Monthly Archives: May 2011

RBC Economist – “We fear that the Vancouver market is becoming increasingly disconnected from local demand conditions and vulnerable to a painful correction.”

Robert Hogue, senior economist with RBC, as quoted in ‘Vancouver housing testing ‘rationality’, Financial Post, 20 May 2011“We fear that the Vancouver market is becoming increasingly disconnected from local demand conditions and vulnerable to a painful correction, especially once interest rates resume their ascent.”

Bingo! We agree. (Although RBC pain threshold is likely considerably lower than that of local bears. They’d likely call 10% very painful, and 15% painful beyond tolerance. We’d see 20% as the beginning of the excruciating descent.)
[For the record, Hogue was already talking about Vancouver RE 'downside risk' in June 2010, and had, furthermore, 'raised the red flag' on our market by Sep 2010.]
- vreaa

Carney – “Judgments on how well Canada came through the financial crisis should probably not be made until we can look back five years from now.”

Mark Carney, Governor of the Bank of Canada, made supposedly ‘off-record’ comments at a fund-raising event 18 Mar 2011. They were, nonetheless, released and then described in the G&M 19 May 2011“[His] tone was generally pessimistic on developed economy prospects, saying that we are still in the financial crisis (likely alluding to the hangover from fiscal stimulus in terms of sovereign debt, and the U.S. housing mess), and that judgments on how well Canada came through it should probably not be made until we can look back five years from now.”

Exactly. Stay tuned. Carney knows how precarious our position is, otherwise he wouldn’t say this, even in semi-private. We’d give an eye-tooth to know what he really thinks about the Vancouver housing market. – vreaa

Spot The Speculator #37 – “A guy I know owns 6 “investment” condos. He claims that they are all cash flow positive, but when you ask him for details, it turns out that he is losing hundreds every month.”

bubbly at VREAA 17 May 2011 10:41am“A guy I know owns 6 “investment” condos. He claims that they are all cash flow positive, but when you ask him for details, it turns out that he is losing hundreds every month on each of those condos before condo fees. However, according to him, because he will make money once he sells, thanks to the rising prices, his properties are really cash flow positive. I wonder whether he knows what cash flow means.”

“He sold his place in Richmond for 300K over assessed value. He’s now renting from a young guy who can’t afford the mortgage on the place. And the landlord’s mom is a realtor.”

Anonymous at vancouvercondo.info May 17th, 2011 at 8:54 am“I overheard a guy yesterday on his phone. He sold his place in Richmond for 300K over assessed value. Said he thinks it’s a great time to sell because for sale signs are popping up all over. He’s now renting a place from a young guy who can’t afford the mortgage on the place. and the landlord’s mom is a realtor.”

“The idea of a highly paid surgeon leaving because he can’t afford to live in Vancouver is absurd.” ["No, it isn't."]

Pat at VREAA, 17 May 2011 8:11am, writes in response to the anecdote: Doctors Leaving Vancouver – “My friend, a surgeon at Children’s Hospital, said he couldn’t have the life he wanted in Vancouver because of the insane real estate prices here”, 16 Feb 2011 -
“Even though prices are obviously too high in Vancouver, the idea of a highly paid surgeon leaving because he can’t afford to live in Vancouver is absurd.
It says more about that person’s idea of ‘lifestyle’ than anything else. How is it that I can live here very comfortably on a self-employed salary ranging from $35,000/year to $50,000/year with my mature student spouse who earns maybe $15,000 part-time?
It’s ridiculous that someone says they can’t afford Vancouver on, what, $200,000/year. Utter nonsense.”

Pat -
Many thanks for your comment. Arguments similar to the one you make are made regularly and in various forms, so we’ll headline a discussion here.
We don’t find this surgeon’s decision absurd at all.
It is important to realize that, when “prices are obviously too high” in a RE market, they seem so to people at all levels of wealth and income. The surgeon takes a look at Vancouver RE, and realizes that he cannot afford the type of property that he’d expect to be able to live in, given his training and income. In actual fact he likely earns substantially more than you suggest, perhaps over $300K, or $400K, or even more. He could prudently afford a property selling for, say, $1.6M-$1.8M. But, take a look at what he gets for that on the westside at present. Then compare those properties with the houses that surgeons earning similar incomes, living in Washington State, or California, or Hawaii, or New York, or even Ottawa, get to call ‘home’. That’s the point. The surgeon in Vancouver cannot afford to live a lifestyle commensurate with his training and income. So he moves. This is a completely sane decision.
It is inevitable that a speculative mania in real estate should causes such forces to take effect; the misallocation of resources is characteristic of a bubble. In this case, valuable human capital is squandered and lost to our community. Many skilled professionals have made similar decisions, by either leaving or not migrating here to Vancouver in the first place. There have been anecdotes on these pages of business executives and university professors, amongst others, avoiding Vancouver for these reasons. [See the 'Avoiding Vancouver' post category for some examples.]
So, yes, it may seem that it is unfair for the surgeon to say that they “can’t afford” Vancouver; but their conclusion and their move is also perfectly sensible. It would be more accurate for him to state: “I can’t afford the kind of home in Vancouver that I can afford in every other North American city.”
This line of thinking is relevant to all Vancouverites. You may think you can ‘afford’ Vancouver, but have you considered what a similar income (or your home’s current market value) would get you elsewhere?
We’re not concerned that this specific force will leave our city deserted. Everybody can’t leave at once. It’ll only take a small percentage trying to cash out for the market to crash.
While the bubble remains in existence, however, it is sorely damaging our community by the many perverse pressures that it applies; having professionals leave town is one of them.
- vreaa

Westside Believer – “Things have always been, and will always be, relative to the Westside.”

LGS at yattermatters 4 May 2011 9:40am“All of the talk of Vancouver being unaffordable and that prices are “crazy” reminds me of the many articles that I have kept as a real hobbyist… The articles are almost verbatim over time regarding Westside Vancouver – ie people thought it was incomprehensible when a 33′ Dunbar property reached $500k, then again at $1M, then $2M…. the only thing that has changed in reading old newspaper articles is the $ figure…. but rest assured, when prices stabilize, go down about 10%, then rally again, the next uptick in prices in Westside Vancouver will be higher than they are today. Simple supply and demand… and to quote a famous line…”they ‘aint making any more land” As a born and raised Vancouverite, the type of buyer (ie no longer a working class neighborhood) has simply changed. For better or for worse – depending if you already own Westside Vancouver RE, prices will go up over time…and if you do move from Kerrisdale or anywhere else out of the Westside…you will never be able to come back in terms of price. Things have always been and will always be relative to the Westside – Further even if the market tanks short term and your Westside property loses value on paper, rest assured as well – you will still be able to buy exponentially more as you move out of the Westside and into other Greater Vancouver areas…”

The Froogle Scott Chronicles: Mortgaging Our Souls In Paradise – Part 9i: So You Want to Buy a House and Fix It Up? Thirty Suggestions for Survival

Part 9i: So You Want to Buy a House and Fix It Up? Thirty Suggestions for Survival

[30 suggestions over 10 sub parts, starting with Part 9a. -ed.]

27. Make sure you’re on the same page as your partner

The renovation divorce is not urban myth — they happen. A friend of mine personally knows of two. My own feeling about renovation divorce is that the renovation is not the root cause of the divorce. Rather, a major renovation can act as a very effective stress test of a relationship, revealing any deep fissures that may exist, and splitting them wider. Or, conversely, it can serve as a grand diversion, a common purpose that occupies a couple, allowing them to avoid dealing with any issues in their relationship. A renovation, or the building of a new house, may even be undertaken as a symbolic fresh start. Once the renovation or house is complete, and the novelty wears off, the underlying issues crowd back in.

My wife and I survived our grinding, three-year renovation, and the upheaval of firing the first general contractor, battered but mostly intact. We each learned things about the other, and about ourselves. My transformation into Captain Ahab, monomaniacally pursuing his white whale, is a tendency I need to rein in. We adapted and made compromises along the way. But there were also nasty blowouts. Cooling off after these rough patches, I would reiterate to myself that the relationship was more important than the renovation. People are more important than things.

For couples considering a renovation for the first time, assume that you are not going to agree on everything. And assume that there are many renovation details that you don’t yet know about or understand that you are not going to agree on — decisions and conflict points that arise in the course of the project, once the pressure is on. In our case, one such decision was whether or not to spend an extra $15K or $20K on rainscreening and re-siding the house, once we discovered the original building envelope was beginning to fail.

As much as possible, partners should make sure they’re on the same page before embarking on the joint undertaking of a major renovation. A simple and well-known tool called ‘the project triangle’, explained in the next section, can give you an idea whether harmony or discord lie ahead, and allow you to work out differences in advance.

28. Fast, good, cheap — pick two

The project triangle illustrates the three basic characteristics of any project — speed of completion, quality of work, and cost — and suggests that realistically we can get the best of two, while the third characteristic will suffer. The overlapping areas in the diagram are the three different possibilities for any project.

For a major renovation, here’s how the project triangle can play out:

•    If it’s fast and good, like our reno once the competent general contractor took over, it won’t be cheap because you’re paying market price for a crew of true professionals. You may be willing to pay because you have a particular standard of quality in mind, and you don’t have the rest of your life to learn how to do the work well, and to do it yourself. You feel you are getting fair value. But does your partner have the same conception of ‘value’ that you have? Nothing causes more friction in couple relationships than money.

•    If it’s good and cheap, because you’re a skilled renovator and do large amounts of the work yourself, and act as the general contractor for the rest, there’s a high probability that you’ll be on the ten-year-plan, like our neighbours M and S. Some people derive a lot of satisfaction from an ongoing project that slowly comes to fruition, and may not mind living amid an ongoing renovation for years. Others may find that unacceptable. Or the demands of family life make it completely impractical.

•    If it’s cheap and fast, there’s a high likelihood that the quality is mediocre or poor, because it just isn’t feasible for one contractor or company to significantly and consistently underprice the competition, and beat them on completion dates, while maintaining comparable quality. You might get lucky from time to time, but on balance you’ll get what you pay for. And what you’re paying for, whether you understand it or not, is probably a superficial papering over of deeper problems, or something that’s going to fall apart, or look like crap in short order, or maybe even right away. Cheap and fast usually equates to quick and dirty, and there’s another little maxim about projects: long after quick is gone, dirty remains. What seemed cheap in terms of money will start to reveal itself as cheap in terms of quality. Which ultimately means it’s not cheaper in terms of money, because it will have to be replaced sooner.

The root of couple tension related to a renovation likely stems from two different renovation conceptions conflicting because they fall into different overlapping areas in the project triangle. Discovering this incompatibility before starting a renovation, and working to resolve it, can spare a couple a lot of grief. Resolving it requires that regardless of which of the project characteristics you value most highly, you have a shared definition of what you mean by each characteristic. Is $300K a reasonable amount to spend for what you want to do, or is that far beyond the bounds of what you’d ever consider? Is second-rate finish carpentry with joints that don’t always exactly meet not that big a deal, or does it make you cringe? Is three months of disruption the maximum you’re willing to put up with, or can you handle living in a renovation zone while you pick away at things for years?

—-

Coming soon: The tenth and final sub-part -
Part 9j: So You Want to Buy a House and Fix It Up? Thirty Suggestions for Survival – Suggestions 29 & 30.
Part 9 subsections are posted every Tuesday and Friday.
Read them all before you call Holmes. -ed.

“A good friend of mine, a school teacher, had his dad pass away recently and leave him his Van Westside house, currently estimated to be worth $2.5M. He is planning to sell, move somewhere else, invest the money and retire.”

Anonymous at vancouvercondo.info May 17th, 2011 at 4:41 pm“A good friend of mine had his dad pass away recently and left him his, currently estimated to be worth, 2.5M Van West house which he’s actually been living in for a while. He’s just told me that he’s moving to the interior. I was a bit surprised and asked why, since he now has a virtually free place to live in. He said, look, he’s a school teacher and can’t afford to live in a $2.5M house, even if he’s not paying for it. It’s an interesting take on the current state of things, and if you think about it, his point of view has merit. If you were renting and somebody gave you $2.5M would you sink every penny of it into a Van West house? I certainly wouldn’t, I’d move somewhere else, invest the money and retire and that’s exactly what my buddy is planning and that’s exactly what plenty of other Van West folks are doing. Their kids can come visit or live with them in Powell River, or Revelstoke, or Lac La Hache or a thousand other places in this beautiful province.”

Spot The Speculator #36 – ‘Owns’ 380K Condo and 500K House; Income 50K; Debt 900K; “Looking for friends who might be interested in together buying a 3rd property”

Jayco49 at VREAA 17 May 2011 11:15am“I know a girl first hand and I obviously don’t know precise numbers, but pretty darn close…She owns a 2 bedroom condo in Surrey (35 year mortgage and can’t sell for less than 380k to break even). The current renter only covers roughly 75% of her carrying costs for the place…she subsidizes the rest and she technically doesn’t have strata clearance to have renters and can’t currently get that clearance. Also, last summer she bought a new house in Surrey with carriage house over garage (35 year mortgage). She faked a car loan (worked in the car sales business for shady car dealer) to borrow 50k to come up with the down payment for Surrey home ($498,000 was purchase price) and never used that money to buy a car. She has a car payment (on top of her faked car payment), a motorcycle payment, has borrowed 10k from old employer to cover mortgage payments a few times and just got an home equity loan for 20k to pay off credit card (10k plus) and finish a kitchen downstairs so she can suite the basement…problem is she has less than 5k left on loan and hasn’t even started kitchen install..she’s now afraid she’s out of money to finish the job. She rents out carriage house, and has two roomates helping her with mortgage. She is sinking deeper and deeper in debt and it’s only a matter for time before her access to credit dries up and looses it all, but here’s the kicker…she is currently working for 38k a year plus commissions which bring her to 50k max if she’s lucky AND she was looking for friends who might be interested in going in with her on buying a 3rd house!!! She’s so f*****d and doesn’t even recognize it yet. I don’t understand how someone can borrow so much while earning so little…she’s close to 900k in debt and thinks she is getting rich!!”

For update, see here.

facebook page – ‘Canada home buyers, boycott now’

‘Canada home buyers, boycott now’, a facebook page, was launched 20 April 2011. Noted here, for the record.

It Is Dangerous To Blame The Consequences Of A Speculative Mania On One Sector Of Our Community: Let’s Make Sure We Don’t Do That.

Imagine you own a beach house in a resort area and you decide, at the end of a beautiful summer, to revive the memories of your youth by organizing a BBQ and bonfire on the beach in front of your home. You invite all your local friends, you organize the food, and you ask everybody to bring along their families, their friends, and their own booze. With plans for a whopping big bonfire, you also ask them to bring wood. Everybody complies, similarly eager for a beach bash. One of your buddies, Ken, has access to some really good firewood, so he brings a trunk-load of the stuff. The BBQ goes well, drink and chat flows, you and your buddies start to build the bonfire. Everybody is in a disinhibited party mood, and you all somewhat unwisely start constructing the bonfire a little too close to the house. A couple of people mention this but, the wind is blowing in the safe direction, it’s an arguably fair distance from the house anyway, and, besides, there is a fire extinguisher in the kitchen, right? Consensus is that the fire site is fine, and a really seriously large pile of wood accumulates.
So, the bonfire is lit, it looks glorious, and, in the fading light, everybody has a great time… marshmallows, jokes, dancing, singing. Everybody piles on the wood they’ve brought; everybody is particularly grateful to Ken, as his supply burns extremely well, it gives off a wonderful aroma, and it warms everybody very nicely.
You can see where this is going: The wind changes, the fire roars, the fire extinguisher is woefully inadequate, the house burns down, neighbouring houses catch sparks, the whole beachfront is destroyed, and everybody blames Ken.
Did I mention that Ken is from mainland China?


The speculative mania in Vancouver RE had its roots in the early part of last decade. Vancouver housing was already pricey by Canadian standards, the good-weather premium was baked in. Things really took off after 2003, when very low interest rates allowed home prices to divorce themselves from fundamentals such as local incomes. This effect occurred in all major Canadian centres, it was a monetary and not a local effect. Through 2004, 2005, 2006, 2007, local Vancouver speculators threw themselves onto the fire, borrowing large amounts to buy primary-residences and ‘investment’ properties at prices that were only justifiable if you thought that prices would continue up forever. People told themselves all the necessary stories to reassure each other that prices could, indeed, only go up: Best Place On Earth; Running Out Of Land; Olympics; and, yes, Limitless Demand From China. Under ‘normal’ circumstances, 2008 might have marked a top, but we all know that little about Vancouver RE is ‘normal’. Prices started dropping from the summer of 2008. Perversely, shortly thereafter, the world financial system imploded and interest rates, already at low levels, dropped to essentially zero. Vancouver RE didn’t need a bail-out, but it got one anyway. Prices had only been able to drop 15% before being re-ignited, taking out prior highs, and blazing on to their current dizzy heights. Now, with Australia finally pulling back, our real estate is arguably the most overpriced in the entire world. We are the last remaining pristine and unimploded RE bubble.

The most important fuel for this market fire, by a very, very long way, was and is local speculation. Local buyers, through all of these years, have continued to mercilessly overextend themselves to purchase property at prices that they would never dream of paying if they foresaw a significant risk of price downside. This applies to primary residences as much as it does to ‘investment’ properties. If locals had not speculated, or had speculated less, prices would not have gotten so very far divorced from fundamentals. Yes, there is a direct influence of foreign buyers on the market, more so in some areas of the city. But these buyers still participate in less than 5% of all property transactions. In the part of the city most affected by this phenomenon (the high end of the westside), realtors report that 50% of sales are to this group. That means, of course, that the other 50% of sales are to locals, overbidding on properties by arguably a factor of two or three times fundamental value. Our speculative mania has attracted non-local momentum players, and, yes, there may be a need for some consideration of specific limits on their activity; but let’s be very clear that these players are only a small part of the entire phenomenon.

There is no easy way out. That is the nature of speculative manias, they harm many on the way up, and a lot more on the way down. There is no way of ‘landing’ them ‘softly’. By their nature, they run out of fuel and implode. We have built and ignited a bonfire here that was long ago completely out of control and destined to raze the whole block. It would be very unfair and disingenuous to blame the outcome on our buddy Ken, who we invited to the party, who only brought wood with our encouragement, and whose fuel we appreciated while all seemed okay.

We are very concerned, however, that our city is setting up for such a scapegoating. Canada’s policies of multiculturalism encourage people to celebrate their differences. This is hunky-dory when everybody is rich and has adequate resources; it is easy to celebrate your neighbour’s good fortune when you are experiencing similar luck. But, if you put the economic screws on a society that has been encouraged to emphasize difference, it is probably more prone to developing ethnic fault-lines than a society that puts more effort into celebrating similarities.

There has been more and more media prominence given to foreign buyers recently. Local politicians such as Peter Ladner are pointing to this group as the cause of our lofty prices. We are concerned that many are going to be getting their wires crossed by associating foreign buyers with the existence of the bubble. There is a very real subsequent risk that many of those who suffer the consequences of the imploding Vancouver RE bubble will mistakenly blame foreign buyers and, by extension, specific ethnic groups, for the whole phenomenon, and for the inevitably devastating outcome.

As we said in our end-of-2009 predictions for the coming decade: ‘A Real Estate Bear Market Will Be Vancouver’s Defining Social And Economic Event.’ We hope that, as a society, we will be able to successfully navigate the substantial challenges of that event in a mature and wise fashion.
It is dangerous to blame a speculative mania on one small sub-sector of our community.
Vancouverites built this bonfire, and Vancouverites need to take responsibility for its consequences.
No scapegoating.

- vreaa

“It is so funny to see people’s reactions when you say the market may go down. It is like you have offended them deeply; to their core.”

Tracy, as quoted by Garth, at greaterfool.ca 16 May 2011“I was telling someone today that my father sold his condo in North Vancouver. They asked me why he would sell, and I explained that the market had been up for a long time and that most likely it would go down in the future. The individual (from Vancouver) looked at me like I was a nut bar, as if absolutely insane, and told me that the market would never go down here. I stated that Ireland, California, all of these places of had seen a huge market drop. It is so funny to see people’s reactions when you say the market may go down, it is like you have deeply offended them to their core, and they talk as if they are the expert economist, even though they bought their property at the top of market.”

“The average home costs 9.5 times Vancouver’s median household income of $63,100, yet there is not a single paragraph in the plan about stimulating economic growth to raise incomes.”

‘Regional growth plan ignores economy, lacks coherence’, Vancouver Sun, May 14 2011, is critical of Metro Vancouver’s “ephemeral” ‘Regional Growth Strategy’. Excerpt from the critique:
“Arguably one of the most serious challenges facing the region is affordable housing, yet there is little in the 80-page document that directly addresses it beyond a reference to the 2007 Affordable Housing Strategy, which had a 10-year timeline. Worse, although the regional government cannot compel municipalities to build residential projects, it can stop them from doing so if they don’t comply with the plan’s restrictive land-use policies.
Affordability is measured as a multiple of the median household income and Vancouver ranks third among the world’s least affordable cities. The average home costs 9.5 times Vancouver’s median household income of $63,100, yet there is not a single paragraph in the plan about stimulating economic growth to raise incomes.”

Use your imagination. There is an alternate solution to the problem. – vreaa

Westside SFH Sale Example – 3532 sqft; 43×121 lot; $3.66M

4498 W 11th Ave, Vancouver
3,532sqft SFH; built 2010; 43x121ft (5,256sqft) lot
Ask price: $3,798,000
Sale price: $3,663,000
$1,037 per sqft
Listed 6 Apr 2011; Sold 29 Apr 2011

View from front of this house is directly into the car park behind the BMO branch at 10th and Sasamat. Very convenient, when it comes to depositing those $16,000 mortgage cheques, each month, for the next 30 years…
It’s a nice looking house, but what is it ‘worth’?
Yeah, sure, “Whatever someone will pay for it”, but what would someone be prepared to pay for it sans speculative mania?
This is the kind of property that we could see losing 66% of its ‘value’.
- vreaa

“My wife and I moved here 2.5 years ago from London UK. We are giving Vancouver another year, and if prices don’t return to sanity, we’re out of here.”

Sean at vancouvercondo.info May 16th, 2011 at 10:07 pm“My wife and I moved here 2.5 years ago from London UK, (I am Cdn). We are giving Vancouver another year, and if prices don’t return to sanity, we’re out of here. We are both professionals and well-paid by Vancouver standards. But we did the math and for an “investment” in a home in Van, prices would have to rise 10% annually to match what we can make by taking our down-payment and investing it conservatively. So in the meantime, we are letting this all wash over us, and happily renting. But Vancouver needs to wake up and see that what’s happening is of ZERO benefit to the city and is going to make it a much worse place.”

“My choice is to live on the westside and raise my family there but because of all this foreign money, I no longer can afford it. Something must be done.”

“I am a Canadian-born Chinese male who is in his near 40s. My choice is to live on the westside and raise my family there but because of all this foreign money, I no longer can afford it. Something must be done. It is in the neighbourhood’s interest to stop foreign investment. These families send their kids to school in your neighbourhoods unsupervised…driving their Ferrari’s and BMW’s. How can unsupervised but very well off kids be good for any school or neighbourhood? Governments must step in to protect the integrity of these neighbourhoods and allow hard working 2 income families with strong family values to have a chance to live there.”
- anon206444676 17 May 2011 12:04am, in the comment section of the Vancouver Sun article: ‘Chinese Spreading Wealth Make Vancouver Homes Pricier Than NYC’.

Archived here because this kind of ‘call for action’ on the part of ‘governments’ has become common in the Vancouver RE discussion. We fear the unintended consequences of government intervention in the market, and believe that the speculative mania will run its due course regardless of such intervention. – vreaa

“We cannot afford a home in our own city despite 12 years of university between my husband and I – both with masters degrees.”

“We cannot afford a home in our own city despite 12 years of university between my husband and I – both with masters degrees but no chance to compete against money of unknown, and too often criminal proceeds.”Bella Donna 17 May 2011 1:34am, in the comment section of the Vancouver Sun article: ‘Chinese Spreading Wealth Make Vancouver Homes Pricier Than NYC’.

“I am in my late 30′s and, if I wanted to, I could retire today, all because my crack shack on the east side is now worth 5 times what I paid for it 11 years ago.”

“Yes, I could complain about house prices blowing off the roof in Vancouver, but then again I am late 30′s and if I wanted to I could retire today, all because my crack shack on the east side is now worth 5 times what I paid for it 11 years ago. So for that I thank the wave of investors. Cash out and move to costa rica? belize? panama? or how about naniamo? or just wait for the real estate bubble to burst then I can slave away till I am 70 to retire.”
- paul s 17 May 2011 2:24am, in the comment section of the Vancouver Sun article: ‘Chinese Spreading Wealth Make Vancouver Homes Pricier Than NYC’.

“Chinese buyers frequently are absentee owners, wealthy businessmen who buy second or third houses for their wives and children while continuing to live in China for work. You see a lot of these satellite families. The kids seem pretty nice.”

Anecdote extracted from ‘Chinese Spreading Wealth Make Vancouver Homes Pricier Than NYC’, by Hui-yong Yu and Christopher Donville, 17 May 2011, at bloomberg.com : “Norman Chow,  is a fourth-generation Canadian engineer who lives near Quilchena Park on the Westside. “Chinese buyers frequently are absentee owners, wealthy businessmen who buy second or third houses for their wives and children while continuing to live in China for work. You see a lot of these satellite families,” said Chow. He said it’s not unusual to see college-age kids of wealthy Chinese parents driving Bentleys, Maseratis and Porsches around the Westside. “The kids seem pretty nice,” he said.”

Immigration Lawyer Says ‘Bubble’ – “There is this psychological fear that ‘Ok, if I don’t get into the market, I might not be able to get in later on.”

Opinion extracted from ‘Chinese Spreading Wealth Make Vancouver Homes Pricier Than NYC’, by Hui-yong Yu and Christopher Donville, 17 May 2011, at bloomberg.com :“Low interest rates inflated home prices and created a bubble, said Lawrence Wong, an immigration lawyer with many Chinese clients. Unlike the U.S., Canada has no tax deduction for mortgage interest. “There is this psychological fear that ‘Ok, if I don’t get into the market, I might not be able to get in later on,” said Wong.”

Westside Architect – “I’ve never been busier. New homes for Asian clients make up two-thirds of my 30 current projects.”

Anecdote extracted from ‘Chinese Spreading Wealth Make Vancouver Homes Pricier Than NYC’, by Hui-yong Yu and Christopher Donville, 17 May 2011, at bloomberg.com : “Many existing houses were built in the 1940s and ‘50s and have outdated electrical systems and plumbing and are “much smaller” than allowed today, said Vancouver architect Loy Leyland. As buyers prefer to demolish old houses than renovate, new homes for Asian clients make up two-thirds of his more than 30 current projects.  “I’ve never been busier” in a 30-year career, Leyland said. Leyland’s clients usually stick to traditional styles such as Villa or Georgian for exteriors. Inside, designs are changing. Every new house has two kitchens: a large Western- style one and a small “wok” kitchen with a stove, sink, strong exhaust fan and door to seal off cooking aromas, said Leyland.”

“Some buyers acquire multiple homes, one to live in and others for investment. They made their money in a variety of businesses, including mining, stainless steel manufacturing and real estate. About 10 percent of them speak English.”

Anecdote extracted from ‘Chinese Spreading Wealth Make Vancouver Homes Pricier Than NYC’, by Hui-yong Yu and Christopher Donville, 17 May 2011, at bloomberg.com : “Winnie Chung, a Royal Pacific agent represented buyers or sellers in C$285 million of home sales in 2009 and 2010 combined. Chung employs eight full-time assistants and travels to China twice a year to meet potential clients. Some buyers acquire multiple homes, one to live in and others for investment, said Chung, the broker. Her clients made their money in a variety of businesses, she said, including mining, stainless steel manufacturing and real estate. About 10 percent of them speak English, she said.”

Westside Realtor – “Our office has done 50 sales this year, which is pretty incredible. Half of those sales are from mainland China.”

Anecdote extracted from ‘Chinese Spreading Wealth Make Vancouver Homes Pricier Than NYC’, by Hui-yong Yu and Christopher Donville, 17 May 2011, at bloomberg.com : “Our office has done 50 sales this year, which is pretty incredible,” said Vancouver realtor Tom Gradecak at his office in Point Grey, where he has one colleague who speaks Mandarin and Cantonese and is hiring a second. “Half of those sales are from mainland China.” One Chinese buyer paid C$1.7 million in March for a five- bedroom, three-bath house that the previous owners had completely renovated in 2003, C$150,000 more than the asking price, said Gradecak. The buyer plans to tear it down and build anew. “There’s more value in the land,” he said. “We’re seeing a lot of empty nesters cashing out.”

“I hope the government can do something to control the price so younger generations can buy.”

Anecdote and opinion extracted from ‘Chinese Spreading Wealth Make Vancouver Homes Pricier Than NYC’, by Hui-yong Yu and Christopher Donville, 17 May 2011, at bloomberg.com : “Cecilia Huang, a Canada resident since 2003, also is concerned about rising prices. “I hope the government can do something to control the price” so younger generations can buy, said Huang, who paid almost C$1 million for a condo in the Westside’s Kitsilano neighborhood two months ago so her daughter, now aged 6, could attend school nearby. She couldn’t afford a house and prefers apartment living because she doesn’t like yard maintenance. She also likes the views from her sixth-floor condo.”

Fueling a market by buying into it while at the same time hoping it moderates. Vancouver RE participants are overwhelmed and confused by the market action. – vreaa

Ladner On Bloomberg – “This makes it all the more difficult for people who are already struggling to get into the market or businesses who can’t hire people to come here because of the high housing prices. There are a lot of people who are really frustrated.”

Opinion extracted from ‘Chinese Spreading Wealth Make Vancouver Homes Pricier Than NYC’, by Hui-yong Yu and Christopher Donville, 17 May 2011, at bloomberg.com : “This makes it all the more difficult for people who are already struggling to get into the market or businesses who can’t hire people to come here because of the high housing prices,” said Peter Ladner, a former Vancouver city councillor and a columnist for the Business in Vancouver weekly newspaper. “There are a lot of people who are really frustrated.” Unlike London or New York, “we don’t have enough jobs with high incomes to justify” the home prices, said Ladner. He noted Australia has placed restrictions on foreign home ownership. The British Columbia government also could consider an increase in property transfer taxes for foreigners, he said.

“The schools here are the best and there are a lot of Chinese people here. Eastern Canada wasn’t an option because I cannot bear cold weather.”

Anecdote extracted from ‘Chinese Spreading Wealth Make Vancouver Homes Pricier Than NYC’, by Hui-yong Yu and Christopher Donville, 17 May 2011, at bloomberg.com : “Cathy Gong moved from Shanghai to the Shaughnessy neighborhood on Vancouver’s Westside about three years ago. “The schools here are the best and there are a lot of Chinese people here,” said Gong, whose son is in sixth grade at Shaughnessy Elementary School. Eastern Canada wasn’t an option because “I cannot bear cold weather,” Gong said.”

Bloomberg – ‘Chinese Spreading Wealth Make Vancouver Homes Pricier Than NYC ‘

We archive here the fact of this article, ‘Chinese Spreading Wealth Make Vancouver Homes Pricier Than NYC’, by Hui-yong Yu and Christopher Donville, 17 May 2011, at bloomberg.com, which was also reproduced in full in the Vancouver Sun. We will extract some individual anecdotes in a string of separate posts. Given Bloomberg’s readership, this is another landmark in the whole ‘foreign-money driving Vancouver RE’ debate. Here are some general excerpts:

Buyers from mainland China are leading a wave of Asian investment in Vancouver real estate as China tries to damp property speculation at home. Good schools, a marine climate and the large, established Asian community as a result of Canada’s liberal immigration policy make Vancouver attractive.

China, where home prices rose 28 percent in Beijing and 26 percent in Shanghai last year, has taken steps to curb property speculation within its borders. Chinese home prices gained for 19 straight months through December and climbed in almost all 70 cities tracked by the government during the first quarter. Premier Wen Jiabao placed curbs on mortgage lending, boosted down-payment requirements and limited the number of purchases.

“As the Chinese get more and more prosperous, they are diversifying their assets out of China,” said Jim Rogers, an American investor who moved to Singapore from New York four years ago so his daughters could learn Chinese. “Vancouver is very high on the list.”

Vancouver’s median home price of C$602,000 ($618,000) was 9.5 times the annual median household income of C$63,100. Canada had a 4.6 national multiple, making it “seriously unaffordable,” while the U.S. at 3.3 was “moderately unaffordable,” the study showed. To be affordable, the multiple must be 3 or less.

“It’s definitely for real,” Gradecak [a westside realtor] said. “How long it’s going to last, that’s an unknown. I get asked the same question every single day.”

The Froogle Scott Chronicles: Mortgaging Our Souls In Paradise – Part 9h: So You Want to Buy a House and Fix It Up? Thirty Suggestions for Survival

Part 9h: So You Want to Buy a House and Fix It Up? Thirty Suggestions for Survival

[30 suggestions over 10 sub parts, starting with Part 9a. -ed.]

23. Start early on making decisions

Depending on the scope of a renovation, the number of decisions you have to make can be bewildering. Even with a general contractor and architect guiding you, choosing the various items can be stressful. Layout, style, colour, and materials for kitchen cabinets and countertops, wood and tile flooring, bathroom fixtures and tile work, style and materials for windows, doors, and associated hardware, trim work, lighting, paint colours, types and makes of appliances, and on and on. All of it needing to work together harmoniously. Partners needing to reach agreement. And all of it, unless you’re rich, with a price/quality balance to consider. As with the other construction industry professionals, working with an interior decorator or an interior designer could be well worth the money.

The stress of making all these decisions becomes much worse if you make the bulk of them on a just-in-time basis once the renovation is in full swing. On a rolling basis, the general contractor needs the renovation items ready to go — physically present at the job site on the appointed day — or the schedule will be derailed, frequently costing everyone, including you, time and money. So the general contractor will press you to decide. And decisions under pressure are often not the best decisions, unlike decisions made well in advance.

This part of the renovation should be enjoyable. It’s all about your personal or shared vision for your place, and the finishings you could be looking at and living with for years to come. Done well in advance, it can indeed be enjoyable. Leave it to the last minute, it can be stressful, unpleasant, and you can find yourself completely turned off the entire process, nauseated by the thought of racing around showrooms, looking at one more wall sconce, or tile or hardwood flooring sample.

24. What will it all cost?

The short answer is: a lot more than you want to pay.

Here are the approximate total dollar amounts for our renovation, and for those undertaken by M and S, and another set of friends in the neighbourhood:

• 2006 to 2009. Our place. A 1940s post-war bungalow, 1600 square feet. Renovation includes a new basement slab, a new building envelope and siding, all systems, new windows and doors, a new rental suite, and a new upstairs bathroom. $300K ($25K on work that had to be redone). We did a certain amount of work ourselves, including some excavation, seismic upgrading, insulating, painting, and closet shelving. The upper level, with the exception of the new windows and doors, and the new bathroom, is still unrenovated.

• 1998 to 2010. A 1920s builders special, 1800 square feet. Entire two-and-a-half storey house renovated, including a new basement slab and partial replacement of foundation walls, raising house, and all systems. New garage. Exterior landscaping. $398K. M and S — also with frugal Scottish heritage — did large amounts of work themselves, including wiring, insulating, painting, garage construction, and building a large, multi-level deck.

• 2010 to 2011. A 1950s bungalow, 2000 square feet. Entire upper level renovated. Renovation includes high-end custom cabinetry and built-ins throughout, all systems except for lower level electrical, new doors, back porch and stairs, exterior concrete stair well, and attic access and storage area. $200K. The lower level, with the exception of new windows and doors, is still unrenovated.

We all used different general contractors, and excluding the first general contractor we fired, we hired competent, ethical people who did good quality work. Our two sets of friends got competitive bids from different general contractors and construction companies. The general contractor who finished our reno was involved in the bidding on one of the other jobs, and his price was in the middle. Taking into account the amount of work done, the cost of renovation across the three projects is comparable, and I’m willing to venture that on a square-foot basis, it’s representative of the prices that the Vancouver renovation market has borne over the last decade. Approximately $200 per square foot for good-to-high quality but not luxurious work, or about the same as the cost of new construction of the same quality.

In M’s opinion, renovation can still save you money over new construction, or yield better results for the same money, although what price do you put on all that sweat equity? Here’s M’s summation of the accounting of their reno he sent me:

“So, there you have it. How to take a $266,000 house and in 13 years work it up to a total of $664,000. So, $398,000 on renos, and that doesn’t count the massive amount of sweat equity. But, that took a house that had one truly livable floor on which nothing had been done for 40 years (plus a dank smelly basement with one crappily finished 6’2” room, a corrugated-cardboard finished attic, moonscape backyard and a falling-down garage) and fully upgraded it to 2.5 levels with moderately high-end finishing throughout, well landscaped, with a modern garage. In comparison, I figure it would have been $500K plus to demolish and rebuild a slightly larger modern house from scratch. (I’m figuring 2500 sf @ $200/sf.)”

It’s possible to get things done cheaper, or get things done under the table, but cheaper is invariably cheaper. How much money did someone save if the basement drywall starts to grow mould, the thin wood siding or shakes start to curl, a plumbing joint slowly leaks for years inside a wall, the layout of a rental suite is akin to a rat maze, or the finishing is full of noticeable glitches?

If the Vancouver real estate and construction boom becomes a full-scale bust, renovation and construction costs, and the cost of wood, concrete, and other building materials, will certainly come down, perhaps significantly. However, the people who are the quickest to drop prices are those who are forced to: the mediocre, the outright incompetent, or the unethical, those who don’t have good word-of-mouth reputations. The best tend to keep working through a bust, if at reduced levels, and are still able to command prices closer to the peak prices.

[Further resources/reading]

BDC Construction Cost Index. Vancouver-based Butterfield Development Consultants’ free web tool for calculating cost per square foot for new construction. In my view, their estimated costs for single family home construction seem a bit on the low side.

Blue Ocean Construction FAQ.
Vancouver area construction company with estimates of construction costs. Estimates are a bit higher than BDC, and their residential renovation estimates are in line with what we and our neighbours paid.

Carson Dunlop Report Library: Home Improvement Costs. Toronto-based consulting engineering firm specializing in building inspections. Their estimated home improvement costs are probably based on the Toronto market. Vancouver prices are probably somewhat higher.

25. How can you save some money?

Here are some legitimate ways you can save money without compromising quality:

• Educate yourself. The more you know about houses, renovation, construction, design, and the various players involved, the more likely you are to make better decisions about how to spend your money.

• Buy the right house. For example, if you know you’re going to want more square footage than you can currently afford, limit your house choices to ones that are relatively easy to expand. Less future work equals less expense.

• Engage construction industry professionals. Yes, they cost money, but they can save you spending money on the wrong things, and they can make sure you get full value for the money you do spend. The money you save may not be at the time of the project, it may be all the future money you don’t have to spend fixing a botched job. On a large project, thinking you can save twenty or thirty thousand dollars by going it alone may be penny wise and pound foolish. Just make sure you find good people.

• If you really know what you’re doing, and you truly have the time and energy, you can do some or all of the work yourself. Or you can act as your own general contractor. Just be warned: most people overestimate their ability to be among this relatively small group. And depending on the size of the project, prepare for a lot of stress and exhaustion, and during the period of the renovation, no life. As a friend in Ontario commiserated with me: “It’s all-consuming.”

• Look at the big picture. If you intend to completely renovate a house and any outbuildings, and completely re-landscape the lot, and assuming you don’t have the money to do it all at once, block out the work and separate it into phases. You’re looking to streamline the process as much as possible by finding efficiencies. You’ll probably need the advice of construction industry professionals to get this right. Have a logical sequence mapped out, end to end, before smashing out that first piece of drywall.

• Spend money on the right things. Renovating doesn’t require you shoot the moon. Focus on things that will truly improve your day-to-day quality of life, because those are the things most likely to provide lasting value and make you happy. A well-organized laundry room, with an ample surface for folding clothes, or generous counter space in a kitchen, will probably do more to lower your stress and make you feel better about your surroundings than re-facing the front of the house in California stone. Really well designed and space efficient storage solutions are probably more important than exotic and expensive hardwood flooring, especially if you’re going to be neurotically concerned about preserving the flooring ever after.

• Curb your appetite for space. Many North Americans have become habituated to large amounts of personal living space. Far more than most of us need to be comfortable and happy. My wife and I live in the top half of our house, which includes a small rear deck, and a garden shed beneath the deck that we share with our tenants. There’s also a single car garage. In total, we have about 1100 square feet of built space at our disposal, and a yard. And it’s enough for the two of us. Our problem with space has more to do with decluttering, getting rid of stuff, and improving storage solutions, than it does with acquiring more space. A couple should be able to live in 1000 to 1200 square feet, and a family of four or five in 2000 to 2500. In many countries, including some rich and highly developed ones, those square footage numbers would be considered luxurious. North Americans will cite their lifestyles as the reason underpinning their need for space, and if those lifestyles include lots of entertaining, or hosting of large family gatherings, there may be a legitimate need for more space than what’s required for daily living. But does a lifestyle really require mounds of stuff, much of it sitting unused, taking up space, for much of the year? Are many North Americans using their homes as warehouses to store an ever-increasing and difficult-to-manage dead inventory of possessions? As a society, we can hold on to our consumerist and accumulative lifestyles, but doing so is almost certainly going to become increasingly expensive, and will further jeopardize the shaky financial healthy of many of us. Renovating, furnishing, servicing, and maintaining 1800 square feet is a lot less expensive than doing the same thing with 2800 square feet, or 5000. One way to mitigate the eventual need to downsize is to not unduly upsize in the first place.

• Communicate. If everyone is in the loop, costly misunderstandings are less likely.

• Think about timing. Maybe the height of a real estate and construction boom isn’t the best time to undertake a major renovation, or buy a newly constructed house. You’ll definitely pay more for a renovation, perhaps much more, during a boom, and quite possibly the work will be rushed and the quality inferior.

This comment, posted on Vancouver RE blog Housing Analysis, highlights a certain aspect of the problem:

patriotz said…

If anyone is wondering why Vancouver has such crap housing stock, just look at the graph. [Vancouver housing starts, 1980 to 2009, showing a history of boom and bust extremes. F.S.] Such wild swings in starts are not conducive to having a permanent, skilled construction work force. Instead the bulk of the housing stock gets built during boom times by dope-smoking hammer-swingers.

And as to who’s fault that is — it’s the buyers. It’s the buyers’ willingness to pay inflated prices for crap that is the root cause of Vancouver’s boom-bust RE cycles since 1980. (“Vancouver Housing Starts Falling into the Abyss,” Housing Analysis, 10:45 AM, March 10, 2009.)

26. Be careful with money

Perhaps so obvious that it doesn’t need stating. I think what I really mean is be careful with credit, be careful with debt. Because most of us, when undertaking a major renovation, aren’t paying for it with money sitting in a savings account, or by liquidating our silver holdings. We’re borrowing. And once you get used to the idea of borrowing, and writing large cheques against a line of credit, or some form of construction loan, your perception of dollar amounts may start to change. It may become easier to spend an additional five or ten thousand, or more, in the heat of a project when things crop up that obviously make sense in the context of the project, especially if those add-ons aren’t being paid for with money you’ve saved. There can be a tendency to ‘privilege’ your project spending, and spend in ways you might not were you to consider those additional items in isolation.

For example, if you’re spending $250K on a renovation, the difference between a new $500 light fixture for the living room, and a $250 light fixture, may seem trivial ‘in the greater scheme of things’. The $500 light fixture is spectacular and goes beautifully with what the newly renovated place will look like. The $250 fixture is pretty good too, just not quite as wonderful. They both provide an equivalent amount of light. You may ‘psychically devalue’ the two hundred and fifty additional dollars the wonderful fixture will cost you because it’s such a tiny percentage of the overall project cost (00.1%). However, what the difference is, is $250, whether the purchase is made as part of the reno or not. Multiply this psychic devaluing of borrowed money across a spectrum of project items and your eventual debt can really balloon. And even worse, each borrowed dollar costs you more than a dollar, because you’ll be paying interest on that dollar in addition to having to repay the dollar.

You might respond by saying, “Well, we’re going to have an iron-clad budget. Not a penny more.” And that’s fine and good, but unless you and whatever construction professionals you hire have an exceptional amount of foresight, and more than a little luck, it’s probably unrealistic. It’s the rare renovation that doesn’t uncover something that’s going to require you spend more. And you will have ideas along the way about how things could be even better, for the simple reason that you’re immersed in the reno, you’re thinking about it day and night. And it often is ‘cheaper’ to spend more now, than to spend even more later. So it’s going to happen. Just recognize when it’s happening, and think carefully about when it makes sense to say yes, and when it makes sense to curtail your appetite and ambitions.

As a possible corrective to the psychic devaluing of borrowed money, here’s something to consider. It’s been taking us about five months to pay off the amount of each cheque we wrote against our HELOC every two weeks during the height of our renovation. In other words, it’s taking us ten times as long to repay the money as it did to spend it. And that’s at an interest rate (variable) that’s currently below 3%. If interest rates rise, which they very likely will at some point, the payback period is going to stretch out even longer. Thank god our renovation, once it really got going, didn’t last that long. And thank god we stopped when we did…

—-

Coming soon: Part 9i: So You Want to Buy a House and Fix It Up? Thirty Suggestions for Survival – Suggestions 27-28.
Part 9 subsections are posted every Tuesday and Friday.
Read them all before you call the Movers. -ed.

“We sold our house in Kerrisdale in March and picked up the cheque today [$3.43M]. Time to move to West Van – way better value and the next bubble is starting to inflate over there.”

John Veltheer at yattermatters.com 3 May 2011 8:28pm and 4 May 2011 8:30am - “For those who care, we sold our house in Kerrisdale in March and picked up the cheque today. Time to move to West Van – way better value and the next bubble is starting to inflate over there.”
“The buyers were from Mainland China. Not a word of English. Couple about 50 years old. One son. No intention to move here any time soon but do appear to have lots of friends in Vancouver. They negotiated very little and easily paid $70K under our $3.5M list price.”

Couple in early 30′s; Income 150K; Own Surrey Condo and Burnaby SFH; Mortgage 900K; Renting Out Condo And Basement; Neg Cash Flow $1K+ p.m.

anonymous at VREAA 15 May 2011 11:06pm“Know of friend’s friend who has a 900K mortgage – a couple in their early 30s, likely make under 150K. first owned a surrey condo, and then managed to borrow another $700K to buy SFH in burnaby — therefore total mortgage of 900K. some of their thinking: RE is the only way to get rich; it is cheap, only costs $3000+ per mth, subsided by renting out surrey condo & SFH basement, out of pocket is only $1,xxx!”

Local speculators; the bubble’s life-blood. Total net-worth likely a fraction of their RE holdings; will probably get completely wiped out in downturn; many like them. – vreaa

Cloverdale – “There are 20 houses in the development; In April the builder boasted 70% sold; In May they declared, “Only 6 left!” You do the math. Price reductions coming.”


‘A’ writes, by e-mail to VREAA, 15 May 2011 – “This tickled my funny bone and I thought you might be interested. There are 20 houses in the development ['Highgrove at Provinceton']. In April the builder boasted 70% sold. In May they declared, “Only 6 left!” You do the math. They’re gearing up for a late spring, early summer sellout event. I read that as price reductions coming. Sucks to be a buyer of one of the first 14.”

“I’ve been to open houses for the last several weeks in Vancouver and most of the condos and houses don’t look like they are being lived in.”

reality guy at greaterfool.ca 16 May 2011 12:28am“I’ve been to open houses for the last several weeks in Vancouver and most of the condo’s as well as houses don’t look like they are being lived in. Wasn’t sure if people had upgraded and now need to sell or if they are just speculative owners.”

Arbutus vs Maui – Momentum Players Choose Half The Property At Twice The Price

Another Vancouver-vs-US comparison, this one from ‘vancouverites should consider opening their eyes’ over at vancouvercondo.info 14 May 2011 11:00pm -

“You can buy one of these:

2216 W 21st, Vancouver (Arbutus area, Vancouver westside)
3100sqft SFH; 50x122ft lot (6,100 sqft)
Asking price: $2,498,000

Or move to Maui and buy *two* of these:

40 Hale Alii Place, Kihei
5071sqft SFH; 14,422 sqft lot (0.33acres)
Asking price: $1,249,999

The former is a 3100 square foot house on a 6000 square foot lot in the world class neighborhood of Asthma Flats, err, Arbutus. It’s only an hour’s walk from the beach.
The latter is a 5000 square foot house on a 14000 square foot lot in Wailea, and 500 meters from the beach.
I’m sure these Vancouver prices are *perfectly* sustainable. Arbutus is the new Wailea, right?”

—–

Our Comment: The attraction of the Arbutus property, to some buyers [and all it takes is 'some buyers'], would simply be that prices on the westside of Vancouver have been consistently rising, whereas the same buyers are likely deterred from purchasing the Maui property on the basis of the fact that prices there have been dropping.
Yes, we know this makes no sense, the buyers are being attracted to buying high, rather than looking for good value.
That is precisely what momentum investors do, they like prices that are going up, and they dislike prices that are going down… they pay no attention to the concept of value as determined by fundamental measures. By all such measures (price:rent, price:income) the Arbutus property is greatly overvalued when compared with the Maui property.
This is what happens in speculative manias, prices run away with themselves because of momentum players. Once prices turn, the momentum can be just as ferocious on the way down.
We suspect that prices on Vancouver’s westside are still going up solely because of the false belief held by some that this is one of the only RE pockets on earth where prices are immune to a serious pullback. The belief is fallacious, and we foresee price drops of about 66% for some of the properties now exchanging hands. Homes like the headlined property, for instance, will very likely change hands for $1M or less by the time we hit a trough. And, by global standards, and fundamental value, they will still be richly priced at those levels. Vancouver buyers are currently overpaying by ludicrous amounts. – vreaa

“I’m sure a BC Hydro lineman can make good cash, but I would think you need to make $200K a year to support a $800K mortgage.”

Krazy Kanuck at vancouvercondoinfo.com 12 May 2011 2:07 pm“I’m working near Squamish temporarily, and one of the young electricians was telling me about his brother. They both work for BC Hydro, his brother as a lineman. Anyhow, he was telling me about the new house that his brother is building. $800K!!! I couldn’t believe it. I’m sure BC Hydro pays decent, and a lineman can make good cash, but I would think you need to make $200K a year to support that kind of mortgage, and I’m pretty sure linemen don’t make that.”

Wall Centre Leaking – $100K Special Assessment Per Condo

From cbc.ca 13 May 2011“Condominium owners at Vancouver’s landmark Wall Centre are in the midst of a five-year, multi-million-dollar battle with the project’s developers over problems with the windows. … The cost to repair the windows is estimated at about $7million. The strata is suing to at least get some of that hefty bill covered. … “There’s only 70 suites there … you can do the arithmetic,” said Wall Centre condo owner and strata president Bruce Gleig. “And it’s not what anybody wants to hear.” The strata has decided on a special assessment, or levy, with some owners on the hook for more than $100,000. …
Some units in the building are currently listed for sale, ranging between about $1 million and $2 million. “There are lenders out there that will not lend on something that hasn’t been remediated,” said mortgage broker Michelle Byman. “So unless the fix has been done, they just flat out say ‘no.’”


PostCardsFromTheBlastRadius #8 – The Okanagan Bust – ‘Tuscany Villas’, Shields Down!

We..Are..The..Borg!
Lower your shields and surrender your Deposits!
We will add your biological and technological distinctiveness to our own! Your culture will adapt to service us!
Resistance..Is..Futile!

Arriving at first light,  I chanced upon ‘TuscanyVillas’ on one of those rare moments when its Shields were down!

[From the 'Tuscany Villas' website: "...a collection of 84 exclusive condo units on the edge of Okanagan lake. The location means unobstructed views of the specatcular [sic] landscape.”“Construction of this West Kelowna landmark is underway. Register today to become a Tuscany Villas insider.”“Now is a great time to buy; with all indicators showing an end to the recent pricing and sales reductions, this is the perfect time to buy into your future home or investment property.” – ed.]

‘Nemesis’ doesn’t know whether those concrete columns and embellishm​ents are structural – or merely ‘decorativ​e’ – but it did remind him of the Revelstoke Dam’s Hydro-Power-Generation Hardware…

Why ‘Tuscan’?.. Holy Moley! Hey! Way up there at the top… Are those miniature Etruscan Arches? Was our Developer a student of Architectural History, or did he just spontaneously decide to Embellish? … or perhaps his inspiration flowed from a stay at the Vegas ‘Venetian’?
——

Postscript: On retiring, a mere stones throw away from ‘TuscanyVillas’, we note something even more disturbing than the Borg Presence… this lonely, incomplete (or possibly abandoned) private home.  ‘Fortress at Monte Cassino’?…

—–
Photos and commentary for the ‘BlastRadius’ series by ‘Nemesis’.
[Images Ⓒ​2011 ‘Nemesis’ – All Rights Reserved]

Cross-Country Rent Check-Up; Care of The Economic Analyst

The above chart from an excellent article by Ben Rabidoux at The Economic Analyst, 11 May 2011, ‘Why Rent?: Examining house prices and rents in major Canadian cities’.

From the charts in the article, it can be seen that from 1980 to 2010, rents have risen by a remarkably consistent 125%-150% in Vancouver, Calgary, Edmonton, Winnipeg, Toronto, Ottawa, Montreal and Halifax. This likely reflects fairly consistent and comparable income growth/inflation across the nation.
Over the same period, housing prices have increased by 800% in Vancouver.
Compare that with Calgary (350%), Winnipeg (400%), Toronto (500%), Ottawa (450%), Montreal (550%) and Halifax (350%).
All of these cities are in RE price bubbles brought about by very loose lending over the last decade; Vancouver is the most extremely bubblish of them all.

“Once my wife finds a suitable job (even one paying significantly less), or goes on maternity leave, we are moving to the Okanagan.”

JRoss at VREAA 13 May 2011 10:00am“Thankfully my 100k job is portable. Once my wife either finds a suitable job (even if it pays significantly less) or goes on mat leave, whichever comes first, we are heading to the Okanagan. I have a friend who moved his family to Kelowna and commutes to his six-figure job at Powerex. He would rather pay for plane tickets and have his kids live in a decent house in a good neighbourhood and go to a good school. There are many others.”

“I left Vancouver in 2006 with my wife – the high cost / low quality of housing was a big reason. … The RBC lady had said “You guys are the most conservative couple I have met – we’ll lend you $600K, possibly more!” … We were pretty freaked out – not ready to take on that much debt.”

Post YVR at VREAA 13 may 2011 1:39pm“I left Vancouver in 2006 with my wife – the high cost / low quality of housing was a big reason. We were both newly minted Architects – both working (ironically on high rise condo projects). We got married and rented a nice little one bedroom. We were expecting a son, still had school debt and had been kicked out of a couple rental places due to sales. Sat down with a nice lady from RBC to talk about what we could afford – 350 was our pre-assumed limit. RBC lady said “you guys are the most conservative couple I have met – we’ll send you 600, possibly more!”
We were pretty freaked out – not ready to take on that much debt, looking at crappy little damp garden hovels in our price range east of nowhere…we left the city / country as did most of the talent from our graduating class. Vancouver is an awesome city as a student / single / lifestyle town, not a great family town – at least not for most honest wage earners.
We now have two kids, good jobs, awesome place with yard, good schools, amenities, and oh yeah – sunny warm weather all year long. We left Vancouver – easier than I had thought it would be, and having lived through 4 years of a real estate melt where I live now I can honestly say it saddens me to see the social train wreck Vancouver is heading for.”

The bubble has rewarded the reckless and punished the prudent. Thus far, that is. – vreaa

“I have lived in Vancouver my whole life, my wife and I are mid career professionals (university profs) … We are actively looking to sell out and escape to either Alberta or Montreal. There is no future in Vancouver for the next generation (unless one is off-the-scale rich)…”

mjw at VREAA 12 May 2011 10:07pm -
“I have lived here my whole life, my wife and I are mid career professionals (university profs) and have almost paid off a nice 1M (but only 1400 sq foot duplex in Kits).. we don’t see it as prudent to move up to a 1.6M shack on the westside, and spend the last 25 years of my working career making 4.5K monthly payments on some crappy house…
The only hope for this city is to follow Australia’s recent lead (as of about a year ago) to restrict foreign speculative buying of real estate… Look it up… In the past year the Melbourne market is going down, and locals have a chance…
By giving up the fallacious “world class city” concept, 90% of the locals will have a much improved quality of life….

When the government sets out to create a “world class city”, it really means the following:
1) we invite any and all speculators from abroad who have made money under whatever legal or corrupt circumstances to come and buy up our city, driving locals who have a decent (but not top) wage to Langley if they want to have a family in a decent house with decent schools…
ii) interesting and unique city stores/facilities (remember what Denman used to look like?… the interesting local stores on Robson in the 1980′s?… the Ridge theatre effectively gone….. the vibrant fringe festival of the 1990′s….)… all replaced by high-end crappy stores selling gucchi bags and fancy shoes…. in a few years Commerical drive will go the same way…

Locals who have a very good, but not world class income, frantically try to keep and try to move up the property market, first via an expensive condo, then a main street 1M reno-project…. being in a very vulnerable position with regards to much higher interest rates, and praying that when your kids are 14 years old that Sir Charles Tupper will become a decent school.. Nothing like working so hard for years to establish some financial security, only to send your kids to some very mediocre school (because it is the only areas that you can afford), and have the next generation not have the education to compete in the “global marketplace”. Clearly, this boot-strapping up the property ladder will not work for those starting in the bottom rung (i.e. buying a 400K apartment and hoping for a huge appreciation to get to 600K and then get to the next rung)……. there is no hope to climb up one rung at a time….

Unless one has purchased a long time ago, or inherited a huge whack of cash, living in this city (west of the Port Mann bridge) in a decent sfh in a good school district will result in a very difficult financial struggle on a combined salary of less than 150K….

The “world class city” concept has destroyed the liveability of this city for locals, and many of the unique features of the pre-world class Vancouver have been lost…. We are actively looking to sell out and escape to either Alberta or Montreal…. there is no future in Vancouver for the next generation (unless one is off-the-scale rich)….”

The Froogle Scott Chronicles: Mortgaging Our Souls In Paradise – Part 9g: So You Want to Buy a House and Fix It Up? Thirty Suggestions for Survival

Part 9g: So You Want to Buy a House and Fix It Up? Thirty Suggestions for Survival

[30 suggestions over 10 sub parts, starting with Part 9a. -ed.]

18. To be there or not to be there

Consider moving out during a major renovation, but try to stay close so it’s convenient to drop by the job site for meetings first thing in the morning, and for your own inspections at the end of the work day.

There are pros and cons to staying or leaving. If a renovation involves a complete gut of a house, you won’t have much choice but to leave. However, there are in-between situations in which the decision to stay or leave isn’t clear cut. We stayed in our house the entire time, because most of the work was on the lower level, and on the exterior, and we live on the upper level. But the renovation of the upstairs bathroom, the installation of new doors and windows throughout the house, and the associated interior trim work, required the renovation to come into our space for a period of time. And for a combination of reasons, we went for over a year without a furnace.

Living amid the pounding, shouts, dust, mess, screaming power tools, early starts, and the general torn-apartness of a major reno, all of it overlaying the ongoing demands of your regular life, is stressful. Although everyone understands the need for the crew to get full access to the areas under renovation, if those areas even partially intersect with areas in which you are still living, it feels like an invasion of your privacy. The longer it goes on, the more it can grind you down psychologically.

Moving out, if you have to pay rent, adds to the expense of the renovation. Perhaps you can stay with family, but prolonged cohabitation with people you’ve chosen to no longer live with can come with a host of familiar and unwelcome issues. If the renovation time line is repeatedly extended, as often happens, increasing tension between host and guest can result.

Think carefully about the specifics of any renovation, how it will impact your life, how long it is likely to go on (err heavily on the upside), and your tolerance for disruption and stress. The mental calculus becomes trickier as the number of family members increases. Paying rent to live elsewhere during the most disruptive parts of a reno — typically the earlier phases of demolition, foundation, and framing work — could be money very well spent. But it could also blow your budget. One option is phased renovation in which part of a house is always kept habitable and renovation-free.

19. Know your limitations and know yourself

This consideration is a big one. Many people overestimate their ability to do things themselves. They don’t understand the time and labour involved, often don’t have even the basic skills required, and perhaps most crucially, lack the foundational knowledge. Do It Yourself has become a mantra, heavily promoted by the consumer-oriented, big-box home improvement stores because they make a killing on the crowds flocking in every weekend, but for many people do-it-yourself can be a miserable trap.

The key is knowing your limitations and knowing yourself. If you’ve never done a particular kind of task before, the probability is high that you’re going to make mistakes. That’s the way we human beings function — we learn from experience, which means we do a lot of learning by making mistakes and then correcting them on subsequent iterations of a task. When it comes to renovating a house, the problem with this approach is that you do a number of the component tasks only once. By the time the task is complete, you’ve learned a lot and gotten better, but now all your glaring mistakes are there for you to stare at into perpetuity, or until you get pissed off enough and depressed enough about the results to either rip out your initial attempt and redo it with the benefit of your hard-won experience, or to pay a pro to fix it.

There’s also the issue of time and energy. I’m reasonably good with my hands, first started making things and building things as a kid, graduated to painting, wallpapering, and reglazing windows in houses owned by my parents, and worked as a junior employee in several different trades when I was in my late teens and early twenties, experience that included the foundation work and framing one summer of a 5000-square-foot house. So I have some skill and some experience, and I enjoy working with tools, and building things. But… I’m not 18 anymore, and I have a full-time desk job that I go to five days a week. What I found with our reno was that I was squeezing the work into weekends, and evenings when I was already tired from my day job, and I was getting physically and psychologically exhausted. I couldn’t pack endless wheelbarrows full of soil the way I could thirty years ago. Some jobs I could do as well as the pros, but it would take me two or three times as long because I lacked the speed that constant repetition brings, and I only gradually discovered some of the time-saving tricks. And I’d sometimes make elementary mistakes. Occasionally, I’d make a mess of something — for example, trying to parge the sides of our concrete front stairs, or that bête noire of do-it-yourselfers, caulking around a tub.

Our neighbours M and S have spent a decade transforming their 1920s builders special from a borderline tear-down into a beautiful house. I’d call M a very advanced do-it-yourselfer, with a knowledge of construction techniques and the anatomy of houses that probably puts him in the top 1% of non-professionals. He has completely re-wired their house, built-out an unfinished basement, and built a new double garage from the ground up — all the work permitted, inspected, and to code. He has some sage advice for prospective do-it-yourself home renovators, which I’ll pass along here.

• “If you have ever found IKEA furniture challenging to assemble, don’t think about fixing up a house! Similarly, if you are at this stage of life and don’t know a Robertson from an Allen key, or have never touched a power tool in your life — forget it. If you have the DIY gene, you will have somehow learned this stuff long before you can consider buying a house. If you don’t have the DIY gene, then you are asking for trouble.”

• “Sit back and look at yourself, and think about how you are with tasks and projects of any sort. If you like starting and doing things, but not actually finishing things, then you are a process person and if doing DIY are doomed to live in a place that will always have missing tiles, insulation hanging out, or some such. It will never be finished! (That may be fine for you — but your spouse WILL see things differently.) If you like getting tasks finished without caring if you do them well, then go get a job as a builder in Vancouver rather than doing a shitty job on your own place! However, if you like getting tasks finished, while also doing them well, then you are a good fit for a successful DIY-er (subject to the DIY gene above).”

• “Think about the time/skill/cost trade-off. If there is a task you don’t like (drywall finishing), or aren’t good at (plumbing, drywall finishing), then hire someone to do it. Fixing up a place is a long process — save your energy for jobs you can enjoy and do well, rather than spending miserable weekends on something, and a miserable rest of your life looking at the second-rate result you produced. Pay the pros to do the things you don’t want to do or can’t do well.”

I don’t want to come off as a total downer here, just as a pragmatist. If you’re determined to do significant portions of a renovation yourself, then go for it. To give yourself the best chance of success, get that foundational knowledge first, so you’ll avoid making basic blunders, and depending on the task, consider first doing a few test runs using scrap material.

Here are some things with skill levels that the average do-it-yourselfer can manage, and maybe save a bit of money in the process:

• demolition (assuming no hazardous materials are involved)
• digging and modest excavation
• basic seismic upgrading
• seismic securing of appliances and shelving units
• cleaning up and transporting materials to the dump (mundane, but can be a real money saver)
• insulating
• painting
• reglazing wood windows
• laying click-lock or floating flooring
• changing light fixtures
• changing door knobs
• changing taps and faucets
• installing closet shelving
• laying patio stones

And here are some things that require more skill and physical stamina than you might expect. Consider paying for a pro:

• painting (if doing large amounts)
• drywall
• building decks and fences

20. Get the right tools for the job

Some advice from neighbour M regarding tools:

“Get the right tools for the job — they exist for a reason and make your life easier and the end result better. Beg, borrow, rent, buy secondhand, re-sell when you are done — whatever you need to do, but don’t try to skimp and get by without the right tools. And if you are doing any significant amount of framing or finishing carpentry, that includes air tools. Until you have them, you cannot realize how much time they save!”

I’d second that. When I started the seismic upgrading I was doing the nailing of the structural connectors by hand. The heavy duty joist hangers I installed in one area required 3-1/2 inch nails, 22 per hanger. By the end of that little job, my arm was numb. Other connectors required that I swing a hammer in the restricted space at the top of the cripple wall, between joists. I could manage only a few inches of backswing because of the floor immediately above, so I couldn’t contact the nails with any power. As a result, I had to slowly tap-tap-tap the nails in, which took forever, and because of the awkward angle I quickly started to get wrist strain. I had the entire perimeter of the house to do, so I knew I had to alter my method. I’d heard about the pneumatic palm nailer, a compact air tool that fits in the palm of the hand, and allows you to drive nails in tight quarters. I did a little research, identified an appropriate make and model, and bought one for a hundred bucks. I borrowed an air compressor and hose from another neighbour. In short order I was creating a horrendous racket in the basement, installing structural connectors in a fraction of the time they’d previously required, and with none of the previous discomfort. My only regret was that I’d spent the better part of a day installing the heavy duty joist hangers by hand when I could have knocked them off in a couple of hours using the palm nailer.


Palm nailer

Don’t fret about the cost of tools, and don’t buy cheap tools. Cheap tools will only let you down, and are virtually worthless if you try to sell them used. Read online reviews to learn what brands of tools are reliable, and if the new price is more than you want to pay, look for them secondhand or on sale. Some good places to look for secondhand tools are Craigslist, eBay, garage sales, flea markets, thrift stores, pawn brokers, and ReStore (Habitat for Humanity stores). Some tool stores also have secondhand or clearance sections, but typically not the big box stores. Give yourself a bit of time. If you wait for the last minute to acquire a particular tool, the chances are you’ll have to pay full price.

21. Safety — you might need those fingers for your day job

Safety falls into two categories — avoiding accidents, and avoiding exposure to hazardous materials or conditions. For the do-it-yourselfer, inexperience can significantly increase the risk in both categories. If a circular saw kicks back is your thigh or trailing foot in the kickback path? If you decide to rip out some old ceiling tiles, do you know whether or not they contain asbestos? Leaping into home renovation projects without properly preparing yourself from a safety standpoint can have unfortunate consequences.

Power tools are obviously a major area for caution. I’ve developed the habit of always reading the instructions and safety warnings carefully before using a new power tool, and I review the safety material if I haven’t used the tool for a long period of time. A few years ago, I was testing a used table saw prior to purchase and picked up an innocent looking scrap piece of wood that was sitting on the table top behind the moving blade. No blade guard in place. In picking up the piece of wood I inadvertently made the slightest bit of contact between the wood and the blade. The wood and my hand were yanked suddenly toward the blade and I was lucky to be able to let go of the wood just in time. The table saw manuals I’ve subsequently read stress that you never pick up a piece of material lying on the deck of a table saw when the blade is moving. Inexperience.

Ladder safety is another thing to learn about. On the ground, not when you’re twenty feet in the air.

The right tools for the job include the proper safety supplies. Protective eyewear, a respirator, earmuffs or earplugs, and work gloves comprise a minimum safety kit. Forget those little white dust masks they sell in home improvement stores. They may be fine to use while sweeping out a garage or attic, but they won’t filter out any of the nastier things like asbestos fibers, or silica or lead dust. Get your equipment from a dedicated safety supply dealer. A half mask respirator will run you $30, will last for years if cared for, and if properly fitted is comfortable enough to wear for hours. You’ll spend a lot more than $30 for disposable dust masks over the same time period, for much less protection and comfort.

22. Hazardous materials — a big pain in the ass

Asbestos. Lead. Silica dust. There are definitely some nasties associated with renovation, and from what I’ve observed, the construction and renovation industry doesn’t always protect adequately against these hazards. As the homeowner, the ultimate responsibility for properly dealing with hazardous materials rest with you. If a demolition contaminates your house with asbestos, who’s going to continue living amid the contamination — the construction crew, or you?

Assume that any house built before the early 1980s contains at least some asbestos, and perhaps more than just some. Drywall joint compound (‘drywall mud’), vinyl sheet flooring and flooring tiles, ceiling tiles, and ceiling texture are just a tiny fraction of the 3000 building materials that commonly contained asbestos at one time, and these finished surfaces are some of the most common things to demolish or remove during a renovation. The breaking apart of these materials during demolition or removal is what can release asbestos fibers, which until that point may have been relatively safely contained.

Perhaps the best-known residential asbestos hazard is vermiculite attic insulation, asbestos-containing pellets that were sold under the brand name Zonolite well into the 1980s. The vermiculite, contaminated with asbestos, came from a mine in Libby, Montana, but was processed in plants all over North America, including one right here in Vancouver on Industrial Avenue. So there’s a good chance that a significant number of houses in the Lower Mainland have vermiculite sitting in their attics, perhaps hidden under subsequent layers of blown-in insulation. If you find yourself considering the purchase of an older house, a thorough check for vermiculite is something you should insist upon from the home inspector, or better yet, you should purchase a good quality respirator, learn how to check safely for vermiculite (basically, disturb as little as possible), and check yourself. Because it’s you and any other family members, not the home inspector, who are going to be living in the house. Well-contained, undisturbed vermiculite insulation poses a low health risk. But if a renovation requires removal of ceilings, or getting into the attic space, you’ll need to bring in a reputable hazmat company to remove the material safely.

Lead dust, created by sanding, scraping, or otherwise disturbing lead-based paint, and silica dust, created by sawing, drilling, grinding, or jackhammering concrete, or cleaning concrete forms, are two other hazmat concerns associated with renovation.

A bigger problem than the hazardous materials themselves may be our collective attitude toward them. Do-it-yourself renovators and professional construction crews both tend to be pretty cavalier when it comes to demolishing old drywall and pulling up old flooring. Why? I suspect because it’s easy to start tearing things apart, because we tend to be impatient and want to get on with the job, and because working the safe and proper way — performing proper hazardous materials testing in advance of any demolition, and bringing in a specialized hazmat crew if the results come back positive — is time-consuming and expensive. At $40 or $50 a sample, testing the multiple materials and multiple layers involved in a pre-renovation demolition can easily cost more than a thousand dollars. It did in our case. Demolition and disposal using proper hazmat procedures probably costs at least twice what it does to do it without following hazmat procedures. Safely and professionally removing vermiculite from the attic of a typical house can be a $10,000 job. So not surprisingly, there’s a temptation to cut corners, to push concerns about hazardous materials out of our minds, especially for some contractors during a construction boom, when securing the next big, lucrative job may be more of a focus than properly completing the one at hand. Many construction workers also assume, probably correctly, that they’ve already been exposed over the years, and again, it’s not them who are going to be living in the renovated house. This last statement isn’t intended to sound cynical, it’s just the reality of who has the most vested interest in your renovation and your health.

Hazmat abatement is a big, slow, expensive pain-in-the-ass most of us would rather not deal with. To which I’d counter, what dollar figure do you place on your lungs and the lungs of other family members, and if they become diseased, where do you buy new ones?

[Further resources/reading]

There are a number of good resources linked from WorkSafe BC’s hazardous materials page.

“Identifying Asbestos in your home”
. Short overview, from Jon Eakes’ web site.

“Overview: Vermiculite, Zonolite, Asbestos and your health”. Good overview, with Canadian perspective, from Jon Eakes’ web site.

“Lead in Your Home”. Free download of CMHC booklet.

“Avoid Risks to Children’s Health During Renovations/Energy Retrofits, Experts Urge”. Canadian Environmental Law Association, 6 Mar, 2011. Article and downloadable full report.

“WorkSafeBC cracks down on asbestos removal in demolitions”, The Vancouver Sun, 24 Mar, 2011. Story about unethical contractors evading hazmat regulations.

—-

Coming soon: Part 9h: So You Want to Buy a House and Fix It Up? Thirty Suggestions for Survival – Suggestions 23 – 26.
Part 9 subsections are posted every Tuesday and Friday.
Read them all before you call the Realtor. -ed.

“I sold a Vancouver residence and have invested the money. I’m in the process of trying to get “permanent residency” in the U.S. I want to live somewhere cheaper and warmer.”

From ‘Vancouver’ at greaterfool.ca 11 May 2011 10:03pm“I sold a Vancouver residence and have invested the money in the market, the investments (mostly Canadian dividend stocks) are yielding me enough money to live off. I’m also in the process of trying to get “permanent residency” in the U.S., ultimately I want to live somewhere cheaper and warmer than Vancouver. I won’t work in the states, I’ll just be living off my dividend income and probably just renting.”

The ability to sell a property in Vancouver and as a consequence retire comfortably elsewhere is a bizarre phenomenon in its own right. This is likely already tempting some to sell, and thus putting some downward pressure on Vancouver prices. So far, that pressure continues to be overwhelmed by the upward pressure of ongoing speculative buying. When prices turn and start dropping, many owners who feel they are then watching their comfortable retirements evaporate before their eyes, will rush to market. They will add to supply in a falling market.  – vreaa


Reply To Rusty #3 – The ‘New Monaco’ Argument For Divergence Of Vancouver RE Prices From Fundamentals

Readers we respect have pointed out the trollish nature of some of rusty’s comments here, and we’d agree. Having said that, rusty’s position does genuinely reveal beliefs that are shared by many buyers/owners of Vancouver RE, and for that reason, we have headlined this response, for the record.
Here’s the question that Rusty has posed:

vreaa,
you didn’t answer this question:
“what about when prices break with fundamentals? How do you explain Hong Kong, Manhattan, London, Singapore, Rome, Tokyo, Paris, Moscow, Monaco, Sydney, etc? They all easily eclipse Vancouver in $/sqft and price/income? If prices “always return to fundamentals”, why haven’t prices followed this path in the aforementioned?”rusty 12 May 2011 6:43am

We will magnanimously put aside the many questions that rusty himself hasn’t answered (most pertinent, his degree of leverage net-worth:local-RE), and also put aside the fact that price ($/sqft) is not a fundamental, and answer thus:

rusty -
80% of Singaporeans live in public housing, so how can we begin to compare that market with Vancouver’s?
Manhattan has lower ownership rates than Vancouver, and has price:GDP and price:rent ratios that support prices far, far better than similar ratios in Vancouver. We’d argue that Manhattan hasn’t really ‘broken’ with fundamentals.
The city you list that is arguably most comparable to Vancouver is likely Sydney, which is, like Vancouver, still in a large RE bubble.
The city that best supports your argument is possibly Monaco, a tax haven/resort town/plaything for Europe’s wealthy (which, BTW, really has run out of land. Visit and you’ll see.)

We see and understand the argument you are making. You’re saying that Vancouver has moved from being a town in which, prior to 1995, or 2000, or 2003, housing prices tracked fundamentals such as income, to being  a town where externally generated wealth is driving prices up beyond local fundamentals, such that local incomes don’t matter any longer (Rents should still matter, but let’s put that aside for now). This is essentially the ‘Limitless Demand Argument’.

In prior discussions here we have weighted the possibility of this being the case (Vancouver = ‘New Monaco’) as low (we’d say less than 5%). So, yes, we’ll give you that there is a small chance that we transition to become China/Asia’s Monaco, with Vancouver becoming a resort town/political haven for thousands of millionaires from elsewhere, but we rate that possibility as much lower than you do, for various reasons (China is less robust economically than people imagine; there are many alternatives to Vancouver; the foreign buyers are momentum players who will desert the market; etc).
So, that is the essential difference in our positions: You say “New Monaco”, we say “Not”. OK?

You should realize that, making an ‘all-in’ bet on “New Monaco” being the case (as you have, with leverage) is very gutsy because such an event only happens once in a town’s history, if it ever happens at all. In other words, it is a very low frequency event, and you are betting that it’s happening here and now. For every city that you list above where such a distortion may have occurred, there are thousands of others where such a distortion has never occurred and will never occur. So, you’re betting that this is ‘it’ for Vancouver. We see the Vancouver market action as being far, far more likely to be the result of a far, far more common occurrence, that of a speculative market bubble.

Either way, we have little alternative other than to wait and see how it plays out.
– vreaa

Kelowna – “Acquaintance of mine trying to sell this house. Asking price well below assessed. No offers.”


Acquaintance of mine trying to sell this house:
5019 Windsong Crescent, Kelowna, BC
2200sqft; SFH, built 2005; on ‘less than one acre’
Originally on market in March for 519k. Now reduced to 479k. Asking price well below assessed. No offers. There are many other similar examples.

[from 'Anonymous' at vancouvercondo.info 11 may 2011 9:57pm]

Avoiding Vancouver – “I tell you, as soon as all her relatives die we are getting the F out of here.”

WFT? at vancouvercondo.info 10 May 2011 12:29pm – [In response to a suggestion that people who are critical of Vancouver should simply move] “That is a great idea. Everyone I went to highschool with did just that to go for better career opportunities. I was unlucky enough to get married to someone with an established career here and family roots here. I tell you, as soon as all her relatives die we are getting the F out of here.”

Financial Times On Vancouver – “These surveys always come up with a list of cities where no one would want to live.”

Hat-tip to vancouvercondo.info (as always) for bringing this FT article to our attention. As you will see, it begs to be archived, for the chronological record. It is an absolute must-read for anybody who has ever puzzled over a ‘Best Place To Live’ list: ‘Liveable v Lovable’, by Edwin Heathcote, 6 May 2011. Do read it.
[For the record, we love Vancouver, and rate it as one of the roughly 200 'second-tier' cities in the world where one can make a home for oneself. NYC, Paris, London it ain't, and RE pumpers who use that argument as a rationale for our unsustainable prices are misguided. - vreaa]

Extracts from the article:

Vancouver is Hollywood’s urban body double. It is famously the stand-in for New York, LA, Seattle and Chicago, employed when those cities just get too tough, too traffic-clogged, too murderous or too bureaucratic to film in. It is almost never filmed as itself. That is because, lovely as it is, it is also, well … a little dull.

Vancouver’s boringly consistent topping of the polls underlines the fundamental fault that lies at the heart of the idea of measuring cities by their “liveability”.

The lists are made by well-travelled academics, researchers and journalists for corporate, media and creative executives on generous expense accounts as well as other academics enjoying grants and stipends.  Most of these people are profoundly concerned with things like well-designed street furniture, a proliferation of eye-wateringly expensive artisanal retail, boutique hotels with good (English-speaking) service and environmentally friendly mayoral policies. Certainly these are all things which help but they skew the polls to a particular type of European or marginal Pacific city. What they also do is to strip out all the complexity, all the friction and buzz that make big cities what they are.

“I’ve been to Copenhagen,” (Monocle’s Number 2) he tells me “and it’s cute. But frankly, on the second day, I was wondering what to do.”

“These surveys always come up with a list where no one would want to live. One wants to live in places which are large and complex, where you don’t know everyone and you don’t always know what’s going to happen next. Cities are places of opportunity but also of conflict, but where you can find safety in a crowd.

“Sure, Vancouver is beautiful, but it’s also unaffordable unless you’re on an expense account and your company is paying your rent.”

Yet it is proven again and again that the biggest cities are in fact the greenest. Their density, the close proximity in which people live and the minimal amount of land they occupy – compared with largely suburban Vancouver, for example, makes for a far smaller carbon footprint. Mumbai is probably the greenest big city there is – slums like the million-strong Dharavi use minimal land, energy and water.

The most beautiful cities become monuments to their own elegance, immobile and unchangeable. They cannot accommodate the kind of dynamic change and churn that keeps cities alive. In London, New York and Berlin, it is their very ugliness which keeps them flexible.

Of course, the ultimate difficulty with these surveys is that tastes are individual. I find London infuriating but –with the possible exception of New York – couldn’t think of anywhere else I’d rather live. … No city means the same to two people so how on earth can we measure them?

And, some Vancouver pertinent opinions in the comments section:

Van-PT 9 May 11:20pm – “I completely agree with this article, Vancouver is a good place to live but by no means is it a great place. I live here and try to travel extensively to get my fill of culture,fashion and people who are intelligent and worldly. Vancouver is safe, expensive and extremely boring, the people are very small minded and horrible dressers. What Vancouver does offer is an outdoor paradise which is almost unparalleled in the modern world. The sad thing is that if you cannot afford to enjoy the natural beauty here you are in for one boring, soggy time.”

bill 9 May 8:14pm – “Vancouver and Munich are great places if you have a great job, but they are not very dynamic and don’t offer the opportunities that other cities do.”

Bruce McLeod 8 May 5:33pm – “Sorry, pal, Vancouver is best. Your choices are excellent places to VISIT.”

Cboy 8 May 4:12am – “NY and London rule. I was in Vancouver recently for the first time in 20 years and it was beautiful, dowdy and boring. Still a 2 day town.”

Manufacturing Exclusivity – “Purchase these hot condos prior to everyone else.”

Posted by SethM at RE Talks 10 May 10:13pm, who also offers to pass the opportunity on to other readers: “If anyone wants my VIP status to buy a unit, PM me. Sounds like a good deal.”

Similarly, this on craigslist 10 May 2011 4:05pm -

“There are 30 units to be released in the Compass building. They will be pre-sold prior to being made available to the public on May 28th.
Units start from $345,900.
Call Chris Kozaryn at Sutton West Coast to get the oportunity
[sic] to purchase these hot condos prior to everyone else.”

Yes, you and that small intimate band of close friends who read craigslist, can ‘purchase before everybody else’. This is the attempt at creation of a ‘virtual line-up’ for this product, in the hope that a buzz ensues. In actual fact, anybody with the money can have one, guaranteed. Or, more to the point, anybody with the loan.
There will never ever be a shortage of condos in Vancouver. Never. Ever.
Fly into Hong Kong, look out the window. Fly into Vancouver, look out the window (“I am visiting rural farmlands?”).
- vreaa

Richmond Takes A Hit – Building Lot Prices Drop >20% In 1-2 Months

gse36 at RE Talks 9 May 2011 9:10am -
“All the below are building lots on same street in Richmond. [With sale prices and sale dates]:
8671 Pigott 66×133 $1.437M Feb6
8651 Pigott 66×133 $1.468M Mar6
8240 Pigott 66×133 $1.150M Apr7
8771 Pigott 66×133 $1.165M Apr13″

That’s a 20% hit in 1-2 months. Who says RE prices can’t move fast?
People are attributing these price drops to the effects of the Japanese earthquake and tsunami. That may be the case.
We would also hold them up as examples of the way prices are vulnerable to rapidly changing psychology.
The real ‘tsunami’ of price drops will come when a critical mass of current owners suddenly realize that Vancouver RE is very, very overvalued. – vreaa

East Vancouver Sale Datapoint – 2132sqft SFH; 32×110 lot; $1.26M

4785 ROSS St; MLS V884604
Asking price $1,088,000
2132 sqft house, 32×110 lot (3542sqft)
Assessed at $834,000
SOLD after just 6 days on the market for $1,260,000
(16% over ask)
[Thanks to eyesthebye at RE Talks 6 May 2011 for this example.]

It’s the picket fence that did it.
As a consumer or an investor, the trick is to find assets that are valuable to you that are being undervalued by everyone else. No such luck in Vancouver RE at present. – vreaa

The Froogle Scott Chronicles: Mortgaging Our Souls In Paradise – Part 9f: So You Want to Buy a House and Fix It Up? Thirty Suggestions for Survival

Part 9f: So You Want to Buy a House and Fix It Up? Thirty Suggestions for Survival

[30 suggestions over 10 sub parts, starting with Part 9a. -ed.]

17. Seismic upgrading — the cheapest insurance you may ever buy

Before an earthquake, decisions about seismic upgrade requirements, including financing, are extraordinarily difficult. After the earthquake, every property owner wishes he or she had done more. — Charles Eadie, former Project Manager of the City of Santa Cruz Redevelopment Agency Downtown Recovery Plan

I went through the Loma Prieta quake in San Francisco in ‘89. A portion of the Bay Bridge collapsed, thousands of houses were shaken off of their foundations, and 63 people were killed. I toured a lot of the damaged areas. . . . I saw dozens and dozens of houses in Oakland that were just fine in most regards, except that they had moved laterally a foot or two and fallen off of their foundations. Many of these houses still had all of their windows intact and still had dishes sitting on the shelves. — Jim Katen, Associated Master Inspectors, Portland, Oregon

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Note: I wrote this section on seismic upgrading before the recent earthquake hit Christchurch, New Zealand, and the much more massive earthquake and associated tsunami hit northeastern Japan. These recent events don’t really change anything I’ve written here, but they do suggest I may not be some kind of seismic survivalist nut. Earthquakes actually do happen, and they happen with more severity and more frequency in seismically active zones (like the one in which Vancouver is located). The results of the Christchurch earthquake do underline a couple of points I include below: unreinforced masonry buildings are often the most dangerous type of structure in an earthquake, and even if a structure doesn’t collapse in a earthquake, it may be subsequently condemned. An estimated 10,000 houses in Christchurch will have to be demolished. The earthquake in Japan provides evidence of something else: fires and tsunamis caused by earthquakes can be far more destructive than the earthquakes themselves. Seismically upgrading your house won’t do anything to help it withstand a large tsunami. Living on higher ground is the only defense. Even if a house is securely bolted to its foundation, the direct impact of a wall of water will smash the structure into kindling. However, anchor bolts and holddowns might prevent a house from being floated off its foundation if only a moderate amount of water and force were involved — say, farther away from a tsunami’s initial impact zone. Preventing fires caused by ruptured gas mains or exploding electrical transformers is beyond the control of any homeowner, but you can improve the seismic safety of gas appliances in a house by using flexible rather than rigid supply lines, and by strapping gas hot water tanks to the walls.
***

For the price of a granite countertop, some relatively simple seismic upgrades can save a wood-frame house from tens or hundreds of thousands of dollars of damage in the event of an earthquake. The upgrades might even save the occupants from serious injury or death, although in big earthquakes wood-frame structures don’t usually collapse completely, unlike old brick or unreinforced masonry buildings, which can. For the owners of houses along the seismically active west coast of North America, the issue is more one of establishing at least a basic line of defense against the potential for massive property damage, and increasing the chances that a house will remain habitable, as opposed to being condemned, in the aftermath of a major earthquake.

The bad news, in Vancouver, is that the City only incorporated the seismic requirements of the National Building Code in 1967 — well after much of the housing stock was built — and one- and two-family dwellings were, and still are, exempt from the seismic requirements in the code. For new home construction, the City passes the responsibility to the structural engineer, who must attest to the seismic adequacy of a design. There is no requirement for houses undergoing renovation to be seismically retrofitted, and the current requirements with seismic implications that do exist for new houses are fewer than those in west coast American cities.

The typical risk factors for an older Vancouver house — all of them present in our own house prior to the seismic upgrading we performed — are a house frame that’s not anchor bolted to the concrete foundation walls, corners of the frame that are not secured with holddowns, and cripple walls (the short walls extending from the foundation to the first floor) that lack shear resistance (resistance to lateral forces). The shaking of even a moderate earthquake can cause an unbolted frame to vibrate off its foundation. A larger earthquake can cause a frame that lacks holddowns to tip up as a unit, or the entire structure to slump to the ground in one direction as all the studs in the cripple walls go over like dominoes, imperiling any occupants on the lower level, such as tenants in basement suites. Cripple wall failure is what caused the partial collapse of this house in the 1989 Loma Prieta earthquake (the one that disrupted the World Series in San Francisco). The cripple walls were probably vulnerable because not reinforced against lateral forces, and were further weakened by large openings for two garages, creating what is known as a ‘soft storey’. With the weight of the house above, there’s just too little material in this wall to resist the side-to-side shaking of an earthquake.


Cripple wall failure during Loma Prieta earthquake

The good news is that significantly improving the seismic resistance of a typical Vancouver house isn’t that technically challenging or costly, depending on when you do the work, and assuming there are no problems with the concrete foundation. Incorporating seismic upgrading with a more general renovation is the most cost-effective and least disruptive approach. Anyone considering a major renovation, especially one that includes the lower level of a house, should take the opportunity to seismically upgrade while other renovation activities are ongoing. Unfinished or gutted basements or lower levels are ideal, because the frame is exposed, and installing anchor bolts, holddowns, various other structural connectors, and plywood shear panels is relatively quick, easy, and inexpensive. Five thousand dollars should cover it if a contractor is doing the work, and perhaps two thousand dollars if you do the work yourself. Two or three percent of the cost of a major reno. If the lower level is finished, seismic upgrading will require removing and later replacing at least some of the drywall, which increases the expense and effort somewhat, but not excessively.

Most advanced do-it-yourselfers can perform the work themselves, working from a ‘prescriptive plan set’ — structural engineering drawings that can be adapted to a wide range of houses. I’ve included a link to a City of Seattle web page below that includes a downloadable plan and other guides, and similar plan sets are available for free download from the Los Angeles Department of Building and Safety, and the Association of Bay Area Governments web sites. The City of Vancouver seems to be lagging in this regard, with nothing similar available, that I could find. As the Seattle site states, “These plans help homeowners with qualifying structures obtain the necessary building permit(s) more quickly and easily and eliminate the need to hire a design professional to develop drawings.”

Consulting a structural engineer may still be advisable, especially for houses with anything other than the basic rectangular footprint, or with large openings in the lower level, such as a garage door, double front doors or patio doors, or numerous large windows. The larger and more numerous the openings, the less the lateral resistance. Involving an engineer is also a good idea if you plan to remove interior walls to create larger rooms or an open concept layout — a popular approach to the renovation of older houses, with their numerous small rooms, but one that can reduce the overall seismic resistance of a structure.

Here’s a quick list of the six most basic seismic upgrades for wood-frame houses:
• Anchor bolts
• Holddowns
• Other structural connectors
• Plywood shear walls
• Reinforcing or removing masonry chimneys
• Restraints on hot water tanks
And here’s a picture of the cripple walls in one corner of our house, with various structural connectors in place prior to installing the plywood shear panels.


Cripple walls with seismic upgrading

In the aftermath of the Loma Prieta earthquake, a dramatic and accidental case history emerged from Santa Cruz, a city close to the earthquake’s epicenter south of San Francisco. Architect Michael O’Hearn was in the process of seismically upgrading two identical Victorian houses built side by side. He’d finished upgrading one house, and had just begun on the second when the earthquake hit. The upgraded house was virtually undamaged, and cost only $5000 to repair. The second house “came apart in four sections,” came off its foundation, and cost $260,000 to repair. (APA Homeowner’s Guide: Earthquake Safeguards).

One thing I wonder about with Vancouver Specials is how well they’d do in an earthquake. The partially collapsed house in the picture from the Loma Prieta earthquake is very like a Vancouver Special in its design, but with the addition of the under-house double garage, a feature most Specials luckily don’t have — garages or carports are typically located beneath a rear deck — although some do.


Vancouver Specials with under-house garages

Vancouver Specials gained additional headroom on their lower levels by extending their cripple walls to full height. My lay person understanding is that the taller a cripple wall, the more vulnerable it is to the lateral forces of an earthquake, although I haven’t had that particular point confirmed by a structural engineer. A crucial additional factor is the nature of the sheathing on the exterior of a house. Traditional 1×8 shiplap fixed horizontally to cripple wall studs (see the picture of our walls above) provides very little lateral resistance. And an outer layer of stucco or wood siding adds only a negligible amount more. Contrary to some popular opinion I’ve heard, stucco won’t ‘hold everything together’. By contrast, plywood sheathing provides eight times the lateral resistance of horizontally oriented shiplap (Residential Guide to Earthquake Resistance, page 109). It would be interesting to know how 1960s and 1970s Vancouver Specials were sheathed. If it was with plywood, or shiplap oriented diagonally, which provides six times the resistance of horizontal orientation, there’s probably less reason for concern.

One final note. Vancouver homeowners interested in seismic upgrading may find local builders and general contractors reluctant to incorporate the work in a more general renovation. The reluctance could be based on a lack of familiarity with some of the techniques, and anxiety about what this unfamiliar work will do to carefully calibrated schedules, in which all elements and effort requirements are well understood based on numerous previous projects. Homeowner concerns may be pooh-poohed, with terms like ‘overkill’ being tossed out. The homeowner may be required to stand firm.

I read somewhere that competent house builders understand gravity, and the physics of vertical load-bearing, very well, but they may be less well versed with the physics of lateral forces. In the Lower Mainland, the reason for this lack of familiarity is probably that the current building code governing single family houses don’t require much in the way of seismic provisions — exterior panel sheathing and anchor bolts look to be about it, from my observations, a structural engineer’s stamp notwithstanding. I’d suggest that the building codes don’t require much because unlike Seattle, San Francisco, and Los Angeles, Vancouver has yet to experience an earthquake of any significance. From the research I’ve done over the past few years, I’d say that Vancouver lags those other cities in addressing seismic deficiencies. As one example, Seattle has almost finished seismically upgrading its schools, whereas Vancouver has only recently begun. Human beings have an unfortunate tendency to discount the seriousness of a risk if there is no antecedent event in their personal history upon which to draw. The politicians and staff at city halls around the Lower Mainland, and the citizenry they represent and serve, are perhaps a little like homeowners who’ve never experienced a serious real estate downturn or frighteningly high interest rates. Until it happens to you, you can remain in optimistic denial.

[Further resources/reading, general]

APA Homeowner’s Guide: Earthquake Safeguards. Tacoma, WA: APA, The Engineered Wood Association, 1997. (Requires free registration).

Bay Area Seismic Retrofit. Includes a short video with a good visual demonstration of cripple wall vulnerability and seismic retrofit at 4:50 of “Dangers of the Hayward Fault”.

Residential Earthquake Retrofits. Good information posted by Bay Area structural engineer, Thor Matteson. Matteson has also written a book about shear wall construction.

“Vancouver’s Real Earthquake Risk: Fire”, Canadian Underwriter, Apr, 2001. Good general article that discusses more than just post-earthquake fire risk.

“School earthquake-proofing too slow: VSB”, CBC News, 27 Jan, 2011.

“B.C. vulnerable in giant quake: experts”, CBC News, 11 Mar, 2011.

“8,000 Vancouver buildings vulnerable to quakes”, CBC News, 17 Mar, 2011.

“Quakes can rock building standards; how will Vancouver fare?”, The Vancouver Sun, 20 Mar, 2011.

[Further resources/reading, advanced]

Residential Guide to Earthquake Resistance. Ottawa: Canada Mortgage and Housing Corporation, 1998.

Homebuilders’ Guide to Earthquake-Resistant Design and Construction. Washington: Federal Emergency Management Agency, 2006. (Free download).

Standard Earthquake Home Retrofit Plan Set. Seattle Department of Planning and Development, 2008. (Free download of plan set and various retrofit guides).

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Coming soon: Part 9g: So You Want to Buy a House and Fix It Up? Thirty Suggestions for Survival – Suggestions 18 – 22.
Part 9 subsections are posted every Tuesday and Friday.
Read them all before you call for the ‘dozer. -ed.