“Vancouver is cheap in relation to China. It is not cheap in relation to local incomes apparently but don’t be fooled there is a lot of money in Vancouver. My aunt is selling her westside house and that will free up 3 million dollars of which my two cousins will each get a million to spend on the east side of the city.”
- reality check at VREAA 13 Mar 2012 10:13pm
Note how the “lot of money in Vancouver” is completely dependent on the West-side house being imagined to be worth “3 million dollars” and how the east side sales (and imaginary values) will depend on the westside sale.
Also note how those three transactions would result in an injection of millions of previously non-existent dollars into the local economy. They won’t be “freed up”, they’ll be created out of thin air and the belief, the ‘faith’ if you will, that the westside house is ‘worth’ $3Million.
Our city is completely and utterly dependent on the proceeds of the RE fantasy.
All of this will turn on a dime once significant price drops declare themselves.
Deleveraging is the reverse process, where fantasy becomes nightmare.
As we’ve said before, the RE crash will be the defining social and economic event of the next decade.
- vreaa
he/she has handle made of iron
‘Note how the “lot of money in Vancouver” is completely dependent on the West-side house being imagined to be worth “3 million dollars”’
That’s a very important observation.
To determine “lot of money” I’d prefer to look at GDP.
BC GDP 2010 = $184B
Washington State GDP 2010 = $340B
http://www.bcstats.gov.bc.ca/StatisticsBySubject/Economy/EconomicAccounts/BCGDPbyNAICSCurrent.aspx
http://www.bea.gov/iTable/iTable.cfm?ReqID=70
Don’t be fooled: there’s a lot of money in Seattle!
Here is my point exactly. You claim that the 3 million is only imagined and yet you refuse to move east.
“of which my two cousins will each get a million to spend on the east side of the city.”
Poor bastards, only a million each? That will barely buy them a teardown in the gehtto–oh I mean, “BPOE”.
How does selling one house to buy two cheaper houses equate to anything meaningful? It’s like saying I took $100 from my left pocket and put it in my right pocket and created an additional $100 in the process.
Unless new money is being put up, money that’s not already attached to a residential property, this is pretty meaningless.
It is meaningful to the local economy in that millions of dollars that previously didn’t exist are suddenly loose in the community.
Transfers from real estate values into the broader economy must be matched by new housing debt.
rp1 -> Agreed. And that debt only becomes apparent during the deleveraging.
Are the millions really loose in the economy? I think the only money loose in the economy is the transfer taxes and transaction fees as the cash is being sunk back into real estate. If the west side house was sold for 100K and the proceeds used to buy a bunch of houses worth 33k each the same deal happens but with lower transaction costs.
The only ones making money are the ones making commission or those that break the chain and rent after selling.
And this should be a reminder to all who think buying now at such lofty levels is sensible. Back in April of 2011 our own Bank of Canada governor, Mark Carney famously said during a speech in Vancouver (of all places):
“While asset prices can rise or fall, debt endures.”
Course, nobody listened to him then. Fewer still hear him now. Back on the 8th of this month he again intoned that the biggest risk to the economy was the high level of personal indebtedness.
http://www.theglobeandmail.com/report-on-business/top-business-stories/no-rate-shift-but-watch-for-what-mark-carney-says-today/article2361442/
I mean, seriously!!!! Does the guy have to balance beach balls on his nose like a circus Seal before anyone starts paying attention? I swear this country has gone insane and will pay a price before this excess is wiped clean.
it means 3 less detached homes on the market for you. One that Chinese will buy on the west side and two on the east side from proceeds of sale.
Given the prices I’ve seen on the eastside lately I definitely think westside money is switching sides now…like a tidal wave moving east
Perhaps…
And after the tidal wave, a giant trough… and devastation.
don’t blame you for dreamin’ vreaa
pssst … looks more like listings tidal wave + sales implosion traveling east. anecdotally, i do know some west side multiple ppty owners, who happen to be chinese, who have listed theirs.
sorry chubster, I don’t see it.
Only 479 detached houses for sale in E. Vancouver – total.
Nearly half of them are over 1 million.
You quite obviously having been seeing the sales prices to be squawking like chicken little
“it means 3 less detached homes on the market for you. One that Chinese will buy on the west side”
Let’s assume you’re correct. Would you enjoy living in a city where rich foreigners are encouraged to come in and buy up half of it? It does not feel like a wholesome environment to me, and it does not represent the sort of values that I would like to teach to my kids. I’m happy to watch this amazing spectacle in the medium-term, but if it persists for a few more years I will almost certainly relocate to a city with more sensible demographics and a more vibrant economy.
pssst … the sky is falling
“Would you enjoy living in a city where rich foreigners are encouraged to come in and buy up half of it? It does not feel like a wholesome environment to me, and it does not represent the sort of values that I would like to teach to my kids”.
Jeff M.
I didn’t say I agree with this trend or think it’s right. I’m simply reported what is, not what should be.
The Federal gov’t thinks it’s OK and continue to permit this happen. I’ve already written to several politicians with my concerns and recommendations. You?
“pssst … the sky is falling”
psst…it’s your sky that’s falling
“I didn’t say I agree with this trend or think it’s right. I’m simply reported what is, not what should be.”
I think we are in agreement on this point.
“The Federal gov’t thinks it’s OK and continue to permit this happen.”
Again, we agree. E.g., “It just makes sense to take [the rich Chinese] money and allow them to consume Canadian goods and services at a time we need it most,” Mr. Kurland said. “They’re buying houses, they’re buying cars, they’re buying consumer goods.”
http://business.financialpost.com/2012/03/02/why-is-canada-keeping-out-chinas-rich/
“I’ve already written to several politicians with my concerns and recommendations. You?”
No, I don’t believe in political activism. I believe in having portable job skills that allow me to work in many places around the world that suit my career and my values. You can call it “voting with my feet”.
white flight and retrenchment in the rockies and east?
I had to google “velocity of money”. So this is how it works:
1) Rich Asian buys $3MM house. Autie gets $3MM and disperses 3 ways.
2) 3 people buy 3 $1MM houses. 3 other people get $1MM and disperse 3 ways each
3) 9 people buy 9 $333K condos. 9 other people get $333K.
How much are all these properties worth? My that $3MM sure goes a long ways doesn’t it!
According to Zeno, the velocity of money is infinite!
maybe i’ve just had an enlightening f1 exchange. my thesis on the f1 mo.
- observe the present
- cobble together explanation from miscellaneous factoids
- prediction: future = more of the present
eg. RE has bombed everywhere else, except van. -> make up pleasantation from factoid grab bag -> “this is why van RE will not bomb”. conclusion: van RE will not bomb. yes, that is 100% true … until it does.
f1. there is a critical drawback to this approach: it has no predictive ability for abrupt change. eg. my hand isn’t burned until i feel pain. if you have nuts in the fire, this will guarantee a very nice roasting.
–
separately, i think it is hard for a lot of long-time residents to grasp how perverse the van has become. until now, the city has never experienced being an extreme outlier. there is a lot of normalcy bias/inertia to overcome.
chubster,
-observe the past
-understand government policy
-examine migration patterns
-research local zoning
if you’ve done this you’ll be able to analyse correctly.
There is too much emotional component to your conclusions – it’s clouding your ability to understand the way real estate works in this city. I’m sorry the outcome is not favourable for you
oops, thanks for the reminding. forgot the part about discredit the messenger to deactivate the dissonance alarm.
Okay, let’s do that:
- observe the past: housing bubbles have burst in many countries including those similar to Canada. Vancouver has experienced successive periods of house price increases followed by decreases; the magnitude of the increases are directly proportional to those of the decrease. Vancouver has experienced price increases for 11 of the past 12 years.
Conclusion: if history has any predictive value then we will experience price decreases in the future. Probably significant ones.
- understand government policy: for many years the government has been indirectly supporting house price increases through the CMHC, interest rates and taxation policy. However, that period appears to be over as the rules for the CMHC have been successively tightened and the government statements indicate significant concern at the level of mortgage/household debt held by Canadians.
Conclusion: the government policies that supported price increases in the past are slowly being changed to ones that diminish that support. They appear to be attempting to engineer a soft-landing for the housing market.
- examine migration patterns: many birds fly south for the winter and return for the summer. Might be a weather thing.
With respect to demographics, as with most of the last century BC has experienced healthy growth attributable to immigration. Very recently this trend reversed with net outflows but it is expected to be a temporary thing.
Conclusion: immigration is neither significantly greater nor significantly less than in previous decades. It is not an important factor in the house price increases since 2001. Other cities with much higher per capita immigration have experienced huge price drops so immigration does not appear to insulate cities against price declines.
- research local zoning: the zoning laws in BC are very lax compared to many places. There is a significant amount of land either under development or available for development. Strict zoning laws have not prevented price declines in any other city.
Conclusion: not a significant factor.
Sorry F1 but you appear to have allowed emotion to cloud your reasoning ability. Just because you really want prices to continue to climb doesn’t mean they will and just because you have all of your net worth tied up in real estate doesn’t make it a good investment.
“With respect to demographics, as with most of the last century BC has experienced healthy growth attributable to immigration. Very recently this trend reversed with net outflows but it is expected to be a temporary thing. Conclusion: immigration is neither significantly greater nor significantly less than in previous decades.”
Do we know the demographics of the immigrants and emigrants? Certainly a decent fraction of the immigrants are very wealthy. Are the emigrants just the low-income folks going to work in Ft Mac?
Net outflows. you will need to show me the stats on that
“Conclusion: immigration is neither significantly greater nor significantly less than in previous decades. It is not an important factor in the house price increases since 2001″.
most of what you post is bunk
i.e. this is from statscan
proportion of foreign born Vancouverites
1991 – 30.1%
1996 – 34.9%
2001 – 37.5%
2006 – 39.6%
So if the immigration is not a more significant factor how do we arrive at these numbers?
@chubster
re: discredit the messenger, it was similar to ‘thought interrupting cliche’
“eg. RE has bombed everywhere else, except van.”
this is untrue.
Not only are there many countries that have not seen a real estate correction but there are many locales in the US that have been sheltered from one.
horse -> water … ! think of it like this way then. i’m not clairvoyant and neither are you. if you are right, all is golden. great. but, if you are wrong, what are the consequences and how would you know in time to do something meaningful about it?
Let’s look at this transaction from an investment perspective for the three beneficiaries involved. Basic premise is sell one expensive house to buy two less expensive houses. Aggregate property taxes will increase from around 8k per year to at least 10k possibly more. Maintenance costs will increase by almost 100% as now servicing two dwellings, figure 2% of total house value per annum. Realtor, moving, and other associated costs will be >50k off the top. The saving grace of this deal is that “mom” is taking 1M off the table, which is good as her 2 kids will probably need to start borrowing some of it to sustain their increased living costs. Note that incomes of the new house owners have not gone up as a result of transaction unless the plan is to rent out the basements of their new houses. Finally, if the market goes down so does the combined equity of the new properties. Let’s hope theae recent lottery winners don’t take out big HLOC’s during the first 6 months to cover renovation expenses.
Three million bucks IS a lot of money. Coming into this kind of money is a life changer for 99% of Canadians. The smart move would be to sit and wait, but unfortunately for most this is way too prudent a move to consider.
If I were to get a million dollar free and clear I sure as hell would not spend it on a crackshack in east van but hey that is just me.
there are a lot of very nice houses on the east side, most of them aren’t crack shacks. I do grant that a few of them are.
“there are a lot of very nice houses”
What’s your definition of “very nice”? Every time I venture east I just see mouldy crackshacks, ugly Vancouver Specials and a smattering of new builds, some of which presumably have poor build quality.
There are lots of very nice character homes that have been gutted and renovated both in and out, particularly in the Main st and Commercial Drive areas. You Jeff are part of the problem because you have it in your head that the only place to live is the west side hence the huge price escalation.
“You Jeff are part of the problem because you have it in your head that the only place to live is the west side”
Skill testing question: who is Vancouver’s largest employer and where is it located?
Good one. Who?
please check your reality check. Have you lived on the eastside? I have and it was the worst living experience of life. What a mistake just to save a few hundread bucks a month but I was so pissed getting jerked around by all these greedy westside landlords and their leaky acommodations that I made the move anyway. What a miserable run down filthy foreign place!
Less than one year later, I decided that I wasn’t going to waste my life living in a relative ghetto with zero professional opportunities so I left for greener pastures. I wasn’t alone, that’s for sure, as 10 other fellow employees left Vancouver the same year. Many, many more have left the city since. The rich and arrogant private-schooled long time residents seem to stay though. Thank god for that!
“who is Vancouver’s largest employer and where is it located?”
The answer is UBC.
http://www.lib.uwo.ca/programs/companyinformationcanada/canadaslargestemployersbycity2007.html
Perhaps this explains why many people object to being forced further and further east.
UBC. It’s not in the city but in the UEL. Are you telling me you can’t commute from the east side to UBC?
Wow.
Re: East Van sales activity — I had also heard from a reliable source that that’s where a lot of the sales/competition/activity are happening — there does seem to be a migration by some West to East.
just a fcn of available credit. very few can service $2M but a lot more can do up to $1M. tend to also think the last ‘smart’ specs have finally given up – and they’d normally be into west side stuff trying to front-run the mainlanders. so, only the truly most dumb-ss market segment is left active now.
HAM to the rescue in southern California:
http://www.businessweek.com/news/2012-03-13/asian-buyers-buoy-new-homes-in-california-s-orange-county#p1
Interesting quote:
““In Asian-focused communities, prices have held up phenomenally well,” said Eric Sussman, a senior lecturer at the Ziman Center for Real Estate at the University of California, Los Angeles. “Culturally speaking, Asians tend to have a much longer-term view than Americans do. They look at real estate as multigenerational, not short-term focused. That’s why they are making purchases during times when others may shy away.”
Are those dastardly Southern Californians trying to steal our HAM? Does that make it SHAM?
Windfall tax? Seems more of a corporate liaison. Whatever, up up and away in my beautiful balloon.
“Vancouver is cheap in relation to China.”
Pure BS.
It is really a nice post, it is always great reading such posts, this post is good in regards of both knowledge as well as information. Very fascinating read, thanks for sharing this post here.
Definitely right place to discuss this topic here, I feel strongly about it and love reading more on this topic. If possible, as you gain knowledge, would you mind updating your blog with extra information? It is extremely helpful for me.