Spot The Speculators #42 – “In my neighborhood, the people who are buying the overpriced homes sold their smaller overpriced home and took on a new mortgage. They are not speculators.” [Yes, they are.]

Glenys 7 Jun 2011 in the comment section ‘Vancouver home prices poised for correction, could fall 21 per cent: report’, The Canadian Press, 7 Jun 2011 -
“For the last decade or so these reports by “experts” continually say Vancouver’s housing market is overpriced and the bubble will burst and prices will fall. Still waiting for it to happen – small adjustments that last less than a year don’t count. Still people from somewhere able to buy and keep the market high, regardless of world economy or interest rates.
In my neighborhood, the people who are buying the overpriced homes sold their smaller overpriced home and took on a new mortgage. And they were originally able to buy the smaller overpriced home because they sold their overpriced condo or even smaller home. They are willing to take on the debt because they like living here and want to live here. Not because they are speculators or investors.”

Anybody attaining more RE exposure, in an ‘overpriced’ market, based on an underlying belief that price growth will remain strong, is a speculator. This is true regardless of whether they know it or not, and regardless of whether they are selling one property to move up to another. If they are borrowing money in order to make the move up, they are using leverage in their speculation.
This is a fine example of the thinking behind the unseen, unidentified, unconscious speculation that has been a major driver to our market since at least 2003. – vreaa

“A large number of Chinese people who’ve come over recently, their experience with capitalism is that everything goes up forever, because it has for the last 20 years in China, so they have that mentality.”

From ‘Canadian real estate – a piggy bank for Chinese investors’, by Kerry Gold, G&M, 10 Jun 2011, excerpted here for the chronological record -

Late last month, a 153-unit condo development in New Westminster sold out in two and a half hours. More than 400 potential buyers lined up for the sales day. For every unit sold, there was at least one back-up offer made. There was nothing overtly special about the project, which will be completed by fall 2012.
… for reasons only understood by the increasing number of local realtors who have learned to target the Mainland Chinese market, it held an irresistible allure to the new Chinese buyers looking to invest their money in the Canadian housing market.
—
Earlier this year, the Bosa Sovereign hotel-condo tower in Burnaby sold out in two days, largely due to the new Asian market. And last week, people began lining up in the rain on Wednesday for a shot at one of the Quintet luxury condo towers being built in Richmond City Centre. Organizers handed out blankets and WiFi cards so the 80 people in line could stay warm and watch the Canucks game while they waited for the sales office to open Saturday morning. The builder sold more than 270 suites that day, with 30 suites held back for a later release.
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Landcor Data Corporation compiles B.C.’s most comprehensive real estate statistics. President Rudy Nielsen had long known that Mainland China was driving the Vancouver market, but he had yet to prove it with numbers. In Landcor’s first-quarter 2011 residential sales summary, one of Landcor’s senior analysts, from Anhui province in China, examined luxury sales in Richmond and Vancouver’s west side, and identified the number of buyers with Chinese names. The analyst found that in 2010, more than 74 per cent of buyers were most likely from Mainland China. It’s imperfect methodology, but it at least lends some statistical support to a trend that has so far been based on anecdotal information.
“Yes, the realtors are correct,” Mr. Nielsen concludes in his report. “China is coming and it likes what it sees.
“They’re arriving with fortunes intact, especially in the Lower Mainland, eagerly buying their own bits of the good life and helping buoy up real estate prices.”
Many do not want to live in the condos or even rent them out, say the realtors interviewed for this story. They want to have a safe haven for their investment in desirable Canadian cities, in a country that is economically and politically stable.
“You could almost say it’s a ‘land bank,’” says Mr. Morrison.
—
Vancouver marketer Cam Good recently helped sell out an Etobicoke development called Westlake, which, he says, was largely snapped up by Mainland Chinese buyers. Mr. Good has taken his marketing strategy one step further. He says he’s the only Canadian realtor to open offices in Beijing and Hong Kong, directly marketing projects in White Rock, Squamish, and the Toronto area to Chinese buyers who want to protect their new found wealth by tying it up in Canadian real estate.
By opening offices in Hong Kong and China, Mr. Good aims to beat his competition to the source.
“In China, it’s relationship based. The North American market makes buying decisions by looking for specialists, like appraisers, inspectors, realtors, whereas a Chinese person is more likely to make buying decisions based on trust,” says Mr. Good.
Simeon Garratt heads up the Hong Kong office. He usually lives in Vancouver, but was raised in China and speaks Mandarin and some Cantonese. Mr. Garratt understands not just the language, but also the culture. Canadian real estate is simply a better deal.
“If you look at the cost per square foot here, it’s a bargain to buy here in Vancouver,” said Mr. Garratt, prior to leaving for Hong Kong.
“I mean in Beijing, you are going to pay over $1,000 a square foot for anything nice. And that price is top end in Vancouver, for the best you can get.”
—
Dan Scarrow, vice president of corporate strategy for Vancouver-based Macdonald Realty, believes that an office based in Asia is more useful for getting listings than selling condos.
“Having an office there is more a ploy to get listings with developers,” says Mr. Scarrow, who speaks Mandarin. “You are not going to sell many units in China. The Chinese are like any other buyer. They need to see the project to buy it.”
He also believes that the new Chinese buyer is fuelling the Vancouver market because they believe in the appreciation of real estate.
“A large number of Chinese people who’ve come over recently, their experience with capitalism is that everything goes up forever, because it has for the last 20 years in China, so they have that mentality.”
—

1. More very prominent mainstream coverage reciting the China-is-buying-everything meme.
2. Interesting opinion that China offices are largely important to attract local developers rather than for sales themselves.
3. Is this ‘real’ demand or momentum speculation? (if the latter, look out below once the market blips).
4. ‘Land bank’?? Our homes as a traded token? If true… (shudder). – vreaa.

Unnamed Eastern City – A Fine Way To Buy A House

This article on what sensible home buying should be like from ‘House Hunt Victoria’, 12 May 2011 reproduced here with kind permission of ‘HHV’.
No line ups in the rain?… No competing offers from a half a dozen other parties in the driveway?… No cellphone bids from foreign lands?… No 400K over-ask bid?… No shouting?… ‘Conditions’? [what are those? -ed.]…
The respect for the human aspect of the transaction stands out. ‘HHV’ and Froogle Scott share similarities in the way they appreciate homes as  personal artefacts.
[Note: We continue to believe that housing in Canada is an overheated speculative market, more so in Vancouver than anywhere else.]

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Buying: the search and the offer

“We’ve been at it for four long years. This search was very easy. We used a poor facsimile of VREB’s Matrix or PCS system and the MLS® website to find the houses we wanted to view. Our REALTOR® scheduled appointments. We gave her a list of 30 houses we wanted to see, 15 each day for two days. After the first day, we asked her to add 5 houses she thought we should see based on our reaction to what we’d already seen.

Day one was very fast. We’d planned to be at it for around 7-8 hours. We were done in four. Let’s just say we get to “no” very quickly. Mrs HHV came up with some handy acronyms for our listings sheets:

* NWIH = No way in hell
* NATP = Not at this price
* WAO = Worth an offer

At the end of day one we had two WAOs on our list. We repeated the process again the next day, in almost as little time. We found the home we bought around mid-day. We looked at half a dozen more afterwards. By the end of our two-days of looking we had 5 WAOs on our list and one house we thought we really wanted.

We spent the rest of that day doing what we always do when we have a big decision to make. We compared the status quo to the anticipated outcome of the action taken. Action won out. We decided to schedule a second showing and, if it showed as well the second time, make an offer. It showed better the second time.

Here’s an interesting side note: both times we viewed the home, the owners were present. Normally agents advise against this. The mobility of the owners was an issue, so they chose to stay home. We were very glad they were present. They made themselves scarce and weren’t an issue for us. But they were a big part of the gut feel we got while inspecting their home. They were the original owners and their pride showed.

When we went to make the offer our agent showed us what had sold in the neighbourhood over the previous six months. Like many neighbourhoods in Canada, prices were on the downswing. The asking price was below the assessed value, only marginally so. The home had only been on the market a few days. Our agent suggested a price. We suggested another.

The negotiation would have been very simple if the listing agent hadn’t been trying to take the day off. We had a few conditions on the offer: appraisal, inspection, financing and a change to the possession date. Our offered price was 2.6% below the asking price. We felt it was strong. Did it need to be? Given what we knew about the owners I’d say yes, it did. Given what we knew about the market conditions, I’d forgive you for telling me we paid too much.

So why did we choose to present a strong offer? Simple: the product and the people.

The house is immaculate and gives us the perfect opportunity to make it our own at our own pace. It needs nothing to make it livable today, but its old enough to make updating it worthwhile over the next 5 to 10 years. The layout is flexible. We’re a small footprint family right now, but we may not always be. The house meets both those needs.

The lot size was above average for the neighbourhood. But the home built on it was about 90% the size of many of the other houses in the neighbourhood. The price reflected the home size, but not the lot size when we reviewed comparables. We value land. We like houses, but don’t value a big house the way many people who choose to buy big homes on small lots seem to.

This house had one thing I always look for in a home: copper. If you’ve been in a new build in the last 5-7 years you’ll often see an abundance of what’s known in the plumbing world as PEX. We don’t like it and don’t trust the long term viability of it. I’d say 60% of the homes we viewed were plumbed with PEX versus copper. That was enough for us to rule them out, “good bones” and all that. All the major upkeep work had already been done: roof, siding, furnace, hot water heater etc.

This home was well-loved. Enough so that I wanted to know how it was well-loved. That was worth something to us: not leaving a distaste in the process of selling the home for the current owners. We wanted inside knowledge and were willing to pay for it.

Our agent suggested an offer price $5,000 lower than what we suggested.

The owner of the home had already decided his final price. It was $5,000 higher than our offer. When that came back we countered a matched price, but asked for some things around the property we knew the current owner didn’t want to move (another reason why we were thankful they’d been around for the viewings and we’d had a chance to ask them a few questions). We certainly didn’t get $5,000 worth of items, but we did them a service (they don’t have to try to sell the lawnmower, yard tools, gas BBQ, spare fridge etc) and we saved a bit of time/money not having to go out and try to buy all this stuff anyway.

When I attended the home inspection 5 days after having the accepted offer in place, the inspector confirmed our gut feel had been right. No home inspection will ever be “perfect,” but the total “fixes” necessary to this house are priced out under $500. Even better, the owners of the home showed me everything I had wanted to know about the house: how the sprinkler system works, how to maintain the water system, how to shut down the gas and water supplies, how to run the A/C/heatpump unit etc. We exchanged numbers and they’ll be a good knowledge source in the future should anything surprise us.

Much of the time we discuss properties here at HHV, we focus on the financial side of things. We have to in Victoria because the prices dictate us to be excessively prudent to prevent ourselves from getting overwhelmed by the emotional side of buying a home and ending up in a potentially financially ruinous situation. Buying a home is emotional though, you can see that in some of my description above. It’s been a positive experience for us thus far. We’re not in the house yet and we know there will likely be a few initial “moments” when we are, but we’re thankful that the price we paid allowed us to embrace the emotional side of the home buying experience — there’s value in that too.”

“I’m in my mid-30s but I feel like someone who is in their 80s saying “in my day…”. The disconnect between income and housing prices is insane.”

HM at VREAA 2 Jun 2011 11:05pm – “I’ve been working in various companies in the software industry and I’m seeing that there is a difference in what I’d get paid here versus elsewhere. The disconnect between income and housing prices is insane, and this is speaking as someone born in the Interior who has seen the prices go to crazy levels there. I feel like someone who is in their eighties saying “in my day….” and I’m only in my mid thirties. I remember when the coal harbour condos were just going up and seeing the sell prices at $150 – 200K and the prices they go for now is insane. I’m resolved to pretty well never buy a home, probably stay as a renter or take whatever inheritance I get from my parents (god I don’t want to be that ghoul) or move elsewhere and not buy there as well, prices across this country just seem delusional and out of touch with common sense.”

Late To The Party… – “Anyone Recommend Any Good RE Investment Courses In The Vancouver Area?”

Real Estate Investment Courses?
Anyone recommend any good courses/seminars in the Vancouver area?   thanks!
- Thread starting post by vancityeast, RE Talks, 19 May 2011 9:18am

The Disillusioned – “I tell all the young co-op students that come and work at my office to leave this city if they want to make something of their life.”

Anonymous at vancouvercondo.info June 2nd, 2011 at 9:00 am- “Vancouver sucks, i tell all the young co- op students that come and work at my office to leave this city if they want to make something of their life. Unless you’re a civil servant, a union slob, or in sales… Vancouver has nothing to offer. After listening to me they all agree… Most have moved.”

Spot The Speculators #41 – Ontario Couple; RE Salespeople; 700% Of Net-Worth In RE; Want To Buy More

From ‘Debt-heavy couple liable to fall victim to interest-rate squeeze’, FP 3 Jun 2011 – “In Ontario, a couple we’ll call Oscar, 40, and Nancy, 33, are raising two children, ages 6 and 8. The parents are both in real estate sales and bring home about $120,000 a year after business expenses and income tax. They are thriving in their commission sales work and have three rental properties of their own worth $320,000. With their home, two cars, one RV and other property investments, their assets total $732,700. But acquiring those assets has been expensive, for they owe $634,000, nearly four times their $160,000 annual gross income. Their debt-to-income ratio could put them into a serious squeeze as interest rates rise. In effect, they are living a bet that bricks and mortar will one day yield a big capital gain that compensates for the time, risk and effort of holding real estate. Oscar wants to add more properties. “Our plan is to build our real estate business to its maximum potential over the next 10 years, to acquire eight more rental properties and have all of them paid in 15 years and to be able to retire, if we want to, by the time I am 55.”

“Oscar and Nancy collect $3,148 in rents each month from their three properties. From that gross revenue, they pay $1,161 for mortgage interest, $60 for utilities, $238 for property insurance and $414 for property taxes, total $1,873, for net rental income of $1,275 a month, or $15,300 a year, before depreciation. They put down only $8,000 for all three properties, giving them an annual net return on initial equity of 192%.”[leverage looks wonderful on the way up. -ed]

“It is the result of high leverage and it is evidence of high portfolio risk. If property prices were to drop by 10%, the rental properties would be worth less than what they owe. Oscar and Nancy could face a cash calls from lenders.” [exactly. -ed.]

Amazing stuff, eh?
“Acquiring assets” makes it sound so… legit.
Assets: $732K (including depreciating ‘assets’ like cars and RV, so effectively less)
Debt: $634K
Net-worth (being charitable): $80K
Percentage of Net-worth in RE: estimated 700% (not a typo)
And… they are planning on ‘buying’ more!!
Not to mention that, as RE salespeople, their bread and butter income is almost completely dependent on a buoyant RE market.
They are juggling with burning dynamite, and they don’t even seem to know it.
These folks, and their lenders, should be held accountable for irresponsible actions.
Note that the couple have acted as RE ‘demand’ and helped fuel the speculative mania, and that they will transmorph into up to 4 units of ‘supply’ on the way down.
- vreaa

Life Changing Profits – Get It While You Can

Excerpted from ‘Selling your home could finance your hopes and dreams’, Garry Marr, Financial Post, 26 May 2011 -
Cam Hayduk sold his house in May 2010 on Bowen Island -a 20-minute ferry ride from Vancouver -for about $580,000. “Prices had gone through the roof in the 10 years we have lived here,” says Mr. Hayduk, who now rents a home with his wife and child.
He bought the house for $380,000 in 2004, putting a 10% down payment. The return on his approximately $40,000 investment was nearly $180,000, for 450% return in six years.
“We wanted to start our business. Originally we wanted to scale down, but there were no options at the prices we wanted, so we sold,” says the 45-year-old former camera operator. “We invested the money and some of it went to a video production company we started.” He went from what he describes as “eking into debt” to a situation where he was able to buy new video gear and lights for the business to make it profitable and establish a nice nest egg that is locked away and untouchable.
“We don’t have any regrets. We are sleeping well and there is so much less pressure. Our house put us into the black in a way we never could have been before.”
—-
“We had one realtor dealing with a mainland Chinese client who found a property they liked. The client said they liked the house but they wanted to know if the neighbour would sell their house, too,” says Elton Ash [executive vice-president of Re/Max of Western Canada]. For the person who didn’t have their home on sale, it was a huge windfall. “In this example, the neighbour sold.”
—-
How do you say no? Average prices in Vancouver in April soared to $801,252, a 21% increase from a year ago. Profits in some pockets of the city are even larger. At the same time, affordability in the city has become absurd.
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“I think it’s a good time to downsize if you are moving to a less costly home because even if prices do go down, you do lock in equity,” says Clay Gillespie, managing director of Rogers Group Financial.. “Most of my clients are people near retirement, some of whom bought their [million dollar] houses for as little as $50,000.” Mr. Gillespie says he had a client who recently sold in Vancouver, bought a similar home in Victoria and pocketed a tidy $800,000 profit. “The big problem is if you want to stay here, you have to buy something else,” Mr. Gillespie says. “The fear is you will be [priced out] if you sell out now.”
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Kudos to those wise enough to cash out. – vreaa

“I live in 600sf on the 8th floor in Kerrisdale. I have a nice little concrete balcony with all my herbs and tomatoes, some flowers, and a new Jasmine vine. My view is spectacular. We rent for $1100/mth. We’ll buy one day.”

Flip Flop at vancouvercondo.info 2 Jun 2011 7:43am – “I live in 600sf on the 8th floor in Kerrisdale. I have a nice little concrete balcony with all my herbs and tomatoes, some flowers, and a new Jasmine vine. My view is spectacular. I have a new outdoor pool (new to me; I’ve only been here for a couple months). The neighbors are mostly friendly (a couple are a little crusty, but flash them a smile and it all goes away).
I love this city more today than ever and I’ve lived here for 12 years. My fiancée and I are paying down debt (my debt), putting as much as we can into a diversified liquid portfolio, and getting married at a beautiful little place on the water past Spanish Banks in October.
We rent for $1100/mth. We’ll buy one day. It’ll be for less than 4x our combined income, and have a rent multiplier around 150. With any luck it’ll be one of the detached at the new Tsawwassen Springs development, so I’ll have a golf course and driving range outside my back door.
This province has lots to offer if you can find a good job and a good partner. My guess is that miserable people will be miserable no matter where they go. Grab a beer, spark a blunt and fuck the Joneses. They’re not as happy as they look.”

Heartwarming or Soul Destroying?

Heart of the World at greaterfool.ca 8 Jun 2011 9:31pm – “I was talking to a friend today, after a six months hiatus, and heard a great, amazing and very heartwarming story.
I was told that a woman I know who managed a film industry prop house in Vancouver had put her house on the market at 900 large. The house was really nothing much — near the Metrotown Mall in Burnaby, recently repainted but that was about it; a block away from a gas station in a mish-mash neighbourhood… the heartwarming part of this is that this woman is really lovely as a person, and as I remember her from various business dealings, I can tell you that her income was nothing much, and her work was hard, unrewarding, and she did it very, very well, with no complaints.
Anyway, there was a bidding war on her humble abode, and she and hubby came out of the affray with $1.5 mill. — a true lottery win! It is a good thing when those who work hard, and are kind and helpful to others receive this kind of windfall.
So while the economy at large will lose when prices revert to the mean, there have been, here and there, some good results for deserving people.”

Heartwarming? Perhaps.
Remember, however, that for every individual in this situation who is fortunate enough to ‘cash-out’ there is somebody taking the other side of the deal, and for that party the deal will be… what’s the opposite of ‘Heartwarming’?… ‘Soul Destroying’?
A speculator with a large down-payment or paying cash? Perhaps, and, if so, we’d have little sympathy. But, in our market, the buyers are just as likely to be a youngish family who have inappropriately completely overextended themselves into massive mortgage debt to ‘purchase’ this property, and they now carry very substantial risk that their lives will be ruined over the coming 5 – 10 years by being hopelessly overburdened by that debt.
Net gain/loss for the community?
There are very few real silver linings to speculative manias.
And, it goes without saying that people making more from the sales of their houses than a lifetime of savings, and having home sales described as ‘lottery wins’, are evidence of the fact of that mania.
- vreaa

Vancouverite On Vancouver – ‘Neighbourless Neighbourhoods’, ‘Ficto-Finance’, ‘Soulless Tourist Town’

Composite anecdote and opinion from poster ‘interested’ at VREAA 30 Dec 2010, 24 May 2011, and 7 May 2011. [The first part has been previously headlined, 30 Dec 2010]. Thank you for sharing your story and thoughts, ‘interested’.

“I grew up in this town and am old enough to remember when False Creek still had pulp mills surrounding it and working class people raised 4 kids in their East Side AND West Side bungalows. I’ve always hated the hubris of “the best place on earth” and see it as yet another bid to bragging rights for ex-pat Ontarians and Albertans. I’ve also lived in San Francisco, Oakland, Berkeley, Montreal, Toronto, London England and Glasgow and can decidedly attest that Vancouver is not the best place on earth. It may not even be the Best Place in Canada. In fact, Vancouver just gets uglier and more soul-less with every passing year, given the relentless tear-down culture here.”

“I live in a neighborhood where easily 60% of the original housing stock (largely from the teens and twenties of the previous century) has disappeared over the past decade. The orange fencing goes up around the street trees and within a day the old home – built with huge fir beams that we’ll never see the likes of again – is gone. The cost of demolishing a 2,300 sq. foot house is a mere $2,000-$4,000. To my mind, the ease, expediency and negligible expense of tearing down an old home only diminishes the value of Vancouver’s architectural heritage and the communities these buildings once housed. To make matters worse, many of the new houses which replace the old (all which are variations of the “Ersatz Edwardian” genre), remain empty for months or years. My neighborhood is becoming one devoid of neighbors. As spring progresses into summer and the grass grows high, it’s become very easy to spot the empty new homes, many of which were built over a year ago.
A neighborless neighborhood can pose difficulties for those who remain. I’ve recently tried to get speed bumps installed in our “speed way” / lane way, which the City will undertake if a majority of residents agree to share the amoritized cost. In my case, however, it’s impossible, as the majority of ‘homeowners’ who share my lane way are absentee.”

“Vancouver’s addiction to gambling and real estate (or ‘ficto-finance’) has gutted this town of its ability to produce and create and maintain revenue. Many, many homes now sit empty, as “holding’ properties, housing no one, going nowhere, sinking fast. There is nothing quite so sad or soulless as a tourist town which tries to be everything to anybody and winds up being nothing, and this unfortunately is what Vancouver is fast becoming.”

Government Policy During RE Bubbles – “Economic policies which encourage people to borrow and speculate into a rising asset markets, causing general economic largesse. They want to have affordable expensive housing, that’s their policy.”

Interview with Steve Keen, Australian economist, on the Australian housing bubble that is now beginning it’s deflation. Keen predicts 40% price drops, over years. Video and transcript of interview at  finnewsnetwork, 25 May 2011.
Excerpt, that could just as well be applied to Canada – “Both parties here… claim that they want to have affordable housing, but really they’ve both had economic policies which, whether they’re conscious of it or not, have been dominated by encouraging people to borrow and speculate into a rising asset markets and that causing general economic largesse. So they want to have affordable expensive housing, that’s their policy.”

—

Further comments of note in the interview:
“I think what you have to do is get to the stage where you actually buy a house to live in, not to speculate on. And, with landlords, if they buy them to make an income from, buy them to make a profit from the rental income, not that of capital gain. Now that implies you’ve got to wait until housing prices have fallen something of the order of that 40 per cent that I’ve mentioned before hand, maybe even more, before it becomes possible for a landlord to borrow money, buy a house, and earn enough money from the rental income to more than service the mortgage and then you have a European situation for rents, which is what we need in this country. That’s why I think Germany hasn’t had a crisis, by the way.”

Cam Good Offers Locals Little Sympathy – “If you don’t want to live in a city that beautiful, with that much demand, then maybe you should live somewhere else. Either you want to live there or you don’t.”

From ‘Asian Real Estate Influx’, Global TV News, 7 Jun 2011 -

Announcer: “Demand from Asia is one of the reasons Vancouver prices have kept rising. There are now one million millionaires in China, that’s tripled since 2005… and many are looking to invest in Canada.”

Announcer: “In downtown Beijing, these women are looking to buy some real estate – in Vancouver. They are at the Beijing office of a Canadian real estate firm which offers hundreds of homes for sale in Vancouver and Toronto.”

Ma Ying, Shanghai resident – (translation over) “Vancouver is relatively cheaper than big cities in China, it is well worth it. Toronto is even cheaper than Vancouver.”

Announcer: “Can Good is the president, we met him in Hong Kong where he is now setting up another office to sell Canadian homes.”

Cam Good: “We are really at the very start of a big wave of demand coming mostly from the uber-rich in Chinese (sic) which has been there for years, but what we’re seeing now is a growing middle class, that is just now being able to afford international options for their kids/ for their children, for real estate…”

Announcer: “Fearing a property bubble, China’s government made second mortgages difficult to acquire, and is considering a new tax on principle residences… it’s led to a stampede of buyers to Canada.

Announcer: “In Vancouver it’s grown to the point Good provides helicopter tours for Chinese real estate agents. Many are buying near good schools.”

Ma Hong: (translation over) “I think I will send my kids to primary school in China, and send them to high school in Canada, which I think is better in education”

Announcer: “In the Vancouver suburb of Richmond, average home price is over a million dollars. This home sold for $500K more than it was bought for just last year. It’s considered a teardown. Many worry the Asian influx will lead to a backlash from locals squeezed out of the market. Good doesn’t have much sympathy…”

Cam Good: “If you don’t want to live in a city that beautiful, with that much demand, umm.. then maybe you should live somewhere else, because in any city, no matter where it is, if there is international demand you are going to have these concerns, so either you want to live there or you don’t.”

Announcer: “And clearly China’s new rich want a piece of the Canadian dream.”

—

Cam Good is on a roll, clearly, but his words remind us of a player taunting the goalie at the end of a, say, 8-1 win. He’s gotten a lot nastier than on earlier broadcasts. Perhaps not the best long-term game strategy for a salesman.
Cam is ‘all-in’ the ‘new Monaco’ scenario for Vancouver. File under ‘Limitless Demand Argument For Ongoing Market Strength’.
- vreaa

More MSM Reports Predicting Price Drops – “Vancouver’s average house now costing an astounding 11.2 times a family’s average income.”

“David Madani at Capital Economics expects Canadian housing prices to fall 25%” [Reuters, 6 Jun 2011].

“Vancouver’s housing market looks primed for a correction, according to a report from Sal Gatieri, senior economist at BMO Nesbitt Burns, with the average house now costing “an astounding” 11.2 times a family’s average income.” [G&M, 7 Jun 2011]

“As I’ve been quite involved in this whole process of driving asian buyers to purchase property in Vancouver I know quite a lot about the headspace about overseas investors/buyers. They truly want to live/work/retire here.”

SimeonG [Simeon Garratt, head of Asian business development at Key Marketing Group] at VREAA 7 Jun 2011 at 11:43am -
“As I’ve been quite involved in this whole process of driving asian buyers (primarily Mainland Chinese) to purchase property in Vancouver I know quite a lot about the headspace about overseas investors/buyers. In majority, they aren’t buying in Vancouver for fun. They truly want to live/work/retire here. That creates a much different ‘bubble’ than one formed around pure investment.
Nobody wants to admit that this ‘demand’ can’t stay strong forever and that pricing can’t stay this inflated without an obvious ‘bust’ at some point in the future. However, no one really wants to fully explain why it can’t. When you look at it from the flipside and see the sheer demand that exists in China at the RE expos and see how long the lineups are at the immigration consultancies.. it does start to make a bit more sense.
I do like getting the opinions of people looking at this industry from the outside.”

When you are in dense undergrowth, it can be hard to gain perspective regarding the lay of the land.
Industry insiders in SimeonG’s position are almost definitely sincere in their beliefs that demand for Vancouver RE is limitless. They have experienced first-hand the line-ups, the agitated & eager buyers, the breathless bidding wars. And, they see folks buying units every day. Those are all powerful pieces of information.
During a speculative mania, demand always seems overwhelming.
But demand is actually elastic, and can snap down to nothing, or actually become supply, in very short order.
We believe that this will occur once prices turn. It may take restrictions on loose lending or rising rates to precipitate such a turn, but neither is necessary. All that it will take is for prices to stall, and for speculators to begin to attempt to realize their thus-far-paper gains, or to attempt to protect themselves from losses. Demand will evaporate and supply soar.

Simeon asks for ‘outside’ perpective, and our advice (and request) to him would be to gather some information. We’d suggest that he sit down with his next ten buyers, regardless of origin, and, if he has the temerity, ask them the following questions -
1. Would you be purchasing this property if you knew there was a considerable chance of future price decreases?
2. What magnitude of price decrease do you think are possible in this market?
3. How would you respond if prices dropped 10%? or 20%? or 30%?
We suspect that the answers that Simeon got from these buyers would give him some ‘outside’ perspective.
We’d guess a good percentage, perhaps the majority, would tellingly begin by saying: “We don’t expect price drops”.  If so, ask them what they’d do if they did indeed start occurring.
Another group would intellectually acknowledge that a small fluctuation in prices may occur (say 5% or even 10%). Ask them how they’d respond if prices dropped 25%.
A much, much smaller percentage would answer: “So what? I like the view.. and the shops.. and the schools.. drops in prices are irrelevant.”

The responses to these questions would tell you how ‘real’ the demand is.
People who want to actually use the accommodation, to live in it, or rent it out for income, wouldn’t be at all deterred by the idea of price drops; they’d stay put, they’d hold their purchase.
Furthermore, investors who genuinely think these properties are well priced by global standards would be looking to buy more if prices drop. They’d say: “Please contact me with buying opportunities if that occurs.”
But speculators (momentum ‘investors’, gamblers) who have bought on the premise of relentless price rises will be looking to be out of the deal if prices are heading down.
What is motivating current buyers?
Answers to the questions above could tell us.

Of course, the chances of Simeon, or any other real estate salespeople, actually putting those questions to prospective buyers is close to nil. Why? Because he already instinctively knows that even the thought of possible price drops deters buyers. He already knows that, in this market, the vast majority are buying anticipating ongoing price appreciation.

Simeon: Perhaps you can find a palatable way of exploring these thoughts with some of your clients. We’d appreciate it greatly if you could share their responses with us. The exercise may confirm what you already suspect; or it may give you some ‘outside’ perspective. We’d be interested either way.
- vreaa

Office of the Superintendent of Financial Institutions Examining Bank Exposure To Household Debt

The Office of the Superintendent of Financial Institutions is examining the bank exposure to household debt [FP 3 Jun 2011] -
“If demand for residential real estate were to dry up in Canada, it would not be good for Canadian banks,” said Peter Nerby, senior vice-president at Moody’s who is responsible for the credit ratings of Canadian financial institutions.

We note this here for the chronology and direct you to a discussion of the subject by jesse at Housing Analysis ['OSFI in da House' 5 Jun 2011].

Spot The Speculators #40 – “My friends and relatives who bought within the last two years at these unbelievable prices honestly believe that there are thousands of Chinese investors lined up to get into Vancouver. They wanted to get in before being priced out forever.”

Garth Turner at greaterfool.ca 3 Jun 2011 eloquently summarizes concerns about the risks that foreign speculative players bring to a market (including the risk of the bottom falling out if/when they desert).
This anecdote from the comment section of that article, chris 3 Jun 2011 9:29pm:
“I live in Vancouver and my friends and relatives who have bought recently (within the last two years) at these unbelievable prices honestly believe that there are thousands of Chinese investors lined up to get into Canada and especially Vancouver (and maybe they are right), so they wanted to get in before being priced out forever. My sister-in-law keeps asking me when I am going to buy because her house has appreciated 30% in the last year. She lives in an area now targeted by mainland Chinese investors. My “bearish” comments fall on deaf ears. My friends show me MLS listings of houses in their neighbourhoods that are now listed at hundreds of thousands more than they paid a year or two ago. It’s seriously delusional here. It’s hard for me to argue with their logic since they have been right for years and I have been wrong for as many. I don’t see Vancouver prices slowing down until the property bubble pops in China…”

Note that this is not an anecdote about foreign buyers. It is the story of breathless local buyers overextending themselves to buy at ‘unbelievable’ prices on the premise that prices will continue to rise. For every one foreign buyer, there are how many local buyers harbouring this belief? – vreaa

‘Green’ Vancouver Construction – Lots Of Talk; Far Less Walk – “People are okay with green as long as it doesn’t cost them more.”

From BCBusiness 2 May 2011 -
“A rebounding real estate market, fuelled by foreign investment and combined with city policies that encourage denser residential zoning, is driving the demolition business in Vancouver. In 2010, 881 demolition permits were issued by the city, the majority of which were for double- and single-family dwellings. …
The construction, demolition and renovation sector in Metro Vancouver is responsible for one-third of the region’s total waste, or roughly 35 million tonnes. And in a typical demolition, 85 to 90 per cent of the volume of each building ends up in the landfill, according to Metro Vancouver.
 More than half of that volume is wood and other materials that are recyclable, including asphalt shingles, concrete and metals. …
Some salvage takes place on each site, it’s minimal – maybe 10 or 15 per cent. “It gets very labour-intensive to try to separate it all”, said Craig Fleck, general contractor. …
In a building sector already fraught with financial risk, the lowest bidder nearly always wins. … If local governments truly want to reap the benefits of higher recycling rates in this sector, leadership will have to come from the top down.
“People are okay with green,” says Todd Senft [president of Revision Custom Home Renovations Inc.] “as long as it doesn’t cost them more.” 


A housing bubble is wasteful in many ways, and it is highly likely that it increases a community’s impact on the environment. – vreaa

“My mother owns a condo in White Rock which she bought in 1995 for $144K. It is now assessed in 2011 at $275,000. Looks like it almost doubled in price right?” [Wrong!]

DM at VREAA 2 Jun 2011 10:31 am – “My mother owns a condo in White Rock which she bought in 1995 for $144K. It is now assessed in 2011 at $275,000. Looks like it almost doubled in price right? It is now at the stage when it requires a renovation and realtors have suggested it its current state it may sell for around $239,000.
Purchase price $144,000
Leaky condo repair $42,000
Additional condo fees/repairs $6,000
Condo fees over 17 years approx $39,000
Taxes $23,600
Estimated renovation cost $40,000
Total cost, not including property transfer taxes, other repairs, mortgage interest and realtor’s fees: $294,600.
A loss for holding the property for 16 years of more than $20,000.”

Common scenario. Many RE investors use fudged headline ‘numbers’ to kid themselves and others that they have done better than is actually the case. They don’t bother to do the back-of-the-envelope math which shows different. DM’s example shows that, even through a rabid mania, RE can have very ordinary returns. In normal times, it can be a money sink. And, needless to add, in bear markets it can wipe people out. It’s just shelter, folks, it should be priced accordingly. – vreaa

‘Newish’ Toronto Realtor – “I feel like something is broken in the world of real estate agency.”

Morgan at buzzbuzzhome.com 11 May 2011 -
“While new(ish) to the industry I feel like something is broken in the world of real estate agency (in toronto as that is where I have my personal experience).
I know the public thinks its the MLS and how accessible it is to the public but im not so sure…
I would love to hear other peoples opinions on whether it is that, something else or not broken at all.
I think it has to do with the number of real estate agents and the reason why there are so many.
As someone who went through the real estate licensing process about a year ago it is 1) way too easy, my high school exams were harder 2) too short 3) to cheap
The level of proffesionalism and service needs to be raised across the industry.
I have seen stats that say that over 70% of Realtors quit after the first two years. That tells me there are a lot of people who are inexpeienced and desperate out there not doing a good job and that invariably changes the publics opinion.
Whats everybody think?”

“NUX TIX OR MORTGAGE PAYMENT?” [Playoff-Placard]

Saturday 4 Jun 2011, Second game of the Stanley Cup Finals, Vancouver Canucks vs Boston Bruins, CBC broadcast (2nd Period). The shot above shows two fans holding handmade signs, visible via backlighting, in reverse. Take a closer look…

And reversed…

“NUX TIX OR MORTGAGE PAYMENT?”
“HOPE THEY DON’T TAKE THE HOUSE” [see below]

We’re going to assume that these fans are not Vancouver RE bears doing a bit of guerilla theatre at the hockey game (although that would be cute!).
Given that they are likely showing love for their team, essentially saying “Canucks – more important than anything else”, the way they choose to express this is remarkable… More testimony to the pervasiveness of the preoccupation with real estate in Vancouver. Speculative manias saturate our psyches. When we reach for metaphors, houses and mortgages come to mind most readily. First-born children, mothers, spouses, eye-teeth, and testicles now come a pale second.
This reminds us obliquely of the animated buildings in the 2010 Winter Olympics’ kids book ['Happy Smiling Buildings?', VREAA, 31 Jan 2010]
We also note that the fan isn’t putting the question: “NUX TIX OR THIS MONTH’S RENT PAYMENT?”.
- vreaa
—-
UPDATE:

Thanks to ‘henrigolo’ for the following image, and for pointing out that the second sign reads: ‘HOPE THEY DON’T TAKE THE HOUSE’.
Anybody know anything more about these fans?

PostCardsFromTheBlastRadius #10 – The Okanagan Bust – “The GreatConflagration ‘O HospitalHill & Other OkiTales ‘O ‘SpontaneousCombustion’”

It could be your SmokeDetector going off in the WeeWee’s ‘O TheNight… A building AlarmActivation – or maybe even a FranticNeighbour BANGING! on your door. This is when CrossStreets are important – Life&Death important.
Know yours. Because, when you ReallyNeed the EmergencyServices and you’re doing the ‘911Dance’ you may be too stressed to blurt out a street number. Knowing your cross street will enable a faster response time. And sometimes, seconds count.

Here’s the thing, DearReaders – Housing Booms&Busts come laden with externalities. UnintendedConsequences. BlowBack. And, not infrequently…   BackDraft!
Witness the OhSoMany SadTales ‘O Detonation, Conflagration & Deflagration that have occupied our Metro & Regional HeadLines these past couple’o years. From CoalHarbourYachts to NewBuildCondo’s in Surrey&Richmond to every second restaurant on a certain stretch of Broadway near Main.
Even in the best ‘o times, careless people do stupid things and stressed people do careless things. But… in the worst ‘o times??? Well, financially stressed and/or inherently DishonestPeople do criminal things – and they do them more often.

[Disclaimer: OK, there’s nothing intrinsically funny about “Fire!”. So, please forgive ‘Nem’ for penning a serious piece. And we have no special knowledge of whether crimes should be suspected in these cases. Fortunately, no one perished at the SkyLine or in any of Nem’s subsequent examples ‘o Okanagan ‘SpontaneousCombustion’. Let’s hope it stays that way.]

Our story begins here… Welcome to Vernon’s SkyLine Apartments!
The astute among you will notice the PoliceTape and the charred, skeletal remnants of furnishings strewn about the lawn…

Ah yes. That would be why.
Let’s step back a few months and experience the event’s ‘frisson’, shall we?…

[VernonStar - February 25, 2011 12:06 PM] – “Firefighters remain on scene of a major apartment building fire on Vernon’s Hospital Hill. Flames and smoke engulfed the structure on 31A Street at about 5 a.m. Friday, forcing about 52 people to flee into temperatures that dipped to -17. “As soon as the guys left the department, they could see it,” said Dean Wakefield, fire investigator. Firefighters from Vernon, Okanagan Landing, BX-Swan Lake and Coldstream converged on the scene. “We’re protecting exposures,” said Lawrie Skolrood, Vernon deputy fire chief. Emergency Social Services personnel also responded and tenants were being sheltered in the Vernon Jubilee Hospital cafeteria. A cause for the fire has not yet been determined.”

Damage was extensive.

No part of the SkyLine escaped unscathed, not even the ConcreteCarPark.

Indeed, from one end to the other – the entire expanse ‘o the Skyline’s TopFloor was ‘crisped’.

On the BrightSide though, Vernon’s Jubilee Hospital was certainly close at hand!

On the NotSoBrightSide… At least one SkyLine occupant remains unaccounted for. Rorey.
—

Meanwhile…


…back in Kelowna – another OptimisticDeveloper is putting the FinishingTouches on his ParticleBoard MagnumOpus… or is he?
Actually, that would be a resounding, “No”…

[BCLOCALNE​WS: Updated: April 11, 2011 1:42 PM] – “Residents of the Laurentian Heights 3 condominiu​m building at 1405 Kelglen were collecting what personal belongings they could this afternoon after a fire swept through part of the complex at about 4 a.m. Sunday. The Kelowna Fire Department​’s initial response included 21 firefighte​rs, four fire engine trucks, two ladder trucks a Rescue truck, and one command unit. Another 45 career and paid on-call staff were recalled to the scene and to also help maintain firefighting crews for other emergencie​s. Upon their arrival, firefighte​rs were greeted by well involved fire on a balcony of a unit in the southeast corner of the building. It quickly spread into the attic area and throughout the upper part of the building, causing extensive damage to the roof and top floors in the south end of the building.”

Something about those ParticleBoardMansions… Once those flames get going…

They just…

Keep…

Spreading.

And while we’re talkin’, “Spreading” –
“What’s all this doing on MainStreet Osoyoos?”

[OSOYOOS TIMES - May 4, 2011 - By Paul Everest] – “The Osoyoos Times has confirmed that an 18-year-old Osoyoos man arrested in connection to a fire that destroyed two Main Street businesses on May 1 had ties to one of the devastated businesses. Police announced on the evening of May 2 that they had arrested a man late the night before in Osoyoos in connection to the fire. The fire is being treated as suspicious in nature at this time, police added. The Times has learned that the suspect in police custody is Phoenix Lonsdale, a man who the owner of the Osoyoos Christian Ministry thrift store, which was destroyed in the blaze, said had begun playing a piano in the store on a volunteer basis the week before the fire broke out. Lonsdale’s foster mother confirmed to the Times on May 3 that her foster son had been arrested. He is charged with committing arson and appeared in court on May 3 and is scheduled to return to court on May 9.
The fire broke out before 9 a.m. on May 1 and gutted the Osoyoos Christian Ministry church and thrift shop and the Dollar Smart Discount. No one was injured.”

Those Thermoplastic Resins… They don’t like heat.

DryWall & Plaster Lathing doesn’t always fare that well, either.

The Banks always seem to escape unscathed. It’s so unfair!

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

“A buddy of mine moved back to Alberta; one of the key reasons he gave was that housing was too expensive here – this was in 1998!!! Now he regrets leaving here.”

rusty at VREAA 4 Jun 2011 1:55pm – “A buddy of mine and his wife moved here in 1994. He’s in sales and wife is a nurse. When they decided to start a family they moved back to Alberta to be close to family. One of the key reasons my friend gave was that housing was too expensive here – this was in 1998!!! Now he regrets leaving here and states that he can’t wait for his kids to reach adulthood so he can move back (divorced now and can’t move here due to custody). The funny part about this is, if they’d bought a home here in 1998 they’d be set for life. I’m sure that 10 years from now we’ll hear stories about folks who left Vancouver in 2011 and pine desperately for this city.”

A few thoughts:
1. Housing was arguably almost fully priced in 1998 (Canadian prices plus west-coast weather premium), so your friend’s observation was not that far off base.
2. Regardless, his reason to move was multifactorial: it seems it was mostly “to be close to family”, right? He would have moved regardless of the housing market.
3. The fact that buying a home, anywhere, should “set” anybody up “for life” should set off alarm bells. It should be immediately apparent that this is not a sustainable dynamic decade after decade. It is the result of a brief freakish boom, and is not about to be repeated.
4. You should advise your friend to leave ‘coulda-shoulda-woulda’ out of this… anybody can look at any market and have the same thoughts. Check out a chart of silver, or Nortel, or the TSX: Anybody can, in retrospect see where they ‘coulda’ bought or ‘shoulda’ sold. Your friend needs to decide the best action for himself now.
5. Also, there’s a possibility that your buddy is at risk of getting wires crossed: Are there other things that went well in Vancouver but poorly in Alberta that have nothing whatsoever to do with geography? For instance, he was in a relationship in Vancouver and is now divorced. As a counter-example, I have friends (a couple with three kids) who sold their SFH in the early 2000′s and also moved to the prairies. They now observe that they ‘could’ve’ gotten much more for the house if they were to have sold it now, but this is just a passing observation because they’re happy where they are and have no plans to return.
6. Regarding your prediction that “we’ll hear stories about folks who left Vancouver in 2011 and pine desperately for this city.” … well we’ll simply have to wait and see if that turns out to be the case. As we mentioned in (3) above, we’d be very surprised if the next ten years look anything like the last.
- vreaa

Spot The Speculators #39 – 60 Year Old Couple; 75% Of Net-Worth In House; “They can’t afford it.”

From Financial Post, 25 May 2011 -
“In Vancouver, a couple we’ll call Adrian, 62, and Vicky, 58, are moving toward retirement as they reduce their work in management consulting. Their goal is to retire fully in a few years, but they are not sure if they can afford to maintain their way of life in their $1.7-million house. For now, they are spending $5,850 per month. But their current after-tax income is $2,600. Their secured line of credit, $435,000, pays the difference. Their total liabilities are 14 times their annual income. They have nearly $947,000 in retirement savings and $28,000 in other savings. The problem is eliminating debt before they retire.
“The old saying that you can’t have your cake and eat it pretty well sums up Adrian and Vicky’s problem,” Mr. Egan [a financial planner and portfolio manager] says. “Their house has an after-tax opportunity cost — what its value could earn if invested — of, let’s say, conservatively, 3% of $1.7-million or $51,000 per year or more if the return estimate is raised. They have to live someplace, but the house costs them the equivalent of rent at $4,250 per month or more if upkeep and heat are added. They can’t afford it. Either the house has to be downsized, remortgaged with a longer amortization and cash extracted or a few rooms rented out. Hard decisions have to be made.”
—
[in 2013, according to the advisor's five-year plan] “It is time to make a decision about keeping or selling the house, cutting debt and converting the high intrinsic cost of occupancy to an income-generating asset. Incurring more debt, as they have done by living on their line of credit, is unwise. The bill would eventually have to be paid and probably at a higher interest rate than the 3% they have been paying. Renting a room would reduce their privacy and would not produce enough income.
Sale and investment of proceeds is the best alternative. Assuming they can harvest $1.7-million less their $435,000 mortgage (about $415,000 by 2013) — roughly $1.25-million after selling costs for investment, they will need to replace their home. If they spend $500,000 on a condo, they will have $750,000 left for investment.
—
“If Adrian and Vicky downsize their house, eliminate debt and guard their investment returns, they should have a similar way of life to what they have now,” Mr. Egan says. “Most of all, they will have financial security.”
—

Discussion:

House with current market value of $1.7M. Savings of $975K. Mortgage $435K.
Total Net-worth: $2.675M – $435K = $2.24M
Percentage of Net-worth in RE: 75%

This couple is overexposed to real estate.
They look fine on paper, largely because of PR price appreciation. It would be interesting to know what they paid for the house, and thus to be able to calculate what percentage of their current net worth is solely the result of house price appreciation. Quite likely more than 50% (meaning that they likely paid less than $500K for the house). A good number of Vancouver boomers are in similar situations; many have even more of their net-worth in RE; over 100% is not unusual.
They are speculating on RE prices appreciating further, or at least not losing ground.
The advisor should advise them to sell immediately, not wait until 2013.
A 50% drop in housing prices will result in them losing 37.5% of their net-worth, and their financial future will be severely hobbled. If prices start dropping, that realization will loom large.
These are the ‘speculative holders’ who will bring their houses to market en masse when price drops establish themselves in earnest.
- vreaa

UBC Hospice Approved

‘Residents of this high-scale apartment building at 2688 West Mall UBC, like Janet Fan, here in Vancouver, B.C. on January 12, 2011, are outraged that a proposed hospice would be built next door to their building. The building is 80% Chinese extraction and there are major cultural implications with living next door to people that are dying.’ – from The Province, 3 Jun 2011

Noted here, for the record. We applaud UBC for this move, it took some courage. It was admirable for them to be able to separate issues of inter-cultural respect from those of personal expedience. We also applaud ‘The Province’ for using a photo that converts the mundane into something that is aesthetically pleasing. – vreaa

“I have a friend who just last month made five million dollars (net) on a land flip in the Interior.”

From Alex G. Tsakumis at his blog ‘Rebel With a Clause’ 2 Jun 2011 [hat-tip to 'Nem']-
“I have a friend who just last month made five million dollars (net) on a land flip in the Interior. He spent about ten years sucking wind–and I mean flat broke. The first thing he did was buy a $200,000 BMW, then a house on the water in West Van. He just dropped $10,000 at Harry Rosen. And he is at the bottom of the ‘Big Shot’ rung–there are some insanely wealthy people in this town. So… why are food banks empty? Why are the churches and halls on the DTES always in need? How come AIDS Vancouver is short? When I mentioned Covenant House to him, he balked and ordered us another round of martinis and yet another bottle of champagne. Shortly after, I left Hy’s bar for some fresh air–and sanity (I couldn’t take what he has become and if he’s reading this, tough). I couldn’t bear it. I walked past three of the living dead as I made it to my car. The contrast was hardly lost on me. We live in a strange world…very strange.”

Money from RE deals pushing up prices in West Van. On the way up, higher prices beget higher prices; the stuff of bubbles.
And, yes, the social implications of folks greedily pigging out on easy winnings are not good. Fast and loose; frontier-town economy. – vreaa

Westside 50′ Lot – No Waterfront; No View; Ordinary Street – Asking Price $2,489,000

For Sale: $2,489,000
2395 W 22nd Ave, Vancouver Westside. V887015.
2400sqft SFH, built 1950; 50x122ft lot (0.14 acres)

Yes, yes, we know, we know, lot value only… but then why, oh why, do the realtors insist on the snapshot? Do we really need the international ridicule that much?
Saved here as another landmark image and price level.
And to head off questions from disbelieving readers in San Francisco and Seattle; no, this is not waterfront, and no, it has no views.
In fact, it’s on a very ordinary suburban street. – vreaa
[hat-tip to 'best place on meth' at VCI who quipped "what happened to the million dollar crack-shack?"]

Google Earth gives more perspective.
Nice day; Nice trees; Horrendous architecture:

The property:

The street:

Business In Vancouver – “To take a job in Vancouver, Calgary-based senior information management consultant Joey Roa would have to give up living in a 3,000-square-foot house just outside the downtown core.”

Anecdote from Business in Vancouver article ‘Home truths hurt talent search’, as cited in Macleans 1 June 2011 -
“To take a job in Vancouver, Calgary-based senior information management consultant Joey Roa would have to give up living in a 3,000-square-foot house just outside the downtown core. He’d have to give up his 20-minute on-foot commute for what he figures would be “a considerable drive, at best.” He’d have to start paying provincial tax. He’d see his current $1.15-per-litre gas prices rise to what he terms Vancouver’s “insane” pump prices. And with Vancouver’s salaries failing to keep pace with Calgary’s oil-rich pay scale, he’d likely be looking at a pay cut to boot.”
Needless to say Roa is staying put in Calgary. He’s turned down several offers from head hunters in Vancouver, and the BIV story includes recruiters who are having trouble luring educated and experienced workers to the city. In short, Vancouver is increasingly being seen as a no-go zone for top talent.
—
Another wave of articles in the MSM this week using strong language: “Outrageous house prices” (Maclean’s), “No-go zone” (BIV), real estate a “culprit” (Maclean’s), the “Vancouver Virus” (Maclean’s), “if house prices crashed” (Maclean’s).
We expect these phrases to ‘prime the pumps’. People hear these words but they don’t hear them; they don’t act on them. Buyers keep buying and prospective sellers sit on their hands. The surging prices and the stories of foreign buyers stalking the city overshadow any doubts that prices will continue upwards. Then, fairly suddenly, prices aren’t going up, then they’re dropping, and then these phrases will return to consciousness. Speculative buyers will disappear and speculative owners, including those who don’t even know they’re speculators, will bring their product to market. – vreaa

Maclean’s – “Call it the Vancouver Virus. The culprit is real estate. Vancouver is increasingly being seen as a no-go zone for top talent. This is very bad. Worse arguably than if house prices crashed.”

‘This little 3 bedroom, 1 bathroom bungalow in Vancouver is priced at $1.5 million. The listing suggests buyers just tear it down and build a new home.’

Excerpts from ‘The real problem with Vancouver’s outrageous house prices’, by Jason Kirby, macleans.ca 1 June 2011 –

“The international media have finally clued in to the wackiness on Canada’s west coast, otherwise known as the Vancouver real estate market. Last month Bloomberg noted that when compared to median household incomes Vancouver homes are more expensive than even New York. The story linked soaring prices to the influx of wealthy buyers from mainland China. Today the Wall Street Journal retraces the exact same material. The warning in both pieces is clear: Vancouver’s housing market has become disconnected from reality and is primed to crash.” …
“Here at Maclean’s we’ve reached the same conclusion several times going back to 2008, and, admittedly, we’ve been proven fully and completely wrong. I still think prices here in Vancouver are nuts, but each day as I walk to work past the high-end coffee shops and panhandlers I see more “For Sale” signs going up, along with plenty of “Sold” stickers, too.”

“The real threat to Vancouver isn’t that the housing market might crash. … Far more insidious is the impact housing unaffordability is having on employers and the broader economy. You hear stories of smart, young people leaving for jobs elsewhere. At the same time smart, young people from elsewhere aren’t coming here for jobs. The price of real estate and cost of living are too high, while pay is simply too low relative to other parts of the country.”

“Vancouver is increasingly being seen as a no-go zone for top talent. This is very bad. Worse arguably than if house prices crashed. As Vancouver develops a reputation as a place where only the uber-rich can afford to buy property, it could seriously undermine the economy. Fewer workers living here and earning good pay means a weaker income tax base for the province (though the city is benefiting from property taxes) not to mention less people with the means to shop, eat out and support local businesses and the arts. In addition, if you don’t have a vibrant and enterprising population, chances are new companies won’t get started. Coupled with the scarcity and high-costs of commercial real estate, more companies are likely to move their head offices away. Earlier this month mining giant BHP Billiton shifted its Canadian head offices from Vancouver, a self-proclaimed global mining capital, to Saskatchewan. Who knows how many businesses decided not to come in the first place.

If the economy is left weakened by departing head offices and a scarcity of talented workers, it will leave Vancouver even more vulnerable to that housing crash when it eventually comes. In economics Dutch Disease refers to countries that are overly dependent on their natural resources at the expense of other industries. Only here the culprit is real estate. Call it the Vancouver Virus.

—
Bingo! -ed.

WSJ – ‘Chinese Fuel Vancouver Home Boom’

Excerpts from the ‘Chinese Fuel Vancouver Home Boom’, by Monica Gutschi, WSJ 1 June 2011 -
“A fresh wave of Chinese buyers, coupled with Canada’s already frothy home prices, has vaulted Vancouver into the ranks of the world’s most unaffordable real-estate markets.
Bungalows—small, detached, single-story homes, some in need of significant repair—can command prices well above a million Canadian dollars (US$1.02 million.) One local website, crackhouseormansion.com, invites visitors to guess whether homes pictured on the site are property sold for more than C$1 million or are alleged crack houses.” …
“Sales of homes worth more than C$2 million soared by 118% in Vancouver in the first four months of this year, real-estate brokerage RE/MAX reported in May. The average price in the high-end segment now tops C$3 million.” …
“Vancouver real-estate agents say Chinese buyers dominate the high end of the market, fanning demand and prices across the city. The strong demand for high-end homes has helped drive up prices for more modest houses. Some Vancouverites are selling their now richly valued homes and buying more-expensive ones, while new buyers are scrambling to buy before prices rise further, agents say. “It creates this positive vibe, this dynamic to the market that is upbeat,” says Elton Ash, vice president for western Canada at RE/MAX. …
The city always has been more expensive than most in Canada. Its location, sandwiched between the sea and the mountains, constrains the supply of available land. Vancouver also has long been near the top of global surveys in terms of quality of life. The 2010 Winter Olympics helped showcase the city to the world.” …
Some economists are starting to wave warning flags. Royal Bank of Canada says monthly carrying costs—mortgage payments, property taxes and utilities—for a detached bungalow represent 72% of the average Vancouver household income. That is more than double the 32% threshold that Canadian banks use to gauge whether a borrower can handle a loan.
“The prices appear disconnected to the level of activity and the balance of demand and supply,” RBC economist Robert Hogue says.”

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For the record, the author of this WSJ article had a conversation with vreaa during it’s writing. Obviously the article is of interest, and is important to students of our RE market, because it gives prominence to the ‘Chinese Fuel Vancouver Home Boom’ meme in a respected international publication with wide readership. As a story about the Vancouver RE market, it is, however, lacking. Mention is made of low interest rates, easy borrowing, and “new buyers scrambling”, but, in our opinion, it should have put all the facts together and explicitly concluded that local buyers are responsible for this speculative mania. China is a subplot. It is remarkable that a US based publication, circa 2011, can’t see a housing bubble for what it is. – vreaa

Local Realtor: “I sold a 33′ lot in Dunbar a few months ago for $1.55M. It’s back on at $1.8M.”

thinktom [local realtor] at RE Talks 29 may 2011 9:42pm – “I sold a 33′ lot in Dunbar a few months ago for $1.55M. It’s back on at $1.8M.”

Gee. Assuming that ‘a few’ means ‘three’, that’s 16% appreciation in 3 months, for an annual compound interest rate of 82%. Much, much higher with the inevitable leverage, of course. Not too shabby. Amazing, in fact, given the interest rate environment, where the banks are offering savers 1% on a one year GIC. Wait!… maybe it’s because of these low interest rates that the lot prices are on fire. Speculative mania; 8th inning? ; Top of the 9th? (Or, rather, 3rd period, 20 seconds left on the clock?) – vreaa

Bubble Bear Bloggers Buy… in Seattle and New Jersey

“Tim, the seattlebubble.com blogger, bought this house [3601 Wetmore Ave, Everett, WA; 1,620sqft SFH on 6,098sqft lot] for $225K. [Seattle Bubble blog, 27 May 2011]. He expressed concern that the act of buying would be seen as “moral weakness” and “picked to pieces” by readers. He summed up rationale as “buy vs. rent was in favor of buying for the location & type of homes we wanted to live in”.
At less than $150/sqft, it seems fine to us. -ed.
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HOMEOWNERS James A. Bednar and his wife, Jayne, are in the throes of renovating their first home, in Wayne. Mr. Bednar, a blogger, has been a longtime public skeptic of the real estate market.

BIG news in the virtual neighborhood: “Grim” bought a house. [from nytimes.com 12 May 2011]
For the last six years, James A. Bednar — or “Grim,” as he is known in the blogosphere — has served as a passionate advocate of cool wariness about New Jersey real estate. Through his posts on njrereport.com, Mr. Bednar convened a community of skeptics, scoffers and scavengers for “true value” during times of spiraling prices — first up, then down.
Most regulars on the blog appear to have remained renters through at least one full housing market cycle, depending on how one measures the cycling. As did Mr. Bednar.
But on the morning of April 29, as Grim, he abruptly posted the announcement that he and his wife, Jayne, were closing on a three-bedroom ranch in Wayne. “Has J. B. lost his mind?” asked Grim about himself.
There were 217 quick responses. “Now I’ve heard everything,” read one. Others asked whether Mr. Bednar would disband the blog, for which he is unpaid (definitely not, he said), and whether prices had now hit bottom (he did not answer that). But most expressed warm, if teasing, congratulations.
“I’m sure with your knowledge of the market you are getting a real good deal,” read a post from “Mikeinwaiting.” “As far as bottoms go, well, you take your chances.”
Mr. Bednar, who says he usually blogs in the wee hours, has had a full-time job as a software technician since graduating from college during the dot-com boom of the early 2000s. He withheld the gritty details of his purchase from the blog. But in an interview, he readily gave them up, saying that since he was in the habit of exposing price information about other peoples’ houses, it would be hypocritical to do otherwise: purchase price $435,000, list price $479,000 — meaning that the Bednars negotiated a 9 percent discount.
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As we’ve said before, US RE is a fair buy at present. There is likely still more downside, but, looking at these purchases prices, even another fairly big leg down wouldn’t completely destroy these folks.
Vancouver, snap-shot from the future, sometime later this decade? -ed.

“I sold our house in a Vancouver suburb for 300k 8 years ago. If I wanted to rebuy now it would cost me 600K. In the same time my wage has gone up less than 5%.”

ACjourneyman at zerohedge.com 1 Jun 2011 20:10 – “I sold our house in the Vancouver suburbs, 30 miles from Vancouver, for 300k 8 years ago. If I wanted to rebuy the same home now it would cost me 600K. My wage has gone up about 2.00 an hour or less than 5%. I don’t know if anyone else can do the math but it doesn’t work. I guess the 5.00 gas and 1500 a year car insurance doesn’t matter either, hard to live now.”

US Housing Drops Further – “I could afford a median-priced house, no problem, but I would be paying more to live in a place I like less.”

‘Tim Hebb, a Los Angeles systems engineer, sold his bungalow in August 2006 and has since rented a succession of apartments.’

Excerpts including two personal stories from ‘Housing Index Is Expected to Show a New Low in Prices’, NYT, 30 May 2011 -

The desire to own your own home, long a bedrock of the American Dream, is fast becoming a casualty of the worst housing downturn since the Great Depression.
Even as the economy began to fitfully recover in the last year, the percentage of homeowners dropped sharply, to 66.4 percent, from a peak of 69.2 percent in 2004. The ownership rate is now back to the level of 1998, and some housing experts say it could decline to the level of the 1980s or even earlier.
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Housing is locked in a downward spiral, industry analysts say, not only because so many people are blocked from the market — being unemployed, in foreclosure or trapped in homes that are worth less than the mortgage — but because even those who are solvent are opting out.
“The emotional scars left by the collapse are changing the American psyche,” said Pete Flint, chief executive of the housing Web site Trulia. “There was a time when owning a home was a symbol you had made it. Now it’s O.K. not to own.”
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Tim Hebb, a Los Angeles systems engineer, expertly called the real estate bubble. He sold his bungalow in August 2006, then leased it back for a year. Since then, the 61-year-old single father has rented a succession of apartments.
“I have flirted with buying again many times over the past few years,” said Mr. Hebb. “Let’s face it, people are not rational creatures.”
But he always resists, figuring housing is still overpriced and even when it stops declining it will stumble along the bottom for years and years. He says there is plenty of time to get back in if he should ever want to.
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Susan Lindsey, a San Diego software programmer, was once eagerly waiting for the housing market to crash. She said she would have no guilt about swooping in on some foreclosed owner who had bought a place he could not afford.
With prices now down by a third, however, she is content to stay in her $2,500-a-month rented house. She prefers to invest in gold, which she has been buying since 2003.
“I could afford a median-priced house, no problem,” said Ms. Lindsey, 48, as she headed off for a holiday weekend in Las Vegas. “But I would be paying more to live in a place I like less.”
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Future BC Anecdote? – “I bought my first house 15 years ago, a four-bedroom for $124K. I could probably buy that same house now for $124K. All the appreciation we’ve gained in the last 15 years, it’s gone.

“In the last 20 years, I’ve never seen anything like it. I bought my first house in 1996, a four-bedroom for $124,000, and I could probably buy that same house for $124,000. All the appreciation we’ve gained in the last 15 years, it’s gone.” -
Chuck Whitehead, general manager for Coldwell Banker’s Southwest Riverside operations [San Diego] Eric Wolff at the NC Times, 16 Apr 2011.

[When speculative manias end. - ed.]