Monthly Archives: April 2012

Dennis Gartman – “The rising price of Vancouver real estate cannot continue. It won’t. How do we short it?”

Thanks to reader ‘D’ for sending us this snippet from Dennis Gartman’s latest letter to clients (30 Apr 2012, pg 7):


We agree with Gartman. Large price drops in Vancouver RE are all but inevitable. We have no suggestions regarding short positions, other than standing clear. We do suggest that locals with leveraged exposure to RE diligently consider their options.
– vreaa

Guest Post – An ‘Ex-Vancouverite In Asia Considering A Return’ Lays Out ‘Why Vancouver Real Estate Prices Might be Justifiable’

The View from Asia: Why Vancouver Real Estate Prices Might be Justifiable
[A guest post kindly submitted by 'an ex-Vancouverite in Asia considering a return' (handle 'BLM'), 27 Apr 2012.]

Like many of you, I too have been in shock and denial at the astronomical rise of Vancouver’s property prices. How could the city I grew up in, without the jobs to keep me there in the first place, support such exuberant real estate prices?

After nearly a decade living in Asia, I am now contemplating a return to Vancouver because there really is no better place to live – economics aside. I hope to share with you a new perspective as a prospective buyer of Vancouver real estate and to provide insight into the thinking of several investors I’ve conversed with here in Asia.

It all started back. Such a long, long time back.

The year was 2001, when the US Fed rate began the year near its historical average at 6%. By December it fell to 1.75% – the lowest in over 40 years. Alan Greenspan was steering the slowing US economy away from a recession following the bursting of the dot-com bubble and the 9/11 terrorist attacks. With rates that low for the next three years, the scene was set for hard asset prices to rise.

The rates did go back up very briefly to the 5% level in 2006 to 2007 but quickly returned to a historical low of 0.25% after the financial crisis of 2008. The rate today continues to stand at 0.25% and is expected to until well into 2014.

Simplistically speaking, this is why real estate prices in select cities around the world have become out of reach for many locals – not just in Vancouver.

Why are Vancouver property prices more adversely affected?

One could argue Vancouver is Canada’s most international city in terms of ‘main street’ capital flows (i.e. money earned in Asia but spent in Vancouver). Being on the Pacific Rim and acting as Canada’s strategic link to Asia Pacific means its economy will take on characteristics unique from other Canadian cities. Canadian economists only have hard Canadian economic data to work with which is why it has been so difficult to forecast and explain Vancouver’s economy (and indeed real estate prices)!

What about Toronto? Don’t they have large ethnic groups and immigration inflows?

The difference is in the foreign economies they link to and the quality of the capital flows. There are far fewer direct flights from Asia to Toronto than there are in Vancouver. This means, on a whole, Asians who immigrate to Toronto are less likely to maintain regular links to Asia and therefore fewer capital flows.

Why Asian ‘main street’ capital flows matter?

Asian economies are booming. For countries that aren’t, like Japan, they have huge aggregate amounts of savings that if deployed in numbers to any one country (think Australia), it would have a very meaningful impact on asset prices. What makes Asia’s economies matter to Vancouver, other than the ‘main street’ capital flows mentioned earlier, is perhaps their close reliance to the US economy and ultimately the US Fed rate. To simply put it, Asia’s booming economies, fueled indirectly by cheap US borrowing costs, is expediting a new wave of middle class savings and a new breadth of real millionaires and billionaires in the region (fact: there are more billionaires in China than in the US). This glut of savings, together with low savings interest rates coupled with low borrowing costs, in places like Hong Kong and Singapore have pushed domestic property prices up to become some of the world’s most expensive.

Why don’t they just buy more property at home rather than abroad?

For the wealthy in China, where there are limited avenues for investments other than stocks and property, many have begun to move some of their wealth offshore. It is also partly driven by the lack of trust in their own government and legal system. It doesn’t hurt that there are still living memories of the revolutions that began in the 40s which led to personal possessions being confiscated. Additionally, the Chinese government has been implementing policies to rein in domestic property prices making it harder for the middle class and the wealthy to invest in multiple properties even if they are financially capable in doing so.

Other regions such as Hong Kong and Singapore have also seen their governments implement policies making real estate investments less attractive for speculators and investors.

Limited investment options in China and extremely low interest rates in places like Hong Kong and Singapore are forcing capital to go offshore and back into the West.

Why are they choosing Vancouver?

So why are investors looking to Vancouver? To answer that, let’s put ourselves in the shoes of an investor in Asia looking to diversify their assets in real estate abroad in a politically and economically sound country.

Closer to home, you have Hong Kong and Singapore but prices there have become some of the world’s most expensive. Further abroad, you have time zone friendly Sydney and Melbourne but their prices too, along with their currency, have risen to what some call ‘frothy’ levels as a result of Chinese trade and Japanese capital. Then there is London, with its property priced in the expensive Sterling and New York with its tough immigration laws. These have been some of the more popular destinations for Asian capital to invest in which brings us to Vancouver.

Vancouver has no major policies to limit real estate investment . It’s currency is cheap relative to the Sterling and the Australian dollar. The Canadian dollar is also expected to appreciate which provides either a limited hedge to falling property prices or a bonus return on investment. Access to the city is easy with numerous airlines flying direct from a variety of Asian cities. The list goes on and on.

How did they acquiring their wealth?

No one can clearly answer that but if we just think of the thousands and thousands of companies in Asia (especially China) that have gone public in stock exchanges at home and around the world, it is not hard to imagine the number of affluent individuals in Asia.

Others have surely made their money in property along with the region’s economic rise. In Hong Kong, for example, the equivalent of a 400sqft 1 bedroom apartment in a similar district to Coal Harbour now goes for about CAD $1.2mn – thanks in part to Chinese money inflating the city’s property prices.

For some families who immigrate to Canada from Asia, it makes all the sense in the world to diversify their assets into Canada with the view of settling there. Some might even buy a few condos, lowly leveraged, to generate CAD income for their living expenses as a bubble popping in Vancouver is perceived to be no more likely than in Asia.

Brown barbaloots

Vancouver is not an exception where locals have been pushed out of the city core. This is a phenomenon that has been repeated many times throughout history. Today, in many cities across Asia, where there is a lack of a social safety net, high property prices are leading to street protests and influencing election outcomes.

Unfortunately, the wealth gap across the world has been widening for many reasons. Vancouver is not alone in that young couples are finding it hard to develop a career, start a family or to purchase their first home. In fact, let’s not forget these problems are more magnified in China, the source of hot Asian money, than anywhere else in the world.

Unless

Unless there is global economic calamity or unforseen restrictive policies towards immigration/real estate as an investment, prices are likely to tread higher, retreat slightly, or stabilize in the long term regardless of the ‘expected’ interest rate moves.

It is hard to see a scenario where Vancouver prices will ‘crash’ with supportive interest rates and rising Asian economies. What makes Vancouver unique is that the majority of home owners are not overly leveraged (from my own anecdotal observation). Certainly the newly landed buyers and existing homeowners of SFHs do not appear to be. Yes, there were a few who took out 40 year mortgages and those who put down a 5% down payment but those days are long gone and prices have risen since then.

More importantly, the majority of the most vulnerable seems to be first time buyers who typically bought into the $250k-$400k range over the last 10 years in the lower mainland. Should there be a decline of 25% percent, a clear crash, even a $400k property would still be worth $300k. With interest rates this low, principals are being paid down rather quickly.

Foreclosures will be the first sign of real trouble, not price declines.

Covered bonds

The final thing I wish to touch on, as a keen observer of the bond markets, is Canada’s mortgage market in relation to covered bonds being issued by Canadian banks. Canadian banks are keen to expand their mortgage businesses in pursuit of profitability. However, this tenacity differs from that of the US sub prime crisis. Canadian banks have been active issuers of covered bonds, which unlike the toxic CDOs that US banks issued before 2008, are guaranteed by the banks’ balance sheets. With Canadian banks being some of the world’s strongest, many of the covered bonds they issue (which consists of mortgage loans) are rated AAA – the same credit worthiness as US treasuries, which are considered to be the world’s safest investments. Institutional investors are keen to buy as much Canadian covered bonds as possible given the lack of AAA bonds in the world and because of the expected currency appreciation of the Canadian dollar.

We can blame many factors for Vancouver’s high real estate prices but ultimately, through the invisible hand of the markets, it is only a result of the low US Fed rate.

My considerations as a prospective buyer with foreign assets

My wife and I have decided to return to Vancouver with our young family at some point in the future. The hope is to give them the same experience we had growing up – Canucks, PNE, Stanley Park, Granville Island, street hockey, camping, fishing, etc. This view is increasingly shared by ex-Vancouverites all over the world. Even some of the immigrants from Hong Kong of the 90’s who have since left Vancouver seem to have budding fantasies of returning once they have children.

We’re squarely middle class with decent savings and significant equity in our home in Hong Kong. Property prices here have appreciated with the same velocity as Vancouver. In our minds, we have several decisions to make. When to move and whether to move all or some of our assets back.

If we decide to move back this summer, we have the option of renting out our home here and refinancing it (mortgage rates at 1.5%-2% in Hong Kong currently) so that we have a substantial amount along with our savings to shop for a condo or townhouse. Or we could sell all of our assets here and look for a SFH completely paid off (or with minimal leverage).

However, if we decide to delay our move, we could consider hedging, for better or worse, by buying into a pre-sale condo. Our savings needs to be invested and the stock market does not offer the same sense of security for our future plans. So if we are to make an investment, it might as well offer some hedge for our future aspirations.

As a prospective buyer with foreign assets, I have two variables to consider: FX and real estate prices. This makes me see things very differently compared to a local buyer. Property prices may stay high but if the Canadian dollar falls by 10% against the Hong Kong dollar (in effect the US dollar), it makes it very attractive for me to take action.

I will be in Vancouver for vacation this summer and no doubt visiting some open houses. We shall see where the Canadian dollar stands and what the state of the real estate market is at the time. Stay tuned as I will report back in due course.
——-

Editor’s comments:

Many thanks to ‘an ex-Vancouverite in Asia considering a return’ (handle ‘BLM’) for submitting this carefully considered piece. We welcome all stories of the effects that the Vancouver RE market is having on citizens, and BLM generously shares with us his own considerations as he looks to buy property in Vancouver. He weighs information at his disposal, concludes that the market will remain strong into the future and, despite price levels that he’s found “shocking”, and price rises that he judges to be “astronomical”, he is planning to buy. This is all very important information to students of the Vancouver RE markets: If enough people continue to see what BLM sees, and act on their conclusions by buying, will the Vancouver RE market simply power upwards, relentlessly, forever?

BLM offered this piece for the sake of discussion, and he welcomes your thoughts on his opinions and circumstances; he also invited comments from vreaa, so here are a few thoughts and questions on some of the specific points he raises:

1. “I am now contemplating a return to Vancouver because there really is no better place to live…”
– The vast majority of us here know that Vancouver is a fine city. Welcome back.
When you say “there really is no better place to live”, is that based largely on a direct comparison with HK? Are there other places you’ve considered living?

2. We’d agree with the conclusion that easy money has caused the global RE price inflation, and that the Fed’s profligate ways were a central cause.

3. Are “capital flows” really that dependent on direct jet flights?

4. When comparing us with Australia, the Aussie dollar is not really that much stronger than ours, is it? And their real estate is similarly “frothy” compared to Vancouver, not moreso. In fact, aren’t we now ‘ahead’ of them in that regard, in some recent survey? (There are so many surveys, one can’t keep up). So it’s not that more expensive RE makes Australia less attractive to buyers outside the country. One difference of significance is that Australia has moved to limit off-shore ownership of RE.

5. More billionaires in China than in the US? I don’t believe that’s true. Wikipedia says 412 in the US vs 115 in China (2011). So, yes, there are rich people in China, a lot, but let’s not get too far ahead of ourselves (or underestimate the staying power of the US).

6. We have little doubt that, in the long run, China will become a stable and firmly established economic power. It’s already large, that’s for sure. Currently, however, we read much about China’s own (deflating) RE bubble, and about the shaky foundations of their GDP numbers; we hear credible commentators predicting a period of much slower real growth for China. Such a period of contraction would be expected to effect capital flows out of China, but by how much? Massive? Negligible?

7. Yes, the perception that the loonie will rise may make Canada more attractive, and the fact that it has been strong compared with the USD has made Vancouver RE gains seem even larger from outside of Canada.
But is this to remain the case? Couldn’t the loonie just as easily see 80c-85c US again before it sees $1.15c? If RE prices drop, and the loonie drops (the scenario we see as most likely),  how would foreign holders of Canadian RE respond? Buy more at ‘discount’ prices? Or worry that a Vancouver RE bubble has begun to deflate and hurry to sell? We’ll find out in the coming ‘grand experiment’.

8. “With interest rates this low, principals are being paid down rather quickly.”
– On aggregate, surprisingly not; it is stunning to consider, but total equity in Canadian homes has been falling despite increasing home values.

9. “With Canadian banks being some of the world’s strongest..”
– It’s a nice thought, and we know it’s gospel in some circles, but is this true? Or do they look strong because they haven’t been tested yet?

10. “What makes Vancouver unique is that the majority of home owners are not overly leveraged (from my own anecdotal observation).”
– Not being overly leveraged doesn’t mean that an owner is not overly dependent on RE price strength.
Of the owners you know, what percentage of their net-worth would you estimate they have tied up in Vancouver RE? How dependent are they on rising or at the very least stable RE prices, for their financial futures? How will they respond to price drops of 10%? 15%? 20%?

11. We particularly appreciated the section where BLM shared his own considerations as a prospective buyer.

12. “We’re squarely middle class with decent savings and significant equity in our home in Hong Kong.”
– Great; you’re in a similar position to many Vancouver owners. Well, apart from the savings bit, that is… Most Vancouver owners are over-invested in RE, especially when age, net-worth, and retirement plans are taken into account. So, it sounds like you’re actually better off than most “squarely middle class” Vancouver owners with young families.

13. “…we have the option of renting out our home (in HK) and refinancing it (mortgage rates at 1.5%-2% in Hong Kong currently) so that we have a substantial amount along with our savings to shop for a condo or townhouse.”
– In which case you’d have no savings and own a property in Vancouver and a property in HK; with low leverage. What would you estimate your maximum downside risk would be in that scenario?

14. “…we could consider hedging, for better or worse, by buying into a pre-sale condo. Our savings needs to be invested and the stock market does not offer the same sense of security for our future plans.”
– We personally consider Vancouver pre-sale condos one of the worst investments imaginable at present. But, yes, the stock market is likely to be volatile through the next year or two (with significant downside risk). Why do your savings ‘need to be invested’ in one or the other?

15. “Property prices may stay high but if the Canadian dollar falls by 10% against the Hong Kong dollar (in effect the US dollar), it makes it very attractive for me to take action.”
– Are you sure that would lead you to act? Imagine a global deflationary wave, in which Vancouver property prices started falling, fell 15%, and the loonie dropped 10%. Are you sure you’d be looking to buy at that point? Would you be having any other thoughts in that scenario?

‘An ex-Vancouverite in Asia considering a return’ (BLM), many thanks for your thoughts and your story. Thanks, too, for your promise to keep us updated; please report back, we’ll be interested to hear how things play out for you, and we’ll headline your updates. All the best with all of your endeavours.

- vreaa

Flaherty – “For some time now I’ve had concerns about the role that CMHC now plays. Historically it was created with a mandate post-war to advance housing in Canada. It’s become much more that. I don’t think it’s essential that a government financial institution provide mortgage insurance in Canada.”

“Over time, I don’t think it’s essential that a government financial institution provide mortgage insurance in Canada. I think what’s key is that mortgage insurance is available at a reasonable cost in Canada. I think there is a role to regulate but whether we, the Canadian people, have to be the owners and shareholders of a financial institution to do this is a question. I don’t think it’s essential in the long run.” [Finance Minister Jim Flaherty]

In a wide-ranging discussion on the housing market, he said he has no plans to increase CMHC’s current $600-billion loan limit, ruled out any possibility of regulating foreign real estate investment and made it clear his focus is on the governance of Crown corp. which controls about 75% of the mortgage default insurance business in the country.
“For some time now I’ve had concerns about the large commercial role that CMHC now plays. CMHC has become a significant Canadian financial institution. As you know, historically it was created with a mandate post-war to advance housing in Canada. It’s become much more that.”
The finance minister moved this week to tighten control of CMHC, placing it under the authority of the country’s banking regulator, the Office of the Superintendent of Financial Institutions. Previously, it fell under the watch of the Department of Human Resources and Skills Development.
The shift comes with CMHC closing in on the $600-billion limit the government has for how much of its portfolio will be backstopped by the taxpayer. Three years ago it was $450-billion.
By law, consumers must buy mortgage default insurance if they have less than a 20% down payment on a home and are borrowing from a federally regulated financial institution.
But CMHC has not been insuring just those loans, it has agreed to step in and insure loans — with the premiums paid by financial institutions — for lower-ratio mortgages, or what is called “portfolio” or “bulk insurance.”


Mr. Flaherty’s own opinion on the housing market is that has been fuelled by low interest rates which he says he does not control. “Cheap money,” he said, noting he did talk to the banks about being unhappy about their mortgage rate wars earlier this year which had reduced the rate on a five-year closed mortgage to below 3% — an all-time low.
As to whether the market has been in part fueled by foreign buyers, as many in the real estate industry have suggested, Mr. Flaherty said his government will not get involved in that aspect of the market. “No,” he said, pausing to emphasize the point. “I don’t think there is [a role]. They key in housing from my point of view is to get the best information on housing.”


– from ‘CMHC could be pulled out of mortgage insurance business, Flaherty says’, Garry Marr, Financial Post 27 Apr 2012 [hat-tip allen]

If it ain’t broke, don’t fix it.
Ergo, I think we can very fairly say that these announcements of change are an admission that something is ‘broke’, or is going to be. Just as many of us have opined for some time. The problem has been that the CMHC has mispriced risk and created a form of moral hazard, fuelling speculation with the same “cheap money” that Flaherty here blames on the bankers.
Interesting to note Flaherty playing hot-potato with Carney: “Cheap money is his problem!”; “..no, his!”; “..no, HIS!”; etc.
We’re not sure what he means when he says: “The key in housing from my point of view is to get the best information on housing.” Translation, anyone? Does he mean we shouldn’t consider things deemed extraneous to the market?
– vreaa

“Fast forward 5 years later, HE STILL HAS INTEREST ONLY mortgage at variable 2.00% rate, he can barely keep up with payments, he has 5 credit cards all maxed out, and 6 month ago he asked me to lend him some money.”

“A friend of mine, a small business owner who reports annual income of about $20K (not true income) from his business received a $550K INTEREST ONLY MORTGAGE in 2007 and bought a house in Westwood Plateau Coquitlam. Fast forward 5 years later, HE STILL HAS INTEREST ONLY mortgage at variable 2.00% rate, he can barely keep up with payments, he has 5 credit cards all maxed out, and 6 month ago he asked me to lend him some money.
Next time someone tells you there is no SUBPRIME in Canada, PLZ punch them in the teeth for being ignorant or lying straight to you face.”

SunBlaster at VCI, 21 Apr 2012 9:29pm

“There were two houses on his street built last year and have been sitting for sale for about 6 months. The one without the wok kitchen just sold.”

“Just chatted with a co-worker over a cup of coffee. He lives in a not-so-distant suburb of Vancouver and he said that there were two houses on his street built last year and have been sitting for sale for about 6 months. Both priced over a mil, slightly different in size, but equal by $/sf, curb appearance etc. The catch is that one has a wok kitchen, while the other doesn’t.
One of the houses was sold last week. The one without the wok kitchen.”

Patsan at vancouvercondo.info 27 Apr 2012 11:16am

“I can’t imagine people buying such a thing without speculating on the price.”

“I frequent North Vancouver, especially the mid-Lonsdale area around 13th st to see my significant other. There’s been quite a few large scale developments in the area, and more planned down the road. Last year I dropped by “The Vista,” a two building high rise project just off 13th and Lonsdale. I saw a 4th floor 2 bedroom apartment, barely 1000sqft, that was asking 600K. At the time I thought that was crazy. Today the SO and I dropped by The Kimpton to have a look around. I was blown away. The “luxury” building is 5 floors, and the asking price for a 2 bedroom was 710K! Unbelievable. Of course, everything that could sparkle in that ~1000sqft condo did, and the sellers said “concrete” about 15 times during our 10 minutes there, but there was a suspicious inconsistency in the “luxury” presented. The kitchen and bathroom were all fine (complete with a bow-tie on the toilet!), but for some reason there was a sliding door to the master bedroom, but not to the 2nd bedroom. There was a sliding door to the bathroom for the 2nd bedroom, but a regular door for the bathroom in the master bedroom. And instead of an actual fireplace, there was some weird graphical device that showed something that looked like a really bad CG fire. Anyways, it seems builders in a very non-posh neighbourhood of North Vancouver think they can sell people a 1000sqft concrete box just barely off the ground for $710,000. You’d think it was a 2000sqft penthouse in Downtown/West Vancouver. Oh, they said they only had a couple units left. I guess they can get away with it, although I can’t imagine people buying such a thing without speculating on the price.”
– from ‘R’, via e-mail to VREAA, 26 Apr 2012

Get Girls With Your Car; Keep Them In Your Condo


– from The Georgia Straight, 27 Apr 2012
Many thanks for the link to the image to Ray, who also adds:
“Here is a fun ad from the Georgia Straight today that insults our ability to keep a woman unless we buy one of their houses. Is it the top when they have to play into our primal urges in order to sell their homes?”

And the target buyer is…?
With a name like ‘Meccanica’, and this line of advertising, you’ll be able to smell the testosterone in the common areas.
(Where is condohype when we really, really need him? For those of you who are relatively new to the Vancouver RE blogosphere, ‘condohype’ was a site that offered incisive, insightful and often hysterically funny critiques of condo project promotions. Foreclosed 2009. Archives still online.)
Yeah, guys, if you can’t supply a cave or a nest, you aren’t going to get girls, and all sorts of other things aren’t going to happen to you either.
‘Real Men Buy Real Estate’ ™
– vreaa

Reminiscent of:

woes of wenting

[For the record, this our version of the cover of the book "I Married An Artist", by Billy Button. Great stuff. -ed.]

Uncharted Territory, Charted – Inventory Climbs


– chart care of b5baxter at vancouverpeak.com, who adds “May should be interesting to watch. Will inventory increase rapidly as it did in 2010 and stay in record territory or will it fall below the 2010 levels?”

RBC Anticipates Vancouver RE Decline; “Most Probably 7%-12% Over The Medium Term”

“With affordability, or rather unaffordability, having moved off the scale in the past three to four years, the historically volatile Vancouver-area market is undoubtedly under substantial stress. Indeed it is vulnerable to a marked correction.
Although such a correction cannot be ruled out, we believe that the most likely scenario is one of a modest price decline, possibly in the order of 7% to 12% from quarterly peak to trough over the medium-term.”

RBC Economics, Apr 2012 Report

We anticipate that the initial 10%-off will simply get the ball rolling, as sellers come to market in attempts to secure paper gains, and buyers back away. Thus, the “marked correction” outcome is far more likely.
Vancouver RE will most probably hit trough discounts of 50%-66%-off in the years ahead.
– vreaa

“There’s a lot of peer pressure to move back home coming from family and friends, who don’t understand why anyone would want to leave the ‘best place on earth’. We feel a subtle undertone that what we’re accomplishing is worth less because we’re not doing it in Vancouver. As ex-Vancouverites born and raised, we can’t help but subconsciously agree.”

“My husband and I are both professionals in our early 30’s (medical and legal) who were born and raised in the suburbs of Vancouver and grew up in comfortable middle-class families. We both moved to Alberta after our undergraduate degrees at SFU, to pursue our respective professions at the University of Alberta (cheaper tuition and better regarded programs than UBC for both of us). After graduation (around 2008), we chose to stay in Alberta for a little longer to save up for a house in Vancouver. We’ve been following the housing market in Vancouver ever since and we read VREAA and Greater Fool every day. Following the market with the dream of someday moving ‘back home’ has become a ritualistic obsession, waiting for the day the market tanks and we can fly back to Vancouver with suitcases of cash. Needless to say, we’re still waiting and watching.

Since we left Vancouver, we have been the ‘outsiders’ in our respective families (both families are located exclusively within the lower mainland), flying home for Christmas and in the summer but missing out on the everyday family gatherings. There’s a lot of peer pressure to move back home coming from family and friends, who don’t understand why anyone would want to leave the ‘best place on earth’. We feel a subtle undertone that what we’re accomplishing is worth less because we’re not doing it in Vancouver. Of course, none of the people judging us have ever lived or worked outside of Vancouver. As ex-Vancouverites born and raised, we’ve had the ‘Vancouver superiority complex’ imbued in us and can’t help but subconsciously agree.

Both of us have held various jobs in Edmonton and have recently relocated to a small town a couple hours out of Edmonton for better career opportunities (i.e. to save up more money to move back home). Funny thing is, we’re actually starting to like it. Growing up, neither of us had thought much of the small-town life, believing small town folk were hicks (Vancouver superiority again). But, friendly people, a 5-minute commute to work, affordable housing, and stable jobs where we can easily make 3-4x what we’d make in Vancouver are awfully tempting. The cost of living here is much lower than Vancouver. There is no PST/HST in Alberta, and gas is about 30c/L cheaper. Housing in our town is fairly priced compared to the median family income. Alberta is also quite a beautiful province full of outdoor recreation opportunities, although it took us a while to appreciate its charms.

Young people in our town have amazing opportunities both to work and start a family. A colleague’s husband bought his first house at 18 (6 years ago), with money he made working in a skilled trades job. (By the way, detached houses under 100k still exist!) Because there is a REAL economy here, based on tangible things like trades, equipment manufacturing, outdoor recreation, etc, there are plentiful jobs available to anybody willing to work. I remember growing up and struggling to find a summer job in high school/university. I wouldn’t say jobs were plentiful growing up in Vancouver.

Sure, we can’t get sushi at 10pm on a Sunday, but going to Edmonton is an easy drive on the weekends to soak up some culture and go shopping. The irony is, in many ways the small town lifestyle is more cultured and wholesome than where we grew up. People take time for real self-actualization: gardening, baking, reading, travel, outdoor recreation, and community involvement. Contrast this with young people in Vancouver who either still live at home into their late 20s, or have moved out into 600k condos while earning 70k a year (if that), and go around driving luxury cars, thinking they’re hot stuff because they “own” a house in Vancouver.

If it weren’t for the family ties we have back home, we would not even be considering moving back. Vancouverites perpetuate the illusion of the ‘best place on earth’ either because they’ve never lived anywhere else and don’t know any better, or to justify a vastly overpriced lifestyle in which a person pays more and gets less than anywhere else in the country. To see the situation as it really is would be heartbreaking for most young people who’ve mortgaged their futures in an attempt to live a similar lifestyle to that they grew up with. Sadly, Vancouver has permanently changed, and it’s not just housing prices. Whether the bubble bursts or not, the social landscape of the city has been irreversibly altered and we’re not sure the ‘new’ Vancouver is a place in which we want our children to grow up.”

- ‘Watching And Waiting’, via e-mail to VREAA, 26 Apr 2012

‘W&W’ generously shares with us her complex, mixed feelings about living in Vancouver (or not).
It is often challenging for young people to make decisions about where to live (family, jobs, lifestyle, ‘social landscape’), and atypically large differences in RE prices add another significant variable. Over the last 5-10 years, the RE variable has become a game-changer for many.
– vreaa

Grassroots Lobby For Sensible Mortgage Underwriting – “As a horrified observer of the effects of excessively lax lending in Vancouver I want to draw attention to the 1st May 2012 deadline for commenting on the OSFI Guideline for Residential Mortgage Underwriting Practices and Procedures.”

AN writes by e-mail, 26 Apr 2012:

“I want to draw your readers’ attention to the May 1st, 2012 deadline for commenting on the Office of the Supervisor of Financial Institution’s Draft Guideline for Residential Mortgage Underwriting Practices and Procedures found at:
OSFI – Draft Guideline B-20 – Residential Mortgage Underwriting Practices and Procedures

As a horrified observer of the effects of excessively lax lending in Vancouver, I have summarized the five principles in the Draft Guideline for federally regulated financial institutions as follows:

Principle 1 – Follow an institutional Residential Mortgage Underwriting Policy
Principle 2 – Verify identity and credit history of borrowers
Principle 3 – Verify income of borrowers
Principle 4 – Appraise real estate properly
Principle 5 – Don’t substitute mortgage insurance for sound underwriting practices
Reading between the lines, it basically says: “Knock it off with the cash-back mortgages”.

These Principles are hyper-obvious and sensible. However, I don’t expect that Canadian lenders will agree. They will probably spend millions of dollars on lawyers and lobbyists, both before and after the deadline, in a concerted effort to water down guidance from the OSFI.

I think there should be a grassroots lobby in favour of more sensible mortgage underwriting. I would like to urge your readers to craft an email in support of the Draft Guideline and send it to OSFI before the deadline on Tuesday, May 1st, 2012.

The email address for feedback to OSFI is:
B20@osfi-bsif.gc.ca

Related documents:

Draft Guideline B-20 – Residential Mortgage Underwriting Practices and Procedures (pdf)

Accompanying letter (pdf)

News Release (pdf)

We, too, have been struck by the deleterious effects of “excessively lax lending” in our city.
The described tightening of lending criteria would be very sensible.
If you feel the same way, write an e-mail to the OSFI.
– vreaa

Ben Rabidoux at Macleans – “Those who try to explain real estate prices in Canada without acknowledging the role of easy, accessible credit over the past ten years or so have completely missed the boat.”

“The next decade for real estate in Canada will be fundamentally different than the last. Our aging population, a mismatch between where our prices are and where they should be based on our economic performance, and rising interest rates are all reasons for this. However, the greatest difference will be in the availability of credit going forward, and those who try to explain real estate prices in Canada without acknowledging the role of easy, accessible credit over the past ten years or so have completely missed the boat.”

“Despite three rounds of mortgage rule changes since 2008 that largely corrected previous mistakes, we’ve seen a decade of extraordinarily loose lending in Canada. But the era of cheap credit may soon end–and possibly quite abruptly. News has come from Canada Mortgage and Housing Corporation and the Office of the Superintendent of Financial Institutions Canada, Canada’s chief financial regulator, that major changes are on the way, and it’s hard to understate how significant they may prove to be.”

[Ben then elaborates on] the three changes:
1) CMHC will drastically draw down on mortgage insurance.
2) OSFI targets HELOCs and conventional mortgages.
3) “Increased oversight of CMHC” coming.

- Ben Rabidoux of The Economic Analyst, now also an analyst at M Hanson Advisors, at Macleans.ca, 23 Apr 2012

A brief, ‘must read’ article.
Significant for it’s appearance at Macleans.
Thanks Ben.
We are in complete agreement that far and away the major force driving our speculative mania in housing has been cheap credit.
– vreaa

“Had a conversation with a Realtor today. She told me things were “really slow” for this time of year and that the market was “dead”.”

“Had a conversation with a Realtor today. She told me things were “really slow” for this time of year and that the market was “dead”. She sells mainly on the West Side and mainly to Chinese buyers. [But] she also said she’d seen a slight increase in activity over the last couple of weeks so, who knows, maybe we’ll have another year of insanity. In any case it certainly seems to be a difficult time to be a Realtor.
On a related note my previously bullish colleague (“HAM! Running out of land! Everyone wants to live here!”) has started making bearish comments and now believes prices will go down over the next year. He thinks it’ll only be a 5% drop but I was surprised how fast he changed his opinion.”

Bally at VREAA 23 Apr 2012 1:16pm

Raising Kids In The DTES – “We own an affordable home in downtown Vancouver, and I don’t think we could have pulled that off if we hadn’t been willing to take a chance on a dodgy neighbourhood. The next wave of real estate refugees will be moving even closer to ground zero.”


A woman smokes crack in Vancouver’s Downtown East Side
[The image illustrating this story in the National Post]

“For the past six years, our family has lived just around the corner from the worst stretch of Vancouver’s notorious East Hastings Street, near dismal Pigeon Park. Curiously, we chose to move here while my wife was expecting, about nine years ago. We had found a condo that we could actually afford, so we purchased a unit pre-construction, gambling that the neighbourhood would improve significantly by the time our building was completed. It didn’t. We moved in anyway, hopeful that change was just around the corner. It wasn’t, although the area would improve, eventually. But first, we would spend a few years raising our children in what could generously be described as a disturbing new community.

Housing prices being what they are in Vancouver, I expect that more families will consider taking a chance on “improving” neighbourhoods, as we did. And they will find, as we did, that addicts don’t make the best neighbours. While every user’s personal story is surely tragic, it remains a fact that addiction does terrible things to people. Junkies steal, they prostitute themselves, they leave needles and feces in the streets. The Downtown Eastside may be home to my city’s least fortunate, but it is also, in many cases, home to my city’s least sanitary, least responsible, and least polite. Anybody who thinks drugs are glamorous should spend some time around here.

[Series of stories of DTES encounters at this point. Read the whole article]

So why did we stay here? I suppose it helped, as middle class parents moving into a decidedly un-middle class neighbourhood, that our hopes were not high in the first place. … we were able to ride out the rough patches because we always knew that our time here was optional: either the area would improve or we would leave. Many will never have that choice.

Recently, parts of the neighbourhood have improved, and significantly. A couple of years back, the completion of several residential towers quite rapidly turned our formerly desolate block into an up-and-coming district, complete with overpriced French bulldogs. There are now coffee shops and grocery stores and dry cleaners and pizza places where, not long ago, there was nothing. For years, we were the only fools braving the local playground, dodging the winos and crack heads, checking beneath the monkey bars for needles and broken glass. Today, there are always kids around, there’s a beautiful new daycare just across the street, and funding has just been announced for an elementary school. Heck, these days, even the walk to Gastown isn’t quite as scary.

It took a while, but we bet on gentrification, and – knock on wood – it’s happening. Of course, when a toddler is taken hostage at a daycare, as happened about a year ago just a few blocks away, you do have reservations. And, to be sure, if anything serious had ever happened to a family member – or if my kids paid more attention to their surroundings – I might be telling a completely different story. But, with hindsight, this was a good move for us: we own an affordable home in downtown Vancouver, and I don’t think we could have pulled that off if we hadn’t been willing to take a chance on a dodgy neighbourhood. So, if any parents out there are considering a similar choice, it can be done, but you will need to stay alert, avoid the clearly problematic individuals and situations, and hope that your kids won’t be exposed to anything too extreme. And good luck, because the next wave of real estate refugees will be moving even closer to ground zero.”

- excerpts from ‘Mike Comrie: Raising kids amid the hookers, junkies and drunks of Vancouver’s worst neighbourhood’, National Post, 20 Apr 2012
[hat-tip Aldus Huxtable]

Half The Width, Twice The Price

4549 W 12th Ave, Vancouver; V945137
2569sqft SFH on a 33×122 lot; built 1933
Asking price: $1,975,000

And now, without horizontal distortion!:

Seriously, I know you think your eyes must be playing tricks on you, but that second photo is the actual house:

In Vancouver, one has to learn to get by with less cat-swinging room for your 2 million bucks.

By the way, to the best of our knowledge, this house was last sold in 2008, the ask price then was $1,495,000.
Anybody have access to the sales price from 2008?
Same realtor.
“Rarely available”? We think not.
More like “Traded every 4 years”.

Minister of Finance James Flaherty’s Letter To Gord Goble – “A Home is a Family’s Most Important Investment”

Here is Gord’s reply to Flaherty’s reply:

“Thanks for your reply.

But here’s the thing (and I’ll make this short and sweet). Right now, one cannot buy a single family home anywhere near Vancouver or its immediate suburbs (Vancouver, West Vancouver, North Vancouver, Burnaby, Richmond, Ladner, Tsawwassen, New Westminster, or White Rock) for less than a HALF MILLION DOLLARS. Moreover, the few homes that are available between $500,000 and $600,000 are in such a state of disrepair they typically need to be torn down and rebuilt. The situation is, in a word, insane.

I know the housing industry is critical to Canada’s GDP. But through the availability of cheap up-front money and sub-prime lending, and the ease with which offshore investors can purchase homes in this country, your government has allowed a fiscally perilous, fully unsustainable situation to unfold. You have, in essence, funded the growth of a ready-to-burst bubble that’s no less onerous than the bubbles we saw in many US cities before that country’s massive crash. You continually warn us not to go even deeper into debt, yet you facilitate the very debt burdens (now at record levels) you warn against.

Why?

Thank you in advance.

Gord Goble”

Thanks to Gord for sharing this exchange with all of us.
The Minister of Finance talks of the steps that he has taken to “protect and strengthen” the housing market; most of them are simply reversals of steps he himself had put in place in the years before (40 year mortgages are the most blatant example).
It sounds innocuous, but note how Flaherty confidently states: “A home is a family’s most important investment”.
See how easily that statement passes as truth?
It’s not just a home, it’s also a financial instrument.
This is the kind of thinking that has encouraged Vancouverites to overreach and then overreach some more; it’s the fuel of the speculative mania.
Why pay ‘3x’ for a house that by all fundamental valuation methods is worth ‘x’?
Well, it’s not just a home, it’s an “investment”, and next year it’ll be worth ‘4x’.
Anyway, it’ll all play out, we’ll get a price collapse, and only then will the structure of the bubble be obvious to all.
– vreaa

Lawyer In Surrey Washroom – “The market has been slow for many months. I think it will get a lot slower. There are lots of lawyers making a living on real estate convayencing who are scrambling.”

“I was in a washroom in South Surrey yesterday and overheard the following conversation between a 50 something lawyer and another fellow:

Lawyer : “Well, the Real Estate market has not been exactly robust”
Other guy: “Really? I thought it was crazy”
Lawyer: “No. Actually is has been slow for many months and I think it will get a lot slower. There are lots of lawyers who are making a living on real estate convayencing who are scrambling…”
Lawyer before guy could answer: “…I am actually working on importing a new green tea energy drink from China”

A smile crossed my face as I walked out.”

- McLovin at vancouvercondoinfo.ca 21 Apr 2012 9:27am

Realtors With PhDs – “I’m a fully qualified brain-surgeon! I only do this job because I want to be my own boss!”

“While at the corner store, saw a funny ad on the monitor above the checkout. One of the non stop real estate ads had a RE agent who advertised the fact that he had a PhD! How flipping distorted is the economy in this town when a PhD educated guy abondons that considerable education investment (8 years or so), takes the 5 week RE course, and pursues the “noble” RE profession? Sad part is, he probably made more money flogging RE than applying education.”
– Re-diculous at vancouvercondo.info 20 Apr 2012

“He’s not the only one. /dev/null pointed out Gina Rossi the other day: Local realtor with a PhD in molecular biology and cancer research from UBC medical school.”
– Anonymous at vancouvercondo.info 20 Apr 2012 7:55pm

[image from Gina Rossi's site previously posted here removed in response to comments below. The focus of this post is on the phenomenon of individuals with higher education ending up working as realtors. - ed.]

“After finishing an undergraduate degree in Biology at UBC, I took on a PhD at the UBC Department of Medicine at Vancouver General Hospital. I successfully defended my thesis to earn my doctorate. My graduate studies focused on molecular biology and cancer research.
I’m good at stats and math. These are helpful skills to have in real estate. I can see a little deeper into the monthly Board statistics and often come up with better resolved, more useful information.”

– Gina Rossi, Sutton WestCoast Realtor. Image and excerpt from her blog.

It is not unusual for people with PhDs to end up in occupations unrelated to their training. This happens all over the world. After all, universities produce far more PhDs than they have academic positions for them to fill.
At the same time, we think that these two sightings are significant.
The Vancouver RE mania has drawn human resources away from many useful and productive endeavours; we find it hard to imagine that these individuals’ skills couldn’t serve them, and their communities, in better ways.
Anybody know of any other examples?
Who’s the most (over?) qualified realtor in town?
– vreaa

Sentiment Change? – Richmond Retreat

“Richmond Detached (homes) Inventory
30 Sep 2008 = 1012
20 Apr 2012 = 1021
Richmond at record high and its only April!”

– Inventory at vancouvercondo.info 20 Apr 2012 2:02pm

“There are more and more people over at the Chinese [internet] forums reporting price drops in their neighborhoods (be it Richmond condos or Coquitlam SFHs). More people are voicing their skepticism that Vancouver RE market will continue to go up. Many already accept the view that Van RE price will decline at least a couple % this year.
People are noticing the glut of thousands of upcoming Richmond condo units, and are advising against buying at this time. A few people are saying their close/trustworthy Chinese Realtor friends are saying the RE market isn’t looking good; however the other Realtors (whom they’re not close to) are still trying to paint a rosy picture.
Sentiment is changing, even among the HAM.
They say housing is the most emotional of all assets.
Perhaps declining investor sentiment alone will bring on the downturn, even before hard credit events, massive job losses, or CMHC/OSFI rules kick in.”

– VMD at vancouvercondo.info 20 Apr 2012 2:02pm

Banks Back-Off; Others Accept The Risk – “I don’t think there is any sign anywhere from people on the ground in Canada that foresees the bubble. Economists predicting a collapse in Canada have been wrong for years; my prediction is that they’re going to be permanently wrong.”

Banks are paring back loans to below prime borrowers amid signs that housing prices are starting to fall. The Canadian Real Estate Association said April 16 that prices in Canada dropped 1.7% in March from the previous month, led by a 3.1% decline in Vancouver. Finance Minister Jim Flaherty said he’s “encouraged” by signs of a housing correction in Vancouver, preferring the market to “correct itself” without government intervention.

Toronto-Dominion Bank, the country’s second-largest lender, stopped originating non-prime residential mortgages as of March 31, spokesman Mohammed Nakhooda said. …
“This decision was based on a number of factors, including a regular review of our secured lending risk management strategies,” Nakhooda said. “To remain competitive in the business in the current environment would require us to increase our risk profile, something we concluded was no longer in our risk appetite.”

Canadian Imperial Bank of Commerce, the country’s fifth- largest bank, said in March it was considering the sale of its FirstLine Mortgages broker. …
Increased risk management has led some banks to reject loans, Reid said.
“Two years ago, they wouldn’t have turned that deal down,” said Reid, 52.

An influx of non-prime lending will benefit Home Capital, Chairman and Chief Executive Officer Gerald Soloway said. The company is expected to earn $1.50 a share before one-time items in the first quarter, up from $1.24 a share a year earlier, according to the average estimate of six analysts surveyed by Bloomberg News.
“We have had a very good first quarter,” said Soloway, who has been CEO for 25 years. “There’s not going to be any surprises, up or down.”

“There is an opportunity for the company to increase its market share without lowering its standards for credit quality,” said Bryan Brown, an analyst at Macquarie Capital Markets in Toronto. He rates Home Capital shares neutral.

“I don’t think there is any sign anywhere from people on the ground in Canada that foresees the bubble,” said Soloway. Economists predicting a collapse in Canada “have been wrong for years; my prediction is that they’re going to be permanently wrong.”


– from ‘Canada’s big banks flee nonprime market amid signs of housing downturn’, Bloomberg via FP, 20 Apr 2012
[hat-tip Deuces]

There never was sub-prime lending, but now we’re stopping it.
Worthy of a Cold-War memorandum.
Also, Home Capital will get BBQ’ed.
– vreaa

RE-Tweet – “Conversation I had recently reminded me of my days living in Dublin pre-RE collapse there and the scary parallels with #VanRE now.”


“Conversation I had recently reminded me of my days living in Dublin pre-RE collapse there and the scary parallels with #VanRE now.”
– tweet, Eric Lam, @elam101, Vancouver, 22 Apr 2012
Eric describes himself as “Parent, foodie, interested in markets, real estate, design and lots of other stuff, fixed income analyst by day.”

Robert Shiller – “We should be hoping not for price increases, but for prices that are formed in markets in which all people participate with realistic expectations, prices that reflect contracts that treat everyone fairly and that reward good behaviour.”

“…we should be hoping for better financial arrangements, a democratised and humanised financial capitalism, not for some price increase. We should be hoping for prices that are formed in markets in which all people participate with realistic expectations, prices that reflect contracts that treat everyone fairly and that reward good behaviour.
Thinking that large home price increases would be a good thing seems very widespread. But the effects of any such future price boom would not be so clearly beneficial, and would depend on the causes of the price increase and the financial arrangements that were made for them. The issues are much more complex than most people seem to imagine.”

“Price increases were related to a loosening of credit standards and weakening of the banking system due to complacency about the possibility of price falls. The result has been serious trouble in the banking sector, and the necessity for government bailouts.”

“Home price increases were also related to unrestrained and unrealistic public expectations for future price increases. In a survey of homebuyers in four US cities that Karl Case and I carried out in 2004, at the peak of the housing expectations, we found that the (trimmed) mean home price increase expected for the succeeding 10 years was 12.6 per cent a year. Maybe our respondents didn’t quite understand what they were implying: that would mean more than a tripling of home prices in the succeeding 10 years from an already high level.
At the least, home buyers must have thought they would make a ton of money: those who borrowed 90 per cent of the money to buy their house in effect saw their investment levered up 10 to one, and so these high expected price increases would be magnified 10-fold for their investment. No wonder people felt so pleased with the boom while it lasted.
Already eight of those 10 years have passed, and the actual rate of increase in US nominal home prices on average for the eight years was minus 3.6 per cent a year. Long-term public expectations were way off. And yet, even in the fact of this evidence, expectations have come down only slowly and gradually. Expectations for annualised 10-year price increases dropped to 5.6 per cent a year by 2011, though that is still high: it would imply a doubling of home prices in about a dozen years.”

“We should also hope for some fundamental change in our mortgage institutions so that the problem that got us into this housing crisis will not be repeated. In my book I talk about new types of privately issued mortgage that would go a long way towards preventing the kind of financial crisis we have just been through. I have proposed a continuous workout mortgage that has a pre-planned and continually adjusted workout written into the original mortgage contract. Issuers of such mortgages would be in effect selling insurance on home price declines as part of their mortgage package.
[My colleagues and I] have shown how these mortgages should be priced to yield a normal profit for private issuers. By creating such mortgages, issuers would be bringing the financial theory of risk management to the broader public, thereby helping to democratise finance.
We should also hope for better liquid markets for home price risk that would provide price discovery for future home prices, and a hedging vehicle to help mortgage originators to better kinds of mortgages without overburdening themselves with home price risk. That would be more good news.
Ultimately, what we really should be hoping for is not home price increases but democratisation and humanisation of the financial infrastructure. Such improvements are unambiguously good, and are things we can make happen. It need not be just a hope.”

– excerpts from ‘The property predicament’, by Robert Shiller, Financial Times, 21 Apr 2012 Shiller is a professor of economics and finance at Yale University,
[Image from same article]

Shiller’s suggestions may seem irrelevant to those desiring ‘affordable housing’ in Vancouver but they are not. Our bubble is the result of the same mispriced risk (too easy lending) and “unrestrained and unrealistic public expectations for future price increases” to which Shiller refers.
The particular problem for us is that we are at a different stage of the cycle, our bubble remains inflated. We believe that far and away the most probable outcome is very large price drops.
Perhaps some of the suggestions that Shiller and his colleagues make could be incorporated into our Canadian mortgage system, but we anticipate there will be little appetite for this until our housing markets suffer very severe setbacks.
– vreaa

‘First We Take London and Manhattan, Then We Take Berlin’ – Limitless Demand Argument Revisited, Again – “Anytime a midlevel city grows and becomes a popular destination to live, people come, demand increases, supply dwindles, and prices go up.”

“Anytime a midlevel city grows and becomes a popular destination to live, people come, demand increases, supply dwindles, and prices go up. Witness New York and London 100 years ago and what it’s like now.
New York City police and firefighters earn about $100k a year yet can’t afford to live in Manhattan. They live in New Jersey and commute. When I was in London, a shuttle bus driver told me he grew up in Earl’s Court, but had to move to Reading and commuted to work. This is a normal state of affairs.
Vancouver is an international city. People are going to move here, as is happening in Germany. Real estate prices in Berlin and other cities are increasing because the remaining wealthy Europeans are moving and investing there because of the solid economy and collapsing prices in their home countries. They are pushing out middle-class Germans. The movement of people and capital to better places is normal development. What’s happening is not new. It has happened since the dawn of civilization.
If [anybody] feels disenfranchised and displaced, [they] should remember the plight of the First Nations people. Their homes were taken from gun point and they were subjected to genocide. The remainder were made to feel really welcome by being forced to live on reserves and treated like second-class citizens in their ancestral homeland. At least the Chinese purchased their homes legally and are contributing to the economy by buying Canadian natural resources from which she is benefitting.”

Terry Chan, Letter To Editor, Vancouver Courier, 20 Apr 2012

Excellent debating technique, Terry.
– Hand-waving comparisons linking our (modest, small, provincial) city to capitals such as New York, London, Berlin.
– Vague claims of historical precedent (“since the dawn of civilization”).
– Superficially arresting but essentially empty concepts (“Vancouver is an international city”)
– Avoid mention of all non-supportive data (thus let’s not talk about any actual numbers)
– Pre-empt dissent by associating any would-be opponents with historical atrocities (“plight of First Nations people”).

While it is true that cities do develop, the problem is that the vague arguments used by Terry, if accepted, can be used as an excuse to justify just about any price, for any property, in any growing city.
Show us the math that supports current Vancouver prices. None does.
Yes, Vancouver will develop.
But, yes, too, Vancouver is in a huge speculative RE mania that can only end with implosion.
The two ideas are not mutually exclusive.
There are at least 150 other cities around the globe as important as Vancouver – Does Terry argue they are all on the brink of becoming the next NYC; London; Berlin?
– vreaa

Also see:
Vanhattan”.
Various posts in the sidebar category “Limitless Demand Argument For Ongoing Market Strength”.

You Go, Girl! – “She was ready to start climbing the property ladder and he wasn’t. She hopes women have the courage to leap confidently into homeownership. Work within the budget (she laughs).”

“I have a single friend sitting on the fence between buying and renting. She’s financially ready to make the leap into homeownership, but hesitant about doing it solo in case she meets someone soon.
Waiting for Mr. Right can derail a number of women’s homeownership plans, according to Sandra Rinomato, a realtor and owner of a full-service brokerage in Toronto.
“I can’t tell you how many times a client asks what she’ll do if Mr. Right comes along, and I always say if he does, then okay, you can keep the investment in your portfolio and rent it, he can move in, or you sell it and take the equity,” she says. She speaks from personal experience, having at one point purchased property on her own while in a serious relationship. She was ready to start climbing the property ladder and he wasn’t.

More and more single women are entering the market, making up roughly one in four new buyers, according to Ms. Rinomato, who is currently hosting the new HGTV series, Buy Herself, focused on helping singles navigate the world of real estate.

“If I could pull a rabbit out of a hat I would, but we work within the budget,” laughs Ms. Rinomato. Searching outside your financial scope can derail the process, or financially stretch you further than you should be if you fall in love with something a few rungs out of your reach on the property ladder.
Aside from down payment, monthly mortgage costs, and emergency funds for the unexpected, it’s your responsibility to have a grasp on the countless other costs associated with buying your first place, like inspection, legal, and appraisal fees.

Ms. Rinomato says it’s not unusual for solo buyers to have unrealistic requirements. … A strong team in your corner is also essential for a first-time buyer, and an understanding of the steps of buying, and how to will help you make the right investment decision. … She hopes her new TV series inspires women to at least ask if this is the right time to buy and not to hold back because they’re scared, or don’t think it’s an option, or think Mr. Right is around the corner. More importantly, she hopes women have the courage to leap confidently into homeownership if the time and the investment is right.

‘Finding the right home, with or without Mr. Right’, Angela Self, G&M, 20 Apr 2012 Angela Self is “one of the founders of the Smart Cookies money group and writes a weekly column on managing debt and saving money at the Globe and Mail”.
[hat-tip theragingranter]

Careful feminist analysis of the article would be appreciated; any takers?
“A strong team in your corner is essential for a first-time buyer”: let’s guess… a realtor and a mortgage broker, right?
– vreaa

From the comment section of the G&M article:

“Is anyone else amused by the fact that a show enticing single women to buy into the very peak of the condo bubble, and thus committing financial suicide, is being marketed as “female empowerment”? I’m thinking it’s time to short Lululemon stock. … In a few years HGTV can do a follow-up program called “Sell Herself”. That’s what many of these women will be doing in order to hang onto their negative equity condos.” – Alistair McLaughlin

Federal Immigration Minister – “People in Vancouver ask why we facilitate this. It is leading to inflated real estate prices. Great if you are well-established, but if you are a young family starting out, good luck being able to afford a house in Vancouver. A lot of people who aren’t rooted in Vancouver are inflating the costs.”


Kenney – “We had begun to devalue citizenship.”

Nine out of 10 wealthy immigrants accepted into Quebec’s investor immigrant program never come to Quebec, federal Immigration Minister Jason Kenney said Friday.
“I do think it is peculiar that the province that was given power to select immigrants primarily to reinforce the French fact in Quebec is in fact flipping Asian people into Vancouver,” Kenney said during a meeting with The Montreal Gazette editorial board.
“In principle, the Quebec immigration program should be about immigration to Quebec.”

Kenney defended the [national] investor program.
“There are millions of millionaires. There is absolutely no shortage of demand for this kind of program. We have a huge surplus of applications.”
But the immigration minister said he would like to see both the national and Quebec programs revamped to better reflect the demand from rich people while making the programs more valuable to Canada.
Under existing criteria, the national and Quebec versions of the program accept applications from investors with a net worth of at least $1.6 million, provided they make an $800,000 loan to the state, which is repayable without interest in five years.

Kenney said the “vast majority” of the roughly 4,500 people Quebec accepts under the investor scheme settle elsewhere.
“As far as we can tell, about 90 per cent of those people end up settling in Vancouver and Toronto. They don’t even come here,” Kenney said.
“Quebec gets the money. Ostensibly, they are supposed to be coming to Quebec, but they go to Vancouver and that is where they stop.”
He said in most cases, the family sets up a household in Vancouver while the breadwinner “goes back to Asia or wherever to run the business, where they are not paying Canadian taxes.”
“Here’s what often happens. Quebec will get the $800,000 for five years. B.C. will get the social services costs for health care and everything else for the dependents who have been brought to Vancouver.

“People in Vancouver are always asking me why are we facilitating this because it is leading to inflation of real estate prices. Which is great if you are well-established and you have paid down your mortgage. But if you are a young family starting out, good luck being able to afford a house in Vancouver. A lot of people who aren’t rooted in Vancouver are inflating the costs.”

“We have decided that we have to raise the price point. There is a huge surplus of people applying for these programs beyond our ability to admit them and we just aren’t getting enough bang for the buck.”
Kenney rejected suggestions that the program feeds into the perception that Canada is ready to sell citizenship to the highest bidder.
“It’s not citizenship, it’s permanent residency,” Kenney said.
“There is a compelling rationale to attract high net worth investors to help bring capital and ongoing investments into the Canadian economy . . . But the current one is not meeting those objectives. What we want is investment that puts real skin in the game, not just a loan so people can move in and out.”

Meanwhile, Kenney said the federal government is in the process of revoking the citizenship of 2,300 people, with at least 6,000 more cases under investigation.
He said a two-year investigation by the RCMP identified at least 8,800 cases of alleged residency fraud.
“Thousands of people were using crooked immigration consultants to create fake proof of residency in Canada. When we find several thousand people who have broken the law, it is pretty widespread.”

“We had begun . . . to devalue citizenship in the sense that we were not consistently applying the statutory requirements to obtain citizenship,” he said.

– from ‘Que. immigrant program funnels rich newcomers to B.C.: Kenney’, Montreal Gazette, 20 Apr 2012
[hat-tip Jeff Murdock]

Ireland’s Most Expensive House In The Bubble Can’t Sell At 75%-Off

“The detached Edwardian residence sits on 1.8 acres and looks out on to Dublin’s most expensive residential road. However, last year it was listed with a reserve price of €15 million, 75 per cent below its selling price, and invited interested parties to submit tenders for the property by October 27th last. … It has now been withdrawn from the market.”
– from ‘Ireland’s most costly house withdrawn’, Irish Times, 20 Apr 2012
[Thanks to 'C' for the story.]

Five Hundred $25 Gift Cards Will Generate Media Buzz For Richmond Condo Project!!!


– image via e-mail from Aldus Huxtable, who adds:
“Through the letter box today, looks like Rennie has heeded the criticism and is offering $25 gift cards to Richmond Centre for the first 500 people who show up on the pre-sale day……”

It’ll be an interesting promo to watch.
Will the weak Richmond SFH sales, down 60% YOY, affect a project such as this one?
Will Global TV do an uncritical promo piece, again? (Or have they learnt from recent experience?)
Will buyers each buy an average of 3 units? (As per Marine Gateway?)
Thanks, Aldus Huxtable.
– vreaa

[Aldus Huxtable... didn't he write 'Brave New Best Place On Earth'? -ed.]

$10K Length Of Rope For New Buyers – “I think it’s fantastic. A lot of people are surprised at how much they can afford when they actually sit down with someone. It definitely helps people get into the market younger.”

The new $10,000 bonus for first-time buyers of new homes will likely help a lot of potential buyers make the leap into the real estate market, a mortgage expert says.
Ryan McKinley, mortgage development manager at Vancity, said he’s had a lot of calls from buyers seeking to understand the bonus, but no one who has yet bought a home because of it.
“Mortgages have been top of mind for many people lately, and the calls that I’ve been getting have been in regard to clarity — what this is, and can they take advantage of it,” McKinley said. “Spring tends to be a popular buying season.”
The bonus, a one-time refundable personal tax credit, equal to five per cent of the purchase price of a home to a maximum of $10,000, was announced last month in the provincial budget. The bonus is still subject to legislation, which is expected to be introduced sometime this spring.
“I think it’s fantastic,” McKinley said. “I think it will definitely make it easier for people to get into the real estate market and if they’re thinking about it, that might be the deciding factor.”
He said because the $10,000 will come directly to purchasers in the form of a cheque, it will be possible to apply it in several different ways. Someone could take a loan from their parents or a line of credit from a bank to make a down payment, then repay it when the bonus comes through.

“A lot of people are surprised at how much they can afford when they actually sit down with someone,” McKinley said.

McKinley said Vancity also has a “mixer mortgage” where roommates can go together to buy a home they wouldn’t be able to buy otherwise.
“It also works well for parents and children, because the parents can own part of the home as an investment, while it helps the child get into the market,” McKinley said. “It definitely helps people get into the market younger.”


– excerpts from ‘$10k home-buyer bonus sure to spur first-timers: mortgage expert’, Vancouver Sun, 19 Apr 2012
[hat-tip Zerodown, who commented "The glass is overflowing at VanCity"]

The contradictions are so obvious, they must be apparent to everyone.
BOC Governor Carney implores Canadians, for the 6th or 7th time, to take on less debt.
BC Provincial Government adds teaser loans to already criminally cheap mortgages to tip the last marginally qualified young buyers into the market. Shame on everyone involved.
– vreaa

Are You Prepared To Battle For Your Dream Home? – “One thing to keep in mind is the houses that are getting pretty crazy bidding wars are underpriced anywhere from five to 10 per cent. The list prices aren’t always an indication of what they’re actually worth.”

“John Pasalis, broker owner of Realosophy Realty Inc., a Toronto-area real estate brokerage, cautioned that the bidding wars may not be as lucrative as they seem.
“One thing to keep in mind is the houses that are getting pretty crazy bidding wars are underpriced anywhere from five to 10 per cent,” he said. “The list prices aren’t always an indication of what they’re actually worth.”
Pasalis said his company has seen “multiple offers almost non-stop for years now,” including as much as 10 or more buyers bidding on a house.
“You just get these spikes and valleys in the market where things get a little bit more heated and demand starts outstripping supply as things get faster,” he explained.

– from ‘B.C. home buyers unwilling to enter ‘bidding war': BMO report’, Vancouver Sun, 19 Apr 2012, that noted that 23% of BC poll respondents indicated that they’d be prepared to enter into a bidding war to “battle for their dream home”.
[hat-tip space889]

‘Borrow To Get Ahead’ – “People are notorious for looking at the glass half full, or pretending things aren’t happening.”


Scotiabank Store Poster, image from this CBC News clip

Announcer: “The biggest concern for the Bank of Canada is still the record amount of debt that Canadians hold, debt that Carney expects to keep rising.”

Carney: “Some Canadian households are becoming overstretched, and Canadian households as a whole are being overstretched, which creates risk for the economy.”

Announcer: “Some experts argue that most Canadians can handle their debts, often backed by solid assets, like houses. But, even with strong hints interest rates may rise, Canadians appear to be ignoring the bank’s repeated warnings.”

Laurie Campbell, CEO of Credit Canada: “Well, to a certain degree I believe they are tuning it out, I mean people are notorious for looking at the glass half full, or pretending things aren’t happening.”

- from ‘Carney’s Warning’, CBC News, 18 Apr 2012

“Check-out clerk at Safeway told me that she was a mortgage broker who had just done a deal by telephone with a guy from Shanghai who had bought a house in Richmond.”

“Vancouver moment today. Check-out clerk at Safeway in Vancouver was talking to a co-worker about her phone call from Shanghai. I asked what was she doing, and she told me that she was a mortgage broker who had just done a deal with a guy from Shanghai who had bought a house for his aged parents to come over and live in Richmond.You can’t make this stuff up!!!!”
– Westsider at greaterfool.ca 16 Apr 2012 10:42pm

“You Just Want To Be On The Side That’s Winning!”


Perhaps… but how much?

For the record, we have a hunch that the Vancouver Canucks will tonight, Wedn 18th April, win the fourth game of their first round Stanley Cup playoff series against the LA Kings (but that they will then go on to lose the series 4-1 or 4-2). And we are very aware that there are sincere and loyal Canucks fans out there who will stand by the team no matter what.
So, what’s this post about?
Well, yesterday, one day after the Canucks third game loss in LA, we had the opportunity to spend time in various parts of downtown and a few of the surrounding suburbs. We were struck by the extreme dearth of shows of support for the Canucks; most obviously the absence of flags sticking out of cars. We actually only saw three (yes 3) such cars all day.
We have informally noted this pattern before: The Canucks win, everybody is a fan; the Canucks lose, can’t find a fan anywhere.
So, how is this relevant to our discussion of the Vancouver RE market?
Well, you figure it out.
– vreaa

Spot The Speculator #83 – “Much to my surprise there is a for sale sign out front of 1923 Waterloo again. Asking price $2,288,000, a whopping $478,000 over last year’s sale price.”

“Last year we lived in the top floor unit at 1923 Waterloo St. Vancouver and was saddened when the owner decided to sell the house. The owner lived downstairs with his young growing family and we knew them since they moved into the neighbourhood. The previous owner had completely gutted the house and did a great job in bringing back this Kits Grand Dame back.”

“The house sold last July [2011] for $1,810,000 and the new owners did not want us as part of the package. Here’s the original listing:

“Much to my surprise, I recently drove by to see a for sale sign out front of 1923 Waterloo again. Asking price $2,288,000. A whopping $478,000 over last year’s price.”

“All the new owners did was take out the upstairs suite kitchen, removed the carpet and laid laminated wood floors, dry walled the unfinished basement, painted over all the nice wood beams and fire place in the downstairs living room, put in a new refrigerator, cut out all the privacy of the laurel hedge out front, and put up a large fence.”

“My back of the envelope math on this unit goes like this
:
Purchase Price $1,810,000
Transfer Tax $35,620
Renos $60,000+/-
Realtor (if sold) $61,700+/- (7% on $100K 2.5% on balance)

Total cost: $1,931,700 is their break even point (maybe a little less on the realtor fee depending on selling price).
Not including any interest cost if they had a mortgage.
Asking $2,288,000.
Comparable houses in this neighborhood are selling between $1.6-$1.8 million.

“They can try all the lucky 88’s they want but HAM does not buy in this area, they prefer a newer house with a view.
I guess someone forgot to tell the new owner that the market peaked last year.”

- from DJB, via e-mail to vreaa, 17 Apr 2012
[thank you, DJB -ed.]
—-

This’ll be one to track.
Possible ‘crispy flipper’ candidate.
Nice looking house. Currently serving as a trading chip.
Perhaps 800k to a million bucks in the trough?
– vreaa

Carney AGAIN Threatens To Walk The Walk – “The bank is clearly uncomfortable with keeping interest rates below inflation when household debt continues to grind higher.”


editorial cartoon care of Jeff Murdock

“Bank of Canada governor Mark Carney elected today to keep the benchmark target for the overnight rate unchanged at one per cent, a level held at since September 2010.
Despite standing pat for the 13th consecutive policy session, the central bank offered a few hints that the outlook has improved enough to consider raising interest rates sooner rather than later.”
This “sent a clear signal that rates may not stay there a whole lot longer,” BMO economist Doug Porter noted. … “The bank is clearly uncomfortable with keeping interest rates below inflation when household debt continues to grind higher, and with the economy poised to reach capacity by early next year,” Porter said. “At a minimum, the bank will be raising rates …sometime in the first half of next year.”

CBC 17 Apr 2012

That’s now… what… five? six? times that Carney has formally warned Canadians about excess borrowing; all the while household debt load has continued upwards.
– vreaa

“I figured they’d be asking maybe $800,000 for what’ll likely be a $500,000 house in a post-bubble world. Turns out I was $300,000 under. That’s right: $1.1 million. Mind-blowing. Just mind-blowing.”

“Some of you might remember my photo essay from a few weeks ago, re: the non-stop construction insanity in my South Surrey neighbourhood. Well, one of those 200-plus new homes just came on the market. 3000 sq ft and a decent sized yard (one of the few new homes around here that does). But I tells ya, it sure *seemed* like it was slapped together in a month. If it’s like everything else they’re puking up down here, it’ll be looking pretty rough within a year. And don’t get me started on the landscaping. Does “dirt” count as landscaping?

Anywho, the place is just seven or eight doors down from our $1600 rental on Zero Ave. In other words, we both face the US. Thing is, we face a forest. They face low-rent apartments (including the obligatory crappy looking exteriors, broken cars, etc, etc) in a lousy neighbourhood of Blaine. A neighbourhood that won’t be upgraded in any of our lifetimes. They’re also close enough to the Pacific Highway border crossing that they’ll awake to the sound of long-haul semis shuffling around night after night after night.

I figured they’d be asking maybe $800,000 for what’ll likely be a $500,000 house in a post-bubble world. Turns out I was $300,000 under. That’s right: $1.1 million. Mind-blowing. Just mind-blowing.”

- Gord, at VREAA, 15 Apr 2012 5:25pm

For backstory, be sure to read:
‘Gord Goble – South Surrey Building Blitzkrieg; Thoughts and Images’
We share Gord’s fascination with the market.
– vreaa

Vancouver Investment Adviser On ‘Threat Of Home Ownership’ – “This is my 15th RRSP season. I have never seen so many couples under financial stress. It’s a new form of slavery.”

“This is my 15th RRSP season,” said Ernesto Salvi, an investment adviser with Edward Jones in Vancouver, “I have never seen so many couples under financial stress.”
Couples in their 30s through 50s are having trouble contributing anything at all to their registered retirement savings plan, he said recently in an interview over the phone. And then he talked about how buying a house these days won’t just put you at risk of having to ignore saving for retirement. You might also find that you’re forced to dip into your retirement savings just to get by.

Mr. Salvi has a client who is married with four kids and a house in the suburbs that was purchased a few years ago. Over the previous decade, she had built a small registered retirement savings plan of about $30,000.
In February, Mr. Salvi called this client to remind her about the upcoming RRSP contribution deadline. “She said, ‘You know, I cannot put anything into my RRSP and, by the way, I need to cash it in.’”
Mr. Salvi recalls warning her about the withholding tax that applies to money withdrawn from an RRSP. Her reply was that her RRSP was her last resort. “The sad thing is that it took years to grow that RRSP, and it’s going to be used up in a few months.”

On the surface, it sounds like the house is only part of the problem for this client and her husband. In addition to a large mortgage, they had a heavily used home-equity line of credit, maxed out credit cards and two car loans, Mr. Salvi said.
The house was the killer, though. When you buy a house, you generate wants and needs that weren’t there before. Got a house in the suburbs? Suddenly, you’re a two-car family. Moving up to a house from an apartment? You’ll need furniture, window coverings, carpets, electronics, lawn and yard equipment. Affording it all is easy. Buying a house means you can set up a home-equity line of credit, where you borrow at low interest rates by tapping into the equity in your home. If necessary, credit cards can help you supplement your borrowing.

RRSPs are road kill here. People use them to buy homes through the federal Home Buyers Plan and, as Mr. Salvi’s story shows, they may dip into them again just to get by.
In fact, many of Mr. Salvi’s clients are struggling to cope with the cost of carrying a house and other debts. He sees homeowners who are typically paying as much as $3,000 or more per month in mortgage payments. Not surprisingly, the clients who made lump-sum contributions to their retirement savings this past RRSP season tended to be on the older side.

“All the big cheques came from people over 60,” he said. “It’s the crowd between 30 and 50 that didn’t contribute. Some of them I’ve pushed to do it monthly because it’s easier on their budget. What I didn’t see this year is the extra amount at the end of February.”

Ironically, this is the year the federal government has added to the retirement burden of young adults who are just getting into the housing market. Starting in 2029, they’ll have to be 67 to collect Old Age Security, which right now pays a maximum of $6,481 per year starting at age 65. You need to save more to cover this loss of benefits, or you can stay in the work force for a few extra years. If you buy a home in cities like Vancouver and Toronto, you might just be making an implicit choice to work longer.

Mr. Salvi has seen what happens when people buy houses they can’t really afford and find that debt rules their lives. “It’s a new form of slavery,” he said. “That’s how I see it personally.”

- from ‘The hidden threat of home ownership’, Rob Carrick, Globe and Mail, 9 Apr 2012

Many Vancouver homeowners are over-invested in RE and sorely unprepared for retirement. Home price increases have allowed for debt-driven consumption, over-spending based on wealth-effect, and neglect of non-RE investments. All part of the misallocation of resources that occurs in a speculative mania in housing.
– vreaa

“We had every intention of staying in our house on the Westside well into our golden years, but then we watched our ‘hood and city change. A little more than a year ago, 5 Asian developers bid on my property and were more than happy to let me triple my money.”

“I bought one of Jack Wood’s Castle Houses on the westside in 2000. It was a sweet little place, a little down on its luck, but with good bones and it represented to me part of Vancouver’s heritage. We put time and money in it and I think we made it shine again, at least the neighbours seemed pleased.

We had every intention of staying there well into our golden years, but then we watched our ‘hood and the city change. Property prices began their unprecedented ramp up. Small and medium sized businesses were forced out as developers put up tall condo towers, and replaced those small service or manufacturing facilities with street level bubble tea shops and acrylic gel nail salons. And, those towers blocked the view of the ocean and mountains I had taken for granted, and a big part of what was so special about Vancouver. Closer to home, sweet little houses stopped getting rehabbed, instead knocked down, replaced by the ubiquitous McMansion that was all house, no property, and no soul. Then the edicts started coming down about embracing this brave new world that was The Best Place on Earth.

My 6 km commute from downtown became 45 minutes – on a good day. A “good day”also meant no one flashed you the bird.

So a little more than a year ago, 5 Asian developers bid on my property. They were more than happy to let me triple my money, because all of them planned on knocking my house down because they were sure they could make even more, because 2000 sq ft is not big enough to warehouse people’s stuff.

I’m over on the island now. Bought acreage. My propety taxes are less than a tenth of what that city lot cost me. There’s nothing I have to do without over here, we have all the shops & services – even the internet -and I’ve got the ocean and mountain views back – with lakes thrown in. This place cost less than our 2000 Vancouver purchase, even after the reno’s I did; but, it’s not all about the money – I knew where we moved to was physical beautiful, what I hadn’t realized was how kind, thoughtful and inspiring the people are here. That I wasn’t expecting. When one of our vehicles repeatedly crapped out (it had been stolen from front of our Vancouver place and apparently used in a crime so the police kept it for 6 weeks while they dusted) people here stopped to help, the garage ran taxi for us. When they held their charity auction in December, bids on all the donated products and services were all for greater than the declared value, on everything, because “it was for charity”. We have had to relearn the art of “chatting” as the folk here partake of this quaint practice. I was born & raised in Vancouver, but its amazing to experience life away from there.

The agent that sold our house in Vancouver recently sent me a picture of what’s going up on the property (it’s still not finished) – yup, in the 4000 – 5000 sq ft range. It was sad for me to see that the old plum tree planted by the first family that lived in my old house was in the way of the triple garage, or maybe its a laneway house, in the back yard, and it’s been knocked down, too.

I found this site a few months back. I had thought I was the only one thinking “this can’tbe sustained” and finally decided to google ‘Vancouver Bubble’. I’m writing for the first time here, because of the differing sites I’ve been looking at, this seems to be the only one where you folks don’t get nasty and attack differing views. So that’s my anecodote.

For what its worth, we are professionals, qualifying as 1%’s. Funny, it never felt that way over there.”

- ‘Relaxed & Happy Islander’, at VREAA, 14 Apr 2012 5:39pm and thereafter.

‘Heat-Map’ of Home Price Index, Greater Vancouver, Month Over Month Change, 2007-Present

- Month Over Month Price Changes, Home Price Index, Greater Vancouver
The chart care of Canadian Watchdog at VREAA 15 Apr 2012 at 6:07pm
Watchdog adds: “Let’s remember these are the new HPI stats that are quality adjusted to smooth out volatility. I just started analyzing Van stats and can already say REBGV’s prices are sustaining because sales are low. When sales are low, the sample size is smaller. Average prices are only as strong as the sales volume to back them up, or in other words, the market has not been tested to handle higher sales volume yet. If/when the trend reverses, it is likely that sales will increase and prices will fall due to slashed prices. As for that heatmap, what amazes me is how square the 2008 crises sell-off was. It goes to show how sensitive RE is to stocks.”

Click the chart to enlarge it.
Nice work, Canadian Watchdog, thanks for sharing.
The homogeneity of the 2008 decline is indeed remarkable. It’s the kind of pattern that will manifest in any earnest decline; we anticipate we’ll see it again, perhaps soon.
The 2010 and 2011 weakness can be seen to be more pronounced in attached properties, less in detached. We’d also expect that pattern to be lost in an earnest decline.
We look forward to updates of this chart in future.
Canadian Watchdog can be followed at twitter.com/CanadaWatchdog
– vreaa

UPDATE: For reference, here is a chart of the stock-markets over the same period (TSX red; SPX blue; Shanghai gold); not perfectly aligned, so check the x-axes (will perhaps fiddle and try to align):

UPDATE2: CW’s heat map with stock market chart as above overlaid; with x-axes aligned. Just from eyeballing, almost definitely a positive correlation.:

Peppy Ads – “Buying a Home Is Like A Sport. Meet Your Coach. Win The Real Estate Game.”




Screen captures of banner web-ads displayed at The Vancouver Courier website, 14 Apr 2012

Reminiscent of:
“Real estate is like a sport here.”
– Tracie McTavish, president of Rennie Marketing Systems, quoted in Businessweek, 24 Jun 2010
“At a certain level, in Vancouver, real estate is a sport.”
– Bob Rennie, CKNW 980AM, Vancouver Radio, 9am Friday 16 Mar 2012

Yeah, ‘Coach’, RE is a ‘sport’, and when the ‘game’ gets ugly, we’ll stop using these playful metaphors for what is a very serious business.
Try selling RE, or RE related services, using these slogans in Ireland or Spain.
– vreaa

Reader Question – “What Percentage Of Residential RE Sales In The Lower Mainland Are CMHC Insured?”

A reader has e-mailed us requesting a percentage breakdown of residential RE sales in the BC lower mainland by:
1. CMHC insured
2. non-CMHC insured
3. cash sales.
A very fair question for anyone interested in the local RE market, but not a straightforward one to answer. We have e-mailed a few knowledgable sources who have come up with useful but indirect answers.
Is there anybody out there who can give us an accurate answer?
What percentage of residential RE sales in the lower mainland are CMHC insured?
Thanks. – vreaa

“The older guests at the table decried the run-up in prices that makes it almost impossible for their children to buy on the West Side, while the kids looked to their parents as the lender of first resort to help them get into the market.”

“Recent conversation around the Kitsilano dinner table turned to — as it almost always seems to do — real estate and the role of foreign buyers in Vancouver.
The older guests decried the run-up in prices that makes it almost impossible for their children to buy on the West Side, while the kids (also at the table), looked to their parents as the lender of first resort to help them get into the market.”

– Peter Mitham in his article ‘Can We Combat Uncontrolled Offshore Ownership?’, Business in Vancouver, 23 Mar 2012

Prices reached heights over the last two years where even owners began to see how this could  negatively impact their own families.
Throughout the mania it has been common for down-payments to come from HELOCs on other properties. This leads to even more equity:price leverage for the  population as a whole.
– vreaa

School Board Official Pushed Out By RE Prices – “I went on a walk at night and a house was there and then the house was gone and there was a lot for sale. It went for, I think, $1.6M for just dirt. I just couldn’t believe it.”

“Vancouver’s housing market has claimed a high-profile victim. Jordan Tinney, the Vancouver School Board’s deputy superintendent, is leaving his position for a job with the Surrey school district.
Tinney was a superintendent in Comox Valley before landing his VSB position in 2010. He’s been commuting back and forth to Vancouver Island, where his family still lives, ever since.
He has two children—one who’s graduated and moved out, and one in Grade 2. The 50-year-old rents in Dunbar, but his family had expected to be reunited by now.
Tinney said he underestimated how high house prices were in the city before he moved here. “I went on a walk at night [in Dunbar] and a house was there and then the house was gone and there was a lot for sale. It went for, I think, $1.6 million for just dirt,” he said. “I just couldn’t believe it…When you come from Vancouver Island and you look to buy in Vancouver, there’s a dramatic difference. So it was certainly a factor. I just want to have my family over here.”
Tinney’s family favours a detached home with a yard, and they searched for property across the Lower Mainland.
His first appointment with a realtor was to see a home in Port Moody but it took him two-and-a-half hours to drive there due to an accident on the highway. Frustrated by the prospect of a long commute, Tinney also looked at renting or buying in Vancouver.
“We considered very strongly Yaletown and around downtown, just getting a condo as a family, but we’re used to a yard. We’re a family, right. We’ve got kids and a dog and moving into a condo is not necessarily the easiest thing… our criteria has always been a detached home with a yard,” he said. Tinney also wanted his son in the same school district in which he worked, which was looking less likely if he remained in Vancouver “unless we made a very, very, significant life adjustment,” he said.


“Shortly after he arrived in Vancouver, we very quickly saw how lucky we were to have someone like Jordan Tinney. He is absolutely outstanding. He’s our key problem solver—very quickly he showed himself to be someone who was able to resolve what sometimes seemed like impossible problems—very visionary. Just an amazing leader,” said Vancouver School Board chair Patti Bacchus. She added there’s a lot of competition amongst districts for senior managers of Tinney’s calibre.
“We knew he was being recruited by other districts. We knew he wasn’t able to find housing he was looking for,” she said, calling his departure not a surprise, but a disappointment.
“It is a huge gain for Surrey and it is a loss for Vancouver.”

– from ‘Class Notes: Pushed out, Naoibh O’Connor, Vancouver Courier, 12 Apr 2012

West-Side Street Level Analysis – “I walked Arbutus to Macdonald from 19th to 22nd Ave. These homes are empty. Some have been bought and sold 3, 4 and 5 times in the last 6 years.”

“Trafalgar Park has been torn down and has been rebuilt with these large homes that are never lived in – owned and flipped by people that don’t live here. I lived near here for 9 years. I saw some of the same houses listed and sold up to 5 times… 2 within blocks of me. We have a real problem and people simply don’t believe it has happened and continues to happen.”…

“I took pictures of the kind of “tear downs” that are being taken down and pictures of the kind that is replacing them…. The streets are dead in there- no kids playing. Some of the houses are beginning to mold and sink – just built within the last 5 years!!! It’s so sad and depressing… just 10 years ago it was a middle class ‘hood with nice homes for 500k, now they are all pieces of crapola and are “listing” for $3.5 – 5 million.” …

“Type of homes that have been torn down…lot value now 2.3 million:

“Lot value 2.3 million – if sold , would be torn down:

“This is what is replacing the 1950’s homes…these list between 3.5 – 5 million:

“Lot value only- $2.3 million- will be torn down if sold- I rented one similar:

“Beautiful!!!!:

“West-side has been ruined – it’s soulless. My fear is that unless people stand up and make their feelings known – this city is done for. I refuse to just sit back, have a glass of red……as Cam Good would say…… and watch the destruction. The people are in charge, not the developers, realtors and politicians.” …

“I suggest people stand up for this city and let the politicians know that they want change. if we just sit back and do nothing it will get much worse. Politicians work for us not the other way around.” …

“I’m just pointing out empty houses near where I rent, is all. I have no obsession with the westside. I’m sure there are 1000′s of empty condos downtown and soon the houses that sell for 1 million around Nanaimo street will be bought and torn down only to sit empty as well.” …

“Go for a walk through the neighbourhood I told you about..16th to 33rd / Arbutus to Dunbar or Macdonald to make it really obvious. I am not exaggerating one bit. There you will find 4 or 5 homes per block that sit empty… New homes are empty not old homes… I lived there, I saw it- go see for yourself. Not only do they sit empty but they are being bought and sold many times (flipped) and still never lived in. It has nothing to do with me being a renter… the facts are the facts. No kids playing in the yards, nothing. I’m being told one of our city’s reporters is doing a piece on the specific issue, stay tuned. But go for a walk and see for yourself.” …

“Here is a list for you all- I walked Arbutus to Macdonald from 19th Ave. West to 22nd Ave. West. I lived in this ‘hood and have for 8 years- some of these homes listed below have been bought and sold 3, 4 and 5 times in the last 6 years. One day there will be 50 listings for sale , the next week there will be 20 listed and none will have sold- they are being pulled and placed for sale to manipulate the market in this particular area. I have been obsessed with watching this for years -odd, I know, but I hate how the city is being destroyed. There are more than this -this is just 4 streets… On a side note… I have watched these houses for years and they all have gardeners to keep grounds looking good; so don’t think they are occupied because the lawn is mowed.”

Macdonald to Arbutus:

19th ave
2789 2788 2765 2745
2642 2519 2505 2483 2450 2448 2402
2403 2395 2365 2356 2325 2315 2265

20th ave
2203 2206. 2255 2286 2285 2299 2396 2408 2411 2417 2475 2718 2730 2715 2755 2772

21st ave
2749 2690 2683 2471 2428 2335 2369 2396 2386 2375 2225 2193 2151

22nd ave
2118 2128 2328 2345 2376 2375 2457 2491 2663 2677 2749

“Just watching over the years. Never any lights on, old papers on some, gates always locked down -the ones on the front doors, no shoes out front… Christmas decorations in the windows, never any lights on, no cars out front or driving into garages..the list goes on. Living there for so long, I know. It is a very serious problem. My wife worked for a firm in the city that was mainly chinese workers. They asked where she lived …when she told them the area they said ohhhhh i know it -the chinese housewives trade those homes like stocks from China. I saw so many of the homes listed so many times and each time for approx. 500k more than the last buyer that had never moved in. I have a few friends that are left in the area -they all say the same homes are empty. The area has been destroyed and it will continue to move across the city. I had a good chat with Andrew Hassman last year (a west-side realtor)… he told me 90% of his sales were to Chinese that fly in, buy and leave. He told me not to buy.”

- vancouverbubbleman, via e-mail and series of comments at VREAA, 10 & 11 Apr 2012

“As a former Montrealer and current Mechanical Engineer, Vancouver isn’t that bad. Starting a family is very simple here. Do what my girlfriend and I do: rent and forget about buying.”

“As a former Montrealer and current mechanical engineer( B.Eng.), Vancouver isn’t that bad. The job market here is very bipolar, that’s all. If you work in the Forest\Mining\Import-Export industries, you’ll be fine. If you’re field is not related to any hard asset, then things are going to be bad.
If you’re in the F.I.R.E industry, then move to Toronto.
Starting a family is very simple here. Do what my girlfriend and I do: rent and forget about buying…”

Sebastien at VREAA 12 Apr 2012 10:39pm

“The End of Your Nose.” ['Vancouver RE-Verse'; Found Poem]

I see the “hot offshore money myth” is
still the subject du jour. There is little hope
for mankind when when you can’t see
beyond the end of your nose.

willfully blind consumers
+ easy cheap credit
= bubble

- blueskies at VCI 13 Apr 2012 3:10am; spotted by jesse.

A post in the very, very occasional ‘Vancouver RE-Verse’ [Found Poems] series.
Poems are completely unedited but for layout.
Prior examples here.

“I’m a mortgage broker and I just don’t get it. When will the madness end? Recently a girl was telling me about her purchase of a flip, for $800K, plans to put $400K into it, and sell it for $1.6M. When I asked her what contingency plans she had if the market went sour she looked at me like I was speaking a foreign language.”

“It’s unfortunate but everywhere I look I still see and hear of people looking for homes to renovate and flip. I’m a mortgage broker and I’ve spoken to other realtors, mortgage brokers and so called “real estate investors” who all still believe that now is a great time to buy a teardown and rebuild OR renovate.
I just don’t get it. When will the madness end? Listings are up but the market just isn’t getting the message.
I was at a bar recently (blarney stone) where a girl was telling me about her recent purchase of a flip. She purchased for $800,000, plans to put $400,000 into it and flip it for a cool $1.6 million. When I asked her what contingency plans she had if the market went sour she looked at me like I was speaking a foreign language.”

Anonymous at whispersfromtheedgeoftherainforest 12 Apr 2012
[hat-tip Makaya]

Household Debt and Carney Warnings – Maclean’s Chart

“It’s been years since Bank of Canada governor Mark Carney first started warning about Canadians piling on too much personal debt. Rising household debt, after all, has been the most dangerous byproduct of his low interest rate policy, which was initially designed to help Canada sprint out of the Great Recession––and, later on, partly dictated by the need to help sputtering Canuck exports. Right from the get-go, though, Canadians haven’t been listening. As the situation became more dire, so did the Bank’s warnings. Today Canada’s ratio of household debt compared to disposable income is inching toward 160 per cent, the peak seen in the U.S. and the U.K. just before their respective housing busts. (In the last three months of 2011, the debt-to-income ratio declined somewhat–not because Canadians stopped taking on debt, but because income levels also rose during the same period.) Carney is still at it. Last week, he finally raised the prospect of raising interest rates, cutting people off from all that cheap money, even as the Fed down south sticks to near-zero rates.”

- from ‘Household debt and the Bank of Canada’s anxiety levels—in a graph’, Macleans, 11 Apr 2012

“I was happier then I had ever been, had better friends then I had ever had, and was heathier then I could have imagined BUT I was digging myself a fairly large financial hole. It looked like one of the holes downtown before a glass tower goes up.”

“I had a completely opposite experience in Vancouver [to that of Anabelle's, posted earlier today. -ed.]. I went on a vacation in 2007 and was charmed by the cities tourist appeal and decided to go to school there even though I had never considered it before. I had no preconceptions of hippies and ocean air just needed a change. In Sept of 2008 I headed out there with no idea of what was ahead of me. I had grown up in Alberta where money and jobs are easy and the culture is a little backwards so needless to say it was a shock. It took me 3 months to find a crappy job and if there was ever a time I was going to head back to Alberta that was going to be the time but I stuck it out and started working on Robson(tourist central). The young people I met at my job were so diverse and interesting and I started to enjoy all the experiences. I started design school in December and met a whole new group of interesting people, at that point I really started to settle in and found that day by day it got easier and I loved it more and more.

Before I knew it I had met some of the best people in my life full of experiences and ambition that inspired me on a daily basis, I felt myself changing into a better more well rounded person. I was sad that you felt the city had no soul, I was astounded by all the new culture, food, mixture of architecture that I found. Coastal cities have the blessing and curse of being trasient, one of the blessing is all the different types of people with different interests and hobbies, from gronola eating mountain climbers to CEO yuppies. I guess what im getting at is that it felt that everyone had been cut from a different cloth and this was quite different then where I had come from. The city also has sooo many things to do from going hiking in deep cove to spending an evening on a patio in Yaletown dicovering new food with good friends, I explored activities I had never thought of before simply becuase they were in front of me. I couldn’t wait for people to come visit so I could show them all the wonderful things I had dicovered. This forgein place had gone from a destination to becoming my home. Now all the glitter aside I was BROKE!!!

After I finished school I took on a different part time job with hopes of jumping in to my so called “big girl” job…. well a year later this “big girl” job seemed to be further away then ever. I was happier then I had ever been, had better friends then I had ever had, and was heathier then I could have imagined BUT I was digging myself a fairly large financial hole, it looked like one of the holes downtown before the glass tower goes up and my hole was caving in quickly. I had sold the car, made any cuts I could to make it but it was becoming very clear that the glitter was for people with a lots of money and subsequently I had to make the tough decsion to move back to Alberta and unlike your desicion that came very easily mine was incredibly difficult and involved a lot of wine and tears.

Being a year past my move I see the benefits of leaving, I got my “big girl” job and am loving it, my financial life is getting back on track and I was even able to buy a car and am going to europe in December which has been a long time goal on the flip side I am back in a place that feels colder(both literally and figuratively) feels less inspired and ambitious but I tell myself that all cities hold the there own personality and magic the trick is to find the one that feels like home, I found mine and I think of it every day very fondly and hope very much I will find my way back to it. It holds pieces of me and memories that shaped who I am, I hope that you find you city soul mate and that you will give Vancouver a second chance as a visitor. I wanted to share my story with you so that you knew all the hype was real and if the Van is right it has all the glitter and magic you thought it would.”

- Ali at Annabelle’s Blog, 11 Apr 2012

A telling tale.
“Van is right and has all the magic” when you let debt get you by.
– vreaa

“I grew up in two cities, Edmonton and North Vancouver. I was able to accomplish a lot while in the lower mainland, got my bachelor’s, started to work straight from graduation in a great conuslting job, got married, bought an apartment, two beautiful kids arrived to make us a family, got my Master’s degree. We thought we where set…”

“I grew up in two cities, Edmonton and North Vancouver. I left Edmonton when I was 16, and did my young adult life in Vancouver. I was able to accomplish a lot while in the lower mainland, got my bachelor’s, started to work straight from graduation in a great conuslting job, got married, bought an apartment, two beautiful kids arrived to make us a family, got my Master’s degree. We thought we where set – luckiest couple alive to be in such a gorgeous city and our careers where thriving. THEN it hit – buckled to our knees trying to pay for one child in day care while my wife returned to work, then our baby girl arrived and it was impossible to explain the logic of my wife returning to work and then just hand that money over to a child care provider. So she stayed home and we started to bleed money. Contract work was great when your fending for yourself, now with a family – contract work not so great and then it starting to not become full time anymore, cuts were happening, job not so secure anymore. Groceries, Mortgage, One Vehicle, One Income, No Benefits, No Savings – I started to have restless nights.

So I told my wife, no worries, I will start aiming higher, I have my Master’s, I’m proficient in French, I’m fluent in Spanish, it will be easy to find a job to plug some of the holes. Maybe we can even talk to the bank see if they will let us renew early to take advantage of low interest rates (HA! that was naive!) ONE YEAR AND SEVERAL APPLICATIONS LATER – nothing, nada, zilch. Meanwhile the signal was clear from my current work, contracts are dwindling you need to get out while you can.

We were down for the count. So August 2011 I applied to two jobs in Edmonton, by the end of month I was flown in for interviews, by September 2011 I had a job offer, by November 2011 we where sleeping in our rented townhome in Edmonton. Just like that in a matter of weeks Edmonton could do what I wished and hoped Vancouver could do for almost two years.

I have heard from a colleague that one of the consultants I worked with had become so desperate she took a job as a receptionist even though she has 8 years of professional work experience and a Master’s degree. What the hell is going on Vancouver?

Employers know they have a desirable city and a huge job bank from which to pick so no need to overpay… make ‘em work for pennies. Great Captalism not so great community building.

The younger generations are leaving, what will Vancouver do when it can’t draw them back?”

- bdiddy18 at Anabelle’s Blog, 11 Apr 2012

“It was a big gamble at the time but I had more guts than brains. Sometimes being too smart is not going to get you there. If you study things too much you’re going to miss out. If you know too much about a deal chances are you aren’t going to buy it.”

Joe Segal’s first foray into real estate came when he had a surplus $100,000 from his retail business that he used to buy a building.
And from there he’s developed a multimillion-dollar real estate portfolio. One property he bought for $600,000 is now worth $150 million, he said.
Segal looks at each project and measures the risk/reward ratio.
“If I can digest the risk I’ll take a shot and I’m entitled to the reward,” he said.
But you have to be able to make a decision, he said.
“If you can make a decision and make it quickly you’re at an advantage,” Segal said. “If you dilly-dally and your banker won’t listen to you, you’re at a disadvantage.”


Natale Bosa, the president of Bosa Development Corporation, the company behind projects like Citygate near the Telus World of Science and Newport Village in Port Moody — jumped at the chance to get involved in Citygate, buying one of the parcels in 1988.
He then bought a second piece before being offered the rest of the development.
“It was a big gamble at the time but at the time I had more guts than brains,” Bosa said.
And he was able to find a banker who would lend him the money on short notice.
“You’ve got to have a nose for it,” the 68-year-old Bosa said. “You’ve got to really believe in what you’re doing. You’ve got to feel it’s going to work. And fortunately it’s worked for me.”
And a little ignorance can be a good thing.
“Sometimes being too smart is not going to get you there,” he said.
“If you study things too much you’re going to miss out. Because if you know too much about a deal chances are you aren’t going to buy it.”


– excerpt from ‘Vancouver’s real estate moguls share trade secrets’, Vancouver Sun, 12 Apr 2012
[Hat-tip Nix]

All credit to people who know to make hay while the sun shines.
These guys were fortunate with their timing, and one of them basically admits to getting lucky with at least one ‘big gamble’.
Translating this into advice on how to behave in the current Vancouver RE market would be ridiculous. It’d be a bit like taking investment tips from somebody who’s just hit their colour five times in a row on a roulette wheel.
But we know that won’t stop some people from taking this as advice all the same; the “Be bold or move to Podunk” crowd. For many it’s attractive to know that you can make a killing in Vancouver RE by not studying things too carefully.
– vreaa