“I am looking at buying in Vancouver and torn between the obvious paranoia of some people who think the Van RE market is in a bubble and will crash and my belief that Vancouver will always be a safe place to park you money, as long as it is quality. Let me explain – buying a condo which has no direct interest in the underlying land is always a risk, if it has no unique features, (like to die for view) or in an area where where future new buildings will sprout up like daisies on a warm spring day, these are not good investments and over the long run will depreciate. Buying your typical 3BR home in the valley or suburbs with an hour commute, again not a good investment. I believe real estate which has a land component, duplex or Single Family house within 30-45 minutes of the CBD, in a good area will hold it’s value and although we may be in a market where increases are minimal, over the next decade Van RE will prove to be an excellent investment. The reason I believe this are 1) Having traveled all over Canada, given a choice Vancouver is the place to live. 2) China and the Asian Pacific view Vancouver as a safe place to purchase in order to diversify overall investments position, regardless of current market prices this will continue, soon the rich Indians (from India) will be coming. 3) ALR, US Border, Mountains all limit the supply of land in the lower mainland, combine this with my buy RE with a land component close to the CBD and you have a winning formula, providing of course you can afford it.
I have a lot of sympathy for working Vancouverites looking to get into the market, people who grew up in Vancouver and want to stay and raise their families, yet can not afford the market and see their dream of providing for their family like their parents did fade.Hey it’s not fair but it does not change the situation. If you are one of these angry people who desperately want the market to crash or use screwed logic to justify renting and your pessimism, I suggest you consider moving. If I was young and unable to get into the Vancouver RE market, I would move to a place like Saskatchewan where real estate is cheap, the economy is strong and prospects are good, sure the winters crap but it doesn’t rain. Having left BC 20 years ago, I would never be in the situation I am now, able to come back and buy quality real estate, looking through global glasses and liking what I see.”
- Sam Waterman at VREAA, 25 Jan 2012 8:16pm
Sam, it doesn’t seem like you’re really “torn” at all.
If what you say is genuinely what you believe, you’re clearly going to go ahead and buy a Vancouver SFH.
Please keep in touch, and we’ll see how that has worked out for you in coming years.
—
We humbly disagree with Sam, being one of the “paranoid” few who believe Vancouver is in a bubble.
We predict that all sectors of the market will implode, SFHs as much as any other.
Remember, SFHs have been bid up through the mania, with people using the very exclusivity that Sam cites to justify that much more stratospheric pricing. SFHs are, by degree, as overpriced as condos or townhouses or any other sub-sector you care to name. In the same way, no geographical areas are bullet-proof.
We archive this post, along with others in a similar vein, under ‘The Limitless Demand Argument For Ongoing Market Strength’ sidebar category. These kinds of arguments are very common during speculative manias.
- vreaa
Sam clearly doesn’t understand land or the development and use of. That “he” says condos have no attached land value is amateur at best. I remember having this argument back in 1950 when the suburbs were starting to role out. Land prices were rising and all my farmer friends were gobsmacked at the prices being paid for these new houses that had no agrarian value. You couldn’t grow a field of veggies, grains, or raise livestock on them. Why on earth would anyone just buy a place to live with no land to work? *Note that the last anecdote is just pure jokes*
Condos are the extension of that. When demand is there to increase density the land value increases to the point where multifamily residences make sense. Going up is the only way to go. Houses give way to duplexes. Duplexes give way to four/six plexes. Those give way to 3/4 story walkups. Then those get knocked down for 20/30/40/50+ floor towers. Just how is this a mystery? The land becomes increasingly more valuable because the development upon it is of a much denser nature.
Sam also appears to be of the new target demographic. He left 20 years ago, made money where there is money to be made (not in Vancouver), and is now returning to retire. Yes, the west coast loves to attract the investor class who don’t contribute anything to the economy. THAT is the problem. When real estate values and rent increase beyond the working class’ ability/willingness to pay for it you are in deep trouble.
Oh… and Rich Indians? They are already here, and continue to come. They just are not stupid with their money and prefer Surrey and the Valley and Brampton, Ontario, where land sizes are larger, prices are less, and the community is well established.
Methinks Sam is a Realtor desperate to justify house prices in an economy that cannot justify them for him.
Earnings are poor. On behalf of those renting in Vancouver, thanks for landlords’ contribution for a decreased cost of living. It is much appreciated, even if it doesn’t come through too clearly on the blogosphere.
Agreed. If Vancouver really is the “place to be”, then rents should be going through the roof as well.
Here in Toronto, from 2010-2011 the sale price of new condos increased about 7 times faster than the rental price for comparable units (normalized for sq ft). Does anyone know what the ratio is for Vancouver SFHs?
New units are seeing high rental rates downtown, some about $3/sqft, though admittedly for very small units (<400sqft). If you want to live by your lonesome it's going to cost ya.
Also the allowable rent increase for 2012 is about 4.3%. My next prediction (after the ado surrounding residential property tax mailings going out next week) is that renters will be complaining about landlords attempting to raise rents at the cap. Hilarity will then ensue.
‘Limitless demand’… may have hit a speed bump… called LimitlessSupply…
[G&M] – Boomers ‘Punch Drunk’ on household debt
…”The findings have implications for retirement trends, and consumer spending. “Canadians nearing retirement who should be in their prime savings years are, instead, getting themselves deeper into debt,” the CIBC report said. “We are already seeing an uptrend in bankruptcies for those 50 and over, but the more material impact will be that this group’s ability to spend could be severely squeezed upon retirement.” As for heavily indebted borrowers, the study finds virtually all of the rise in debt in the past four years comes from people with a high-debt-gross income ratio. “The indebted have piled on still more debt,” it said. As a result, the share of heavy borrowers has soared — to 34 per cent of all indebted households today, compared with 26 per cent in 2007.
Among provinces, British Columbia and Alberta have the highest share of heavy borrowers.”….
http://tinyurl.com/89u6pbr
ooops, pssst… there’s one stuck in the BlogWerks, Ed…
It’s nice to see someone who is trying to rationally justify his purchase, rather than a pure momentum player. I think Sam has an excellent point separating land value (which generally appreciates) from structure value (which almost always depreciates). I’ve been wondering for over a decade now what happens when condos become too costly to maintain and the owners start fighting like bugs in a jar whether to tear down the structure or keep maintaining it.
Sam’s strategy may well limit his losses compared to the average owner in the Lower Mainland. But buying at the top is what it is.
That said, who in Canada refers to ‘downtown’ as ‘CBD’?
I think city/urban planners, developers and realtors would use that term, so are you implying that Sam is from one of these sectors ?
“That said, who in Canada refers to ‘downtown’ as ‘CBD’?”
Those that have traveled around a bit and lived in other cities, where the term is used quite often.
“Having left BC 20 years ago, I would never be in the situation I am now, able to come back and buy quality real estate, looking through global glasses and liking what I see.”
Hes the first person I have ever heard of who has returned after looking through global glasses and state the real estate here is quality.
And I have Chinese and Taiwanese friends who buy multi million dollar homes with HAM and still talk about how crappy Vancouver is.
Really…where have you been traveling??
Have you heard of the “frog in a well” syndrome??
“I remember having this argument back in 1950 when the suburbs were starting to role out”
so how much more is the farmland in the city worth than the suburb home in your example? I’d say a municipal farmland that is privately owned is worth it’s weight in gold. So too with detached home vs condo/attached. If owner can resist selling to developer for a decade (or, as in your example retain the farmland) then it’ll be worth a large fortune.
“I have a lot of sympathy for working Vancouverites looking to get into the market, people who grew up in Vancouver and want to stay and raise their families.”
Followed almost immediately by:
“If you are one of these angry people who desperately want the market to crash or use screwed logic to justify renting and your pessimism, I suggest you consider moving.”
**** you Sam.
That’s not said out of envy or frustration (though I’m sure you’ll believe that’s the root cause for this comment). No, it’s said because you and your ilk probably actually believe you ARE sympathetic. But the views you express – and how you express them – show your true colors. And you can keep pissing on the heads of the young people who are getting screwed by this bubble, but don’t think for even a second that you have us convinced that it’s raining.
We know exactly how much you care. And if we never get the chance to give as good as we’ve been given on the way down, we’ll leave you and people like you to grow desperately old and lonely. And when you talk about your woes, we’ll tell you we’re sympathetic.
+1
Sam sounds like SCam Good.
“I would move to a place like Saskatchewan where real estate is cheap, the economy is strong and prospects are good,..”
I’m confused, I thought he said Vancouver was the desirable place to be.
Maybe Sam’s comment was written 6 years ago and got stuck in the moderation queue?
Remember, just because your paranoid doesn’t mean their not out to get you.
Too right, Bailing… Albeit, for some of us… The personal ‘BackStory’ justifies full blown paranoia… ipso facto, there are, actually, times when one ought… “Be afraid. Be very, very afraid.”. Having said that, there are few scary things in life a good Pinot can’t fix…
With the glut of anecdotes that are now showing up everywhere, including the MSM, I don’t know how VREAA will keep up.
Here’s another.
http://www.cbc.ca/news/business/story/2012/01/26/household-debt-cibc-study.html?cmp=rss
“The surge in Canadian household borrowing over the last five years has been driven by the most indebted families, according to a report by CIBC World Markets released Thursday.
It suggests that about a third of families that have debt now hold 73 per cent of all household debt in Canada.
The Bank of Canada has repeatedly raised concerns about the record high level of household debt — on average at a debt-to-income ratio of 151 per cent — and what will happen when eventually interest rates begin to increase.”
Don’t fret according to Harper we have, Jim Flaherty, “the best finance minister on the planet” on the case.
http://www.vancouversun.com/business/Transcript+Stephen+Harper+speech+World+Economic+Forum/6056186/story.html
Sad to say but he well might be. Of course the competition isn’t too strong so…
Sam, if you are one of these naive people who desperately want the market to continue to defy mathematics or use screwed logic to justify your speculative instincts and your misguided optimism, I suggest you consider moving.
Hope some of you followed me into gold and silver in December:
http://vreaa.wordpress.com/2011/12/14/foreigner-on-visitor-visa-buys-house-35-down-65-canadian-bank-financing/#comment-23036
GPR (not my best pick) is up about 35% since I recommended it here. I’m actually going to take a bit off because I had a pretty big position.
#value #followthetrend #TFSA
I think this Sam is Sam Sharma. Shady realtor that was busted many years ago.
Van east sales are still good. Bidding wars continue on some properties. Some HAM still floating around.
All of these arguments boil down to “price doesn’t matter”. Price always matters.
His comment ,”looking through global glasses and liking what I see” is hilarious. If he were truly looking through global glasses he’d see the real estate bubble bursting in China as well. As for Asians viewing Vancouver real estae as a safe haven for investments, the U.S. AAA mortgage backed securities were seen as a safe haven for investors too, until they imploded.
“limitless demand”
I’ve only ever heard this from the non-owner camp. Limitless demand implies everyone wants to live here. What we have is “growing demand”. If this is what you mean VREAA perhaps you should rethink your terminology.
Ownership rate is at all time high, and higher that pretty much every other comparable country. Where is the incremental demand for housing supposed to come from?
I don’t understand the question because I cannot fathom the answer.
It’s actually called price inelasticity of demand, but vreaa’s term works. Weirdly, RE demand seems to increase with price which is violates the “law of demand”.
that’s called a Veblen good – ie. a good that has increasing demand with increasing price. New money / hot money desires this kind of conspicuous consumption and I believe that many people view Vancouver RE in this manner. In thie case of a Veblen good, it’s never about earnings. Often a Veblen good can become a simple luxury good if reasonable subtitutes are found / discovered and it’s demand can become very elastic, particularly during a credit or liquidity squeeze (2008 for example). I think this description of certain Vancouver RE fits very well especially the aspect of buyers having more money than sense – in other words, dumb money to the average wage earner. If this is the case for Vancouver RE, it’s very reasonable to assume that emigration will accelerate rapidly leaving Vancouver to the ultra-rich and those who hate sunshine.
Thank you, Airedales! Now, would you mind… Terribly? Telling everyone about Giffen Goods (hint: it’s about how certain ‘commodities’ lose their appeal on the way down). Bravo!
Nice. Maybe Giffen good is a better description because of the tie to income (ie. HAM impact). Shall we just say that Vancouver RE is a luxury good. I do like your recognition that these demand curves are bumpy or twisted. Like you said, when price drops Vancouver RE could become less desireable but also if prices go too high, then substitutes can become a factor and demand also decreases. If I was super-rich, Vancouver wouldn’t even be on my radar as I know what it’s like to live there (I lived through 4 brutal winters) but Newport Beach! Now that would be a place to bank your money for awhile!.
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100014380/china%E2%80%99s-very-mysterious-data/
Nice link, Durr.
Synchro/Simultaneous TotalGlobalMacro HardLanding… It’s what keeps some FortuneTellers up late (or up very early, depending on your longitude)… Cheers, Durr.
Thanks for your replies – to clarify – I am not a Van Realtor and while I do believe quality Van RE will be good over the long run – I too am concerned about entering the market NOW, just as I am concerned with other Global economic situations that could implode. So am I 100% sure quality Van RE will be a good investment over the next 10 years – NO, maybe 75%. My situation in perhaps different in that, I left BC/Canada for economic and adventure reasons 20 years ago and my motivation to return and purchase is because of family in Vancouver and a cultural connection. I am in the process of selling three modest Australian properties, one my personal home and two investments properties. It is quite common for working people in Australia to purchase additional residential properties because the tax office allows one to write off all expenses associated with these purchases thereby reducing ones taxable income, and from a social perspective it supplies the Australian rental market with adequate supply of housing, state housing is very limited. Although Australian RE prices have dropped modestly over the last few years, my properties have held there values well, modest homes on valuable land close to the ocean and CBD – location always wins in RE. So when I return to Vancouver with cash I have two choices rent and try to time the market or sell at market and then buy at market. I will likely buy at market because timing the market is only possible with hindsight and over the long run although I will be dead but my real estate will be valuable!
“So when I return to Vancouver with cash I have two choices rent and try to time the market or sell at market and then buy at market.”
False dichotomy is false.
Can you imagine leaving Australia to move to Vancouver! From sunshine all year round to 4 months of solid rain! I’ve only known Canadians to move to Australia and Australians to return to Australia for as long as I’ve lived.
Also, during the late 80′s, the Japanese said that land in Ginza, Tokyo can only get more expensive over the long run. Japan’s bubble burst in 1989 and the value of Ginza properties have steadily dropped every year for the past 20 years. As far as the long term value of Vancouver RE, it all depends of whether you believe the developed economies of the world will enter a deflationary or inflationary generational period and whether Vancouver is more closely tied to the fortunes of Canada or China.
Your best parallel is probably someplace like Manhattan Beach. At least your rhetoric is exactly the same as the denizens of MB just before the crash.
If you care to relive that you can visit
mbconfidential.com
He has some great data (although not all updated) like: http://www.mbconfidential.com/2012/01/other-ways-to-look-at-re-stats.html
Or under the menu MB market updates, the last item resale value of 2006 purchases.
It’s funny how quiclky the tone has changed in the MSM regarding Real Estate. here is another article to add to our collection:
Pending housing bubble spells trouble for Canada, experts say
Now that Patti has retired, she can speak freely without bank spin.
That’s exactly what I thought when I read the article… But then, would have she had the freedom to speak so freely? Probably not…
“Part of the problem, she said, is exceptionally low mortgage rates, due to the Bank of Canada’s low interest rate of one per cent — a level intended to support the economy.”
EXACTLY. Like it or hate it, the BoC’s neverending 1% is a [very big] part of the problem.
Low rates are only part of the problem, the other being bank rules that approve based on carrying costs at the expense of total debt. So, the government wants more business investment, so they drop the rates, it would take one simple letter from BoC to the CMHC to avoid this spillover into housing. That’s it, just change the rules for CMHC insurance. Trivial for the government to do, but they didn’t.
CMHC is vilified as a big part of the problem, but they could equally be used as a tool to avoid knock-on problems, political will willing.
But a very big part. The fact remains, the way it works is that lower central bank target rates mean lower mortgage rates almost universally. The BoC raises its target, mortgage rates would rise, and affordability for the masses to buy 2 million dollar dumps would evaporate. Bubble popped. Economy ruined? Not necessarily if rates went to a whopping, staggering, 2 whole percent from 1. The BoC could end the bubble, but they choose not to.
It would be nice if the BoC to realized they actually have the tools to prevent “stimulus” level interest rates from bankrupting the middle class. That’s the short version of what I was trying to say. Alas…
I think you mean there are theoretically tools they could try that might reduce the effect of their own crazy low rates on housing prices. That may well be true (though they do not use them, as you allude), but I have a more direct tool for the BoC: rate the ****ing rate so people actually value money, instead of taking on a million dollar mortgage without batting an eye. Free money is the problem, “stimulus” level interest rates going on so ridiculously long. All it causes are bubbles and enormous debt. It ruins economies in the end. “Emergency” rates should be short term, not indefinite, years and years, decades. The easy central banks are the biggest problem.
The central banks have too much power, but act like they don’t have any. It’s crazy. It’s like they haven’t thought anything through. They are picking winners and losers like a certifiable psychotic.
I think it’s worthwhile to back away a step and say, policy goals need to be changed, wholesale. Not just interest rates.
Interest rates are a stand-in for real policy to restrict consumer leverage. The usual idea is: let’s set the interest rates to balance demand for credit/leverage, but that’s a huge and crude lever on the economy. The political reality is, limiting the central bank to that one tool hobbles them too much, and when other political priorities force them to weigh in on business growth, consumers will suffer badly for it in the end. Because once the central bank’s priorities shift in favor of growth, consumer credit will get handed out like candy. But think about it a minute, why is that? Because interest rates were the *only* limit on credit. That’s what I think is a huge mistake. I honestly think we’d be better off with smarter policy that included interest rates, but didn’t rely on them.
This is what will happen to Canada.
http://maxkeiser.com/
Thanks to Sam for expressing his views and for taking the time to express them here. While I disagree with his conclusions I respect his right to hold them.
My family currently rents & we find some aspects of renting a pleasure (no taxes, no maintenance, no unexpected expenses) but also dislike renting for the lack of choice of properties. As a family with school age children we are limited in terms of location and type of property that we’re prepared to live in. This makes finding a suitable rental pretty difficult.
So, in a way, I wish I could be as blasé as Sam about buying. But I just cannot bring myself to pay the price you need to pay in order to own a house (or rather rent from the bank since I don’t have enough cash to buy outright). I’ll wait and see if prices fall to the point where I think it would make sense. If that doesn’t happen I think my family and I will be considering our options and looking to establish our lives somewhere else.
Limitless demand in Southern California (comment lifted from Calculated Risk):
2422 Silver Ridge Ave, Los Angeles, CA 90039 MLS# 12577411 – Zillow
01/25/2012 Listed for sale $1,495,000
11/19/2011 Listing removed $1,695,000
02/20/2011 Price change $1,695,000
09/02/2010 Listed for sale $1,895,000
08/29/2010 Listing removed $1,895,000
08/07/2010 Listed for sale $1,895,000
06/26/2010 Listing removed $2,495,000
06/12/2010 Price change $2,495,000
11/25/2009 Listed for sale $2,795,000
09/06/2009 Listing removed $3,995,000
01/13/2009 Price change $3,995,000
11/06/2008 Price change $4,995,000
09/18/2008 Listed for sale $4,995,000
http://www.zillow.com/homedetails/2422-Silver-Ridge-Ave-Los-Angeles-CA-90039/20753091_zpid/
Heard two interesting anecdotes recently. Two top tech companies (one bio, one IT) were recruiting for certain specialist legal skill sets. Given that very few people meet the criteria the jobs were advertised across North America. Both companies were offering very attractive salaries and both were prepared to pay for relocation etc.
In both cases, despite interviewing numerous Canadian & US-based candidates, the companies could not find anyone to fill the position. The number one reason given by candidates for withdrawing…the cost of living in Vancouver was just too high.
Can you define “quality” Van RE? what does that mean, paying over 2 million to get something not tear down status?