3:1.
-vreaa

“It’s scary how close we came to being trapped in a damn 5 percent down 35 year deal, almost sold our souls. I wanted what I felt I was entitled to.”

HADTOMOVETOTHEARCTIC at greaterfool.ca 22 Jan 2011 4:29 am – “Almost three years ago my then boyfriend now husband and I were pre-approved for $460,000.00. Shockingly since back then I was a nanny barely scraping by at $14.00 an hour, minimal savings and bad credit. The now husband had his you know what together and is practical and smart about money, 30 grand saved in the bank at the time, no debt and working 3 jobs to make more.
I jumped right on the HGTV porn loving, Sandra Rinomato fan club. I couldn’t wait to loose my property virginity. I gyrated in anticipation of an acre for the dog, nice kitchen or something Daddy could help us reno and somewhere between Roberts Creek to Halfmoon Bay, as long as it was on the Sunshine Coast. We scheduled open houses, looked at houses, and searched realtor.ca for hours in search of our entitled home. I even became addicted to house hunters and house hunters international. I envisioned us having the lifestyle all my friends seemed to have. Barbequing on a Weber grill, lounging on the new ginger jar patio furniture and a nice 52 inch TV for the next property virgins marathon. It’s scary how close we came to being trapped in a damn 5 percent down 35 year deal, almost sold our souls, or shall I say mine (Over and over again the husband said even though the bank says yes we really can’t afford a house) I wanted what I felt I was entitled to. I grew up on the North Shore in Vancouver, we always had nice things and all my friends were doing it, and even my mortgage broker friend had me convinced with her constant facebook updates.
And then the husband had a job offer, a professional job. No more UVIC bartending, no more teaching economics, no more odd jobs. It changed EVERYTHING. We now live in the Arctic in Cambridge Bay Nunavut. No more HGTV porn lovin’ for me. No House, BBQ, Furniture, Electronics or that acre backyard for Ralph to run around. Friends thought we were crazy, and still do. They keep telling me time is running out. A friend just bought a place in North Van, in Raven Woods out Deep Cove way….$370,000. For a one bedroom and den. Gross.
I stumbled upon [greaterfool.ca] one day and I finally got it. The husband thanks you. I keep spreading the gospel as best I can, but people just don’t get it. We’ll just hang tight up here in the miserable cold making money and saving it, while the Lower Methland slowly but surely falls apart.”

Extra! Extra! Read All About It! – Pablum From ‘The Vancouver Sun’ Lulls Locals

What motivates ‘The Vancouver Sun’ to print an article like: ‘Real estate market calm expected to follow hectic 2010 in Metro Vancouver; Home sales forecast to increase modestly across B.C. as prices stabilize‘, 27 Jan 2011?
It contains no ‘news’ or analysis whatsoever. It consists of hopeful statements regarding price direction from a family who have recently purchased a home, and reassurances of stable markets and price increases from BCREA, CMHC, UBC’s Land Economics department, and a realtor. There is no mention whatsoever of any downside risk.
The only conceivable purpose of this article appears to be to lull current owners and potential buyers into believing that the Vancouver real estate market is stable, cosy, and benign. It’s an advertisment dressed up as a newspaper article. -vreaa
[hat-tip to Mr. Poppinfresh at VREAA for pointing out the importance of non-articles such as this one.]

“Carrie and Mike McDougall — with their daughter Kylie, 3, and son Colton, 4 — moved to British Columbia from Alberta recently and bought a new house in Maple Ridge. They were comfortable with the price they paid and are expecting prices will go up in the next year, as are experts across Metro Vancouver.”
“Hopefully, it was a good time to purchase,” McDougall said in an interview.

Other excerpts:

“There will be a much more gradual increase in consumer demand and less volatility. There will be more stable market conditions this year.” – Cameron Muir, chief economist for the B.C. Real Estate Association

“We’re calling for a three-percent price increase in 2011.”- Robyn Adamache, senior market analyst for Metro Vancouver with Canada Mortgage and Housing Corp.

“[I'm] seeing an uptick in buyers who believe interest rates are heading north. [I] believe there will be a modest increase in both pricing and demand this year.” – Ron Antalek, a realtor with ReMax Ridge Meadows Realty.

Tsur Somerville, director of the centre for urban economics and real estate at the University of B.C.’s Sauder School of Business, said he doesn’t like forecasting the future, but nevertheless believes that 2011’s real estate picture will be largely determined by the speed of the recovery and the Bank of Canada’s action on interest rates.