“I saw my first condo fall in value by 50% in the 1990s. Believe me, it is no fun paying a $400K mortgage when your place is valued at $200K. You will hate your life.”

Posted on 3 March 2012 | 93 Comments

“So many of the young people I know just don’t get it. All they’ve ever known is that you can’t lose at real-estate – often taught to them by their Boomer parents who bought cheap and rode the prices to the stratosphere. And they are brainwashed into thinking that the goal of life is home ownership.
Wake up to the risks. Do you appreciate that Canadian real-estate is insanely overpriced by any measure?… price-to-income, price-to-rent, price-to-US markets, etc. And this is happening at a time when mortgage rates are at 30+ year lows. Can you see that a bloodbath may occur when rates rise? Do you know that real-estate is CYCLIC? Study history!
Do you understand that real-estate could comfortably fall by 50% and still be overpriced? I witnessed real estate crash in Vancouver by 50%+ in 1980/81. I saw my first condo fall in value by 50% in the 1990s. Believe me, it is no fun paying a $400K mortgage when your place is valued at $200K. You will hate your life.
I can somewhat understand when married-with-kids people in their 30s+ consider buying a house in this market. They want to “nest”. They want to provide their kids with stability in terms of friends and schooling.
But WHY would someone in their 20s even want to partake in this madness? GO TRAVEL INSTEAD, WHILE YOU ARE YOUNG, HEALTHY, AND FREE. Go take up amazing jobs in amazing places. Pursue higher education.
In 10 years you will suddenly find yourself married with kids and loaded down with responsibilities. And you’ll look back and wished you’d taken the opportunity, while in your 20s, to seek adventure and better yourself.
And, funny enough, your friends who don’t buy in this real-estate madness and instead pursue these amazing adventures will likely end up way better off than you. Just around the time you are declaring bankruptcy, wondering why you blew your 20s working as a debt slave to your money-pit that you grew to hate, and wishing your could, for once, afford a nice holiday, your friends will be returning home. They’ll have amazing stories of exotic adventures… Traveling in Australia, going to school in North Carolina, doing volunteer work in Dominican Republic, meeting someone special while backpacking through Europe, taking on a job in London and being transferred to the Vancouver office.
And to add insult to injury, they’ll buy your foreclosed condo for 1/3 the price you paid.”
- The Real Jimbo at greaterfool.ca 27 Feb 2012 12:55am

This entry was posted in 05. Where do Buyers get the money?, 08. Overextended Buyers, 11. Regrets about Investing in RE, 14. Social Effects of the Boom, 15. Misallocation of Resources and tagged , , , , , . Bookmark the permalink.

93 Responses to “I saw my first condo fall in value by 50% in the 1990s. Believe me, it is no fun paying a $400K mortgage when your place is valued at $200K. You will hate your life.”

  1. Moneybags | 3 March 2012 at 6:22 am | Reply

    I bought a condo in Coquitlam in 1993 only to have the value fall by 35% by 1999. It took 11 years (2004) for the value to come back to the purchase price. It really is a living hell being underwater in real estate.

    • Homeowner | 3 March 2012 at 10:05 am | Reply

      Remember that real estate is long term. Anything under 15 years is short term. Lesson is if you hold long term, you are ok!

      • AG Sage | 3 March 2012 at 10:12 am |

        Even better reason to never buy in your 20s no matter the market. You want flexibility.

      • debtless | 3 March 2012 at 1:35 pm |

        Buy and hold philosophy is promoted by lenders, brokers, governments and central banks who profit from your labor, not traders. If buy and hold was a rule, the bank would pay their portion of property tax and assume risk on shared liability, selling futures to depositors.They do sell futures on agricultural land because typical wheat farmer in Sask avoids buy and hold. They might sell a property multiple times a year and lease back according to crop yield. As AG writes above, the home ower’s capital is inflexible, locked in, thus subject to all the liability. The bank extracts the profitability on a very astute product formula.

        In fifteen years, your refit and maintenance cost, taxes, insurance, interest, cost of living, fees, energy costs, currency devaluation in the inflation game, and loss of capital in the market will render investment stagnant at best. Renting is so much cheaper, often cheaper than interest alone, that the difference invested wisely will pay for a house in cash within seven to ten years. ie. $100,000/yr accumulates $700k in ten years taxes paid. That’s the 10:1 price/income ratio. Once an investor without liability realizes the potential to amass wealth at greater speed and volume through trading, they learn liquidity is king, and treat residency as an expense, which is the same way income tax treats it, a basic personal non refundable credit. (stay below this amount)

        I can only offer my own ‘banking’ experience. Let’s say I lease an acre farm yr/yr for $900/m and shelter livestock for $3000/m. Everything is an expense and profit is reinvested at a tax rate of 13%. I sublet to borders, leave the owner with the liability and I save the monthly profit. I lower the owner’s taxes through land use, contract help, and raise my rates to mirror real estate costs. Perpetual motion, rent free and title free. Let’s say I do another, and another, soon there’s so much cash coming in off of other people’s real estate I’m addicted.

        Even if you get a mortgage helper, the income is added to your base rate and taxed at 28%. The house is not working for you, you are working for the house. The “I need a place to live anyway” argument does not fly when a renter is paying less than a third of the titleholder’s monthly outlay. The fallacy of “home-ownership” is a emotional sell based on prestige, not wealth accumulation. For gosh sakes, you don’t even have private property rights on the house, it’s chattel of the province.

        I acknowledge the path to wealth has been promoted through equity, and that families are combining two birds with one stone, but it takes too much income vs the expense. Even banks with depleting share holder equity will raise dividends to keep shareholders happy. Have you been tucking away a dividend based on your increase in equity? If you have, then you are smart. However, if you got a home equity loan, the bank was the one who raised its own equity through mortgage backed securities, and now pay shareholders a dividend from your interest payments. Banks make money on your debt by leveraging your own downpayment back to you and charging interest on what they never had in the first place. They make enough money to finance operations, pay shareholders, and report the largest profits of any Canadian business. If someone calls them on a loan, ie converts to hard assets, they calculate enough petty cash to payout without destabilizing the system. It’s a scam.

        I feel confident that I could use your mortgage money wiser, amass wealth quicker, and buy you a house for cash sooner than leaving you sit and languish in buy and hold. Alas, I do not offer these services, however, I do care for you as a human, just not as a strawman for the bank.

      • bubbly | 3 March 2012 at 2:17 pm |

        I have never met anyone in Canada who bought and planned to stay in the house for 15 years. Every single hoemoaner I talked to planns to sell for profit within 5 years. Most of them are families with children living in those houses.

      • theragingranter | 3 March 2012 at 2:25 pm |

        Taking a “long term view” does not negate the very real costs of buying into an inflated market. Even if you plan to own for 50 years, why would you buy near the height of the bubble?

      • bubbly | 3 March 2012 at 2:38 pm |

        Even if you plan to own for 50 years, why would you buy near the height of the bubble?

        Social pressure from current and wannabe hoemoaners, from realtors, bankers, media, government etc.
        Remember, you are not an adult if you are not drowning in debt.

      • Farmer | 4 March 2012 at 4:14 am |

        What is interesting. debtless, is the demand abroad for Canadian MBS products. They are gold plated in essence because they are backed by the triple AAA rating of the Federal Government and our banks. In effect, Canadian taxpayers are on the hook for paying into the pension plans of overseas buyers of these products and ensuring their viability. Those products are bullet proof. They will not fail any more than CMHC or our banks fail and so they represent a very solid purchase. Hopefully highly indebted homeowners who eventually go underwater can feel the generosity knowing they are a part of such solid investment instruments peddled abroad.

        (I hope that was not rubbing too much salt in the wound)

    • ToL | 3 March 2012 at 1:04 pm | Reply

      Family friends who bought new condos in Burnaby in 1992 also saw prices dropped 20%-25%. Most bought their units unseen before they arrived in Vancouver. They had to sell at a loss, as some moved to houses and some left the city
      At around the same time (before the Asia Pacific crisis), a family friend complained to older family members that his son had to sell off his Toronto condo at a huge loss >50%. Of course the rich father assumed the debt.
      Now fast forward to the early 2000s, a friend had been looking to buy but complained that prices were too high then. His dad, a VP at a bank agreed with him, or the other way around. Then suddenly from 2004 on, he bought not one, not two, but one property after the other. Heck, they must know something that others don’t.

  2. jesse | 3 March 2012 at 7:18 am | Reply

    Perhaps it’s human nature that the bad times are forgotten.

    • vreaa | 3 March 2012 at 7:39 am | Reply

      There is absolutely no doubt that this is true.
      It is evolutionarily beneficial for the species for individuals to be overly-optimistic and overly-confident.
      For instance, the average human rates themselves as being of considerably above-average good looks and intellect. Laughable, but true. And it likely benefits them in seeking out as good a mate as possible.
      This whole phenomenon also manifests as a re-writing of the past, in an overly optimistic fashion. Wouldn’t want ‘bad vibes’ from he past to interfere with us barreling forward into the next ‘breech’. Sure, a percentage will get slaughtered but, as a species we’ll prosper.

    • vreaa | 3 March 2012 at 7:47 am | Reply

      We’ve previously described the laughable way in which people re-write their recollection of their behaviour in markets.
      Our favourite for instance in this regard is how, after speculative manias crash, it is less painful for many players to say “We always knew it was a bubble” (even though they didn’t sell and took very large losses) than it is for them to say “Gee, I really was ignorant, I had no idea at all what was happening”.
      The former conclusion (even though it seems so contradictory given their losses) preserves the individual’s fantasy that they know what’s going on in the world around them.
      Aren’t we humans wonderful?

      • jesse | 3 March 2012 at 8:57 am |

        In the ’90s I remembering hearing similar sentiment but it came in phases. The reference point — and what’s included in the ROI calculations — used to justify positive gain is sequentially turned back to “make the numbers work”.

      • theragingranter | 3 March 2012 at 2:32 pm |

        Much like the couple in the Macleans article who say they’re buying even though the market might crash because “we plan on owning for at least ten years.” In other words, that’s the line being fed to them by the banks and realtors nowadays (not to mention their friends and parents). “Sure, a correction might be in the cards. But you’re not speculators. You’re buying a home.”

      • Farmer | 4 March 2012 at 4:31 am |

        I guess buyers just cannot imagine renting for as much as a decade while they await a correction to play out. The timeline is simply too long. Thus they rationalize buying into an overpriced market is still better than not buying at all. The rest of their arguments amount to a leap of faith into the unknown as they don’t understand the dynamics to begin with and have no intention of learning.

        So therefore, its OK to buy into a market that might crash if you are committed long term anyway. You just ride the wave up and down without regard for the market direction and at the end of the day you own a house anyway…..right?

        Well, maybe not. Not if you and the spouse suddenly cannot make the payments. Not if interest rates double your monthly. Not if job loss forces you to move for work. Not if the family grows unexpectedly, the in laws come home, there is a health crisis for the breadwinners etc etc.

        So yeah….buying low is a better strategy. What the hell ever happened to long term planning in this country anyway? The idea of actually saving up a large down payment just seems so 1950′s all of a sudden.

    • nobody you know | 3 March 2012 at 9:06 am | Reply

      Yeah, and if you’re a twentysomething too young to have ever experienced anything different why would you listen to dumb old people with their boring “facts” and “history”? I mean, come on, a 24 year old has seen with their own eyes that real estate is bulletproof so they won’t listen to an old (30s) doomer moaning about the ancient past (90s) when everyone knows the paradigm has shifted and the new normal means it’s different here. You can’t tell them anything when they already know it all.

      And you can increase that smugness by an order of magnitude when dealing with a twentysomething realtor.

      Trendy haircut: $30
      Homemade website: $35
      Sport coat from Winners: $40

      Believing you’ve reinvented the economy and can pull money out of thin air: PRICELESS

      • theragingranter | 3 March 2012 at 2:34 pm |

        Problem is, most of the oldsters are sitting on piles of “home equity”, feeling pretty dang smart right now. And they’re telling their kids to buy.

      • debtless | 3 March 2012 at 3:42 pm |

        TRR: I want to meet a ‘home-owner’ who has the nads to run to a bank, take out the biggest home equity loan they can get and plunk it on a rice future out to June, or potash, or something. Watching equity rot with inflation is unnerving.

        Nice market profile, nobody, highly bankable.

  3. Basement Suite | 3 March 2012 at 7:21 am | Reply

    “Do you appreciate that Canadian real-estate is insanely overpriced by any measure?… price-to-income, price-to-rent, price-to-US markets, etc.”

    But not so overpriced when compared to monthly payment, thanks to dirt cheap (way under 3%) mortgage rates that are holding this whole thing together. That brings the monthly payment down huge, and people are making their payments on grossly overpriced RE, and hence no one in government wants higher interest rates, they do not want this thing to end. In fact people should be paid to borrow money, interest should be negative, thinks Bernanke and his followers at the Bank of Canada.

    • vreaa | 3 March 2012 at 7:55 am | Reply

      And, yes, it could be extended even further, but not beyond the brick wall (actual mortar; not seen much around here). Then, when we eventually hit that wall (sooner?, later?) and start bouncing back, nothing that any government decrees will stop the unwinding. There are too many self-perpetuating facets to the deleveraging.

  4. Formula1 | 3 March 2012 at 8:33 am | Reply

    this is Garth Turner post, not The Real Jimbo.
    Garth owns his home, doesn’t he?
    That’s kinda like Al Gore driving a Hummer…you drive the hybrid so he can afford more gas for his guzzler.

    • vreaa | 3 March 2012 at 8:50 am | Reply

      “this is Garth Turner post, not The Real Jimbo.”
      No, it’s commenter “The Real Jimbo” at greaterfool.ca
      …
      Yes, Garth apparently owns his own home, but he can afford to (truly afford to) in that it makes up only a very modest percentage of his net-worth.
      …
      F1 -> What percentage of your net-worth is in Vancouver RE?
      More than 100%, we’d bet (meaning you’re all-in, with leverage).
      Correct?

      • Formula1 | 3 March 2012 at 9:26 am |

        vreaa,
        I am 100% “all in” when I invest in my family – buying a home is just a fraction of the entire investment.

        to this world I was brought penniless, from this world I will go the same…everything in between is shadow boxing.

      • vreaa | 3 March 2012 at 11:10 am |

        F1 -> Sure, only RE bulls love their families, or really ‘care’, or have the wisdom to see that money isn’t everything, etc, etc.
        You’ve established that ad nauseum previously.
        There’s gotta be a good latin term for the argument: “my children are more important than [whatever], therefore [any conclusion here]“.

      • Formula1 | 3 March 2012 at 3:42 pm |

        have a family of your own vreaa then tell me how you feel about renting. Until then this conversation is way over your head.

      • theragingranter | 3 March 2012 at 3:49 pm |

        Forumula1, like many perennial RE bulls, you assume that housing “doomers” must be completely anti-ownership, and if they’re not, then they are guilty of hypocrisy. “Yeah well so-and-so owns a house, so why is he telling everyone else not to buy one?” That’s a flimsy straw man argument if I ever saw one. Myself and many other RE doomers do not oppose home ownership. We oppose the cult of ownership. We oppose that unhealthy obsession western societies have with real estate, and the mythology that has emerged in support of that obsession. And we oppose the effects this mythology is having on the economy and on society as a whole.

        Perhaps most of all, we oppose the enormous and costly public policy errors that have been created specifically to reward and reinforce adherence to this mythology. Ultimately, the cost of these policy errors will be borne by all of us, whether we own or not. And the best counterpoint I’ve ever seen you offer up is, “You’re just sore that you missed the boat. Oh well, better luck next time”, or something equally flippant and lame. As though we should all just happily accept our fate as collateral damage while the lemmings keep partying and bidding up houses all around us.

        I’ve done what I can to insulate myself from the coming bubble implosion. So why would I even care about the economic prospects of the house-horny masses? Well, unlike you, I’m not naive enough to believe I can escape an economic shock unscathed. I know very well that if enough lemmings suffer, I suffer. Take a look at the US. At Ireland. At Spain. It’s not just owners who are suffering. Owners are just suffering more. The downgrade in economic prospects is collective. It doesn’t discriminate. Don’t worry though – it’s different here.

      • debtless | 3 March 2012 at 3:51 pm |

        I’ll bite. Renter. Cash to buy big land. University paid for two kids. Marital bliss. Collector cars. Works part-time. Part owner of a manufacturing facility in Houston and a furniture co in Canada. Never owned a cardboard slap box in one of the worst construction standard environments east of Chicago.

      • vreaa | 3 March 2012 at 3:59 pm |

        ragingranter -> Agreed.

        debtless -> Thanks for sharing; impressive track record and it is tangible that you have fun too.
        Unfortunately none of the bulls will believe you: they’ll call your story “fabricated”… they simply can’t fathom that anybody in Vancouver can afford to buy RE but declines the ‘opportunity’.

        F1 -> My kids always get a kick out of your posts. Hysterical!

      • debtless | 3 March 2012 at 4:00 pm |

        ps. I should add the reason why I rent. 5 acres of prime ALR with horses for $900/m. Came with a fifty year old house.

      • debtless | 3 March 2012 at 4:09 pm |

        VREAA – “… they simply can’t fathom that anybody in Vancouver can afford to buy RE but declines the ‘opportunity’.”
        What opportunity? I couldn’t afford the monthly payment of owning. I worked and saved, and listened to the financial woes of landlords. Now, when I can afford it, I have no desire. That lure of materialism has passed. Instead I like raw land in the interior. I consciously did not want my children going into debt for school and was willing to sacrifice my own self gratification for their financial freedom. I hear from friends who told their kids, “sorry I can’t pay for your university, but remember that awesome beemer we used to have.”

      • Formula1 | 3 March 2012 at 5:43 pm |

        love to meet your “family” vreaa.
        e-mail me at centrinoblue@hotmail.com and we’ll set it up.

      • 4SlicesofCheese | 3 March 2012 at 6:04 pm |

        F1 that is creepy.

      • Formula1 | 3 March 2012 at 6:28 pm |

        “We oppose the cult of ownership. We oppose that unhealthy obsession western societies have with real estate, and the mythology that has emerged in support of that obsession”.

        you’ve unwittingly become a part of the system you despise. The cult of ownership includes the cult of rentership, and bloggership. This continual analysis of real estate from both sides does nothing but fan the flame. Thank your good host vreaa for his major contribuion.

      • Formula1 | 3 March 2012 at 6:32 pm |

        meet your family? to call your bluff vreaa – I don’t believe you have a family.

      • vreaa | 3 March 2012 at 6:36 pm |

        F1 -> Okay, suit yourself, believe I don’t have a family.

      • ETB WATCHER | 3 March 2012 at 6:49 pm |

        Formula1/eyesthebye, you should be a little more polite to our host, who prevents your true identity from being revealed. You are truly demented to believe you now have the ability to discern who does and doesn’t have a family.

      • Farmer | 3 March 2012 at 7:03 pm |

        Glad you brought that up, ETB. Nobody is anonymous on these blogs although most seem to think they can express themselves freely from behind a secret veil. Those fools should wake up and snort the early morning coffee because even “private” personas developed online are trackableand named.

        Even Vreaa is known. It is waayyyyy easier than you think, Formula.

      • Potato | 3 March 2012 at 7:09 pm |

        “Yes, Garth apparently owns his own home, but he can afford to (truly afford to) in that it makes up only a very modest percentage of his net-worth.”

        This is an important point. For people that are a bit older and already own with a lot of worth in other investments, I say why not take the gift the housing mania has given, but I don’t tend to stress it. If/when the correction comes, they’ll lose some money, but the risks to them are pretty minor beyond that. For younger people who haven’t bought yet, or who recently bought with little down I’m more fanatical about trying to convince them to get out/stay out: the risks extend beyond the “it’s just money level” since it’s all their money — and also can tie them down to one place, which can impact their human capital.

      • theragingranter | 3 March 2012 at 7:14 pm |

        you’ve unwittingly become a part of the system you despise. The cult of ownership includes the cult of rentership, and bloggership. This continual analysis of real estate from both sides does nothing but fan the flame. Thank your good host vreaa for his major contribuion.

        Cult of rentership? Trust me, five years ago, I was not telling people renting was better than owning. I only started saying that in 2009, when home prices, in defiance of economic logic, kept climbing higher. Up to that point, I was kicking myself for not buying back in 1996 in Winnipeg (yes, Winnipeg of all places – that’s where my job was). Since then I’ve realized that if I had taken some easy capital gains off the table, I most certainly would have “invested” in another, bigger home, and taken on even more exposure to a housing market correction. Because my belief in the myth of easy “home equity” gains would have been reinforced by my positive experience. In other words, I’d be sounding an awful lot like you right now. With every post of yours that I read, I am thankful that didn’t happen. As Robert Frost might have said:

        Two roads diverged in a wood, and I….
        I took the one less travelled by,
        And thus avoided becoming another mindless RE believer like Formula1

      • Absinthe | 3 March 2012 at 11:00 pm |

        My six year old son and I were talking about the difference between owning and renting. “Nope,” I said, “we don’t own our home, but I’m happy about that! Right now we spend one and a half thousand dollars every month to live in our house…”
        “Ooooh,” he said. “That’s big!”
        “Yep. But if we bought, we would have to pay three and a half thousand every month to the bank instead of our landlord!”
        “WOW.” he said.
        “Wow. That’s almost all our money.” I said. “And remember at Christmas when the basement leaked? Our landlord paid thousands of dollars to get it fixed. The bank wouldn’t.”
        He paused and thought about it. “I bet our landlord wishes he was a bank.”

    • AG Sage | 3 March 2012 at 10:16 am | Reply

      If one commutes by bus and only drives 15 miles total on the weekend, owning a hummer would beat out an hour one-way prius commuting neighbor by a factor of ten.

      • vreaa | 3 March 2012 at 11:31 am |

        Not to mention how if one commutes by bicycle but also takes a trip to Hawaii once or twice per annum, you’ve probably got a larger carbon footprint than a local who drives a SUV but doesn’t fly.
        Devil in details.

      • Renters Revenge | 3 March 2012 at 1:22 pm |

        Not sure that one trip to Hawaii completely negates commuting by bike for a year:
        http://www.terrapass.com/carbon-footprint-calculator/
        The real elephant in the room in regard to carbon footprint is how you use buildings such as your home and office.

      • vreaa | 3 March 2012 at 6:12 pm |

        RR -> Great carbon foot print calculator, thanks.

        1 year commute in a 2010 model Honda Civic (14 miles or 23 km each way, 220 days per year; 6000 miles for the year) = 3,884 lbs CO2 per year

        1 round trip YVR to Kahului Airport (OGG) (Air Canada, Economy, 5,342 miles) = 1,434 lbs CO2 per passenger

        If you take one trip to Hawaii annually, that amounts to the same as a 10 mile per day car commute for the year. We’d assume that most auto commuters have longer commutes than that, so, you’re correct.

      • debtless | 3 March 2012 at 6:34 pm |

        Attempting to calculate:

        Westerly flow
        Transport petroleum from near Edmonton to Kitimat
        1,177 km in length
        36 inches in diameter
        Average of 525,000 barrels of petroleum per day

        I don’t think it’s working.

    • Loon | 3 March 2012 at 11:39 am | Reply

      Epic fail on comprehension again. Yesterday you thought vreaa took those south Surrey photos while shopping for a home.

      Is this really the comprehension level needed to mortgage a home?

      • vreaa | 3 March 2012 at 11:47 am |

        Sadly, there is no comprehension test necessary before being allowed to stake one’s entire future financial well-being on a highly leveraged bet on Vancouver RE prices.
        If you apply for a margin account with an online brokerage, there are usually a few questions that one has to answer about effects of leverage, short selling, etc. Were it so for mortgage applications. Sample question: “If housing prices drop by 10%, what percentage of your equity will you lose?”

    • debtless | 3 March 2012 at 2:10 pm | Reply

      Who says there’s anything wrong with buying a home? Buy a box seat at the stadium if you want, just don’t become an immoral sales person and disguise it as an asset when it is really a liability. It’s only an asset to the cash poor.

      • Formula1 | 3 March 2012 at 3:46 pm |

        wise words debtless. The flip side is…don’t buy a home, rent if you want, heck, rent yourself a box seat at the stadium. Just don’t become a sad sour online blogger seething with jealousy for those that have been able to achieve something you haven’t

      • Makaya | 3 March 2012 at 4:12 pm |

        “those that have been able to achieve something you haven’t”

        Since when piling on debt to buy an over-inflated house, and be cash poor for decades has become an achievement?

        In my world, a successful student, entrepreneur, artist, etc. achieves something… A monkey can get a mortgage and buy a house. No achievement there…

      • theragingranter | 3 March 2012 at 4:42 pm |

        Forumula1, debt is not an achievement. It’s an albatross. “Home equity” is not an achievement either, it’s luck. I do not resent anyone for their good luck. I do resent good luck masquerading as financial achievement. And I most certainly resent the practice of citing the good luck of those who bought homes years ago as justification for the purchase of homes today costing two and three times as much. The assertion that what was a good buy at $300,000 is still a good buy at $1 million is at best obtuse, at worst disingenuous. Then again, if the shoe fits…

      • debtless | 3 March 2012 at 6:01 pm |

        Formula1- “Just don’t become a sad sour online blogger seething with jealousy for those that have been able to achieve something you haven’t”

        You are missing the point. Shelter is a fundamental need. It’s one of Maslow’s hierarchy, (for all those UBC bidders). If we can speculate on shelter, then let us speculate on health care, or security, or judges, corner the wheat market. We can’t because your province feels it’s an income sector. Why can’t we speculate of welfare payments, government departments, or unions? Because it’s not about achievement, it’s an emotional and spiritual line in the sand saying this is wrong.

        Our province is a whore to money.

        Repeat. In one hundred and fifty years we’ve raped a civilization, dredged every creek and river for gold, nearly killed off the salmon, and stuck an asphalt and glass oil stain on the coast and now we have the ego to shove a pipe of bitumen across the neckline while charging our own citizen Carbon Tax. I’m total free market for productivity and harmonious enterprise, but the seduction to GDP is insane. The quality of life in Vancouver sucks, compared to what it could be.

        And you want to bid up some crap packaging in an overdue earthquake zone beyond the realm of fellow neighbors?—and call it achievement? I don’t believe you do. You are a cultured creature and a humanist, and smart. That’s why you are here. So what are some solutions?

    • These pretzels are making me thirsty | 3 March 2012 at 7:18 pm | Reply

      F1
      There is something called “etiquette”….is it too much to ask?

  5. AG Sage | 3 March 2012 at 10:11 am | Reply

    This post should be bronzed.

  6. Gord | 3 March 2012 at 10:27 am | Reply

    Well said. Pulls no punches and sums it up pretty succinctly.

    I’ll add this: Here in the BPOE, I know so many people who believe – truly believe – that it’s just a natural part of life to slave day in and day out simply to pay down a monstrous mortgage on a so-so residence. They seem to accept that their lives *should* otherwise suffer so much and in so many other ways, as long as they’re able to say they “own” in the bestest best place on this here earth.

    Of course, when they owe that much money, when their property taxes are moving ever-higher, and when most of them are also shelling out $400-plus/month in strata fees, they don’t really “own,” do they?

    • Dragon888 | 3 March 2012 at 11:08 am | Reply

      The lower mainland is a fairly geographically isolated place. It’s not easy for people to relocate to other parts of Canada so you are stuck in the BPOE whether you want to or not. Some might move, but many many won’t.

      People have the blinded mindset to slave day in and day out to own property. That has been the normal state of being for quite some time now. Interest rates will remain low for at least another year.

      Also, I don’t believe people will sell that easily… even when prices are slowly trending downwards. Where are people going to live?

      So don’t hold your breath for a dramatic popping of the bubble. Until rates take a dramatic hike or the economy nosedives into the toilet, it will take a while.

      • debtless | 3 March 2012 at 5:22 pm |

        I’ve wondered if they should have ten or so fixed price tiers for property. Then homeowners can climb the property ladder if they want knowing they are moving into a new tier based on features and quality. The top tier can be open to speculation. Likewise the bottom tier is available for bidding retrofit and upgrade. A developer can plan to meet a quota in one of the tiers and price/build accordingly. This way there is no volatile housing speculation on the entire market. Out here, a city lot is 500k with or without a house. There’s no appropriate valuations. Appraisers would have a mandate to preserve the economic strata in a community, rather than gouge everything for the city tax profiteers.

    • Loon | 3 March 2012 at 11:48 am | Reply

      I think we can all agree that most buyers are not home owners but mortgage owners.

    • LJ | 3 March 2012 at 4:28 pm | Reply

      I agree, you don’t own the property until the mortgage is paid off in full. Even then, it is technically “freehold” land from the province, which grants you the right to call it your own. Plus, you end up paying almost double the list price after interest and taxes (possibly upgrades) are factored into the equation.

      What you really own is a debt note that you are required to pay every month, just like rent, to the bank or broker.

  7. leo | 3 March 2012 at 10:34 am | Reply

    I’m not old enough to know the prices of condos in the 1990′s but I have a hard time believing that they were valued around $400k at that time since I don’t even think houses were going at this price. I’m a bear when it comes to real estate but I’m a bull on good accurate info. Can anybody verify this?

    • Formula1 | 3 March 2012 at 10:47 am | Reply

      exactly,
      house in Kits was 400-500K.
      I have a friend that bought 1BR condo in Kits for 100K.

      This post from greaterfool is yet another fabricated plant

    • vreaa | 3 March 2012 at 11:16 am | Reply

      leo, Formula1: You should both re-read the anecdote. Nowhere does ‘Jimbo’ say that his condo dropped from $400K to $200K. He says that his condo halved in value.
      And, therefore, for current owners this will mean a drop of, for instance, $400K to $200K.

      • leo | 3 March 2012 at 11:39 am |

        Thanks.

      • kc | 3 March 2012 at 2:36 pm |

        “leo, Formula1: You should both re-read the anecdote” … I agree, however the problem might be deeper than this…. Graduates from grade 12 can’t read their own diplomas, what do you expect? Full comprehension too?

      • Formula1 | 3 March 2012 at 3:33 pm |

        “my first condo fall in value by 50% in the 1990s. Believe me, it is no fun paying a $400K mortgage when your place is valued at $200K”.

        why would the poster talk abut his own experience then post example figures?
        This anecdate smells like a fabricated plant. In fact, I can’t keep up with all the fabricated stories from greaterfool

    • Aldus Huxtable | 3 March 2012 at 5:06 pm | Reply

      I remember one bedroom plus dens being built on pacific for 200k asking price circa 97. Great to think they’ll be that price again soon. They were an unlivable joke of a space in ’97 and they’re an overpriced moulds shoebox now.

      We will look back at the buy a new townhouse get a free 42″ plasma screen tv as hilarious one day. I’ve been laughing at that for ages anyway.

  8. Westsider | 3 March 2012 at 11:11 am | Reply

    Brilliant post Jimbo!!!……. regardless of the accuracy of the figures!!!

    • vreaa | 3 March 2012 at 11:17 am | Reply

      Westsider -> See comment above. And re-read the anecdote.

    • Canis | 3 March 2012 at 11:19 am | Reply

      Post did not actually say that these were figures for his own condo in the 90s. Poster may be using those figures in belief that many “owners” are now holding $400K mortgages on condos. The important figure in his history, which he foresees for those now holding mortgages, is reduction in value of 50%, which will be worse this time since mortgages are now much larger.
      Please read posts and comments carefully before responding!

  9. Burt | 3 March 2012 at 1:00 pm | Reply

    I actually have to disagree with this anecdote. Every one can tell you how to get rich, but they’re not rich themselves. This anecdote is no different.

    It sounds great, enjoy you’re 20′s; travel, socialize, explore do all the neat travel commercial things you can. The reality is, if you want success the 20′s are when you need to start to build wealth.

    It takes sacrifice, but its much easier to take large financial risks in the 20′s when you still have time to recover should things go awry. Why would you want to leverage yourself to the hilt when you have a wife and kids to take care of? Why would you want to work 12 hour days when you have a wife and kids? Why would you want the stress of starting a business and not having steady income when you have dependents counting on you? Its a burden, the 20′s are the time to take these risks and build wealth.

    Start early, if you succeed people will be talking about you when you’re 40 about “how lucky he was.” Reality is, it has nothing to do with luck, more to do with sacrificing the early years in favour of long work hours and smart investments.

    Everyone will be looking to pile on debt when they’re 40 for that house, car, and toys. You and your family can then enjoy travel, passive income, and life of leisure.

    Perspectives are important, people love to give advice on what not to do, or what to do differently and typically this advice is congruent. Rarely does someone of stature say what not to do, they educate on what to do.

    • vreaa | 3 March 2012 at 1:25 pm | Reply

      Burt-> So, are you recommending that 20-something’s in the lower mainland buy real estate?

    • Formula1 | 3 March 2012 at 3:35 pm | Reply

      agree Burt,
      The younger you buy your real estate the better off you’ll be.
      Just look at all the sour 40-something renters on this site

    • theragingranter | 3 March 2012 at 7:20 pm | Reply

      Agree the “travel far and wide, carpe diem” attitude gets nauseating in a hurry. As though young people need anyone to tell them to behave like carefree hedonists. His condo anecdote was informative enough. His advice as to what to do instead was wanting. In his defence, he was simply giving an example of opportunity cost. Perhaps not the same “best foregone alternative” that you or I would have chosen, but a reasonable example nonetheless.

  10. Mommy40 | 3 March 2012 at 3:23 pm | Reply

    Just saw the numbers for Febuary and the market seems to be growing again. I’ve had it. I’m actively looking to move out of here. This is a crazy place…

    • These pretzels are making me thirsty | 3 March 2012 at 4:15 pm | Reply

      What a way to live your life.
      Waiting for RE to fall in an absurdly delirious place like Vancouver.
      People who own are so insecure about it that they keep over-emphasizing Vancouver and “ownership” as if desperately trying to convince themselves that they are happy. It is hard when you are slaving to pay more than 70 percent of your pre-tax income for a mouldy shack.

      Take a stand. Do not be a part of this madness.
      Life is short and Vancouver is not worth it. You could have a much better quality of life in a place far better than Vancouver

      • Aldus Huxtable | 3 March 2012 at 5:09 pm |

        Why leave when there are so many fools ready to part with their money! Sell vintage grizzlies jackets for $200 a pop, the lunacy in this city extends to all levels of consumerism. An entrepreneurs dream.

        Collect your earnings now and buy in low when the sewers overflow with tears and IOUs.

      • theragingranter | 3 March 2012 at 7:26 pm |

        And Aldus hasn’t even mentioned the $100 hot dogs yet.

        Seriously, one wonders how much of this mania is being fuelled by drug money and organized crime laundering. Maybe that’s the elephant in the room that the media and politicians dare not address.

        Miami had a real estate boom in the early 80s, in the middle of a severe recession, with interest rates over 20%. The financial media marvelled over this “miracle”, but few thought to question what was really happening until years later.

  11. ToL | 3 March 2012 at 5:23 pm | Reply

    People are not paying attention to what happened in the 80s and 90s because that belonged to their parents’ generation. Things are different today, so state all authoritative departments. Why else would they line up overnight at preview? g$_$t
    http://tinyurl.com/7ruw72p

    Temporary foreign students in 4 years gone up 33%
    British Columbia 50,127 (2007) – 66,556 (2011)
    http://www.cic.gc.ca/english/resources/statistics/facts2011-preliminary/06.asp

    Temporary foreign workers in 4 years gone up
    British Columbia 43,279 (2007) 69,942 (2011) 62%
    http://www.cic.gc.ca/english/resources/statistics/facts2011-preliminary/04.asp

    There is no shortage of tenants. Buy away ….

    • bubbly | 3 March 2012 at 7:15 pm | Reply

      From the article:

      So the next time you see a photo of buyers from China stepping off a helicopter (sponsored by a local real estate marketing firm) in West Vancouver or White Rock, surrounded by paparazzi like rock stars as they each gobble up five, ten, or twenty homes; recognize that these properties may be back on the market in a few days for 10% – 30% more than their purchase price, or they may be sitting empty for months, or could be featured in Shanghai or Beijing to hungry speculators or investor class immigrants.

  13. debtless | 3 March 2012 at 11:20 pm | Reply

    Sheryl King, Canada Economist, Bank of America Merrill Lynch – Problem is excess supply
    http://www.theglobeandmail.com/report-on-business/video/video-the-state-of-canadas-condo-market/article2344595/
    BNN Interviewer: What percentage of condo market in Van and Tor are people who have no intention of living in that unit?
    King – “We only have anecdotal evidence at this point, but we’re saying something in the range of 50 to 60 percent.” and King says this won’t affect insurance corp.
    Finn Poschmann, Vice President, Research, C.D. Howe Institute adds no investor spec in condos, they are sold prior to completion, however they are built to rent and a glut would leave landlords vacant, this spills over onto housing with excess capacity.” King stresses excess supply. Developer only needs 60% sold to break ground.
    King – “We only have anecdotal evidence at this point, but we’re saying something in the range of 50 to 60 percent.”
    Poschmann- Worst case is economic shock that hits incomes. Consolidate assets and sell into a down market. Then you get spiral.
    King – As soon as house prices flatten, the demand drifts off, then negative feedback loop. “I think that the fundamentals in Vancouver and Toronto are not good right now. The financial services industry is the third largest employer (in those areas) and we’ve lost 75,000 jobs.” Incomes are dropping and oversupply, not a good scenario – King who predicts a 20% drop in condo business.

    Screen ticker: Taxpayer-backed CHMC covers 70% of insured mortgages in Canada

    • Farmer | 4 March 2012 at 3:56 am | Reply

      Are the rights of buyers of real estate of higher importance than the public good then? Why is it that our own experts in the business are working with such shallow data? What I think is notable about that interview is that the guests mention that they have only anecdotal information to work with (as opposed to hard numbers). And why is that? If the various real estate boards are custodians of the information that analysts and policymakers need to render assessments and decisions on our economy, do not provide timely accurate information, then who should? Why do we not know, for example, how many buyers in Vancouver are actually overseas investors. Are their rights to privacy more important than the public’s rights to know if foreigners really are skewing our markets? It seems to me that at some point someone will be accepting responsibility for the problems that emanate from what is clearly a housing bubble in major centers. Perhaps it is time to obligate the real estate industry with the responsibility to make public an accurate record of all sales and transactions and to make it a matter of law. It strikes me as very odd that an issue of such significance to the Canadian economy has, as its gate-keeper of data, the very people with the biggest financial agenda. It is the public though that has the most important stake. The US has a far better approach to collecting and managing information about real estate transactions and it is done seamlessly and with transparency. Here in this backward country we still permit a cabal of industry reps to control our view of how much activity is taking place while not obligating them to continuously collect information that is of interest to both government and the country at large. Anecdotal information is just not good enough. If properties are being purchased as second homes or for speculation then that is material to our knowledge of the market as it provides an indicator that feeds into supply/demand models and therefore into policy direction.

  14. vreaa | 4 March 2012 at 5:03 am | Reply

    Farmer, you wrote “What is interesting. debtless, is the demand abroad for Canadian MBS products. They are gold plated in essence because they are backed by the triple AAA rating of the Federal Government and our banks. In effect, Canadian taxpayers are on the hook for paying into the pension plans of overseas buyers of these products and ensuring their viability.”
    —
    Do we have data on these products… who is holding them, rates, maturation dates? Are they essentially trading like Govt of Canada bonds?

    • theragingranter | 4 March 2012 at 8:32 am | Reply

      We know Canadian banks are bulk-buying CMHC insurance, packaging those insured mortgages and selling them. Presumably much of these mortgage backed securities are being sold to foreigners and foreign pension plans. Which means that in the case of defaults, CMHC will be paying foreigners the difference.

      Packaging and selling mortgages frees up more cash so the banks can create more mortgages at lower rates. Awesome! If this sounds to you like how the ABCP crisis happened in the mid-2000s, well, that’s what it sounds like to me too.

      Two observations can be made.

      1) CMHC insurance is grossly underpriced. Otherwise it wouldn’t be profitable for the banks to do this.

      2) Even if CMHC insurance were priced accordingly, it STILL wouldn’t negate the risk to taxpayers.

      It’s one thing to take on some collective risk to support home ownership in Canada (Still wrong I believe, but at least one can make an argument.) It is quite another for Canadian taxpayers to shoulder the risks of insuring the pensions and investments of foreigners, just so CMHC can show a profit on its books for now. Essentially, CMHC is being allowed to act like one more greedy bank. As long as they’re in the black, the government will acquiesce.

      • kc | 4 March 2012 at 9:10 am |

        I have also wondered if these type of swindles are true and going on, if they are it makes more sense why the Canadian banks are as strong as the Canadian Shield while the Canadian gvt bailed them out a few years back.

        Look out below when/if she blows up like the Fannie and Freddie of down south. Not to mention the great Canadian sub-prime scandal … LOL

    • Farmer | 4 March 2012 at 11:17 am | Reply

      Well, it is a Sunday. Here are a few links. Knock yourself out.

      CIBC Market Worlds NHA MBS Securities– Fixed Income notes.

      http://research.cibcwm.com/financial_public/download/MBS2.pdf

      Securitization in Canada

      http://www.contingencies.org/julaug00/canada.pdf

      CMHC Housing/Finance and the NHA MBS and CMB’s (Canada Mortgage Bonds. This is fascinating reading actually. Especially if you are new to the blogs that talk about CMHC and how it fits in with the business of our banks.

      http://www.cmhc.ca/en/corp/about/cahoob/upload/Chapter_2_EN_dec21_w.pdf

      Seeking Alpha. One guys idea on shorting the housing market

      http://seekingalpha.com/instablog/492094-theodor-tonca/97355-the-next-short

      Royal Bank of Canada (RY) description of services via Reuters. An excerpt reads: “RBC securitizes a portion of its credit card receivables through a SPE. The Company securitizes insured Canadian residential mortgage loans through the creation of MBS pools under the NHA MBS program”.

      http://www.reuters.com/finance/stocks/companyProfile?rpc=66&symbol=RY

      PS: Yes, I read all this crap. It really is that boring at my house today.

    • Farmer | 4 March 2012 at 6:56 pm | Reply

      You know, I came back to this post later in the day and realized that I never actually answered your question. The main one seems to be what the rates are and how these securities are trading…eg, as bonds. My apologies. I got off track on-line (but it was morning after all and the first coffee was still brewing).

      So here is the coming auction rates from CMHC. The minimum offer rate is 3.196% maturing in 2015.

      http://www.cmhc-schl.gc.ca/en/hoficlincl/mobase/auop/auop_047.cfm

      And here is a short discussion for lenders on securitized products that might help make sense of the system. I add it because it notes clearly that these products are guaranteed by the Government of Canada through CMHC and this is important for those who doubt that the taxpayer really is on the hook when our property bubble implodes.

      http://www.paradigmquest.com/?page=ART1

      NHA MBS products are sold much as any other security and are available to both Canadian and foreign buyers through banks, trust companies and securities dealers. They are also bought and sold in secondary markets and over the counter. They are exempt from withholding taxes as are Government bonds so there is an incentive in buying them. Hopefully that is more useful information this time around….sorry about getting off track earlier.

    • vreaa | 4 March 2012 at 7:31 pm | Reply

      Farmer -> Thanks for all the thoughts and links; and definitely no need for apologies.

      Are those 3.196% rates on the five year fixed identical to those on Govt of Can bonds?

  15. Soon-to-be-ex-Vancouverite | 4 March 2012 at 3:09 pm | Reply

    Thank you, whoever you are for writing this post. I’m from Vancouver – born and raised, and always fancied myself a lover of this city. I’ve always wanted to own a piece of it and have patiently waited for the day when prices here will make sense since I came back home from grad school to start the rest of my life. Over the years a sense of malaise has set in, in terms of my view of this city… the endless rain, real estate insanity, the grey, the increasing superficiality of the cultural landscape. Every winter I only look forward to my getaway to a sunny destination and when I come back I just want to leave again. I think I’m done. I’m outta here. I’m going abroad. I’m a single 20-something, with a Masters degree, and good work experience. What am I even doing here?! Thanks for lighting the fire under my ass… it’s time to breathe some life back into my life.

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