“When I pull together the economic fundamentals, valuation and sentiment, real estate, as an investment, doesn’t look very attractive. The distribution of potential outcomes looks asymmetrical to me – limited upside and plenty of possible downside. But what really screams out at me is how many important factors are at extremes … bad extremes. One or two off-trend numbers can be explained away, but too many are jumping off the charts – price increases, mortgage rates, loan growth, consumer debt and home ownership levels.”
- Tom Bradley, President of Steadyhand Investment Funds, in an article ‘Real estate as an investment? Look elsewhere’, Globe and Mail, 16 Mar 2012. [hat-tip Derp]
The brief article is worth the read.
Most here will be familiar with all of the arguments.
A succinct, measured analysis. I like it because it has something of the “a Martian approaches the Canadian RE market” about it.
Needless to say, we agree strongly with his conclusions.
- vreaa
This bubble should return to fair prices with a 2-year bang, not a 20-year protracted pfft. 70% off seems fair. If a dog turd is going for a million bucks, then a 99.9999% correction IS fair (puts the dog turd at a dollar). Million dollar teardowns on decent land become 300k teardowns, call that underpriced for a teardown on decent land? 1.45 million dollar decent renos in East Van go for 435k, seems about right to me IF they did a good job with the reno, because the Commercial Drive ghetto location sure isn’t worth shit to me. 2 million dollar 1960 West side “bungalows” (read, West side asbestos dumps) for 600k seems fair IF the location is nice (since the asbestos dump sure isn’t). Do I WISH this 70% correction happens quick? You’re damn right I do, preferably with a 2-year bang, not a 20-year protracted pfft.
You’re a doomer. You diss real estate because you can’t afford it. If the market tanks the way you want it to, you will not have a job and will not buy. No one will be buying if this was the case. This is considered a meltdown and unemployment will be at 14% or higher. You will be in a basement suite for quite sometime my friend. Come up for some air and face reality once in a while.
Not “nobody”.. Nobody said life was fair.
Seriously, Van guy, you aren’t making an argument, but more a plea.
You’re saying (and have been saying for some time) that Vancouver RE can’t possibly crash more than ‘x’% because “that outcome would be too severe to contemplate”.
And calling somebody a “doomer” to deflect serious discussion is not a form of debate.
..
So, tell us: Why exactly do you think that it is impossible for the Vancouver RE market to drop by 50%, or 66%, or more?
Lay that thesis out for us.
I knew that would draw you out. You Van guy are a theorist pontificator, talking with forked tongue. You pretend you want the bubble to go away but really you just want a minor reduction in absurdly priced RE, is 10% too steep for you, 540k for that east side basement suite sale? But then it is STILL absurdly priced. No one can afford RE NOW. Am I bitter because I’m poor? I have made well over 100k a year for awhile. I have a very portable job and could get work anywhere. I have plenty of money saved/invested in stocks. Does that mean I’m happy to see others like YOU lose YOUR job? I don’t wish that on anyone. But right now people WITH jobs cannot buy or else would be foolish to buy. Would I like RE one day? Yes. Could I afford a POS in this city? I could make the payments, but what a foolish purchase it would be, if you have any sense as an investor you can never buy in this city until it goes bang proper not whimper as you pine for. We need a proper popping, not a little token 10% off as would make you happy. In Holland, you would advocate tulip bulbs be reduced at 900k from a million, and no worse or the “economy” (and I used that term loosely) would suffer.
Seems like the REALTOR in you is getting upset
10% correction still implies we have a “new normal” which basically prices out anyone prudent. Without fundamentals to sustain this “new normal”, what will keep us from returning to the “old normal” of say 10 years ago?
Who is to say the “new normal” is better than the “old normal”? It’s not like the houses are any different in either, just changes how people use their money and take on debt.
“Without fundamentals to sustain this “new normal”, what will keep us from returning to the “old normal” of say 10 years ago”?
we aren’t returning to fundamentals of 10 years ago. Do you think those 2million immigrants that have come in that time are going to pack up and leave?
F1, you’re like a broken record on immigration. Is that your entire thesis? Review the stats: immigration rates have been falling for decades.
And 2 million immigrants?!? Get real. Over the past 10 years, the city’s entire population has grown by a whopping 57,831 people. That’s a compound annual growth rate of one, yes one, percent.
http://vancouver.ca/commsvcs/planning/census/2011/pop1891-2011.pdf
city of Vancouver population is 603,000 (2011 census) and 545,671 in 2001. This is more than 10% increase. Insignificant? Where did we put all these people, condos? More jobs were created, where?
Let me put it this way el ninja. If only 50% of this additional 57,000 new residents since 2001 were looking for a detached home, where did they buy one? I haven’t seen any new subdivisions.
We don’t have the ability to add ANY new demand for a SFH without seriously effecting prices – we have far too much pent up demand as it is (which is in ample evidence on this site).
Well said Van guy. What most of the doomsayers on here don’t get is that they will be economically destroyed just as much as homeowners if prices tank the way they are hoping.
Basement suite, if what you say is true (and I doubt it) then with an income of over $100,000 per annum then you could afford to buy. You choose not to buy because you can’t afford to buy what you want in the area you want. I would like to live on Central Park West in Manhattan but I can’t afford it and I realize that and I don’t bitch and whine.
There’s a lot of damage being done to the economy already … but is not visible … cost of opportunity. Businesses not being built or expanded, trouble attracting professionals refusing to relocate, businesses closing altogether … look around broadway and 4th, how many stores are closing … UBC would be investing in research parks and business incubators instead of condos … building sustainable industries instead of selling houses to each other. Businesses focusing on their core rather than building condos.
A fake economy built on credit … every over-valuation sucks much needed scarce energy and resources from the future. How many young professionals and middle class have left altogether, I know many, many people that have done that … how polarized the city is becoming …
The real tragedy will be how many people are completely unprepared for what is coming … too much cheerleading. Considering a worse case scenario is a prudent thing to do …
A correction will only showcase the damage that has been done …
Don’t mix causes with effects. Detroit RE tanked because industries and middle class left the city, not the other way around. If economy tanks in Vancouver, it will be because there are no jobs or industries, not because RE decreased its value.
And it would have been wonderful if all those millions were invested in businesses.
anon for this one -> Agree completely. Misallocation of resources is the central crime of the mania.
We don’t actually feel the effects of those leaving, or of those not arriving in the first place. ‘Stealth’ destruction of the community.
F1: Vancouver’s population grew significantly faster in the 90s than in the 2000s. Yet home prices were stagnant. How do you reconcile this with your above argument?
reality check, you confuse “affordability” with “investment merit”. two different concepts entirely.
“F1: Vancouver’s population grew significantly faster in the 90s than in the 2000s. Yet home prices were stagnant. How do you reconcile this with your above argument”?
supersaturation.
we can no longer dissolve more immigrants into our solution without notice.
Again, you can’t expect conditions of 10-15 years ago to resurface.
“Supersaturation”. Love it! VREAA, may I suggest you start a new series on bubble jargon? This one’s a keeper…
anon for this one
+1
yep.
Well Reality check my response to you is in moderation, but the short version is you are way off base, as usual.
Reality check. My income was stated not to make you feel bad about your own salary, but in response to your buddy Van guy’s false premise, which you have adopted. I grossed far >100k for several years, without saying how much, 2011 was a record. I hope the accountant can reduce the taxable. That’s not to brag, but to provide perspective. I could make the payments but choose not to because the investment value is horrible. Buying now, or owning 5 properties today like you have bragged about is a fool’s game. You will fall hard, and I will not feel sorry for you.
Also with anon on this one.
The amount of business closures on 4th and the amount of recently finished condo buildings on Broadway between Burrard and Cambie that haven’t a single thing occupying the street level ‘retail/business’ portions… it’s the elephant wearing the invisibility cloak in the corner of the room.
The first house my husband and I owned, at 12th & Larch, was assessed in the early ’80s at $337,000 – the following year the same city assessment was $135,000. House prices can and will drop.
Do you ‘diss’ supercars because you can’t afford them? Most likely not, admiration of a fine engineered automobile is agreed amongst many. However, if a car manufacture makes a Chevy Cavalier and puts it out at Lamborghini Aventador price, you’d find people pointing out that it was astronomically overpriced for what was on sale a poor value and that at some point in time to shift these units, they’re going to have to sell them at Chevy Cavalier prices.
Observer: “The first house my husband and I owned, at 12th & Larch, was assessed in the early ’80s at $337,000 – the following year the same city assessment was $135,000. House prices can and will drop.”
I’m sorry to hear that, that is a 60% drop. But that would be a bare minimum today for me to even contemplate buying a house in Vancouver, and really, as I argued above, 70% off puts Vancouver “values” at a fair level. Will it happen to that extent? I kind of doubt it, but it will be severe, IF (not when) interest rates ever rise and money is no longer growing on trees.
Who said I own 5 properties. I sure didn’t. I feel sorry for you because you can afford to own and yet you won’t. You will have to pay rent forever.
I seem to recall you bragging about multiple rental properties, maybe it was over time, I don’t really care. Even if you only own one, you’re going to get burned with the rest when the city eventually wakes up to “reality”. And then it will be my turn to feel sorry for you. No, actually I won’t.
Reality Check, you totally crack me up. The world’s top economists, Foss, Keene, Still, Missouri and Minnesota business schools, Harvard school, Kieser, Sprott, the Bank of England and Carney in Canada, Michal Hudson, Jpmorgan’s Blythe Masters, even GoldmanSucks are betting you are gonna go down hard. Your premier is desperately trying amortize futures on natural gas to cover a provincial debt half the size of Greece. Yet as an anonymous home-ower on a local blog, please cite one person schooled in economics that doesn’t work for the real estate industry saying prices in Vancouver are going up indefinitely. You are experiencing a classic bear market rally. Maybe you should hedge and invest in my Happy Repo Company, the kinder, gentler repossession service.
Btw, I rent in the LM and I hold title on property in the Okanagan, in a nice secluded safe zone. It’s paid and I will deed it to my kids. I care not about valuations on this lakefront. I don’t “own” it. I was given this chance to steward the land for nature during my lifetime. I will hold at any price and maybe you feel the same about some prefab slum shack in Vancouver. Fair enough.
Don’t bother responding, just watch in wide-eyed wonder as this all unfolds. Go to chapters and buy a book on debt-collateral collapse, get a latte, and enjoy the ride.
Timely. Had convo with good friend and she said her coworkers thought only a minor pullback is possible.
Who knows but I doubt they’re thinking hard.
maybe you’ve seen already. weekend funnies. last one’s a riot.
http://tinyurl.com/7op67b2
lol!
amuse-gueule for the it’s different up north crowd
http://tinyurl.com/7byqvx6
ps. this sort of stuff, the RE thing included, mostly goes away if bonds could price risk – and we know the ultimate fate of price fixing schemes.
So many people have never lived through a bubble in real estate before, so they don’t believe bubbles happen. The closer the bubble gets to bursting the more violent the protests of “it’s different this time” OR “it’s different here.” It’s never different. And…plane loads of Asians are not going to ride into Vancouver on a white horse to keep this party going.
As mentioned by others on different threads, 250,000 people immigrate to Canada each year. And that is supposed to keep our 10% per year price increase in real estate in Canada going?
If anyone really wants to make that argument they should read the following study on immigrants to Canada and their housing needs, as presented in a study by the University of British Columbia. Many, many new immigrants to Canada face severe hardship when looking for housing in Canada. The vast majority do not come here with suitcases full of money to buy a house. Here’s the study link:
http://mbc.metropolis.net/assets/uploads/files/Vancouver_Study.pdf
I have a couple questions from those supportive of the “immigration is supporting RE prices” argument. First, is the assumption that the vast majority of immigrants bring out-of-country money to fully fund the purchase? Or are they mostly relying on Canadian issued credit to make purchases?
If the answer to the first question is “yes” do you have any sources for review?
If the answer to the second question is “yes” – then wouldn’t immigration be a moot point as a credit contraction would affect immigrants the same as everyone else?
We can sidestep the question, because mostly it’s difficult to answer, but instead measure stuff that matters. Credit growth in BC is high, enough to indicate that not all the money at play is “cash”.
In the big picture, this analyst is trying to look at real estate as a business, analyse its cash flow, debt, and revenue growth prospects. Revenue growth — incomes imputed onto rents — is likely to be only marginally greater than inflation and debt levels are increasing faster than revenue growth. Further the financing terms are short duration in net meaning that any increase in debt service would force losses.
As an analyst he’s saying that’s enough to tip his rating from a “buy” to a “hold”, and he’s on a negative watch because he thinks the revenue streams ex incomes — foreign capital — are ephemeral.
It’s obvious to all us following real estate with as much as an objective perspective as possible, this fellow has attempted to take the position of an outsider and tell the party goers they’re too drunk to drive.
f1, winnipeg is a new ham-haven!
http://tinyurl.com/767txej
oh yeah, this ain’t no live grenade.
Just re-looked at the Calgary and Edmonton charts. My that doesn’t look good at all, even with their population growth.