Four Out Of Four RE Industry Insiders Agree: “There is no bubble in Vancouver” – “[Moderator] Podmore wore a ‘no bubble’ button to the debate”

“Ward McAllister, president of Ledingham McAllister Properties, and fellow panelists Eugene Klein, president-elect of the Real Estate Board of Greater Vancouver, and real estate consultant Richard Wozny, of Site Economics Ltd. were at the board of trade to debate whether or not Vancouver real estate is in the midst of a bubble. They all agreed it is not. …
“Buyers, especially the under-25 mark, are sitting on the sidelines,” said Klein. …
The HST effect was the only real damper on Metro Vancouver real estate, which the three panelists and moderator David Podmore, CEO of Concert Properties Ltd., all said (was) not a bubble. Podmore wore a button to the conference with the slash symbol for “no” imprinted over the word bubble.
“I am very optimistic about where we are heading,” he said, noting that his company largely pulled out of Metro Vancouver Real Estate in 2007, but went back in 2009.
He cited two reasons for the region’s strong real estate market: immigration and the fact that real estate is being viewed as a hedge against the uncertainty that has hit global finance.
Klein said international interest in Vancouver is attracting foreign buyers. He said buyers are coming here to live, with only three per cent characterized as foreign investors. He said supply is now out-stripping demand, but it has no affected prices. Prices have increases dramatically in some area over the last 12 months; in Richmond by $200,000, in West Vancouver by $275,000 and Vancouver’s West Side by $400,000.
“Demand for high-end properties have helped drive our demand for most of the year,” he said.
Wozny said Metro Vancouver’s real estate prices are “very high by any measure.”
“It must be something political or social because it certainly has nothing to do with economics.” he said.
He forecast low interest rates for the foreseeable future, which will translate into continuing sales.
“There is no bubble in Vancouver,” he said.
McAllister had advice for prospective homeowners in their 20s who are questioning whether they should wait for prices to come down. Don’t wait, he said; borrow from mom and dad.
And he warned against selling hoping to get back into the market later.
“Affordability is one of the main concerns in this market and I think will continue to be over the rest of my life.”
- from ‘New housing sales stall over transition out of HST’, Gordon Hamilton, Vancouver Sun, 21 Oct 2011
[hat-tip Patiently Waiting at vancouvercondo.info]

Well now, ain’t that.. cosy?
Quite the ‘debate’.
Metaphors almost fail us… kinda like getting Palmer, Nicholas, Woods and Player to debate the subject “Golf, the Best Game?”; or four vultures to debate the merits of carrion.
Thoughts:
1. Interesting terminology, “the under-25 ‘mark’ “. (Ever seen ‘The Sting’?)
2. They are seeking buyers at the margins: persuading those in their 20′s to borrow downpayments.
3. Their analysis is arguably even more nebulous than the usual “limitless demand” position: Even though prices are very high and not supported by “economics”, low interest rates and “something political or social” will “translate into continuing sales”. “Immigration and the fact that real estate is being viewed as a hedge against the uncertainty that has hit global finance” will continue to buoy the market. This really is little more than wishful thinking. Consider what may happen to this market if just a 15% drop in prices (and a 10% drop in the loonie) lead investors to question its “safe haven” status.
4. “Affordability is one of the main concerns in this market and I think will continue to be over the rest of my life.” – Classic bubble quote. Whenever people start expressing opinions that markets will never change, take note.
5. With reference to our discussion earlier regarding the media and the RE industry, witness the Sun running this as ‘news’.
- vreaa

29 responses to “Four Out Of Four RE Industry Insiders Agree: “There is no bubble in Vancouver” – “[Moderator] Podmore wore a ‘no bubble’ button to the debate”

  1. That “under 25″ buyer comment really stood out to me. Unbelievable. We’ve so topped.

    • Totally agree… Real Estate developers will soon pull their dvertising from the Georgia Straight and start billboard advertising next to local High Schools…

    • The under 25 comment really caught my eye. Unreal.

    • It does make me acknowledge that the “under 18″ market is underserved in this marketplace.

      I’d almost tag this as jumping the shark, except that “under 25″ is likely old hat in local RE marketing circles.

  2. Target market: the capitulated FTB. Removing fear/hope of falling prices. Sick if they don’t believe their own garbage.

    All I can say is that the chance of their predictions being accurate in the next 5-10 years are very low based on the data and analysis I’ve done. But I’m just an anonymous blogger. They have bodies (though not sure about souls).

  3. “Buyers, especially the under-25 mark, are sitting on the sidelines,” said Klein.

    Yeah, great idea when you’re younger than 25… tie yourself down to one city… Wouldn’t want to ever move at that age for career opportunities, right?

    What’s next? Is Klein going to blame teenagers for “sitting on the sidelines”?

    These guys are ridiculous… It’s like an Groupthink echo chamber…

  4. “It must be something political or social because it certainly has nothing to do with economics.” he said.

    how about voodoo economics

  5. pricedoutfornow

    “four vultures to debate the merits of carrion.”

    Hilarious, VREAA. You hit it spot on. Why not have some Wall Street bankers stand around and discuss if they think their bonuses are too high? Or real estate agents if real estate commissions are too pricey?
    What a ridiculous “discussion”.
    In other news, I’ve overheard at least three people this week talk about plans for moving away. One was saying in a voice of awe “We’re moving to Ontario….and we bought a house!” If prices did stay this high, this city will surely be emptied out in a decade.

  6. Hey …. longtime (grateful) reader, first-time poster … my apologies in advance for the length of this post, but this “news” item really struck a nerve. So many illustrative points about the psychology of market insiders.

    …. “it must be something political or social because it has nothing to do with economics” (said Wozny)

    This is a truly classic quote from a “Real Estate Consultant” who clearly has either not read, or has read and has not understood Shiller’s “Irrational Exuberance” … Shiller (one of perhaps a dozen individuals worldwide who called the American housing market a bubble whilst hundreds of “economists” and other clowns just like these 4 guys all derisively denied it) demonstrated that social interaction (which is at the core of “politics”, no?) is the fuel for bubbles. The irrational exuberance of so many participants in the Vancouver has everything to do with economics.

    Crowds only have “wisdom” (i.e., the aggregate of all individual decisions will likely prove to be the optimal or “correct” one) when each individual’s decision is made entirely independently of all others, i.e., there is no feedback loop … however, when market participants instead are able to instantly share information regarding price action, this continuous feedback loop influences future decisions/behavior, i.e. fuels speculative behavior, and instead of wisdom. the “madness of crowds” emerges. As VREAA so aptly and eloquently chronicles day after day, most Vancouver housing market transactions inherently incorporate speculative and emotional components.

    These 4 guys are all such mechanists … they erroneously assume that in the absence of some kind of external causality, or “event”, everything in a system stays static (e.g., the “no price decline will occur without rising interest rates” theory) … when in reality a complex system is always in flux, and economic behavior is largely determined by endogenous human factors … the emotional states of buyers and sellers.

    An obvious “trigger” is not required for a bubble to pop … however, in hindsight the postmortem rationalizing process likely requires identification of such, i.e., an attribution of some must be made to settle the rampant cognitive dissonance being experienced by “shocked” market participants. Interestingly, US house prices peaked in 2005. The quantity of sub-prime loans peaked much later, in 2006. The market had already reversed course, yet “sub-prime” is the “reason” given for the burst

    When exuberance/optimism/confidence/greed is at its maximum, the market direction is bound to (eventually) reverse course … in a highly emotionally-fueled market once (so to speak, for illustrative purposes) “everyone” has become a “confident buyer”, then there is “nobody” left to sell to … i.e., the marketplace becomes comprised of a large mass of potential sellers, and a distinct lack of potential buyers, and falling prices inevitably ensue.

    It is shocking how simplistic the understanding of someone like “Real Estate Consultant” Wozny is. Then again, a fellow named Upton Sinclair once said, “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”

    Final thought … the “no bubble” button echos the, “the lady doth protest too much” quote from Hamlet … a clear sign of greed turning to fear …. a topping process in action, IMO …

    Many many thanks for all you do, VREAA.

  7. Thought it might be good to highlight various slates’ policies on housing. Here’s NSV’s for a start: http://nsvancouver.ca/images/stories/pdf/NSVCouncilPrinciplesOct11-2011.pdf

    BTW I, for one, do not necessarily endorse these policies. Maybe in a future post I can dissect this one. It was interesting to read because it’s so focused on housing and zoning.

  8. Here’s what I can find on VV’s platform:
    http://votevision.ca/issue/affordable-housing-homelessness

    And NPA:
    ??

    And COPE:
    ??

    And Green
    http://vangreens.ca/policy

    On first pass, it’s obvious that broad affordability isn’t really an “issue”, though it’s probably discussed in various debates. If anyone goes and hears what individual candidates have to say about improving broad housing affordability in Vancouver, please report back. Hopefully a few debates are archived in video format for vreaa to post at a later date.

    And this isn’t just a Vancouver issue, it extends to other jurisdictions. It’s also true that there’s only so much a civic body can do, but they can do quite a bit. It’s always been my view that what would need to be done to properly isolate Vancouver area from destructive asset bubbles is going to be unpopular. The slates I see are after broad support, no bloc special interest voting on housing. There’s an opportunity for a single candidate to get in on housing affordability alone, but it’s unlikely to garner broad support.

    I thought it would be fun to get a rabble rouser in to chambers at least to point out how asinine Vancouver housing prices are, and say “I told you so” when prices start cratering. Start expounding German/Swiss models, etc.

    But cudos for NSV for at least taking on real estate as the main issue. Having a detailed policy on housing doesn’t necessarily make it good policy but anyways, that’s a topic for another night.

    • jesse -> Good idea; deserves a thread and a sidebar reference; will do.
      A reference page gather links/analysis regarding housing positions and proposals. We could attempt to extract the essence/major points of each position. If you like, e-mail a draft of such a page; or I’ll get it started from the above.

      PS: (alternatively we could create the thread at housinganalysis, if you prefer).

  9. Bubble or no bubble?? House or home? investing in lifestyle or investing in equity? not making any more land or just build higher… All classic arguments and reminds me of this story …

    There is an old financial markets story about fish trading.
    Back in the early 1900s, on rumors that sardines had dis-
    appeared from their traditional waters in Monterey, California,
    commodity traders started to bid up the price of tinned sardines.
    A vibrant market ensued and the price of a tin of sardines
    soared—a classic bubble. This fervent trading went on for some
    time. One day, after some particularly successful trading, a trader
    chose to treat himself to an expensive snack: he actually opened
    a tin and ate some of the sardines he’d been exchanging. They
    tasted awful and made him feel ill, so the buyer called the seller
    and told him the sardines were no good. For the buyer’s enlight-
    enment, the seller explained, “You don’t understand. Those are
    not eating sardines, they are trading sardines.”

    (first para copied from here)
    http://my.safaribooksonline.com/book/-/9781857885712/1-making-sense-of-the-way-the-world-really-works/1_making_sense_of_the_way_the

    • Precisely.
      The speculative component in the home price.
      It can disappear in an instant.

    • This is exactly the situation in China with copper at the moment. The price gap between scrap and electrolytic copper has grown unusually small. Since the purpose of the copper is not direct use, but as collateral for an unencumbered loan, it makes sense that there is little perceived difference in “value” between useful and “useless” copper.

  10. I don’t get it. Klein Is a commercial realtor and a director of the commercial division. He has nothing to do with residential real estate or development.

  11. It absolutely amazes me that anyone would listen to this bull “s@#$”…
    lets for a minute pretend that a wave of under 25′s are just waiting on the sidelines…these guys are suggesting that they borrow from the bank of mom and dad, which is the soup dejour being pushed by msm today (see global’s “Gen How”, or HGTV’s “my house, your money”)…the obvious issue with this one is that my parents, and everyone that I know in their generation would have to mortgage their own homes to provide a downpayment. My parents have ten years to go before they hit 65. They have next to nothing saved for retirement, and they are not alone! They will need to have their homes paid off at 65 in order to ensure a stable low cost residence for their retirement. Recently the Feds have been going on and on about the need for my parents generation to start putting some cash away for retirement as most of them have ten years to go and nothing saved. This is the generation that is going to hand fat down payments to thier kids? How the hell does that make any sense? And what if these parents have more than one kid…don’t have the cash for the first kid, let alone the second or the third.
    These guys are right out to lunch. Unfortunately, most people watching the msm are too stupid to know any better. And so are their parents. Fancy Feast anyone?

  12. Some of the most idiotic statements I have ever read wrt to Vancouver RE.

    1) “a hedge against the uncertainty in global financial markets”: a hedge should lose money if the hedged position is expected to make money. Obviously, Vancouver RE is not a hedge if RE prices are expected to keep going higher- it’s a speculative investment – pure and simple.

    2) “the under-25 buyers are sitting on the sidelines” and should be borrowing from the bank of mom and dad for their down payment and then borrowing from the banks for their mortgage. Let’s just pile more leverage on leverage to speculate on Vancouver property! Do these idiots realize that it was multiple layers of leverage that wiped out $2trillion of global wealth just a few short years ago during the financial crisis!

    3) “West-side homes up $400K in the last year!: – then proclaming that there is no bubble. Like prices go up every year by 4 to 5x the average household pre-tax income. It’s unbelievable that the facts can stare somebody in the face yet they choose to deny the reality of the situation.

    These idiots have effectively guaranteed the existence of a bubble because their complete ignorance.

  13. I know at least one of the speakers lives on the west side in a nice home! Why would he care?

  14. Mockingly encouraging borrowing from the Bank of Mom and Dad is simply disgusting and, I’m guessing, the last stop on the RE gravy train. These shysters are just digging for the last of the untapped middle class cash wealth so they can skim their cut off the top while transforming that cash into ephemeral paper wealth which will then disappear, poof.

    Do I sound negative? lol

  15. Loudon: excellent comments. Couldn’t agree more.

    I’d like to address each of the points made by these so-called experts. Their main and most-predictable assertion, that “there is no bubble”, may be dismissed out of hand. A), Because the laws of finance tell us otherwise, and, B), Because the individuals making this assertion are not objective. Asking them if there’s a bubble is a bit like asking the barber if you need a haircut.

    Their comments about buyers under 25 being “on the sidelines” shows how clueless (and desperate?) these guys are. Most people in this demographic have negative net worth, or very little savings, and limited earning power. As for their parents, this is a group that is woefully underfinanced for their retirement, let alone for the real estate needs of entire generation.

    Regarding immigration. This is the go-to justification in Vancouver, much like “potash” is in Saskatchewan, and “retirees” was in Phoenix. The fact is, immigration rates to Vancouver have been falling for decades, and the city’s population is growing at a mere 1.2%.

    The “hedge against uncertainty” argument is similarly weak. Vancouver’s RE bubble has been building for the better part of a decade—long before the referenced uncertainty. In any case, it’s a hollow statement; the global economy will always be uncertain. No insight there.

    The argument that low interest rates will fuel “continuing sales” begs the question: by whom? With home ownership rates at record highs, there aren’t enough buyers left to sustain price increases.

    The icing on the cake is their “don’t wait” advice. This shameful scare tactic is quite possibly the worst financial counsel anyone could give to a young Vancouverite. I hope we see a follow-up story where these bullies issue an apology. Somehow I doubt we will.

  16. Just a note… and I’ll double check with the speaker, but I think there’s been a miss-quote by the Vancouver Sun (I was at the event & discussed the topic w/ the paneslists)…

    The “under-25 mark” re: HST’s impact on new home sales…

    I believe REBGV’s President-Elect, Eugen Klein, stated that buyers under the “$525 [thousand] mark” are sitting on the sidelines.

    Anyhow – just a note as people are commenting on it.

    • Hard to imagine the Sun making an error like that, their RE reporting is usually so rigorous. (/sarcasm)

      If this is an error in quoting, it moves from the realm of interesting industry-insider clanger to interesting RE-’reporter’ Freudian-slip.
      And, come to think of it, aren’t these faux-reporters essentially industry-insiders, too?

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